Banking for Africa’s tomorrow, today

Ecobank Group Annual Report 2017

Select Service

Transfer

Payee

Akua Joyce Idris Amount: $35.00

PIN:

SEND

Banking for Africa’s tomorrow, today

Ecobank Group Annual Report 2017 2017 AnnualReport Contents 2 Contents 3

Performance Highlights 04

2017 Performance Highlights 06 A leading pan-African Bank 08 Business Model 09 Our Pan-African footprint 10

Board and Management Reports 12

Group Chairman’s statement 14 Group Chief Executive’s review 17 Consumer Bank 25 Commercial Bank 27 Corporate and Investment Bank 29

Corporate Governance 32

Board of Directors 34 Directors’ biographies 36 Directors’ report 41 Corporate Governance report 43

Sustainability report 58 People report 66

Risk Management 70

Business and Financial Review 102

Financial Statements 120

Statement of Directors’ responsibilities 122 Auditors’ report 123 Consolidated financial statements 128 Notes to consolidated financial statements 133 Five-year summary financials 213 Parent Company’s financial statements 214

Corporate Information 218

Executive management 220 Share capital overview 222 Holding company and subsidiaries 225 Shareholder contacts 226 Customer contact centers 227 2017 Annual Report 4

Our 2017 results were substantially better than in 2016 with marked improvements from all our three divisions, especially in our Corporate and Investment Bank. Ecobank achieved substantial cost savings as we ‘right-sized’ our businesses whilst we also restricted lending as we embedded greater discipline into our risk management procedures and took decisive action to significantly reduce impairment losses. Performance Highlights 2017 Performance Highlights 5

Select Service

Transfer

Payee

Akua Joyce Idris Amount: $35.00

PIN:

SEND 2017 Annual Report 6 Performance highlights

Selected income statement data

For the year ended 31 December (in millions of US$, except per share amounts) 2017 2016 Net revenue 1,831 1,972 Operating expenses 1,132 1,237 Pre-impairment profit 700 735 Impairment losses 411 864 Profit/(Loss) before tax 288 (131) Profit/(Loss) for the year 229 (205) Profit/(Loss) attributable to ETI shareholders (from continuing operations) 179 (250)

Profit/(loss) attributable per share ($): Basic 0.01 (0.01) Diluted 0.01 (0.01)

Selected statement of financial position data

For the year ended 31 December (in millions of US$, except per share amounts) 2017 2016 Customer loans (net) 9,358 9,259 Total assets 22,432 20,511 Customer deposits 15,203 13,497 ETI's shareholders' equity 1,881 1,578 Total equity 2,172 1,764 Ordinary shares outstanding 24,730 24,730 Book value per ordinary share ($) 0.09 0.07 Tangible book value per ordinary share, TBVPS ($) 0.06 0.05 ETI share price($) High 0.05 0.04 Low 0.02 0.03 Period end 0.05 0.03

Selected ratios

2017 2016 Profit for the year to average total assets (ROA) 1.1% (0.9)% Profit for the year to total equity (ROE) 11.6% (9.6)% Profit for the year to tangible total equity (ROTE) 13.6% (11.3)% Basel I Tier 1 capital ratio 24.8% 23.4% Basel I total capital adequacy ratio 28.8% 25.3% Net interest margin 6.5% 6.9% Cost-to-income ratio 61.8% 62.7% Non-performing loans ratio 10.7% 9.6% Non-performing loans coverage ratio 52.4% 63.4% 2017 Performance Highlights 7

Net revenue Pre-impairment Profit before tax* (US$M) (US$M) (US$M) 9 , 5 5 , , ,9 , 59

5

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Customer loans Customer deposits Total assets (US$B) (US$B) (US$B)

. . . . .5 . .5 . .5 . . 5. .5 9. 9.

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Profitable attributable to ETI Earnings per share (Basic)* Return on average equity shareholders* (US$M ) (US$) (%)

9 .5

. . 9 .9 . . . . 5 9.

.

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

* For the periods 2013 to 2015 amounts relate to continuing operations EPS for 2014 has been restated to reflect the 1-for-15 bonus issue in June 2015 2017 Annual Report 8 Ecobank is the leading pan-African banking institution

Founded in 1985 and headquartered in Lomé, Togo, Ecobank provides consumer and commercial banking, corporate and investment banking, and securities and asset management to approximately 14 million customers, ranging from individuals, small and medium-sized enterprises, regional and multinational corporations, financial institutions, international organisations and governments via 927 branches and offices, 2,665 ATMs, the internet (ecobank. com), and mobile banking.

Ecobank is present in 36 African countries, Ecobank Transnational Incorporated (‘ETI’), the parent with international of offices in Paris, holding company of the Ecobank Group, is listed on the Nigerian Stock Exchange (‘NSE’), in Lagos, the London, Dubai and Beijing, to support our Ghana Stock Exchange (‘GSE’), in Accra and the customers who conduct business in the Bourse Régionale des Valeurs Mobilères SA (‘BRVM’) global economy. in Abidjan.

Our vision, which steers us towards growth and For management reporting purposes Ecobank is success, is to build a world-class pan-African bank and organised into three customer-centric business contribute to the economic development and financial segments and four geographical regions: integration of Africa. The business segments are Consumer Bank, Our mission is to provide all of our customers with Commercial Bank, and Corporate and convenient and reliable financial products and services. Investment Bank.

As at 31 December 2017, Ecobank had $22.4 billion in total assets and $2.2 billion in total equity.

cobank business segments and geograpical regions

Consumer Commercial Corporate and Bank Bank Investment Bank

Francophone Anglophone Central, astern Nigeria West Africa West Africa and Southern (UMOA) (AWA) Africa (CSA) 2017 Performance Highlights 9

At Ecobank we serve our customers in each of our geographical regions through our three customer-centric business segments – Consumer Bank, Commercial Bank, and Corporate and Investment Bank – with a product suite that meets the financial needs of our customers Business segments Consumer Commercial Corporate and Bank Bank Investment Bank

Customers – P ersonal Banking – Smal l and Medium Sized – Go vernments – Dir ect Banking Enterprises (SMEs) – R egional and Global Corps – Micr ofinance – Medium Local Corporations – Financial Institutions – High Value Local – In ternational Organisations Corporations – Non- Government Public Sector (Local Governments, Domestic NGOs, Faith- based institution, Educational Institution, Healthcare Institutions).

Products – C urrent & Savings Accounts – Cash Management – Trade Finance & Services – Remittances – Trade Finance – Cash Management and – Cards – Fix ed income, currencies Client Access – Mobile & Internet and commodities (FICC) – Loans & Liquidity Payments – In ternet é &Banking – Fix ed income, currencies – Personal Loans – Loan and Liquidity and commodities – Mortgages – Investment Banking – Bancassurance – Sec urities Wealth & Asset Management – A sset management for High Net Worth Individuals – Research & Economics (HNWI)

2017 Net revenue – $1.8 billion 2017 Pre-impairment Income - $700 million 2017 Profit before tax – $288 million CB 25% CMB 20% CIB 55% CB 11% CMB 14% CIB 75%

-50 0 50 100 150 200 250 300

CB 25% CMB CB 20% 25% CIBCMB 55% 20% CIB 55% CB 11% CMB CB 14% 11%CIB CMB 75% 14% CIB 75%CB $46 CMB $(32) CIB $268

The breakdown of revenue, pre-impairment income and profit before tax reflects performance figures for each line of business only and has not incorporated the impact of other non-banking entities and consolidation adjustments.

-50 0 50 100-50 150 0 200 50 250 100 300 150 200 250 300

CB $46 CMB CB$(32) $46 CIB CMB $268 $(32) CIB $268 2017 Annual Report 10 Our pan-African footprint

Our pan-African geographical footprint is segmented into the four regions of Nigeria, Francophone West Africa (UEMOA), Anglophone West Africa (AWA) and Central, Eastern and Southern Africa (CESA).

TUNISIA MOROCCO

ALGERIA LIBYA WESTERN EGYPT S AHARA

MAURITANIA CAPE VERDE

MALI NIGER

SUDAN E R I T R E A SENEGAL CHAD

THE GAMBIA BURKINA GUINEA-BISSAU D J I B O U T I FASO GUINEA BENIN NIGERIA Addis Ababa (Representative Office) CÔTE SIERRA LEONE D’IVOIRE G HANA SOUTH E T H I O P I A CENTRAL AFRICAN SUDAN REPUBLIC Lomé (Headquarters) CAMEROON S O M A L I A

EQUATORIAL GUINEA UGANDA K E N Y A SÃO TOMÉ & PRÍNCIPE CONGO GABON RWANDA D.R. CONGO BURUNDI

Map Key TANZANIA

Luanda Francophone West Africa (UEMOA)

ANGOLA

Nigeria ZAMBIA

Anglophone West Africa (AWA) ZIMBABWE

Central, Eastern and M A D A G A S C A R Southern Africa (CESA) BOTSWANA

NAMIBIA Non-Ecobank region Johannesburg SWAZILAND (Representative Office)

Ecobank representative offices SOUTH AFRICA LESOTHO 2017 Performance Highlights 11

In millions of US Dollars unless otherwise stated Nigeria UEMOA AWA CESA

Net revenue 557 477 354 393 Pre-impairment income 272 193 162 106 Profit before tax 67 111 105 49 Total assets 6,056 9,222 2,951 4,657

Countries 1 9 5 18 Branches 435 217 121 154 ATMs 1,212 532 333 588

2017 Total assets – $22.4 billion 2017 Net revenue – $1.8 billion

Nigeria 27% Nigeria 31% UEMOA 40% UEMOA 27% AWA 13% AWA 20% NigeriaNigeria 27%27% NigeriaNigeria 31%31% CESA 20% CESA 22% UEMOAUEMOA 40%40% UEMOAUEMOA 27%27% AWAAWA 13%13% AWAAWA 20%20% CESACESA 20%20% CESACESA 22%22%

2017 Pre-impairment income – $700 million 2017 Profit before tax – $288 million

Nigeria 37% NigeriaNigeria 20%20% UEMOA 26% UEMOAUEMOA 33%33% AWA 22% AWAAWA 32%32% NigeriaNigeria 37%37% NigeriaNigeria 20%20% CESA 15% CESACESA 15%15% UEMOAUEMOA 26%26% UEMOAUEMOA 33%33% AWAAWA 22%22% AWAAWA 32%32% CESACESA 15%15% CESACESA 15%15% The breakdown of revenue, pre-impairment income and profit before tax reflects performance figures for each individual region only and has not incorporated the impact of ETI , other subsidiaries, affiliates and structured entities and consolidation adjustments. 2017 Annual Report 12

To resolve credit issues, we have overhauled and strengthened our risk management senior executive team and instituted much stricter controls across our lending processes and authorisations. We have progressed our 5-year ‘Roadmap to Leadership’ strategic plan which now moves on from its success in ‘fixing the basics’ to ‘reaching our full potential across Africa.’ Board andBoard Management Board and Management Reports 13

Select Service

Open Xpress Account

Enter details

Create PIN

OPEN ACCOUNT 2017 Annual Report 14 Group Chairman’s statement

We are working tirelessly to turn around the Group’s financial fortunes to enable uninterrupted and growing dividend payments in the future. I look forward to the ongoing support of everyone at Ecobank in the coming year as, having addressed Ecobank’s largely legacy credit issues, our strategic emphasis is focussed on maximising the potential of, and returns from, our pan-African footprint.

Emmanuel Ikazoboh Group Chairman Ecobank Group Board and Management Reports 15

Esteemed shareholders, Management of our NPLs/legacy It is my great pleasure to present to you, on behalf of the Board of portfolio issues Directors of Ecobank Transnational Incorporated (‘ETI’), the Annual At the end of 2017, the non-performing loan ratio stood at 10.7%, Report of our institution’s activities and financial performance for which we consider high. As explained last year, lapses in internal the year ended 31 December 2017 at the Group’s 30th Annual credit control across the group, coupled with the effects of Nigeria’s General Meeting. recession, had a negative impact on Ecobank’s credit quality. This is a truly auspicious occasion as we have much to celebrate We have diligently addressed these issues, resulting in specific in Ecobank’s achievements over the past three decades. The provisions of approximately $1.6 billion over the past two years. organisation today bears no resemblance to the fledgling West Your Board is determined to resolve Ecobank’s credit issues. African bank that started the journey in the 1980s. We have The appointment of a new Group Chief Risk Officer highlights the established a truly pan-African scale and reach, combined with importance that we are assigning to this task. That is just one of offices in four of the world’s major financial centres (Paris, London, many measures we have taken, but I would also highlight: Dubai and Beijing). We are a leading employer in Africa with 15,930 staff made up of 43 nationalities and we are the largest bank in • the complete overhaul of our credit origination and sub-Saharan Africa excluding South Africa in terms of assets. We approval process are bringing our founders’ vision to fruition by utilising digital • the establishment of a corporate finance unit to structure regional technology to increase financial inclusion across the continent. term loans and other transaction-related lending, and Macroeconomic environment • the strengthening of our loan approval processes with the introduction of regional risk managers armed with limits, Sub-Saharan Africa’s commodity shock-induced slowdown is easing, responsibilities and sanctions. with 2.6% average GDP growth in 2017, up from 1.4% in 2016. Local currencies stabilised during the year with the Nigerian Naira and the Dividends Ghanaian Cedi depreciating against the US dollar by 13% and 5% Although we previously signalled that the near-term resumption of respectively in 2017, compared to depreciation of 35% and 11% cash dividend payments would be challenging, that does little to respectively in 2016. The CFA Franc, appreciated 14% against the US alleviate the Board’s disappointment and sadness that we cannot dollar in 2017, as opposed to its 4% depreciation in the prior year. reward our shareholders’ loyalty this year. Rest assured that we regard Rising crude oil prices led to a marginal rebound in the economies of this as a matter of major importance and are working tirelessly to oil exporting countries, such as Nigeria, Ghana and Angola. However, turn around the Group’s financial fortunes to enable uninterrupted and high bond yields in Nigeria had a negative impact on customer growing future dividend payments. deposits, thereby reducing the liquidity of all commercial banks, including ours. Several factors conspired to prevent us paying a dividend in 2017. Financial performance Firstly, the Bank of Ghana’s directive to increase minimum capital requirements from GHS120 million to GHS400 million meant Ecobank Transnational Incorporated (ETI), the parent company of that Ecobank Ghana, one of our subsidiaries that is usually a Ecobank Group, delivered a profit for the year of $182 million compared most consistent dividend payer by amount and frequency, had to to 2016’s $39 million loss. This year’s profit benefited from lower substantially reduce its dividend pay-out to enable the increased provisions for other assets compared to 2016, when we implemented capital buffer to be funded from retained earnings. the resolution vehicle and accelerated provisions. Additionally, ETI adopted equity accounting method in 2017, which allows it to record Additionally, Ecobank Côte d’Ivoire’s Initial Public Offering saw ETI’s undistributable profits of its subsidiaries and affiliates according to its stake in it fall from 94% to 75%, with a proportional impact on ETI’s percentage controlling interest. dividend income in the near term. The consolidated group generated a profit attributable to shareholders Finally, earnings growth, overall, was stifled by higher credit losses and of $179 million and diluted earnings per share of $0.01, compared weak economic activity in Middle Africa. As we address the former to an attributable loss of $250 million and a diluted loss per share of and the fragile recovery gains momentum, we expect resumption of $0.01 in 2016. The Group generated a return on total equity (‘ROE’) earnings growth and, with it, likely dividend reinstatement of 11.6%. Bottom line earnings were reduced by credit losses in line with guidance that we expected these losses to remain elevated in Major developments during the year 2017. We have, and are, working through our challenged loans while Ecobank achieved some impressive milestones in 2017, and I would the impact of economic recovery is gradually feeding through to draw your attention to the following: heightened activity in our major markets. We are making encouraging progress, but still expect credit losses and nonperforming loan levels to • The strengthening of the Group’s capital and liquidity position remain relatively high. evidenced by the successful placement of $400 million of convertible loans with existing strategic shareholders Revenues of $1.8 billion fell 7% from 2016, but adjusting for the • The listing of $150 million of this issue on the International impact of currency translation effects, were largely unchanged, due Securities Market of the London Stock Exchange has raised to the negating impact of lower net interest income on growth in Ecobank’s standing and profile with international investors non-interest revenue. Our cost reduction initiatives continue to gain momentum, leading to positive operational leverage. As a result, • ETI’s $250 million senior unsecured loan facility to refinance income before impairment losses increased by 3% in constant currency maturing loans to $755 million ($700 million if unadjusted), and the cost-to-income • The successful launch of Ecobank mVisa across 33 African Countries ratio improved to 61.8%, compared to 62.7% at year-end 2016. • The joint $500 million programme with Afreximbank promoting trade finance in African countries where we share a presence, and • The 2017 African Banker Awards named Ecobank Group as the “Most Innovative Bank of the year”. 2017 Annual Report 16

Board changes and corporate governance Group Human Resources is ensuring that performance evaluation is properly implemented, that talent is identified, and that all In 2017, Dr. Adesegun Akin-Olugbade and Mr. Ignace Clomegah, both employees get the opportunity to learn, grow and become Ecobank’s Group non-executive Directors, resigned from the Board to enable leaders of the future. them to focus on other business interests. Mr. Greg Davis, the Group’s new Chief Financial Officer, was appointed Board remuneration and diversity to ETI’s Board in May. Mr. Monish Dutt, an experienced investment The subject of senior managements’ remuneration is a recurring professional and a consultant on emerging markets, was appointed to theme in our dialogue with shareholders. How we reward executives the Board as a nominee for the International Finance Corporation and has a significant influence on how they perform their fiduciary duty replaces Mr. Kadita Tshibaka following his retirement. of capital stewardship and maximising shareholder value. The Board composition has restructured to allow the participation of The Board’s Remuneration Committee works with senior two representatives from each of our major strategic shareholders, management to ensure that, in line with best practices, future namely the Nedbank Group and Qatar National Bank (‘QNB’). Mr. Brian remuneration packages are closely aligned to expected total Kennedy, the Managing Executive of Nedbank Capital, and Mr. David shareholder returns and value-creation, thus delivering value to O’Sullivan, Head of Group Legal at QNB, have joined Ecobank’s Board as all Ecobank stakeholders. a result. Your Board is committed to creating a pipeline of diverse talent Priority Areas for 2018 throughout Ecobank. We are conscious of the need for a better gender balance on the Board, following recent departures of some The Impact of Basel II/III on capital allocation of the Group’s most senior women, and remain committed to across the Group promoting diversity without compromising on our directors’ calibre. A new prudential capital framework, Basel II/III, was adopted by the Central Bank of West African States (BCEAO). This applies to banks and Outlook credit institutions in Francophone West Africa and became effective Economic growth is expected to strengthen across sub-Saharan Africa on 1 January 2018. Our eight subsidiary banks based in the member in 2018 to about 3.4%. The combination of higher commodity prices countries of the UEMOA region must comply with these new rules, and economic recovery should lead to opportunities for trade and as will ETI, which is now regulated by the Commissionaire Bancaire, infrastructure financing, whilst stabilising local African currencies on a group-wide consolidated basis. The minimum capital adequacy should encourage continued foreign exchange inflows. requirements will increase over the next five years with the phase-in of a 2.5 percent capital conservation buffer and an increase in the While improving fundamentals will boost economic activity and minimum total capital adequacy ratio from 8 percent to 9 percent. ease credit risk, we expect credit quality metrics to remain elevated It will cause substantially lower capital adequacy ratios for the Group in some countries, notably Nigeria and Ghana. To address these and poses challenges on how to allocate capital efficiently across the issues, Ecobank Nigeria has appointed a highly experienced Chief Group, particularly in markets outside of UEMOA, which, are not yet Risk Officer to ensure that the bank establishes and maintains a required to comply with the Basel II/III regulations. For them it may robust risk management framework. Political uncertainty, with a force a natural capital distortion. One of the challenges that your Board swathe of elections scheduled across the continent in 2018, could faces in 2018 is balancing the requirement to ensure Group compliance dampen investor and consumer confidence. Against this backdrop, with these regulatory changes, without saddling our Francophone management is concentrating on non-performing loan recovery and credit risk management. Corporate culture We are delighted by the speed and scale of the uptake of our new Converging external factors are pressurising African businesses to digital offerings and are advancing our digital agenda by pressing become more agile if they are to remain competitive and prosper. ahead with the enriching of our customers’ experience and becoming Rapid technological change, a skills gap inhibiting Africa’s global more data-driven across the Group. Our five-year strategic ‘Roadmap competitiveness and the entrance of Africa’s next generation into the to leadership’ and digitisation strategy plan has successfully workplace, are all placing corporate culture on the ‘the front burner’ completed phase 1 which focused on ‘fixing the basics’ and we of your Board. now concentrate on ‘reaching our full potential across Africa’. Those Corporate culture affects performance and we are focussing wishing to learn more about the strategy should refer to the CEO’s on instilling an ‘ownership’ mentality into all Ecobankers by letter in this financial report. incorporating the tenets of culture that foster openness and honesty, On your behalf, I would like to acknowledge the efforts and that eliminates bureaucracy and internal politics, and that rewards contributions of our Board, our executive management and all innovation, teamwork and behaviour that prioritises always doing the Ecobank staff to Ecobank’s continuing success story, through good right thing for the customer. We are encouraging employees to be times and bad. I look forward to their ongoing support in the coming more accountable for their actions. year as, having addressed Ecobank’s largely legacy credit issues, our strategic emphasis reverts to maximising the potential of, and returns Succession planning from, our pan-African footprint. Ecobank has been a true pioneer To reinforce trust with our external stakeholders and encourage in African banking over the past 30 years and we keenly embrace employees to concentrate on their own development goals, we focus the challenges that lie ahead for a continent that will be richly on having continuity across our business. transformed for the better by the ‘Fourth Industrial Revolution’. Talent management requires having a selection of succession candidates ready to step up, so we are instilling a framework that embeds succession planning across the organisation, from the newest trainee to the Group CEO.

Emmanuel Ikazoboh Group Chairman, Ecobank Group Board and Management Reports 17 Group Chief Executive’s Review

Group-wide we returned to profitability in 2017, which reflects a significant reduction in impairment losses on loans and advances, as we continue to instil greater discipline in managing our businesses. Over the past two years, we have also focused on strengthening Ecobank’s competitiveness and have positioned the Group to create shareholder value on a sustainable basis. I am confident that Ecobank’s long-term success is assured.

Ade Ayeyemi Group Chief Executive Officer Ecobank Group 2017 Annual Report 18

Dear fellow shareholders, compared to a loss before tax of $131 million in 2016. Profit attributable to ETI shareholders I very much welcome this opportunity to update you amounted to $179 million, which equates to a return on the steady progress that Ecobank is making towards on tangible equity of 13.6% and diluted earnings per our ‘Roadmap to Leadership’ and digitisation strategy. share of $0.01. Economic growth in sub-Saharan Africa began We are delighted by this marked improvement to recover in 2017, due to improving fiscal and on 2016, which reflects a significant reduction in monetary policy, which led to lower inflation and impairment losses on loans and advances, as we depreciation in most African currencies. However, continue to instil greater discipline in managing the banking sector in most of our markets remained our businesses by embedding appropriate risk under pressure as a result of falling interest rates and management procedures. However, the legal higher than expected non-performing loans. environment in many of our countries remains disappointingly slow in adjudicating the cases 2017 marked a return to profitability brought to recover long outstanding client obligations. In 2017, Ecobank Transnational Incorporated (ETI), the parent company of the Ecobank Group, made a profit Reported net revenues of $1.8 million, decreased of $182 million, compared to a loss of $39 million 7% from the previous year. However, local currency in 2016. The current year’s profit reflected our new fluctuations relative to the US Dollar (our reporting policy of equity accounting for ETI, which allows ETI currency) have had a negative impact on the reported to account for the proportion of the undistributed figures: adjusting for foreign-currency movements attributable profits of its subsidiaries, according to its would have meant that net revenue would have percentage controlling interest in them. only marginally decreased. There were a number of other factors that contributed to this decrease – Group-wide we returned to profitability in 2017, falling yields on interest earning assets and higher reporting a profit before tax of $288 million, funding costs squeezed net interest income, despite

*In constant For the year ended 31 December (in millions of US$, except per share amounts) 2017 2016 % Change currency

Selected income statement data

Net revenue 1,831 1,972 (7)% 1,963 Pre-impairment profit 700 735 (5)% 755 Impairment losses 411 864 (52)% 454 Profit/(Loss) before tax 288 (131) NM 301 Profit/(Loss) for the year 229 (205) NM 222 Profit/(Loss) attributable to ETI shareholders 179 (250) NM — ETI (parent company only) profit for the year 182 (39) NM —

Diluted EPS ($) 0.01 (0.01) — — Net interest margin 6.5% 6.9% — — Cost-to-income ratio 61.8% 62.7% — — Return on equity (ROE) 11.6% (9.6)% — — Return on tangible total equity (ROTE) 13.6% (11.3)% — —

Selected statement of financial position data

Customer Loans (net) 9,358 9,259 1% 8,853 Customer deposits 15,203 13,497 13% 14,554 Total equity 2,172 1,764 23% 2,126

Basel I tier 1 capital ratio 24.8% 23.4% — — Basel I total capital adequacy ratio 28.8% 25.3% — — Non-performing loans ratio 10.7% 9.6% — — Non-performing loans coverage ratio 52.4% 63.4% — — NM not meaningful

* Constant currency excludes the impact of foreign exchange translation of our functional currencies into U.S. dollars for reporting purposes. The average exchange rates used in converting the income statement items for the year ended December 2017 are NGN306.27, XOF554.21 and GHS4.41 Board and Management Reports 19

a significant increase in the value of investment Our regional businesses reported mixed financial securities held by the Bank. Also, lower than results. Lower impairment levels boosted Nigeria’s expected client activity led to a reduction of 8% in profit before tax by 191% to $67 million, while strong fees and commission income, which was partly offset revenue growth in Central, Eastern and Southern by a 3% growth in our client-driven sales and trading Africa, led to a 103% year-on-year increase in business, as a result of the recovery in Nigeria’s profit before tax to $49 million. Profit before tax in foreign exchange market. Francophone West Africa rose 8% to $111 million, but was largely unchanged in constant currency On the expense side, we have achieved significant terms. We are, however, encouraged by the pick-up costs reduction and we are making continued progress in economic activity in the region and are seeing in right-sizing our businesses. Expenses fell by 9% to many opportunities for future growth. Finally, in $1.1 billion, or 2% in constant currency terms, while Anglophone West Africa, profit before tax fell by 25% the cost-to-income ratio improved to 61.8% from (17% in constant currency terms) to $105 million as 62.7% in 2016. This was after absorbing the costs of a result of the weaker interest rate environment in restructuring our business in the Central, Eastern and Ghana depressing revenues. Southern Africa region in 2017. Our business divisions had varied results. Consumer We have been careful about growing our balance Bank increased its profit before tax by 53% to sheet, because of the level of non-performing loans $46 million which was driven by a reduction in and stringent credit origination terms. As a result we impairment losses. grew customer loans by a modest 1% year-on-year. Because of the confidence that our customers have Commercial Bank further reduced its pre-tax losses, to in us, they increased their deposits with us by an $32 million from the $36 million in 2016 as a result of a impressive 13%. Given our decision to curb lending, decrease in operating expenses and modest underlying most of these additional deposits were invested into revenue growth. We are working vigorously to reduce government treasury bills and bonds. Commercial Bank’s high level of non-performing loans, which is inhibiting its financial performance. Our balance sheet strength, measured by our capital adequacy ratios, remained acceptable, with our Basel Corporate and Investment Bank reported an I Tier 1 capital ratio and total capital adequacy ratio impressive return to profitability in 2017 largely (CAR) standing at 24.8% and 28.8% respectively. because of significantly lower impairment losses than However, the adoption of Basel II/III rules by in the previous year. Corporate and Investment Bank’s the Central Bank of West African States and the profit before tax was $268 million compared to a Commission Bancaire, ETI’s regulator, in 2018 will loss of $40 million in 2016. Its underlying revenue substantially impact on our capital ratios in the future. growth was modest due to an increase in client- I will elaborate on this later in this review. related foreign exchange sales and trading income, particularly in Nigeria, which was driven by improved foreign exchange liquidity and greater client activity

Revenue and profit before tax by geographical regions

20172017 Net Net revenue revenue – $1.8 – $1.8 billion billion 20172017 Profit Profit before before tax tax – $288 – $288 million million (NB): NigeriaNigeria 31%31% NigeriaNigeria 20%20% The regional and business segments breakdown of UEMOAUEMOA 27%27% UEMOAUEMOA 33%33% revenue and profit before AWAAWA 20%20% AWAAWA 32%32% tax excludes the impact of other entities and CESACESA 22%22% CESACESA 15%15% consolidation adjustments

-100-100 0 0 100 100 200 200 300 300

20172017 Profit Profit before before tax tax – $288 – $288 milliom milliom 20172017 Net Net revenue revenue – $1.8 – $1.8 billion billion CIBCIB CMB CMB CB CB CB CB 25%25%

CMBCMB 20%20%

CIB CIB 55%55% 20172017 Net Net revenue revenue – $1.8 – $1.8 billion billion 20172017 Profit Profit before before tax tax – $288 – $288 million million 2017 Annual Report 20 NigeriaNigeria 31%31% NigeriaNigeria 20%20%

UEMOAUEMOA 27%27% UEMOAUEMOA 33%33%

AWAAWA 20%20% AWAAWA 32%32%

CESACESA 22%22% CESACESA 15%15%

Revenue and profit before tax by business segments

-100-100 0 0 100 100 200 200 300 300

20172017 Profit Profit before before tax tax – $288 – $288 milliom milliom 20172017 Net Net revenue revenue – $1.8 – $1.8 billion billion CIBCIB CMBCMB CB CB CB CB 25%25%

CMBCMB 20%20%

CIB CIB 55%55%

in the Investors and Exporters’ FX window. implemented Phase 1 with remarkable success, which Corporate and Investment Bank’s cash management gives me significant optimism for the future. and trade finance activities performed well, with the latter doubling the value of trade loans In 2018 and beyond, we will be moving on to Phase it granted over the year, reflecting the benefits 2 of our strategy, which will be centring on execution, of our geographical footprint. execution and execution. As we have strengthened the business foundations, I, my colleagues in the Group We regard these latter two businesses as the Executive Committee and, indeed, all Ecobankers are main engines for growth within our wholesale adopting a greater sense of urgency and tenacity banking operations. in our drive to consistently exceed our customers’ expectations and meet our return on equity targets. Disciplined execution of our Let me now turn to the highlights of our progress ‘Roadmap to Leadership’ and in 2017. digitisation strategy In the first two years of our five year strategic Right-sizing our business Roadmap to Leadership and digitisation plan, we have Our cost base was too high and needed radical focused on ‘fixing the basics’. This is ‘Phase 1‘of our surgery. We began with Nigeria, our largest subsidiary strategy, which concentrated on a set of actions and in terms of allocated equity capital, where we disciplines aimed at enhancing Ecobank’s competitive rationalised senior management, cut 2,000 jobs position, which will drive long-term value creation. and closed 74 branches. We also streamlined its It gives me great pleasure to report that we have procurement procedures and outsourced its fleet

The key objectives of our ‘Roadmap to Leadership’ and Digitisation Strategy

Phase 1: Fix the Basics: 2016-17 Phase 2: Execution: 2018-2020

• Rationalise our geographic footprint • Improve the customer experience • Reorganise our business segments • Invest in technology • Enhance risk and compliance culture • Continue to improve our risk culture • Drive operational efficiency • Run a fit-for-purpose model • Digitization to drive customer • Allocate capital for value creation experience Board and Management Reports 21

and real estate management. As a result of these award-winning Ecobank Mobile App with the release measures, Ecobank Nigeria’s cost-to-income ratio of a functionality upgrade. Since the launch of the reduced to 51% from the 61% in December 2015. new release of the mobile app, our customers have downloaded the app more than 1.2 million times, More recently, we have turned our attention to the resulting in over 5.3 million mobile transactions worth rationalisation of our network in Central, Eastern and approximately $604 million that were processed on Southern Africa, which encompasses 18 countries. the platform. In the space of seven months, we have closed 75 branches and shed around 600 jobs, and are now on Our Masterpass QR and Ecobank mVisa peer-to-peer track to realise annual savings of $34 million in (P2P) solutions are revolutionising the way that the region. our customers and merchants make payments and receive funds. Masterpass QR enables merchants - We have also reorganised our operating regions, particularly micro, small and medium enterprises - to reducing the number of reporting segments from accept secured payments via our mobile app and seven to four, with four newly appointed regional avoid the need for costly point-of-sale devices. As executives joining the Group Executive Committee, a result of these operational efficiencies, we have reporting directly to me. This is so that we can ensure onboarded 63,000 merchants to date and they have the strict alignment of policies, procedures and processed nearly 170,000 transactions worth over $3 accountability, across the Group to fully leverage the million in 2017. potential of our diversified business model, for the benefit of our customers and shareholders alike. We have rolled out Ecobank mVisa, incorporating the Scan+Pay functionality of our mobile app, across We also retreated from our former target of becoming 33 African countries. This strategic tie-up supports a top 3 player in all of our African markets. With cross-border interoperability and allows customers to the benefit of hindsight this former objective had directly access funds in their bank accounts via their inadvertently contributed to the asset quality issues mobiles and to make person-to-merchant (P2M) that we are now tackling today. We have adopted payments or transfer money to their friends and what we call a ‘fit-for-purpose’ go-to market family at very low cost. strategy. This means that we will continue to build our capabilities – people, systems and products – in Our Ecobank XpressAccount, which allows the markets where Ecobank has a dominant position, such unbanked to open accounts using simple mobile as West Africa. Where we lack market dominance phones, is proving to be very popular, with over 2.8 and have neither scale nor market leadership, which million accounts having been opened to date and has comprises most of our Central, Eastern and Southern attracted $2.3 million of cash balances. Africa operations, we are being more selective in our lines of business and capital allocation and investment Ecobank OMNI and Bank Collect, our digital cash decisions, in order to ensure that we meet our return management solutions for corporate and commercial targets through efficient stewardship of capital. clients, are making it easier for them to efficiently pay and receive cash. Bank Collect is a receivables Technology to unlock the economies service that facilitates mass collections and allows of scale of our footprint clients to monitor their transactions in real time. Our geographical footprint provides us with a We are also increasingly digitising the way we work competitive advantage and technology is the key internally, employing tools such as Microsoft’s Power to unlocking it and offering our customers the full BI, which gives senior management real-time insights benefits of our pan-African presence. Mobile phone into key financial and business metrics, thereby and other technologies are rapidly changing the speeding up our decision-making and response times ways that customers engage with financial services to client needs. providers. We had to move fast. We established two regional processing centres in Lagos and Abidjan, I will now address some of the recurring investor to which 21 of our subsidiaries have migrated their concerns which have been voiced during our back-office functions, and we have set up two data engagements with the investment community in 2017. centres in Lagos and Accra, helping to reinforce Ecobank’s position as a digital bank. The Group’s asset quality challenges: have we turned the corner? Broadening our range of digital At the start of the 2017 financial year, we announced banking offerings that we expected our asset quality ratios to remain Over the last year, our digital innovation has gained higher than we would like in the medium term. increasing recognition, receiving a total of 35 industry Therefore it should not be surprising that, at the accolades across Africa and internationally. In August end of 2017, the Group’s non-performing loans as we marked the first anniversary of the launch of our a percentage of total gross loans was 10.7% and the 2017 Annual Report 22

Ecobank Mobile App

Nmber of A sers Nmber of transactions ale of transactions Thousands Thousands Millions 9 9 Mar Mar Mar

5 , Jun Jun Jun

9 ,5 Sep Sep Sep

,99 5,5 Dec Dec Dec

cost-of-risk was 3.3%. We regard both of these We have been much encouraged by the $20 million- ratios as being high and recognise that they will plus of recoveries achieved by the Resolution Vehicle concern investors. (RV)’s dedicated team during 2017. However, the objective of the RV was to protect the capital and We have instigated a number of measures to address improve the liquidity of Ecobank Nigeria, and was not a Ecobank’s asset quality and are being carefully comprehensive exercise to resolve our non-performing selective about the loans that we write. Our internal loan portfolio. Nevertheless, we are confident that procedures place the responsibility for collection at Ecobank’s asset quality will improve thanks to our every level and we are conducting a comprehensive more stringent credit portfolio monitoring and the review of, and continuously monitoring, our non- improvement in market conditions. performing loan portfolio. We are mindful that our adoption of the new We have completely overhauled our credit origination accounting standard for financial instruments, and monitoring procedures. Also, we have placed International Financial Reporting Standard focus on recoveries and collateral realisation. We have (IFRS) 9, effective from January 2018, will require strengthened the team and have recently hired a new earlier recognition of expected credit impairments. Chief Risk Officer (CRO) who has extensive experience We expect this to reduce Ecobank’s earnings in of African and European banking. The CRO has been the near-term as it will lead to additional credit charged with the task of ensuring that the best risk loss provisioning. management practices are embedded throughout our organisation.

We will shortly be deploying resources to critical areas of our risk management process. These will include:

• the complete separation of the management of non-performing loans from that of past-due obligations, or PDOs, to ensure effective, focused management of each portfolio; • the creation of the position of Group Remedial Head to be filled by an experienced individual tasked with Group-wide supervision of loan remediation; and • the use of third-party contractors to assist in the recoveries of PDOs and non-performing loans.

Ade Ayeyemi at the Ecobank Fintech Challenge Board and Management Reports 23

Addressing our asset quality challenges

Watchlist loans, NPLs and PDOs ($M) Actions being executed

, ,9 ,59 , 99 9 9 9 • Hired a new Chief Risk Officer with extensive % experience % % % 59% 5% 5% 5% • Implement an enhanced credit operating model

.% .% 9.% .% .9% 9.% .% 9.% • Aggressive on collections and collateral realisation

116 1H16 9M16 FY16 117 1H17 9M17 FY17 • Strengthen our Remedial Non-performing loans (NPs) NP coverage ratio NP ratio function – in the process of hiring Group Head, Remedial Management Watchlist loans, NPLs and PDOs ($M) ,59 • Build capacity through 9 9 targeted training • Separation of management of NPLs from PDOs 5 5 9 • Third-party contractors to assist with recoveries of PDOs and NPLs

Watchlist Past due obligations (PDOs) Non-performing loans

Dec 2015 Dec 2016 Dec 2017

Addressing our capital needs of ETI’s stake in Ecobank Côte d’Ivoire, from 94% to 75% after the listing, will proportionately lower Ecobank Côte d’Ivoire’s dividend We recently completed the issuance of $400 million of convertible contribution to the Group in the short-term, we are optimistic that debt, which will enable us to replace shorter-dated loans with longer- Ecobank Côte d’Ivoire’s dividend pay-outs will be higher as earnings term debt, and will transform ETI’s debt profile. The tremendous grow in the medium to long term. support shown for the issue by our major shareholders, the Public Investment Corporation (PIC) of South Africa and Qatar National Bank (QNB), is testament to their confidence in the Group’s future. Moreover, Pros and cons of a tightening the listing of $150 million of the issue on the International Securities regulatory environment Market (ISM) of the London Stock Exchange further enhances Ecobank’s Our presence in multiple jurisdictions exposes us to a plethora of standing with international investors. supervisory rules and regulations. Most of these are designed to protect stakeholders and customers, to which we wholly subscribe. In September, Ecobank Côte d’Ivoire successfully raised 45 billion CFA, However, they also impose a regulatory burden in terms of the approximately $80 million, via an initial public offering (IPO). The fact time and resources required to comply with their various reporting that it was more than two times oversubscribed indicated a strong requirements. In 2018, the Group and some of its subsidiaries are appetite for the issue both in Côte d’Ivoire and across UEMOA. This facing a number of regulatory challenges, most notably increasing additional equity capital injection will allow Ecobank Côte d’Ivoire to capital requirements and the wider adoption of Basel II/III standards. pursue its market growth opportunities. However, while the reduction 2017 Annual Report 24

The Central Bank of West African States (BCEAO) has adopted Basel for the undervaluation. These could border around asset quality, II/III standards with effect from January 2018. This means that all risks of a capital raise, ownership structure, corporate governance eight of our Francophone West African subsidiaries must adhere and transparency, and the quality of the management team. to these new regulations. Additionally, given that ETI, the bank- Whatever the concerns may be, we know that the best way to create holding parent company, is headquartered in Togo and regulated shareholder value is to build a formidable and healthy company. This by the BCEAO, ETI will have to comply with the new rules on a is exactly what we set out to build in our ‘Roadmap to leadership’ consolidated basis. As such, capital adequacy ratios for the Group will and digitisation strategy. Rest assured that achieving returns above be recalculated according to Basel II/III rules from January 2018, with the cost of equity remains central to our strategy. initial results due to be submitted to the BCEAO in April 2018. We will continue to engage actively with the investment community The implementation of Basel II/III standards represents a significant to further their understanding of our pan-African investment case. We tightening of the regulatory environment for ETI and its subsidiaries. have strong banking franchises in exciting markets, a strong brand, Minimum capital adequacy requirements will increase over the next and have made the investments in processes, systems, data centres, five years, with the phase-in of a 2.5% capital conservation buffer customer satisfaction etc. - primarily the intangibles - that won’t and an increase in the minimum total capital adequacy ratio from quickly enhance valuation. However they are vital processes which 8% to 9%. This will result in substantially lower capital adequacy will provide the bedrock on which the firm will leapfrog. ratios for the Group, given that: Conclusion • The foreign currency translation reserve, which arises on Over the past two years, we have focused on strengthening Ecobank’s consolidation, will become an adjustment to Tier 1 capital; competitiveness and have positioned the Group to create shareholder • The addition of operational risk weighted assets will also increase value on a sustainable basis. This has involved right-sizing and total risk weighted assets by approximately 20% upskilling our staff, taking out unnecessary costs, overhauling our credit and risk procedures and investing in technology, with a focus The objective of Basel II/III is to create a more resilient and secure on enriching our customers’ experience. banking system, by reducing risk and leverage. However, it remains to be seen how investors will react to the prospect of lower Our digital drive is already yielding results, with our customer base profitability and lower equity returns. Higher capital requirements growing by nearly 40%, bringing our medium-term target of 100 may also further limit the supply of credit to the SME sector, which million customers within closer reach. Equally, our pan-African already suffers from a lack of reliable access to bank finance. In partnerships, with the likes of Microsoft, Afreximbank and The Global our ongoing dialogue with the regulators, we continue to stress Fund, are advancing our vision of delivering genuine financial inclusion that regulation needs to be commensurate with the particular across Africa. circumstances and needs of each jurisdiction. I am really encouraged by our recent achievements, which have Elsewhere, to strengthen their capital position, the Bank of Ghana been accomplished in a challenging debt-servicing environment has directed deposit-taking banks in the country to raise minimum for all our customers, and for this I extend my wholehearted capital requirements by the end of 2018 to GHS400 million thanks to the diligence and dedication of all of our nearly 16,000 (approximately $86 million) from the current GHS120 million. Ecobankers in our 40 countries. This could lead to additional equity capital raisings, or mergers, for banks that have insufficient retained earnings. Ecobank Ghana However, I do recognise the need to intensify our efforts to enhance will not have to raise additional capital, but its ability to return shareholder value. So, the next stage of our strategy will be galvanising capital to shareholders in the form of dividends will be substantially our resources to deliver on the promises that we have made, both curtailed, and this will have a knock-on impact on ETI’s own ability to ourselves and to our stakeholders. We need to fully leverage to distribute earnings our inherent strengths as Middle Africa’s leading financial services platform to generate superior equity returns. I am confident that Market’s undervaluation of the Ecobank Group these objectives are eminently achievable in the light of our ongoing ETI’s share price rallied 45% in US dollar terms over the course of rationalisation and asset quality initiatives. 2017, based on NAFEX exchange rates. I believe that this increase Finally, I wish to take this opportunity to thank our strategic investors partly reflected the market’s confidence in the measures that and partners for the confidence that they have invested in me. I remain management is taking to position the firm for growth, and also resolute in my commitment to build a strong and sustainable bank that the growing investor optimism in Africa’s macroeconomic revival. promotes the economic development and financial integration of the As at the end of December 2017 our market capitalisation of continent. I am confident that Ecobank’s long-term success is assured. approximately $1.2 billion (Naira share price was converted to US dollar with NAFEX rate) was below our book value of $2.2 billion, clearly at a price multiple lower than book, and a discount to the average multiple of our similarly sized sector peers on the Nigeria Stock Exchange.

The apparent under valuation of our stock is as much of a concern for the management team as it is for our shareholders. There are many Ade Ayeyemi issues that are causing investor concern, creating legitimate reasons Group Chief Executive Officer Board and Management Reports 25 Group Executive’s Review

Through our established products and services, we are now accelerating the growth of our consumer banking franchise to become a scale business run efficiently on digital platforms. This will deliver instant fulfilment to a customer base we aim to increase to 100 million customers by the end of 2020.

Patrick Akinwuntan Group Executive Consumer Bank 2017 Annual Report 26 Consumer Bank

I am delighted to report on the progress that we have made towards banking services. In 2017 we won the Euromoney Award for the achieving our aim of making our consumer banking franchise the Best Digital Bank in Africa. preferred financial services provider across middle Africa. We are rapidly increasing our Agent network - Ecobank Xpresspoints Our products and services are meeting the needs of customers - across our pan-African footprint. Ecobank Xpresspoints provide by being relevant, convenient, fast and affordable. Households, convenient and fast cash-in and cash-out services to our customers millennials, micro-businesses and Africans in diaspora are choosing in under-served urban neighbourhoods and rural centres, and it also to bank with us because we can provide them with instant payment enables them to embrace cashless banking. and collection facilities on our digital platforms throughout our pan- Our range of products and services meet the day-to-day banking, African network of 33 countries. New-to-bank customers can open financing, investment and transactional needs of our customers, Ecobank Xpress Accounts within minutes on our Ecobank Mobile App. and have resulted in substantial growth in customer numbers, In 2017 our customer numbers increased by 40% from 10 million to transactions and profitability during 2017. 14 million. 2016 2017 GROWTH We provide the full suite of personal banking services for our Profit before taxes ($M) 30 46 53% customers from transactional banking to wealth creation: internet Total deposits ($M) 4,568 5,145 13% banking, a comprehensive range of globally accepted Ecobank cards Remittances Volumes ($M) 2,032 2,587 27% (credit, debit, virtual, platinum and gold) dedicated relationship Number of mobile app users (thousands) 1461 1,954 1,238% management services and wealth management products. Our Number of mobile app transactions loyalty programme enables our Premier and Advantage customers 1 (thousands) 169 5,336 3,057% to enjoy benefits at supermarkets, restaurants, spas, airport lounges Value of mobile app transactions 1 and airlines. ($M) 30 604 1,913% We serve our mass market and youth direct banking customers Number of customers (millions) 10 14 40% primarily through our unified Ecobank Mobile App which covers 33 Number of accounts (millions) 11 15 36% countries in four languages – English, French, Portuguese and Spanish. Ecobank Mobile App was released on 20 October 2016 SIMPLE FUNDS ECOBANKPAY 24HR IMPROVED Through our established products and services, we are now EASE OF USE TRANSFER – SCAN + PAY DEDICATED AND MERCHANTS SUPPORT accelerating the growth of our consumer banking franchise to REMITTANCES become a scale business run efficiently on digital platforms. This will deliver instant fulfilment to a customer base we aim to increase to 100 million customers by the end of 2020. Our people are at the core of our success, and we continue to invest heavily in them. We have recruited skilled resources from the fast- moving consumer goods and telecoms industries, and we continue to train, develop and support our teams to maximise both their career opportunities and their productivity. Our marketing communications concentrate on making us ‘top of mind’, particularly through use of social media and marketing campaigns on Facebook and Google which leverage the reach and scale afforded by these platforms. We continue to collaborate successfully with International Card The Ecobank Mobile App is available from Google Play and App Store Associations, International Money Transfer Organisations, Telcos, and enables users to: Global technology players and Fintechs to improve our speed to • open an Ecobank XpressAccount instantly on their mobile market and expand our distribution in an efficient manner. phone and provides an easy route to financial inclusion for the I am immensely appreciative of our growing number of customers previously unbanked across Africa, and globally, for their custom and loyalty to Ecobank. • transfer money instantly free within Ecobank or at very low costs I also thank the Board, the consumer bank team and colleagues to other banks, and across Africa, using Ecobank Rapidtransfer and across the Bank for our progress and results to date, which is the Ecobank mVisa P2P result of joint effort, dedication and strong commitment throughout • make payments using Ecobankpay Scan+Pay through Masterpass, the bank. We remain confident and focused on delivering on our mVisa and Mcash commitment to be the leading consumer financial services franchise in Africa in the medium term. • pay utility bills, school fees, subscriptions, make donations and buy airtime instantly • generate payment tokens using Ecobank Xpresscash to do cardless ATM withdrawals or at an Ecobank Xpresspoint • manage accounts and investments transparently and conveniently.

Within 16 months of launch, the Ecobank Mobile App has attracted over 2.8 million customers, over 60,000 merchants, and processed Patrick Akinwuntan over $750 million payments in over 7 million transactions. The Group Executive Ecobank Mobile App is quickly becoming the market leader in Consumer Bank our geographical area of operations. We are already enjoying recognition for our multi-award winning innovation and digital Board and Management Reports 27 Group Executive’s Review

Our suite of needs-based solutions and services aims to support and encourage African entrepreneurship across a broad spectrum of commercial clients. Commercial Bank has embarked on a structured transformation project with the aim of becoming the leading commercial bank in sub-Saharan Africa by revenues by 2020.

Laurence do Rego Group Executive Commercial Bank 2017 Annual Report 28 Commercial Bank

With our suite of needs-based solutions and We expect five emerging trends to drive the revival of services, Commercial Bank (CMB) aims to support Ecobank’s commercial banking activities: and encourage African entrepreneurship across a broad spectrum of commercial clients, from small • The large contribution of transactional banking and medium enterprises (SMEs) to local corporates (70%) to divisional revenue across our key and non-governmental public sector customers. Our subsidiaries over the next five years, offering services focus on transactional banking, including trade major opportunities in asset-light and cash finance, cash management and treasury offerings. management products; • A nascent economic recovery in Nigeria, our single CMB launched its five-year, three-phase business largest market, and continued strong and stable transformation strategy eighteen months ago. In growth in niche markets within West Africa; Phase 1, which lasted a year, we rolled out strategic, • Growing value chain opportunities in risk and organizational structure initiatives that have asset-rich sectors, especially trade, telecom improved our business performance by increasing and manufacturing; transactional revenues for Trade Finance (+34%), Fixed income, currencies and commodities (FICC) (+27%) • SME demands for services that go beyond lending and deposits (+8%). We have also trimmed our cost to enable them to run their businesses better; base to increase profits before impairments, leading to a reduction in our cost-to-income ratio to 74% (from • The Group-wide focus on using digital services 76% in 2016). to improve customer experience, e.g., process automation, targeted communications, cross-selling This year, CMB has championed and supported several and credit assessment. customer events and activities, including SME business forums and the launch of our new QR Merchants Apps Mindful of these trends, CMB has embarked on a (Master Pass and mVisa). To promote awareness of structured transformation project with the aim of our trade services among prospective and existing becoming the leading commercial bank in sub-Saharan customers, we organised Trade Finance forums in 19 Africa by revenues by 2020. The Lead Ecobank’s countries. In the third quarter, CMB in Burkina Faso Acceleration Programme (LEAP) has been developed to supported the leading local travel agency for the Hajj enhance the profitability of our existing customers and by providing financial services to 8,000 pilgrims, and acquire new ones by improving our credit assessment collected CFA7.8 billion ($14.1 million) in deposits. and collection processes using digital and advanced customer analytics. We will begin to implement LEAP Local strategic partnerships are a key element of initiatives in 2018. our drive to promote entrepreneurship in sub- Saharan Africa. In 2017, we formed an agreement We are confident that we have laid the solid with Senegal’s Ministry of Commerce to support the foundations for CMB’s sustained growth trajectory. country’s SMEs. We expect to develop many more such As part of our vision to empower Africa’s entrepreneurs government partnerships across our footprint in 2018. to create positive socio-economic change across the continent, Ecobank is committed to providing In the second half of the year, we began the first its commercial banking customers with tailored, year of Phase 2 of our strategic plan by deploying our responsive services. ‘go-to-market’ strategy. To date, we have prioritised core markets (focusing on the top 15 countries that account for over 85% of divisional revenues) and key non-credit and asset-light services (such as cash management, foreign exchange and trade finance), which we see as key growth drivers. We have also implemented a digitisation strategy to improve customer onboarding and servicing. Laurence do Rego Group Executive Commercial Bank Board and Management Reports 29 Group Executive’s Review

Our performance demonstrates the continued strength of our diversified pan-African banking model, as well as our ability to continue growing in challenging environments. A year into the implementation of our vision of becoming the ‘Trade Finance Bank for Middle Africa’, our trade finance revenues have nearly doubled.”

Amin Manekia Group Executive Corporate and Investment Bank 2017 Annual Report 30 Corporate and Investment Bank

The Corporate and Investment Bank (CIB) delivered In 2017, the FICC business saw tremendous growth a profit before tax of $268 million compared to a loss across the various business segments. The Client of $40 million in 2016. This performance demonstrates Sales business revenue grew by 7% with Trading and the continued strength of our diversified pan-African Balance Sheet Management growing by 57% and banking model, as well as our ability to continue 54% respectively. The sustained growth in the Client growing in challenging environments. Despite the base across the affiliates, efficient Balance Sheet economic headwinds experienced in some of our management as well as strong Trading performance key markets, including Nigeria, Ghana and Kenya resulted in an overall growth in revenue of 30%. As we remain as the ‘go-to’ Pan-African bank, providing we transit into a new financial year, the team has cross-border solutions that are responsive to a dynamic concluded plans to diversify the revenue base with the business environment. launch of the Currency and African Distribution Desk as well as the Hedging Distribution desk. In addition, we Ecobank’s Cash Management business leverages the expect a stronger Fixed Income Distribution platform in latest technology to help our customers with their the UEMOA and CEMAC regions which should increase collections and payments in domestic or cross border client outreach as well as trading opportunities. To locations and provide liquidity management and ensure operational efficiency, appropriate technology investment solutions to enable better optimisation of has also been deployed to aid the Business. The full their funds. Through our proprietary electronic banking implementation of Calypso, our Treasury solutions channel, Ecobank Omni, our Commercial and Corporate platform commenced in Paris and Nigeria in 2017 with banking customers can access online information on roll outs for the other regions expected in Q1 2018. their accounts, for example, statements, balances and transaction details as well as initiate payments to 2017 was a successful year for our Global Corporates suppliers, statutory bodies like tax revenue authorities, Client Coverage Group as we aligned our coverage pension payments, dividends, healthcare contributions portfolio with the product-led engine growth of and salaries. In 2017, we saw both the volume the Bank per Ecobank’s 5-Year Strategy for Growth. and value of transactions processed via Omni more The aim was to set the base for a Trade and Cash than double growing by 64% and 55% respectively Management led-revenue growth as well as selected indicating early success of our strategy to migrate all well-structured financings deals with a push on self- our clients unto digital platforms. Our digital collection liquidating structures. Finally, we continued to work channel – Bankcollect – also increased our collection as One Firm with our colleagues from Commercial volumes on the back of adoption by more revenue Bank and Consumer Bank to serve their clients, hence authorities for tax collections across our markets. Our locking in the value chain around our Multinationals. innovative, Cash Management solutions continue We are well positioned to make Ecobank the partner of to get industry recognition; for example, in 2017 choice for leading multinationals operating in Middle Global Finance named Ecobank as the ‘Best Bank for Africa by leveraging on our local knowledge and Payments and Collections in Africa’ an award that innovative solutions. has been the preserve of international banks in the past. The Asian Banker went on to announce Ecobank The International Organizations (IO) business has Nigeria as “The Best Cash Management Bank, Nigeria”. delivered a year-on-year revenue increase of more than 20%. Evidence of our strong ties with global A year into the implementation of our vision of development sector stakeholders is our success in becoming the ‘Trade Finance Bank for Middle Africa’, multiple tenders for banking services, cash distribution- our trade finance revenues have nearly doubled. led programs, cash-alternative structures and We completed the organizational set-up with a contractual agreements. These agreements extend centralized team supporting the network, continued to all Ecobank subsidiaries creating a formidable our structural re-alignment to trade finance and revenue base for now and the future. In addition, continued the roll-out of our digital trade solutions Ecobank has been selected as a pre-approved money designed to revolutionize our trade customer services supplier for the Global Fund. This positions experience and reduce the cost to serve. To ensure Ecobank as a supplier of choice in digital channels effective sales management we also completed a reaching an extensive network of grant implementers certification training program for over 800 relationship and collaborating with a prominent NGO group on a managers during the year. We successfully increased framework for mobile payments. We have also won the trade asset exceeding $1 billion; doubled the new regional Cash Management mandates from confirmation capacity of EBISA through risk sharing/ numerous African regional multilateral institutions and de-risking to handle over $500m Trade volumes; Regional Economic Councils. Our Pan-African foot print, secured over $500m in trade lines; increased strategic common technology platform and a centralized hub collaboration with our alliance & strategic partners – for systems integration and processing continues to Nedbank, QNB, AfDB, Afreximbank, Proparco – and be a unique value proposition that is very relevant to repositioned Ecobank as a key player in the export international organizations looking to access Africa. commodity financing for Cocoa and Cotton in Ghana, Côte d’Ivoire, Cameroun, Benin and Burkina Faso. Board and Management Reports 31 Corporate and Investment Bank

Our Investment Banking team remains focused on currencies transacted. The development of a new Loan and Debt Capital Market opportunities across Structured Trade Finance offer, with tailored-made sub-Saharan Africa. In 2017, we executed a number solutions, will reinforce this capacity in 2018. Through of transactions, including a CFA Franc 155 billion the Group-wide initiative, the International platform crude oil import financing for Societe Ivoirienne de will also offer a European Digital Banking capability Raffinage (SIR) in Cote d’Ivoire, a CFA Franc 85 billion to Retail clients, thanks to the set-up of a dedicated loan for the State of Senegal to pre-finance advance subsidiary based in France. payments related to the construction of the Regional Express Train (TER) in Dakar and a EUR 250 million During 2017, our Research team based in London, medium term loan for the State of Côte d’Ivoire to Lagos and Nairobi deepened its support for group fund public investments. businesses. Major projects included building macroeconomic scenarios for all 36 markets in our The Securities, Wealth and Asset Management African footprint for the risk team’s IFRS 9 project, division supports retail and institutional clients with taking part in the trade team’s London roadshow with market-related solutions and fund management insurance brokers (arranged by Miller). In 2017 the services, through two business verticals, Securities and team published over 200 reports and launched a web Investor Services and Asset and Wealth Management version of its popular Middle Africa FICC guidebook: (AWM). In 2017, this Product House completed https://africaficc.ecobank.com/. The team also landmark transactions such as the successful IPO of started producing research on the mobile, digital and Ecobank Côte d’Ivoire raising CFA Franc 45 billion disruptive sectors in Middle Africa, directly supporting ($80 million) at 2.8x book value on offers of CFA Franc the Group’s digitization strategy. 108 billion. The successful listing of ETI’s $150 million on the International Securities Market of the London Despite tightening Credit and Compliance markets Stock Exchange is also a demonstration of the growing across the region, 2017 saw a further strengthening capabilities of this business. The Asset and Wealth of the Group’s access to correspondent bank lines Management business has also recorded strong from various Financial Institutions partners. The year client activity with a year-on-year growth of 51%. In ended with aggregate non-committed lines of credit response to the operating environment remaining of over USD4billion. Access to funded lines increased subdued, albeit with signs of recovery, we will focus by 18% over the previous year’s level. Centralized on increasing our Asset base with the launch of a new teams worked to ensure the effective utilization of Wealth Management product and leverage further the this access across the network. strong Ecobank digital distribution platform.

In 2017, the International platform of Ecobank (Paris- London-Beijing-Dubai) continued to be a key hub for its customers and the affiliates through supporting their FX, Trade and Cash transactions. Despite the challenging economic environment, a slowdown of Amin Manekia the African growth and depreciated African currencies Group Executive and commodities prices, EBI SA FX platform remained Corporate and Investment Bank a market leader, highly active and maintained its number 1 ranking on most of the 25+ African 2017 Annual Report 32

Ecobank recognises the importance of corporate governance in building a sustainable and cohesive organisation. It seeks to implement the highest of standards and best practice to ensure fairness, transparency and accountability for the benefit of all its stakeholders. The Board is committed to improving the governance of the institution and is working closely with regulators and other stakeholders to further strengthen this area. Corporate Corporate Governance Corporate Governance 33

Transfer

Payee

Mom Emmanuel Kofi Amount: $50.00

PIN:

SEND 2017 Annual Report 34 Board of Directors

1 2 3 4 5 6 7

1. Emmanuel Ikazoboh 2. Ade Ayeyemi 3. Alain F. Nkontchou Chairman Executive Director Non-Executive Director Non-Executive Director Group Chief Executive Officer Cameroonian Nigeriangerian Nigerian

4. Dr. Catherine W. Ngahu 5. David O’Sullivan 6. Monish Dutt Non-Executive Director Non-Executive Director Non-Executive Director Kenyan Irish Indian

7. B ashir M. Ifo Non-Executive Director Nigerian Corporate Governance 35

8 9 10 11 12 13 14

8. Tei Mante 9. Dolika E. S. Banda 10. Abdulla M. Al Khalifa Non-Executive Director Non-Executive Director Non-Executive Director Ghanaian Zambian Qatari

11. Brian Kennedy 12. Dr. Daniel M. Matjila 13. Mfundo C. Nkuhlu Non-Executive Director Non-Executive Director Non-Executive Director South African South African South African

14. Greg Davis Executive Director Group Chief Financial Officer British 2017 Annual Report 36 Directors’ biographies

Emmanuel Ikazoboh (68) Ade Ayeyemi (55) Chairman Executive Director since 2015 Non-Executive Director since 2014 Group Chief Executive Officer Independent Nigerian Nigerian Ade Ayeyemi, was appointed Group Chief Executive Emmanuel Ikazoboh has more than 30 years Officer of Ecobank in June 2015 and assumed office experience in senior management roles, executing on September 1, 2015. He is an experienced banker, high profile advisory assignments for public and who before joining Ecobank, had a long and successful private sector clients in Nigeria, Côte d’Ivoire, career with Citigroup, where he was CEO of Citigroup’s Cameroon and South Africa. He spent most of his Sub-Saharan Africa division based in Johannesburg. career with Deloitte and Touche, holding the position of Chairman and CEO of Deloitte West and Central Ade is an accounting graduate of the University of Ife, Africa between 2007 and 2009. now Obafemi Awolowo University, Ile-Ife, Nigeria, where he earned a Bachelor of Science degree with From 2010 to 2011, he served as Interim First Class Honours. He also studied at the University Administrator of the Nigerian Stock Exchange. of London and is an alumnus of the Harvard Business He was appointed by Nigeria’s Securities & Exchange School’s Advanced Management Programme. Commission to restructure the stock exchange, A Chartered Accountant, his many interests include equities market, stockbrokerage and corporate business strategy, economics, process engineering governance processes to meet with best practice and technology. and put in place a new management team. As Chairman of Nigeria’s Central Securities Clearing System, Emmanuel led its restructuring and transformation to conform to global standards.

He is a member of the Board of Dangote Cement group and serves as the chairman of the Governance and Remunerations Committee. He is currently the only African board representative of the International Institute for Sustainable Development (IISD) in Canada and serves as the Chairman of the Audit and Risk Committee.

Emmanuel is a UK Certified Accountant and a Fellow of the Chartered Association of Certified Accountants, the Institute of Chartered Accountants (Nigeria) and the Nigeria Institute of Taxation. He holds an MBA in Financial Management and Marketing from Manchester University’s Business School. He was also one of the top CEOs seconded to the Kellogg Senior Management School, Northwestern University Chicago, USA. Corporate Governance 37

Abdulla M. Al Khalifa (44) Dolika E. S. Banda (55) Greg Davis (38) Non-Executive Director since 2015 Non-Executive Director since 2014 Executive Director since 2017 Qatari Independent Group Chief Financial Officer Abdulla Mubarak Al Khalifa is Executive Zambian British General Manager and Chief Business Officer Dolika Banda is currently the CEO of African Greg Davis joined Ecobank as Group Chief at Qatar National Bank Group (QNB), now Risk Capacity, an agency of the African Financial Officer in October 2016. Greg has the largest bank in the Middle East and Union set up to help Member States nearly 2 decades of banking and financial Africa, with activities in 30 countries. improve their climate response systems. services experience and is an accomplished With over 20 years of banking experience, She is also an independent consultant, with banking CFO. Prior to joining Ecobank, he covering Strategic Planning, Sales and over 25 years’ experience in international had a successful career with both Standard Marketing, Risk Management, Business banking and financial management, Bank and Barclays PLC, most recently Partnerships, M&A and Customer Relations, who lately has focused on the economic holding the role of CFO for Standard Bank’s Abdulla drives QNB to achieve its strategic development of sub-Saharan Africa. Africa division encompassing 17 countries. goals and mission. He has worked in banking in Africa for over From 2013 to 2015, she served as Regional 10 years building on a successful career in He has held a variety of executive positions Director and Private Equity Fund of Funds financial services in London before that. in QNB’s wholesale banking division since Director for Africa for the Commonwealth joining QNB in 1996 and has made a Development Company in the UK. Prior to A Chartered Accountant with The Institute significant contribution to the growth of the this, she was a senior advisor and director of of Chartered Accountants in England and bank. Abdulla is currently responsible for the International Finance Corporation (IFC) for Wales, Greg holds a Bachelor of Arts group-wide business functions, including 16 years. She has also held senior Corporate honours degree in Economic and Social Group Corporate and Institutional Banking, and Merchant Banking roles at Barclays History from the University of Leicester, Retail Banking, International Banking Bank, Zambia, and worked in Financial England. He was selected for Institute of Division, Group Treasury, Group Asset and Control, Credit, Treasury and International International Finance (IIF) Future Leaders Wealth Management, QNB Capital and QNB Relationships with Citibank, Zambia. Class of 2016 representing financial Financial Services. institutions across the world. Dolika is a non-executive director of In addition to his non-executive role Harith General Partners, a pan-African with Ecobank, Abdulla is also a member infrastructure fund, and DFID/UK AID’s of the following Executive Boards: QNB Financial Sector Deepening Africa and Capital, Qatar; QNB Al Ahli, Egypt; Housing Financial Sector Deepening Zambia. Bank Trade & Finance, Jordan and QNB She also chairs the Focus Investment Finansbank, Turkey. Group, a SME financial services provider in Zambia. He holds a Bachelor’s Degree in Business Administration from Eastern Washington She has a degree in International Business University (USA) and speaks English and and Marketing from Schiller International Arabic fluently. University (UK) and a Masters in International Business and Banking from ETI Board Committees: Schiller University (France). Finance & Regulatory Requirements Committee ETI Board Committees: Governance Committee Social, Ethics & Reputation Committee Governance Committee 2017 Annual Report 38 Directors’ biographies

Monish Dutt (59) Bashir M. Ifo (58) Brian Kennedy (57) Non-Executive Director since 2017 Non-Executive Director since 2011 Non-Executive Director since 2017 Indian Nigerian South African Monish Dutt is a seasoned investment Bashir Mamman Ifo is currently the President Brian Kennedy is currently Group Managing professional and a consultant on emerging of the ECOWAS Bank for Investment and Executive, Nedbank Corporate and Investment markets. He is a Director of Sagicor Financial Development (‘EBID’) in Togo. He has more Banking (Nedbank CIB). Brian has been Corporation, a pan-Caribbean insurance than 30 years of experience within the public working in investment banking for the past group, with assets of $6 billion. He also holds and private sectors. He has held several 29 years, the last 21 of which have been with board positions with Sagicor Life Insurance senior management roles at EBID, including the Nedbank Group. Corporation, the Group’s US operations, and Head of the Financial Operations Division, Sagicor Bank, Jamaica. He is a Director of Director of the Treasury Department, Head of He worked in the engineering industry Peak Reinsurance, Hong Kong, part of the Finance and Administration, Acting Managing for six years and moved into investment Fosun Group of China. He is also a member Director of the former ECOWAS Regional banking at FirstCorp Merchant Bank in 1988. of the Washington-based Board of FINCA Investment Bank (‘ERIB’) and Vice President In 1996, Brian joined BoE NatWest and Microfinance Holdings, which has operations for Finance and Corporate Services. From was appointed Managing Director of BoE in over 20 countries in Eurasia, Latin America 1982 to 1995, Mr. Ifo worked in both the Merchant Bank in 1998. He led the Capital and Africa. public and private sectors in Nigeria. Bashir Markets business in Nedbank following the is a non-executive director on the Board of merger with and incorporation of BoE, and Prior to this, he worked for 25 years with Asky Airlines. in November 2003 was appointed Managing the International Finance Corporation (IFC). Executive of Nedbank Capital and member Between 2004 and 2011, Monish was IFC’s He holds a Bachelor’s degree in Business of the Nedbank Group Executive Committee. Chief Credit Officer for Global Financial Administration (Banking and Finance) and He is also responsible for the London Institutions and Private Equity Funds, a an MBA in Finance, both from the Ahmadu operations of Nedbank. Director level role, where he oversaw Bello University, Zaria, Nigeria. He is also an portfolio performance and represented IFC Honorary Senior Member of the Chartered Following the integration of Nedbank Capital on the boards of investee companies. Prior Institute of Bankers of Nigeria (CIBN). Mr Ifo and Nedbank Corporate in 2015 into a single to this, he was the Divisional Head of the was honoured with the award of the “Grand client-facing wholesale business, Brian has Baltics, Central Europe, Turkey and Balkans Officer of the National Order of Benin” by the been leading the teams responsible for Group, where he led investments in several Republic of Benin. developing and driving the overall strategy, privatisations. He previously held regional positioning and business growth. investment officer roles, covering Africa, ETI Board Committees: Asia, Central and Eastern Europe and Latin Nomination & Remuneration Committee; Brian holds a BSc (Eng) (cum laude), America. Before joining the IFC, Monish Audit and Compliance Committee MSc (Eng), MBA, AMP (Harvard, USA) worked with Ernst & Young in London. Brian is a nominee of Nedbank Group Limited. He has an MBA, majoring in Finance, from the London Business School and an honours ETI Board Committees: degree in Economics from St. Stephen’s Audit and Compliance Committee College, University of Delhi. Monish is Nomination and Remuneration Committee a Chartered Accountant and accredited as a Fellow by the Institute of Chartered Accountants (UK).

Monish is a nominee of IFC.

ETI Board Committees: Audit and Compliance Committee Risk Committee Corporate Governance 39

Tei Mante (68) Dr. Daniel M. Matjila (55) Dr. Catherine W. Ngahu (56) Non-Executive Director since 2014 Non-Executive Director since 2012 Non-Executive Director since 2016 Independent South African Independent Ghanaian Daniel Matjila is a highly respected figure in Kenyan Tei Mante is an economic and financial the international asset management industry, Dr. Catherine Ngahu is a consultant, consultant with forty years of experience with considerable experience in investment educator and entrepreneur with over 25 in financial markets, including investment management. Dr Dan is currently the CEO and years of experience in business strategy, banking, project finance and private equity. Executive Director of the Public Investment marketing, research, communications, ICT He worked with the World Bank Group in Corporation (PIC), the largest asset manager policy and corporate governance. Washington D.C. from 1975 to 2000, where, in Africa. He is responsible for PIC’ s overall amongst a variety of assignments, he headed investment strategy and manages an She is a senior lecturer at the University of up the Africa and Agribusiness Departments investment portfolio valued in excess $145 Nairobi and is the founder and Executive of the International Finance Corporation (IFC). billion, across all asset classes. Highlights of Chairman of SBO Research Ltd. She has his investment career include spearheading consulted for a wide range of organizations Tei has also worked as a consultant for the the development and implementation of in the financial services, FMCG, energy, ICT, African Development Bank, the Government PIC’s Offshore Investment and Rest of Africa and manufacturing sectors in Africa. of Ghana, the European Commission, UNECA Investment Strategies and the re-purposing and the Government of Sierra Leone. He of the Alternative Asset Mandates for clients, Dr. Ngahu has extensive board experience served as a special advisor to the Ghanaian which resulted in portfolio diversification and is currently the Chairperson of the Government’s Economic Management team benefits and revenue improvement for PIC. Universal Service Advisory Council of the between 2001 and 2004. He was Chairman He has positioned PIC to be among the top Communication Authority of Kenya and of the Board of Ecobank Ghana Ltd from asset allocators that incorporate ESG issues in Uchumi Supermarkets Limited, a Nairobi 2006 to 2010. He is currently an Independent their investment process, receiving numerous Stock Exchange (NSE) listed company. She is member of the Investment Committee of the awards and accolades as a result. a member of the boards of AAR Insurance West Africa Emerging Markets Growth Fund. and Eveready EA Limited. She was awarded Dr. Dan was previously Chief Investment the Elder of the Order of the Burning Spear He graduated with a BSc in Administration Officer of PIC and, prior to this held senior (EBS) in 2011 by the President of the from The University of Ghana and holds an positions in quantitative fund management Republic of Kenya for devoted service. MBA from Columbia University, New York. with Stanlib and Anglo American, as well as being a Senior Lecturer in Applied She holds a PhD in Business Administration, He is also an alumnus of INSEAD (IEP). Mathematics. Amongst many academic and a Master of Business Administration and a professional qualifications, Dr. Dan holds a Bachelor of Education (First Class Honors) ETI Board Committees: PhD in Mathematics from the University of from the University of Nairobi. She studied Finance & Regulatory Witwatersrand, a postgraduate Diploma in entrepreneurship and small business systems Requirements Committee Mathematical Finance from Oxford University as a Business Research Fellow at Wharton Risk Committee and an MSc in Applied Mathematics from Business School, University of Pennsylvania. Rhodes University. She also has several certifications in ICT and ETI Board Committees: corporate governance. Finance and Regulatory Requirements Committee ETI Board Committees: Governance Committee Governance Committee Social, Ethics and Reputation Committee 2017 Annual Report 40 Directors’ biographies

Alain F. Nkontchou (54) Mfundo Clement Nkuhlu (51) David O’Sullivan (43) Non-Executive Director since 2014 Non-Executive Director since 2015 Non-Executive Director since 2017 Independent South African Irish Cameroonian Mfundo Nkuhlu has served as Chief David O’Sullivan is Head of Group Legal Alain Nkontchou is the Managing Operating Officer and Executive Director for QNB, a position he has been holding Partner and co-Founder of Enko Capital of Nedbank Limited and Nedbank Group since 2012. Management LLP, an asset management Limited since January 2015. He has worked company based in London and in senior roles with Nedbank for 13 years, He has over 20 years’ experience as a Johannesburg, which focuses on African including Managing Executive of Nedbank lawyer and investment banker working on investment opportunities. Corporate (2009-2014), Managing Executive corporate and financing transactions in the of Corporate Banking (2005-2009) and emerging markets (principally in the Middle Alain was an advisor of Laurent Perrier, a Managing Executive of Nedbank Africa East, Africa and Eastern Europe). champagne company in France, having also (2004-2005). been a non-executive director from 1999 Prior to his current position, he was Director, to 2009. He previously worked in London Prior to joining Nedbank, he was the Gulf Investment Incorporation, 2006-2012, between 1995 and 2008 as Managing executive responsible for strategy, revenue Associate Director, HSBC Corporate Finance Director of Credit Suisse’s Global Macro and economic analysis at the South African 2003-2006 and Senior Associate at Clifford Trading Group and also with JP Morgan Chase Revenue Services (SARS). He also worked Chance LLP, London, Dubai and Moscow from & Co in the same capacity. Between 1989 for the Department of Trade and Industry 1996-2003. and 1994, he worked with Chemical Bank as Chief Director for Africa and the New He played a leading role in QNB’s investment in Paris and New York, where he became Partnership for Africa’s Development in Ecobank. Since 2016, he has been a Vice-President, Head of Trading and Sales. (NEPAD) programme. Director of the QNB Global Funds ICAV (an Alain has a track record of business success, EU fund authorised by the Central Bank of having generated significant dollar revenues Mfundo holds a BA Honours degree Ireland with sub-funds focussing on sectors for each of these bulge bracket institutions. from University of the Western Cape, and completed a course on Strategic including MENA and Sub-Saharan Africa). Alain has an MSc. in Electrical Engineering Management in Banking at INSEAD Mr. O’Sullivan is a Chartered Financial from Supelec and P.M. Curie University, (France). He is an alumnus of the Advanced Analyst and a Solicitor, Law Society of Paris, and an MSc in Finance and Accounting Management Programme (AMP) from England and Wales. He has a Law degree from ESCP (Ecole Supérieure de Commerce Harvard Business School (US). (LLB) from the Trinity College, Dublin. de Paris). ETI Board Committees: David O’Sullivan is a nominee of Qatar ETI Board Committees: Finance and Regulatory National Bank. Audit & Compliance Committee Requirements Committee Risk Committee Risk Committee ETI Board Committees: Nomination and Remuneration Committee Social, Ethics & Reputation Committee Corporate Governance 41 Directors’ report

Principal activity Dividend Ecobank Transnational Incorporated (“ETI”), the The Directors do not recommend the payment of parent company of the Ecobank Group, is a bank dividend for the 2017 financial year. holding public limited liability company incorporated in Lomé, Togo on 3 October 1985 under a private Capital sector initiative led by the Federation of West African The Authorized Capital of the Company is Chambers of Commerce and Industry and the Economic US$1,276,664,511 as at 31 December 2017. Community of West African States (ECOWAS). The ordinary shares of the company continue to be Its principal activity is the creation and acquisition of traded on the three West African stock exchanges, operating units for the provision of banking, economic, namely, the Bourse Régionale des Valeurs Mobilières financial and development services. The Ecobank Group (BRVM) in Abidjan, the Ghana Stock Exchange (GSE) is the leading Pan African bank with operations in 36 in Accra and the Nigerian Stock Exchange (NSE) countries across the continent. The Group also has a in Lagos. licensed operation in Paris and representative offices in Beijing, Dubai, Johannesburg, and London. Directors Business review The names of the Directors of the Company appear on pages 34 and 35 of this annual report. In 2017, ETI continued to lead the deployment of the revised Ecobank strategy, dubbed “Roadmap to As of 31 December 2017, the Board was composed of leadership” and digitisation strategy, which sets out fourteen (14) Directors: twelve (12) Non-Executive and a framework on generating sustainable shareholder two (2) Executive Directors. returns by building a customer centric organisation with a simplified business model anchored on During the year, Messrs Monish Dutt, Brian Kennedy improving risk culture, operational efficiency and and David O’Sullivan were co-opted to the Board excellence. and will be presented for the ratification of their appointment at the Annual General Meeting of 2018. ETI has significantly increased its digital offerings to cater for the broad and diversified pool of customers The Board will propose a resolution for the renewal on the Ecobank network and also to attract potential of the mandates of Ms Dolika Banda, Mr. Bashir Ifo customers to the Ecobank franchise. and Mr. Alain Nkontchou at the Annual General Meeting of 2018. A detailed review of the Group’s business and financial performance for 2017 is contained in the ‘Business In 2017, Dr Adesegun Akin-Olugbade, Mr. Kadita and Financial Review’ section of the annual report on Tshibaka and Mr. Ignace Clomegah retired from page 102. the Board.

Results The Board of Directors met seven (7) times during the year. Each of the Board Committees, namely ETI made a profit after tax of US$182 million for the the Governance Committee, Audit & Compliance financial year ended 31 December 2017. Committee, Risk Committee, Finance & Regulatory The detailed results for 2017 are set out in the Requirements Committee, Nomination & Remuneration consolidated financial statements. The Board of Committee and the Social, Ethics & Reputation Directors approved the financial statements of the Committee met three (3) times to deliberate on parent company and the Group for the year ended 31 vissues under their respective responsibilities. December 2017 at its meeting of 22 February 2018. Corporate governance and compliance Messrs Emmanuel Ikazoboh, Ade Ayeyemi and Gregory The Group’s corporate governance practices continue to Davis were authorised to sign the accounts on behalf improve. More details are highlighted in the Corporate of the Board. Governance Report on page 43. The Company continues to maintain corporate policies and standards International Financial designed to encourage good and transparent corporate Reporting Standards governance, avoid potential conflicts of interest and promote ethical business practices. The accounts of both the parent company and the Group are prepared in accordance with International The Board is committed to improving the governance Financial Reporting Standards (“IFRS”). of the institution and is working closely with regulators and other stakeholders to strengthen this area. 2017 Annual Report 42 Directors’ report

Subsidiaries Independent External Auditors In 2017, the number of ETI subsidiaries remained The Joint Auditors Deloitte & Touche, Nigeria and Grant unchanged from 2016. The Group is focused on Thornton, Côte d’Ivoire have indicated their willingness translating the achieved pan-African scale advantage to continue in office. to sustainable long-term value for stakeholders. A resolution will be presented at the 2018 Annual ETI has a majority equity interest in all its subsidiaries General Meeting to renew their mandates. and provides them with management, operational, technical, business development, training and advisory services. The total number of ETI subsidiaries consolidated in this Annual Report is 53.

Post balance sheet events There were no post balance sheet events that could materially affect either the reported state of affairs of the Company and the Group as at 31 December 2017, or the result for the year ended on the same date which have not been adequately provided for Dated in Lomé, February 22, 2018 or disclosed. By Order of the Board, Madibinet Cissé Responsibilities of Directors Company Secretary The Board of Directors is responsible for the preparation of the financial statements and other financial information included in this annual report, which give a true and fair view of the state of affairs of the Company at the end of the financial period and of the results for that period.

These responsibilities include ensuring that:

• Adequate internal control procedures are instituted to safeguard assets and to prevent and detect fraud and other irregularities; • Proper accounting records are maintained; • Applicable accounting standards are followed; • Suitable accounting policies are used and consistently applied; and • The financial statements are prepared on a going concern basis unless it is inappropriate to presume that the company will continue in business. Corporate Governance 43 Corporate Governance

Introduction Delegation of power and authority Ecobank recognises the importance of Corporate Since the ultimate corporate power belongs to the Governance in building a sustainable and cohesive shareholders, Ecobank ensures that their rights are organisation. It seeks to implement the highest both respected and exercised effectively. Shareholders standards and best practice in corporate governance, delegate their authority to the Board and subsequently in accordance with the most widely accepted to the Board Committees. The Board then delegates codes, thereby ensuring fairness, transparency the day-to-day operations of the Group to Executive and accountability to its shareholders and Management. The scope of the authority for each of other stakeholders. these corporate bodies is clearly defined and agreed.

As an independent pan-African banking group, In addition to those of our shareholders, the legitimate founded on the spirit of regional co-operation and the interests of all of its stakeholders are duly recognised economic integration of African countries, Ecobank and taken into account. acknowledges the critical nature of its relationships with all the regulatory bodies across its footprint in There are clear and published terms of reference and executing its vision and discharging its responsibilities accountability for committees at Board and Executive with respect to its customers, lenders, shareholders levels. The Board is structured in a manner to enable and the communities within which it operates. it add value to the Group through its composition, size and the commitment of all of its members. This ensures that their needs and interests are taken into account in a balanced and transparent Board Responsibilities manner. Ecobank believes that only good governance The primary responsibility of the Board is to act will deliver sustained business performance and, in the best interests of the Group and to foster ultimately, appropriate returns for shareholders. the long-term success of Ecobank, in accordance These objectives are clearly articulated within our with legal requirements and its responsibilities to corporate literature. shareholders, regulators and other stakeholders. The Board ensures that the necessary leadership, financial Corporate literature and human resources are made available to enable The Articles of Association of the Company, and the Group to achieve its objectives. It confirms that those of its subsidiaries, provide a clear delineation there are no potential conflicts of interest between and separation of the rights and responsibilities of Executive Management, members of the Board and the Board, Executive Management and shareholders shareholders. The Board also ensures that reporting to ensure the non-interference of the Board in lines of key control functions, such as Internal Audit, management functions and the full disclosure Compliance and Risk Management, are structured to of information to shareholders. Whilst the Board ensure the effectiveness of checks and balances and approves policies and general strategy, it is the duty the independence of such functions. of Executive Management to ensure the day-to-day implementation of policies and strategies adopted The Board reports annually to shareholders on by the Board. the integrity and timely disclosure of the financial performance of Ecobank via the Group’s consolidated The Annual General Meeting is a key forum for sharing annual report and accounts, including other substantive information and decision-making, engendering financial and non-financial information, about which the active participation of shareholders. Ecobank shareholders and potential investors should be shareholders’ right to access information is an essential informed. The Board is responsible for assessing the principle underpinning the Corporate Governance ability of the Group to meet its obligations and is philosophy of the Group, which promotes the accountable to its shareholders. The Board encourages establishment of meaningful dialogue. The Group active dialogue with shareholders and potential Corporate Governance Charter sets out the structures investors, based on a mutual understanding of and processes to be followed to build credibility objectives and expectations. and ensure transparency and accountability across the Group. It also defines appropriate strategies and policies to enable the execution of Ecobank’s overall vision, which is to be recognised as a world class pan-African banking group. The Governance Charter is regularly updated to reflect a constantly evolving business environment. 2017 Annual Report 44

Appointment of Board Directors • Integrity Directors should demonstrate high levels of integrity, The process of nomination and appointment of the professional and personal ethics, as well as values Board of Directors has been clearly defined in the consistent with those of the Ecobank Group. Governance Charter. It provides for a Nomination and Remuneration Committee, which is charged • Character with the selection and appointment of Board Directors should exhibit strength of character and Directors. Prior to any appointment, this Committee the ability and willingness to challenge and probe. defines the functions and core competencies for This includes sound business judgement, strong each Directorship role. It then develops suitable interpersonal skills and the ability to listen carefully selection criteria, screens and interviews potential and communicate with clarity and objectivity. candidates. The Committee then recommends the • Time commitment short-listed candidates to the Board. Thereafter, Directors need to be able to dedicate sufficient time successful candidates are presented for the approval to carry out the duties of a Non-Executive Director of the Annual General Meeting. Directors appointed adequately. The Articles of Association of the during the year are co-opted by the Board and then Company limit the tenure of Directors to nine (9) presented for ratification at the following Annual years. Directors are appointed for an initial period General Meeting. New Directors are issued with of three years and are eligible for re-appointment. letters of appointment including clear terms and However, re-appointment is not automatic. Directors conditions regarding the discharge of their duties. are required to be evaluated periodically; the outcome of this evaluation and the competency The following competencies are also taken into account needs of the Board, as well as the Directors’ in appointing Directors to the Board. contributions and input, are taken into account in assessing potential re-appointments. • Demonstrable business acumen Directors must have considerable business There are clear guidelines for the dismissal/ experience, together with proven understanding retirement of a Director, in addition to statutory of corporate and business processes, thanks to a provisions. A Director may be dismissed for breach successful track record and an impeccable reputation of their fiduciary duties under the terms of their in the business community. letter of appointment or other corporate documents • Leadership and Board experience or for underperformance. Furthermore, the Board A recognised ability to add value and display may recommend the replacement of the nominee leadership, together with an ability to assert or representative of an institutional shareholder balanced and constructive views at Board level. where he or she does not possess the requisite • Special technical skills or expertise competencies required by the Board or where his Experience in international banking best practice, or her performance is found to be unsatisfactory. with specific reference to African markets. This encompasses commercial banking, retail banking, investment banking, treasury, capital markets and fund raising, asset management, central banking, rating agencies, IT/digital banking, accounting and auditing, regulation and risk management, succession planning, executive compensation, government relations and political intelligence, international insurance, law and taxation, investor relations and international trade, especially relating to commodities. The Board as a whole is expected to exhibit these competencies, reflecting the combined experience of all the Directors. Corporate Governance 45

Board composition and structure Independence of Directors The Articles of Association of the Company limit The Governance Charter has an independence the size of the Board to fifteen (15) members. The evaluation policy and a definition of an ‘Independent Governance Charter of the Company was amended Director’, which adopts the following principles: in 2017 to provide for a board composition that is more representative of shareholders’ interest. It • Not an officer or employee: Neither the Director, stipulates that the Board shall comprise nominees nor an immediate family member of the Director is, of any shareholder for each ten per centum (10%) or within the last two years has been, an officer or of the issued share capital of ETI, or multiple thereof, employee of a member of the Group. An immediate that such a shareholder may hold directly, subject to family member of an individual is the individual’s a maximum of two seats per shareholder, one (1) spouse, parent, child, sibling, mother-in-law, father representative of ECOWAS Bank for Investment & in-law, sister-in-law, brother-in-law, daughter-in-law, Development (EBID), no more than two (2) executive son-in-law and anyone, other than an employee, directors, including the GCEO, and a minimum of five who resides in the individual’s home. An officer of (5) independent directors, including directors selected the Group includes an individual who performs a from the geographical clusters where the Group policy-making function on behalf of Ecobank, or operates, and the requisite number of additional who makes, or participates in, decisions that affect independent directors that are required to fill the all or a substantial part of the business of Ecobank, remaining seats. whether or not the individual is an employee and whether or not the individual does so directly or The composition of the Board takes into account, through another organisation. as much as practicably possible, the geographical • Not a substantial shareholder: The Director or an coverage of the Group, relevant professional immediate family member is not, nor has not been experience, shareholders’ representation and in the last three years, a substantial shareholder of a gender equality. member of the Group or affiliated with a substantial shareholder of a member of the Group. A substantial There are currently six (6) committees, namely: shareholder of ETI is a person who beneficially owns, directly or indirectly, or exercises control or 1. Audit and Compliance Committee direction over, 0.1% or more of the voting rights of 2. Risk Committee the Company, or 1% of the shares of a subsidiary or 3. Governance Committee affiliate of the Company. An individual is affiliated 4. Nomination and Remuneration Committee with ETI if the individual is a Director, officer, employee, principal, partner or Managing Director of 5. Finance and Regulatory Requirements Committee the Group, or occupies a similar position within the 6. Social, Ethics and Reputation Committee Group, or is a substantial shareholder of a member of the Group. Given the Group’s emphasis on digitalisation and the • The associated risks, such as cyber crime, data security, No material contractual relationship: Director does not have any material contractual reputational risk and vendor (Fintech) risk, the Board relationship with a member of the Group, other of ETI agreed at its last meeting of 2017 to establish a than as a Director. The test of whether a contractual dedicated Board Committee to assist the Board in the relationship is material will be based on all the oversight of all the Group’s IT functions. circumstances relevant to the Director. Mindful of the need to maintain efficiency, the Board • Does not receive consulting or other advisory agreed that the number of Committees should be fees or payments: Neither the Director, nor an maintained at six, leading to the merger of the immediate family member or related entity of Governance and Nomination and Remuneration the Director, receives, or within the last three Committees, effective from 2018. years has received, consulting or other advisory fees or payments from the Group, other than The charters of the various Board Committees have compensation for Board services, payments arising been established in accordance with best practice. from investments in securities of Ecobank or, in the The composition of the Board Committees excludes case of an immediate family member who is not an the membership of Executive Directors. Also, for the officer of a member of the Group, compensation for purposes of revitalising the Board Committees, the services as an employee of a member of the Group. tenure of members has been restricted to a maximum An entity is a related entity of a Director, if the of two (2) three-year terms, which may be extended, Director, or an immediate family member of the if it is deemed appropriate. Director, is a Director, officer, employee, principal, partner or Managing Director of, or occupies a similar position within, the entity or is a substantial shareholder of the entity. 2017 Annual Report 46 Corporate Governance

• Does not receive incentive compensation: The • Is free from any relationship with Ecobank: Director does not participate in any share-based The Director has no relationship with its Executive incentive scheme or performance-related pay management or major shareholders that may scheme of the Group. impair, or appear to impair, the Director’s abilities • Is not a professional consultant or advisor: Neither to make independent judgment. the Director, nor an immediate family member of A t least a third of the Board’s members are the Director, is, or within the last three years has expected to be independent Directors. Generally, been, an auditor, other professional consultant or a Director will be considered to be independent if advisor to a member of the Group or affiliated with he or she satisfies all of the criteria set out above. an auditor or other professional consultant or advisor to a member of the Group. A Director may, however, still be considered to be independent even though he/she does not A professional consultant or advisor includes satisfy one or more of the criteria, if the Board an entity that provides accounting, actuarial, determines that such criteria will not impair his/her consulting, legal, investment banking or financial independence. The independence of the Directors is advisory services. assessed annually. • Is not a material supplier or customer: Neither A s at the end of December 2017, there were the Director nor an immediate family member of fourteen Directors on the Board, including five the Director is, or within the last three years has independent directors, namely Mr. Emmanuel been, a material supplier or customer of the Group Ikazoboh, Ms. Dolika Banda, Mr. Tei Mante, or affiliated with a material supplier or customer of Dr. Catherine Ngahu and Mr. Alain Nkontchou. the Group. There is a sixth independent director seat that has A material supplier or customer of the Group been allocated to the UEMOA region that is currently is a person to which the Group made or from in the process of being filled. Although not all of which the Group received payments (other than the Non-Executive Directors need to meet the payments arising from investments in securities of ‘Independent Director’ definition above, all should the Company) in any year that exceed 5% of the be capable of exercising independent judgment and consolidated annual gross revenues of the entity. decision-making. • Has not served too long: The Director has not served on the Board for a period that, in the Board and Directors’ performance determination of the Board, could, or could The Board takes a number of steps to ensure that reasonably be perceived to, materially interfere Directors discharge their duties with the requisite with the Director’s ability to act in the best competence and skills. Firstly, prior to an appointment, interests of the Group. the Nomination and Remuneration Committee is required to carry out a competency assessment of A Director may be considered to have served potential candidates to ensure that they meet the too long on the Board for the purposes of the necessary criteria. assessment of his/her independence, if he/she has been a Board member for more than six years. The Governance Charter sets minimum competency requirements for each Director that must be met. • Has no other material business relationship: Additionally, Directors receive appropriate induction Neither the Director nor an immediate family and are expected to undertake on-going professional member or related entity of the Director has, or development to meet the ever-changing demands within the last three years has had, directly or of their roles. All Directors are expected to avail indirectly, any other material business relationship themselves of appropriate training courses, where with the Group. The test of whether a business necessary and at the earliest opportunity, to fulfil their relationship is material will be based on the competency requirements. circumstances relevant to the Director. • Has no significant links with other Directors: Evaluation of the Board The Director does not hold cross directorships or have any significant links with any other Director In accordance with the requirements of the (e.g. through involvement with other entities) that Governance Charter, the firm Board Practice conducted would materially interfere with the ability of the an evaluation of the ETI Board for the year ended Director to exercise independent judgment or to 2017. The following is a summary of the findings: act in the best interests of the Group. i. The Board is professional, exhibiting expertise and • Is independent: The Director must be independent a diversity of skills; in character and judgment. • Is not affiliated with a charitable organisation: ii. The governance structures, including guiding to which the Ecobank Foundation, or any documents and committees, are appropriate and other member of the Group, has made effective; members adhere to good standards and significant contributions. display integrity; Corporate Governance 47

iii. The Chairpersons of the Committees are effective complaints or unprofessional behaviour. Members of and committee proceedings are contributing staff reporting issues can do so anonymously. positively to the work of the Board; Staff can report, without limitation, on issues such as: iv. The Board has established a good relationship with the CEO and Management; • Theft, fraud, bribery, or other forms of dishonesty • Harassment or discrimination v. M anagement is empowered to execute on its • Accounting or financial irregularities mandate and provides open and frank information to the Board; • On-the-job drug or alcohol abuse • Violence or threatening behaviour, and vi. The most significant legacy issues have been • Violation of laws, regulations, policies or procedures. dealt with; Procedures for independent investigation of allegations vii. A performance culture should be built within the by whistleblowers and appropriate follow-up actions whole organisation; have been put in place. Cases are managed by viii. The attraction, development and retention Compliance and investigated by Audit. The Board is of critical skills across the Group merit attention informed of the cases and the progress made towards to ensure sustainable growth. their resolution. ix. The Board has not started the development of Directors’ remuneration processes for CEO succession; The remuneration policy for Executive and Non- Executive Directors is embedded in the Group x. Ther e is a need to focus more on technology/IT Corporate Governance Charter. Recognition is given to by establishing a responsible Committee; and the new, onerous Corporate Governance regulations that exist in many jurisdictions, which hold Board xi. The governance structure of subsidiaries and their members individually and collectively responsible for communication with the Holding Company have the actions of the boards. Adequate compensation substantial room for improvement. is given to attract and retain professional and Conflict of interest and related experienced individuals to carry out these duties. party policies The remuneration policy for Non-Executive Directors A conflict of interest policy and associated procedures, is not intended to reward meeting attendance via per covering all staff and Group Directors, are in place. diem payments; rather, it reflects the responsibility, Directors are required to complete standard forms each dedication and challenges inherent in the position. year to confirm that no conflict of interest exists. Efforts are made to ensure that the remuneration of the Directors continues to match the level in The review of related party credits is conducted on comparable organisations, whilst also taking into a monthly basis and reported to the Board by the consideration Board members’ required competencies, Risk Committee. effort and the scope of the Board work, including the number of meetings attended. Assurance monitoring External consultants undertake periodic remuneration The internal control and internal audit charters provide benchmarking surveys. Once these surveys are the framework for the two functions. concluded, the Board makes a decision, which is submitted to the Annual General Meeting of the Whistle blowing policy Company for approval. Ecobank has implemented a whistleblowing policy, as well as a whistleblowing portal. The portal is a Non-Executive Directors receive fixed fees of $100,000 user-friendly system that generates reports and per annum for services to the Board of ETI. The Chairman forwards them directly to the Group Head of receives $150,000 per annum. In addition, Directors Compliance, who is responsible for carrying out receive attendance fees for Board and Board Committee the necessary investigation. Issues may be reported meetings. Non-Executive Directors receive neither short– online, using a designated website, following steps term nor long–term performance incentives. laid out in Ecobank’s whistleblowing policy. Consistent with Ecobank’s objective of being an Ecobank’s whistleblowing portal fully guarantees employer of choice in our markets and to attract the the confidentiality of information exchanged via best talent, Senior Executives are compensated with the portal. A third party provider that specialises a combination of fixed compensation (salary, benefits in whistleblowing services operates the portal, and pension) and variable compensation (bonuses and independent of Ecobank’s in-house IT systems. This a share options scheme). The total remuneration paid provides a secure environment for staff to report to all Senior Executives during the 2017 financial year amounted to $11,040,275.12. 2017 Annual Report 48 Corporate Governance

Code of conduct • The standard of conduct and procedures for Directors. There is a code of conduct for all Directors within the Group and its subsidiary boards. It requires a Director, The key principles underlying the Group’s governance whilst acting in the best interest of the Group as a structures are as follows: whole, to take account of the interests of the Group’s • The Group, as much as possible, operates a shareholders, employees and creditors and, where standardised organisational structure at ETI and appointed as a representative of a special class of subsidiary levels, known as the ‘One Bank’ concept. shareholders, employees, or creditors, to give special, • The organisational structure of the Group may be but not exclusive, consideration to the interests of revised from time to time by the Group Executive that class. Committee (‘GEC’), subject to the approval of the ETI Board, to address the changing needs of the It prohibits a Director, without the consent of the institution and the marketplace. Board, from placing himself/herself in a position such that his/her personal interests conflict, or could be • ETI is responsible for the overall strategy of the seen to conflict, with his/her duties to the Group. Group. As the parent company, ETI acts as the ‘Strategic Architect’ of the Group, with appropriate It also prohibits a Director from entering into input in operational management and decision- any contract on behalf of the Group or any of its making at the subsidiaries’ level. It sets the overall subsidiaries or affiliates in which he/she, or any strategy and direction of the Group, develops Director of the Group or any associated company, may policies and procedures and monitors them through have material interests, whether directly or indirectly, reviews and audits to ensure compliance, not only until a Board resolution has been passed to approve with Group strategy, policies and procedures, but the contract. There were no breaches of the Directors’ also with local laws and regulations. code of conduct in 2017. • Group decisions and policies are implemented by all members of the Group and are binding upon all Dispute resolution policy subsidiaries, taking into account applicable local A dispute resolution policy is embedded in the laws and regulations. Where there is a conflict with Corporate Governance Charter. It sets out the Board’s Group policies, local laws and regulations prevail. procedures for resolving disputes between board • Key senior roles at the subsidiary level require members. It applies to all board members at all times the review and approval of the Group Executive in the performance of their duties. Committee and ETI’s Board. • ETI’s Board holds bi-annual meetings with the The Governance Committee is the resolution body Chairpersons of subsidiary Boards and the Group’s for disputes within Ecobank’s Board. The Committee Functional Heads to disseminate information on recommends a course of action for consideration by the overall direction and major policy decisions the full Board, if necessary. Where the dispute involves of the Group. a member or members of the Governance Committee, the Chairman designates impartial Board members to • Operational decision-making is maintained at intervene on behalf of the full Board. an appropriate level, as close as possible to the day-today management, to remain responsive Parties involved in the dispute are expected to to changing market conditions. acknowledge the dispute respectfully, listen objectively • Individual accountability and responsibility to the issues raised and consider the opinions of are institutionalised and embedded through others. The Chairman of the Governance Committee empowerment and the granting of relevant ensures that the dispute is discussed openly and that levels of authority. questions are asked of all parties involved to formulate • Group-wide coordination is achieved through remedial action. high levels of interaction between the parent No such disputes arose between Board members company and its subsidiaries, as well as in 2017. amongst the subsidiaries at Board and Executive Management levels. Governance structures within the • Clear terms of reference and accountability are laid out for Board and Executive level committees. There Ecobank Group is effective communication and information sharing The Ecobank Group Corporate Governance Charter outside of meetings. clarifies governance structures throughout the Group.

The Charter essentially covers the following areas: • The role of the parent company; • The relationships and interfaces between the parent company and its subsidiaries; and Corporate Governance 49

The following comprise the governance units within the Group:

• Parent Company (‘ETI’) Board of Directors • Country Board of Directors • Group Executive Committee • Group Management Committee • Business Leaders’ Conference • Country Management Committees

Here is a brief overview of the roles and responsibilities of each of the governance units.

Parent Company Board of Directors • The Board of Directors of ETI is elected by and is accountable to shareholders for the appropriate and effective administration of the Ecobank Group. Their primary responsibility is to foster the long- term success of the company, consistent with its fiduciary responsibilities. • The Group’s governance charter requires the Board of Directors to be guided by the following principles: – The clear delineation and segregation of Executive Management responsibilities needs to be safeguarded to ensure that the Board does not interfere in the operational management of the Group.

– The Board is responsible for developing Group policies and general strategies, whilst management ensures their day-to-day implementation.

– The Board needs to exercise objective judgment on corporate affairs, independent of Executive Management.

– The Board needs to take actions on a fully informed basis, in good faith, with due diligence and care and in the best interests of the Group and its shareholders.

– The Board needs to comply with applicable laws and regulations in line with Group strategy and direction.

– The Board needs to operate transparently to avoid conflicts of interest between the Directors and Ecobank’s businesses.

– The Board needs to ensure the full disclosure of accurate, adequate and timely information regarding the personal interests of the Directors.

At the end of 2017, there were fourteen (14) Board members, comprising two (2) Executives, and twelve (12) Non-Executive Directors, of whom five (5) were Independent Directors. Comprehensive profiles of all the Directors are to be found on pages 36-40 of this annual report. The Board of Directors met seven (7) times during 2017. 2017 Annual Report 50 Corporate Governance

Board attendance Number of Year appointed Number of Meetings Name Role to Board Meetings held attended

1 Mr. Emmanuel Ikazoboh Chairman/Independent 2014 7 6 2 Mr. Ade Ayeyemi Chief Executive Officer 2015 7 7 3 Mr. Greg Davis Chief Financial Officer 2017 7 7 4 Mr. Abdulla Al Khalifa Non-Executive 2015 7 3 (Qatar National Bank) 5 Dr. Adesegun Akin-Olugbade2 Non-Executive/Independent 2014 4 4 6 Ms. Dolika Banda Non-Executive/Independent 2014 7 5 7 Mr. Ignace Clomegah2 Non-Executive/Independent 2016 4 4 8 Mr. Monish Dutt1 Non-Executive 2017 2 2 9 Mr. Bashir Ifo (EBID) Non-Executive 2011 7 5 10 Mr. Brian Kennedy (Nedbank Group Ltd1) Non-Executive 2017 2 2 11 Mr. Tei Mante Non-Executive/Independent 2014 7 7 12 Dr. Daniel Matjila (GEPF/PIC) Non-Executive 2012 7 4 13 Dr. Catherine Ngahu Non-Executive/Independent 2016 7 7 14 Mr. Mfundo Nkuhlu Non-Executive 2015 7 6 (Nedbank Group Ltd) 15 Mr. David O’Sullivan1 Non-Executive 2017 2 2 (Qatar National Bank) 16 Mr. Alain Nkontchou Non-Executive/Independent 2015 7 7 17 Mr. Kadita Tshibaka (IFC1) Non-Executive 2014 4 4 1. Messrs Kennedy , O’Sullivan and Dutt joined the Board during the last quarter of 2017. 2. Messrs Adesegun Akin-Olugbade and Ignace Clomegah retired from the Board in the course of the year.

Board changes Also, as a result of the retirement of Mr. Kadita Tshibaka, having attained the statutory retirement Following the changes in the composition of the Board age of seventy, the International Finance Corporation that allows a shareholder who holds up to ten per nominated Mr. Monish Dutt in his stead. centum of the shares to propose a nominee for each ten per centum (10%) of the issued share capital of Messrs. Kennedy, O’Sullivan and Dutt were co-opted ETI, or multiple thereof, that such a shareholder may to the Board in September 2017 and have since been hold directly, subject to a maximum of two seats making significant contributions to the deliberations of per shareholder, Nedbank Group Limited and Qatar the Board and its committees. National Bank, who hold more than 20% of the shares of the Company, exercised their right to a second The search for a fifteenth director, representing the director by nominating Messrs. Brian Kennedy and UEMOA region, has started. David O’Sullivan respectively .

Attendance of Board Committees The Governance Committee met three (3) times to deliberate on issues under their respective responsibilities. Governance committee Composition and attendance Name Role Number of Meetings held Number of Meetings attended

Dr. Adesegun Akin-Olugbade2 Chairman (until June 2017) 1 1 Mr. Bashir Ifo Member 3 3 Mr. Tei Mante1 Member 2 2 Mr. Ignace Clomegah1 Member 1 1 Dr. Catherine Ngahu1 Chairperson (from November 2017) 1 1 Ms. Dolika Banda1 Member 1 1 Dr. Daniel Matjila1 Member 1 1

1. Mr. Clomegah, Dr Ngahu, Ms Banda and Dr. Matjila joined the Committee in the course of the year. 2. Dr Adesegun Akin-Olugbade retired from the Board in the course of the year.

The Group General Counsel and Company Secretary is the Secretary to the Committee. Corporate Governance 51

Responsibilities: • Formulates, reviews and ensures implementation of policies applicable to all units of the Group, as well as good governance throughout the Group; • Manages the relationship between the Company and its shareholders and subsidiaries, including relationships with the Boards of subsidiaries; • Formulates new, and reviews existing, Group-wide policies including organisational structure; • Handles relationships with regulators and third parties; • Manages Board affairs in between the meetings of the Board or when the Board is not sitting; • Recommends the appointment of Executive and Non-Executive Directors; • Reviews the human resources strategy and policies of the Group, and • Ensures that the Annual Board Evaluation is carried out.

Audit and Compliance The Audit and Compliance Committee met three (3) times to deliberate on issues under their respective responsibilities. Name Role Number of Meetings held Number of Meetings attended

Mr. Tei Mante1 Chairman 2 2 (until November 2017) Mr. Kadita Tshibaka2 Member 1 1 Mr. Alain Nkontchou Chairman 3 3 (from November 2017) Mr. Ignace Clomegah2 Member 1 1 Mr. Monish Dutt2 Member 1 1 Mr. Brian Kennedy1 Member 1 1 Mr. Bashir Ifo1 Member 1 1

1. Me ssrs Monish Dutt, Brian Kennedy and Bashir Ifo joined the Committee in the course of the year while Mr. Mante left the Committee. 2. Messrs Kadita Tshibaka and Ignace Clomegah retired from the Board during the year. All members have relevant business knowledge and skills and familiarity with accounting practices and concepts.

The Group Head of Audit serves as Secretary to the Committee.

Responsibilities: • Reviews internal controls, including financial and business controls; • Reviews internal audit function and audit activities; • Facilitates dialogue between the auditors and Management regarding the outcomes of audit reviews; • Makes proposals with regard to external auditors and their remuneration; • Works with external auditors to review annual financial statements before full Board approval, and • Ensures compliance with all applicable laws, regulations and operating standards.

Risk Committee The Risk Committee met three (3) times to deliberate on issues under their respective responsibilities. Name Role Number of Meetings held Number of Meetings attended

Mr. Kadita Tshibaka2 Chairman (until June 2017) 1 1 Dr. Daniel Mmushi Matjila1 Member 2 1 Ms. Dolika Banda1 Member 2 2 Mr. Abdulla Al Khalifa1 Member 2 0 Mr. Mfundo Nkuhlu1 Chairman 1 1 (from November 2017) Mr. Monish Dutt1 Member 1 Mr. Tei Mante1 Member 1 1 Mr. Alain Nkontchou1 Member 1 1

1. Dr. Matjila, Ms. Banda and Messrs. Al Khalifa, Nkuhlu, Dutt, Mante and Nkontchou joined the Committee in the course of the year. 2. Mr. Kadita Tshibaka retired from the Board during the year. All members have a good knowledge of business, finance, banking, general management and credit.

The Group Chief Risk Officer serves as Secretary to the Committee. 2017 Annual Report 52 Corporate Governance

Responsibilities: • Initiates the determination and definition of policies and procedures for the approval of credit, operational, market/price and other risks within the Group; defining acceptable risks and risk acceptance criteria; • Sets and reviews credit approval limits for Management; • Reviews and ratifies operational and credit policy changes initiated by Management; • Ensures compliance with the bank’s credit policies and statutory requirements prescribed by the regulatory or supervisory authorities; • Reviews periodic credit portfolio reports and assesses portfolio performance, and • Reviews all other risks (e.g. technology, market, insurance, reputation and regulatory).

Nomination & Remuneration Committee The Nomination and Remuneration Committee met three (3) times to deliberate on issues under their respective responsibilities.

Composition and attendance Name Role Number of Meetings held Number of Meetings attended

Mr. Alain Nkontchou1 Chairman 2 2 (until November 2017) Mr. Bashir Ifo Chairman 3 3 (from November 2017) Mr. Mfundo Nkuhlu1 Member 2 1 Dr. Catherine Ngahu1 Member 2 1 Mr. David O’Sullivan1 Member 1 1 Mr. Brian Kennedy1 Member 1 1

1. Dr. Ngahu and Messrs Nkontchou, Nkuhlu, O’Sullivan and Kennedy joined the Committee in the course of the year. The Group General Counsel and Company Secretary is the Secretary to the Committee.

Responsibilities: • Determines the policy for the remuneration (including benefits, pension arrangements and termination payments) of Non-Executive Directors, the Chairman of the Board, the Chief Executive Officer, the Executive Directors, and the Senior Executives of ETI; • Develops suitable criteria for the selection and appointment of new Board members and for the selection, appointment and removal of the Group and Country Board members; • Develops and implements plans for identifying, assessing and enhancing Director competencies; • Creates succession plans to maintain the appropriate balance of skills, expertise and experience on the Board; • Reviews the structure, size and composition of the Board and makes recommendations to the Board with regard to any adjustments that are deemed necessary; • Identifies and nominates, for Board approval, candidates to fill Board vacancies as and when they arise.

Finance & Regulatory Requirements Committee The Finance & regulatory Requirements Committee met three (3) times to deliberate on issues under their respective responsibilities.

Name Role Number of Meetings held Number of Meetings attended

Mr. Mfundo Nkuhlu Chairman 3 2 (until November 2017) Dr. Adesegun Akin-Olugbade2 Member 1 1 Dr. Daniel Matjila Member 3 2 Mr. Abdulla Al Khalifa Member 3 1 Mr. Tei Mante1 Chairman 1 1 (from November 2017)

1. Mr Mante joined the Committee in the course of the year. 2. Dr Akin-Olugbade retired from the Board in the course of the year. Corporate Governance 53

Responsibilities: • Oversight of finance strategies, capital and liquidity management of the Company; • Reviewing the Company and Group’s financial performance; • Reviewing compliance with applicable financial regulatory requirements; and • Reviewing certain corporate development matters as the Board may direct.

The Group Chief Financial Officer or his designate is the Secretary of the Committee.

Social, Ethics & Reputation & Committee The Social, Ethics & Reputation Committee met three (3) times to deliberate on issues under their respective responsibilities.

Name Role Number of Meetings held Number of Meetings attended

Ms. Dolika Banda Chairperson 3 3 Mr. Kadita Tshibaka2 Member 1 1 Dr. Catherine Ngahu Member 3 3 Mr. Mfundo Nkuhlu3 Member 2 1 Mr. David O’Sullivan1 Member 1 1

1. Mr. O’Sullivan joined the Committee in the course of the year. 2. Mr. Nkuhlu moved to another Committee during the year. 3. Mr. Tshibaka retired from the Board during the year.

Responsibilities: • Overseeing and reviewing the positioning of the Ecobank brand to ensure that a clear strategy is being delivered to increase the value of the brand, as well as the Group’s standing, reputation and legitimacy in the eyes of all stakeholders; • Reviewing the processes by which Ecobank identifies and manages reputational risk in an effective and transparent manner, consistent with the Board-approved Group Risk Appetite Statement; • Ensuring Ecobank’s adherence to statements regarding activities/businesses in which it will/will not be involved, in line with its brand promise; • Reviewing Ecobank’s sustainable business priorities, assuring the Group has policies in place to respond to any issues arising from external factors.

The Group Manager Environmental Risk & Sustainability is the Secretary of the Committee. 2017 Annual Report 54 Corporate Governance

Subsidiary boards Group Executive Committee The Boards of Directors of subsidiaries operate as In 2017, the Group Executive Committee (‘GEC’) separate legal entities in their respective countries. comprised the following:

ETI is the majority shareholder in all the subsidiaries, • Chief Executive Officer but host country citizens and institutions often • Group Executive, Finance invest in the local subsidiaries. Each subsidiary has • Group Executive, Consumer Banking a Board of Directors, the majority of whom are Non- Executive Directors. The Group Governance Charter • Group Executive, Operations and Technology requires that country boards be guided by the same • Group Executive, Corporate and Investment Bank governance principles as the parent company. As • Group Company Secretary/General Counsel a rule, but subject to local regulations and the size of the Board, the Boards of Directors of subsidiaries • Group Head, Internal Audit have the same number of committees as the parent • Group Chief Risk Officer company. However, an individual country’s regulatory • Group Executive, Human Resources and requirements may necessitate more committees. The Corporate Affairs Boards of Directors of the subsidiaries are accountable • Group Executive, Commercial Bank to the subsidiaries’ shareholders for the proper and effective administration of the subsidiaries • Regional Executive, CESA in line with overall Group direction and strategy. • Regional Executive, Nigeria These boards also have statutory obligations based • Regional Executive, WAMZ on company and banking laws in the respective countries. In the event of any conflict with Group • Regional Executive, UEMOA policies, the local laws prevail. The GEC meets monthly and is responsible for the Subsidiary governance model day-to-day operational management of the Group and its subsidiaries. With regard to the governance of its subsidiaries, the Group adopts a dual reporting model. The subsidiary’s The GEC is responsible to the Board and plays an corporate governance is administered both by the important role in the Group’s corporate governance local board and the Group Board concurrently. Legally, structure. The GEC manages the broad strategic and the country Board has ultimate responsibility for policy direction of the Group, makes submissions to the subsidiary but ETI, as the majority shareholder the Board for approval, where necessary, and oversees (in some cases holding 100%) and as the ‘Strategic their implementation. Architect’, has a duty to ensure that the subsidiary is run properly. As a result, the subsidiary CEO has The GEC has decision-making powers in specific areas a dual reporting lines to the local board and to ETI’s of Group Management. In particular, the GEC works Executive Management. with, and assists, the Chief Executive Officer to:

The local board has access to the ETI governance and • Define and develop Group strategy; management structure. The local boards are legally • Confirm alignment of individual subsidiary’s plans constituted and Directors’ duties comply with the host with overall Group strategy; country’s legal system. • Track and manage strategic and business The subsidiaries at all times comply with the Group performance against plan, at Group and Corporate Governance Charter, subject only to local subsidiary levels; legal requirements. • Implement Group policy and decisions;

Candidates for directorship positions in the subsidiaries • Make recommendations regarding human are shortlisted by Directors of the subsidiary and ETI resources issues; Directors or other credible persons. The proposed • Recommend the opening or closing of subsidiaries; candidates are then screened by the subsidiary board • Articulate appropriate response to environmental in consultation with ETI. factors, regulations, government policies, competition and other such issues across the Group; Thereafter, the candidates go through the formal internal Board processes of the subsidiary, including • Articulate policies for advancing Group objectives, Board committees and regulatory/shareholder and approvals, as appropriate. • Make important decisions in areas for which authority is delegated to the GEC. Corporate Governance 55

Group Management Committee Country Executive (‘GMC’) Management Committee The GMC is the wider arm of the GEC. For purposes The Country Executive Management Committee of Group succession planning, critical country and consists of the Managing Directors and other senior business roles are consulted in the decision-making executives of each subsidiary. In addition to the day- and execution of Group strategy. It comprises all to-day management of the subsidiary’s operations, the members of the GEC and/or such other Executives as role of a Subsidiary Executive Management Committee the GCEO may determine. The GCEO is the Chairman includes the following: of the GMC. The Group Company Secretary or his/her • Aligning strategic objectives and operational plans designate is the Secretary to the Committee. with overall Group strategy, The GMC is charged with the following: • Defining business goals and objectives for the country’s operations, • Reviewing the operational and financial • Approving business unit direction and strategies, performance of the respective lines of business • Making decisions on operating plans and budgets, to ensure that actual performance is in line with overall strategy, business goals and objectives; • Reviewing the financial reporting and control framework, • Monitoring operational performance on an on-going basis against plan and expectations; • Tracking and managing country strategy and business performance against plan, • Assessing progress and achievements of business units and major initiatives; • Tracking and monitoring progress and accomplishments of major initiatives and projects at • Determining appropriate responses to operational country level, and financial performance issues; and • Articulating appropriate response to environmental • Disseminating strategy and policies across factors, regulation, government policies, competition the Group. and other such issues in the country, Business Leaders’ Conference • Articulating policies for advancing business objectives in the country, The Business Leaders’ Conference (‘BLC’) is a collegial • Advising the parent company on adaptation group of all subsidiary CEOs and Group functional heads of overall strategy to the specifics of the local that has been constituted to encourage collaboration environment, and in strategy and policy formulation. It comprises the GMC and all subsidiary CEOs. The GCEO is the Chairman • Advising on local laws and regulation impacting on of the BLC. The Group Head, Strategy, or his/her Group policies. designate, is the Secretary to the Committee.

The BLC is the primary coordinating body for Group cohesion and integration, and the implementation of Group strategy.

The BLC is a consultative body and not a decision- making body. It plays a key role in facilitating the harmonisation and integration of Group strategy. Its role includes:

• Sharing and disseminating information, experiences and best practice across the Group; • Initiating policies that encourage integration and promote the ‘One Bank’ concept; • Promoting integration and standardisation of Group policies and procedures; • Promoting and monitoring compliance with Group operational standards; and • Contributing to the formulation of Group policies. 2017 Annual Report 56 Corporate Governance

Directors’ interests in contracts No Director has any interest either directly or indirectly in contracts with the Company or any of its subsidiaries.

Director’s interests in Ecobank Ordinary Shares The Directors’ interests in the issued ordinary shares of the Company as of the date of the statement of financial position are disclosed in the following table:

Direct Indirect* Total S/N Name 2017 2016 2017 2016 2017 2016

1 Mr. Emmanuel Ikazaboh 480,000 480,000 1,520,000 0 2,000,000 480,000 2 Mr. Ade Ayeyemi 16,418,000 0 0 0 16,418,000 0 3 Mr. Greg Davis 0 0 0 0 0 0 4 Mr. Abdulla Al Khalifa (Representing Qatar National Bank) 0 0 4,970,904,524 4,896,904,524 4,970,904,524 4,896,904,524 5 Dr. Adesegun Akin- Olugbade 377,813 392,319 0 0 377,813 392,319 6 Ms. Dolika Banda 0 0 0 0 0 0 7 Mr. Ignace Clomegah 92,075 92,075 92,075 92,075 8 Mr. Monish Dutt 0 0 0 0 0 0 9 Mr. Bashir Mamman Ifo (Representing EBID) 6.400 5,333 240,209,077 240,209,077 240,209,077 240,209,077 10 Mr. Brian Kennedy (Representing Nedbank Group) 0 0 5,249,014,550 5,249,014,550 5,249,014,550 5,249,014,550 11 Mr. Tei Mante 500,000 105,758 0 0 500,000 105,758 12 Dr. Daniel Matjila (Representing GEPF/PIC) 0 0 3,333,333,333 3,333,333,333 3,333,333,333 3,333,333,333 13 Dr. Catherine Ngahu 0 0 0 0 0 0 14 Mr. Alain NKontchou 0 0 0 0 0 0 15 Mr. Mfundo Nkuhlu (Representing Nedbank Group) 0 0 5,249,014,550 5,249,014,550 5,249,014,550 5,249,014,550 16 Mr. David O’Sullivan (Representing Qatar National Bank 0 0 4,970,904,524 4,896,904,524 4,970,904,524 4,896,904,524 17 Mr. Kadita Tshibaka (Nominee of IFC) 0 0 0 0 0 0 Total 22,627,227 1,075,485 24,014,900,558 23,865,380,558 24,037,522,452 23,866,450,710

* The indirect holdings above are shares held by major institutional shareholders who have nominated the Directors to the Board. These are not shares held by the Directors in their individual capacity. Corporate Governance 57

Executive share options Shareholders’ Rights In 2017, no new ETI executive share options were The Board has always placed considerable importance awarded to Executives under the staff options scheme. on effective communication with its shareholders. It ensures that the rights of shareholders are protected Related Party Security Trading policy at all times. Notice of meetings and all statutory notices and information are communicated to The Group has a code of practice for staff dealing in shareholders on time. Ecobank securities that requires them to seek the approval of the Group Company Secretary, or the The Annual General Meeting is a key forum for relaying Company Secretary of a subsidiary of the Group, prior information and decision-making, thereby fostering to the purchase of shares of the parent company active shareholder participation. or any subsidiary of the Ecobank Group. The policy makes it mandatory for such staff to disclose the The shareholders’ right to information is an essential nature of the securities, the amount to be invested principle underlying the philosophy of Corporate and the nature of the transaction and their interest. Governance and is a pre-requisite in establishing The member of staff undertakes to ensure that the a meaningful dialogue. transaction is not in connection with the possession of any inside information and further undertakes not The Board is responsible for submitting complete and to proceed with the transaction should he/she come comprehensive financial and management information into possession of any inside information prior to the to the Annual General Meeting to facilitate a balanced execution of the transaction. The policy will be updated and fair exchange of views within the Company. to include other related parties. The Board ensures that there is on-going dialogue with shareholders and that information furnished to the Annual General Meeting is accurate and reliable.

Shareholders are encouraged to communicate their opinions and recommendations, whenever they feel the need to do so, to the Investor Relations Unit and or the Company Secretary. Their contact details are available at Ecobank’s Group website, ecobank.com. 2017 Annual Report 58 Sustainability Report

Managing Sustainability: • Driving economic transformation; Ecobank remains committed to the tenets of • Promoting socially responsible finance; sustainable development in banking and continue to have a positive impact on the lives of people – our • Developing human capital; and customers, shareholders and employees, our societies and our environment. The bank is also working • Protecting natural resources and environmental with its host countries towards the attainment of sustainability. the United Nations’ Sustainable Development Goals (SDG), adopted in 2015, through its core competency Under the guidance of the Social Ethics and Reputation – banking and financing. In doing this, the pan-African Committee (SERC) of the ETI Board, management is bank continued to implement the Ecobank Sustainable ensuring that Ecobank’s financing activities continue Framework to guide its efforts aimed at: to add value and bring sustainable benefits to the socio-economic and environmental development of Africa, in line with the Sustainable Framework.

Sustainability Framework

• Creating conomic alue • Microfinance and • Fostering Integration Micro banking • Partnership for • Women in Business Development Driving Socially • cobank Foundation conomic Responsible • Community ngagement ransformation Finance

Protecting Human Capital Natural Attracting & Resources Retaining • Risk Management nvironmental alented Staff • Diversity and Culture • reen Business Sustainability • raining and • lobal Initiatives Developement • Pan-African Spirit

Sustainability Performance Our transformational banking solution is predicated Africa’s challenges often require a pan-African on the need to support Africa’s trade and solution, such as policy harmonization, free cross- infrastructure development through private-public border trade and free movement of capital, people partnership and regional integration, which gives us and goods. Our Pan-African approach to banking the opportunity to finance projects of larger scale at and finance has enabled us to contribute to the lower unit cost. We leverage African trade corridors financial and economic integration of our continent. across the various sub-regions by providing integrated Our integrated competencies are unique within trade solution, using various payment methods, middle Africa. We have built economies of scale, with to facilitate intra-African trade. The continent is extensive coverage in 33 countries, 927 branches witnessing the rise of businesses that are often access to cash 24/7 at over 2,665 ATMs, and 10,976 considered as emerging regional champions. point of sales devices. No other bank in Africa has Our unique ‘One Bank’ platform enables us to such breadth of coverage. We are making cross- serve such regional corporates seamlessly. border transactional banking more convenient, accessible and efficient. The countries in which we Banking for the public sector: have a presence all have a significant number of The public sector in African countries is significant migrant workers. Our Rapid transfer and CashXpress when measured by key parameters, such as Card products provide safer payments platforms and employment, government expenditure, public remain the market leader to serve our customers. investment, tax income and contribution to GDP. These products also enable diaspora Africans to Although the private sector is now widely recognised transfer and remit funds to their relatives faster and as an engine of economic growth, the public sector to support projects in their home country. remains dominant in many African countries. To ensure Corporate Governance 59

sustainable socio-economic development, the public million transactions, valued at a total of $634 million. sector, at all levels of government, continues to play a Although Ecobank Masterpass and mVisa service critical role in the service delivery of education, health, have only recently been launched, the merchant QR water and sanitation. is already reconfiguring the way in in which Ecobank clients are transacting business. In 2017, about Our goal is to be the preferred bank for Africa’s 170,000 Masterpass and mVisa transactions were public sector business and we are making progress successfully processed for 63,214 merchants, with a in this direction. With our single-view Omni products, value of over $3 million. tailored for corporate and commercial banking customers, we on boarded over 14,000 clients in Banking the United Nations: 2017. These Omni collection clients mainly comprise Following the decision of the UN Treasury on the revenue authorities, pension funds and commodity harmonization of treasury services to consolidate traders, which together accounted for nearly banking services in the UN system, Ecobank entered $15.5 billion of transactional value in 2017. This into negotiation and successfully signed the Master achievement is the result of Ecobank’s customised Banking Agreement (MBA) with the United Nations. services for civil servants, including deposits, This agreement with Ecobank is the second of collections, payments, cash management, payroll a number of global banking agreements to be administration, project accounts, advanced payment signed by the United Nations under the Banking guarantees, supplier payments and credits. We Harmonization Project. have positioned ourselves to deliver full value chain services to public sector entities, covering salaries, The Global Banking Harmonization Project was pensions, benefits and bursaries to all forms of tax, launched by the then Secretary-General of the United revenue, utility, customs and school fees collections. Nations Ban Ki-moon and by the Chair of the High Level Committee on Management (HLCM), as part For countries that access donor funds and those that of the Harmonization of Business Practices in the seek significant bilateral relationships with leading UN System, to adopt a standardized, coordinated global economies and with multilateral development approach to the procurement and administration institutions, we have positioned ourselves as a of global banking services and relations for the UN partner of reference for integrity, accountability and and all participating Funds and Programmes as well transparency – factors that are critical to collaboration as Specialized Agencies and Related Organizations. with these market players. In Ghana, we have won These entities have field banking requirements for several mandates to be the custodian of project peacekeeping operations and support activities in accounts funded by donors including the World Bank. post-conflict situations, among others. Recognising the need to mobilise public and private investment for development, we have been actively Ecobank Master Banking Agreement (MBA) involved in financing opportunities that are being recognizes that the UN System’s entities across our created in infrastructure finance, project finance geographic footprint in Africa have varying needs and and bond market development through requirements depending upon the type of operations public-private partnership. and countries involved.

In Senegal, we also implemented a short-term Subsequent to the MBA, several UN entities have $15 million financing for SENELEC, the power utility, signed the Participation Agreements (‘PAs’) as a to pay for the State’s electricity. This facility was set up requirement to complete the MBA process and this to provide an uninterrupted supply of electricity and has informed the continuous successes with UN RFPs smooth delivery of services and will be repaid from as Ecobank was nominated as one of the two selected the government’s budget. Ecobank also supported providers of banking services for the UN System in a regional transmission company with a $30.86 Benin and Zambia. Thus the bank is poised to continue million documentary Line of Credit to support the to offer the UN System a customized banking services implementation of West Africa Power Pool (WAPP) to assist the largest development organisation to projects for the supply and distribution of electricity effectively implement its developmental mandates. in Côte d’Ivoire, Liberia, Sierra Leone and Guinea. Mr. Ade Ayeyemi, the Ecobank Group Chief Executive In a related development, our Group CEO reiterated Officer, in his remarks at the signing of UN – Ecobank the bank’s commitment to micro, small and medium MBA, that “Ecobank is delighted to be signing the enterprises (MSMEs) as a fundamental part of Africa’s Master Banking Agreement as a long term partner of economic fabric, during his speech at the 23rd Nigerian the UN in the African continent. We have a common Economic Summit in Abuja last October. In delivering goal around support for, and the development of, the this commitment, we are leveraging the expertise of communities that the bank serves and Ecobank sees our Consumer banking division to provide targeted, the signing of the Master Banking Agreement as an digital banking products for MSMEs in served and important step in the further development of our under-served markets that are simple and convenient relationship with all UN entities”. to use. In 2017, we on boarded 1,945,309 customers via the Ecobank MobileApp, resulting in over 5.5 2017 Annual Report 60 Sustainability Report

Ecobank Foundation: Leading the Developmental Agenda: The Ecobank Foundation was established in 2005 to As a thought leader, we share our ideas and support charitable and humanitarian programmes, exchange views of the socio-economic and financial with the Group committing 1% of its annual profits developmental agenda in Africa: after tax to the Foundation. In 2017, the Foundation continued to advance the implementation of its 2020 strategy that seeks to develop a stronger footprint on World Economic Forum Africa – the continent, supporting the Group’s digital strategy of reaching 100 million customers by 2020. Over Durban, 3-5 May 2017 the course of the year, we have made progress in Ecobank Group CEO, Ade Ayeyemi, spoke strengthening existing partnerships and building new passionately about how digital technology ones. In delivering on the Foundation’s strategy, we can drive inclusive growth across Africa at a are seeking to contribute to the transformation of the African continent. range of events during the World Economic Forum Africa, held in Durban, South Africa. Building on Ecobank’s financial management Addressing a roomful of political and capabilities, we have worked in Chad and Liberia in business leaders at the ‘Closing the Digital partnership with The Global Fund and Humentum, a Divide’ panel, he emphasised how digital non-governmental organisation, to improve financial provides an opportunity to deliver banking management in programme delivery. We will be products at a price point that everyone can extending this programme to other countries in 2018. afford. The Group CEO also took part in a Also, we are collaborating with our colleagues in the Financial Institutions/International Organisations teams debate with Senegalese President, Macky to develop a broader version of this programme for Sall, detailing how Africa can advance other Ecobank DFI/NGO clients. Ultimately, our goal regional financial integration. Meanwhile, is to provide services that ensure that development Sebastian Ashong-Katai, Group Head of finance funds reach their final beneficiaries as rapidly Financial Institutions and International and securely as possible. Organisations, spoke about the business case for investing in core public health Through our partnership with The Global Fund, the capacities on an ‘Africa Centres for Disease Ecobank Foundation is focusing on eliminating malaria Control and Prevention’ panel. from Africa. For example, last year, our commitment to invest $250,000 in Mozambique was doubled by DFID, making a total contribution of $750,000 towards the Government of Mozambique’s anti-malarial initiatives. Ecobank launches ‘Help Sierra Leone Via this investment, Ecobank has joined a consortium Fund’, August 2017 of private sector organisations that are dedicated to combatting malaria in Mozambique. Ecobank acted quickly to support victims of the Sierra Leone mudslide disaster, which We have also collaborated on the conceptual rocked the country’s capital, Freetown, last framework and implementation of a pan-African initiative, ‘Africans for Africa’, aimed at accelerating August. The country faced a race against the pace of the transformation of the African continent. time to prevent further deaths, following devastating floods and mudslides that In 2018, we aim to increase our cooperation with claimed hundreds of lives and rendered Ecobank subsidiaries to strengthen their respective many more homeless. Ecobank kick-started investment in the communities in which we operate. the launch of the ‘Help Sierra Leone Fund’, with a $100,000 donation, urging Community Engagement: stakeholders and the general public to unite We are all part of our local communities. In addition in their support of the efforts of the Sierra to serving these communities through our various Leonean government to save lives. business activities, we have a keen interest in, and engage with, our communities as part of our corporate sustainability stewardship. Our community engagement activities in 2017 include the following: Corporate Governance 61

on ‘Safe Water, Healthy Living’, to raise awareness of The AGOA Forum – Lomé, the millions of African who cannot access safe, clean 8-10 August 2017 water, and how this impacts their quality of life and opportunities. Hailed as the most successful to date, The US and Togo co-hosted the African a number of impactful activities were undertaken to Growth and Opportunity Act (AGOA) Forum provide hospitals and schools (amongst others) with in Lomé in August. The forum brought clean water facilities. In Lomé, the Group CEO, Mr. together senior government officials Ade Ayeyemi, led the staff of ETI and Ecobank Togo from the US and over 35 Sub-Saharan in over 10,000 man hours of volunteering in various African countries to discuss ways to boost community development projects. economic cooperation and trade between For example in Cape Verde, Ecobank Day offered the US and Africa. The African Union and another opportunity for staff to interact with the regional economic communities also local communities as part of our social responsibility participated. As one of the key corporate in action. In commemorating the fifth anniversary of players in Lomé, Ecobank played an active Ecobank Day with the theme, ‘Save Drinking Water role at the Forum. One of the key events for a Healthy Life’, the management and staff of was a panel discussion on Private Sector Ecobank Cape Verde donated plastic drum containers Dialogue, hosted at the Ecobank Pan- for storage of safe drinking water in the communities. African Centre. Mrs Mareme Ndiaye Mbaye, The donation of drum was informed by the delayed rainfall, high salty concentration groundwater coupled who was Chairperson of the Technical with drought in some part of the island, particularly Committee of the Side-Events, was one in the Espinho Branco municipal area of Calheta Sao of the key speakers at the event, while Miguel on Santiago Island. Ecobank’s Group Head of Trade, Kassi Ehouman joined a panel discussion on The Ecobank Day programme was organised in trade finance. collaboration with the Solidarity League of Church of Nazareth, as part of the church’s ‘Eu guero ajudar’ project.

Ecobank Day: Started in 2013, every first Saturday in October, we celebrate Ecobank Day, which is the day we earmark to give back to our communities through volunteerism. Staff of Ecobank Cape Verde offloading We believe that our host communities play an the water storage drums in preparation important role in our corporate activities; thus Ecobank for presentation to the community Day offers a unique platform for making a positive difference, whilst acting as a good role model for The theme for 2017 Ecobank Day was ‘Safe Water, other private sector organisations. The day also helps Healthy Living’. Albeit, special consideration were the participating Ecobank staff to feel compassion and given to a few Ecobank affiliates to consolidate their develop an active interest in societal welfare. ongoing staff volunteering activities from the previous Each year, Ecobank commits a significant amount year and within the context of the affiliate specific of money towards this critical ‘giving back’ activity. developmental needs. In this regard, Ecobank Zambia This, in turn, allows volunteering and fundraising celebrated Ecobank Day on two separate days in activities around a specific theme to simultaneously two regions where the bank has a presence, namely take place across the 33 African countries where the Lusaka and the Copper Belt provinces. bank has a presence. The 2017 Ecobank Day focused 2017 Annual Report 62 Sustainability Report

Lusaka: The Copper Belt: Ecobank Day was celebrated on 14th December Ecobank Day was celebrated in Kitwe on 2017 in Lusaka by the award of scholarships to pay 9th December 2017 at the Kawama Race Course for all the tuition and exam fees from secondary Community School. The School, which has 1,775 education until university for three vulnerable, but pupils, has had no water for over ten years. high achieving, girls. This was in order to highlight the Furthermore, the school has no electricity or desks. challenges of inequalities in education faced by girls. Ecobank Zambia donated a borehole and water treatment products in its efforts to promote safe During the presentation of scholarship certificates, water for healthy life, both for the school and the the Managing Director, Mr. Kola Adeleke, reaffirmed entire local community. Speaking at the handover Ecobank’s commitment to support the efforts of the ceremony, Ecobank Zambia Head of Corporate Bank, Government of Zambia to address community issues Mr. Misheck Mkokweza, said: “Access to clean water especially in health and education. “As part of the not only promotes a better life but also helps to keep Ecobank Group, we are especially sensitive to the children in school, rather than searching for water. challenges of access to quality education within the It also promotes food security and reduces the risk communities in which we operate. Our corporate social of water borne diseases, to name but a few benefits.” responsibility programme is dedicated to supporting community welfare and development, whilst also The event was officiated by the Kitwe District addressing financial inclusion across Africa,” he said. Commissioner Mr. Binwell Mpundu who thanked Ecobank for supplementing Government’s efforts in The colourful event was officiated by the Minister providing safe water to communities. He said, “Thank of Higher Education, Hon. Professor Nkandu Luo. you to Ecobank for this donation as it will go a long The Minister thanked Ecobank for this noble gesture. way in meeting the water needs of this community. “I would like to thank Ecobank for coming on board to It is my hope that the school administration will support the education of girls in Zambia. The inability take care of this borehole donated by Ecobank to the to pay school fees is one of the main reasons that community so that the future generation can also girls are denied access to education. Kindly extend benefit from it.” my thanks to the Ecobank Group CEO’s Office for this contribution,” she said. He was so moved by the Bank’s efforts in assisting the school and the community that he preceded to In attendance were the United Nations Population open accounts with the Bank and downloaded the Fund Country Representative, Dr. Mary Otieno, the Ecobank banking APP. Director of Standards and Curriculum at the Ministry of General Education, a representative of the University of Zambia, Head Teachers and pupils of New Mtendere Secondary School and Kamulanga Secondary School and the parents of the girls who received scholarships.

1 Transactions with potentially limited adverse social and/or environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. 2 Transactions with potential adverse social and/or environmental impacts that are generally beyond the site boundaries, largely reversible and readily addressed through relevant mitigation measures. 3 Transactions that carry minimal, or no, environmental or social impacts 4 Transactions with potential significant adverse social and/or environmental impacts, which are diverse, irreversible or unprecedented. Corporate Governance 63

Protecting the Natural Resources and Following the restructuring of Ecobank’s subsidiaries Environmental Sustainability into 4 regional groupings in 2016, our ESRM processes As a bank in the vanguard of sustainable financial needed to be refined and reinforced to focus on institutions, Ecobank has been implementing material environmental and social issues specific to environmental and social risk management each region. A summary of our ES activities in 2017 is (ESRM) on credit transactions in the environmental presented in Table 1 and socially (ES) sensitive sectors since 2012. This is necessary to ensure that our clients are Table 1: Summary of ES transaction activity carrying out their business in an environmental in 2017 friendly and socially acceptable manner. It also Activity 2017 helps to protect Ecobank’s reputation, whilst supporting the natural resources and communities No. of managed transactions 1755 in our host countries, with the ultimate goal of No. of High risk 23 advancing sustainable development. No. of Medium A risk 708 No. of Medium B risk 330 Overview of the Implementation of ESRM No. of Low risk 694 in 2017 Exclusion List transactions 0 In Ecobank, ES policy and procedures offer a consistent approach to the identification, screening, classification, Of the total of 1,755 transactions that were screened mitigation and compliance monitoring of our decision- and managed for ES risk in 2017, 59.1% were in the making processes. The ES policy follows the Group Medium B and Medium A ES risk categories, versus Credit Process and Procedures Manual (‘GCPPM’) that 61.75% in 2016. Low-risk transactions as a percentage defines the nature and level of risk that Ecobank is of the total increased from 36.2 in 2016 to 39.5% willing to take in pursuit of its strategic and business in the year under review, whilst the percentage of objectives. Our engagement with clients in the ES High-risk transactions screened decreased marginally eligible sectors, such as the extractive industries, from 1.9% in 2016 to 1.3% in 2017. Furthermore, the heavy construction, manufacturing, real estate and percentage concentration of the ES eligible transactions utilities (including energy generation, transmission in the Medium A and Medium B risk categories and distribution), continues to broaden and deepen. signifies that Ecobank’s exposure to potentially ES We regularly review eligible transactions in line with sensitive activities remained within operational the IFC Performance Standards on Environmental containment limits and, hence, largely manageable. and Social Sustainability, as well as the Equator Principles, where necessary. The review is followed Across the regions, specific environmental and social by recommendations to improve the alignment and risk due diligence criteria were adopted in assessing integration of our clients’ business practices with cross-border issues, such as biodiversity, that heighten sustainable development priorities. the ES risks. Chart 1 below, presents the number of transactions screened and managed for potential ES risks by region in 2015, 2016 and 2017.

Chart 1: Number of transactions screened and managed for the E&S risks by Ecobank regions in 2015, 2016, and 2017

9 9

5 5

5 95

AWA UMOA Nigeria CSA

2015 2016 2017 2017 Annual Report 64 Sustainability Report

The largest Ecobank region by market size as well In 2017, the Group, and the subsidiaries concerned, total equity capital allocation, Ecobank Nigeria, conformed satisfactorily with the IFC’s AEPR reporting accounted for only 6.6% of the total transactions obligation and complied with all subsequent managed for ES risk in 2017, compared to 5.2% in requirements relating to the report the previous year. Although the bank has taken a conservative approach to lending in Nigeria since Affiliation with Environment, Social and 2016, the increment in the volume of ES transactions Governance (ESG) Frameworks (UNEPFI): is partly due to the renewal/restructuring of existing At the global level, Ecobank continues to ensure facilities, together with the increasing value of that its commitment to sustainability goes beyond existing assets as a result of the improving compliance with legal requirements, whilst remaining economic outlook. an effective tool for gaining competitive intelligence and widening networking opportunities. Our The total portfolio exposure to ES sensitive sectors participation in global sustainability initiatives is aimed in Anglophone West Africa (AWA) and the West at leveraging best practice to improve our internal Africa Economic and Monetary Union (UEMOA) programmes for the implementation of sustainability. regions as of December 2017 were 29.05% and 30.48% respectively. The 5 Ecobank affiliates in Ecobank participated in UNEPFI’s AGM AWA accounted for 14.4% of the total transactions managed for ES risk in 2017, whilst the 9 affiliates and Africa Regional Roundtable, in UEMOA had the largest number of transactions Johannesburg, November 2017 managed for ES risk of all of Ecobank’s regions, Ecobank remains an active member of UNEPFI and a making up 49.5% of the Group total. signatory to the UNEPFI Statements of Commitment by Financial Institutions on Sustainable Development The Central, Eastern and Southern Africa (CESA) region to develop and promote financing for sustainable is the largest Ecobank region in terms of the number development and an inclusive green economy. Grow faster. Go further. of subsidiaries, covering 18 countries in total. In Ecobank participated in the 2017 UNEPFI Annual 2017 CESA’s total portfolio exposure to ES sensitive General Meeting, held in Geneva, Switzerland and sectors was 30.8%. The region accounted for 29.5% the UNEPFI Africa Regional Roundtable Meeting in of the total transactions managed for ES risk, a Johannesburg, South Africa, in November 2017. decline in comparison to the 32% registered in 2016. The Chairperson of Social, Ethics and Reputation Nevertheless, analysis of 2017 data revealed that Committee of the ETI Board, Ms. Dolika Banda, the ES data integrity management in the region has represented Ecobank in a panel session on ‘Progress continued to improve. This is partly due to a ‘bottom- on Sustainable Finance and the Long Road Ahead’. up’ risk assessment, in which the subsidiaries’ ES risk information is aggregated at the Group level. This is Ecobank – a member of UNEPFI’s Global helping to ensure that a wide range of perspectives Steering Committee and critical analyses are incorporated to ensure The UNEPFI Global Steering Committee provides balanced and objective ES risk management overall. executive direction on strategic, work programme and budgetary issues on a regular basis. The Global Implementation of ESRM as part of the Steering Committee reports to UNEPFI’s Annual contractual obligations of the IFC facilities General Meeting, where all Members come together (Annual Environmental Performance Review): to make decisions on the initiative’s overall strategic Ecobank has facilities with varying ES requirements direction, structural issues and budget matters. from several development lenders such as the IFC, The Committee comprises 13 members from the FMO, FinFund, African Development Bank (AfDB), banking, insurance and investment industries and European Investment Bank (EIB) and the French were appointed via membership election. Ecobank’s Development Agency, Proparco, amongst others. appointment is in the banking category, along with BBVA (Spain), Corporacíon Andina de Fomento Give your enterprise the edge These facilities have varying but overlapping ES (Venezuela) and Citibank (USA). standard compliance requirements. The IFC facilities with the fastest targeted solutions in the market with the Group and 11 of its subsidiaries (Ghana, ESRM outlook: Nigeria, Cote d’Ivoire, Mali, Liberia, Guinea, Chad, In 2018, we will continue to improve the Ready to go? Visit ecobank.com/commercial-banking Togo, Congo Brazzaville, Congo Democratic Republic implementation of our ESRM, with a particular focus and Central African Republic), require that an Annual on the compliance monitoring and reporting of the ES Environmental Performance Review (AEPR) is carried Corrective Action Plan. Furthermore, we are poised to out. The AEPR is a self-assessment of the subsidiaries’ revise the Ecobank ESRM policy, which was approved compliance with ES standards in their financing in 2014. This revision has become necessary in the activities. It covers 2 main areas, namely: light of new realities and emerging developments in the management of eligible transactions for ES risk • ES portfolio information, including the within Ecobank. categorisation of transactions based on the severity ecobank.com of their ES impact; and • Implementation of an ES Management Framework. Grow faster. Go further.

Give your enterprise the edge with the fastest targeted solutions in the market Ready to go? Visit ecobank.com/commercial-banking ecobank.com 2017 Annual Report 66 People report

Strategic Human Capital Initiatives for a Digital Future The diversity of backgrounds and skills of our people remains a key contributor to our unique, pan-African culture. Ecobank currently has 15,930 employees, made up of 43 nationalities from around the world. This represents a 8% reduction in the headcount since 2016, reflecting our focus on right-sizing our businesses in Nigeria, Ghana and the CESA region.

Having taken steps to improve our operational effectiveness, our objective now is to meet the challenges of the digital workplace, ensuring that all our staff have the capabilities and skills that they need to be more agile and responsive, thereby positioning Ecobank for sustained growth. As in any major organisational change, the understanding and buy-in of our employees to Ecobank’s digital transformation is a pre-requisite of success.

Employee data As at 31 December 2017 2017

Number of employees 15,930 Female Representation 44% Nationalities 43 Attrition Rate 12%

Employees by geographic segment/regions Employees by Business/Functions (% As at December 31st 2017) (% As at December 31st 2017 )

CSA 18% Corporate and Investment Bank 5% Nigeria 42% Consumer Bank 14% UMOA 20% Commercial Bank 5% AWA 16% Client ngagement 7% Others 5% nabling Functions 69%

2017 Highlights • In partnership with the senior management of • Strengthening our Learning and Development each of Ecobank’s three business lines – Consumer platform to develop key capabilities; Bank, Commercial Bank and Corporate and • Further embedding Talent and Performance Investment Bank – we are making steady progress Management processes across the Group; with all of our strategic human resources (HR) • Launching a Group-wide Employee Engagement objectives. We continue to support the Group’s initiative; and digital transformation ambitions by focusing on the following areas: • Aligning our reward programmes to global best practices to create a performance-driven culture and environment. Corporate Governance 67

Overview of 2017 Our credit risk programmes are focused on developing better credit decisions at the origination • In the year under review, the Group’s HR team stage, together with the identification of early continued to focus on the execution of its three- warning signals. We are also introducing a more pronged people strategy, aimed at: structured approach to analysis, with greater • Attracting, developing and retaining the best talent; emphasis on cash flow and stronger relationship management, based on effective client dialogue. • Delivering a performance-driven culture and working environment; and • Trade Finance and Cash Management Given the strategic importance of Transactional • Deploying people and resources in the most Services to our overall strategy, we launched a productive and efficient manner. skills-based training programme last year, known internally as the ‘Ecobank Transactional Banking Learning and Development Services University’. Recognising the strategic importance of developing This programme aims to strengthen our capabilities the required skills and capabilities to underpin the in Trade Finance, Cash Management and Supply Group’s digital transformation, the Learning and Chain Financing to boost non-interest revenues Development function, together with the Ecobank through a greater volume of higher value Academy, was quick to respond to emerging business transactions. Delivered using an innovative ‘Train- needs while continuing to focus on implementing the-Trainer’ approach, this programme has enabled long-term competency and assessment-driven us to reach over 1,800 staff in 30 of our subsidiaries, learning interventions. including business heads, trade finance and cash Accelerated delivery of “Game Changer” management executives, relationship managers and Training Programmes operational and control staff. • Product Knowledge and Cross-Selling Skills During the course of 2017, our team worked diligently Throughout the year, we have intensified our to design and deliver strategic learning initiatives to product training. In Ghana, for example, we made address critical business needs, including enhanced product training mandatory for all staff, resulting credit risk management and trade finance and cash in a 95% participation rate. In Nigeria, intensive management capabilities, improvements in sales and instructor-led product training has been rolled out relationship effectiveness, tighter cost control and for Consumer and Commercial Banking staff. In increased productivity. We have also needed to speed addition, hundreds of our employees completed our the process of equipping our staff with the necessary in-house Customer Service programme that focuses skills and competencies to embrace the challenges of largely on retail banking products and services. digital financial services. • Leadership and Management Development Here we outline the progress of key Game Changer We continued to strengthen our initiatives to programmes that are being implemented across develop leaders’ right across the organisation the Group: through action learning. Incorporating all levels of leadership - senior, middle and front-line • Digital Financial Services (DFS) management - this programme is built around Under the direct auspices of the Group CEO, we Ecobank’s required leadership competencies, its have begun the implementation of the holistic values and strategic objectives. DFS curriculum that will enable us to build internal • Other Business Game Changers and external capabilities to develop partnerships Other business enabling curricula rolled out during to expand and accelerate distribution of digital the period included: products and services across the Group. - an Operational Risk Certification programme • Credit and Risk Management Working closely with Group Risk Management, we - a Customer Service Certification Programme have accelerated our efforts to institutionalise credit - an FICC (Treasury) Certification Programme, and risk training by making it mandatory for all staff - Leadership and Management Development involved in the credit process. programmes. The programme is made up of 3 stages: – pr e-assessment to measure individual capability and identify credit skill gaps; – classroom training sessions; and – pos t-training assessments to determine the impact of the learning. 2017 Annual Report 68 People report

• Providing tangible cost savings for the Group Breakdown of Participants in Game Changer by meeting all training objectives within Training by Region 2017 allocated budgets. • Pursuing its vision and mission of: - de veloping world class managers and leaders for Ecobank; - enhancing professional and leadership skills in Africa’s banking sector; and - fostering the creation of knowledge capital for Africa’s financial integration and economic growth.

Talent and performance management During 2017 we fast-tracked our Talent and Performance Management initiatives to support our corporate strategy and, more specifically, to:

• build a Group-wide pipeline of Talent Nigeria 29% and Leadership; AWA 10% • build a multi-dimensional bench strength, aligned CSA 36% with our strategic priorities; FWA 25% • ensure clear succession planning for business critical roles and the retention of high performers by providing clear career pathways. Upgrading our e-Learning platform to facilitate workplace learning During the course of the year, we implemented the As part of our efforts to provide cost-effective, following strategic initiatives: on-the-job learning opportunities for our staff, we finalised the upgrade of our new eLearning platform, • Strategic Talent Review Process also known as the Virtual Banking Institute (VBI). In 2017, we concluded the Strategic Talent Review This upgrade was crucial in terms of providing a process, targeting all members of the Group state-of-the-art, digital learning platform that is Executive Committee, their businesses, functions capable of responding to our dynamic needs as an and regions. We also went on to implement organisation. Among other objectives, the upgraded targeted impact-driven talent intervventions for VBI is expected to facilitate a whole new approach assessed individuals that included, inter alia, to learning and self-development to the benefit of individual development plans, training, promotions, thousands of our staff across the Group. structured job rotation, coaching and mentoring. • Strengthening Talent Acquisition Celebrating 3 Years of the In partnership with the businesses, we have Ecobank Academy successfully completed a recruitment exercise for Last, but by no means least, we should also highlight key positions. It is important to note that 58% of that August 2017 marked the third anniversary for our these positions were filled by internal promotions Ecobank Academy. and redeployments, with only 42% being offered to external candidates. Furthermore, we have Over this period, the Ecobank Academy has also launched initiatives to strengthen our group succeeded in: talent acquisition process and systems through enhancements to our recruitment process. Across • Positioning itself as one of the key pillars in the the group, we are also building, where appropriate, advancement of our business objectives; internal assessment and recruitment capabilities to • Institutionalising the “design centrally and distribute minimise the use of external search agencies. locally” approach by upscaling our training delivery • Strengthening Performance Management Process capabilities to: We have enhanced our Performance Management − pr ovide a consistent and high quality Process by putting greater emphasis on key learning experience; performance areas: − tr ain as many staff as possible in a - M aking continued progress towards our goal cost-effective manner; of achieving a 100% paperless/automated Performance Management review process, using − embed understanding of our strategy across our upgraded online platform. the organisation; - Implemen ting a culture of continuous performance − e ffectively link learning with talent and dialogue to support employee development. performance management; and − ins til a learning and knowledge sharing culture. Corporate Governance 69

Employee Engagement • Workforce Planning We continue to emphasise the importance of our We are making significant progress towards organisational culture and employee engagement achieving greater operational efficiency. In 2017, we both in the overall execution of our corporate strategy reassessed our deployment of human resources in and in the sustainability of our business. Towards the line with our drive to right-size the business. This led end of 2017, we launched a group-wide Employee to moves to rationalise our workforce, with effective Engagement Survey, with the aims of: redeployment wherever possible, following the optimisation of our branch networks in CESA, Nigeria • measuring employee engagement across all and Ghana. of Ecobank’s subsidiaries, via Employee Net Development Of Women Promoter Scores (ENPS), to and identify areas for We are continuing to make significant progress improvement and build a compelling Employee towards greater gender diversity within all levels of Value Proposition (EVP); the organisation. For example, women now make • enabling the HR function to gather data for Group up 44% of the overall headcount, whilst 30% of the policy formulation and implementation; management team is now female. • facilitating the identification of people risks and their potential impact on the business; As part of our broader gender equity policies, we are implementing a robust Women’s Development • improving business performance through targeted Programme with the aim of increasing the number employee engagement initiatives based on of women in senior leadership positions and to empirical data; and build a strong pipeline of female business leaders • setting the baseline for culture and values-related for the future. staff objectives. Strategic HR Priorities For 2018 Based on the results of this survey, we are planning • Digital technology provides HR with a rich set of to implement the required employee engagement tools to engage people and deliver higher levels of activities during 2018. performance. The key to success, however, lies in the effective implementation of a digital workplace • Compensation and Benefits strategy capable of driving true cultural change. We have continued our partnership with KPMG to ensure that our compensation plan and strategy are • Building on the progress already made, we are aligned to best practices and effectively encourage looking to accelerate the impact of our work by performance excellence. We finalised the review of focusing on the following strategic initiatives: our Total Reward strategy and aim to implement a revised and more effective incentive compensation • Learning and Development Solutions plan in 2018. • Integrated Talent Management This revised plan aims to create a high performance • Organisational Effectiveness culture that will incentivise employees to deliver superior performance and maximise the creation • Total Reward (Compensation and Benefits) of shareholder value, without taking excessive • Employee Efficiency and Effectiveness risks. The objective of the scheme is to motivate • Automation and Digitalisation of HR processes and retain top talent that contributes to the growth of Ecobank’s business by offering employees the opportunity to share in our success. Overall, the scheme is designed to better align the interests and focus of our employees with those of our shareholders. 2017 Annual Report 70

Risk Management has received a great deal of Board and senior executive attention and has significantly up-skilled its management, staff resources and processes to improve its capability in the identification and anticipation of all types of risk across the Group. We are transforming our risk culture and embedding shared and communicated principles and controls throughout Ecobank. Risk Management Risk Management 71

Select Service

Pay bills

Select provider

Amount: $13.00

PAY 2017 Annual Report 72 Risk Management

2016 was a very challenging year in our major markets In terms of Market Risk, our liquidity indices have and it stretched the financial capacity of obligors shown consistent improvement throughout 2016 resulting in a deterioration in asset quality, and this and 2017, and this has been driven mainly by a was also compounded by legacy issues in some cases. combination of increased deposits and constrained This led to record high levels of impairment losses at loan growth. We expect the proportion of our Fixed the end of 2016 and the impact of this continued to be Income exposure to remain stable. We are focussing on felt in 2017. revising our operational structure, both at Group and Regional levels, to pave the way for improved analysis, In 2017 we took the strategic decision to reposition monitoring, management and reporting of exposures Risk Management’s role within Ecobank’s overall through staff with skills enhancement. strategy and engaged in a transformational journey which focussed on our people, systems, processes In line with the globally recognized Environment, and especially, our Remedial Management function Social and Governance framework (ESG), Ecobank is a to cleanse our asset base and stabilise the situation. sustainable financial institution with an Environmental We recognise that this will require sustained effort and Sustainability risk policy. We work in association and are pleased with the real progress that we with the UN Environment Programme Finance have made so far. We have achieved recoveries on Initiative (UNEPFI), the UN Global Compact and the previously impaired assets and have slowed the pace Equator Principles for project financing, as well as of challenged assets converting into non-performing the IFC’s Performance Standards. We are committed loans (NPLs). to ensuring that all our activities are carried out in an environmentally friendly and socially acceptable Our Roadmap to Leadership requires a strong, manner and we also help our clients conduct their embedded and shared risk culture throughout Ecobank. businesses in a sustainable way. We are committed We are putting Risk Management at the heart of to ensuring that the potential Environment and Social our shareholder value creation so that it will support (E&S) risks of our activities are within the acceptable the growth of the business by monitoring our credit limits agreed with our development financial portfolio in a safe, sustainable and profitable manner. institution (DFI) partners.

We will achieve this using a three-pronged strategy: The implementation of our initiatives is supported by our control environment and robust Operational Risk • Building the capacity of our expertise by providing Management governance framework. This ensures adequate and targeted training (credit risk, market that we will continue minimising operational losses risk, risk analytics, operational risk and environment through training, awareness and our Risk and Controls and sustainability risk); Self-Assessment (RCSA) processes. • Fundamentally reviewing our policies and processes and implementing an enhanced credit operating In 2018, IFRS 9 will be rolled-out in the Bank; in model, with decentralised approval authority, addition, Basel II/III will come into force from January coupled with improved processes and portfolio 1st across UEMOA (WAEMU – West African Economic & monitoring tools; and Monetary Union). The adoption of IFRS 9 could result in ETI’s retained earnings and share capital absorbing • Strengthening our Remedial function to some of the anticipated incremental impairment. continuously monitor the quality of our portfolio We will comply with all regulatory requirements and and improve the performance of our remedial intend to achieve a relatively high coverage ratio. With and recoveries performance. regards to Basel II/III, we are working closely with our By rolling out these initiatives, we will limit the regulator, the BCEAO, and expect full compliance, both deterioration of our loan book and reduce our NPL for the Group and all our subsidiaries in the UEMOA ratio to acceptable levels, minimise our impairment region, without breaching any regulatory capital losses, protect Group revenues and provide adequacy ratios. acceptable returns to our shareholders by contributing In 2018 we will continue to focus on reinforcing to the achievement of a key objective – a return on the risk culture across the Group, enhancing target equity above the cost of equity. market selection, and taking advantage of market 2017 also saw the recovery of some major economies, opportunities. with Nigeria’s recession ending in the second quarter, thanks to higher oil production, reduced inflation, improved US Dollar liquidity and less volatility in local currencies. We expect the recovery in sub-Saharan African economies to accelerate in 2018. Risk Management 73

1. Risk Management Framework 2. Major Risk Types Risk is inherent within the business activities of the The Group is exposed to the following major risk types: Ecobank Group. Accordingly, Ecobank has designed a risk management framework and a governance Credit risk is the probability of financial loss arising structure to achieve the appropriate balance between from the default or the credit risk migration of a risk and reward. customer or counterparty. It can arise either because the borrower or the counterparty is unwilling to The risk management framework consists of a execute or because their ability to execute has been comprehensive set of policies, standards, procedures impaired. Direct credit risk arises in connection and processes designed to identify, measure, monitor, with credit facilities, such as loans and advances, mitigate and report significant risk exposures in a whilst indirect or contingent credit risk stems from consistent and effective manner across the Group. the Group’s guaranteed contractual obligations to a client resulting from the issue of letters of credit and 1.1 Risk Identification guarantees. Credit risk also exists when the Group The Group identifies risk by evaluating the potential and its client have mutual obligations to exchange impact of internal and external factors on business or deliver financial instruments at a future date. The transactions and positions. Risk managers have risk of default before settlement, also known as developed strategies to set appropriate risk limits (by pre-settlement risk, arises when the counterparty customer, product and business) and obtain sufficient defaults before the contract matures and the Group collateral coverage, to mitigate identified risks. suffers a financial loss in the process of replacing the unexecuted contract. The settlement risk becomes 1.2 Risk Measurement direct credit risk at the time of default. The Group uses a variety of methodologies to measure risk. These include calculating probable loss (both Market risk is the risk of loss arising from adverse expected and unexpected), assessing risk rating, changes in market conditions during the period conducting stress tests and benchmarking. required to close out the Group’s on- and off-balance sheet positions. Losses may arise from changes 1.3 Risk Mitigation in interest rates, exchange rates, equity values, The Group has introduced specific measures commodity prices, etc. Positions that expose the Group to minimise or eliminate unacceptable risks. to market risk can be trading or non-trading related. These techniques include managed distribution Trading risk relates to positions that the Group holds as across affiliates or others financial institutions, part of its trading or market-making activities, whilst covenants (positive, negative and financial), non-trading risk includes discretionary positions that insurance and collateral. the Group undertakes for liquidity or capital hedging purposes. Sources of market risk include: 1.4 Risk Monitoring and Control • Interest rate risk is the exposure of current and The Group reviews risk management policies and future earnings and capital to adverse changes in systems regularly to reflect changes in markets, the level of interest rates. Exposure to interest rate products and emerging best practices. Risk risk can result from a variety of factors: monitoring is based on the following central risk areas: credit risk (including counterparty risk), market – R epricing risk, which arises from timing differences risk, liquidity risk, operational risk and country risk. in the maturity or repricing of assets, liabilities and Risk professionals and internal auditors monitor risk off-balance sheet instruments; exposures and adhere to approved risk limits by – Yield curve risk is the risk that changes in market analysing reliable up to-date information systems interest rates may have different effects on prices on a daily, weekly and monthly basis. of similar instruments with different maturities; – B asis risk is the risk that changes in market 1.5 Risk Reporting interest rates may have different effects on The Group allocates considerable resources to ensure rates received or paid on instruments with ongoing compliance within approved risk limits. It has similar repricing characteristics (e.g. funding an set guidelines for reporting to relevant management adjustable rate loan that is indexed to a 3-month bodies, including the Board of Directors and the Treasury bill with deposits that are indexed to the Group Executive Committee. Significant changes in 3-month LIBOR). Interest rates for various assets the credit portfolio, non-performing loans and other and liabilities change at the same time, but not risk measures are reported on a daily, weekly and necessarily by the same amount; and monthly basis. – Op tions risk is inherent in embedded options in assets and liabilities. An example is provisions in agreements that give borrowers the right (and not the obligation) to prepay their loans or give depositors the right (and not the obligation) to withdraw funds at any time, often with little or no 2017 Annual Report 74 Risk Management

penalty. These options, if exercised, can affect net Reputational risk is defined as the current or interest income and underlying economic value. prospective risk to earnings and capital arising from • Liquidity risk arises from the general funding needs an adverse perception of the Ecobank brand amongst of the Group and in the management of its assets existing and potential transactional stakeholders, such and liabilities. The Group is exposed to the risk that as clients, trading counterparties, employees, suppliers, depositors’ demands for withdrawals outstrip its regulators, governmental bodies and investors. ability to realise longer-term assets in cash. The perceptions of stakeholders, such as the media, The Group, therefore, strikes a balance between its Non-Governmental Organisations (NGOs), trade unions, liquidity requirements and funding costs by capturing competitors and the general public, can influence stable, reliable and low-cost sources of funding in each the bank’s ability to maintain existing relationships, of its markets. generate new business and maintain access to sources There are two types of liquidity risk: of funding.

– F unding liquidity risk is the risk that funds will not Country risk is the risk that political actions result be available when needed to meet our financial in nationalisation, expropriation, transferability and commitments; and convertibility risks. These may affect the ability of – Trading liquidity risk is the risk that assets cannot obligors in that country to honour their cross-border be liquidated quickly enough at reasonable market obligations towards Ecobank. prices. This can happen when market liquidity Sovereign risk refers to the risk that a sovereign or disappears, making it difficult, or costly, to close or State-Owned Enterprise (SOE) may not have the modify positions without incurring unacceptably capacity or willingness to honour its debt obligations. high losses. Exposures to sovereign risk will include statutory • Interest rate risk and liquidity risk are requirements for liquid assets in the form of sovereign interconnected, given that management of either bonds, liquidity placed with the Central Bank, side of the balance sheet has an impact on interest subscription for sovereign bonds, direct exposures rate risk exposure. to the sovereign and guaranteed obligations, and • Foreign exchange risk is the risk to earnings and exposures to the SOE. capital arising from sudden fluctuations in currency exchange rates. It can arise directly through trading Contagion risk is the risk that developments in one in foreign currencies, making loans in a currency country lead to a rating downgrade or adverse credit other than the local currency of the obligor, buying conditions not only for that country but also other foreign-issued securities or issuing foreign currency countries in its regions where the Group has interests. denominated debt as a source of funds. It can also arise when assets and liabilities are denominated Strategic and franchise risks arise whenever the in foreign, as well as local, currencies. The Group Group launches a new product or a new service, is also exposed to foreign exchange risk arising or when it implements a new strategy. The risk is from adverse movements in currency exchange that the strategy may fail, causing damage to the rates used to translate carrying values and income Group’s image, which may impair the Group’s ability streams in local currencies relative to the US Dollar, to generate or retain business. However, the Group Ecobank’s reporting currency always carefully assesses both the impact of external factors on its strategic decisions (‘strategic risk’) and • Equity price risk is the risk of loss from equity the feedback from clients, shareholders and regulators portfolio devaluations due to share price movements. regarding its results and capital (‘franchise risk’). • Commodity price risk is the risk of loss from Environmental and Social risk: Environmental risk commodity portfolio devaluations due to commodity means the risk of causing pollution or destruction price fluctuations. of the natural environment (land, water, air, natural habitats, and animal and plant species) either through Operational risk is the risk of loss resulting from accidental or deliberate actions. Similarly, Social risk inadequate or failed internal processes, people and is the risk of a customer not meeting acceptable systems or external events. It is inherent in every standards for employment, working conditions and product and service that Ecobank provides. It manifests business ethics, within its own business or by its itself in a variety of ways, including internal fraud, actions and the resultant impact on the community external fraud, transaction processing errors, business within which it operates. interruptions and disputes with employees, clients and vendors. Operational risk also includes legal risk, Compliance risk is related to violations of the rules the risk of loss resulting from the failure to comply and regulations in force in countries where the Group with laws, prudent ethical standards and contractual operates. Compliance risk also arises when the rules or obligations. Such events could potentially result in regulations applicable to the products and activities of reputational risk for the Group. subsidiary banks are ambiguous. Such risks could result Risk Management 75

in sanctions, penalties, damages and even the voiding The Group’s Board of Directors supervises risk of existing contracts. Legal and regulatory risks are part management through the Risk Committee and the of compliance risk. Audit and Compliance Committee of the Board.

Disclosure risk is the risk of loss due to the The Board articulates the level of risk that Ecobank presentation of incomplete or false information to the is willing to accept in the normal course of business general public, shareholders or regulatory bodies. (‘risk appetite’) and sets the overall risk profile for the Group. The Risk Committee proposes risk policies and Non-compliance with accounting rules and the overall approach to risk management and monitors requirements for the delivery of reports to regulatory, the adequacy of controls, compliance with risk policies supervisory or fiscal authorities could also give rise to and the Group’s risk profile. The Audit and Compliance strategic and franchise risks. Committee ensures that the financial activities of the business are subject to independent review and 3. Governance Structure external audit. In 2017, the Group’s Board of Directors approved a The Group Chief Risk Officer is Ecobank’s most senior new governance structure around the credit process, risk management officer, responsible for all risk which includes an amended Credit Policy, a new Credit activities, and reports functionally to the Board Risk Operating Model, and the decentralisation of approvals Committee and administratively to the Group Chief to regions and countries. The enhanced governance Executive Officer. The Group Chief Risk Officer develops structure is in transition and will be fully implemented the risk management strategy, principles, framework during 2018. and policies, and implements appropriate risk management processes, methodologies and tools.

Risk Management Governance Structure

Board of Directors

Risk Committee Audit & Compliance Committee

Non-Executive Directors

Group Chief Risk Officer 2017 Annual Report 76 Risk Management

The Group Chief Risk Officer advises and instructs • Credits to Governments, Financial Institutions management and business units on risk management, and Corporations monitors the application and effectiveness of risk – Subsidiary banks initiate and approve credits management processes and co-ordinates appropriate applications (CAs) within their approved limits. and timely delivery of risk management information to Country approvals are provided by Country Credit the Group Chief Executive Officer, the Group Executive Committees and ultimately by the respective Committee (‘GEC’), the Risk Committee and the country Board Credit Committees. Board. The Group Chief Risk Officer provides overall – A fter such approval, and depending on amounts supervision of a Credit Risk department, a Remedial set in the Credit Manual, some of the CAs must be Management unit, a Risk Analytics and Management sent to the relevant Industry, Product and Country Information System (‘MIS’) unit, an Internal Control Risk Specialists for their ‘no objection’. Thereafter, department which includes an Operational Risk they will be sent to Regional Executive, Business Management unit, a Market Risk Management unit, Group Head and Group Executive for their ‘no an Environmental and Sustainability unit and Regional objection’ as appropriate. Risk Heads. The Credit Risk department comprises Regional Credit Heads, a Commercial and Consumer – Wher e credits exceed the approval limit of the Credit Centre, a Group Credit Administration unit and subsidiary, they are referred to relevant Senior a Country and Sovereign risk unit. Credit Officers in line with the bank’s approval authority matrix for their ‘no objection’. In each subsidiary bank, Group Risk Management is represented by a Risk Management department, which – On receipt of the ‘no objection’ and other required is completely independent from all the operating and approvals, depending on the facility limits and risk-taking units. A Country Risk Manager, who reports nature of the transaction, the initiating subsidiary administratively to a Country Business Head and submits the request to the local board for approval functionally to the Regional Risk Head, leads the Risk for transactions that are above their Country Credit Management department. Committee approved limits. Group Risk Management is represented in each • Credits to Individuals, SMEs and Local Corporates geographical cluster by a Regional Risk Head, who reports administratively to a Regional Business Head – Cr edit transactions are approved under the terms and functionally to the Group Chief Risk Officer. and conditions of credit programmes approved by Group Risk Management through its Commercial The risk management approval process is fully and Consumer Credit Centre. independent of the businesses. – C ommercial and Consumer Credit Centre reviews credits above local limits for consistency with Group policies and procedures and provides its ‘no objection’. – On receipt of ‘no objection’ from Commercial and Consumer Credit Centre, the initiating subsidiary submits credits above local Country Credit Committee limits to the local board for approval.

Organogram of Group Risk Management

Group Chief Risk Officer

Group Head Group Group Risk Group Head Group Chief Internal Control Environmental Group Market Regional Risk Analytics & Remedial Credit Officer (incl. Operational & Social Risk Risk Head Heads Risk MIS Head Management Risk) Head

Group Group Consumer Group Credit Regional Country Risk & Commercial Administration Heads of & Sovereign Banking Credit Head Credit Risk Head Head Risk Management 77

The Group Asset and Liability Committee (‘GALCO’), The Board through its Risk Committee has delegated a sub-committee of the Group Executive Committee its authority to Senior Executives, including the Group (‘GEC’), is responsible for the supervision and Chief Risk Officer and the Group Chief Executive management of market risk (mainly interest rate Officer, to review and approve all credits above and liquidity risks). Its members are the Group the policy limit, which is defined as the maximum Chief Executive Officer, the Group Executive Finance, credit exposure to any borrower or group of related the Group Executive Consumer Banking, the Group borrowers, currently set at 7.5% of Ecobank’s Executive Commercial Banking, the Group Executive consolidated shareholders’ funds. Corporate Banking, the Group Executive Technology and Operations, the Group Treasurer, the Group Chief The Risk Committee is comprised of not less than Risk Officer, All Regional Executives, the Group Head three non-executive directors. The Group Chief Risk of Compliance and the Head of Group Asset and Officer and other senior representatives from the Liability Management (‘ALM’). The committee meets risk management organization attend the Risk quarterly (although more frequent or ad-hoc meetings Committee meetings. may be held) to review the structure and pricing of Group assets and liabilities, to agree on the optimum Whilst the primary responsibility for managing credit maturity profile and mix of incremental assets and risk resides with the first line of defence, the Group liabilities, to evaluate inherent market risks in new Chief Risk Officer is responsible to ensure that there products and to articulate the Group’s view regarding are resources, expertise and controls in place for the interest rates. efficient and effective management of credit risk across the Group. At the subsidiary level, the responsibility of asset and liability management lies with the Treasury Ecobank’s subsidiaries receive delegations of credit Department. Specifically, the ALM desk of the Treasury approval authority from their respective boards of Department manages the balance sheet. The results directors in line with the general framework set up by of balance sheet analysis, along with appropriate the Group Chief Executive Officer and the Group Chief recommendations, are reviewed in monthly Asset and Risk Officer. Liability Committee (‘ALCO’) meetings where important decisions are made to minimise risk and maximise 4.1.2 Risk Identification returns. Local ALCO membership includes the Country The Group’s business activities can be divided into Managing Director, the Country Treasurer, the Country three segments: Consumer Banking, Commercial Risk Manager, the head of Internal Audit, the head of Banking and Corporate and Investment Banking, Finance and the head of Legal. each of which have shared support units, designed to improve operational efficiency. Each of these activities 4. Risk Management Approach entails various risks, which fall into the main categories of the Group Risk Management framework, namely 4.1 Credit Risk credit, market, operational and liquidity risks. 4.1.1 Organisation The Group manages credit risk by means of Ecobank is exposed to credit risk through direct a governance structure with clearly defined lending, the issuance of financial and performance responsibilities and credit approval authority. guarantees and capital market activities. Credit risk analysts work in partnership with the sales function in The Board of Directors of ETI is the highest identifying risk exposures within each subsidiary bank. credit approval authority in Ecobank. It sets credit policies and ensures that all officers involved in Credit decisions are based on an in-depth review of the extension of credit across the Group strictly obligor creditworthiness and its ability to generate adhere to these policies. cash flows to meet its operational needs and debt obligations. The Group utilizes an internal risk While credit approval limits are delegated to rating system that is based on a scale of 1 to 10 to individual credit officers, no credit officer approves rate commercial and industrial obligors, financial credits alone. All extensions of credit are approved institutions, sovereign governments and SMEs. A by a minimum of three credit officers, one of whom rating of ‘1’ identifies obligors of the highest quality, must be from risk management with an individual comparable to an AAA rating by Standard and Poor’s. credit approval limit equal to or greater than the A risk rating of ‘10’ is assigned to obligors of lowest amount of credit under consideration. quality or highest risk, equivalent to a D rating by 2017 Annual Report 78 Risk Management

Standard and Poor’s. Obligors risk-rated 1 to 6 are Risk ratings are assigned to obligors based on the classified as ‘normal borrowers’; those risk-rated 7 probability that the obligor will default and to facilities are classified as ‘borrowers requiring caution’, while based on the loss that is expected in the event of those risk-rated 8 and 9 are ‘substandard borrowers’, such default. An obligor risk rating is defined as the and those risk-rated 10 are ‘borrowers at risk of risk of default on long-term unsecured debt in local permanent default’. currency over a twelve-month period. It is assigned and approved when a credit facility is first extended Risk ratings provide an objective method to compare and is reviewed annually and upon the occurrence of obligors and facilities within a given portfolio and any significant adverse event. The risk of default is to measure and manage credit risk using the same derived from an analysis of the obligor’s historical and standards across different geographies, industry sectors projected financial statements and such qualitative and other relevant risk factors. Accordingly, the level criteria as industry issues, the obligor’s position in the of credit authority required to approve any credit market, the quality of the board and management transaction is also based on the risk rating of obligors and access to financing. The process for determining and the facilities involved. the obligor risk rating is carried out through automated decision-making tools.

Portfolio Distribution by Facility Risk Rating Percent of Total Portfolio

52 54

14 11 10 10 9 6 7 4 5 4 3 3 3 1 1 2 0 1 1 2 3 4 5 6 7 8 9 10

Dec 2016 Dec 2017

Portfolio Breakdown by Risk Category Percent of Total Portfolio

79 75

14 10 11 10 0 1 Normal Risk (1-6) Risk Under Watch (7) Substandard Risk (8-9) Risk of Permanent Default (10)

Dec 2016 Dec 2017 Risk Management 79

For consumer lending, the Group utilises a credit 4.1.4 Risk Monitoring and Control programme approach, whereby credit is extended Credit risk exposures of subsidiaries are monitored based on product-specific risk parameters, using at both the subsidiary level and at Group Risk scoring systems. The products involved are secured and Management level. At the subsidiary level, credit have a self-liquidating nature. administration units monitor the performance of individual exposures daily, ensure regularity of A facility risk rating describes the risk associated with credit approvals and line utilisations, authorise a facility of a given obligor. It is usually equivalent to disbursements of credit facilities when approval the obligor risk rating; however, a different facility risk conditions are met and perform periodical reviews rating may be assigned by adjusting the obligor risk of collateral. These units are also responsible for the rating to take account of factors such as the facility preparation of internal risk management reports for structure or collateral. country management and Group Risk Management. As at 31 December 2017, 79% of the credit portfolio Risk control units within internal control departments was categorised as “normal credit risk” (rated 1-6), provide a second line of defence as they ensure that compared to 75% as at 31 December 2016. This controls are in place and are effective. Remedial improvement was largely driven by the increased management units identify early warning signals of proportion of securities (from 23% of the credit portfolio quality deterioration and monitor past due portfolio as of 31 December 2016 to 27% as of 31 exposures with a view to maximising collections of December 2017) in the “Normal Risk” category. delinquent loans and recoveries of loans previously reserved or written-off. 4.1.3 Risk Measurement At Group level, the Risk Analytics and MIS unit monitor Credit risk measurement takes account of the actual risks taken by subsidiaries on individual obligors and risk exposure (‘Exposure at Default’ or ‘EAD’), the economic groupings through a review of monthly probability of default (‘PD’) and the percentage of loss reports submitted by the country risk management in the event of default (also called ‘loss given default’ units of the subsidiary banks. These reports include or ‘LGD’). early warning systems designed to monitor troubled exposures and credit process problems. They include To measure credit risk, the Group estimates the level detailed credit exposure data that enables the Group of statistically expected economic loss in the event of to monitor the risk profile in terms of obligors, industry default. This figure measures the net present value sectors, geography, currencies and asset maturity at of credit costs that the Group would face from the both country and Group level. Group Risk Management time of default until the end of the recovery process. also determines the level of the statistical unexpected Credit costs include all provisions taken against bad and expected economic loss, and the overall direction debts, write-offs, fully reserved interest earned but of the portfolio risk profit. not collected and possibly legal fees incurred in the process of enforcing the Group’s claims in court. Under The Risk Analytics and MIS unit ensure that the Group current methodology, the Group assigns risk ratings to is not exposed to excessive concentration of credit credit facilities of all the obligors in the credit portfolio. risk on any one obligor, asset class, industry sector or The amount of credit exposure with a given facility geography. The unit ensures that the Group achieves risk rating is then multiplied by the corresponding loss its strategic diversification objectives within the norms to arrive at a statistical measure of loss in the prescribed time horizon. event of default on the exposure involved. The loss norm is the probability that an obligor will default 4.1.4.1 Credit Risk Portfolio within the next twelve months multiplied by the In accordance with Group Credit Policy, risk economic loss expected in the event of such a default. concentration limits are in place to ensure compliance The weighted average loss norm provides a measure with the Group’s risk appetite. These limits are of the portfolio risk profile and portfolio risk rating. The regularly reviewed by the Risk Committee by taking results are compared with statistical loss measurement account of changes in our operating environment or under the Group’s economic capital model. within our business segments.

From 31 December 2016 to 31 December 2017, the The Group has developed a framework for setting portfolio risk rating remained stable at 6-, and the concentration limits. Concentration risk is monitored average probability of default improved slightly from by addressing credit quality deterioration and portfolio 10.19% to 10.17%. diversification. With respect to portfolio quality, the probability of default (‘PD’) of each risk factor (e.g. 2017 Annual Report 80 Risk Management

geography, industry sector, product, etc.) is the main The credit portfolio, net of provisions, amounted to driver for limit setting because any increase in the $23.51 billion as at 31 December 2017; a 7% increase PD, or loss norms, is an indication of deterioration in from the $22.02 billion recorded a year earlier. This portfolio quality; conversely, any decrease indicates an was primarily driven by the securities portfolio which improvement in portfolio quality. In respect of portfolio increased by $1.4 billion during the year, and exposure diversification, concentration risk is measured by the to financial institutions (commercial and central banks) level of statistically unexpected loss associated with which increased by $0.4 billion. each risk factor. Whereas expected losses have a direct impact on Group profitability, unexpected losses affect The portfolio consisted of loans and advances to Group capital and, consequently, future performance. customers ($9.36 billion), securities ($6.46 billion), With the unexpected loss concept, Group Risk deposits with central banks ($2.1 billion), loans, Management has been able to cap risk factors, which advances and placements with banks and financial otherwise would have widened the gap between institutions ($1.7 billion), and off-balance sheet regulatory capital and economic capital. exposures ($3.9 billion) in the form of financial and performance guarantees as shown in the table below.

Risk Assets ($ millions) 2017 2016

Loans and advances to customers 9,358 9,259 Treasury bills & government bonds 4,996 4,421 Loans and advances to banks and financial institutions 1,686 1,414 Deposits with central banks 2,085 1,918 Other on-balance sheet assets 1,464 676 Sub-Total Direct Exposures 19,588 17,688

Import letters of credit 1,377 1,147 Other guarantees & undertakings 2,544 3,183 Sub-Total Contingent Exposures 3,921 4,330

Total Portfolio 23,509 22,019

2017 Top 20 Exposures per Industry Sector 2016 Top 20 Exposures per Industry Sector

Construction 5% Contrcton Manufacturing 17% anactrn Oil & Gas 51% Ga secivreS %6 ervce Telecommunications 21% eeconcaton Risk Management 81

4.1.4.2 Obligor Concentration 4.1.4.3 Industry Diversification A large exposure is defined as any individual exposure The credit portfolio remains dominated by the that represents at least 10% of the total portfolio, or governmental, services and oil and gas sectors, with at least 10% of the Group’s capital at the obligor level. a notable increase in the proportion of Governments As at December 2016, there was no exposure equal to exposure from December 2016 to December 2017. or greater than 10% of the total portfolio. However, These are mainly treasury bills and government bonds a non-bank obligor had individual outstanding balance held for liquidity management purposes. The three above 10% of the Group’s capital. The twenty largest major sectors (government, services and oil and non- bank exposures represented 117% of the Group’s gas) accounted for 54% of the total credit portfolio capital (December 2016: 146%) and 13% of the total (December 2016: 53%). non-bank credit exposures (December 2016: 14%). These exposures mainly emanate from the following five industry sectors: Construction, Manufacturing, Oil and Gas, Services and Telecommunications.

Diversification by Industry (Percent of Total Portfolio)

24 Government 27 15 Services 14 14 Oil & Gas 13 7 Wholesale & Retail Trade 6 6 Commercial Bank 9 8 Manufacturing 7 9 Central Bank 10 9 Construction 6 4 Telecommunications 4 2 All Others 2 1 Dec 2017 Coffee & Cocoa Trade 1 1 Dec 2016 Cotton 1

2017 Exposures by Region of Residence 2016 Exposures by Region of Residence Percent of Total Portfolio Percent of Total Portfolio

airegiN %02 era Francophone West Africa 42% rancopone et rca Anglophone West Africa, nopone et rca excluding Nigeria 11% ecn era Central, Eastern & Southern Africa 19% Centra atern otern rca OECD Countries 7% C Contre srehtO %1 ter 2017 Annual Report 82 Risk Management

4.1.4.4 Geographic Diversification 4.1.4.5 Currency Breakdown The Group has banking operations in 33 African The portfolio remained predominantly denominated in countries and benefits substantially from the 3 major currencies: the CFA Franc (43%), the US Dollar geographic diversification of its credit portfolio. (26%) and the Nigerian Naira (19%). These three As at 31 December 2017, 20% of the Group’s credit currencies accounted for 88% of the lending portfolio. portfolio was granted to obligors in Nigeria (December 2016: 23%) and 12% to obligors in Côte d’Ivoire 4.1.4.6 Asset Quality (December 2016: 13%). Apart from these, no other 4.1.4.6.1 Gross Loans and Advances to Customers country represented more than 10% of the portfolio. From December 2016 to December 2017, gross loans and advances to customers remained stable at $9.9 At regional level, the breakdown of the Group credit billion, but they increased in Francophone West Africa portfolio was as follows: Nigeria (20%), Francophone (+$510 million) and decreased in Anglophone West West Africa (42%), Anglophone West Africa, excluding Africa, excluding Nigeria (-$262 million), Central, Nigeria (11%), Central, Eastern and Southern Africa Eastern and Southern Africa (-$144 million) and (‘CESA’) (19%) and OECD Countries (7%). Nigeria (-$51 million).

Credit Portfolio per Currency Gross Loans by Business Segment ($ millions)

9,869 9,913 1,733 1,704

970 1,033

7,165 7,176

G Dec 2016 Dec 2017 Corporate Banking Consumer Banking G Commercial Banking

Geographical Contribution to the Increase in Loans to Customers ($ millions)

9,9 9,9 5 5 5

G C Gro oan Gro oan Risk Management 83

As at 31 December 2017, the Corporate and 4.1.4.6.2 Non-Performing Loans Investment Banking segment represented 72% Non-performing loans (‘NPLs’) increased by 12% from (December 2016: 73%) of total gross loans and $948 million in December 2016 to $1,060 million in advances to customers, the Consumer Banking was December 2017. 11% (December 2016: 10%) and the Commercial Banking accounted for 17% (December 2016: 17%). At regional level, Nigeria recorded the highest level At product level, contraction in loans were driven of NPLs, accounting for 37% (29% in December 2016) by term loans, which reduced to 72% of total loans of total NPLs, followed by CESA and UEMOA which compared to 77% in 2016. accounted for 28% (22% in December 2016) and 19% (38% in December 2016) of total NPLs, respectively.

Loans: Product Concentration (2017) Non-Performing Loans Contribution per Cluster

verrat G Cret Car rancopone et rca er oan nopone et rca ecn era ortae oan C Centra atern ter otern rca

Loans: Product Concentration (2016) NPL Ratio Trend (%)

. 9.

verrat Cret Car ec ec er oan ortae oan ter 2017 Annual Report 84 Risk Management

The 12% increase in non-performing loans resulted in 4.1.5 Portfolio Stress Testing the ratio of non-performing loans to gross loans and Stress tests are an important method of analysing our advances (‘NPL ratio’) deteriorating from 9.6% as of risk profile because they give management a better December 2016 to 10.7% as at December 2017. understanding of how the Group portfolio is affected by macroeconomic changes, including the effects of The non-performing loans book remains concentrated in negative events on the Group’s capital. Corporate Banking (53%; 54% in December 2016) and Commercial Banking (39%; 39% in December 2016). The tests support compliance with regulatory capital requirements and are an important tool in capital The NPL provisioning rate (‘NPL coverage’) deteriorated planning, where stress is applied to risks, income from 64.3% in 2016 to 52.4% in 2017, and the and costs. Stressing income affects the Group’s unreserved portion of non-performing loans capital, whilst stressing risk exposures affects capital (i.e. the ‘open credit exposure ratio’) also deteriorated requirements. Hence, stress testing quantifies the to 23.2% of the total equity in December 2016, effect of macroeconomic changes on the capital buffer. compared with 19.2% in December 2016, due to lower accumulated loan loss provisions. For credit risk, the Group uses statistical models that transform macroeconomic scenarios into loss levels. The total impairment losses on loans and advances The models are used to stress the probability of default to customers for the year amounted to $326 million, (‘PD’), causing higher loan impairment charges and a significant decrease compared to the record a greater need for capital. The exposure is stressed high of $770 million in 2016. Defined as the ratio further by subjecting collateral to stress (ie. a reduction of impairment losses to average gross loans and in the collateral value). advances, the cost of credit therefore improved from 709 basis points in 2016 to 324 basis points in 2017. For other risk types, such as market risk, the Group uses scenario-specific variables on current market Non-Performing Loans per Business Segment positions and this can result in a decline in market values. The changes in market value are considered as losses that reduce Group earnings and capital.

The outcomes of stress test scenarios are reviewed on a consolidated basis across all risk types and compared with the Group risk appetite. They are reviewed by the management and the Risk Committee of the Board to ensure that the Group is prepared for worst case scenarios and that appropriate and necessary decisions are taken in the areas of Group risk appetite and capital management.

Several stress testing exercises were undertaken during 2016 to assess the potential impact of various Corporate ann crises on our businesses. The results showed the Coner ann resilience of the Group’s capital. Coerca ann 4.1.6 Risk Reporting The Group Risk Management framework ensures NPL Coverage and Net Open Exposure appropriate and timely delivery of risk management information to the Senior Executives and the Risk Committee. The Risk Committee ensure that the portfolio performs in accordance with approved . policies, limits and risk appetite. The Risk Committee refers decisions to the Board for final approval. 5.

. 9.

Coverae ato pen Cret pore

ec ec Risk Management 85

4.2 Market Risk 4.2.2 Risk Identification Market risk comprises both price risk and liquidity risk. Consistent with an independent and centralised risk Price risk measures the impact of changes in interest management function, Ecobank measures, monitors, rates, foreign exchange rates, equity and commodity manages and reports daily on its exposure to market prices and their implied volatilities on earnings. Group risk. It also conducts intraday spot checks of market trading and non-trading books are exposed to price risks in individual subsidiaries by calculating risk risk. Liquidity risk on the other hand refers to the risk exposures with internally developed systems that that an organisation is unable, or is perceived to be cover all its positions. In addition, conventional risk unable, to meet its financial commitments. measures and mathematical and statistical measures, such as Value-at-Risk (‘VaR’), are utilised to calculate The objective of Ecobank’s market risk management market risk exposures as well as economic and policy framework is to ensure that all significant regulatory capital. market risks are identified, measured and managed in a consistent and effective manner across the Group At the subsidiary level, trading units maintain to stabilise earnings and capital under a broad range blotters for recording movements and balance sheet of market conditions and to ensure adequate sources positions of traded instruments, which include daily of liquidity. monitoring of profit and loss balances on trading and non-trading positions. Internal controllers 4.2.1 Organisation and market risk managers monitor daily trading Group Market Risk Management oversees market risks activities to ensure that risk exposures taken are related to all assets, liabilities and off-balance sheet within the approved price risk limits and the items. The Board Risk Committee sets the overall risk overall risk tolerance levels set by the Board. policies for Group market risk exposures, including Every day ALCO members, treasurers and market risk limits. Group Internal Audit provides timely risk managers monitor market risk factors that affect and objective assurance regarding the continuing the value of trading and non-trading positions, as appropriateness of, and the adequacy of compliance well as income streams on non-trading portfolios. with, the policy framework. They also track liquidity indicators to ensure that Ecobank’s subsidiaries can always meet their The Head of Group Market Risk (‘HGMR’) performs a financial obligations. coordination, aggregation, facilitation and enabling function. The HGMR drafts market risk policies, defines market risk management standards, develops and distributes tools and techniques and is responsible for training and promoting common risk language across the Group. The HGMR also publicises knowledge on market risk to create awareness and understanding at all staff levels. The HGMR approves price risk limits and liquidity contingency plans for Ecobank’s subsidiaries. In addition, the HGMR constantly monitors market risk exposures and ensures that they are always maintained at prudential levels. The HGMR also ensures that market risk management processes (including people, systems, operations, limits and controls) satisfy Group policies.

The staff and management working within the operational business units are responsible for the day-to-day management and control of market risk. 2017 Annual Report 86 Risk Management

4.2.3 Risk Measurement In general, an asset sensitive institution may expect 4.2.3.1 Banking Book net interest income to increase when market interest Ecobank’s traditional banking loan and deposit rates rise and to decline when market interest rates fall. products are non-trading positions and are generally Conversely, a liability sensitive institution can expect reported at amortised cost. However, given that the net interest income to increase when market interest Group has banking operations in 33 African countries rates fall and to decline when market interest rates and exposure to 20 different currencies, the economic 4.2.3.2 Trading Book values of these positions will vary due to changes in • At Ecobank, trading market risk generally emanates market conditions, primarily fluctuations in interest and from the Group’s market making activities when the foreign exchange rates. The risk of adverse changes Group acts as a principal. It therefore arises from in the economic value of our non-trading positions open positions in interest rate and foreign currency is managed through the bank’s Asset and Liability positions and it is generally affected by changes Management activities. in the level and volatilities of yields and foreign The Group currently uses repricing maturity gap exchange rates. analysis to measure exposure to interest rate risk in • Tools used to manage trading risk exposures include: its non-trading book. Through this analysis, subsidiary banks compare the values of interest rate sensitive • Risk limits, driven by the notional size of net open assets and liabilities that mature or re-price at various positions (‘NOPs’) by currency and subsidiary; times in the future. In performing this analysis, the • Management Action Triggers (‘MATs’); Group makes judgmental assumptions about the • Stop Loss Limits; and behaviour of assets and liabilities that do not have specific contractual maturity or re-pricing dates. • Value at Risk.

An interest rate sensitive gap is positive, or a gap profile is said to be asset sensitive, when the amount of interest rate sensitive assets exceeds that of interest rate sensitive liabilities maturing or re-pricing within a specified time period. It is negative (liability sensitive) when the amount of interest rate sensitive liabilities exceeds that of interest rate sensitive assets maturing or re-pricing within a specific period. Risk Management 87

4.2.3.3 Liquidity Risk up to one month. This was mainly due to the overnight Liquidity risk is currently managed using a balance contractual maturity of current and savings deposits sheet approach that estimates all sources and uses which accounted for over 73% of total deposits and are of liquidity, including loans, investments, deposits included in this maturity bucket. and borrowings, as well as contingent off-balance sheet exposures. Subsidiary treasurers are generally However, the risk is mitigated by the stable nature of responsible for formulating their liquidity and these deposits from a behavioural perspective and the contingency planning strategies and identifying, Group’s ability to pledge its robust investment portfolio monitoring and reporting on all liquidity risks. The for cash at central banks. main tools used for liquidity risk measurement are the contractual and behavioural maturity gaps, ratio The Group’s liquidity position improved during 2017, analysis and stress testing. with the liquidity ratio (‘LR’) increasing from 36.2% to 41.5% while the loan-to-deposit ratio (‘LDR’) As shown in the graph below, the Group was exposed decreased from 73.1% as at 31 December 2016 to liquidity risk at 31 December 2017 for maturities of to 65.2% as at 31 December 2017.

Contractual Liquidity Maturity Gap ($ Milion) 5,9

, ,5 , , 5

9

, , p to ont ont ont ear ver ear

ec ec

Key Liquidity Indicators

5

5 5

etota et ean epotota epot ota oan oantoepot ato

ec ec

* Liquid Assets refer to Cash + Balance with Central Bank (excludes minimum regulatory requirements) + Unencumbered Securities + Available Operating Account balances with Other Banks + Interbank Placements 2017 Annual Report 88 Risk Management

In line with policy, the Group conducts stress tests to The Group monitors the diversification of funding measure its immediate liquidity risk and to ensure that sources by product, currency, maturity and counterparty it has enough time to respond to potential crises. The to ensure that its funding base provides the best stress tests are conducted monthly and cover a time possible protection if the markets come under pressure. horizon of up to thirty days. The tests estimate liquidity Ecobank was able to remain largely within its internal risk under various scenarios, including a name specific stress test targets throughout 2017. scenario and a general market crisis with differing levels of severity. 4.2.3.4 Interest Rate Risk The bank continues to be liability sensitive in the up The analyses assume that the Group does not reduce to the 1-month bucket, and asset sensitive throughout its lending activities. This means that existing lending the rest of the time bands. activities are maintained and require funding. Most of the Group’s unencumbered Treasury bill and bond Based on the re-pricing profile as at December 31, holdings can be used as collateral for loan facilities 2017, it is estimated that a 200 basis points decrease/ with central banks and are considered liquid. Scenario (increase) in rates across the maturity buckets is specific haircuts are used on deposit outflows, loan expected to increase/(decrease) one-year earnings by reimbursement and the Treasury bill and bond approximately $18 million ($8 million in 2016). This portfolio. Potential liquidity outflows from unutilised, reflects the re-pricing profile which is liability sensitive but irrevocable, loan commitments are also factored in. on the up to 1-month bucket and asset sensitive on the rest of the tenors. Under rising / (falling) interest The degree of possible refinancing of funding sources rate environments, the expected negative/ (positive) varies depending on the scenario in question as impact on net interest income for the negative gap well as on the specific funding source. To analyse exposure in the up to 1-month bucket due to its size the stability of funding, the Group breaks down re-prices more than offsets the positive/ (negative) deposits into Consumer/ Commercial/Corporate, Local impact on net interest income accruing from the longer Currency/Foreign Currency, Core/Non-core and term/ buckets which are asset sensitive. non-maturing, as well as geographically, according to the Group’s position in each market.

Interest Rate Repricing Profile ($ Milion)

,9 ,9

, ,5 , 59

,9 ,9

p to ont ont ont ear ver ear

ec ec Risk Management 89

To estimate the impact of varying interest rates on the Ecobank is exposed to foreign exchange rate economic value of Ecobank’s total equity, duration- fluctuations in 20 currencies. The Group continues to based weighting factors (based on an assumption of have significant exposure to the Nigeria Naira, the US 200 basis points across the time frame) recommended Dollar and the CFA Franc, accounting for 19%, 26% and by the Bank for International Settlements (‘BIS’) were 43% of the Group’s credit portfolio respectively at the applied to exposures in different maturity buckets and end of 2017. It is important to note that, the CFA Franc the results were expressed as a percentage of the is a common currency for 14 out of the 40 countries Group capital. The results for the position as at in which the Group operates, and it is pegged to the 31 December 2017 are shown in the table below. Euro under financial agreements between the French Treasury and the countries in the Francophone West The aggregate interest rate risk ratio remained stable Africa and Central Africa regions. at 30% of Group’s capital as at December 2017. Thus, a 200 basis points increase in interest rates, is As at 31 December 2017, the Group had a net on- expected to reduce economic value by 30% (30% in balance sheet short open position in EUR of $82 million 2016). Conversely, a 200-basis points reduction in rates (net long position of $81 million in December 2016), is anticipated to positively impact the economic value a net short open position in USD of $882 million (net of the Group equity by the same magnitude. short position of $960 million in 2016) and a net long open position in CFA of $1,170 million ($281 million 4.2.3.5 Foreign Exchange Risk long position in December 2016) as shown in the Foreign exchange risk is the risk of losses on graph below. foreign currency positions caused by exchange rates fluctuations.

Net Foreign Exchange Position ($ Milion)

,

9

oar ro C ec ec 2017 Annual Report 90 Risk Management

4.2.3.6 Value at Risk The Group measures and manages price risks in its 2016 Value at Risk ($ Millions) foreign exchange and fixed income trading portfolios by using Value-at-Risk (‘VaR’) calculations and stress Average Minimum Maximum testing. VaR represents the potential loss in the market Risk category VaR VaR VaR value of a position or portfolio at a given confidence interval level and over a pre-defined time horizon Interest rate risk 0.64 0.18 1.14 and is used for risk monitoring and economic capital Foreign exchange assessment. The table below shows basic statistics risk 0.65 0.23 1.44 of the 1-day VaR for the foreign exchange and fixed Total VaR 1.29 0.41 2.58 income trading positions in 2017. The average VaR for 2017 was $1.29 million (2016: $1.17 million).

4.3 Internal Control Control Methodology. The objective is to fully embed Ecobank is concentrating on building a world-class the three key objectives of ensuring the effectiveness risk and internal control system that ensures efficient and efficiency of our operations; improving the service delivery and enhances stakeholder value. Our reliability of our financial reporting; and strengthening ongoing emphasis on best practice creates a proactive compliance with applicable laws and regulations in culture of internal control anchored on the “three lines our control DNA. Through its foundational components, of defence organization” which ensure appropriate the framework ensures that management can identify decentralized ownership with business management internal control issues and successfully resolve them. accountability for risk management and controls across Furthermore, dashboards have been developed for key the Group. The board, executives and staff are all processes to alert management every month about active in risk recognition, assessment and mitigation. potential anomalies and failures. Technology solutions are deployed to compare transaction details against The Committee of Sponsoring Organisations (‘COSO’) of predetermined thresholds and these also monitor the Treadway Commission’s Internal Control Integrated trends and patterns. Framework has been adopted as the Group’s Internal Risk Management 91

4.4 Operational Risk 4.4.2 Organisation Ecobank defines operational risk as the risk of loss 4.4.2.1 Board Approval/Board Reporting arising from failed or inadequate internal control Pursuant to the Group Operational Risk Policies and processes, systems or people, or from events external Procedures Manual, ETI’s Board of Directors are advised to the Group. Operational risks include fraud, legal, about Ecobank’s Operational Risk Management regulatory, compliance, execution and business Framework, alerted to the major aspects of Ecobank’s practices, but exclude strategic and reputational risk. operational risks and receive periodic reporting of Other risks (such as reputational, credit and market Ecobank’s operational risk exposures, loss experience risk) can be potential consequences of operational and other relevant operational risk information. risk events. Legal risk is the risk of loss resulting from the failure to comply with laws, prudent ethical The Group has an operational risk structure that standards and contractual obligations. Legal risk also ensures that the Board of Directors and the Group arises when contracts executed with counterparties Chief Executive Officer have direct responsibility for are not legally enforceable or documented correctly. operational risk throughout the Group. The Board acts The Group has established a common risk language to through the Board Audit and Compliance Committee, provide a consistent framework for the definition and whose decisions are implemented by a centralised and categorisation of risk. independent Internal Control Function.

General and specific training through workshops, 4.4.2.2 Operational Risk Governance Structure newsletters and mandatory operational risk Ecobank maintains an Operational Risk Management awareness are conducted throughout the Group. Framework with a governance structure to support Group Operational Risk Management (‘GORM’) its core operational risk management activities of acts as the coordinating point where all significant anticipation, mitigation and recovery. To ensure operational risks are identified, measured, assessed, effective management of operational risk across prioritised, managed, monitored, reported and treated Ecobank, the Governance Structure presents three in a consistent and effective manner across the lines of defence. Group. GORM also ensures that existing policies and procedures adequately address risks emerging from First Line of Defence: Each business unit owns its changing operating environments. All subsidiaries have risks, including its operational risk, and is responsible adopted the Operational Risk Policies and Procedures for its management. Manual (‘ORPPM’) approved by the Board. Second Line of Defence: Ecobank’s control functions 4.4.1 Operational Risk Policy enhance the effectiveness of controls and manage operational risks across products and business lines. The Group’s Operational Risk Management policy was The Second Line of Defence includes Risk Management approved by ETI Board in March 2017, and covers the and specifically Operational Risk Management, following activities: Compliance, Internal Control, Finance, Human • Identifying, monitoring and managing current and Resources and Legal. Legal and Compliance also potential operational risk exposures; advises on legal and regulatory issues that affect our risk and control environment and provide information • Managing ‘critical risks’ identified during business related to emerging risks. unit reviews; • Following up on reports from Internal Audit and The Operational Risk Management team within regulatory authorities and informing the Risk Internal Control oversees the management of the Committee of issues that involve Group operational operational risk framework for Ecobank. Group risks; and Operational Risk Management works proactively • Preparing management information on issues such with the businesses and functional units at the as IT security, physical security, business continuity Group and Subsidiary levels to embed a strong and compliance with legislation in these areas. operational risk management culture and framework across Ecobank through the effective identification, The Group enforces security, fraud, control and anticipation and mitigation of risks that could impact compliance policies that also support operational business objectives to minimise operational risk risk management. events and losses.

Third Line of Defence: Internal Audit recommends enhancements on an ongoing basis and provides independent assessment and evaluation of the control environment. 2017 Annual Report 92 Risk Management

The Group Operational Risk Management (‘GORM’) Operational risk governance structure: within Group Internal Control, is supported by the three lines of defence operational risk officers in subsidiaries and affiliates. GORM drafts operational risk policies, defines operational risk management standards and develops Business and functional 1st Line tools, techniques, analysis, reporting, communication units/departments and training.

GORM also continues to disseminate the operational Control risk governance structure which has been in existence 2nd Line functions since 2010. During the last year, GORM has worked on enhancing the framework for the effective implementation of the risk and control self-assessment (‘RCSA’) programme across the Group. Internal 3rd Line audit 4.4.3 Operational Risk Management (‘ORM’) Framework An operational risk framework is an essential prerequisite for the effective and efficient implementation of a risk and control assessment. It provides a clear understanding of the structure and process governing the identification of risks and controls and of how the risk and control assessment fits into the overall management of operational risks. The figure below illustrates the ORM framework, which anchor the Group’s operational risk management approach and escalation processes.

Operational Risk Management Framework

RCSA KRIs Events

• Identify risks • Select key risks • Capture • Design controls • Design indicators • Casual analysis • Test controls • Track breaches • Back-testing

• Business Units Corrective Action Plans (CAPs) • Risks Governance Owners Assurance • Controls Reviewing Scenarios, Modelling, Capital Assessments, Reporting Risks and Controls. Owners Risk Management 93

4.4.4 Risk and Control Self-Assessment (‘RCSA’) 4.4.6 Know-Your-Customer (‘KYC’) and The Risks and Controls Self-Assessment (‘RCSA’) Transaction Monitoring programme provides a range of diagnostic tools that The quality of information collected from our assist Senior Business Managers to: customers is a key element in improving overall customer service to ensure that customers get • Identify the most significant operational risks to appropriate products and services. Our policies business activities; therefore include maintaining updated customer • Assess the overall effectiveness of Key Controls that information within our files and systems. mitigate significant operational risks; The Compliance department ensures that our • Detect and address specific weaknesses in the network is firmly secured and protected against design and/or execution of Key Operational Controls money laundering, corruption and terrorism and/or related business processes; and financing (‘AML/ CFT’). Ecobank monitors customers’ • Detect and address emerging operational risks to transactions to identify suspicious transactions using business activities. an effective and efficient automated system. Ecobank closely collaborates with local law enforcement RCSA also provides a common framework to facilitate authorities and financial intelligence units (‘FIUs’), Group-wide, comprehensive and consistent Risk who are leading the fight against money laundering and Control Assessments, including control issue and terrorism. materiality, RCSA Entity Ratings and the detection of emerging risks and systemic control weaknesses. 4.4.7 Business Continuity Management (‘BCM’) A simplified and standardised RCSA programme Ecobank’s BCM programme is based on international with enhanced systems, procedures and tool was BCM standards and principles. It outlines core business relaunched group-wide in the fourth quarter of 2017. and function procedures for the recovery of operations or relocation in response to various disruptions. These 4.4.5 Compliance and Regulatory Risk procedures provide information for key Ecobank personnel to: Given its pan-African footprint, Ecobank needs to deal with significant regulatory requirements in • Ensure staff safety and protect Ecobank property; each country in which it operates. These regulatory demands could negatively impact its operations, • Recover and resume operations to ensure business especially given the state of the world economy and continuity; an unrelentingly competitive business environment. • Carry out situation analysis and instigate appropriate Ecobank continues to be impacted by a significant action; number of new regulatory requirements from multiple • Provide client access to critical applications; sources. Therefore, management continues to give • Establish communications with our employees, attention and resources to ensure that regulatory clients and regulators; and reforms and their related requirements are embedded in our policies, processes, products and operations. • Safeguard Ecobank’s records and intellectual property.

Ecobank has implemented robust processes to ensure Subsidiaries and business units are guided to develop, that all business units comply with all relevant laws maintain and test comprehensive business continuity and regulations, with the support of its Compliance plans (‘BCPs’) regularly to ensure continuous and department, which advises business and support reliable service. The BCPs are based on predefined functions on regulatory compliance across the strategies and are designed to ensure provision of footprint. The Group has also designed a compliance critical business processes and applications within programme to ensure that its activities are constantly predefined recovery time frames. aligned with the regulatory requirements of all the countries in which it is present. Our primary duty The BCM Programme has assigned roles and is to ensure that the businesses comply with local responsibilities, which are detailed in our corporate regulations, that identified risks are mitigated with policy and standards. This ensures a unified approach appropriate measures and that the Group’s risk throughout Ecobank and results in effective business appetite is adhered to. continuity capabilities. Business continuity specialists manage the BCM Programme at both local and Group levels. Group BCM provide expertise and guidance to all Ecobank affiliates in developing, implementing, testing and maintaining effective BCPs and recovery procedures. 2017 Annual Report 94 Risk Management

4.4.8 People Risk 4.4.10 Legal Risk People risk is broken down into intentional or The Ecobank Group is involved in various litigations in dishonest acts (fraud, unauthorised policy and the normal course of its business. In addition to cases procedure breaches, collusion and sabotage) and instigated by members of the Group, the Group is also unintentional causes (mistakes or errors due to defending non-recovery litigation cases in various a lack of awareness of policies and procedures), jurisdictions in which it operates. Ecobank has made both of which can lead to losses. The Group provisions for these non-recovery litigations across the maintains zero tolerance for all dishonest acts and Group of $142,390,169. imposes Codes of Ethics on all staff. Management has implemented many control measures, including 4.4.11 Operational Risk Reporting more on-site reviews, heightened control awareness Operational risk reporting is an integral part of training, employee screening and disciplining staff Ecobank’s governance structure, with clear mandates involved in dishonest behaviour. People risk is further established. In addition to the day-to-day monitoring managed through the hiring process. Management of events and follow-ups, all country Business Unit Risk continues to maintain an appropriate balance in Committees (‘BURCs’) meet at least quarterly to review sales and processing staff ratios. Where services operational risks specific to those units and to identify are outsourced, subsidiaries have been guided to emerging risks. Country Operational Risk and Country assign less sensitive roles to such support staff. Internal Control or Internal Audit personnel observe the Employee screening has been extended to cover meetings, whose proceedings are documented and non-permanent staffing arrangements. escalated to Group Operational Risk.

4.4.9 Reputational Risk Functional Heads meet as members of Business Risk In accordance with Ecobank’s commitment to ensure and Control Committee (BRCC) on a quarterly basis at social trust and to be regarded as a bank that stands the country, regional and group levels respectively to firm on moral uprightness, transparency, integrity review, discuss, evaluate and manage significant risks and credibility, the Group has set-up the Board Social that are inherent to the business in line with the RCSA. Ethics and Reputation (SER) Committee to oversee Various Responsibilities are assigned as appropriate to and review the positioning of the Ecobank brand. In ensure that outstanding action plans are followed up. doing this, the committee is working with various stakeholders in the bank to ensure that there is a clear Country Operational Risk reports to GORM for escalation strategy being delivered which increases the value of of significant issues to Group Internal Control and to the brand and the Group’s standing, reputation and the Audit Committee of the Group’s Board. legitimacy in the eyes of all stakeholders, through a periodic customer affinity survey.

NEW Group BRCC

Regional BRCC Quarterly Group Business Risk Control and Compliance Commitee (BRCC) Chaired by GCEO Affiliate BRCC Quarterly Regional BRCC held across the Group

Minimum quarterly BRCC meetings held BURC by Affiliates

Minimum Quarterly Affiliate Business Unit Risk and Control (BURC) meetings Risk Management 95

4.4.12 Events and Losses 4.5 Environmental and Social (E&S) Risk Group net operational risk losses in 2017 amounted to In Ecobank, Environmental risk means the risk $7.6 million, against $5 million in 2016. Fraud events of causing pollution or destruction to the natural increased year on year, from $3.5 million in 2016 to environment (land, water, air, natural habitats, and $5.3 million. Internal fraud of $1.9 million constituted animal and plant species) either through accidental 25% of the total net loss for the year (compared to or deliberate actions. Similarly, Social risk is the risk $3.3 million, or 65% in 2016). In 2016, external fraud of a customer not meeting acceptable standards amounted to $3.4 million; this represented 45% of for employment, working conditions and business the total net loss for 2017, versus $0.2 million, or 5% ethics, within its own business or by its actions. The in 2016. Execution delivery events amounted to $1.7 implementation of Ecobank’s E&S risk is under the million, which represented 23% of the total net loss direct supervision of the Group Chief Risk Officer for 2017 (2016: $1.0 million or 22%) and other events with oversight responsibility by the Social, Ethics and constituted $0.5 million or 7%. Reputation Committee (SER) and the ETI Board.

We are developing stronger and forward-looking risk The Group strives to manage E&S risks in line and control mechanisms that will support our proactive with its commitment to conduct business in an risk and control management vision. These will be environmentally friendly and socially acceptable driven by scenario, correlation and root cause analysis manner, while helping its clients to carry out their programs that will support effective management of business operations in a better and sustainable emerging risks in the bank. Our active participation in manner. In managing these risks, the Group continues the “operational risk and control research programs” is to screen, classify, assess, formulate and monitor being championed by the Operational Risk eXchange transactions in the eligible sectors for compliance (ORX) Consortium which will be effectively resourced with the E&S risks within the acceptable internal and to support these efforts. external limits.

Net Operational Losses Percentage of total

5. nterna ra 5 ec . terna ra 5. ec

poent ractce orpace aet .

. Cent roct ne ractce .

. aae to ca et .5

. ne rpton te are .9

.5 ecton ever roce anaeent . 2017 Annual Report 96 Risk Management

4.5.1 Environmental & Social Management • General Information; System (ESMS) • Health, Safety & Security; The procedures for the Ecobank ESMS implementation • Labour & Working Conditions; are as follows: • Internal Environmental (energy, waste, pollution etc.); • Screening transactions against the Exclusion List activities • Community; • Reviewing transactions for E&S risks in accordance • Legislation; with E&S sector guidelines • Internal Environmental and Social Management • Identifying project/transaction sectors for the System (ESMS); and Environmental and Social (E&S risk classification) • Mitigation & Improvement Action Plan. • Verifying transactions for potential E&S risk identification Actions plans are included in Credit Applications (CAs) in the table related to “covenant”. As “covenant”, E&S • Classifying transactions for E&S risk into Low, should be indicated in the loan agreement like other Medium B, Medium A and High risk “credit covenants” and follow up the monitoring on • For E&S low risk transactions, the Relationship the monthly basis according to the risk triggers and Officer (RO) will sign off Environmental and Social covenant process. Due Diligence (ESDD) forms to be verified by the Country Risk Manager (CRM) • For all Medium B, Medium A and High-risk transactions, detailed ESDD is required (RO and CRMs will sign-off all Medium risk rated transactions to be verified by the Group Manager for E&S) in relation to:

ESMS Procedures

Exclusion List E&S Checklist E&S Input E&S Action Plans Action Plan Classification criteria E&S checklist Offer Letter E&S Risk level E&S Sector Guidelines Ecobank total exposure Loan conditions Reporting template

Stage

Screening Classification Due Diligence Formulation & Compliance incorporation of Monitoring & agreed Action Plan in Reporting offer letter

Output

Decision to proceed Classification E&S specific E&S Action Plan E&S monitoring or reject Determination of requirements report Due Diligence level Mitigation measures Action Plan Risk Management 97

4.5.1 Environmental & Social Management System (ESMS)

S/N ESRM Process Risk Factor Impact Mitigation Status Remark

1 • Screening of transaction • Eligible transaction is not • Compliance with good • Transactions properly Very satisfactory in the sensitive sector for screened for E&S risk practice guide, such as screened for Exclusion E&S risk IFC ESRM process List activities

2 • Classification • Improper classification of • Expose the bank to E&S • E&S risk classification Satisfactory transaction for E&S risk risk as well as breach of categories reviewed in the DFI lenders’ covenants line with the level of impact severity

3 • Conduct of E&S due • Improper completion • Pertinent E&S risks are • Country Risk Managers Room for improvement diligence assessment of E&S due diligence not identified and remain need to be more involved assessment form ‘hidden risks’ issue in the E&S due diligence assessment

• Convert E&S designates in large affiliates to E&S officers to enhance focus

4 • Formulation & • Lack of level playing • ESRM process is • Develop initiative for Fairly satisfactory incorporation of E&S Action field and standard on undermined Reputation creating the industry (given the operating Plan in offer letter E&S risk management and deviation from standards for ESRM in market circumstance) in our markets the international our market standard practices • Enhance collaboration amongst the risk management, legal and business units

5 • Monitoring of E&S practices • Breach of Ecobank E&S • Breach of Ecobank • E&S portfolio review Work-in progress in client operations in lieu risk policy E&S policy and monitoring of the E&S Action Plans • Non-conformity to the • Reinforced support of Environmental, Social Internal Audit on E&S & Governance (ESG) risk management as standards, which the part of ARR bank has subscribed to their principles 2017 Annual Report 98

4.5.3 Compliance 4.5.5 Major Activities in 2017 All the obligatory reports to the Environmental Activities of the Environmental and Sustainability and Social Governance (ESG) frameworks, which management within the Group Risk Management, Ecobank has either adopted or is signatory to, included, engaging and supporting our clients as were successfully submitted, including the Equator they work to improve the environmental and social Principles and the United Nations Global Compact impacts of their businesses, through environmental (UNGC) as well as the contractual environmental and and social risk management. This means the E&S social compliance reports to lenders, such as the IFC team is helping clients and the bank in their efforts Annual Environmental Performance Reviews (AEPR). towards attainment of the Sustainable Development The Group participated in the Annual Meeting of the Goals (SDG), by working with internal and external Equator Principles Financial Association and the IFC stakeholders to exchange best practice ideas and Community of Learning, held jointly in Sao Paolo, knowledge sharing on the implementation of ESRM. Brazil in October 2017. It also participated in the Annual Meeting of the United Nations Environment During 2017, the Group leveraged its environmental Programme Finance Initiative (UNEPFI) in Geneva, and sustainability activities to improve outreach Switzerland in October 2017. and business positioning in Ghana. As Chair of the Bank of Ghana Sustainable Banking Committee, 4.5.4 E&S Portfolio Review Ecobank participated in a joint knowledge exchange As at 31 December 2017, the Group reviewed a visit on sustainable banking in Dhaka, Bangladesh total of 1,755 transactions which were in sectors in October 2017. The visit was organised by the IFC with significant E&S risks. These sectors include: Sustainable Banking Network and was attended by soft and hard commodities, e.g. oil, gas, mining, representatives from the Central Bank of Nigeria, the heavy construction, manufacturing, real estate and Central Bank of Nepal, the Central Bank of Ghana power generation/transmission/distribution. The (Bank of Ghana), and the Central Bank of Bangladesh combined exposures to the severe (Medium B) and (Bangladesh Bank). Similarly, Ecobank Ghana was more severe (Medium A) E&S categories stood at selected by the Ministry of Finance, Ghana as the 59%. Furthermore, a total of 40% of the screened National Implementing Entity (NIE) for Ghana’s transactions in 2017, were in the Low E&S risk application for the Green Climate Fund (GCF). The category. The Low risk category signifies that the selection was assisted by Ecobank’s track record qualifying transactions pose less severe and negligible and its active participation in the environmental impact on the aesthetic quality of Environmental sustainability discussion at national, regional and and Social standards. Furthermore, E&S eligible global levels. transactions in various categories as at December In recognition of Ecobank’s commitment to promoting 2017 are presented below: the environment and sustainability in the banking industry, especially in Africa, Ecobank was appointed Activity 2017 to the Global Steering Committee of the United Number of transactions screened in 2017 1,755 Nations Environment Programme Finance Initiative Number of High risk 23 (UNEPFI) through a competitive election process in Number of Medium (A&B) risk 1,038 November 2017. Number. of Low risk 694 Exclusion List transaction 0 In 2017, the major highlight of the E&S team is presented as follows: Risk Management 99

Facilitated Green Finance Conference organised by African Guarantee Fund & International Trade Centre in Ghana, November 2017

Panel discussant at the UNEPFI Participated in the IFC Annual Africa Roundtable meeting, Community of Learning in Sao Johannesburg, South Africa, Paulo, Brazil, October 2017 November 2017

Attended the Equator Principles Association’s Annul Meeting as Submitted application for the Green a member in Sao Paulo, Brazil, Climate Fund October 2017

Attended the UNEPFI Annual Managed 1,755 transactions for General Meeting in Geneva, as a E&S risks and impacts member, October, 2017

As Chair of the Bank of Ghana Sustainable Banking Principle Committee, Ecobank participated Elected to the UNEPFI Global in the joint study visit to Steering Committee, representing understand the development and Africa & Middle East Region, implementation of Bangladesh November 2017 Sustainable Banking Initiative, Dhaka, Bangladesh October 2017

Contributed to the discussion on Sustainable Livelihood Restroration at the IFC Sustainability Exchange, Columbia, June 2017

In the fourth quarter of 2017, the ESMS team collaborated with such as the green bond, the Green Climate Fund and the financing the business units and the development financial institution of renewable energy and energy efficiency businesses. The team (DFI) partners of Ecobank and positioned the bank to explore is also positioning Ecobank in the global league of Sustainable opportunities in the emerging green banking finance initiatives banking institutions. 2017 Annual Report 100 Instant and 5. Capital Adequacy Capital increased by $0.42 billion to $3.69 billion in December 2016, whilst Tier I capital increased by 5.1 Group Level $0.15 billion to $3.18 billion. Accordingly, the capital Our capital management policies support business adequacy ratio under Basel I increased from 25.3% strategy and ensure that the Group is sufficiently as at 31 December 2016 to 28.8% as at 31 December easy mobile capitalised to withstand severe macroeconomic 2017, and the core Tier-1 capital adequacy ratio also downturns. In addition, they are designed to ensure increased from 23.4% to 24.8%. compliance with regulatory capital requirements and to support the Group’s credit rating objectives. 5.2 Capital Adequacy in Affiliates In line with our commitment to comply with local banking means Ecobank has two approaches to the measurement of regulations and to ensure that our subsidiaries are its capital requirements: a regulatory approach and an well capitalised, the Group continues to monitor the internal approach. The regulatory approach is based capital adequacy of its subsidiaries. When a shortage on fixed uniform rules for holding adequate capital to arises, appropriate actions are taken to ensure support the risk that the Group assumes. Therefore, in immediate compliance with regulations. more power each of Ecobank’s countries of operation, subsidiaries are required to hold a minimum capital level, which The UMOA (West Africa Monetary Union – WAMU) is determined by the regulators and is consistent with recently approved prudential guidelines for credit the recommendations of the Basel Committee on institutions and financial companies, referred to as Banking Supervision. Under the original Basel accord, Basel II/III, and is effective in UMOA countries in for everyone Whoever you bank banks had to maintain a ratio of regulatory capital January 2018. Its full implementation will span a with, enjoy our instant to risk-weighted assets of 8%. This ratio has been 5-year period, from January 2018 to January 2022. increased in some countries to 10% and, in some digital services: cases, 15%. The Group works closely with the BCEAO (Central Bank of West African States) and expects full compliance SEND money instantly Since 2007, the Group has also been using an internal for both the Group and all its affiliates in the UEMOA to 33 countries model based on Basel II standards for assessment region without breaching any regulatory capital of capital adequacy on a consolidated basis. In line adequacy ratios. with evolving capital management frameworks SHOP cash-free with and best practice recommendations, in 2010 the Scan+Pay QR Board approved the adoption of the economic capital concept as an additional internal method for PAY bills on-the-go capital assessment. At Ecobank, economic capital is defined as the amount of capital required to absorb quickly and easily unexpected losses arising from credit, operational and market risks over a period of one year at a 95% GO XPRESS – open an confidence level. Eric Odhiambo account instantly on your phone with zero Under Basel I standards, risk-weighted assets Group Chief Risk Officer decreased slightly by 1% from $12.94 billion at account fees year-end 2016 to $12.80 billion in December 2017. On the other hand, the group’s Total Regulatory LINK and use any card with the app

Risk-Weighted Assets Capital Adequacy Ratio ($ million) (%)

2017 2016 .

Liquid assets 373 330 5. . Loans to customers 9,358 9,259 . Download it now Our app is_on Other on-balance sheet assets 2,284 2,486 Off-balance sheet assets 784 866 Total 12,799 12,941 Ecobank_on

ecobank.com Capta eac ato er Capta eac ato

ec ec Risk Management Instant and easy mobile banking means more power for everyone Whoever you bank with, enjoy our instant digital services:

SEND money instantly to 33 countries

SHOP cash-free with Scan+Pay QR

PAY bills on-the-go quickly and easily

GO XPRESS – open an account instantly on your phone with zero account fees

LINK and use any card with the app

Download it now Our app is_on Ecobank_on ecobank.com 2017 Annual Report 102

Technology is the key to providing our customers with the full benefits of our pan-African operations and we are very encouraged by the speed and scale of the uptake of our new digital offerings. Our successful placement of $400 million of convertible loans illustrate the confidence that the financial industry has in our aim of generating superior equity returns. Business and Financial Review Business and Financial Review 103

Select Service

Scan+Pay

Amount: $20.00

PAY 2017 Annual Report 104 Business and Financial Review

Ecobank Transnational Inc. (ETI) and its subsidiaries and and Investment Bank and four geographical regions, affiliates are collectively known as ‘Ecobank Group’, namely, Nigeria, Francophone West Africa (UEMOA), or ‘Ecobank’, or ‘The Group’. Ecobank is the leading Anglophone West Africa (AWA) and Central, Eastern pan-African institution in Africa, present in 36 African and Southern Africa (CESA). countries, with international offices in Paris, London, Dubai and Beijing. Ecobank serves approximately 14 Ecobank prepares its consolidated financial statements million customers and has $22.4 billion in asset and in accordance with International Financial Reporting $2.2 billion in total equity as of 31 December 2017. Standards (FRS). The following ‘Business and Financial Review’ provide a comparative discussion of the For management purposes, the Group’s activities are consolidated financial results of the Ecobank Group organised into three major business segments, namely for the periods ended 31 December 2017 and 31 Consumer Bank, Commercial Bank and Corporate December 2016.

Income Statement Analysis Summary Consolidated Income Statement Year ended 31 December In thousands of $ 2017 2016 % Change

Net revenue 1,831,202 1,972,263 (7)% Operating expenses 1,131,551 1,237,211 (9)% Pre-impairment income 699,651 735,052 (5)% Impairment losses on financial assets 411,054 863,851 (52)% Profit/(loss) before income tax 288,340 (131,341) NM Taxation (60,757) (70,924) (14)% Profit/(loss) for the year from continuing operations 227,583 (202,265) NM Profit/(loss) for the year 228,534 (204,958) NM Effective tax rate 21.1% (54)% 139% Attributable to: Owners of the parent 178,585 (249,898) NM Profit/(loss) for the year from continuing operations 178,071 (248,444) NM Profit/(loss) for the year from discontinued operations 514 (1,454) NM

Non-controlling interest 49,949 44,940 11% Profit/(loss) for the year from continuing operations 49,512 46,179 7% Profit/(loss) for the year from discontinued operations 437 (1,239) NM Profit/(loss) for the year 228,534 (204,958) NM

Return on average total assets (ROAA) 1.1% (0.9)% — Return on average equity (ROAE) 11.6% (9.6)% —

Basic earnings per share (EPS) ($) 0.01 (0.01) — Diluted earnings per share (EPS) ($) 0.01 (0.01) — NM not meaningful Net revenue assets less the interest paid on customer deposits, Net revenue, that is the sum of net interest income other deposits and short- and long-term borrowings. and non-interest revenue, amounted to $1.8 billion, For 2017, net interest income of $977 million, a year-on-year decrease of 7% or $141 million. This decreased by $129 million, or 12%, if compared decrease was mainly driven by the strong US dollar, with the $1.1 billion in 2016, partly due to currency our reporting currency, which appreciated against the movements. Adjusting for these effects of currency Nigerian Naira and Ghanaian Cedi. translation, net interest income fell by $48 million, or 4%, primarily driven by a compression in net interest Excluding these currency effects, net revenue would spreads coupled with a decrease in customer loans. have decreased marginally to $2.0 billion, thanks to The net interest margin, which is the average interest growth in non-interest revenue partially offsetting a rate on earning assets less the average interest rate decline in net interest income. paid for deposits and other funding sources, declined in 2017 to 6.5% versus 6.9% in 2016. The decrease Net interest income was largely due to net interest spread compression, Net interest income is the interest earned on loans notably in Nigeria and Ghana. and advances to customers and other financial institutions, debt securities and other interest-earning Business and Financial Review 105

Non-interest revenue credit origination falling by 15% year-on-year. Cash Non-interest revenue of $854 million represented management and trade finance, which we have pivoted 47% of total net revenue for 2017, compared with as engines of growth, due to their more consistent and $866 million, which represented 44% of 2016 total sustainable revenue streams, increased by 5% from revenues. The decrease of $12 million, or 1%, in 2016. This increase was driven by the improved use non-interest revenue was largely a result of currency of technology to drive our collections and payments translation effects. Excluding these, non-interest services for our Commercial and Corporate clients. revenue increased 4%. That increase was primarily Additional benefits to fees and commission came from driven by client-related FX sales and trading, which an increase use in the Ecobank Mobile App helping significantly benefited from improvements in FX to grow remittances and payments. The increased liquidity and client momentum in the NAFEX window issuances of debit cards, especially for our Advantage in Nigeria. That was partially offset by a decrease in customers, helped increase by 13% card management fees and commissions associated with the lending fees from $71 million in 2016 to $80 million in 2017. business, a reflection of our decision to curb customer loan growth. Importantly, the growth in cash Net trading income management and cards, demonstrate the strategic Trading income equates to the income we earn from progress we are making to grow these businesses and buying and selling foreign exchange on behalf of our their associated revenues. clients to meet their trade finance, payments and cash management needs. Securities trading income, Fees and commission income on the other hand, is largely derived from trading in Business and client activity in most of our markets government debt. Net trading income increased by was fairly subdued even though there was a gradual $12 million, or by 3% to $416 million primarily due recovery in GDP growth in most of sub-Saharan Africa in to growth in fees and commissions from client-related 2017. This reduced activity in client momentum resulted foreign-exchange sales and trading, which benefited in a decline in net fees and commission income by $33 significantly from the improving foreign-exchange million, or 8%, to $400 million. liquidity and increased client activity in the investors and exporters foreign exchange (I&E FX) window in Nigeria. Also, our deliberate decision to curb the extension of customer loans resulted in the fees related to

Revenue Year ended 31 December In thousands of $ 2017 2016 % Change

Interest income 1,570,320 1,672,852 (6)% Interest expense (593,001) (566,406) 5%

Net interest income (NII) 977,319 1,106,446 (12)%

Fees and commission income Credit related fees and commissions 141,770 167,287 (15)% Corporate finance fees 10,299 23,768 (57)% Portfolio and other management fees 16,935 11,044 53% Brokerage fees and commissions 3,364 3,223 4% Cash management and related fees 203,641 192,582 6% Card management fees 79,901 70,529 13% Others 13,610 17,688 (23)% Fees and commission income 469,520 486,121 (3)% Fees and commission expense (69,140) (52,492) 32%

Net fees and commission income 400,380 433,629 (8)% Foreign-exchange income 360,125 361,017 (0.2)% Securities trading income 55,600 42,538 31%

Net trading income 415,725 403,555 3% Net losses from investment securities (5) 26,381 NM Other operating income 37,783 2,252 1,578%

Non-interest revenue (NIR) 853,883 865,817 (1)%

Net revenue (NII + NIR) 1,831,202 1,972,263 (7)% Net interest margin (NIM) 6.5% 6.9% — Contribution of NIR to net revenues 46.6% 43.9% — NM not meaningful 2017 Annual Report 106 Business and Financial Review

Operating expenses in 2018. Despite the cost reduction programme, we Operating expenses of $1.1 billion, decreased by $106 will be continually making investments, particularly in million, or by 9% (in constant currency by 2%), from technology, to improve the customer experience. The 2016, despite incurring one-off restructuring costs of cost-to-income ratio of 61.8% was an improvement on approximately $10 million in CESA. The key drivers the 62.7% in 2016, and it would have been lower but were a reduction in staff expenses from the ongoing for the one-off restructuring cost. optimisation exercises and a reduction in discretionary expenditure. Overall, we are meeting our cost reduction targets, and we expect further reductions

Operating expenses Year ended 31 December In thousands of $ 2017 2016 % Change

Staff expenses 515,040 535,061 (4)% Depreciation and amortisation 95,820 99,197 (3)%

Communications and technology 130,794 129,755 1% Professional fees 51,028 74,780 (32)% Rent and utilities 66,668 70,155 (5)% Repairs and maintenance 34,354 37,133 (7)% Insurance 33,261 34,204 (3)% Others1 204,586 256,926 (20)% Other operating expenses 520,691 602,953 (14)%

Total operating expenses 1,131,551 1,237,211 (9)%

Cost-to-income ratio 61.8% 62.7% —

(1) Others include operational losses and fines, advertising and promotion, business travels, supplies and services, fuel, etc:

Impairment losses impairments. These impairments did not fully Impairment losses on financial assets totalled $411 address all of the historic challenged loans, which million in 2017, of which $326 million were related led management to maintain that non-performing to impairment charges on loans and advances. This loans and cost-of-risk will remain elevated in 2017. represented a significant decrease in comparison to Thus the impairment losses for 2017, were due 2016’s impairment losses of $864 million, of which provision builds to address residual challenged loans. $770 million were related to loans and advances. The The cost-of-risk was 3.3% compared to 7.1% in 2016. substantial decrease in impairment losses was due The impairment losses on other financial assets of mainly to management’s decision in 2016 to address $85 million, down 9% from the prior year, were largely legacy challenged loans which led to substantial related to legacy assets.

Impairment losses Year ended 31 December In thousands of $ 2017 2016 Change

Provision for loan impairment 385,697 1,012,823 (62)% Provision no longer required 73,202 284,607 (74)% Specific impairment losses on loans and advances 312,495 728,216 (57)% Collective impairment losses on loans and advances 13,753 42,052 (67)%

Impairment losses on loans and advances 326,248 770,268 (58)% Impairment losses on other financial assets 84,806 93,583 (9)%

Impairment losses on financial assets 411,054 863,851 (52)%

Cost-of-risk 3.3% 7.1% — Business and Financial Review 107

Taxation Balance Sheet Analysis The tax charge for 2017 was $61 million, equating to an effective tax rate of 21%, compared with $71 Consolidated balance sheets overview The Group’s assets totalled $22.4 billion at year-end, million in 2016 (effective tax rate of 54%). The lower an increase of $1.9 billion from 31 December 2016. tax charge in 2017 primarily reflected tax exemptions The increase in the balance sheet value was mainly received on government investment securities due to an increase in government treasury bills and particularly in the Francophone West Africa region. bonds holdings, driven by broad-based deposits Profits growth of 13% year-on-year. Ecobank generated a profit before tax of $288 million, There follows a year-on-year analysis of significant compared with a pre-tax loss of $131 million in changes to specific items within the Consolidated 2016. The improved performance in profitability was Balance Sheet. primarily driven by a decrease in provisions. Profit after tax was $229 million, compared to a net loss of $205 million in 2016. The profit attributable to ETI shareholders for 2017 was $179 million, or a diluted earnings per ordinary share of $0.01, compared with a loss of $250 million, or diluted loss per ordinary share of $0.01 in 2016.

Consolidated Balance Sheet data At 31 December (In thousands of $) 2017 2016 Change

Earning assets Investment securities : Treasury bills and other eligible bills 1,718,977 1,228,492 40% Financial assets for trading 36,557 77,408 (53)% Investment securities: available-for-sale 4,405,240 3,272,824 35% Pledged assets 298,561 518,205 (42)% Loans and advances to banks 1,685,806 1,413,699 19% Loans and advances to customers 9,357,864 9,259,374 1%

17,503,005 15,770,002 11%

Non-earning assets Cash and balances with central banks 2,661,745 2,462,302 8% Intangible assets 283,664 280,766 1% Property and equipment 924,163 861,047 7% Investment property 43,514 35,819 — Derivative financial instruments 39,267 68,204 (42)% Other non-earning assets 976,246 1,032,834 (5)%

4,928,599 4,740,972 4%

Total assets 22,431,604 20,510,974 9%

Liabilities Deposits from other banks 1,772,414 2,022,352 (12)% Deposits from customers 15,203,271 13,496,720 13% Borrowed funds 1,728,756 1,608,564 7% Other liabilities 1,555,080 1,619,260 (4)%

Total liabilities 20,259,521 18,746,896 8%

Equity Share capital 2,113,957 2,114,332 — Retained earnings 216,142 230,847 (6)% Reserves (449,355) (767,255) (41)%

Total equity and reserves attributable 1,880,744 1,577,924 19% Non-controlling interest in equity 291,339 186,154 57% Total equity 2,172,083 1,764,078 23% Total liabilities and shareholders’ equity 22,431,604 20,510,974 9% 2017 Annual Report 108 Business and Financial Review

Assets Investment securities We hold trading and investment securities in the Cash and balances with central banks normal course of our business. We also hold securities We deposit cash with central banks to meet reserve for the purpose of cash, liquidity, and asset and requirements and to facilitate liquidity management liability management. as part of the normal course of our business. As at 31 December 2017, cash and balances held with central Treasury bills and other eligible bills banks amounted to $2.7 billion, an increase of $199 million in comparison with 2016. The increase in cash The Group holds deposits that are not immediately was primarily driven by an in increase in deposits. loaned to clients in treasury and other eligible bills. These holdings amounted to $1.7 billion, up $490 Loans and advances to banks million from the previous year, driven by higher Loans and advances to banks largely constitute customer deposit balances and our decision to increase deposits held with other banks to facilitate liquidity buffers. correspondent banking relationships and manage Available-for-sale (‘AFS’) investment securities our liquidity and interest rate risks. At year-end 2017, loans and advances to banks amounted to $1.7 billion, These are investment securities, other than treasury an increase of $272 million if compared to 2016, bills, comprised of listed and non-listed debt and driven by higher deposit balances and management’s equity instruments, with debt securities accounting for decision to curb lending. about 90% of the AFS portfolio. At 31 December 2017, the available-for-sale investment securities portfolio amounted to $4.4 billion, an increase of $1.1 billion from 2016. The increase in AFS investment securities was primarily driven by Francophone West Africa, partially offset by Nigeria. Our decision to significantly decrease credit origination, coupled with an increase in customer deposits, drove the sharp increase in AFS in the Francophone West Africa region.

Trading securities These are securities held for trading purposes, mostly government fixed-income securities in Nigeria. They amounted to $36 million, down $41 million from the previous year. The decline in interest rates in Nigeria precipitated the sales of securities held for trading to realise profits. Business and Financial Review 109

Loans and advances to customers On a regional basis, customer loans declined on The Group provides loans to customers, ranging a constant currency basis in Nigeria, Anglophone from households and small businesses to regional West Africa, and Central, Eastern and Southern and multinational corporates. Net customer loans Africa regions, by 4%, 19% and 14%, respectively. of $9.4 billion at 31 December 2017 were up by In Francophone West Africa region, underlying loans $98 million compared to 2016. The increase partly grew by 6%, thanks to a gradual pick-up in economic benefited from the US dollar depreciation against activity, particularly in Cote d’Ivoire. the CFA franc, helping to boost loan growth in the Francophone West Africa region. If we were to adjust The allowance account for loan losses decreased $55 for currency movements, group customer loans would million, or by 9%, to $555 million. This decrease have declined by 4% from the previous year, which was due to the fact that in 2016 management’s underpins management’s decision to curb lending. decision to address legacy challenged assets enabled a disproportionately higher acceleration in In the individual business lines, loans in Corporate impairments, which was not the case in 2017. The Bank and Consumer Bank, both rose $57 million, to amount of recovered loans in 2017 stood at $115 $6.9 billion and $0.95 billion, respectively, in 2017. But million compared with $355 million in 2016. Non- on an underlying basis, both were marginally lower. performing loans as a percentage of total loans was For Commercial Bank, loans declined by $16 million to 10.7%, compared with 9.6% in 2016. The current $1.6 billion from the previous year. This was due to, on year’s non-performing loans ratio resulted from large one hand, the challenging operating environment for single-name past due obligations migrating into most small and medium-sized businesses to grow and non-performing loans. our decision to curb lending.

Loans and advances to customers At 31 December (In thousands of $) 2017 2016 Change

Group Loans and advances to customers (gross) 9,912,778 9,868,872 0.4% Less: allowance for impairment (554,914) (609,497) (9)% Loans and advances to customers (net) 9,357,864 9,259,375 1%

Non-performing loans 1,059,836 948,185 12%

Loans-to-deposits ratio 65.2% 73.1% — Non-performing loan ratio 10.7% 9.6% — NPL coverage ratio 52.4% 64.3% —

Loans and advances by business segments:

Corporate Bank Loans and advances to customers (gross) 7,176,109 7,165,191 0.2% Less: allowance for impairment (293,681) (339,416) (13)% Loans and advances to customers (net) 6,882,428 6,825,775 1% Non-performing loans 563,910 509,659 11% Loans-to-deposits ratio 102.6% 118.0% — Non-performing loan ratio 7.9% 7.1% — NPL coverage ratio 52.1% 66.6% —

Commerical Bank Loans and advances to customers (gross) 1,703,984 1,733,341 (2)% Less: allowance for impairment (182,295) (196,052) (7)% Loans and advances to customers (net) 1,521,689 1,537,289 (1)% Non-performing loans 414,272 373,015 11% Loans-to-deposits ratio 55.6% 61.1% — Non-performing loan ratio 24.3% 21.5% — NPL coverage ratio 44.0% 52.6% —

Consumer Bank Loans and advances to customers (gross) 1,032,685 970,340 6% Less: allowance for impairment (78,938) (74,030) 7% Loans and advances to customers (net) 953,747 896,310 6% Non-performing loans 81,654 65,511 25% Loans-to-deposits ratio 20.1% 21.1% — Non-performing loan ratio 7.9% 6.8% — NPL coverage ratio 96.7% 113.0% — 2017 Annual Report 110 Business and Financial Review

Liabilities and Equity Total equity Total equity as at 31 December 2017 stood at $2.2 Deposits from banks billion, up $408 million, or 23%, year-on-year. The We take deposits from other banks to facilitate increase was primarily driven by a return to profits in correspondent banking relationships and manage 2017 from the losses reported in 2016. Consequently, liquidity, interest rate, and currency risks. Deposits from retained earnings almost doubled to $452 million. other banks decreased by $250 million year-on-year to And to a lesser extent, a moderation in the negative $1.8 billion. currency translation movements, as the CFA franc appreciated against the US dollar in 2017. Customer deposits Customer deposits accounts for about 75% of the The Central Bank of West African States (BCEAO) Group’s liabilities and equity. In 2017, customer adopted Basel II/III standards with effect from January deposits increased $1.7 billion to $15.2 billion, driven 2018. All banks within the eight (8) member countries by strong deposit growth in Corporate Bank and of the L’Union Monétaire Ouest Africaine (UMOA), or Consumer Bank from deeper customer engagements. West African Monetary Union (WAMU), are required to On a regional basis, customer deposits increased 5%, adopt the new regulations. 12%, and 14%, in constant currency, in Francophone West Africa, Anglophone West Africa, and Central Ecobank has licensed banks in all eight member and Eastern Africa, respectively. In Nigeria, customer countries as represented by our Francophone West deposits fell marginally in constant currency, due to a Africa regional segmentation -UEMOA. Additionally, fiercely competitive deposit market. Ecobank Transnational Inc., (ETI), the bank-holding parent company of the Ecobank Group, is expected to Borrowed funds comply with the rules on a group-wide consolidated Borrowed funds are an alternate source of relatively basis given that it is headquartered in Togo and long-term funding and a critical component of the regulated by the BCEAO. As such, capital adequacy Group’s liquidity and capital management activities. ratios for the consolidated Group will be calculated ETI, the parent company of the Ecobank Group, according to UMOA Basel II/III regulations from January oversees capital planning and funding strategy for 2018, with initial results due to BCEAO in April 2018. the Group. As at 31 December 2017, total borrowed funds for the Group were $1.7 billion, an increase of The implementation of Basel II/III standards is $120 million from 2016. For further information on a significant change in the prudential regulatory the composition of our borrowed funds, please refer environment of ETI and its UMOA subsidiaries/ to Note 32: Borrowed Funds on page 195 of this affiliates. Minimum capital adequacy requirements will annual report. increase over the next five years with the phase-in of a 2.5% capital conservation buffer and the increase in minimum total capital adequacy ratio from 8% to 9%. The regulations will result in substantially lower capital adequacy ratios for the Group given that;

• The foreign currency translation reserve which arise on consolidation will become an adjustment to Tier 1 capital • The addition of operational risk weighted assets will increase the quantum of risk weighted assets by approximately 20%

Customer Deposits At 31 December In thousands of $ 2017 2016 % Change

Corporate Bank 6,991,973 6,073,590 15% Commerical Bank 3,066,252 2,834,757 8% Consumer Bank 5,145,046 4,588,373 12% Total customer deposits 15,203,271 13,496,720 13% Business and Financial Review 111

Here we provide a comparative analysis of Ecobank’s full year financial results for 2017 and 2016 by geographical region.

ETI & Subtotals Ecobank In millions of $ except for ratios Nigeria UEMOA AWA CESA Others Entities RV(1) Group

Income Statement Highlights Net interest income 332 260 219 193 (27) 977 — 977 Non-interest revenue 225 217 135 200 77 854 — 854 Net revenue 557 477 354 393 49 1,831 — 1,831 Staff expense 120 113 99 101 82 515 0.2 515 Other operating expenses 165 172 93 187 (0) 616 0.3 617 Total operating expenses 285 285 192 288 82 1,131 0.5 1,132 Pre-impairment income 272 193 162 106 (33) 700 (0.5) 700 Impairment losses (205) (81) (58) (56) (31) (432) 21 (411) Profit before tax 67 111 105 49 (64) 269 20 289 Profit after tax 66 114 71 28 (70) 209 20 229

Balance Sheet Highlights Net loans 2,718 3,836 847 1,711 246 9,358 — 9,358 Total assets 6,056 9,222 2,951 4,657 (461) 22,425 6.6 22,432 Customer deposits 3,517 5,698 2,228 3,542 219 15,203 — 15,203 Total equity 927 610 318 501 (190) 2,165 6.6 2,172

Ratios ROA 1.1% 1.3% 2.5% 0.6% — 1.1% — 1.1% ROE 7.8% 22.7% 22.8% 6.0% — 11.6% — 11.6% Cost-to-income ratio 51.2% 59.7% 54.2% 73.1% — 61.8% — 61.8% NPL ratio 14.5% 5.2% 14.7% 15.8% — 10.7% — 10.7% NPL coverage 65.0% 32.2% 58.8% 53.2% — 52.4% — 52.4% Loans-to-deposits ratio 85.3% 68.5% 41.6% 52.8% — 65.2% — 65.2%

(1) The Resolution Vehicle (RV), a structured entity that was set up in Nigeria to purchase and hold the challenged legacy assets from Ecobank Nigeria’s core assets. 2017 Annual Report 112 Business and Financial Review Nigeria

Performance overview Ecobank Nigeria’s profit before tax increased by Operating expenses decreased by $95 million, $44 million, or by 191%, year-on-year to $67 or by 25%, (in constant currency it decreased by million, mainly as a result of lower impairment $40 million, or by 10%) from 2016, reflecting the losses. Adjusting for the impact of foreign currency non-recurrence of restructuring costs from 2016 and translation effects – the Naira depreciated by efficiency gains in personnel costs, associated staff approximately 13% against the US Dollar in 2017 expenses, and rent and utilities. As a result, the – its underlying pre-tax profits would have risen by cost-to-income ratio improved to 51.2% from 52.4% 249% to $80 million. in 2016.

Net revenue of $557 million fell by $169 million, Impairment losses were $205 million in 2017 or by 23% (in constant currency it decreased 8%), compared with $323 million in 2016. Included in primarily driven by the net impact of lower interest the period’s impairment losses is a $42 million rates, a decline in volume growth, and lower-than- exceptional charge on ‘other assets’ booked in the expected business activity. Net interest income second-quarter driven by a claw back from AMCON decreased by $129 million, or by 28%, (in constant linked to loans previously sold. currency it decreased by $64 million, or by 14%) from the previous. This was due to the net impact of lower rates and lower interest-earning asset balances. Non-interest revenue decreased by $40 million, or by 15% (in constant currency increased by $4 million, or by 2% ), to $225 million, driven by income from fixed income and currency trading due to improved liquidity and volumes in the NAFEX window.

Nigeria – Financial Highlights and Key Ratios In Constant $1 Year ended 31 (in millions of $) 2017 2016 % change 2017

Net interest income 332 461 (28)% 398 Non-interest revenue 225 265 (15)% 269 Net revenue 557 726 (23)% 667 Operating expenses 285 381 (25)% 341 Pre-impairment income 272 346 (21)% 326 Impairment losses 205 323 (36)% 246 Profit before tax 67 23 191% 80 Taxation 0.7 0.1 489% Profit after tax 66 23 190% 79

Customer loans (net) 2,718 2,854 (5)% 2,726 Total assets 6,056 6,183 (2)% 6,076 Customer deposits 3,517 3,537 (1)% 3,528 Total equity 927 778 19% 930

Cost-to-income ratio 51.2% 52.4% — — ROE 7.8% 3.0% — — Loans-to-deposits ratio 85.3% 85.1% — — NPL ratio 14.5% 9.1% — — NPL coverage ratio 65.0% 57.6% — —

Note: selected income statement lines only and thus may not sum up (1) Reflects the impact of FX translation into U.S. dollars assuming average and end-of-period exchange rates for 2016 Business and Financial Review 113 Business and Financial Review Francophone West Africa

Performance Overview Francophone West Africa registered a pre-tax profit of An increase in staff salaries and benefits, and $111 million, an increase of $8 million, or 8%, (flat in depreciation and amortisation costs, led to operating constant currency) in comparison to 2016, primarily expenses increasing by $22 million, or by 8%, to $285 driven by lower impairment losses. million. The cost-to-income ratio declined slightly to 59.7%, versus 59.4% in 2016. Net revenue rose by $34 million, or by 8%, (in constant currency, a marginal decrease of 0.2%) Net impairment losses were $81 million for 2017 to $477 million, primarily due to lower fees and compared with $77 million in 2016, representing a 6% commissions income. An increase in interest earning year-on-year growth. The period’s impairment losses balances, especially in government securities, led to reflected higher reserve builds to address challenged an 8% increase in net interest income to $260 million. non-performing loans, particularly in Benin. On the other hand, moderate client momentum and a gradual pick-up in economic activity, particularly in Côte d’Ivoire, helped non-interest revenue to grow by 7% to $217 million.

Francophone West Africa (UEMOA) – Financial Highlights and Key Ratios In Constant $1 Year ended 31 (in millions of $) 2017 2016 change 2017

Net interest income 260 241 8% 241 Non-interest revenue 217 202 7% 202 Net revenue 477 443 8% 443 Operating expenses 285 263 8% 264 Pre-impairment income 193 180 7% 179 Impairment losses 81 77 6% 75 Profit before tax 111 103 8% 103 Tax expense 3 (7) NM — Profit after tax 114 96 18% 106

Customer loans (net) 3,836 3,169 21% 3,371 Total assets 9,222 7,891 17% 8,106 Customer deposits 5,698 4,750 20% 5,008 Total equity 610 396 55% 536

Cost-to-income ratio 59.7% 59.4% — — ROE 22.7% 24.3% — — Loans-to-deposits ratio 68.5% 71.4% — — NPL ratio 5.2% 10.5% — — NPL coverage ratio 32.2% 62.4% — —

NM not meaningful Note: selected income statement lines only and thus may not sum up (1) Reflects the impact of FX translation into U.S. dollars assuming average and end-of-period exchange rates for 2016 2017 Annual Report 114 Business and Financial Review Anglophone West Africa

Performance Overview Anglophone West Africa’s pre-tax profits decreased Operating expenses decreased by $17 million, or by by $35 million, or by 25%, (in constant currency it 8%, (in constant currency it increased by $13 million, decreased by $23 million, or by 17%) to $105 million, or by 6%) to $192 million, reflecting higher staff- primarily due to lower revenues. related allowances and ICT-related costs. Consequently the cost-to-income ratio deteriorated to 54.2%, versus Net revenues fell $52 million, or 13%, (flat year-on- 51.3% in 2016, as revenue growth lagged increases in year in constant currency) to $354 million, thanks to fixed costs. the impact of lower rates and lower earning asset balances on net interest income. Impairment losses for the period were contained at $58 million unchanged from the previous year Net interest income declined by $58 million, or 21%, (in constant currency it increased by $10 million, or (in constant currency it fell by $28 million, or by 10%) by18%) from 2016. The increase in impairments for to $219 million, due to the net impact of lower interest 2017 was primarily driven by loan loss reserve builds rates in Ghana and a decrease in customer loan for mostly energy-related exposures in Ghana and balances. A pick-up in trade finance volumes and fees Liberia. and commission income led to a $6 million, or 5%, increase in non-interest revenue to $135 million (in constant currency it increased by $28 million, or by 22%).

Anglophone West Africa (AWA) – Financial Highlights and Key Ratios In Constant $1 Year ended 31 (in millions of $) 2017 2016 change 2017

Net interest income 219 277 (21)% 249 Non-interest revenue 135 129 5% 157 Net revenue 354 407 (13)% 407 Operating expenses 192 209 (8)% 222 Pre-impairment income 162 198 (18)% 185 Impairment losses 58 58 — 68 Profit before tax 105 140 (25)% 117 Tax expense (34) (43) (20)% — Profit after tax 71 98 (27)% 78

Customer loans (net) 847 1,113 (24)% 902 Total assets 2,951 2,751 7% 3,110 Customer deposits 2,228 1,940 15% 2,347 Total equity 318 303 5% 309

Cost-to-income ratio 54.2% 51.3% — — ROE 22.8% 32.3% — — Loans-to-deposits ratio 41.6% 61.3% — — NPL ratio 14.7% 6.1% — — NPL coverage ratio 58.8% 104.5% — —

Note: selected income statement lines only and thus may not sum up (1) Reflects the impact of FX translation into U.S. dollars assuming average and end-of-period exchange rates for 2016 Business and Financial Review 115 Business and Financial Review Central, Eastern and Southern Africa (CESA)

Performance overview Pre-tax profits for the Central, East, and Southern Africa Operating expenses increased by $9 million, or by 3% region increased by $47 million, or by 103% year-on- (in constant currency, it increased by $29 million, or by year to $25 million (in constant currency it increased 14%), to $288 million, predominately due to one-off by $23 million, or by 94%) due to strong revenue restructuring costs. The cost-to-income ratio was 73.1% growth, partially offset by a one-off restructuring cost compared with 78.2% in 2016. of approximately $10 million. Excluding the impact of the one-off restructuring costs, the profit before tax Impairment losses for the year were $56 million ($59 would have been $59 million. million in constant currency), compared to $54 million in 2016. Higher impairments in Tanzania, Kenya, and Net revenue increased by $36 million, or by 10%, to Rwanda were offset by asset quality improvements $393 million (in constant currency an increase of $66 in Chad and Congo Brazzaville, as a result of loan million, or 19%), due to substantial growth in non- restructuring, and the reversal of provisions in interest revenues. Net interest income increased by Zimbabwe and Mozambique. $4 million, or by 2%, (in constant currency an increase of $11 million, or 6%), driven by an increase in investment securities balances. Non-interest revenue increased by $32 million, or by 19% (in constant currency it increased by $55 million, or by 33%) to $200 million, driven by client-related foreign-exchange sales and cash management fees, partly offset by a decline in fees and commissions on loans.

Central, East, and Southern Africa (CESA) – Financial Highlights and Key Ratios In Constant $1 Year ended 31 (in millions of $) 2017 2016 change 2017

Net interest income 193 189 2% 200 Non-interest revenue 200 168 19% 223 Net revenue 393 357 10% 423 Operating expenses 288 279 3% 317 Pre-impairment income 106 78 36% 105 Impairment losses 56 54 5% 58 Profit before tax 49 24 103% 47 Tax expense (21) (14) 48% — Profit after tax 28 10 182% 27

Customer loans (net) 1,711 1,894 (10%) 1,637 Total assets 4,657 4,059 15% 4,567 Customer deposits 3,542 3,065 16% 3,478 Total equity 501 437 15% 494

Cost-to-income ratio 73.1% 78.2% — — ROE 6.0% 2.3% — — Loans-to-deposits ratio 52.8% 65.7% — — NPL ratio 15.8% 10.4% — — NPL coverage ratio 53.2% 56.6% — —

Note: selected income statement lines only and thus may not sum up (1) Reflects the impact of FX translation into U.S. dollars assuming average and end-of-period exchange rates for 2016 2017 Annual Report 116 Business and Financial Review

Here we provide a comparative analysis of Ecobank’s full year financial results for 2017 and 2016 by business segments.

Corporate and Investment Bank In millions of $ 2017 2016 % Change

Net interest income 511 593 (14)% Non-interest revenue 459 481 (5)% Net revenue 970 1,074 (10)% Operating expenses (472) (506) (7)% Pre-impairment income 499 568 (12)% Impairment losses (230) (608) (62)% Operating profit 268 (40) NM Profit before tax 268 (40) NM

Total assets 14,863 11,098 34% Total liabilities 11,549 10,689 8.0% Cost-to-income ratio 48.6% 47.1% — NPL ratio 7.9% 7.1% — NPL coverage ratio 52.1% 66.6% — NM not meaningful Performance overview Corporate and Investment Bank reported a profit before tax of $268 million for 2017 compared with a pre-tax loss of $40 million for 2016 largely driven by a significant reduction in impairment losses.

Revenue for the period was $970 million, a decrease of $104 million, or 10%, from the previous year. The decision to significantly curb loan advances to clients coupled with a reduction in net interest spreads, led to a $82 million, or 14% decline in net interest income to $511 million. Non-interest revenue fell by $22 million, or by 5%, from the previous year, due to the impact of currency movements. Adjusting for currency movements, underlying non-interest revenue grew, driven by higher client activity in our foreign-exchange sales and trading income, particularly in Nigeria, growth in our trade finance business, and strong performance from our securities, wealth and asset management businesses.

Operating expenses fell by $35 million, or by 7% to $472 million driven by continued focus on expense discipline. The cost-to-income ratio remained largely flat at 47%.

Impairment losses for 2017 were $230 million, significantly down from the $608 million charge in the prior year. The lower impairments this year reflected progress we have made in addressing historic loan portfolio challenges. But also, 2016 impairments were significantly higher from the prudent actions we took by accelerating provisions on legacy-challenged loans. Business and Financial Review 117

Commercial Bank In millions of $ 2017 2016 % Change

Net interest income 190 226 (16)% Non-interest revenue 171 148 16% Net revenue 361 374 (3)% Operating expenses (268) (284) (6)% Pre-impairment income 93 90 4% Impairment losses (125) (126) (1)% Operating profit (32) (36) (11)% Profit before tax (32) (36) (11)%

Total assets 1,522 1,546 (2)% Total liabilities 3,066 2,835 8% Cost-to-income ratio 74.1% 75.9% — NPL ratio 24.3% 21.5% — NPL coverage ratio 44.0% 52.6% — Performance overview Commercial Bank reduced its pre-tax losses from $36 million in 2016 to $32 million in 2017, driven by positive operating leverage and a 4% increase in its income before provisions. The higher pre-provision income for the year was driven by a healthy increase in the amount of loans recovered and portfolio adjustments.

Additionally, our strategic focus on collections has yielded good results, helping to grow deposits by 8%, despite the headwinds faced during 2017.

Revenue of $361 million was down $13 million, or 3%, from 2016, primarily driven by a decrease in net interest income, partially offset by an increase in non-interest revenue. Net interest income decreased by $36 million, or by 16%, to $190 million predominantly due to our decision to curb customer loan growth. Contrastingly, our focus on driving fees and commissions from our cash management and trade finance business boosted growth in non-interest revenue by $23 million, or by 16%, to $171 million year-on-year.

The focus on cost containment and expense discipline drove operating expenses down by $16 million, or by 6%, to $268 million in 2017. As a result, the cost-to-income ratio improved to 74% from 76% in the previous year, yet still high. We are continuing to take actions to further reduce costs further in 2018.

Impairment losses for 2017 were $125 million, compared with $126 million in the previous year. 2017 Annual Report 118 Business and Financial Review

Consumer Bank In millions of $ 2017 2016 % Change

Net interest income 248 270 (8)% Non-interest revenue 199 215 (7)% Net revenue 447 484 (8)% Operating expenses (371) (404) (8)% Pre-impairment income 75 81 (7)% Impairment losses (30) (51) (42)% Operating profit 46 30 53% Profit before tax 46 30 53% Total assets 954 899 6% COMMERCIAL BANKING Total liabilities 5,145 4,568 13% Cost-to-income ratio 83.1% 83.4% — NPL ratio 7.9% 6.8% — NPL coverage ratio 96.7% 113.0% — Performance overview Tailored solutions for Consumer Bank reported profit before tax of $46 million, up $16 million, or 53%, from 2016. The increase was driven by a reduction in impairments.

Revenue of $447 million was down $38 million, or 8%, from 2016. The decrease primarily reflected the impact of currency translation effects and reduced client activity within some of our consumer loan products. Net local corporates interest income fell by $22 million, or by 8%, to $248 million on significantly lower earning asset balances, partially offset by higher deposit margins. Similarly, non-interest income decreased by $16 million, or by 7% to $199 million, driven by lower consumer activity. Encouragingly, strong performances in our remittance and cards businesses and, engaged client activity with our Ecobank Mobile App and other related digital products, pointed to higher revenue expectation going forward.

Operating expense of $371 million, fell 8% from 2016 on account on efficiency gains. The cost-to-income ratio was flat at 83%. The ongoing restructuring efforts, particularly around branch rationalisation and increasing use of digitisation through our business is expected to drive the cost-to-income ratio down further.

Impairment losses for 2017 were $30 million compared to $24 million in 2016, driven by lower non-performing loans and reduced credit origination.

Grow faster. Go further. With Ecobank Commercial Bank.

Discover how our tailor-made services and easy- get our customer-first focus and powerful Pan-African to-work-with solutions can help you streamline your platform working for you – starting today. payment and collection processes and extend the Our dedicated Relationship Managers with Local reach of your organisation. Corporate expertise are waiting to help. Wether you’re running a local government office, Find out more at ecobank.com/commercial NGO, hospital, school or faith-based organisation,

ecobank.com COMMERCIAL BANKING Tailored solutions for local corporates

Grow faster. Go further. With Ecobank Commercial Bank.

Discover how our tailor-made services and easy- get our customer-first focus and powerful Pan-African to-work-with solutions can help you streamline your platform working for you – starting today. payment and collection processes and extend the Our dedicated Relationship Managers with Local reach of your organisation. Corporate expertise are waiting to help. Wether you’re running a local government office, Find out more at ecobank.com/commercial NGO, hospital, school or faith-based organisation, ecobank.com 2017 Annual Report 120

Select Service

Card Linking

Type

VISA Number

Expiry date

ADD CARD

Our return to profitability was largely due to the significant reduction in impairment losses and the cost savings we made by ‘right-sizing’ our business. During the last two years we have strengthened Ecobank’s competitiveness and this has positioned the Group to create shareholder value on a sustainable basis. Financial Financial Statements Financial Statements 121

Select Service

Card Linking

Type

VISA Number

Expiry date

ADD CARD 2017 Annual Report 122 Statement of directors’ responsibilities

Responsibility for annual consolidated financial statements The Directors are responsible for the preparation of the consolidated financial statements for each financial period that give a true and fair view of the financial position of the Group as at 31 December 2017 and the results of its operations, statement of cash flow, income statement and changes in equity for the period ended in compliance with International Financial Reporting Standards (“IFRS”). This responsibility includes ensuring that the Group:

(a) keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the group;

(b) e stablishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and

(c) pr epares its consolidated financial statements using suitable accounting policies supported by reasonable and prudent judgments and estimates, that are consistently applied.

The Directors accept responsibility for the consolidated financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards.

Nothing has come to the attention of the Directors to indicate that the group will not remain a going concern for at least twelve months from the date of this statement.

The Directors are of the opinion that the consolidated financial statements give a true and fair view of the state of the financial affairs of the company and its subsidiaries and of its profit or loss. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of the financial statements, as well as adequate systems of internal financial control.

Due to the listing of Ecobank Transnational Incorporated on the Nigerian Stock Exchange, the Financial Reporting Council of Nigeria (FRCN) requires that the signatories to the financial statements should be registered members of the FRCN. However, since ETI is not an incorporated entity in Nigeria, the signatories to the financial statements of our Nigerian entity, Ecobank Nigeria Limited, (whose results are consolidated in the group financial statements) are registered with the FRCN and details shown below:

Designation Name FRC registration number MD/CEO Charles Kie FRC/2016/IODN/00000014128 Acting Chief Financial Officer Abiola Aderinola FRC/2018/ICAN/00000017827

The Group CEO and Group CFO who are both signatories to the financial statements of ETI, were granted a waiver by the Financial Reporting Council (FRC) of Nigeria allowing them to sign the 2017 ETI financial statements (without indicating their FRC registration numbers) together with the Chairman on behalf of the board.

Approval of annual consolidated financial statements The annual consolidated financial statements were approved by the Board of Directors on 22 February 2018 and signed on its behalf by:

Emmanuel Ikazoboh Greg Davis Ade Ayeyemi Group Chairman Group Chief Financial Officer Group Chief Executive Officer Financial Statements 123 Report of the Independent Auditors to the Members of Ecobank Transnational Incorporated

Report on the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Ecobank Transnational Incorporated and its subsidiaries (together referred to as “the Group”) which comprise the consolidated statement of financial position as at 31 December 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Ecobank Transnational Incorporated as at 31 December 2017, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in line with the requirements of the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Part A and B), together with other ethical requirements that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 2017 Annual Report 124 Report of the Independent Auditors to the Members of Ecobank Transnational Incorporated

Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters noted below relate to the consolidated financial statements.

Key audit matter How our audit addressed the key audit matter

Impairment of loans and advances to customers Loans and advances to customers constitute a We focused our testing of the impairment of loans and advances to significant portion of the total assets of Ecobank customers on the key assumptions and inputs made by management Transnational Incorporated. At 31 December 2017, and Directors. Specifically, our audit procedures included: gross loans and advances were US$9,913 million against which total loan impairment provisions of We tested the design and operating effectiveness of the key controls US$555 million were recorded, thus leaving a net to determine which loans and advances are impaired and provisions loan balance of US$9,358 million which represents against those assets. These included testing: about 42% of the total assets as at the reporting • System-based and manual controls over the timely recognition of date (see note 20). impaired loans and advances; • Controls over the impairment calculation models including data inputs; The basis of the provisions is summarised in the • Controls over collateral valuation estimates; and Accounting policies in the consolidated financial • Governance controls, including attending key meetings that form part statements. of the approval process for loan impairment provisions and assessing management’s analysis and challenge in the actions taken as a result In accordance with the provisions of IAS 39, Financial of the meetings. Instruments: Recognition and Measurement, the Directors have established the group’s loan loss We tested a sample of loans and advances (including loans that had not impairment methodology that addresses the two been identified by management as potentially impaired) to form our types of impairment allowances, specific and own assessment as to whether impairment events had occurred and to collective (which also includes latent or IBNR) assess whether impairments had been identified in a timely manner. impairments. We challenged management’s judgement and we increased the focus on loans that were not reported as being impaired in sectors that are The Directors exercise significant judgement when currently experiencing difficult economic and market conditions, such as determining both when and how much to record the oil and gas sector. as loan impairment provisions. This is due to the fact that a number of significant assumptions and For the collective and latent impairment models used by the Group, we inputs go into the determination of the specific tested a sample of the data used in the models as well as assessing and collective impairment amounts on loans and the model methodology and tested the calculations within the models. advances to customers. Some of these include: We involved our credit risk specialists who assessed whether the i. Estimate of probability of default modelling assumptions used considered all relevant risks, and whether the additional adjustments to reflect un-modelled risks were reasonable ii. Estimate of loss given default in light of historical experience, economic climate, current operational iii. Loss emergence period processes and the circumstances of the customers as well as our own iv. Exposure at default knowledge of practices used by other similar banks. We also tested the v. Credit rating or classification extraction from underlying systems of historical data used in the models. vi. Estimates of projected cash flows vii. Determination of effective interest rates For individually assessed loans, sample of loans were selected for a review of their performance status. Where the loans were deemed to be impaired, a detailed evaluation of the estimates of the future Because of the significance of these estimates, expected cash flows from customers including amounts from realization judgements and the size of loans and advances of collateral held was done. This work involved assessing the work portfolio, the audit of loan impairment provisions is performed by external experts used by the Group to value the collateral considered a key audit matter. or to assess the estimates of future cash flows. Where we determined that a more appropriate assumption or input in provision measurement could be made, we recalculated the provision on that basis and compared the results in order to assess whether there was any indication of error or management bias.

Based on our review, we found that the group’s impairment methodology, including the model, assumptions and key inputs used by management and Directors to estimate the amount of loan impairment losses were comparable with historical performance, and prevailing economic situations and that the estimated loan impairment losses determined was appropriate in the circumstances. Financial Statements 125 Report of the Independent Auditors to the Members of Ecobank Transnational Incorporated

Key audit matter How our audit addressed the key audit matter

Valuation of goodwill Goodwill carrying value was US$232.7 million on We focused our attention on auditing the valuation of unlisted the group’s statement of financial position as at 31 investment securities by looking specifically into the valuation model, December 2017. This asset has been recognised in inputs and key assumptions made by the management. the consolidated statement of financial position as a consequence of the acquisitive nature of the Group. Our audit procedures included:

In line with the requirements of the applicable • We tested all relevant controls over the generation of the key inputs, accounting standard, IAS 36, Impairment of Assets, e.g. financial forecasts, discount rate, revenue growth rate, etc. that go management conducts annual impairment tests to into the valuation calculation. assess the recoverability of the carrying value of goodwill. This is performed using discounted cash • Engaging our internal specialists to assist with: flow models. As disclosed in note 26, there are a number of key sensitive judgements adopted by • Critically evaluating whether the model used by management to management in determining the inputs into these calculate the value in use of the individual Cash Generating Units models which include: complies with the requirements of IAS 36, Impairment of Assets. • Revenue growth • Operating margins • Validating the assumptions used to calculate the discount rates, • Exchange rate fluctuations and projected cash flows and recalculating these rates. • The discount rates applied to the projected future cash flows. • Analysing the future projected cash flows used in the models to determine whether they are reasonable and supportable given the Accordingly, the impairment test of this asset is current macroeconomic climate and expected future performance considered to be a key audit matter. of the Cash Generating Unit. Subjecting the key assumptions to sensitivity analyses. The Management have developed a valuation model to enable a fair determination of the discounted cash • Comparing the projected cash flows, including the assumptions relating flows for the significant Cash Generating Units (CGUs) to revenue growth rates and operating margins, against historical to which the goodwill relates. performance to test the accuracy of management’s projections.

• Checking mathematical accuracy of the calculations

We found that the assumptions used by management were comparable with historical performance and the expected future outlook and the discount rates used were appropriate in the circumstances. We consider the disclosure of the goodwill to be relevant and useful.

Valuation of investment properties The group’s interest in investment properties is made Our audit approach consisted of a combination of test of controls and up of landed properties and buildings (see note 28). specific test of details. We focused on testing and reviewing details of management assumptions and controls over generation of key inputs Investment properties are carried at fair value that go into the fair value determination of the investment properties in line with the group’s accounting policies and and the carrying amount of related indebtedness . in compliance with IAS 40, Investment Property. However, due to the non-current nature of the asset Our audit procedures included: class, the materiality of the carrying amount to the ETI Group financial statements, and determination • Critically evaluating whether the model used by management to arrive of their fair value which involve the exercise of at the fair value estimate of the investment property complies with significant management judgement, and use of the requirements of IAS 40, Investment Property. several key inputs and assumptions, we consider this to be a key audit matter. • Validating the assumptions used to estimate the fair value and recalculating the valuation. The Directors have engaged some Specialists, mostly professional Estate Surveyors and Valuers, • Analysing future projected cash flows that underlie the fair value to assist with the determination of the fair value of determination used in the models to determine whether they are the properties and produce report of the assets’ fair reasonable and supportable given the current macroeconomic climate valuation detailing the relevant assumptions used, and prevailing market data vis-à-vis historical patterns. key inputs and data that go into the valuation of the properties. • Subjecting the key assumptions to sensitivity analyses.

We found that the assumptions used by management were comparable with historical performance and expected future outlook and the estimated fair value determined was appropriate in the circumstances. 2017 Annual Report 126 Report of the Independent Auditors to the Members of Ecobank Transnational Incorporated

Key audit matter How our audit addressed the key audit matter

Valuation of unquoted investments The Group’s investment securities include unlisted We focused our attention on auditing the valuation of unlisted equities for which there are no liquid market. investment securities by looking specifically into the valuation model, inputs and key assumptions made by the management. As contained in note 22, the assets are designated Our audit procedures included: as available-for-sale instruments and are carried at fair value in line with the group’s accounting Our audit procedures included: policies and requirements of IAS 39, Financial • Evaluated the operating effectiveness of controls over generation of Instruments – Recognition and Measurement. key inputs that went into the valuation model. Given the non-availability of market prices for these • Critically evaluating whether the model used by management to securities, determination of their fair valuation calculate the fair value of the unquoted securities complies with by management involve exercise of significant the requirements of IAS 39, Financial Instruments – Recognition assumptions and judgements regarding the cash and Measurement. flow forecasts, growth rate and discount rate utilised • Validating the assumptions used to calculate the discount rates used in the valuation model. This is why it is considered a and recalculating these rates. key audit matter. • Subjecting the key assumptions to sensitivity analyses. • Obtaining direct confirmation of the existence and units of the different The Directors have done a valuation to determine holdings with the investees’ registrars and/or secretariats. the fair value of the unquoted investment securities • Checking mathematical accuracy of the valuation calculations. and details of the valuation work including all relevant assumptions used, key inputs and data We found that the assumptions used by management were comparable that go into the estimate of the fair value of the with the market, accord with best practice, key data and the discount unquoted investments was made available for rates used in estimating the fair value of the instruments were our review. appropriate in the circumstances. We consider the disclosure relating to these instruments to be appropriate in the circumstances.

Other Information The directors are responsible for the other information. The other information comprises the Statement of Directors’ Responsibilities. The other information does not include the consolidated financial statements and our auditors’ report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, if we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Financial Statements 127 Report of the Independent Auditors to the Members of Ecobank Transnational Incorporated

Auditors’ responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. • If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee and the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the audit committee and directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the benefits derivable from such communication.

For: Deloitte & Touche For: Grant Thorton Côte d’Ivoire Chartered Accountants Chartered Accountants Lagos, Nigeria Abidjan, Côte d’Ivoire 7 March 2018 7 March 2018 Engagement Partner: David Achugamonu Engagement Partner: Moustapha Coulibaly

FRC/2013/ICAN/0000000840 2017 Annual Report 128 Consolidated income statement

(All amounts in US dollar thousands unless otherwise stated)

For the year ended 31 December Notes 2017 2016

Interest income 6 1,570,320 1,672,852 Interest expense 6 (593,001) (566,406) Net interest income 977,319 1,106,446

Fee and commission income 7 469,520 486,121 Fee and commission expense 7 (69,140) (52,492) Net trading income 8 415,725 403,555 Net losses from investment securities 9 (5) 26,381 Other operating income 10 37,783 2,252 Non-interest revenue 853,883 865,817

Operating income 1,831,202 1,972,263

Staff expenses 11 (515,040) (535,061) Depreciation and amortization 11 (95,820) (99,197) Other operating expenses 11 (520,691) (602,953) Operating expenses (1,131,551) (1,237,211) Operating profit before impairment losses and taxation 699,651 735,052

Impairment losses on : • loans and advances 12 (326,248) (770,268) • other financial assets 13 (84,806) (93,583) Impairment losses on financial assets (411,054) (863,851)

Operating profit after impairment losses 288,597 (128,799)

Share of loss of associates 25 (257) (2,542)

Profit/(loss) before tax 288,340 (131,341)

Taxation 14 (60,757) (70,924)

Profit/(loss) for the year from continuing operations 227,583 (202,265)

Profit/(loss) for the year from discontinued operations 29 951 (2,693)

Profit/(loss) for the year 228,534 (204,958)

Profit/(loss) attributable to:

Owners of the parent 178,585 (249,898) • Continuing operations 178,071 (248,444) • Discontinued operations 514 (1,454)

Non-controlling interests 49,949 44,940 • Continuing operations 49,512 46,179 • Discontinued operations 437 (1,239)

228,534 (204,958)

Earnings/(loss) per share from continuing operations attributable to owners of the parent during the period (expressed in United States cents per share): • Basic 15 0.72 (1.01) • Diluted 15 0.72 (1.01)

Earnings/(loss) per share from discontinued operations attributable to owners of the parent during the period (expressed in United States cents per share): • Basic 15 0.00 (0.01) • Diluted 15 0.00 (0.01)

The accompanying notes are an integral part of these financial statements Financial Statements 129 Consolidated statement of comprehensive income

(All amounts in thousands of U.S. dollars unless otherwise stated)

For the year ended 31 December Notes 2017 2016

Profit/(loss) for the year 228,534 (204,958)

Other comprehensive income:

Items that may be subsequently reclassed to profit or loss: Exchange difference on translation of foreign operations 101,172 (624,797)

Net fair value loss on available-for-sale financial assets 39 43,970 (54,135)

Taxation relating to components of other comprehensive income that may be subsequently reclassed to profit or loss 39 (1,805) 22,658 143,337 (656,274)

Items that will not be reclassed to profit or loss: Property and equipment – net revaluation gain 27 6,255 6,221 Remeasurements of defined benefit obligations 39 (6,064) (6,153)

Taxation relating to components of other comprehensive income 39 (3,144) (5,704) (2,953) (5,636)

Other comprehensive Profit/(loss) for the year net of tax 140,384 (661,910)

Total comprehensive Profit/(loss) for the year 368,918 (866,868)

Total comprehensive Profit/(loss) attributable to: Owners of the parent 304,611 (908,501) • Continuing operations 304,097 (907,047) • Discontinued operations 514 (1,454)

Non-controlling interests 63,870 41,633 • Continuing operations 64,307 42,872 • Discontinued operations 437 (1,239)

368,918 (866,868)

Items in the statement above are disclosed net of tax. The deferred income tax relating to each component of other comprehensive income is disclosed in Note 35.

The accompanying notes are an integral part of these financial statements 2017 Annual Report 130 Consolidated statement of financial position

(All amounts in US dollar thousands unless otherwise stated)

As at 31 December Notes 2017 2016

Assets Cash and balances with central banks 16 2,661,745 2,462,302 Financial assets held for trading 17 36,557 77,408 Derivative financial instruments 18 39,267 68,204 Loans and advances to banks 19 1,685,806 1,413,699 Loans and advances to customers 20 9,357,864 9,259,374 Treasury bills and other eligible bills 21 1,718,977 1,228,492 Investment securities: available-for-sale 22 4,405,240 3,272,824 Pledged assets 23 298,561 518,205 Other assets 24 760,724 850,821 Investment in associates 25 9,964 10,135 Intangible assets 26 283,664 280,766 Property and equipment 27 924,163 861,047 Investment properties 28 43,514 35,819 Deferred income tax assets 35 121,715 102,007 22,347,761 20,441,103

Assets held for sale and discontinued operations 29 83,843 69,871

Total assets 22,431,604 20,510,974

Liabilities Deposits from banks 30 1,772,414 2,022,352 Deposits from customers 31 15,203,271 13,496,720 Derivative financial instruments 18 32,497 23,102 Borrowed funds 32 1,728,756 1,608,564 Other liabilities 33 1,210,908 1,342,635 Provisions 34 52,450 28,782 Current income tax liabilities 58,107 54,539 Deferred income tax liabilities 35 64,269 60,169 Retirement benefit obligations 36 24,064 15,731 20,146,736 18,652,594

Liabilities held for sale and discontinued operations 29 112,785 94,302

Total liabilities 20,259,521 18,746,896

Equity Share capital and premium 38 2,113,957 2,114,332 Retained earnings and reserves 39 (233,213) (536,408) Equity attributable to owners of the parents 1,880,744 1,577,924

Non-controlling interests 291,339 186,154

Total equity 2,172,083 1,764,078

Total liabilities and equity 22,431,604 20,510,974

The accompaying notes are an integral part of these financial statements

The financial statements were approved for issue by the board of directors on 22 February 2018 and signed on its behalf by:

Emmanuel Ikazoboh Greg Davis Ade Ayeyemi Group Chairman Group Chief Financial Officer Group Chief Executive Officer Financial Statements 131 Consolidated statement of changes in equity

(All amounts in US dollar thousands unless otherwise stated)

Non- Attributable to equity holders controlling of the Company Total interests Total equity Share capital Retained Other Note and premium earnings reserves

At 1 January 2016 2,029,698 529,427 (213,116) 2,346,009 177,236 2,523,245

Net changes in available for sale investments, net of taxes 39 — — (31,477) (31,477) — (31,477) Foreign currency translation differences 40 — — (621,490) (621,490) (3,307) (624,797) Remeasurements of post-employment benefit obligations 36 — — (6,153) (6,153) — (6,153) Net gains on revaluation of property 39 — — 517 517 — 517

Other comprehensive loss for the year — — (658,603) (658,603) (3,307) (661,910) Loss for the year — (249,898) — (249,898) 44,940 (204,958) Total comprehensive loss for the year — (249,898) (658,603) (908,501) 41,633 (866,868)

Transfer to other group reserve — — 104,281 104,281 — 104,281 Dividend relating to 2015 39 — (48,200) — (48,200) (32,715) (80,915) Treasury shares 39 70 — — 70 — 70 Transfer from share option reserve 39 — 12,037 (12,037) — — — Transfer to general banking reserves 39 — 6,827 (6,827) — — — Transfer to statutory reserve 39 —- (19,346) 19,346 — — — Net proceeds from shares issued: Conversion of Preference shares 39 84,564 — — 84,564 — 84,564 Convertible loans – equity component 39 — — (299) (299) — (299)

At 31 December 2016 / 1 January 2017 2,114,332 230,847 (767,255) 1,577,924 186,154 1,764,078

Net changes in available for sale investments, net of taxes 40 — — 42,165 42,165 — 42,165

Foreign currency translation differences 40 — — 86,814 86,814 14,358 101,172 Remeasurements of post-employment benefit obligations 36 — — (6,064) (6,064) — (6,064) Net gains on revaluation of property 40 — — 3,111 3,111 — 3,111

Other comprehensive income for the year — — 126,026 126,026 14,358 140,384 Profit for the year — 178,585 — 178,585 49,949 228,534

Total comprehensive income for the year — 178,585 126,026 304,611 64,307 368,918 Transfer to other group reserves — (130,447) 130,447 — — — Dividend relating to 2016 39 — — — — (23,378) (23,378) Change in minority interest — — — — 64,256 64,256 Treasury shares 39 (375) — — (375) — (375) Transfer from share option reserve 39 — (344) 344 — — — Transfer to general banking reserves 39 — (17,049) 17,049 — — — Transfer to statutory reserve 39 — (45,450) 45,450 — — — Convertible loans – equity component 39 — — (1,416) (1,416) — (1,416) At 31 December 2017 2,113,957 216,142 (449,355) 1,880,744 291,339 2,172,083

The accompaying notes are an integral part of these financial statements 2017 Annual Report 132 Consolidated statement of cash flows

(All amounts in US dollar thousands unless otherwise stated)

For the year ended 31 December Notes 2017 2016

Cash flows from operating activities Profit/(loss) before tax 288,340 (131,341)

Adjustments for: Net trading income - foreign exchange (37,498) (82,938) Net losses/(gain) from investment securities 9 5 (26,381) Fair value loss on investment properties 10 827 29,672 Impairment losses on loans and advances 12 326,248 770,268 Impairment losses on other financial assets 13 84,806 93,583 Depreciation of property and equipment 11 80,557 85,113 Net interest income (977,319) (1,106,446) Amortisation of software and other intangibles 11 15,263 14,084 Profit on sale of property and equipment (3,253) (938) Share of loss of associates 25 257 2,542

Income taxes paid (77,608) (121,712)

Changes in operating assets and liabilities • Trading assets 40,851 93,926 • Derivative financial assets 28,937 76,021 • Other treasury bills (542,527) (30,695) • Loans and advances to banks (156,834) 371,394 • Loans and advances to customers (244,255) 1,988,569 • Pledged assets 219,644 240,881 • Other assets 33,931 (337,193) • Mandatory reserve deposits (163,158) 440,073

• Due to customers 1,706,551 (2,930,833) • Derivative liabilities 9,395 21,766 • Other provisions 23,668 88 • Other liabilities (131,727) 293,576

Interest received 1,570,320 1,672,852 Interest paid (593,001) (566,406) Net cashflow from operating activities 1,502,420 859,525

Cash flows from investing activities Purchase of software 26 (26,355) (31,321) Purchase of property and equipment 27 (256,194) (227,390) Proceeds from sale of property and equipment 147,896 20,860 Purchase of investment securities 22 (1,631,773) (1,513,241) Purchase of investment properties (8,688) (1,101) Proceeds from sale and redemption of securities 809,340 387,046

Net cashflow used in investing activities (965,774) (1,365,147)

Cash flows from financing activities Net repayment of borrowed funds (533,110) (505,938) Net proceeds from borrowed funds 410,980 744,999 Dividends paid to non-controlling shareholders (23,378) (32,715) Dividends paid to owners of the parent — (48,200)

Net cashflow (used in)/from financing activities (145,508) 158,146

Net increase/(decrease) in cash and cash equivalents 391,138 (347,478)

Cash and cash equivalents at start of year 40 2,020,838 2,610,050 Effects of exchange differences on cash and cash equivalents (446,365) (241,734)

Cash and cash equivalents at end of year 40 1,965,611 2,020,838

The accompanying notes are an integral part of these financial statements Financial Statements 133 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

1 General information • defined benefit pension plans - plan assets measured at fair value Ecobank Transnational Incorporated (ETI) and its subsidiaries The consolidated financial statements are presented in US Dollars, (together, ‘the group’) provide retail, corporate and investment which is the group’s presentation currency. The figures shown in the banking services throughout sub Saharan Africa outside South Africa. consolidated financial statements are stated in US Dollar thousands. The Group had operations in 40 countries and employed over 15,930 people (31 December 2016: 17,343) as at 31 December 2017. The consolidated financial statements comprise the consolidated statement of comprehensive income (shown as two statements), Ecobank Transnational Incorporated is a limited liability company and the statement of financial position, the statement of changes in is incorporated and domiciled in the Republic of Togo. The address equity, the statement of cash flows and the accompanying notes. of its registered office is as follows: 2365 Boulevard du Mono, Lomé, Togo. The company has a primary listing on the Ghana Stock The consolidated statement of cash flows shows the changes in Exchange, the Nigerian Stock Exchange and the Bourse Regionale cash and cash equivalents arising during the period from operating Des Valeurs Mobilieres (Abidjan) Cote D’Ivoire. activities, investing activities and financing activities. Included in cash and cash equivalents are highly liquid investments. The consolidated financial statements for the period year 31 December 2017 have been approved by the Board of Directors The cash flows from operating activities are determined by using on 22 February 2018. the indirect method. The Group’s assignment of the cash flows to operating, investing and financing category depends on the Group’s 2 Summary of significant accounting policies business model. This note provides a list of the significant accounting policies applied The preparation of financial statements in conformity with IFRS in the preparation of these consolidated financial statements to requires the use of certain critical accounting estimates. It also the extent they have not already been disclosed in the other notes requires Directors to exercise judgment in the process of applying above. These policies have been consistently applied to all the the Group’s accounting policies. Changes in assumptions may have years presented, unless otherwise stated. The financial statements a significant impact on the financial statements in the period the are for the group consisting of Ecobank Transnational Incorporated assumptions changed. Management believes that the underlying and its subsidiaries. assumptions are appropriate and that the Group’s financial 2.1 Basis of presentation and measurement statements therefore present the financial position and results fairly. The areas involving a higher degree of judgment or complexity, The Group’s consolidated financial statements for the period or areas where assumptions and estimates are significant to the ended 31 December 2017 have been prepared in accordance consolidated financial statements, are disclosed in Note 4. with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) applicable to companies reporting (a) New and amended standards adopted by the group under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). The Group has applied a number of amendments to IFRS issued by the International Accounting Standards Board (IASB) that are The consolidated financial statements have been prepared under the mandatorily effective for an accounting period that begins on or historical cost convention, except for the following: after 1 January 2017.

• available-for-sale financial assets, financial assets and financial I) Amendments to IAS 12 – Income Taxes liabilities (including derivative instruments), investment properties The IASB issued the amendments to IAS 12 Income Taxes to clarify measured at fair value the accounting for deferred tax assets for unrealised losses on debt • assets held for sale - measured at fair value less cost of disposal; instruments measured at fair value. The amendments clarify that and an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the • defined benefit pension plans - plan assets measured at fair value reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine The Group’s consolidated financial statements for the year ended 31 future taxable profits and explain the circumstances in which taxable December 2017 have been prepared in accordance with International profit may include the recovery of some assets for more than Financial Reporting Standards (IFRS) and IFRS Interpretations their carrying amount. The amendments are intended to remove Committee (IFRS IC) applicable to companies reporting under existing divergence in practice in recognising deferred tax assets for IFRS. The financial statements comply with IFRS as issued by the unrealised losses. The amendment does not impact the bank. International Accounting Standards Board (IASB). II) Amendments to IAS 7 – Statement of Cash Flows The consolidated financial statements have been prepared under the The amendments to IAS 7 Statement of Cash Flows are part of the historical cost convention, except for the following: IASB’s Disclosure Initiative and help users of financial statements • available-for-sale financial assets, financial assets and financial better understand changes in an entity’s debt. The amendments liabilities (including derivative instruments), investment properties require entities to provide disclosures about changes in their liabilities measured at fair value arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains • assets held for sale - measured at fair value less cost of disposal; and 2017 Annual Report 134 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated) or losses). The amendments are intended to provide information to and included in OCI rather than in the income statement. help investors better understand changes in an entity’s debt. The amendment results in additional disclosures being made by the The Group does not expect a significant impact on its balance Group in its financial statements.. sheet or equity on applying the classification and measurement requirements of IFRS 9. III) Amendments to IFRS 12 – Disclosure of Interests in Other Entities The amendments clarify that the disclosure requirements in IFRS 12, Impairment other than those in paragraphs B10–B16, apply to an entity’s IFRS 9 introduces a revised impairment model which requires entities interest in a subsidiary, a joint venture or an associate (or a portion to recognise expected credit losses (‘ECL’) on loans, debt securities of its interest in a joint venture or an associate) that is classified and loan commitments not held at fair value through profit based (or included in a disposal group that is classified) as held for sale. on unbiased forward-looking information. The measurement of The amendment has been adopted by the bank. expected loss will involve increased complexity and judgment including estimation of lifetime probabilities of default, loss given b) New standards and interpretations not yet adopted default, a range of unbiased future economic scenarios, estimation The standards and interpretations that are issued, but not yet of expected lives, estimation of exposures at default and assessing effective, up to the date of issuance of the Group’s financial increases in credit risk. The Group is in the process of quantifying the statements are disclosed below. The Group intends to adopt impact of this change, it is however expected to lead to an increased these standards, if applicable, when they become effective. impairment charge compared to that recognised under IAS 39.

I) IFRS 9 Financial Instruments The increase in impairment charge is likely to be driven by: In July 2014, the IASB issued the final version of IFRS 9 Financial • The removal of the emergence period that was necessitated by Instruments that replaces IAS 39 Financial Instruments: Recognition the incurred loss model of IAS 39. All stage 1 assets will carry a and Measurement and all previous versions of IFRS 9. IFRS 9 12-month expected credit loss provision. This differs from IAS 39 brings together all three aspects of the accounting for the financial where unidentified impairments were typically measured with an instruments project: classification and measurement; impairment; emergence period of between three to twelve months. and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application • The provisioning for lifetime expected credit losses on stage 2 permitted. Except for hedge accounting, retrospective application is assets; where some of these assets would not have attracted a required, but providing comparative information is not compulsory. lifetime expected credit loss measurement under IAS 39. For hedge accounting, the requirements are generally applied • The inclusion of forecasted macroeconomic scenarios in the prospectively, with some limited exceptions. determination of the ECL in components such as Probability of Default (PD) The Group will not restate comparatives on initial application of • The inclusion of expected credit losses on items that would not IFRS 9 on 1 January 2018 but will provide detailed transitional have been impaired under IAS 39, such as loan commitments and disclosures in accordance with the amended requirements of IFRS 7 financial guarantees. Financial Instruments: Disclosures. Any change in the carrying value of financial instruments upon initial application of IFRS 9 will be The Group is currently performing a more detailed analysis which recognised in equity. considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact. The Group’s project for the adoption of the new standard remains on track. Based on the preliminary impact assessment performed by Hedge accounting the Group in 2017 and the work completed to date, the Group does The Group believes that all existing hedge relationships that are not expect a significant impact on its balance sheet or equity except currently designated in effective hedging relationships will still for the effect of applying the impairment requirements of IFRS 9. qualify for hedge accounting under IFRS 9. As IFRS 9 does not This may however be subject to change arising from further detailed change the general principles of how an entity accounts for effective analysis or further regulatory guidance to be issued in 2018. Overall, hedges, the Group does not expect a significant impact as a result of the Group expects a higher impairment allowance resulting in a applying IFRS 9. The Group is assessing possible changes related to negative impact on equity. IFRS 9 is being considered in the Group’s the accounting for the time value of options, forward points or the capital planning. Further disclosures will be made in the half year currency basis spread in more detail in the future. 2018 financial statements. II) IFRS 15 Revenue from Contracts with Customers Classification and measurement In May 2014, the IASB issued IFRS 15 Revenue from Contracts with IFRS 9 replaces the multiple classification and measurement models in Customers, effective for periods beginning on 1 January 2018 with IAS 39 with a single model that has only three classification categories: early adoption permitted. IFRS 15 defines principles for recognising amortised cost, fair value through OCI and fair value through profit or revenue and will be applicable to all contracts with customers. loss. It includes the guidance on accounting for and presentation of However, interest and fee income integral to financial instruments financial liabilities and derecognition of financial instruments which and leases will continue to fall outside the scope of IFRS 15 and will was previously in IAS 39. Furthermore for non-derivative financial be regulated by the other applicable standards (e.g., IFRS 9, and liabilities designated at fair value through profit or loss, it requires that IFRS 16 Leases). the credit risk component of fair value gains and losses be separated Financial Statements 135

Revenue under IFRS 15 will need to be recognised as goods and liability and the depreciation expense on the right-of-use asset. services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard also specifies a Lessees will be also required to remeasure the lease liability upon comprehensive set of disclosure requirements regarding the nature, the occurrence of certain events (e.g., a change in the lease term, a extent and timing as well as any uncertainty of revenue and the change in future lease payments resulting from a change in an index corresponding cash flows with customers. The Group will consider or rate used to determine those payments). The lessee will generally deleting this coloured part as the Standard is effective 1 Jan 2018 is recognise the amount of the remeasurement of the lease liability as currently evaluating its impact. an adjustment to the right-of-use asset.

III) Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets Lessor accounting under IFRS 16 is substantially unchanged from between an Investor and its Associate or Joint Ventur today’s accounting under IAS 17. Lessors will continue to classify The amendments address the conflict between IFRS 10 and IAS all leases using the same classification principle as in IAS 17 and 28 in dealing with the loss of control of a subsidiary that is sold distinguish between two types of leases: operating and finance leases. or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of IFRS 16 also requires lessees and lessors to make more extensive assets that constitute a business, as defined in IFRS 3, between an disclosures than under IAS 17. investor and its associate or joint venture, is recognised in full. Any IFRS 16 is effective for annual periods beginning on or after 1 January gain or loss resulting from the sale or contribution of assets that do 2019. Early application is permitted, but not before an entity applies not constitute a business, however, is recognised only to the extent IFRS 15. A lessee can choose to apply the standard using either a full of unrelated investors’ interests in the associate or joint venture. retrospective or a modified retrospective approach. The standard’s The IASB has deferred the effective date of these amendments transition provisions permit certain reliefs. indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments In 2017, the Group plans to assess the potential effect of IFRS 16 on when they become effective. its consolidated financial statements. IV) IFRS 2 Classification and Measurement of Share-based Payment VI) IAS 7 – Statement of Cash Flows Transactions – Amendments to IFRS 2 Effective 1 January 2017. Amends IAS 7 to include disclosures that The IASB issued amendments to IFRS 2 Share-based Payment that enable users of financial statements to evaluate changes in liabilities address three main areas: the effects of vesting conditions on the arising from financing activities. The amendment specifies that the measurement of a cash-settled share-based payment transaction; following changes arising from financing activities are disclosed the classification of a share-based payment transaction with net (to the extent necessary): (i) changes from financing cash flows; settlement features for withholding tax obligations; and accounting (ii) changes arising from obtaining or losing control of subsidiaries where a modification to the terms and conditions of a share-based or other businesses; (iii) the effect of changes in foreign exchange payment transaction changes its classification from cash settled to rates; (iv) changes in fair values; and (v) other changes. equity settled. VII) IAS 40 – Investment Property On adoption, entities are required to apply the amendments without The amendments clarify when an entity should transfer property, restating prior periods, but retrospective application is permitted including property under construction or development into, or out if elected for all three amendments and other criteria are met. of investment property. The amendments state that a change in use The amendments are effective for annual periods beginning on or occurs when the property meets, or ceases to meet, the definition of after 1 January 2018, with early application permitted. The Group is investment property and there is evidence of the change in use. assessing the potential effect of the amendments on its consolidated A mere change in management’s intentions for the use of a property financial statements. does not provide evidence of a change in use. V) IFRS 16 Leases Entities should apply the amendments prospectively to changes IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, in use that occur on or after the beginning of the annual reporting IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 period in which the entity first applies the amendments. An entity Operating Leases-Incentives and SIC-27 Evaluating the Substance of should reassess the classification of property held at that date and, Transactions Involving the Legal Form of a Lease. IFRS 16 sets out if applicable, reclassify property to reflect the conditions that exist the principles for the recognition, measurement, presentation and at that date. Retrospective application in accordance with IAS 8 is disclosure of leases and requires lessees to account for all leases only permitted if that is possible without the use of hindsight. Early under a single on-balance sheet model similar to the accounting for application of the amendments is permitted and must be disclosed. finance leases under IAS 17. The standard includes two recognition The amendments will eliminate diversity in practice. exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of The impact of this standard is currently being assessed. 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease VIII) IFRIC Interpretation 22 – Foreign Currency Transactions and liability) and an asset representing the right to use the underlying Advance Consideration asset during the lease term (i.e., the right-of-use asset). Lessees will The interpretation clarifies that in determining the spot exchange rate be required to separately recognise the interest expense on the lease to use on initial recognition of the related asset, expense or income 2017 Annual Report 136 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

(or part of it) on the derecognition of a non-monetary asset or XI) IFRS 17 Insurance Contracts non-monetary liability relating to advance consideration, the date IFRS 17 establishes the principles for the recognition, measurement, of the transaction is the date on which an entity initially recognises presentation and disclosure of insurance contracts within the the non-monetary asset or non-monetary liability arising from the scope of the standard. The objective of IFRS 17 is to ensure that advance consideration. If there are multiple payments or receipts an entity provides relevant information that faithfully represents in advance, then the entity must determine a date of the those contracts. This information gives a basis for users of financial transactions for each payment or receipt of advance consideration. statements to assess the effect that insurance contracts have on The amendments are intended to eliminate diversity in practice, the entity’s financial position, financial performance and cash flows. when recognising the related asset, expense or income (or part IFRS 17 requires insurance liabilities to be measured at a current of it) on the derecognition of a non-monetary asset or nonmonetary fulfillment value and provides a more uniform measurement and liability relating to advance consideration received or paid in presentation approach for all insurance contracts. These requirements foreign currency. are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 The impact of this standard is currently being assessed. Insurance Contracts as of 1 January 2021

IX) Long-term Interests in Associates and Joint Ventures The impact of this standard is currently being assessed. (Amendments to IAS 28) The amendments clarify that an entity applies IFRS 9 Financial 2.2 Principles of Consolidation and Equity Accounting Instruments to long-term interests in an associate or joint venture a) Subsidiaries that form part of the net investment in the associate or joint venture Subsidiaries are all entities (including structured entities) over which but to which the equity method is not applied. The amendments the group has control. The Group controls and hence consolidates an are effective for periods beginning on or after 1 January 2019. entity when it is exposed to, or has rights to, variable returns from Earlier application is permitted. This will enable entities to apply the its involvement with the entity and has the ability to affect those amendments together with IFRS 9 if they wish so but leaves other returns through its power to direct the activities of the entity. The entities the additional implementation time they had asked for. Group will only consider potential voting rights that are substantive The amendments are to be applied retrospectively but they provide when assessing whether it controls another entity. In order for the transition requirements similar to those in IFRS 9 for entities that right to be substantive, the holder must have the practical ability to apply the amendments after they first apply IFRS 9. They also include exercise the right. Subsidiaries are fully consolidated from the date relief from restating prior periods for entities electing, in accordance on which control is transferred to the group. They are deconsolidated with IFRS 4 Insurance Contracts, to apply the temporary exemption from the date that control ceases. from IFRS 9. Full retrospective application is permitted if that is The consolidation of structured entities is considered at inception, possible without the use of hindsight. based on the arrangements in place and the assessed risk exposures The impact of this standard is currently being assessed. at the time. The assessment of controls is based on the consideration of all facts and circumstances. X) IFRIC 23 Uncertainty over Income Tax Treatment The interpretation sets out how to determine taxable profit (tax The acquisition method of accounting is used to account for all loss), tax bases, unused tax losses, unused tax credits and tax rates business combinations, regardless of whether equity instruments when there is uncertainty over income tax treatments under IAS 12 or other assets are acquired. The consideration transferred for the Income Taxes. acquisition of a subsidiary comprises the:

The Interpretation requires an entity to: determine whether • fair values of the assets transferred; uncertain tax positions are assessed separately or as a group; and • liabilities incurred to the former owners of the acquired business; assess whether it is probable that a tax authority will accept an • equity interests issued by the group; uncertain tax treatment used, or proposed to be used, by an entity • fair value of any asset or liability resulting from a contingent in its income tax filings: If yes, the entity should determine its consideration arrangement; and accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. If no, the entity • fair value of any pre-existing equity interest in the subsidiary. should reflect the effect of uncertainty in determining its accounting tax position. Effective date: annual periods beginning on or after Identifiable assets acquired and liabilities and contingent liabilities 1 January 2019. Entities can apply the Interpretation either on assumed in a business combination are, with limited exceptions, a fully retrospective or modified retrospective approach (where measured initially at their fair values at the acquisition date. The comparatives are not permitted or required to be restated). group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the The impact of this standard is currently being assessed by Group non-controlling interest’s proportionate share of the acquired entity’s insurance associates. net identifiable assets.

Acquisition-related costs are expensed as incurred. Financial Statements 137

The excess of the consideration transferred, amount of any non- d) Associates controlling interest in the acquired entity and acquisition-date fair Associates are all entities over which the Group has significant value of any previous equity interest in the acquired entity over influence but not control, generally accompanying a shareholding the fair value of the net identifiable assets acquired is recorded as of between 20% and 50% of the voting rights. Investments in goodwill. If those amounts are less than the fair value of the net associates are accounted for using the equity method of accounting, identifiable assets of the subsidiary acquired, the difference after initially being recognised at cost. Under the equity method, the is recognised directly in profit or loss as a bargain purchase. investment is initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses Where settlement of any part of cash consideration is deferred, of the investee in the income statement, and the Group’s share the amounts payable in the future are discounted to their present of movements in other comprehensive income of the investee in value as at the date of exchange. The discount rate used is the other comprehensive income. Dividends received or receivable from entity’s incremental borrowing rate, being the rate at which a similar associates are recognised as a reduction in the carrying amount borrowing could be obtained from an independent financier under of the investment. The Group’s investment in associates includes comparable terms and conditions. goodwill identified on acquisition. Contingent consideration is classified either as equity or a financial If the ownership interest in an associate is reduced but significant liability. Amounts classified as a financial liability are subsequently influence is retained, only a proportionate share of the amounts remeasured to fair value with changes in fair value recognised in previously recognised in other comprehensive income is reclassified profit or loss. to the income statement where appropriate. If the business combination is achieved in stages, the acquisition date When the Group’s share of losses in an associate equals or exceeds carrying value of the acquirer’s previously held equity interest in the its interest in the associate, including any other unsecured long-term acquire is remeasured to fair value at the acquisition date. Any gains or receivables, the Group does not recognise further losses, unless it losses arising from such remeasurement are recognised in profit or loss. has incurred legal or constructive obligations or made payments on Inter-company transactions, balances and unrealised gains on behalf of the associate. transactions between group companies are eliminated. Unrealised The Group determines at each reporting date whether there is any losses are also eliminated unless the transaction provides evidence objective evidence that the investment in associate is impaired. If of an impairment of the transferred asset. When necessary amounts this is the case, the Group calculates the amount of impairment as reported by subsidiaries have been adjusted to conform with the the difference between the recoverable amount of the associate and group’s accounting policies. its carrying value and recognises the amount adjacent to ‘share of Non-controlling interests in the results and equity of subsidiaries profit/(loss) of associates in the income statement. are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity 2.3 Foreign currency translation and balance sheet respectively. a) Functional and presentation currency Items included in the financial statements of each of the Group’s b) Changes in ownership interests in subsidiaries without entities are measured using the currency of the primary economic change of control environment in which the entity operates (‘the functional currency’). Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, The consolidated financial statements are presented in United States as transactions with the owners in their capacity as owners. The dollars, which is the Group’s presentation currency. difference between fair value of any consideration paid and the b) Transactions and balances relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non- Foreign currency transactions are translated into the functional controlling interests are also recorded in equity. currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign c) Disposal of subsidiaries exchange gains and losses resulting from the settlement of such When the Group ceases to have control, any retained interest in transactions and from the translation at year-end exchange rates of the entity is remeasured to its fair value at the date when control monetary assets and liabilities denominated in foreign currencies are is lost, with the change in carrying amount recognised in profit or recognised in the income statement. Foreign exchange gains and loss. The fair value is the initial carrying amount for the purposes of losses that relate to borrowings and cash and cash equivalents are subsequently accounting for the retained interest as an associate, presented in the income statement. All other foreign exchange gains joint venture or financial asset. In addition, any amounts previously and losses are presented in the income statement on a net basis recognised in other comprehensive income in respect of that entity within other income and other expenses. are accounted for as if the Group had directly disposed of the related Changes in the fair value of monetary securities denominated in assets or liabilities. This may mean that amounts previously recognised foreign currency classified as available for sale are analysed between in other comprehensive income are reclassified to profit or loss. translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the 2017 Annual Report 138 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated) security. Translation differences related to changes in amortised cost categories: financial assets at fair value through profit or loss; loans are recognised in profit or loss, and other changes in carrying amount and receivables; held-to-maturity investments; and available-for- are recognised in other comprehensive income. sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines Non-monetary items that are measured at fair value in a foreign the classification of its financial instruments at initial recognition. currency are translated using the exchange rates at the date when Financial assets are recognised initially on the trade date, which is the fair value was determined. Translation differences on non- the date that the Group becomes a party to the contractual provisions monetary financial assets and liabilities such as equities held at fair of the instrument. value through profit or loss are recognised in the income statement as part of the fair value gain or loss. Translation differences on non- a) Financial assets at fair value through profit or loss monetary financial assets, such as equities classified as available for This category comprises two sub-categories: financial assets classified sale, are included in other comprehensive income. as held for trading, and financial assets designated by the Group as at fair value through profit or loss upon initial recognition. c) Group companies The results and financial position of all group entities (none of A financial asset is classified as held for trading if it is acquired or which has the currency of a hyperinflationary economy) that have incurred principally for the purpose of selling or repurchasing it a functional currency different from the presentation currency are in the near term or if it is part of a portfolio of identified financial translated into the presentation currency as follows: instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. i) A ssets and liabilities for each statement of financial position Derivatives are also categorized as held for trading unless they are presented are translated at the closing rate at the date of that designated and effective as hedging instruments. Financial assets statement of financial position; held for trading consist of debt instruments, including money-market paper, traded corporate and bank loans, and equity instruments, ii) Income and expenses for each income statement are translated as well as financial assets with embedded derivatives. They are at average exchange rates; (unless this average is not a reasonable recognised in the consolidated statement of financial position as approximation of the cumulative effect of the rates prevailing on the ‘Financial assets held for trading’. transaction dates, in which case income and expenses are translated at the dates of the transactions) and Financial assets and financial liabilities are designated at fair value through profit or loss when: iii) Al l resulting exchange differences are recognised in other comprehensive income. (i) Doing so significantly reduces measurement inconsistencies that would arise if the related derivative were treated as held for Exchange differences arising from the above process are reported in trading and the underlying financial instruments were carried at shareholders’ equity as ‘Foreign currency translation differences’. amortised cost for such loans and advances to customers or banks and debt securities in issue; Goodwill and fair value adjustments arising on the acquisition of a (ii) C ertain investments, such as equity investments, are managed foreign entity are treated as assets and liabilities of the foreign entity and evaluated on a fair value basis in accordance with a and translated at the closing rate. documented risk management or investment strategy and reported to key management personnel on that basis are 2.4 Sale and repurchase agreements designated at fair value through profit or loss; and Securities sold subject to repurchase agreements (‘repos’) are (iii) Financial instruments, such as debt securities held, containing reclassified in the financial statements as pledged assets when the one or more embedded derivatives significantly modify the cash transferee has the right by contract or custom to sell or repledge flows, are designated at fair value through profit or loss. the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. Securities Gains and losses arising from changes in the fair value of derivatives purchased under agreements to resell (‘reverse repos’) are recorded that are managed in conjunction with designated financial assets as loans and advances to other banks or customers, as appropriate. or financial liabilities are included in ‘net income from financial The difference between sale and repurchase price is treated as instruments designated at fair value’. interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also Derivative financial instruments included in this category are retained in the financial statements. recognised initially at fair value; transaction costs are taken directly to the consolidated income statement. Gains and losses arising from 2.5 Financial assets and liabilities changes in fair value are included directly in the consolidated income All financial assets and liabilities – which include derivative financial statement and are reported as ‘Net trading income’. Interest income instruments – have to be recognised in the consolidated statement and expense and dividend income and expenses on financial assets of financial position and measured in accordance with their held for trading are included in ‘Net interest income’ or ‘Dividend assigned category. income’, respectively. The instruments are derecognised when the rights to receive cash flows have expired or the Group has transferred 2.5.1 Financial assets substantially all the risks and rewards of ownership and the transfer The Group allocates financial assets to the following IAS 39 qualifies for derecognizing Financial Statements 139

Financial assets for which the fair value option is applied are d) Available-for-sale recognised in the consolidated statement of financial position as Available-for-sale investments are financial assets that are intended ‘Financial assets designated at fair value’. Fair value changes relating to be held for an indefinite period of time, which may be sold to financial assets designated at fair value through profit or loss are in response to needs for liquidity or changes in interest rates, recognised in ‘Net trading income’. exchange rates or equity prices or that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair b) Loans and receivables value through profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, Available-for-sale financial assets are initially recognised at fair value, other than: which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being (a) those that the Group intends to sell immediately or in the short recognised in other comprehensive income, except for impairment term, which are classified as held for trading, and those that the losses and foreign exchange gains and losses, until the financial asset entity upon initial recognition designates as at fair value through is derecognised. If an available-for-sale financial asset is determined profit or loss; to be impaired, the cumulative gain or loss previously recognised in the equity is recognised in the income statement. However, interest (b) those that the Group upon initial recognition designates as is calculated using the effective interest method, and foreign currency available for sale; or gains and losses on monetary assets classified as available for sale are recognised in the consolidated statement of comprehensive (c) those for which the holder may not recover substantially all of its income. Dividends on available-for-sale equity instruments are initial investment, other than because of credit deterioration. recognised in the consolidated income statement in ‘Dividend income’ when the Group’s right to receive payment is established. Loans and receivables are initially recognised at fair value – which Treasury bills and pledged assets are classified as available for sale is the cash consideration to originate or purchase the loan including financial assets. any transaction costs – and measured subsequently at amortised cost using the effective interest rate method. Loans and receivables are 2.5.2 Financial liabilities reported in the consolidated statement of financial position as loans and advances to banks and financial assets in other assets. Interest The Group’s holding in financial liabilities is in financial liabilities at on loans is included in the consolidated income statement and is fair value through profit or loss (including financial liabilities held reported as ‘Interest income’. In the case of an impairment, the for trading and those that are designated at fair value) and financial impairment loss is reported as a deduction from the carrying value liabilities at amortised cost. Financial liabilities are derecognised of the loan and recognised in the consolidated income statement as when extinguished. ‘impairment losses for loans and advances’, impairment on other financial assets. a) Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities c) Held-to maturity financial assets classified as held for trading, and financial liabilities designated by the Held-to-maturity investments are non-derivative financial assets Group as at fair value through profit or loss upon initial recognition. with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold A financial liability is classified as held for trading if it is acquired to maturity, other than: or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial (a) those that the Group upon initial recognition designates as at instruments that are managed together and for which there is fair value through profit or loss; evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are (b) those that the Group designates as available for sale; and designated and effective as hedging instruments. Financial liabilities held for trading also include obligations to deliver financial assets (c) those that meet the definition of loans and receivables. borrowed by a short seller. Those financial instruments are recognised in the consolidated statement of financial position as ‘Financial These are initially recognised at fair value including direct and liabilities held for trading’. incremental transaction costs and measured subsequently at amortised cost, using the effective interest method. Interest on Gains and losses arising from changes in fair value of financial held-to-maturity investments is included in the consolidated liabilities classified as held for trading are included in the income statement and reported as ‘Interest income’. In the case consolidated income statement and are reported as ‘Net trading of an impairment, the impairment loss is reported as a deduction income’. Interest expenses on financial liabilities held for trading are from the carrying value of the investment and recognised in included in ‘Net interest income’. the consolidated income statement as ‘net gains/(losses) on investment securities’. Financial liabilities for which the fair value option is applied are recognised in the consolidated statement of financial position as There were no held-to-maturity financial assets as at the ‘Financial liabilities designated at fair value’. Fair value changes reporting date. relating to such financial liabilities are passed through the statement of comprehensive income. 2017 Annual Report 140 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated) b) Other liabilities measured at amortised cost The fair value of over-the-counter (OTC) derivatives is determined Financial liabilities that are not classified as at fair value through using valuation methods that are commonly accepted in the profit or loss fall into this category and are measured at amortised financial markets, such as present value techniques and option cost. Financial liabilities measured at amortised cost are deposits pricing models. The fair value of foreign exchange forwards is from banks and customers, other deposits, financial liabilities in other generally based on current forward exchange rates. Structured liabilities, borrowed funds which the fair value option is not applied, interest rate derivatives are measured using appropriate option convertible bonds and subordinated debts. pricing models (for example, the Black-Scholes model) or other procedures such as Monte Carlo simulation. c) Determination of fair value Fair value under IFRS 13 is defined as the price that would In cases when the fair value of unlisted equity instruments cannot be received to sell an asset or paid to transfer a liability in an be determined reliably, the instruments are carried at cost less orderly transaction in the principal (or most advantageous) at the impairment. The fair value for loans and advances as well as measurement date under current market condition (i.e. an exit liabilities to banks and customers are determined using a present price) regardless of whether that price is directly observable or value model on the basis of contractually agreed cash flows, taking estimated using another valuation technique. into account credit quality, liquidity and costs.

For financial instruments traded in active markets, the The fair values of contingent liabilities and irrevocable loan determination of fair values of financial assets and financial commitments correspond to their carrying amounts. liabilities is based on quoted market prices or dealer price quotations. This includes listed equity securities and quoted debt d) Derecognition instruments on exchanges (for example, NSE, BVRM, GSE) and Financial assets are derecognised when the contractual rights to quotes from approved bond market makers. receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and A financial instrument is regarded as quoted in an active market if rewards of ownership of the assets are also transferred. Financial quoted prices are readily and regularly available from an exchange, liabilities are derecognised when they have been redeemed or dealer, broker, industry group, pricing service or regulatory agency, otherwise extinguished. and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, 2.6 Reclassification of financial assets the market is regarded as being inactive. Indications that a market The Group may choose to reclassify a non-derivative financial asset is inactive are when there is a wide bid-offer spread or significant held for trading out of the held-for-trading category if the financial increase in the bid-offer spread or there are few recent transactions. asset is no longer held for the purpose of selling it in the near-term. Financial assets other than loans and receivables are permitted For all other financial instruments, fair value is determined to be reclassified out of the held for trading category only in rare using valuation techniques. In these techniques, fair values are circumstances arising from a single event that is unusual and highly estimated from observable data in respect of similar financial unlikely to recur in the near-term. In addition, the Group may choose instruments, using models to estimate the present value of to reclassify financial assets that would meet the definition of loans expected future cash flows or other valuation techniques, using and receivables out of the held-for-trading or available-for-sale inputs existing at the dates of the consolidated statement of categories if the Group has the intention and ability to hold these financial position. financial assets for the foreseeable future or until maturity at the date of reclassification. The Group uses widely recognised valuation models for determining fair values of non-standardized financial instruments of lower Reclassifications are made at fair value as of the reclassification date. complexity, such as options or interest rate and currency swaps. Fair value becomes the new cost or amortised cost as applicable, For these financial instruments, inputs into models are generally and no reversals of fair value gains or losses recorded before market observable. reclassification date are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held- The output of a model is always an estimate or approximation of to-maturity categories are determined at the reclassification date. a value that cannot be determined with certainty, and valuation Further increases in estimates of cash flows adjust effective interest techniques employed may not fully reflect all factors relevant to the rates prospectively. positions the Group holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risks, On reclassification of a financial asset out of the ‘at fair value through liquidity risk and counterparty credit risk. Based on the established profit or loss’ category, all embedded derivatives are re-assessed and, fair value model governance policies, and related controls and if necessary, separately accounted for. procedures applied, management believes that these valuation adjustments are necessary and appropriate to fairly state the values 2.7 Financial guarantees and loan commitments of financial instruments carried at fair value in the consolidated ‘Financial guarantees’ are contracts that require the Group to make statement of financial position. Price data and parameters used specified payments to reimburse the holder for a loss that it incurs in the measurement procedures applied are generally reviewed because a specified debtor fails to make payment when it is due in carefully and adjusted, if necessary – particularly in view of the accordance with the terms of a debt instrument. ‘Loan commitments’ current market developments. are firm commitments to provide credit under pre-specified terms Financial Statements 141

and conditions.

Liabilities arising from financial guarantees or commitments to provide a loan at a below-market interest rate are initially measured at fair value and the initial fair value is amortised over the life of the guarantee or the commitment. The liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment to settle the liability when a payment under the contract has become probable

2.8 Classes of financial instrument The Group classifies the financial instruments into classes that reflect the nature of information and take into account the characteristics of those financial instruments. The classification made can be seen in the table below:

Financial assets Category (as defined by IAS 39) Class (as determined by the Group) Note Financial assets at fair value through profit or loss Financial assets held for trading 17 Derivative financial assets 18 Loans and receivables Cash and balances with central banks 16 Loans and advances to banks 19 Loans and advances to customers 20 Other assets excluding prepayments 24 Held-to-maturity Investments None Not applicable Available-for-sale financial assets Treasury bills and other eligible bills 21 Investment securities – available for sale 22 Pledged assets 23 Hedging derivatives None Not applicable

Financial liabilities Category (as defined by IAS 39) Class (as determined by the Group) Note Financial liabilities at fair value through profit or loss Derivative financial liabilities 18 Financial liabilities at amortized cost Deposits from banks 30 Deposits from customers 31 Borrowed funds 32 Other liabilities, excluding non-financial liabilities 33

Off balance sheet financial instruments Category (as defined by IAS 39) Class (as determined by the Group) Note Loan commitments Loan commitments 37 Guarantees, acceptances and other financial facilities Guarantees, acceptances and other financial facilities 37 2017 Annual Report 142 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

2.9 Offsetting financial instruments 2.12 Dividend income In accordance with IAS 32, the Group reports financial assets and Dividends are recognised in the consolidated income statement liabilities on a net basis on the statement of financial position only if in ‘Dividend income’ when the entity’s right to receive payment there is a legally enforceable right to set off the recognised amounts is established. and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 2.13 Impairment of financial assets a) Assets carried at amortized cost 2.10 Net interest income The Group assesses at each reporting date whether there is Interest income on loans and advances at amortised cost, available- objective evidence that a financial asset or group of financial for-sale debt investments, and interest expense on financial liabilities assets is impaired. A financial asset or a group of financial assets held at amortised cost, are calculated using the effective interest is impaired and impairment losses are incurred only if there is rate method and recognised within ‘interest income’ and ‘interest objective evidence of impairment as a result of one or more events expense’ in the consolidated income statement. that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated The effective interest method is a method of calculating the future cash flows of the financial asset or group of financial assets amortised cost of a financial asset or a financial liability and of that can be reliably estimated. allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts The criteria that the Group uses to determine that there is objective estimated future cash payments or receipts through the expected evidence of an impairment loss include: life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. i) significant financial difficulty of the issuer or obligor; When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument ii) a breach of contract, such as a default or delinquency in interest (for example, prepayment options) but does not consider future or principal payments; credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of iii) the lender, for economic or legal reasons relating to the the effective interest rate, transaction costs and all other premiums borrower’s financial difficulty, granting to the borrower a or discounts. concession that the lender would not otherwise consider;

Once a financial asset or a group of similar financial assets has been iv) it becomes probable that the borrower will enter bankruptcy written down as a result of an impairment loss, interest income is or other financial reorganization; recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. v) the disappearance of an active market for that financial asset because of financial difficulties; or 2.11 Fee and commission income vi) observable data indicating that there is a measurable decrease Fees and commissions are generally recognised on an accrual basis in the estimated future cash flows from a portfolio of financial when the service has been provided. Loan commitment fees for assets since the initial recognition of those assets, although the loans that are likely to be drawn down are deferred (together with decrease cannot yet be identified with the individual financial related direct costs) and recognised as an adjustment to the effective assets in the portfolio. interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group The estimated period between a loss occurring and its identification has retained no part of the loan package for itself or has retained is determined by local management for each identified portfolio. a part at the same effective interest rate as the other participants. In general, the periods used vary between three months and 12 Commission and fees arising from negotiating, or participating months; in exceptional cases, longer periods are warranted. in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities, or the The Group first assesses whether objective evidence of impairment purchase or sale of businesses – are recognised on completion of the exists individually for financial assets that are individually underlying transaction. Portfolio and other management advisory significant, and individually or collectively for financial assets that and service fees are recognised based on the applicable service are not individually significant. If the Group determines that no contracts, usually on a time-apportionment basis. Asset management objective evidence of impairment exists for an individually assessed fees related to investment funds are recognised over the period financial asset, whether significant or not, it includes the asset in in which the service is provided. The same principle is applied for a group of financial assets with similar credit risk characteristics wealth management, financial planning and custody services that are and collectively assesses them for impairment. Assets that are continuously provided over an extended period of time. Performance- individually assessed for impairment and for which an impairment linked fees or fee components are recognised when the performance loss is or continues to be recognised are not included in a collective criteria are fulfilled. assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not Financial Statements 143

been incurred) discounted at the financial asset’s original effective asset previously recognised in profit or loss – is removed from interest rate. The carrying amount of the asset is reduced through equity and recognised in the consolidated income statement. the use of an allowance account and the amount of the loss is Impairment losses recognised in the consolidated income statement recognised in the consolidated income statement. If a loan or on equity instruments are not reversed through the consolidated held-to-maturity investment has a variable interest rate, the income statement. If, in a subsequent period, the fair value of a discount rate for measuring any impairment loss is the current debt instrument classified as available-for-sale increases and the effective interest rate determined under the contract. As a practical increase can be objectively related to an event occurring after the expedient, the Group may measure impairment on the basis of an impairment loss was recognised in profit or loss, the impairment instrument’s fair value using an observable market price. loss is reversed through the consolidated income statement.

Future cash flows in a group of financial assets that are collectively c) Renegotiated loans evaluated for impairment are estimated on the basis of the Loans that are either subject to collective impairment assessment or contractual cash flows of the assets in the Group and historical loss individually significant and whose terms have been renegotiated are experience for assets with credit risk characteristics similar to those no longer considered to be past due but are treated as new loans. In in the Group. Historical loss experience is adjusted on the basis of subsequent years, the asset is considered to be past due and disclosed current observable data to reflect the effects of current conditions only if renegotiated again. Where possible, the Bank seeks to that did not affect the period on which the historical loss experience restructure loans rather than to take possession of collateral. This may is based and to remove the effects of conditions in the historical involve extending the payment arrangements and the agreement of period that do not currently exist. new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the Estimates of changes in future cash flows for groups of assets modification of terms and the loan is no longer considered past due. should reflect and be directionally consistent with changes in Management continually reviews renegotiated loans to ensure that related observable data from period to period (for example, all criteria are met and that future payments are likely to occur. The changes in unemployment rates, property prices, payment status, loans continue to be subject to an individual or collective impairment or other factors indicative of changes in the probability of losses in assessment, calculated using the loan’s original EIR. the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual 2.14 Impairment of non-financial assets Goodwill and intangible assets that have an indefinite useful life are loss experience. not subject to amortisation and are tested annually for impairment, When a loan is uncollectible, it is written off against the related or more frequently if events or changes in circumstances indicate that allowance for loan impairment. Such loans are written off after all the they might be impaired. Other assets are reviewed for impairment necessary procedures have been completed and the amount of the whenever events or changes in circumstances indicate that the loss has been determined. Impairment charges relating to loans and carrying amount may not be recoverable. An impairment loss is advances to banks and customers are classified in loan impairment recognised for the amount by which the asset’s carrying amount charges whilst impairment charges relating to investment securities exceeds its recoverable amount. The recoverable amount is the (hold to maturity and loans and receivables categories) are classified higher of an asset’s fair value less costs of disposal and value in use. in ‘Net gains/(losses) on investment securities’. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows If, in a subsequent period, the amount of the impairment loss which are largely independent of the cash flows from other assets decreases and the decrease can be related objectively to an or group of assets (cash-generating units). The impairment test also event occurring after the impairment was recognised (such as can be performed on a single asset when the fair value less cost to an improvement in the debtor’s credit rating), the previously sell or the value in use can be determined reliably. Non-financial recognised impairment loss is reversed by adjusting the allowance assets other than goodwill that suffered impairment are reviewed for account. The amount of the reversal is recognised in the income possible reversal of the impairment at each reporting date. statement in impairment charge for credit losses. 2.15 Share-based payments b) Assets classified as available-for-sale The Group engages in equity settled share-based payment The Group assesses at each date of the consolidated statement transactions in respect of services received from certain categories of financial position whether there is objective evidence that a of its employees. The fair value of the services received is measured financial asset or a group of financial assets is impaired. In the by reference to the fair value of the shares or share options granted case of equity investments classified as available-for-sale, a on the date of the grant. The cost of the employee services received significant or prolonged decline in the fair value of the security in respect of the shares or share options granted is recognised in the below its cost is objective evidence of impairment resulting in consolidated income statement over the period that the services are the recognition of an impairment loss. A decline in value by fifty received, which is the vesting period. percent of acquisition value over a period of two consecutive years The fair value of the options granted is determined using option is also designated as an impairment indicator. If any such evidence pricing models, which take into account the exercise price of the exists for available-for-sale financial assets, the cumulative loss option, the current share price, the risk free interest rate, the expected – measured as the difference between the acquisition cost and volatility of the share price over the life of the option and other the current fair value, less any impairment loss on that financial 2017 Annual Report 144 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated) relevant factors. Except for those which include terms related to (b) A group company is the lessor market conditions, vesting conditions included in the terms of the When assets are held subject to a finance lease, the present grant are not taken into account in estimating fair value. value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of Non-market vesting conditions are taken into account by adjusting the the receivable is recognised as unearned finance income. Lease number of shares or share options included in the measurement of the income is recognised over the term of the lease using the net cost of employee services so that ultimately, the amount recognised investment method (before tax), which reflects a constant periodic in the consolidated income statement reflects the number of vested rate of return. shares or share options. Where vesting conditions are related to market conditions, the charges for the services received are recognised (c) Fees paid in connection with arranging leases regardless of whether or not the market related vesting condition is met, provided that the non-market vesting conditions are met. The Group makes payments to agents for services in connection with negotiating lease contracts with the Group’s lessees. 2.16 Cash and cash equivalents For operating leases, the letting fees are capitalized within For purposes of presentation in the statement of cash flows, the carrying amount of the related investment property, and cash and cash equivalents includes cash in hand, deposits held depreciated over the life of the lease. at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that 2.19 Investment properties are readily convertible to known amounts of cash and which are Properties that are held for long-term rental yields or for capital subject to insignificant risk of changes in value, and bank overdrafts. appreciation or both, and that are not occupied by the entities in Bank overdrafts are shown within borrowings in current liabilities in the consolidated group, are classified as investment properties. the statement of financial position. Investment properties comprise office buildings and Domestic Bank parks leased out under operating lease agreements. 2.17 Repossessed collateral Some properties may be partially occupied by the Group, with the Repossessed collateral are equities, landed properties or other remainder being held for rental income or capital appreciation. If that investments repossessed from customers and used to settle the part of the property occupied by the Group can be sold separately, outstanding obligations. Such investments are classified in accordance the Group accounts for the portions separately. The portion that is with the intention of the Group in the asset class which they belong. owner-occupied is accounted for under IAS 16, and the portion that 2.18 Leases is held for rental income or capital appreciation or both is treated as investment property under IAS 40. When the portions cannot be sold Leases are accounted for in accordance with IAS 17 and IFRIC 4. separately, the whole property is treated as investment property only They are divided into finance leases and operating leases. if an insignificant portion is owner-occupied.

(a) A group company is the lessee Recognition of investment properties takes place only when it is The Group enters into operating leases. The total payments made probable that the future economic benefits that are associated under operating leases are charged to other operating expenses with the investment property will flow to the entity and the cost in the income statement on a straight-line basis over the period of can be measured reliably. This is usually the day when all risks are the lease. When an operating lease is terminated before the lease transferred. Investment properties are measured initially at cost, period has expired, any payment required to be made to the lessor including transaction costs. The carrying amount includes the cost by way of penalty is recognised as an expense in the period in of replacing parts of an existing investment property at the time which termination takes place. the cost has been incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. The Group leases certain property, plant and equipment. Leases of Subsequent to initial recognition, investment properties are stated property, plant and equipment where the group has substantially all at fair value, which reflects market conditions at the date of the the risks and rewards of ownership are classified as finance leases. consolidated statement of financial position. Gains or losses arising Finance leases are capitalised at the lease’s commencement at the from changes in the fair value of investment properties are included lower of the fair value of the leased property and the present value in the consolidated income statement in the year in which they arise. of the minimum lease payments. Each lease payment is allocated Subsequent expenditure is included in the asset’s carrying amount between the liability and finance charges. The corresponding rental only when it is probable that future economic benefits associated obligations, net of finance charges, are included in other long-term with the item will flow to the Group and the cost of the item can payables. The interest element of the finance cost is charged to the be measured reliably. All other repairs and maintenance costs are income statement over the lease period so as to produce a constant charged to the consolidated income statement during the financial periodic rate of interest on the remaining balance of the liability period in which they are incurred. for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of Rental income from investment property is recognised in the income the asset and the lease term. statement on a straight-line basis over the term of the lease.

The fair value of investment properties is based on the nature, location and condition of the specific asset. The fair value is calculated by discounting the expected net rentals at a rate that reflects the Financial Statements 145

current market conditions as of the valuation date adjusted, if • Buildings 25 – 50 years necessary, for any difference in the nature, location or condition of • Leasehold improvements 25 years, or over the period of the the specific asset. The fair value of investment property does not lease if less than 25 years reflect future capital expenditure that will improve or enhance the • Furniture & equipment 3 – 5 years property and does not reflect the related future benefits from this and installations future expenditure. These valuations are performed annually by external appraisers. • Motor vehicles 3 – 10 years

2.20 Property and equipment The assets’ residual values and useful lives are reviewed, and Land and buildings comprise mainly branches and offices. All property adjusted if appropriate, at the end of each reporting period. Assets and equipment used by the parent or its subsidiaries is stated at are subject to review for impairment whenever events or changes historical cost less depreciation. Historical cost includes expenditure in circumstances indicate that the carrying amount may not be that is directly attributable to the acquisition of the items. recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater Subsequent costs are included in the asset’s carrying amount or than its estimated recoverable amount. The recoverable amount is are recognised as a separate asset, as appropriate, only when it is the higher of the asset’s fair value less costs to sell and value in use. probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured Gains and losses on disposals are determined by comparing proceeds reliably. The carrying amount of any component accounted for as a with carrying amount. These are included in other operating separate assets is derecognised when replaced. All other repair and expenses in the consolidated income statement. maintenance costs are charged to other operating expenses during the financial period in which they are incurred. 2.21 Intangible assets a) Goodwill After recognition as an asset, an item of property and equipment Goodwill represents the excess of the cost of acquisition over the whose fair value can be measured reliably shall be carried at a fair value of the Group’s share of the net identifiable assets of the revalued amount, being its fair value at the date of the revaluation acquired subsidiaries and associates at the date of acquisition. less any subsequent accumulated depreciation and subsequent Goodwill on acquisitions of subsidiaries is included in intangible accumulated impairment losses. Revaluations shall be made with assets. Goodwill on acquisitions of associates is included in sufficient regularity to ensure that the carrying amount does not investments in associates. differ materially from that which would be determined using fair value at the reporting date. If an item of property, plant and Goodwill is allocated to cash-generating units for the purpose equipment is revalued, the entire class of property, plant and of impairment testing. Each of those cash-generating units is equipment to which that asset belongs shall be revalued. The fair represented by each primary reporting segment. value of land and buildings is usually determined from market-based evidence by appraisal that is normally undertaken by professionally Goodwill is not amortised but it is tested for impairment annually, qualified valuers. The fair value of items of plant and equipment or more frequently if events or changes in circumstance indicate is usually their market value determined by appraisal. Land and that it might be impaired, and is carried at cost less accumulated buildings are the class of items that are revalued on a regular basis. impairment losses. Impairment is tested by comparing the present The other items are evaluated at cost value of the expected future cash flows from a cash generating unit with the carrying value of its net assets, including attributable If an asset’s carrying amount is increased as a result of a goodwill. Impairment losses on goodwill are not reversed. revaluation, the increase shall be credited directly to other comprehensive income. However, the increase shall be recognised b) Computer software licences in profit or loss to the extent that it reverses a revaluation decrease Acquired computer software licences are capitalized on the basis of of the same asset previously recognised in profit or loss. If an the costs incurred to acquire and bring to use the specific software. asset’s carrying amount is decreased as a result of a revaluation, These costs are amortised on the basis of the expected useful lives. the decrease shall be recognised in profit or loss. However, the decrease shall be debited directly to equity under the heading of Costs associated with maintaining computer software programs revaluation reserve to the extent of any credit balance existing in are recognised as an expense incurred. Development costs that are the revaluation surplus in respect of that asset. directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably For assets revalued, any accumulated depreciation at the date of generate economic benefits exceeding costs beyond one year, revaluation is eliminated against the gross carrying amount of the are recognised as intangible assets. Direct costs include software asset, and the net amount is restated to the revalued amount of development employee costs and an appropriate portion of the asset. relevant overheads.

Land is not depreciated. Depreciation on other assets is calculated Computer software development costs recognised as assets are using the straight-line method to allocate their cost to their residual amortised using the straight-line method over their useful lives values over their estimated useful lives, as follows: (not exceeding three years). 2017 Annual Report 146 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

2.22 Income tax income, is also recognised in the other comprehensive income and a) Current income tax subsequently in the consolidated income statement together with the deferred gain or loss. Income tax payable (receivable) is calculated on the basis of the applicable tax law in the respective jurisdiction and is recognised as an 2.23 Provisions expense (income) for the period except to the extent that current tax Provisions for restructuring costs and legal claims are recognised related to items that are charged or credited in other comprehensive when the Group has a present legal or constructive obligation as income or directly to equity. In these circumstances, current tax is a result of past events; it is probable than not that an outflow of charged or credited to other comprehensive income or to equity resources will be required to settle the obligation; and the amount (for example, current tax on of available-for-sale investment). can be reliably estimated. The Group recognises no provisions for Where the Group has tax losses that can be relieved against a tax future operating losses. liability for a previous year, it recognises those losses as an asset, Where there are a number of similar obligations, the likelihood because the tax relief is recoverable by refund of tax previously that an outflow will be required in settlement is determined by paid. This asset is offset against an existing current tax balance. considering the class of obligations as a whole. A provision is Where tax losses can be relieved only by carry-forward against recognised even if the likelihood of an outflow with respect to any taxable profits of future periods, a deductible temporary difference one item included in the same class of obligations may be small. arises. Those losses carried forward are set off against deferred tax liabilities carried in the consolidated statement of financial position. Provisions are measured at the present value of management’s The Group does not offset income tax liabilities and current income best estimate of the expenditures required to settle the present tax assets. obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current b) Deferred income tax market assessments of the time value of money and the risks specific Deferred income tax is provided in full, using the liability method, to the liability. The increase in the provision due to the passage of on temporary differences arising between the tax bases of assets time is recognised as interest expense. and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not 2.24 Employee benefits recognised if they arise from the initial recognition of goodwill. a) Pension obligations Deferred income tax is also not accounted for if it arises from the A defined contribution plan is a pension plan under which the initial recognition of an asset or liability in transaction other than group pays fixed contributions into a separate entity. The group a business combination that at the time of the transaction affects has no legal or constructive obligations to pay further contributions neither accounting nor taxable profit or loss. Deferred income tax if the fund does not hold sufficient assets to pay all employees is determined using tax rates (and laws) that have been enacted the benefits relating to employee service in the current and prior or substantially enacted by the date of the consolidated statement periods. A defined benefit plan is a pension plan that is not a defined of financial position and are expected to apply when the related contribution plan. deferred income tax asset is realised or the deferred income tax liability is settled. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on The principal temporary differences arise from depreciation of one or more factors such as age, years of service and compensation. property, plant and equipment, revaluation of certain financial assets and liabilities, provisions for pensions and other post-retirement The liability recognised in the balance sheet in respect of defined benefits and carry-forwards; and, in relation to acquisitions, on the benefit pension plans is the present value of the defined benefit difference between the fair values of the net assets acquired and obligation at the end of the reporting period less the fair value of their tax base, fair value changes on available for sale financial plan assets. The defined benefit obligation is calculated annually by assets, tax loss carried forward, revaluation on property and independent actuaries using the projected unit credit method. The equipment. Deferred tax assets are recognised only if it is probable present value of the defined benefit obligation is determined by that future taxable amounts will be available to utilise those discounting the estimated future cash outflows using interest rates of temporary differences and losses. Deferred income tax is provided on high-quality corporate bonds that are denominated in the currency temporary differences arising from investments in subsidiaries and in which the benefits will be paid, and that have terms to maturity associates, except where the timing of the reversal of the temporary approximating to the terms of the related pension obligation. In difference is controlled by the Group and it is probable that the countries where there is no deep market in such bonds, the market difference will not reverse in the foreseeable future. rates on government bonds are used. The tax effects of carry-forwards of unused losses or unused tax Actuarial gains and losses arising from experience adjustments and credits are recognised as an asset when it is probable that future changes in actuarial assumptions are charged or credited to equity taxable profits will be available against which these losses can in other comprehensive income in the period in which they arise. be utilised. Past-service costs are recognised immediately in income. Deferred tax related to fair value re-measurement of available-for- sale investments, which are recognised in other comprehensive Financial Statements 147

For defined contribution plans, the group pays contributions to 2.25 Borrowings publicly or privately administered pension insurance plans on a Borrowings are recognised initially at fair value net of transaction mandatory, contractual or voluntary basis. The group has no further costs incurred. Borrowings are subsequently stated at amortised cost; payment obligations once the contributions have been paid. The any difference between proceeds net of transaction costs and the contributions are recognised as employee benefit expense when redemption value is recognised in the income statement over the they are due. Prepaid contributions are recognised as an asset to period of the borrowing using the effective interest method. the extent that a cash refund or a reduction in the future payments is available. Borrowings are removed from the balance sheet when the obligation specified in the contracts is discharged, cancelled or expired. The b) Other post-retirement obligations difference between the carrying amount of financial liability that The Group also provides gratuity benefits to its retirees. The has been extinguished or transferred to another party and the entitlement to these benefits is usually conditional on the employee consideration paid, including any non-cash assets transferred or remaining in service up to retirement age and the completion of a liabilities assumed, is recognised in the income statement as other minimum service period. The expected costs of these benefits are income or finance costs. accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial Borrowings are classified as current liabilities unless the group has gains and losses arising from experience adjustments and changes an unconditional right to defer settlement of the liability for at least in actuarial assumptions are charged or credited to equity in other 12 months after the reporting period. comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. 2.26 Borrowing costs General and specific borrowing costs directly attributable to c) Termination benefits the acquisition, construction or production of a qualifying asset are capitalised during the period of the time that is required Termination benefits are payable when employment is terminated to complete and prepare the asset for its intended use or sale. by the group before the normal retirement date, or whenever an Qualifying assets are assets that necessarily take a substantial employee accepts voluntary redundancy in exchange for these period of time to get ready for their intended use or sale. benefits. The group recognises termination benefits at the earlier Investment income earned on the temporary investment of of the following dates: (a) when the group can no longer withdraw specific borrowings pending their expenditure on qualifying the offer of those benefits; and (b) when the entity recognises costs assets is deducted from the borrowing costs eligible for for a restructuring that is within the scope of IAS 37 and involves capitalisation. All other borrowing costs are recognised in the payment of termination benefits. In the case of an offer made profit or loss in the period in which they are incurred. to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept There were no such borrowing costs capitalised as at the the offer. Benefits falling due more than 12 months after the end reporting date. of the reporting period are discounted to their present value. 2.27 Compound financial instruments d) Profit-sharing and bonus plans Compound financial instruments issued by the group comprise The group recognises a liability and an expense for bonuses and convertible notes that can be converted to share capital at the profit-sharing, based on a formula that takes into consideration option of the holder. the profit attributable to the company’s shareholders after certain adjustments. The group recognises a provision where contractually The liability component of a compound financial instrument is obliged or where there is a past practice that has created a recognised initially at the fair value of a similar liability that does constructive obligation. not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the e) Short term benefits compound financial instrument as a whole and the fair value of the The Group seeks to ensure that the compensation arrangements for liability component. Any directly attributable transaction costs are its employees are fair and provide adequate protection for current allocated to the liability and equity components in proportion to and retiring employees. Employee benefits are determined based their initial carrying amounts. on individual level and performance within defined salary bands for Subsequent to initial recognition, the liability component of a each employee grade. Individual position and job responsibilities will compound financial instrument is measured at amortised cost using also be considered in determining employee benefits. Employees the effective interest method. The equity component of a compound will be provided adequate medical benefits and insurance protection financial instrument is not re-measured subsequent to initial against disability and other unforeseen situations. Employees shall be recognition except on conversion or expiry. provided with retirement benefits in accordance with the Separation and Termination policies. Details of employee benefits are available with Group or Country Human Resources. 2017 Annual Report 148 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

2.28 Fiduciary activities When the Group is committed to a sale plan involving loss of control Group companies commonly act as trustees and in other fiduciary of a subsidiary, all of the assets and liabilities of that subsidiary are capacities that result in the holding or placing of assets on behalf of classified as held for sale when the criteria described above are individuals, trusts, retirement benefit plans and other institutions. met, regardless of whether the Group will retain a non-controlling An assessment of control has been performed and this does result interests in its former subsidiary after the sale. in control for the group. These assets and income arising thereon are excluded from these financial statements, as they are not assets of Non-current assets (and disposal groups) classified as held for the Group. sale are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax 2.29 Share capital assets, assets arising from employee benefits, financial assets and a) Share issue costs investment property that are carried at fair value. An impairment loss is recognised for any initial or subsequent write-down of the Ordinary shares are classified as equity. Incremental costs directly asset (or disposal group) to fair value less cost to sell. A gain is attributable to the issue of new shares or to the acquisition of recognised for any subsequent increases in fair value less cost a business are shown in equity as a deduction, net of tax, from to sell of an asset (or disposal group) but not in excess of any the proceeds. cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the of the sale of the non- b) Dividends on ordinary shares current assets held for sale (or disposal group) is recognised at the Dividends on ordinary shares are recognised in equity in the date of derecognition. period in which they are approved by the Company’s shareholders. Dividends for the year that are declared after the reporting date are Non-current assets (including those that are part of a disposal dealt with in the subsequent events note. group) classified as held for sale are not depreciated or amortised while they are classified as held for sale. Interest and other c) Treasury shares expenses attributable to the liabilities of a disposal group classified Where the company purchases its equity share capital, the as held for sale continue to be recognised. consideration paid is deducted from total shareholders’ equity as Non-current assets classified as held for sale and the assets of a treasury shares until they are cancelled. Where such shares are disposal group classified as held for sale are presented separately subsequently sold or reissued, any consideration received is included from other assets in the statement of financial position. The in shareholders’ equity. liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statement of financial positon. 2.30 Segment reporting The Group’s segmental reporting is in accordance with IFRS 8 Discontinued operations: Operating Segments. Operating segments are reported in a manner consistent with the internal reporting provided to the Group Executive As discontinued operation is a component of the entity that has been Committee, which is responsible for allocating resources and assessing disposed of or is classified as held for sale and that represents a performance of the operating segments and has been identified by separate major line of business or geographical area of operation, is the Group as the Chief Operating Decision Maker (CODM). part of single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with the All transactions between business segments are conducted on an with a view to resale. The Group presents discontinued operations in arm´s length basis, with intra-segment revenue and costs being a separate line in the income statement. eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment Net profit from discontinued operations includes the net total of performance. operating profit and loss before tax from operations, including net gain or loss on sale before tax or measurement to fair value less In accordance with IFRS 8, the Group has the following business costs to sell and discontinued operations tax expense. A component segments: Corporate & Investment Banking, Commercial Banking and of an entity comprises operations and cash flows that can be clearly Consumer Banking. distinguished, operationally and for financial reporting purposes, from the rest of the Group´s operations and cash flows. If an entity or a 2.31 Non-current assets (or disposal groups) component of an entity is classified as a discontinued operation, the held for sale Group restates prior periods in the Income statement. Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally 2.32 Comparatives through a sale transaction and a sale is considered highly probable. Except when a standard or an interpretation permits or This condition is regarded as met only when the asset (or disposal requires otherwise, all amounts are reported or disclosed with group) is available for immediate sale in its present condition comparative information. subject only to terms that are usual and customary for sales of Where IAS 8 ‘Accounting policies, changes in accounting estimates such asset (or disposal group) and its sale is highly probable. and errors’ applies, comparative figures have been adjusted to Management must be committed to the sale, which should be conform with changes in presentation in the current year. expected to qualify for recognition as a completed sale within one year from the date of classification. Financial Statements 149

3 Financial risk management Group’s internal ratings scale and mapping of external ratings are as follows; The Group’s business involves taking on risks in a targeted manner and managing them professionally. The core functions of the Mapping to external rating group’s risk management are to identify all key risks for the Group, Group’s rating Description of grade (Standards and Poors) measure these risks, manage the risk positions and determine 1 – 4 Investment Grade AAA to BBB capital allocations. The Group regularly reviews its risk management 5 – 6 Standard Grade BB to B policies and systems to reflect changes in markets, products and best 7 – 10 Non Investment Grade CCC to D market practice. The Group’s aim is to achieve an appropriate balance between risk and return and minimise potential adverse effects The ratings of the major rating agency shown in the table above on the Group’s financial performance. The Group defines risk as the are mapped to the group’s rating classes based on the long-term possibility of losses or profits foregone, which may be caused by average default rates for each external grade. The Group uses the internal or external factors. external ratings where available to benchmark our internal credit risk assessment. Observed defaults per rating category vary year on year, Risk management is carried out by the Group Risk Management especially over an economic cycle under policies approved by the Board of Directors. Group Risk Management identifies, evaluates and hedges financial risks in The Group’s policy requires the review of individual financial assets close co-operation with the operating units of the Group. The Board that are above materiality thresholds at least annually or more provides written principles for overall risk management, as well as regularly when individual circumstances require. Impairment written policies covering specific areas, such as foreign exchange risk, allowances on individually assessed accounts are determined by an interest rate risk, credit risk, use of derivative financial instruments evaluation of the incurred loss at the reporting date on a case-by- and non-derivative financial instruments. In addition, the Group Audit case basis, and are applied to all individually significant accounts. and Compliance is responsible for the independent review of risk The assessment normally encompasses collateral held (including management and the control environment. re-confirmation of its enforceability) and the anticipated receipts for that individual account. The most important types of risk are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk and Collectively assessed impairment allowances are provided for: other price risk. (i) portfolios of homogenous assets that are individually below materiality thresholds; and (ii) losses that have been incurred 3.1 Credit risk but have not yet been identified, by using the available historical The Group takes on exposure to credit risk, which is the risk that a experience, experienced judgment and statistical techniques. counterparty will cause a financial loss to the Group by failing to pay amounts in full when due. Credit risk is the most important risk for (ii) Exposure at default the Group’s business: management therefore carefully manages the EAD is based on the amounts the Group expects to be owed at the exposure to credit risk. Credit exposures arise principally in lending time of default. For example, for a loan this is the face value. For a and investment activities. There is also credit risk in off-balance commitment, the Group includes any amount already drawn plus the sheet financial instruments, such as loan commitments. Credit risk further amount that may have been drawn by the time of default, management and control is centralised in the risk management should it occur. team, which reports regularly to the Board of Directors. (iii) Loss given default/loss severity 3.1.1 Credit risk measurement Loss given default or loss severity represents the Group’s expectation of the extent of loss on a claim should default occur. It is expressed (i) Pr obability of default: The Group assesses the probability of default as percentage loss per unit of exposure. It typically varies by type of of individual counterparties using internal rating tools tailored to counterparty, type and seniority of claim and availability of collateral the various categories of counterparty. They have been developed or other credit support. internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison (iv) Debt securities and other bills with externally available data. Clients of the Group are segmented into three rating classes. The Group’s rating scale, which is shown For debt securities and other bills, external rating such as Standard below, reflects the range of default probabilities defined for each & Poor’s rating or their equivalents are used by Group Treasury rating class. This means that, in principle, exposures migrate for managing the credit risk exposures. The investments in those between classes as the assessment of their probability of default securities and bills are viewed as a way to gain a better credit quality changes. The rating tools are kept under review and upgraded as mapping and maintain a readily available source to meet funding necessary. The Group regularly validates the performance of the requirements at the same time. rating and their predictive power with regard to default events. 2017 Annual Report 150 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.1.2 Risk limit control and mitigation policies credit standards. The Group monitors the term to maturity of credit The Group manages, limits and controls concentrations of credit commitments because longer-term commitments generally have a risk wherever they are identified − in particular, to individual greater degree of credit risk than shorter-term commitments. counterparties and groups, and to industries and countries. The Group structures the levels of credit risk it undertakes by placing limits on 3.1.3 Impairment and provisioning policies the amount of risk accepted in relation to one borrower, or groups The internal rating systems described above focus more on credit- of borrowers, and to geographical and industry segments. Such risks quality mapping from the inception of the lending. In contrast, are monitored on a revolving basis and subject to an annual or more impairment provisions are recognised for financial reporting purposes frequent review, when considered necessary. Limits on the level of only for losses that have been incurred at the statement of financial credit risk by product, industry sector and by country are approved position date based on objective evidence of impairment. Due to the quarterly by the Board of Directors. The exposure to any one borrower different methodologies applied, the amount of incurred credit losses including banks and other non bank financial institutions is further provided for in the financial statements usually differs from the restricted by sub-limits covering on- and off-statement of financial amount determined from the expected loss model that is used for position exposures, and daily delivery risk limits in relation to trading internal operational management and banking regulation purposes. items such as forward foreign exchange contracts. Actual exposures “Current”: relate to assets classified as “Investment Grade” (no against limits are monitored daily. Exposure to credit risk is also evident weakness) and “Non Investment Grade” (no significant managed through regular analysis of the ability of borrowers and weakness). potential borrowers to meet interest and capital repayment obligations “watchlist”: relate to items for which there are evidence of a and by changing these lending limits where appropriate. Some other weakness in the financial or operating condition of the obligor which specific control and mitigation measures are outlined below: requires management’s close attention. (a) Collateral “Substandard”: there is a well-defined weakness in the financial The Group employs a range of policies and practices to mitigate or operating condition of the obligor which jeopardizes the timely credit risk. The most traditional of these is the taking of security for repayment of its obligations. funds advances, which is common practice. The Group implements “Doubtful”: there are all of the weakness that are normally seen guidelines on the acceptability of specific classes of collateral or in a substandard credit with the additional characteristic that these credit risk mitigation. The principal collateral types for loans and weaknesses make full repayment unlikely. advances are: “Loss”: These assets are considered uncollectible and of such little value that they should be fully written-off. • Mortgages over residential properties; The impairment provision shown in the statement of financial • Charges over business assets such as premises, inventory position at year-end is derived from each of the three rating classes. and accounts receivable; The internal rating tool assists management to determine whether • Charges over financial instruments such as debt securities objective evidence of impairment exists under IAS 39, based on the and equities. following criteria set by the Group; Longer-term finance and lending to corporate entities are generally • Delinquency in contractual payments of principal or interest; secured; individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss the Group will seek • Cash flow difficulties experienced by the borrower; additional collateral from the counterparty as soon as impairment • Breach of loan covenants or conditions; indicators are noticed for the relevant individual loans and • Initiation of legal proceedings to enforce security; advances. • Deterioration of the borrower’s competitive position; and (b) Credit-related commitments • Deterioration in the value of collateral. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby The internal rating systems described above focus more on credit- letters of credit carry the same credit risk as loans. Documentary and quality mapping from the inception of the lending. In contrast, commercial letters of credit – which are written undertakings by the impairment provisions are recognised for financial reporting purposes Group on behalf of a customer authorising a third party to draw drafts only for losses that have been incurred at the statement of financial on the Group up to a stipulated amount under specific terms and position date based on objective evidence of impairment. Due to the conditions – are collateralised by the underlying shipments of goods to different methodologies applied, the amount of incurred credit losses which they relate and therefore carry less risk than a direct loan. provided for in the financial statements usually differs from the amount determined from the expected loss model that is used for Commitments to extend credit represent unused portions of internal operational management and banking regulation purposes. authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend “Current”: relate to assets classified as “Investment Grade” (no credit, the Group is potentially exposed to loss in an amount equal to evident weakness) and “Non Investment Grade” (no significant the total unused commitments. However, the likely amount of loss weakness). is less than the total unused commitments, as most commitments “watchlist”: relate to items for which there are evidence of a to extend credit are contingent upon customers maintaining specific weakness in the financial or operating condition of the obligor which Financial Statements 151

requires management’s close attention. “Substandard”: there is a well-defined weakness in the financial or operating condition of the obligor which jeopardizes the timely repayment of its obligations. “Doubtful”: there are all of the weakness that are normally seen in a substandard credit with the additional characteristic that these weaknesses make full repayment unlikely. “Loss”: These assets are considered uncollectible and of such little value that they should be fully written-off.

The impairment provision shown in the statement of financial position at year-end is derived from each of the three rating classes.

The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set by the Group;

• Delinquency in contractual payments of principal or interest; • Cash flow difficulties experienced by the borrower; • Breach of loan covenants or conditions; • Initiation of legal proceedings to enforce security; • Deterioration of the borrower’s competitive position; and • Deterioration in the value of collateral. 2017 Annual Report 152 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

31 December 2017 31 December 2016 Group’s rating Loans and advances Impairment provision Loans and advances Impairment provision 1 Current 7,575,258 76% 100,354 1% 7,802,746 79% 89,728 1% 1A. Watchlist 391,773 4% 52,861 13% 536,098 5% 66,201 12% II. Substandard 885,911 9% 16,476 2% 581,843 6% 28,881 5% III. Doubtful 905,929 9% 262,456 29% 775,114 8% 281,589 36% IV. Loss 153,907 2% 122,767 80% 173,071 2% 143,099 83%

9,912,778 100% 554,914 6% 9,868,872 100% 609,498 6%

3.1.4 Credit Concentration Maximum exposure Maximum exposure to credit risk before collateral held 31 December 2017 31 December 2016

Credit risk exposures relating to on-statement of financial position assets are as follows: Balances with central banks 2,084,883 1,918,396 Treasury bills and other eligible bills 1,718,977 1,228,492 Loans and advances to banks 1,685,806 1,413,699 Loans and advances to customers: CIB • Overdrafts 1,948,955 1,597,664 • Term loans 4,909,915 5,227,821 • Others 23,558 196 Commercial • Overdrafts 432,566 448,340 • Credit cards 5 5 • Term loans 1,089,117 1,088,896 • Others — 48 Consumer • Overdrafts 80,882 88,685 • Credit cards 3,795 3,015 • Term loans 768,816 710,172 • Mortgages 100,255 94,438 Financial assets held for trading • Debt securities 36,064 77,018 Derivative financial instruments 39,267 68,204 Financial assets designated at fair value: Investment securities - available-for-sale: • Debt securities 4,235,312 3,048,735 Pledged assets 298,561 518,205 Other assets 479,868 561,359 Credit risk exposures relating to off-balance sheet items are as follows: Financial guarantees 3,207,163 3,853,202 Loan commitments 713,654 477,246

At 31 December 23,857,419 22,423,836

The above table represents a worse case scenario of credit risk exposure of the Group at 31 December 2017 and December 2016 , without taking into account any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the statement of financial position.

As shown above, 46.3 (2016: 48%) of the total maximum exposure is derived from loans and advances to banks and customers; 17.8 (2016: 14%) represents investments securities available for sale in debt securities.

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the group resulting from its loan and advances portfolio, debt securities and other assets based on the following:

• 80.4 (2016: 85%) of the loans and advances portfolio are considered to be neither past due nor impaired; • 44% (2016: 70%) of loans and advances are backed by collateral; • Investment in debt securities are largely government securities. Financial Statements 153

3.1.5 Loans and advances

Loans and advances are summarised as follows: 31 December 2017 31 December 2016 Loans and advances Loans and advances Loans and advances Loans and advances to banks to customers to banks to customers Neither past due nor impaired 1,685,806 7,967,031 1,413,699 8,338,844 Past due but not impaired — 885,911 — 581,843 Impaired — 1,059,836 — 948,185 Gross 1,685,806 9,912,778 1,413,699 9,868,872

Less: allowance for impairment — (554,914) — (609,498) Net 1,685,806 9,357,864 1,413,699 9,259,374

Other financial assets are neither past due nor impaired except for investment securities available for sale and other assets with impairment provision in Note 22 and Note 24 respectively.

(a) Loans and advances neither past due nor impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Group in the Group Credit Policy and Procedure Manual (see the Note 3.1.3 Impairment and provisioning policies – Group Rating).

31 December 2017 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Grades: Overdrafts loans Others Overdrafts cards Loans Others Overdrafts cards Loans Mortgages

Current 1,146,689 4,514,934 23,794 204,075 — 851,982 —- 11,332 2,050 721,095 99,307 7,575,258 Watchlist 72,899 241,130 — 9,848 — 57,712 — 1,496 — 7,772 916 391,773 Total 1,219,588 4,756,064 23,794 213,923 — 909,694 — 12,828 2,050 728,867 100,223 7,967,031

31 December 2016 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Grades: Overdrafts loans Others Overdrafts cards Loans Others Overdrafts cards Loans Mortgages

Current 1,170,735 4,662,813 8,649 186,886 — 920,212 48 44,239 1,449 712,960 91,984 7,799,975 Watchlist 97,775 347,613 — 30,203 — 52,885 — 1,422 — 6,782 2,189 538,869 Total 1,268,510 5,010,426 8,649 217,089 — 973,097 48 45,661 1,449 719,742 94,173 8,338,844

All loans and advances to banks are neither past due nor impaired and all fall under the ‘current’ grade. 2017 Annual Report 154 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

(b) Loans and advances past due but not impaired Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class of customers that were past due but not impaired were as follows:

31 December 2017 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Past due: Overdrafts loans Others Overdrafts cards Loans Others Overdrafts cards Loans Mortgages

Past due up to 30 days 29,092 130,771 — 3,527 — 19,132 — 937 — 1,838 1 185,298 Past due 30-60 days 36,896 16,669 — 7,864 — 15,833 — 1,405 — 3,753 636 83,056 Past due 60-90 days 373,645 25,680 — 105,921 5 13,813 — 55,421 1,697 41,370 5 617,557 Total 439,633 173,120 — 117,312 5 48,778 — 57,763 1,697 46,961 642 885,911 Fair value of collateral 36,901 61,598 — 227,643 — 8,109 — 4,944 — 144 — 339,340 Amount of (over)/under collateralisation 402,732 111,522 — (110,331) 5 40,669 — 52,819 1,697 46,817 642 546,571

31 December 2016 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Past due: Overdrafts loans Others Overdrafts cards Loans Mortgages Overdrafts cards Loans Mortgages

Past due up to 30 days 26,976 138,588 — 14,390 — 24,471 — 1,708 2 559 870 207,564 Past due 30-60 days 45,811 84,624 — 12,489 — 18,534 — 1,498 — 1,359 — 164,315 Past due 60-90 days 55,038 2,939 5,586 88,709 5 29,702 — 25,566 1,544 865 10 209,964 Total 127,825 226,151 5,586 115,588 5 72,707 — 28,772 1,546 2,783 880 581,843 Fair value of collateral 37,300 167,845 — 12,644 — 13,084 — 797 — 748 13 232,431 Amount of (over)/under collateralisation 90,525 58,306 5,586 102,944 5 59,623 — 27,975 1,546 2,035 867 349,412

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price. Financial Statements 155

c) Loans and advances individually impaired i) Loans and advances to customers The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related collateral held by the Group as security, are as follows:

31 December 2017 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Past due: Overdrafts loans Others Overdrafts cards Loans Mortgages Overdrafts cards Loans Mortgages

Gross 334,788 229,122 — 162,773 — 251,499 — 57,445 48 23,626 535 1,059,836 Impairment allowance (121,963) (171,718) — (42,907) — (139,388) — (57,199) — (21691) (48) (554,914) 212,825 57,404 — 119,866 — 112,111 — 246 48 1,935 487 504,922 Fair value of collateral (220,116) (149,300) — (109,260) — (93,154) — (600) — (12,933) (206) (585,569) Amount of (over)/under collateralisation (7,291) (91,896) — 10,606 — 18,957 — (354) 48 (10,998) 281 (80,647)

31 December 2016 Loans and advances to customers CIB Commercial Consumer Total Term Credit Term Credit Term Past due: Overdrafts loans Others Overdrafts cards Loans Mortgages Overdrafts cards Loans Mortgages

Gross 220,464 289,195 — 170,088 — 202,927 — 24,821 20 40,253 417 948,185 Impairment allowance (5,327) (232,452) — (35,670) — (104,830) — (11,136) — (34,811) (462) (424,688) 215,137 56,743 — 134,418 — 98,097 — 13,685 20 5,442 (45) 523,497 Fair value of collateral (5,477) (93,931) — (21,157) — (63,995) — (1,287) — (8,412) — (194,259) Amount of (over)/under collateralisation 209,660 (37,188) —- 113,261 — 34,102 — 12,398 20 (2,970) (45) 329,238 2017 Annual Report 156 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

(d) Other assets with exposure to credit risks Financial assets held Balances for trading Derivative Treasury bills Other with central – debt financial and other AFS debt Pledged assets less banks securities instruments eligible bills securities assets prepayments Total

31 December 2017 Neither past due nor impaired (Investment/standard grade) 2,084,883 36,064 39,267 1,718,977 4,235,312 298,561 479,868 8,892,932 Past due but not impaired — — — — — — — — Impaired (Non-investment grade) — — — — — — 111,796 111,796 Gross 2,084,883 36,064 39,267 1,718,977 4,235,312 298,561 591,664 9,004,728 Less: allowance for impairment — — — — — — (111,796) (111,796) Net 2,084,883 36,064 39,267 1,718,977 4,235,312 298,561 479,868 8,892,932 Carrying amounts 2,084,883 36,064 39,267 1,718,977 4,235,312 298,561 479,868 8,892,932

31 December 2016 Neither past due nor impaired (Investment/standard grade) 1,918,396 77,018 68,204 1,228,492 3,048,735 518,205 561,359 7,420,409 Past due but not impaired — — — — — — — — Impaired (Non-investment grade) — — — — — — 55,630 55,630 Gross 1,918,396 77,018 68,204 1,228,492 3,048,735 518,205 616,989 7,476,039 Less: allowance for impairment — — — — — — (55,630) (55,630) Net 1,918,396 77,018 68,204 1,228,492 3,048,735 518,205 561,359 7,420,409 Carrying amounts 1,918,396 77,018 68,204 1,228,492 3,048,735 518,205 561,359 7,420,409 Financial Statements 157

3.1.6 Concentration of risks of financial assets with credit risk exposure a) Geographical sectors The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorised by geographical region as of 31 December 2017. For this table, the Group has allocated exposures to regions based on the country of domicile of our counterparties.

As at 31 December 2017 UEMOA Nigeria AWA CESA Others Total

Balances with central banks 158,445 62,523 94,018 488,636 91,694 895,316 Financial assets held for trading 12,194 10,614 — 13,750 —- 36,557 Derivative financial instruments — 29,267 — 10,000 — 39,267 Loans and advances to banks 418,461 827,563 376,098 299,952 232,949 358,346 1,685,806 Loans and advances to customers: CIB • Overdrafts 545,330 952,564 120,913 341,928 33,275 1,994,011 • Term loans 1,973,099 1,508,857 553,647 973,449 149,251 5,158,304 • Others 23,328 — — — 466 23,794 Commercial • Overdrafts 86,586 191,858 69,603 89,177 56,784 494,008 • Credit cards — 5 — — — 5 • Term loans 631,946 168,268 104,694 288,934 16,130 1,209,971 • Others — — — — — — Consumer • Overdrafts 13,938 89,681 5,802 18,615 — 128,036 • Credit cards - 1,868 1,665 261 — 3,795 • Term loans 552,554 38,006 62,078 146,504 311 799,454 • Mortgages 74,635 7,708 8,987 10,071 — 101,400 Treasury bills and other eligible bills 154,205 733,435 195,652 498,731 136,953 1,718,977 Investment securities – debt securities 2,832,937 443,104 592,406 359,050 7,816 4,235,312 Pledged assets — 298,561 — — — 298,561 Other assets 121,093 140,709 124,970 71,690 21,406 479,868

Total 7,598,751 5,053,126 2,234,387 3,543,745 872,432 19,302,442

Credit commitments 894,621 827,563 542,458 1,024,940 631,235 3,920,817 2017 Annual Report 158 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.1.6 Concentration of risks of financial assets with credit risk exposure (continued) As at 31 December 2016 UEMOA Nigeria AWA CESA Others Total

Balances with central banks 245,900 101,934 132,836 389,711 21,607 891,987 Financial assets held for trading 10,293 66,670 — 445 — 77,408 Derivative financial instruments — 68,204 — — — 68,204 Loans and advances to banks 69,081 232,642 92,339 234,648 784,989 1,413,699 Loans and advances to customers: CIB • Overdrafts 205,123 760,797 51,694 291,927 305,269 1,614,810 • Term loans 1,542,836 2,504,535 110,005 767,064 625,745 5,550,185 • Others — — — — 196 196 Commercial • Overdrafts 42,080 189,536 33,668 66,106 161,613 493,003 • Credit cards — 5 — — — 5 • Term loans 621,959 90,759 63,429 241,589 222,548 1,240,285 • Others — — — 48 — 48 Consumer • Overdrafts 16,241 40,240 3,825 13,043 29,537 102,886 • Credit cards — 2,773 — — 243 3,016 • Term loans 401,948 90,415 16,476 147,841 112,288 768,968 • Mortgages 49,907 16,424 1,993 9,670 17,477 95,471 Treasury bills and other eligible bills 364,137 347,644 226,696 290,016 — 1,228,493 Investment securities – debt securities 2,113,937 494,558 106,498 327,795 5,946 3,048,734 Pledged assets — 518,205 — — — 518,205 Other assets 118,616 146,232 86,421 101,973 108,117 561,360

Total 5,802,059 5,671,571 925,880 2,881,877 2,395,575 17,676,963

Credit commitments 1,173,747 1,193,047 307,481 1,505,303 192,259 4,371,837 Financial Statements 159

3.1.6 Concentration of risks of financial assets with credit risk exposure (continued) (b) Industry sectors The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorised by the industry sectors of our counterparties.

Financial Wholesale & Mining Services institutions retail trading Manufacturing Government & construction & others Total

31 December 2017 Balances with central banks 895,316 — — — — — 895,316 Financial assets held for trading 1,797 — — 34,760 — — 36,557 Derivative financial instruments 39,267 — — — — — 39,267 Loans and advances to banks 1,393,068 — — 4,279 — 288,460 1,685,806 Loans and advances to customers: • Overdrafts 147,588 784,213 381,425 82,722 458,478 761,628 2,616,054 • Credit cards — — — — — 3,801 3,801 • Term loans 162,977 1,571,691 1,032,336 966,415 790,969 2,643,341 7,167,729 • Mortgages 8,520 12,179 — 1,565 1,915 77,222 101,400 • Others 804 — 22,702 — — 288 23,794 Treasury bills and other eligible bills — — — 1,718,977 — — 1,718,977 Investment securities – debt securities 1,144,851 — 8,422 2,943,520 — 138,519 4,235,312 Pledged assets — — — 298,561 — — 298,561 Other assets 141,813 40,000 — 3,721 — 294,334 479,868

Total 3,936,001 2,408,083 1,444,885 6,054,519 1,251,362 4,207,592 19,302,442 Credit commitments 567,776 497,315 262,518 84,186 746,348 1,762,674 3,920,817

31 December 2016 Balances with central banks 891,987 — — — — — 891,987 Financial assets held for trading 1,305 — — 76,103 — — 77,408 Derivative financial instruments 68,204 — — — — — 68,204 Loans and advances to banks 1,413,699 — — — — — 1,413,699 Loans and advances to customers: • Overdrafts 44,056 710,200 474,474 35,159 244,582 702,228 2,210,699 • Credit cards — — — — — 3,020 3,020 • Term loans 237,920 1,314,773 1,503,434 740,615 1,196,622 2,566,074 7,559,439 • Mortgages 32 1,471 131 182 202 93,453 95,470 • Others 196 — — — 48 — 244 Treasury bills and other eligible bills — — — 1,228,492 — — 1,228,492 Investment securities – debt securities 215,116 151,794 — 2,598,328 68,696 14,801 3,048,735 Pledged assets — — — 518,205 — — 518,205 Other assets 82,900 126,709 375 12,314 — 339,061 561,359

Total 2,955,417 2,304,947 1,978,413 5,209,399 1,510,150 3,718,637 17,676,963 Credit commitments 418,797 1,136,329 354,529 262,002 466,242 1,692,549 4,330,448 2017 Annual Report 160 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.2 Market risk Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Group Risk Management and the Board’s Risk Committee. The Group Risk Management is responsible for the development of detailed risk management policies and procedures (subject to review and approval Board’s Risk Committee) and for the day to day implementation of those policies.

It will be worth noted that due to significant currency evolution , the year end exposure of foreign exchange and and interest rate sensitivity analysis may be unrepresentative of the exposure during the year.

The market risks arising from trading and non-trading activities are concentrated in Group Treasury. Regular reports are submitted to the Board of Directors and heads of each business unit. Trading portfolios include those positions arising from market-making transactions where the Group acts as principal with clients or with the market. Non-trading portfolios primarily arise from the interest rate management of the subsidiary’s banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and equity risks arising from the Group’s held-to-maturity and available-for-sale investments.

The Group applies a ‘value at risk’ methodology (VAR) to its trading portfolios, to estimate the market risk of positions held and the maximum losses expected.

31 December 2017 31 December 2016 Low Average High Low Average High

Foreign exchange risk 234 652 1,435 152 763 1,524 Interest risk 342 614 1,001 132 405 857 Financial Statements 161

3.2.1 Foreign exchange risk The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December. Included in the table are the Group’s financial instruments at carrying amounts, categorised by currency.

31 December 2017 Dollar Euro CFA Naira Cedis Others Total

Assets Cash and balances with central banks 317,054 141,345 724,316 949,173 247,011 282,847 2,661,745 Financial assets held for trading — — 15,087 10,613 — 10,857 36,557 Derivative financial instruments 39,267 — — — — — 39,267 Loans and advances to banks 650,524 459,858 342,310 98,286 30,349 104,479 1,685,806 Loans and advances to customers 2,152,253 270,989 4,808,460 1,271,481 490,766 363,914 9,357,864 Treasury bills and other eligible bills 185,939 — 358,625 733,435 24,316 416,662 1,718,977 Investment securities – available-for-sale 426,436 776 3,072,140 411,213 309,346 185,329 4,405,240 Pledged assets — — — 298,561 — — 298,561 Other assets 140,717 38,927 156,782 24,710 54,476 64,256 479,868 Total financial assets 3,912,190 911,895 9,477,720 3,797,473 1,156,264 1,428,344 20,683,884

Liabilities Deposits from banks 314,122 491,222 631,742 177,876 84,994 72,458 1,772,414 Deposit from customers 2,942,446 415,173 7,221,288 2,480,708 886,502 1,257,155 15,203,271 Derivative financial instruments 22,399 392 — — — 9,705 32,497 Other borrowed funds 1,229,071 50,849 176,593 230,447 11,688 30,108 1,728,756 Other liabilities 286,469 36,623 277,960 381,117 166,032 14,074 1,162,275 Total financial liabilities 4,794,507 994,259 8,307,583 3,270,147 1,149,216 1,383,500 19,899,212

Net on-statement of financial position (882,317) (82,364) 1,170,136 527,325 7,048 44,844 784,672 Credit commitments 1,546,583 671,136 992,261 291,661 1,444 417,732 3,920,817

31 December 2016 Dollar Euro CFA Naira Cedis Others Total

Assets Cash and balances with central banks 352,491 62,176 702,637 856,579 198,792 289,626 2,462,301 Financial assets held for trading — — 10,350 66,670 — 389 77,409 Derivative financial instruments 28,382 156 — 39,654 — 12 68,204 Loans and advances to banks 518,540 378,875 271,975 91,122 85,443 67,744 1,413,699 Loans and advances to customers 2,458,350 239,434 4,186,017 1,384,844 526,973 463,757 9,259,375 Treasury bills and other eligible bills 61,110 — 463,287 347,644 81,219 275,232 1,228,492 Investment securities – available-for-sale 165,969 682 2,420,009 515,381 11,042 159,743 3,272,826 Pledged assets — — — 518,205 — — 518,205 Other assets 198,048 22,968 108,248 92,751 72,985 66,359 561,359 Total financial assets 3,782,890 704,291 8,162,523 3,912,850 976,454 1,322,863 18,861,870

Liabilities Deposits from banks 449,405 121,615 1,329,384 771 34,385 86,792 2,022,352 Deposit from customers 2,741,834 415,044 6,164,776 2,538,231 681,387 955,448 13,496,720 Derivative financial instruments 8,503 1,284 — 13,312 — 3 23,102 Other borrowed funds 1,311,021 68,213 36,617 154,247 10,800 27,666 1,608,564 Other liabilities 232,555 16,788 350,403 472,087 187,911 5,196 1,264,940 Total financial liabilities 4,743,318 622,945 7,881,179 3,178,648 914,484 1,075,105 18,415,678

Net on-statement of financial position (960,428) 81,348 281,343 734,202 61,970 247,757 446,192 Credit commitments 1,715,471 707,209 1,097,589 389,366 3,081 417,732 4,330,448 2017 Annual Report 162 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

Currency Sensitivity Analysis ETI periodically performs sensitivity analysis to determine the impact on Group earnings resulting from a potential appreciation of the United States Dollars (USD) relative to the currencies to which the Group has major exposure namely; CFA Franc (FCFA), the Euro (EUR), the Nigerian Naira (NGN) and the Ghana Cedi (GHS). The results using data as of 31 December 2017 are shown in the table below.

December 2017 December 2016

Overall Impact Projected Appreciation of the USD 5% 10% 20% 5% 10% 20% Estimated Impact on Earnings ($ Million) (77) (147) (270) (55) (105) (193)

Impact for Naira Projected Appreciation of the USD 5% 10% 20% 5% 10% 20% Estimated Impact on Earnings ($ Million) (25) (48) (87) (35) (67) (122)

3.2.2 Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily by Group Treasury.

The table below summarises the Group’s exposure to interest rate risks. It includes the Group’s financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The Group’s derivatives will be settled on a net basis. Financial Statements 163

3.2.2 Interest rate risk (continued) Non-interest As at 31 December 2017 Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total

Assets Cash and balances with central banks 148,948 — 8,808 — 200 2,503,789 2,661,745 Financial assets held for trading — — 36,335 — — 223 36,557 Derivative financial instruments — 10,000 29,267 — — — 39,267 Loans and advances to banks 593,374 457,869 209,750 424,813 — — 1,685,806 Loans and advances to customers 2,390,127 1,147,811 1,415,887 3,286,874 1,117,166 9,357,864 Treasury bills and other eligible bills 107,169 231,083 1,332,840 41,902 5,983 — 1,718,977 Investment securities – available-for-sale 76,878 81,577 690,188 2,043,266 1,513,330 — 4,405,240 Pledged assets — — 97,003 109,477 92,080 — 298,561 Other assets 162,254 8,548 70,683 38,177 — 200,205 479,868

Total financial assets 3,478,750 1,936,889 3,890,761 5,944,510 2,728,759 2,704,216 20,683,885

Liabilities Deposits from banks 1,442,898 39,354 244,812 — — 45,350 1,772,414 Deposit from customers 4,092,104 1,115,636 1,534,489 826,260 97,044 7,537,738 15,203,271 Derivative financial instruments 517 9,705 22,274 — — — 32,497 Borrowed funds 108,237 85,414 139,204 1,192,523 201,999 1,379 1,728,756 Other liabilities 13,966 89,905 298,382 33,176 1,543 725,303 1,162,275

Total financial liabilities 5,657,723 1,340,014 2,239,161 2,051,959 300,586 8,309,770 19,899,213

Total interest repricing gap (2,178,973) 596,875 1,651,600 3,892,551 2,428,173 (5,605,554) 784,672

As at 31 December 2016 Assets Cash and balances with central banks 815,463 29,585 — — — 1,617,254 2,462,302 Financial assets held for trading 10,298 2,544 64,566 — — — 77,408 Derivative financial instruments 10,051 8,627 49,526 — — — 68,204 Loans and advances to banks 672,757 218,786 148,145 10,719 — 363,291 1,413,699 Loans and advances to customers 2,234,100 1,312,807 1,150,184 3,737,385 699,411 125,486 9,259,374 Treasury bills and other eligible bills 136,851 245,378 690,803 152,626 2,834 1,228,492 Investment securities – available-for-sale 33,853 21,396 252,793 1,608,856 1,186,755 169,172 3,272,824 Pledged assets — 18,696 361,820 98,656 39,033 — 518,205 Other assets 26,564 38,185 28,669 14,997 — 452,944 561,359

Total financial assets 3,939,938 1,896,002 2,746,506 5,623,239 1,928,033 2,728,149 18,861,867

Liabilities Deposits from banks 1,639,813 25,980 345,445 — — 11,113 2,022,351 Deposit from customers 3,912,968 1,019,937 871,144 810,817 89,435 6,792,418 13,496,719 Derivative financial instruments 10,391 6,023 6,688 — — — 23,102 Borrowed funds 209,220 10,974 450,790 835,199 102,381 1,608,564 Other liabilities 88,801 567,371 231,802 13,274 — 441,387 1,342,635

Total financial liabilities 5,861,193 1,630,285 1,905,869 1,659,290 191,816 7,244,918 18,493,371

Total interest repricing gap (1,921,255) 265,717 840,637 3,963,949 1,736,217 (4,516,769) 368,496 2017 Annual Report 164 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.2.2 Interest rate risk (continued) Interest Rate Sensitivity Analysis

The Group performs a periodic analysis of the sensitivity of its one-year projected earnings to an increase or decrease in market interest rates assuming a parallel shift in yield curves and a constant balance sheet position and the results using data as of 30 June 2017 and 31 December 2016 are shown below.

31 December 2017 25 basis points 50 basis points 100 basis points 25 basis points 50 basis points 100 basis points Projected Change in Interest Rates Increase Increase Increase decrease decrease decrease Estimated Impact on Earnings ($ Million) 2.2 4.5 9.0 (2.2) (4.5) (9.0)

31 December 2016 25 basis points 50 basis points 100 basis points 25 basis points 50 basis points 100 basis points Projected Change in Interest Rates Increase Increase Increase decrease decrease decrease Estimated Impact on Earnings ($ Million) 1.7 3.4 6.7 (1.7) (3.4) 6.7 3.3 Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

3.3.1 Liquidity risk management process • The Group’s liquidity management process, as carried out within the Group and monitored by a separate team in Group Treasury, includes: • Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers; • Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow; • Monitoring statement of financial position liquidity ratios against internal and regulatory requirements; and • Managing the concentration and profile of debt maturities

3.3.2 Non-derivative cash flows The table below presents the cash flows payable by the Group under non-derivative financial liabilities by remaining contractual maturities at the statement of financial position date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows. Financial Statements 165

3.3.2 Non-derivative cash flows (continued) As at 31 December 2017 Up to 1 month 1 – 3 months 3 – 12 months 1 – 5 years Over 5 years Total

Assets Cash and balances with central banks 2,661,745 — — — — 2,661,745 Financial Asset held for trading 5,462 2,982 33,682 — — 42,126 Derivative financial instruments 10,078 — 29,267 — — 39,345 Loans and advances to banks 2,663,406 630,757 1,149,797 — — 4,443,960 Loans and advances to customers 3,240,788 1,391,683 1,865,723 3,700,792 820,738 11,019,724 Treasury bills and other eligible bills 108,186 459,218 1,568,174 58,859 2,845 2,197,282 Investment securities – available-for-sale 681,468 94,629 983,698 2,079,853 898,295 4,737,944 Pledged assets — — 98,005 110,608 93,032 301,645 Other assets 146,138 148,967 151,318 33,445 — 479,868

Total assets (expected maturity dates) 9,517,272 2,728,237 5,879,663 5,983,557 1,814,910 25,923,639

Liabilities Deposits from banks 1,702,872 374,740 221,129 4,631 — 2,303,371 Deposit from customers 11,855,580 1,374,410 765,769 2,238,263 — 16,234,022 Other borrowed funds 485,877 813,513 711,654 50,440 129,085 2,190,569 Other liabilities 340,121 250,319 490,864 129,604 — 1,210,907 Derivative financial instruments 348 12,087 23,981 14,481 — 50,898

Total liabilities (contractual maturity dates) 14,384,798 2,825,068 2,213,398 2,437,418 129,085 21,989,767

Gap analysis (4,867,526) (96,832) 3,666,265 3,546,139 1,685,825 3,933,871

As at 31 December 2016 Up to 1 month 1 – 3 months 3 – 12 months 1 – 5 years Over 5 years Total

Assets Cash and balances with central banks 2,462,302 — — — — 2,462,302 Financial Asset held for trading 9,818 5,198 96,757 — — 111,773 Derivative financial instruments 10,051 8,627 49,526 — — 68,204 Loans and advances to banks 1,031,745 477,934 402,207 — — 1,911,886 Loans and advances to customers 3,083,408 1,419,675 1,334,839 5,157,989 1,139,976 12,135,887 Treasury bills and other eligible bills 178,296 227,454 856,404 209,296 — 1,471,450 Investment securities – available-for-sale 157,204 59,422 461,553 1,801,296 1,692,702 4,172,177 Pledged assets — 18,699 361,820 419,552 39,033 839,104 Other assets 269,087 297,855 64,698 20,838 — 652,478

Total assets (expected maturity dates) 7,201,911 2,514,864 3,627,804 7,608,971 2,871,711 23,825,261

Liabilities Deposits from banks 1,724,710 192,593 334,196 4,147 — 2,255,646 Deposit from customers 11,204,299 1,121,741 2,040,271 2,122,786 — 16,489,097 Borrowed funds 299,914 627,933 482,483 69,920 — 1,480,250 Derivative financial instruments 16,656 2,154 35,729 — — 54,539 Other liabilities 16,231 5,983 11,039 3,449 23,468 60,170

Total liabilities(contractual maturity dates) 13,261,810 1,950,404 2,903,718 2,200,302 23,468 20,339,702

Gap analysis (6,059,899) 564,461 724,085 5,408,669 2,848,243 3,485,559

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, central bank balances, items in the course of collection and treasury and other eligible bills; loans and advances to banks; loans and advances to customers and other assets. In the normal course of business, a proportion of customer loans and advances contractually repayable within one year will be extended. The Group would also be able to meet unexpected net cash outflows by selling investment securities. 2017 Annual Report 166 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.3.2 Non-derivative cash flows (continued) Offsetting At 31 December 2017 Gross amount Net amount Related amount not Gross amount set-off on SOFP presented on SOFP set-off on SOFP Net amount

Derivative financial assets • forwards 29,267 — 29,267 — 29,267 • swaps 10,000 — 10,000 — 10,000 • options — — — — — Derivative financial liabilities • forwards 22,274 — 22,274 — 22,274 • swaps 10,223 — 10,223 — 10,223 • options — — — — —

At 31 December 2016 Gross amount Net amount Related amount not Gross amount set-off on SOFP presented on SOFP set-off on SOFP Net amount

Derivative financial assets • forwards 67,590 — 67,590 — 67,590 • swaps 614 — 614 — 614 • options — — — — — Derivative financial liabilities • forwards 10,162 — 10,162 — 10,162 • swaps 12,940 — 12,940 — 12,940 • options — — — — —

3.4 Off-balance sheet items The dates of the contractual amounts of the Group’s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities, provide financial guarantees and capital commitments are summarised in the table below.

At 31 December 2017 No later than 1 year Over 1 years Total

Loan commitments 492,421 221,233 713,654 Guarantees, acceptances and other financial facilities 2,607,181 599,982 3,207,163

Total 3,099,602 821,215 3,920,817

At 31 December 2016 Loan commitments 329,300 147,946 477,246 Guarantees, acceptances and other financial facilities 2,511,489 1,341,713 3,853,202

Total 2,840,789 1,489,659 4,330,448 Financial Statements 167

3.5 Fair value of financial assets and liabilities (a) Financial instruments not measured at fair value The table below summarises the carrying amounts and fair values of those financial assets and liabilities not measured at fair value on the group’s consolidated statement of financial position.

Carrying value Fair value 2017 2016 2017 2016

Financial assets: Cash and balances with central banks 2,661,745 2,462,302 2,661,745 2,462,302 Loans and advances to banks 1,685,806 1,413,699 4,443,960 1,911,885 Loans and advances to customers 9,357,864 9,259,280 11,019,724 12,135,887 Other assets (excluding prepayments) 479,868 561,359 479,868 561,359

Financial liabilities: Deposits from banks 1,772,414 2,022,352 2,303,371 2,255,646 Deposit from customers 15,203,271 13,496,720 16,234,022 13,810,687 Other liabilities (excluding deferred income) 1,162,275 1,279,941 1,162,275 1,279,941 Borrowed funds 1,728,756 1,608,564 1,728,756 1,480,251

All the fair values are determined using the Level 2 fair value hierarchy

(i) Cash The carrying amount of cash and balances with banks is a reasonable approximation of fair value.

(ii) Loans and advances to banks Loans and advances to banks include inter-bank placements and items in the course of collection. The carrying amount of floating rate placements and overnight deposits is a reasonable approximation of fair value. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.

(iii) Loans and advances to customers Loans and advances are net of charges for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

(iv) Deposit from banks, due to customers and other deposits The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand.

The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

(v) Deposit from banks, due to customers and other deposits For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity.

(vi) Other assets The bulk of these financial assets have short term (less than 12 months) maturities and their amounts are a reasonable approximation of fair value.

(vii) Other liabilities The carrying amount of financial liabilities in other liabilities is a reasonable approximation of fair value. 2017 Annual Report 168 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

(b) Fair value hierarchy IFRS 13 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy: i) Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges. ii) Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). iii) Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.

31 December 2017 31 December 2016 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Treasury and other eligible bills 965,646 753,331 — 327,461 901,032 — Financial Asset held for trading 25,854 10,703 — 46,605 30,803 — Derivative financial instruments — 39,267 — — 68,204 — Pledged assets — 298,561 — — 518,205 — Investment securities – available-for-sale (AFS) 1,980,020 2,365,055 60,165 1,269,969 1,860,619 142,236 Total financial assets 2,971,520 3,466,917 60,165 1,644,035 3,378,863 142,236

Derivative financial instruments — 32,497 — — 23,102 — Total financial liabilities — 32,497 — — 23,102 —

There are no movements between Level 1 and Level 2. The following table presents the changes in Level 3 instruments for the available for sale securities:

2017 2016 Level 3 Level 3

Opening balance 142,236 92,258 (losses)/gains recognised in other comprehensive income (82,071) 49,978

Closing balance 60,165 142,236

Total losses or gains for the period included in profit or loss for assets held at the end of the reporting period — —

Level 3 fair value measurement The table below sets out information about significant unobservable value inputs used at year end in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

Range of estimates Type of financial Fair value as at 30 Significant for unobservable Fair value measurement sensitivity to instrument June 2017 Valuation technique unobservable input input unobservable inputs

Airtel Network Limited 60,000 Comparable multiples EV/EBITDA multiple 4.00 - 11.60 Significant increase in multiple would (Airtel) result in a higher fair value. An increase in multiple by 1 will result in increase in fair value by $28 million.

Compagnie Aerienne 165 Discounted cash flow Weighted average 11.5% - 12.0% Significant increase in WACC rate would ASKY S.A cost of capital result in a lower fair value. An increase in multiple by 1 will result in increase in fair value by $0.1 million. Financial Statements 169

3.5 Fair value of financial assets and liabilities (continued) (c) Financial instrument classification Assets at fair Available-for- Liabilities at fair value through Loans and sale financial value through Liabilities at At 31 December 2017 profit or loss receivables assets profit or loss amortized cost Total

Assets Cash and balances with central banks — 2,661,745 — — — 2,661,745 Financial assets held for trading 36,557 — — — — 36,557 Derivative financial instruments 39,267 — — — — 39,267 Loans and advances to banks — 1,685,806 — — — 1,685,806 Loans and advances to customers — 9,357,864 — — — 9,357,864 Treasury bills and other eligible bills — — 1,718,977 — — 1,718,977 Investment securities: available-for-sale — — 4,405,240 — — 4,405,240 Pledged assets — — 298,561 — — 298,561 Other assets, excluding prepayments — 479,868 — — — 479,868

Total 75,824 14,185,283 6,422,778 — — 20,683,885

Liabilities Deposits from banks — — — — 1,772,414 1,772,414 Deposit from customers — — — — 15,203,271 15,203,271 Derivative financial instruments — — — 32,497 — 32,497 Borrowed funds — — — — 1,728,756 1,728,756 Other liabilities, excluding non-financial liabilities — — — — 1,210,908 1,210,908

Total — — — 32,497 19,915,349 19,947,846

Assets at fair Available-for- Liabilities at fair value through Loans and sale financial value through Liabilities at At 31 December 2016 profit or loss receivables assets profit or loss amortized cost Total

Assets Cash and balances with central banks — 2,462,302 — — — 2,462,302 Financial assets held for trading 77,408 — — — — 77,408 Derivative financial instruments 68,204 — — — — 68,204 Loans and advances to banks — 1,413,699 — — — 1,413,699 Loans and advances to customers — 9,259,374 — — — 9,259,374 Treasury bills and other eligible bills — — 1,228,492 — — 1,228,492 Investment securities: available-for-sale — — 3,272,824 — — 3,272,824 Pledged assets — — 518,205 — — 518,205 Other assets, excluding prepayments — 850,821 — — — 850,821

Total 145,612 13,986,196 5,019,521 — — 19,151,329

Liabilities Deposits from banks — — — — 2,022,352 2,022,352 Deposit from customers — — — — 13,496,720 13,496,720 Derivative financial instruments — — — 23,102 — 23,102 Borrowed funds — — — — 1,608,564 1,608,564 Other liabilities, excluding non-financial liabilities — — — — 1,342,635 1,342,635

Total — — — 23,102 18,470,271 18,493,373 2017 Annual Report 170 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

3.6 Capital Management The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial positions, are:

• To comply with the capital requirements set by the banking regulators in the markets where the entities within the Group operate; • To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital by the subsidiaries are monitored daily by the Group’s Risk Management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the respective central banks. Monthly reports are submitted to the central banks in the various jurisdictions by the individual subsidiaries.

The central banks in the various jurisdictions require each bank to: (a) hold the minimum level of the regulatory capital determined by the banking regulations of the respective country, and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’) at or above the internationally agreed minimum of 8%.

The Group’s capital is divided into two tiers:

• Tier 1 capital: share capital (net of any book values of the treasury shares), non-controlling interests arising on consolidation from interests in permanent shareholders’ equity, 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: subordinated loan capital, unrealised gains arsing on the fair valuation of equity instruments held as available for sale.

The risk-weighted assets are measured by means of a hierarchy of risk weights classified according to the nature of the risks associated with each asset class. A similar treatment is adopted for off-statement exposure, with some adjustments to reflect the more contingent nature of the potential losses.

The Group’s consolidated capital adequacy ratios will be calculated according to UEMOA Basel 2/3 regulations from January 2018. The new regulations will result in substantially lower reported ratios for the Group primarily due to the following changes in the calculation methodology:

• The foreign currency translation reserve which arises on consolidation will become an adjustment to Tier 1 capital; • The regulator plans to apply higher risk weightings to the sovereign and central bank exposures of affiliates outside UEMOA; and • Operational risk weighted assets and market risk weighted assets will be added.

The table below summarises the composition of regulatory capital and the ratios of the Group for the year ended 31 December 2017 and 31 December 2016. As at those two reporting dates, the individual entities within the Group complied with all of the externally imposed capital adequacy requirements to which they are subject. Financial Statements 171

31 December 2017 31 December 2016

Tier 1 capital Share capital 2,113,957 2,114,332 General bank reserves 357,344 340,295 Statutory reserve 432,856 387,406 Retained earnings 216,142 230,847 Non-controlling interests 291,339 186,154 Less: goodwill (232,682) (232,887)

Total qualifying Tier 1 capital 3,178,957 3,026,147

Tier 2 capital Redeemable preference shares — 16,531 Convertible loans (including liability and equity portions) 350,784 54,053 Eurobond and Subordinated Term Facility in Nigeria 164,141 220,114 Revaluation reserve – available-for-sale investments 5,513 (36,652)

Total qualifying Tier 2 capital 520,438 254,046

Less investments in associates 9,964 10,135

Total regulatory capital 3,689,431 3,270,058

Risk-weighted assets: On-statement of financial position 12,014,604 12,074,685 Off-statement of financial position 784,163 866,090

Total risk-weighted assets 12,798,787 12,940,775

Basel I Capital Adequacy Ratio 28.8% 25.3%

Tier I Ratio 24.8% 23.4%

4 Critical accounting estimates, and judgements in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a) Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that porfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. b) Fair value of financial instruments The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. To the extent practical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. Fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using inputs existing at the dates of the consolidated statement of financial position. c) Impairment of available for-sale equity investments The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. d) Goodwill impairment The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6. These calculations require the use of estimates. The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates. By adjusting the three main estimates (cashflows, growth rate and discount rates) by 10%, no impairment charge on goodwill will arise. 2017 Annual Report 172 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

4 Critical accounting estimates, and judgements in applying accounting policies (continued) e) Retirement benefits The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the group considers the interest rates of high-quality bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.

The Group is of the opinion that there is no deep market in Corporate Bonds in Nigeria and as such assumptions underlying the determination of discount rate are referenced to the yield on Nigerian Government bonds of medium duration, as compiled by the Debt Management Organisation.

Other key assumptions for pension obligations are based in part on current market conditions. f) Revaluation of property, plant and equipment Fair value is derived by applying internationally acceptable and appropriately benchmarked valuation techniques such as depreciated replacement cost or market value approach.

The depreciated replacement cost approach involves estimating the value of the property in its existing use and the gross replacement cost. For this appropriate deductions are made to allow for age, condition and economic or functional obsolescence, environmental and other factors that might result in the existing property being worth less than a new replacement.

The market value approach involves comparing the properties with identical or similar properties, for which evidence of recent transaction is available or alternatively identical or similar properties that are available in the market for sale making adequate adjustments on price information to reflect any differences in terms of actual time of the transaction, including legal, physical and economic characteristics of the properties.

Level 2 fair values of land and building have been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot.

5 Segment Analysis Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Group Executive Committee (the chief operating decision-maker), which is responsible for allocating resources to the reportable segments and assesses its performance. All operating segments used by the group meet the definition of a reportable segment under IFRS 8.

The group operating segments are described below: a) Corporate & Investment Bank: Focuses on providing one-stop banking services to multinationals, regional companies, government and government agencies, financial institutions and international organizations across the network. This unit provides also Treasury activities. b) Commercial banking: Focuses on serving local corporates, small and medium corporates ,SMEs, Schools, Churches and local NGOs and Public Sector. c) Consumer: Focuses on serving personal banking customers. Financial Statements 173

5 Segment Analysis (continued) All revenues are external revenues. Attributing revenue to geographical areas is based on affiliate geaographical position and activities. The reconciling items are intercompany adjustments : mainly elimination of intra group dividend income and other intercompany assets and liabilities.

Segment assets and liabilities comprise operating assets and liabilities, being the majority of the statement of financial position, but exclude items such as taxation and borrowings.

The following table shows the Group’s performance by business segments.

Total business Consolidation Ecobank At 31 December 2017 CIB Commercial Consumer Others segment adjustments Group

Net interest income 511,235 189,886 247,599 28,599 977,319 — 977,319 Net fees and commission income 165,264 86,033 166,068 14,052 431,417 (31,037) 400,380 Other income 293,590 85,069 32,847 224,917 636,423 (182,920) 453,503 Operating income 970,089 360,988 446,514 267,568 2,045,159 (213,957) 1,831,202 Impairment losses (230,442) (125,293) (29,547) (43,270) (428,552) 17,498 (411,054) Operating expenses (471,528) (267,561) (371,260) (127,211) (1,237,559) 106,008 (1,131,551) Operating profit 268,119 (31,866) 45,707 97,087 379,048 (90,451) 288,597 Share of profit of associates 147 — — (404) (257) — (257)

Profit before tax from continuing operations 268,266 (31,866) 45,707 96,683 378,791 (90,451) 288,340

Total assets 14,863,433 1,521,689 953,747 10,325,345 27,664,214 (5,232,610) 22,431,604

Total liabilities 11,548,925 3,066,252 5,145,046 2,881,070 22,641,293 (2,381,772) 20,259,521

At 31 December 2016 Net interest income 592,780 226,221 269,585 62,910 1,151,496 (45,050) 1,106,446 Net fees and commission income 198,755 85,332 160,478 37,212 481,777 (48,147) 433,629 Other income 282,441 62,503 54,305 161,900 561,149 (128,962) 432,188 Operating income 1,073,976 374,056 484,368 262,022 2,194,422 (222,159) 1,972,263 Impairment losses (607,804) (126,028) (50,645) (110,494) (894,971) 31,120 (863,851) Operating expenses (506,081) (283,942) (403,810) (66,013) (1,259,846) 22,634 (1,237,211) Operating profit (39,909) (35,914) 29,913 85,515 39,605 (168,404) (128,799) Share of profit of associates 389 — — (2,249) (1,860) (682) (2,542)

Profit before tax from continuing operations (39,520) (35,914) 29,913 83,266 37,745 (169,087) (131,341)

Total assets 11,097,535 1,546,418 898,893 3,645,271 17,188,117 3,322,857 20,510,974

Total liabilities 10,688,728 2,834,757 4,568,363 1,285,890 19,377,738 (630,842) 18,746,896

The reconciling items are intercompany adjustments mainly elimination of intra group dividend income, intercompany assets and liabilities and other adjustments for consolidation. 2017 Annual Report 174 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

5.1 Entity-wide disclosures The group is also further organised under the following geographical clusters: i) Union Economique et Monétaire Ouest Africaine (UEMOA) region comprises all subsidiaries within the UEMOA monetary zone. Countries in this zone share a common currency except Cape Verde. This region currently includes subsidiaries in Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Mali, Niger, Senegal, Togo and Guinea Bissau. ii) Nigeria region is made up of Ecobank Nigeria. iii) Anglophone West Africa (AWA) region comprises all subsidiaries in West African countries not included in the common monetary zone described as UEMOA. This region currently includes subsidiaries in Ghana, Guinea, Liberia, Sierra Leone and Gambia. iv) CES A Central, Eastern and Southern region comprises all subsidiaries within the CEMAC , EAC and SADC with different monetary zone. These countries are : Cameroon, Chad, Central Africa, Congo Brazaville, Gabon, Sao Tome and Equatorial Guinea, Burundi, Kenya, Rwanda, Tanzania, Uganda, South Sudan, Democratic Republic of Congo, Malawi, Zambia, Zimbabwe and Mozambique.

Transactions between the business segments are carried out at arm’s length. The revenue from external parties reported to the Group Executive Committee is measured in a manner consistent with that in the consolidated income statement. Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-segment net interest income. Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income or expense between the business segments.

Internal charges and transfer pricing adjustments have been reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a business segment on a reasonable basis. The Group’s management reporting is based on a measure of operating profit comprising net interest income, loan impairment charges, net fee and commission income, other income and non-interest expenses. This measurement basis excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs, legal expenses and goodwill impairments when the impairment is the result of an isolated, non-recurring event. As the Group Executive Management Committee reviews operating profit, the results of discontinued operations are not included in the measure of operating profit. The information provided about each segment is based on the internal reports about segment profit or loss, assets and other information, which are regularly reviewed by the Group Executive Management Committee. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the consolidated statement of financial position, but exclude items such as taxation. Financial Statements 175

5.1 Entity-wide disclosures (continued) Segment results of operations The segment information provided to the Group Executive Board for the reportable segments for the period ended 31 December 2017 is as follows:

Others and conso Subtotal Ecobank UEMOA Nigeria AWA CESA adjustment entities Non Core Group

At 31 December 2017 Net interest income 259,765 332,442 219,012 193,060 (26,960) 977,319 — 977,319 Net fees and commission income 126,469 47,033 79,501 117,365 30,012 400,380 — 400,380 Other income 91,013 177,919 55,861 82,619 46,091 453,503 — 453,503 Operating income 477,247 557,394 354,374 393,044 49,143 1,831,202 — 1,831,202 Impairment charges (81,055) (205,453) (57,701) (56,308) (31,100) (431,617) 20,563 (411,054) Operating expenses (284,720) (285,182) (191,901) (287,509) (82,536) (1,131,848) 297 (1,131,551) Operating profit 111,472 66,759 104,772 49,227 (64,493) 267,737 20,860 288,597 Share of profit of associates — — 110 37 (404) (257) — (257) Profit before tax 111,472 66,759 104,882 49,264 (64,897) 267,480 20,860 288,340 Taxation 2,715 (677) (34,014) (21,086) (7,695) (60,757) — (60,757)

Profit after tax 114,187 66,082 70,868 28,178 (72,592) 206,723 20,860 227,583

Total assets 9,222,369 6,056,253 2,950,696 4,656,926 (461,243) 22,425,001 6,603 22,431,604

Total liabilities 8,612,783 5,129,338 2,632,760 4,156,111 (552,218) 19,978,774 280,747 20,259,521

At 31 December 2016 Net interest income 241,035 461,372 277,368 188,692 (60,250) 1,108,217 (1,771) 1,106,446 Net fees and commission income 119,777 72,775 73,195 123,032 44,850 433,629 — 433,629 Other income 82,620 192,099 56,186 44,926 76,313 452,144 (19,956) 432,188 Operating income 443,432 726,246 406,749 356,650 60,913 1,993,990 (21,726) 1,972,263 Loan impairment charges (76,654) (322,973) (57,867) (53,640) (19,142) (530,276) (333,575) (863,851) Operating expenses (263,438) (380,510) (208,793) (278,940) (105,238) (1,236,919) (292) (1,237,211) Operating profit 103,340 22,763 140,089 24,070 (63,467) 226,795 (355,594) (128,799) Share of profit of associates — 143 174 72 (2,931) (2,542) — (2,542) Profit before tax 103,340 22,906 140,263 24,142 (66,398) 224,253 (355,594) (131,341) Taxation (6,974) 115 (42,676) (14,236) (7,153) (70,924) — (70,924)

Profit after tax 96,366 23,021 97,587 9,906 (73,551) 153,329 (355,594) (202,265)

Total assets 7,891,178 6,183,370 2,750,869 4,059,270 (486,954) 20,397,733 113,241 20,510,974

Total liabilities 7,495,169 5,405,436 2,448,293 3,621,975 (719,605) 18,251,268 495,628 18,746,896 2017 Annual Report 176 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

6 Net interest income Year ended 31 December 2017 2016

Interest income Loans and advances to banks 51,358 9,359 Loans and advances to customers: • Corporate 731,181 891,764 • Commercial 174,232 224,711 • Consumer 101,581 137,579 Treasury bills and other eligible bills 195,453 186,049 Investment securities – available for sale 211,175 170,194 Financial assets held for trading 101,235 50,082 Others 4,105 3,114

1,570,320 1,672,852

Interest expense Deposits from banks 103,191 64,805 Due to customers: • Corporate 153,971 207,758 • Commercial 48,200 46,430 • Consumer 126,184 118,219 Borrowed funds 151,349 117,131 Others 10,106 12,063

593,001 566,406 7 Net fee and commission income Year ended 31 December 2017 2016

Fee and commission income Credit related fees and commissions 141,770 167,287 Corporate finance fees 10,299 23,768 Portfolio and other management fees 16,935 11,044 Brokerage fees and commissions 3,364 3,223 Cash management and related fees 203,641 192,582 Card management fees 79,901 70,529 Other fees 13,610 17,688

469,520 486,121

Fee and commission expense Brokerage fees paid 1,317 1,145 Other fees paid 67,823 51,347

69,140 52,492 The Group provides custody, trustee, investment management and advisory services to third parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. Financial Statements 177

8 Net trading income Year ended 31 December 2017 2016

Foreign exchange 360,125 361,017 Trading income on securities 55,600 42,538

415,725 403,555 9 Net loss from investment securities Year ended 31 December 2017 2016

Derecognition of available for sale financial assets — 45,041 Impairment of available-for-sale equity securities (5) (18,660)

(5) 26,381 10 Other operating income

Year ended 31 December 2017 2016 i) Lease income Equipment 2,477 1,672 Motor vehicles 95 81 Other leased assets 31 —

2,603 1,753 ii) Dividend income Trading securities 1,009 943 Available-for-sale securities 4,585 4,667

5,594 5,610 iii) Others Fair value loss on investment properties (828) -29,672 Loss on sale of property and equipment 3,253 938 Others 27,161 23,623

29,586 (5,111)

Total other operating income 37,783 2,252 2017 Annual Report 178 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

11 Operating expenses Year ended 31 December 2017 2016 a) Staff expenses Salaries, allowances and other compensation 455,815 489,468 Social security costs 39,889 31,852 Pension costs: • defined contribution plans 15,110 11,092 Other post retirement benefits 4,226 2,649 515,040 535,061 b) Depreciation and amortisation Depreciation of property and equipment (Note 27) 80,557 85,113 Amortisation of software and other intangibles (Note 26) 15,263 14,084 95,820 99,197 c) Other operating expenses Directors’ emoluments 1,498 1,481 Restructuring costs 10,229 12 Social responsibility 2,040 2,792 Rent and utilities 66,668 70,155 Insurance 33,261 34,204 Advertising and promotion 22,878 25,775 Professional and legal costs 51,028 74,780 Operational losses and fines 12,551 16,554 Communications and technology 130,794 129,755 Business travels 18,637 20,436 AGM and board activities 2,636 3,962 Training 11,377 12,773 Employee activities 16,788 30,549 Repairs and maintenance 34,354 37,133 Supplies and services 12,512 14,806 Allocated cost 6,237 5,732 Cash transportation 18,448 19,241 Fuel 13,764 16,313 Other taxes 11,021 21,051 Non capitalised items 733 1,143 Pre-opening expenses 164 669 Listing fees 2,444 4,303 Banking resolution sinking fund cost (AMCON) 15,141 30,917 Other administrative expenses 25,488 28,418 Total 520,691 602,953

Total operating expenses 1,131,551 1,237,211 Financial Statements 179

12 Impairment losses on loans and advances Year ended 31 December 2017 2016

Loans and advances to customers (Note 20) 441,733 1,124,895 • Specific allowance 385,697 1,012,823 • Collective allowance 56,036 112,072 Provisons no longer required (Note 20) (115,485) (354,627) • Specific allowance (73,202) (284,607) • Collective allowance (42,283) (70,020)

326,248 770,268 13 Impairment losses on other financial assets Year ended 31 December 2017 2016

Impairment charge on other financial assets (Note 24) 84,806 93,583

The impaired charge on Other financial assets for the year is mainly as a result of $41.4 million, related to a claw back from AMCON linked to loans previously sold by Ecobank Nigeria limited.

14 Taxation Year ended 31 December 2017 2016

Current income tax 81,176 84,518 Deferred income tax (Note 35) (20,419) (13,594)

60,757 70,924

The income tax rate applicable to the majority of income of the subsidiaries ranged from 25% to 45%

Further information about deferred income tax is presented in Note 35. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the parent as follows:

Profit before tax 288,340 (131,435) Tax calculated at local tax rates applicable to profits in the respective countries 70,900 95,244 Tax impact on income not subject to tax (2,409) (22,666) Tax impact on expenses not deductible for tax purposes: (3,617) 6,116 Utilisation of previously unrecognised tax losses (4,117) (7,770)

Income tax expense 60,757 70,924

Under the Headquarters Agreement between Ecobank Transnational Incorporated (ETI) and the Republic of Togo signed in October 1985, ETI is exempt from tax on all its income arising from operations in Togo. 2017 Annual Report 180 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

15 Earnings per share Basic Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue outstanding during the period.

Year ended 31 December 2017 2016

Profit attributable to equity holders of the Company from continuing operations 178,071 (248,444)

Profit/(loss) attributable to equity holders of the Company from discontinued operations 514 (1,454)

Weighted average number of ordinary shares in issue (in thousands) 24,607,640 24,607,640

Basic earnings per share (expressed in US cents per share) from continuing operations 0.72 (1.01)

Basic earnings per share (expressed in US cents per share) from discontinued operations 0.00 (0.01)

Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has two categories of dilutive potential ordinary shares: convertible debts and share options granted to employees.

The convertible debt is assumed to have been converted into ordinary shares, and the net profit is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Profit/(loss) attributable to equity holders of the company from continuing operations 178,071 (248,444) Interest expense on dilutive convertible loans 3,590 —

Adjusted profit 181,661 (248,444)

Profit/(loss) attributable to equity holders of the company from discontinued operations 514 (1,454) Interest expense on dilutive convertible loans — —

Adjusted profit 514 (1,454)

Weighted average number of ordinary shares in issue (in thousands) 24,607,640 24,607,640 Adjustment for dilutive convertible loans 706,536 —

Weighted average number of ordinary shares for diluted earnings per share (in thousands) 25,314,176 24,607,640

Dilutive earnings per share (expressed in US cents per share) from continuing operations 0.72 (1.01)

Dilutive earnings per share (expressed in US cents per share) from discontinued operations 0.00 (0.01) 16 Cash and balances with central banks Year ended 31 December 2017 2016

Cash in hand 576,862 543,906 Balances with central banks other than mandatory reserve deposits 895,316 891,987 Included in cash and cash equivalents (Note 40) 1,472,178 1,435,893 Mandatory reserve deposits with central banks 1,189,567 1,026,409

2,661,745 2,462,302

Mandatory reserve deposits are not available for use in the group’s day-to-day operations. All balances are current. Financial Statements 181

17 Financial assets held for trading Year ended 31 December 2017 2016

Debt securities: Government bonds 36,064 77,018

36,064 77,018

Equity securities Listed 270 284 Unlisted 223 106

493 390

Total financial assets held for trading 36,557 77,408

Current 36,557 77,408 Non current — —

36,557 77,408 18 Derivative financial instruments and trading liabilities The Group uses the following derivative instruments for non-hedging purposes.

Currency forwards represents commitments to purchase foreign and domestic currency, including undelivered spot transactions. Foreign currency and interest rate futures are contractual obligations to receive or pay a net amount based on changes in currency rates or interest rates or buy or sell foreign currency or financial institution on a future date at a specified price. The credit risk is negligible, as futures contracts are collateralised by cash or marketable securities, and changes in the futures contract value are settled daily with the exchange.

Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rate (for example, fixed rate for floating rate). No exchange of principal takes place, except for certain currency swaps. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value and the liquidity of the market.

At 31 December 2017 At 31 December 2016 Assets Assets Derivatives Notional Amount Assets Liabilities Notional Amount Assets Liabilities

Currency forwards 75,937 29,267 22,274 — 67,590 10,162 Currency swaps 113,949 10,000 10,223 788,925 614 12,940 Options — — — — — —

Total 189,886 39,267 32,497 788,925 68,204 23,102

The Group has not designated at initial recognition any financial liability as at fair value through profit or loss.

All derivative financial instruments, other than the options, are current.

19 Loans and advances to banks Year ended 31 December 2017 2016

Items in course of collection from other banks 65,771 49,846 Deposits with other banks (Note 40) 1,036,270 920,998 Placements with other banks 583,765 442,855

1,685,806 1,413,699

All loans and advances to banks are current. 2017 Annual Report 182 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

20 Loans and advances to customers 31 December CIB Commercial Consumer Total 2017 2016 2017 2016 2017 2016 2017 2016 a) Analysis by type: Overdrafts 1,994,010 1,614,810 494,008 493,003 128,036 102,886 2,616,054 2,210,699 Credit cards — — 5 5 3,795 3,015 3,800 3,020 Term loans 5,158,304 5,550,185 1,209,971 1,240,285 799,454 768,969 7,167,729 7,559,439 Mortgage loans — — — — 101,400 95,470 101,400 95,470 Others 23,795 196 — 48 — — 23,795 244 Gross loans and advances 7,176,109 7,165,191 1,703,984 1,733,341 1,032,685 970,340 9,912,778 9,868,872 Less: allowance for impairment (293,681) (339,416) (182,295) (196,052) (78,938) (74,030) (554,914) (609,498)

6,882,428 6,825,775 1,521,689 1,537,289 953,747 896,310 9,357,864 9,259,374 b) Analysis by security: Secured against real estate 1,372,527 1,192,519 666,097 651,903 182,449 199,805 2,221,073 2,044,227 Otherwise secured 5,654,065 3,934,913 541,521 529,982 430,106 416,963 6,625,692 4,881,858 Unsecured 149,517 2,037,759 496,366 551,456 420,130 353,572 1,066,013 2,942,787 7,176,109 7,165,191 1,703,984 1,733,341 1,032,685 970,340 9,912,778 9,868,872 Current 5,735,873 5,223,989 Non current 4,176,905 4,644,883

9,912,778 9,868,872 c) Analysis by performance Non-impaired 6,612,199 6,655,532 1,289,712 1,360,326 951,031 904,829 8,852,942 8,920,687 Impaired 563,910 509,659 414,272 373,015 81,654 65,511 1,059,836 948,185

7,176,109 7,165,191 1,703,984 1,733,341 1,032,685 970,340 9,912,778 9,868,872 Financial Statements 183

20 Loans and advances to customers (continued) c) Movements in loans and advances Reconciliation of loans and advances by class is as follows:

At 31 December 2017 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage

At 1 January 1,614,810 5,550,185 196 493,003 5 1,240,285 48 102,886 3,015 768,969 95,470 9,868,872 Disbursed during the period 1,286,710 2,130,793 24,294 297,250 — 833,387 182 53,214 1,948 163,761 53,281 4,844,819 Paid off during the period (986,582) (2,520,814) (1,073) (252,518) — (772,267) (236) (64,121) (1,101) (221,206) (103,309) (4,923,227) Amounts written off as uncollectibles (434) (150,272) — (24,086) — (68,825) — (4,116) — (4,458) (798) (252,989) Reclassification 6,971 (1,941) 334 (4,806) — (29,582) — (94) — (542) (1,869) (31,528) Exchange difference 72,535 150,353 44 (14,835) — 6,973 6 40,267 (67) 92,930 58,625 406,831

At 31 December 2017 1,994,010 5,158,304 23,795 494,008 5 1,209,971 — 128,036 3,795 799,454 101,400 9,912,778

At 31 December 2016 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage

At 1 January 2,155,814 6,057,131 21,742 675,149 — 1,661,415 — 140,899 6,600 1,030,066 108,625 11,857,441 Disbursed during the period 1,182,407 2,287,125 308 395,039 5 604,205 48 96,426 625 269,097 65,446 4,900,731 Paid off during the period (1,020,824) (1,971,572) (16,870) (329,618) — (306,483) — (115,406) (2,280) (468,785) (73,827) (4,305,664) Amounts written off as uncollectibles (217,695) (327,396) — (5,159) — (30) — (208) — (957) — (551,445) Reclassification (149) (219,672) (651) (25,101) — 8,517 (861) (32,066) — 3,339 4,113 (262,531) Exchange difference (484,743) (275,431) (4,333) (217,307) — (727,340) 861 13,242 (1,930) (63,792) (8,887) (1,769,660)

At 31 December 2016 1,614,810 5,550,185 196 493,003 5 1,240,285 48 102,886 3,015 768,969 95,470 9,868,872 2017 Annual Report 184 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

20 Loans and advances to customers (continued) d) Allowance for impairment Reconciliation of allowance account for losses on loans and advances by class is as follows:

At 31 December 2017 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage

Specific allowance for impairment At 1 January 11,199 282,519 — 41,700 — 119,220 — 12,979 — 39,791 10 507,418 Provision for loan impairment 9,999 281,571 312 21,267 — 48,202 2 8,602 — 14,826 915 385,697 Provisons no longer required 3,776 (44,351) (102) (4,882) — (16,543) (2) (6,643) — (3,656) (798) (73,202) Loans written off during the year (655) (341,173) — (8,500) — (48,540) (2) (22,116) — (1,611) (798) (423,394) Reclassification (1,982) — — (5,222) — (6,783) — 8,791 — 5,196 — — Exchange difference 162 (19,730) — (1,029) — 12,418 2 594 — (4,473) 761 (11,296) At 31 December 2017 22,499 158,836 210 43,334 — 107,974 — 2,207 — 50,073 90 385,223

At 31 December 2017 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage Collective allowance for impairment At 1 January 5,946 39,751 — 2,964 — 32,169 — 1,223 — 19,005 1,022 102,080 Provision for loan impairment 4,503 33,478 27 752 — 12,029 — 604 — 3,245 1,398 56,036 Provisions no longer required (3,998) (22,132) — (3,074) — (7,470) — (1,002) — (3,242) (1,365) (42,283) Reclassification 737 192 — 5,987 — (7,042) — (6) — 133 — — Exchange difference 15,368 38,264 — 11,479 — (16,805) — 44,128 — (38,576) — 53,858 At 31 December 2017 22,556 89,553 27 18,108 — 12,880 — 44,947 — (19,435) 1,055 169,691 Total allowance for impairment 45,055 248,390 237 61,442 — 120,854 — 47,154 — 30,638 1,145 554,914 Financial Statements 185

d) Allowance for impairment (continued) At 31 December 2016 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage

Specific allowance for impairment At 1 January 7,187 262,861 — 34,754 — 189,843 — 10,817 289 63,363 50 569,164 Provision for loan impairment 12,283 712,833 3 58,696 — 166,465 — 9,431 — 52,831 281 1,012,823 Provisons no longer required (2,015) (138,493) — (43,819) — (75,700) — (4,719) (224) (19,381) (257) (284,606) Loans written off during the year (1,568) (422,885) — (2,307) — (100,676) — (3,713) — (20,039) (257) (551,445) Reclassification (927) (227,000) — — — 2,082 — (1,139) — (15) — (227,000) Exchange difference (3,760) 95,203 (3) (5,625) — (62,794) — 2,302 (65) (36,968) 193 (11,518) At 31 December 2016 11,199 282,519 — 41,700 — 119,220 — 12,978 — 39,792 10 507,418

At 31 December 2016 CIB Commercial Consumer Total Overdrafts Term loans Others Overdrafts Credit cards Term loans Others Overdrafts Credit cards Term loans Mortgage

Collective allowance for impairment At 1 January 4,458 36,574 94 294 — 24,847 — 780 — 20,421 460 87,928 Provision for loan impairment 2,191 79,514 (95) 1,238 — 20,956 — 674 — 6,994 599 112,072 Provisions no longer required — (69,038) — — — (473) — (254) — (100) (155) (70,020) Reclassification (367) 3,073 — 823 — (1,888) — 75 — (1,862) 146 — Exchange difference (335) (10,372) 1 609 — (11,273) — (51) — (6,448) (28) (27,900) At 31 December 2016 5,946 39,751 — 2,964 — 32,169 — 1,223 — 19,005 1,022 102,080 Total allowance for impairment 17,146 322,270 — 44,663 — 151,389 — 14,202 — 58,796 1,032 609,498 2017 Annual Report 186 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

20 Loans and advances to customers (continued) At 31 December 2017 2016

Loans and advances to customers include finance lease receivables analysed below. Gross investment in finance leases, receivable No later than 1 year 496 415 Later than 1 year and no later than 5 years 26,255 4,619 26,751 5,034 Unearned future finance income on finance leases - (14)

Net investment in finance leases 26,751 5,020

The net investment in finance lease may be analysed as follows: No later than 1 year 620 720 Later than 1 year and no later than 5 years 26,131 4,300

26,751 5,020 Financial Statements 187

21 Treasury bills and other eligible bills At 31 December 2017 2016

Maturing within three months (Note 40) 338,252 390,294 Maturing after three months 1,380,725 838,198

1,718,977 1,228,492

Current 338,252 390,294 Non current 1,380,725 838,198

1,718,977 1,228,492

Treasury bills and other eligible bills are debt securities issued by the government of various countries in which the Group operates.

22 Investment securities At 31 December 2017 2016

Securities available-for-sale Debt securities – at fair value: • listed 1,774,141 1,280,495 • unlisted 2,461,171 1,768,240

Total 4,235,312 3,048,735

Equity securities – at fair value: • listed 12,689 16,330 • unlisted 158,773 209,525

Total 171,462 225,855

Total securities available-for-sale before impairment 4,406,774 3,274,590

Allowance for impairment (1,534) (1,766)

Total securities available-for-sale 4,405,240 3,272,824

Current 599,150 477,214 Non current 3,806,090 2,795,610

4,405,240 3,272,824

The Group has not reclassified any financial asset measured at amortised cost to fair value during the period. (2016: nil) 2017 Annual Report 188 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

22 Investment securities (continued) The movement in securities available-for-sale may be summarised as follows:

2017 2016

At 1 January 3,272,824 2,669,692 Additions 1,631,773 1,513,241 Disposals (sale and redemption) (809,340) (387,046) Losses from impairment of available-for-sale equity securities 230 76 Gains/(loss) from changes in fair value 43,970 (54,135) Exchange differences 265,783 (469,004)

At 31 December 4,405,240 3,272,824 23 Pledged assets At 31 December 2017 2016

Treasury bills 74,128 183,477 Government bonds 224,433 142,395 Cash Pledged — 192,333

298,561 518,205

Pledged assets have been stated at fair values

Current 97,003 380,515 Non-current 201,558 137,690

298,561 518,205 Financial Statements 189

24 Other assets At 31 December 2017 2016

Fees receivable 12,867 8,784 Accounts receivable 416,777 507,718 Prepayments 280,856 289,462 Sundry receivables 162,020 100,487

872,520 906,451

Impairment charges on receivable balances (111,796) (55,630)

760,724 850,821

Current 722,688 808,280 Non-current 38,036 42,541

760,724 850,821

The movement in impairment allowance on other assets may be summarised as follows:

1 January 55,630 159,638 Increase in impairment 84,806 93,583 Write-off (28,640) (197,591)

At 31 December 111,796 55,630 25 Investment in associates At 31 December 2017 2016

At 1 January 10,135 15,802 Share of results (257) (2,542) Exchange differences 86 (3,125)

At 31 December 9,964 10,135

Investment in associates balances are non-current. 2017 Annual Report 190 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

25 Investment in associates (continued) At 31 December 2017 At 31 December 2016 OLD OLD OLD OLD MUTUAL MUTUAL MUTUAL MUTUAL Life General EB-ACCION EB-ACCION EB-ACCION Life General EB-ACCION EB-ACCION EB-ACCION insurance insurance Ghana Cameroon Nigeria insurance insurance Ghana Cameroon Nigeria

Current assets 21,132 21,678 13,919 11,936 27,685 17,305 18,161 12,573 10,021 32,873 Non- current assets 344 3,432 808 1,383 1,457 1,229 4,605 673 1,311 1,606

Total assets 21,476 25,110 14,727 13,319 29,142 18,534 22,766 13,246 11,332 34,480

Liabilities 8,984 12,338 12,042 11,472 15,874 7,339 10,216 10,697 9,768 19,012

Total Liabilities 8,984 12,338 12,042 11,472 15,874 7,339 10,216 10,697 9,768 19,012

Revenues 3,795 4,810 6,161 3,529 12,670 3,982 5,660 5,817 3,699 16,183 Profit after tax (2,417) (1,208) 214 86 3,138 (4,808) (2,848) 224 147 3,177

None of the associates are listed. There were no published price quotations for any associates of the Group. Furthermore, there are no significant restrictions on the ability of associates to transfer funds to the Group in the form of cash dividends or repayment of loans and advances. These associates are strategic to the Group. The ACCION entities are microfinance banks while Old Mutual entities are in life and general insurance businesses.

At 31 December 2017 At 31 December 2016 Principal place of business/Country Net assets of Share Holding Country of Net assets of Share Holding of incorporation associate (Direct and Indirect) incorporation associate (Direct and Indirect)

EB-ACCION Ghana Ghana 2,685 39.78% Ghana 2,549 39.78% EB-ACCION Cameroon Cameroon 1,847 49.87% Cameroon 1,564 49.87% EB-ACCION Nigeria Nigeria 13,268 21.73% Nigeria 15,468 21.73% OLD MUTUAL Life insurance Nigeria 12,492 29.00% Nigeria 11,194 29.00% OLD MUTUAL General insurance Nigeria 12,772 30.00% Nigeria 12,550 30.00%

Reconciliation of summarised financial information to the carrying amount of its interests in associates

OLD MUTUAL Life OLD MUTUAL EB-ACCION At 31 December 2017 insurance General insurance EB-ACCION Nigeria EB-ACCION Ghana Cameroon Total

Opening net assets 11,194 12,550 18,645 2,549 1,564 43,324 Profit/(loss) for the year (2,417) (1,208) 3,138 214 86 (187) Exchange differences 3,715 1,430 (8,515) (78) 197 (3,251) Closing net assets 12,492 12,772 13,268 2,685 1,847 39,886

Interest in associates 3,623 3,832 2,883 1,068 921 12,327 Notional goodwill 547 3,686 (2,838) 1,364 434 3,194 Carrying value 4,170 7,518 45 2,432 1,356 15,521 Financial Statements 191

25 Investment in associates (continued) OLD MUTUAL Life OLD MUTUAL EB-ACCION At 31 December 2016 insurance General insurance EB-ACCION Nigeria EB-ACCION Ghana Cameroon Total

Opening net assets 19,453 22,210 15,468 2,626 1,458 61,214 Profit/(loss) for the year (4,808) (2,848) 3,177 224 147 (4,107) Exchange differences (3,451) (6,812) — (301) (41) (13,782) Closing net assets 11,194 12,550 18,645 2,549 1,564 43,324

Interest in associates 3,246 3,765 4,051 1,014 780 12,856 Notional goodwill 924 3,753 (4,006) 1,418 576 2,665 Carrying value 4,170 7,518 45 2,432 1,356 15,521 2017 Annual Report 192 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

26 Intangible assets At 31 December 2017 2016

Goodwill At 1 January 232,888 341,770 Exchange differences (205) (108,882)

At 31 December 232,683 232,888

Goodwill is tested annually for impairment, or more frequently when there are indications that impairment may have occurred. There was no impairment identified in 2017 (2016 : nil).

Software costs At 1 January 47,878 40,681 Purchase 26,355 31,321 Amortisation (Note 11) (15,262) (14,084) Exchange differences (7,989) (10,040)

At 31 December 50,981 47,878

Total intangible assets 283,664 280,766

Impairment testing for cash-generating units containing goodwill

For the purpose of impairment testing, goodwill acquired through business combinations is allocated to cash-generating units (CGUs). The recoverable amounts of the CGUs have been determined based on the value-in-use calculations; using cash flow projections based on the financial budgets approved by senior management covering a period of three years.

The goodwill is arising on acquisitions in the following subsidiaries:

At 31 December 2017 2016

Ecobank Nigeria (Oceanic Bank) 200,996 201,655 Ecobank Ghana (The Trust Bank) 9,155 9,666 Ecobank Rwanda 4,493 4,631 Ecobank Zimbabwe 6,550 6,550 SOFIPE 4,693 4,126 Ecobank Chad 2,798 2,459 Ecobank Central Africa 1,722 1,513 Ecobank Burundi 1,062 1,111 Ecobank Sierra Leone (ProCredit) 548 574 Ecobank Malawi 134 135 Ecobank Burkina Faso 531 467

232,682 232,887

The calculation of value-in-use was based on the following key assumptions:

• the cash flows were projected based on the Bank’s approved budget. The cash flows were based on past experiences and were adjusted to reflect expected future performances of the company putting into consideration the country’s gross domestic product. • a terminal growth rate of between 0% and 4.4% was applied in determining the terminal cash flows depending on the country the entity is domiciled.

• discount rates of averaging 13.74%, representing pre-tax weighted average cost of capital (WACC), was applied in determining the value in use. The growth rate used to extrapolate terminal cash flows for goodwill impairment testing is consistent with long term average growth rate for industry and countries. • the Group expects that through this acquisition, it would create synergy that enhances its ability to tap into opportunities in the respective countries where the entities are domiciled; • The key assumptions described above may change as economic and market conditions change. The Group estimates that reasonably possible changes in these assumptions would not cause the recoverable amount of either CGU to decline below the carrying amount. Financial Statements 193

27 Property and equipment Motor Land Furniture Construction Vehicles & Buildings & Equipment Installations in progress Total

At 1 January 2016 Cost or Valuation 94,087 672,752 374,517 146,889 122,415 1,410,660 Accumulated depreciation 69,519 120,778 252,297 74,211 — 516,805

Net book amount 24,568 551,974 122,220 72,678 122,415 893,855

Year ended December 2016 1 January 24,568 551,974 122,220 72,678 122,415 893,855 Additions 6,556 54,730 44,945 19,947 101,212 227,390 Revaluation — 6,348 (27) (100) — 6,221 Disposals – cost (8,133) (6,737) (14,760) (7,739) (3,992) (41,361) Disposals – accumulated depreciation 8,664 1,677 8,641 1,517 2 20,501 Reclassifications – cost — (916) 1,857 5 916 1,862 Reclassifications – accumulated depreciation — (815) (1,857) 811 — (1,861) Depreciation charge (8,492) (15,443) (46,918) (14,260) — (85,113) Exchange rate adjustments (1,918) (116,374) (13,288) (2,899) (25,968) (160,447)

Closing net book amount 21,245 474,444 100,813 69,960 194,585 861,047

At 31 December 2016/1 January 2017 Cost or Valuation 75,479 579,138 355,743 151,114 194,585 1,356,059 Accumulated depreciation 54,234 104,694 254,930 81,154 — 495,012

Net book amount 21,245 474,444 100,813 69,960 194,585 861,047

Period ended 31 December 2017 1 January 21,245 474,444 100,813 69,960 194,585 861,047 Additions 3,612 108,848 90,668 9,367 43,699 256,194 Revaluation — 6,360 (19) (86) — 6,255 Disposals – cost (8,138) (52,453) (52,266) (5,185) (70,483) (188,525) Disposals – accumulated depreciation 7,327 4,429 20,779 4,947 52 37,534 Reclassifications – cost (35) 8,889 2,143 (9,023) (240) 1,734 Reclassifications – accumulated depreciation 6 304 (1,921) (121) 3 (1,729) Depreciation charge (8,282) (14,205) (42,739) (15,331) — (80,557) Exchange rate adjustments 2,757 22,979 4,679 6,570 (4,775) 32,210

Closing net book amount 18,492 559,595 122,137 61,098 162,841 924,163

At 31 December 2017 Cost 72,834 677,911 415,347 160,909 162,841 1,489,842 Accumulated depreciation 54,342 118,316 293,210 99,811 — 565,679

Net book amount 18,492 559,595 122,137 61,098 162,841 924,163 2017 Annual Report 194 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

27 Property and equipment (continued) An independent valuation of the group’s land and buildings was performed by valuers to determine the fair value of the land and buildings as at 31 December 2016. The revaluation surplus net of applicable deferred income taxes was credited to other comprehensive income and is shown in ‘revaluation reserve – property and equipment’ in shareholders equity (note 39).

Fair value is derived by applying internationally acceptable and appropriately benchmarked valuation techniques such as depreciated replacement cost or market value approach. The depreciated replacement cost approach involves estimating the value of the property in its existing use and the gross replacement cost. For this appropriate deductions are made to allow for age, condition and economic or functional obsolescence, environmental and other factors that might result in the existing property being worth less than a new replacement.

The market value approach involves comparing the properties with identical or similar properties, for which evidence of recent transaction is available or alternatively identical or similar properties that are available in the market for sale making adequate adjustments on price information to reflect any differences in terms of actual time of the transaction, including legal, physical and economic characteristics of the properties.

If land and buildings were stated at historical costs, the amounts would be as follows:

At 31 December 2017 2016

Cost 688,224 670,005 Accumulated depreciation 140,185 145,294

Net book amount 548,039 524,711 28 Investment property At 31 December 2017 2016

1 January 35,819 136,466 Additions 9,854 1,101 Fair value gains (828) (29,672) Disposal (1,324) (69,008) Exchange rate adjustments (7) (3,068)

43,514 35,819

The following amounts have been recognised in the income statement:

Rental income — 1,219 Direct operating expenses arising from investment properties that generate rental income — (502) Fair value gains/(losses) (828) (29,672)

(828) (28,955)

Investment properties are carried at fair value. The valuation of investment properties has been done using the level 2 technique (inputs other than quoted prices that are observable for the asset or liability). The values have been derived using the sales comparison approach. The fair value of investment property is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. Financial Statements 195

29 Assets Held for sale and discontinued operations The assets and liabilities of Union Bank of Cameroon (UBC) have been classified as held for sale in line with IFRS 5 (Non current assets held for sale and discontinued operations). UBC was acquired as part of the Oceanic transaction in 2011 but was deemed as non-core to ETI’s operations. Regulatory approval has been obtained for the sale and it is expected to be completed during 2018. UBC is classified under ‘others’ in the segment reporting. The assets and performance reviewed by the CODM does not include assets held for sale.

At 31 December 2017 2016 a) Assets held for sale Cash and balances with central banks 10,206 32,037 Treasury bills and other eligible bills 34,421 7,286 Loans and advances to banks 751 377 Loans and advances to customers 15,302 16,236 Investment securities – available for sale 19,264 12,575 Intangible assets 73 124 Property and equipment 2,890 1,832 Other assets 936 (596)

83,843 69,871 b) Liabilities classified as held for sale Due to customers 98,052 89,955 Other liabilities 13,535 3,358 Retirement benefit obligation 998 813 Deferred income tax liabilities 200 176

112,785 94,302 c) Profit from discontinued operations Revenue 6,780 3,536 Costs (5,829) (6,229) Profit/(loss) before tax of discontinued operations 951 (2,693) Profit/(loss) from discontinued operations after tax 951 (2,693) Profit/(loss) from discontinued operations 951 (2,693)

Profit attributable to: Owners of the parent 514 (1,454) Non controlling interests 437 (1,239)

951 (2,693)

Cash and Flow statement Cash flow used in operating activities (16,425) (5,047) Cashflow from investing activities (5,101) 456

Total cashflows (21,526) (4,591) 2017 Annual Report 196 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

30 Deposits from other banks At 31 December 2017 2016

Operating accounts with banks 881,089 888,705 Other deposits from banks 891,325 1,133,647

1,772,414 2,022,352

All deposits from banks are current and have variable interest rates.

31 Deposit from customers At 31 December 2017 2016

CIB • Current accounts 4,970,428 4,174,861 • Term deposits 2,021,545 1,898,729 6,991,973 6,073,590

Commercial • Current accounts 2,390,924 2,199,666 • Term deposits 610,225 585,265 • Savings deposits 65,103 49,826 3,066,252 2,834,757

Consumer • Current accounts 1,705,752 1,556,069 • Term deposits 854,232 681,981 • Savings deposits 2,585,062 2,350,323 5,145,046 4,588,373

Total 15,203,271 13,496,720

Current 14,140,406 12,596,468 Non current 1,062,865 900,252

15,203,271 13,496,720

Customer deposits carry variable interest rates.

At 31 December 2017 CIB Commercial Consumer Total Current Term Current Term Current Term account deposits account deposits Savings account deposits Savings

At 1 January 4,174,861 1,898,729 2,199,666 585,265 49,826 1,556,069 681,981 2,350,323 13,496,720 Additions 4,630,457 516,965 1,657,696 107,150 22,634 927,576 214,067 477,029 8,553,574 Withdrawals (4,243,523) (473,310) (1,589,163) (105,780) (7,404) (859,818) (71,589) (364,235) (7,714,822) Exchange difference 408,633 79,161 122,725 23,590 47 81,925 29,773 121,945 867,799

At 31 December 2017 4,970,428 2,021,545 2,390,924 610,225 65,103 1,705,752 854,232 2,585,062 15,203,271

At 31 December 2016 CIB Commercial Consumer Total Current Term Current Term Current Term account deposits account deposits Savings account deposits Savings

At 1 January 5,069,201 3,438,117 2,070,837 731,227 45,169 1,616,068 932,556 2,524,378 16,427,553 Additions 1,960,534 160,950 1,026,012 165,120 32,518 3,005,870 469,860 883,970 7,704,834 Withdrawals (2,112,572) (953,891) (686,229) (150,599) (18,567) (2,878,223) (503,402) (659,243) -7,962,726 Reclassification (102,058) (2,507) 81,584 2,507 — 20,474 — — — Exchange difference (640,244) (743,940) (292,538) (162,990) (9,294) (208,120) (217,033) (398,782) -2,672,941

At 31 December 2016 4,174,861 1,898,729 2,199,666 585,265 49,826 1,556,069 681,981 2,350,323 13,496,720 Financial Statements 197

32 Borrowed funds At 31 December 2017 2016

a Eurobond Nigeria 254,657 252,499 b Deutsche Bank 248,453 267,286 c African Development Bank (AfDB) 214,074 309,889 d TMFG Services UK Limited 149,265 — e Qatar National Bank 147,687 — f Bank of Industry of Nigeria (BOI) 131,362 145,401 g PIC (Public Investment Corporation) 88,879 98,869 h A/B Syndicated Subordinated Term Facility 75,341 75,916 i European Investment Bank 54,381 67,995 j Societe de Promotion et Participation pour la Coopération Economique (PROPARCO) 50,418 62,228 k Nigeria Souvereign Investment Authority -- NSIA 50,114 — l Opec Fund for International Development (OFID) 17,629 26,341 m International Finance Corporation — 71,832 n 4% Convertible preference shares — 16,531 o Keystone Bank, Nigeria — 25,000 p Central Bank of Nigeria 9,644 10,272 q Caisse Régionale de Refinancement Hypothécaire (CRRH) 9,047 9,098 r Belgium Investment Company for Developing countries (BIO) 6,748 10,106 Government Bonds (Ivory Coast) 9,047 8,442 Other loans 212,010 150,859

1,728,756 1,608,564

Current 246,566 185,415 Non current 1,482,190 1,423,149

1,728,756 1,608,564 a) Eurobond issued by Ecobank Nigeria represents Subordinated Tier 2 Note of $250 million Fixed Rate Limited Recourse Participation Notes maturing in 2021. The Note has a tenure of 7 years while interest of 8.5% on the notes will be payable semi-annually in arrear in each year commencing 14 August 2014. b) Deutsche AG as original lender and facility agent granted a facility of USD 250million to ETI being PIC’s convertible bond on September 5, 2017 for a 5 year tenure maturing on September 5, 2022. c) The African Development (AfDB) loan to ETI comprised three subordinated loans: • AfDB (I) Loan, with an outstanding amount of $71 million. Interest rate is based on a fixed base rate 3.65% plus a spread. The subsidiaries that benefitted from this loan are: Ecobank Burundi, Congo, Ghana, Kenya, Malawi, Tanzania and Zimbabwe. The loan has matured and paid down in November 2017. • AfDB (II) Loan, with an outstanding amount of $30 million. Interest rate is based on 6 month LIBOR rate plus margin of 3.65%. The subsidiaries that benefitted from this loan are: Ecobank Burundi, Congo, Ghana, Kenya, Malawi, Tanzania and Zimbabwe. The loan has matured and paid down in November 2017. • AfDB (III) Loan, with an outstanding amount of $208 million, is repayable in full in two (2) equal installments from 2019. Interest rate is based on a fixed base rate of 4.5% plus a spread. The subsidiaries that benefitted from this loan are: Ecobank Burundi, Congo, Ghana, Kenya, Malawi, Nigeria, Tanzania, Uganda and Zimbabwe d) TMF Global Services (UK) ltd as facility agent granted a one year syndicated loan of USD 150million to ETI on November 2, 2017 to be repaid on November 2, 2018. e) Qa tar National Bank as Convertible Bond granted USD 148.89million to ETI together with Convertible Bond Investment Company Mauritius’ participation to the tune of USD 1.11million on October 19, 2017 for a tenure of 5 years thus maturing on October 19, 2022. 2017 Annual Report 198 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

32 Borrowed funds (continued) f) The Bank of Industry (BOI) loan to Ecobank Nigeria represents CBN (Central Bank of Nigeria) intervention funds on-lent to some of the Bank’s customers in the manufacturing sector through Bank of industry (BOI). The fund is administered at an all-in interest rate of 7% per annum payable on a quarterly basis. The maximum tenor of the facility is 15 years. g) Public Investment Corporation (PIC) granted to ETI a USD 98,841,206,79 facility for 3 years Term, on December 29, 2016, with a Margin of 4% per annum plus 3 months Libor, annual revolving deposit. 10million pledged out of the Principal. Net amount USD 88,841,206.79 as at December 2017. h) The US$75million A/B Syndicated Subordinated Term Facility was obtained by Ecobank Nigeria in 2015 from FMO. It is repayable by Eight (8) Quarterly installment payments commencing on April 15, 2020 after a moratorium period of five (5) years with interest rate at LIBOR plus 6.5%. The maturity date is January 15, 2022. i) European Investment Bank (II) Loan is a convertible and subordinated loan repayable in ten equal semi-annual instalments which started from 2010. The subsidiaries that benefitted from this loan are: Ecobank Burkina, Cote d’Ivoire, DR Congo, Ghana, Guinea Bissau, Mali, Rwanda, Chad, Senegal, Togo, Uganda, and Zambia. European Investment Bank (III) granted a third facility to ETI for on-lending to some affiliates. The sum received on July 6, 2015 was USD 40 million out of USD 100 million as per the contract. The applicable rate is 1.57% plus Floating rate plus 6 months LIBOR for a tenure of 7years and 3 years moratorium. The funds received were on-lent to affiliates as per the following list : Nigeria, eProcess, Tanzania, Rwanda & ETI Holding. j) Societe De Promotion et De Participation Pour La Cooperation Economique S.A. (PROPARCO1) is repayable in eleven (11) equal semi annual installments starting from 2014 to 2019. Interest is payable semi-annually at either a fixed rate or a floating rate determined at the instance of the lender. (PROPARCO2) During the year 2013, ETI obtained additional US$50 million loan from Proparco. The loan is repayable in 17 installments starting from 2016 to 2024. Interest is payable semi-annually at a floating rate LIBOR 6 Month. k) Nigeria Sovereign Investment Authority (NSIA) extended a USD 50million loan to ETI for a tenure of 9 months on September 20, 2017 repayable on June 4, 2018. This facility was on lent to Ecobank Nigeria. l) Opec Fund for International Development (OFID) Loan is a convertible and subordinated loan repayable in seven (7) equal semi-annual installments starting from 2016. The subsidiaries that benefitted from this loan are: Ecobank Senegal, Cameroon, Kenya and Cote d’Ivoire. m) International Finance Corporation (IFC) Loan was a subordinated loan repayable in seven (7) equal semi-annual installments starting from 2016. The subsidiaries that benefitted from this loan are: Ecobank Benin, Burkina, Guinea Bissau, Mali, Niger, Senegal, Togo, Gambia, Ghana, Sierra Leone, Cameroun, Central African Republic, Chad, Rwanda, and Nigeria. ETI has paid down the borrowing in November 2017. n) In year 2011, ETI issued 1.07 billion units of convertible, redeemable and cumulative preference shares to the shareholders of Oceanic Bank International Limited at US$0.1032 per share. Dividend is payable on the preference shares at the higher of 4% per annum and proposed ordinary dividend per share. In 2015, we have converted 35,085,710 preference shares. In 2016 preference shareholders converted 819,424,548 units into new ordinary shares of 630,325,909 as at December 31, 2016. The outstanding number of preference shares as at December 31, 2016, were 212,091,363 which and redeemed in 2017. o) The loan from Keystone Bank Nigeria was obtained by Bewcastle Limited for a tenor of 36 months with interest rate at 90 day LIBOR plus 7% has been paid off in 2017. p) Central Bank of Nigeria loan represents 7-year intervention funds for on-lending to a customer of the Bank in the agricultural sector. The funds are administered at a maximum interest rate of 9% per annum. q) Caisse Régionale de Refinancement Hypothécaire loan to Ecobank Cote d’Ivoire and Ecobank Senegal are is repayable over (10) years in 20 equal semi-annual instalments which started from 2014. Interest is payable semi-annually at an annual rate of 6%. The loan is maturing in 2023. r) Belgium Developpment Company (BIO) Loan was not for on-lending to affiliates. It started from July 2012 payable in eleven equal semi- annual installments. The loan was used to support technological development and program development of its affiliates. Financial Statements 199

32 Borrowed funds (continued) Analysis of the convertible loans

The convertible loans are presented in the consolidated statement of financial position as follows:

Name of Institution Contract interest rate Effective interest rate Tenor (Years) Face value Amount

European Investment Bank (II) 4.267% + 6 months Libor 6.80% 7 27,712 13,917 OFID 4.75% + 6 months Libor 6.51% 8 26,341 17,629 Deutsche AG 8.15% 5 250,000 248,453 Qatar National Bank 8.05% 5 148,890 147,687 CBICMU 14.96% 5 1,110 842 Preference shares 4% 5 16,531 —

470,584 428,528

At 31 December 2017 2017

Initial recognition: • Face value of convertible bond issued 470,584 194,635 • Equity conversion component net of deferred tax liability (Note 39) (7,779) (41,869)

Liability component 462,805 152,766

Summary of subordinated loans European Investment Bank (II) 13,917 40,522 Opec Fund for International Development 17,629 30,740

31,546 71,262 33 Other liabilities At 31 December 2016 2015

Accrued income 48,633 62,694 Unclaimed dividend 4,018 6,786 Accruals 190,616 227,964 Obligations under customers' letters of credit 101,314 93,752 Bankers draft 44,980 46,033 Accounts payable 142,978 193,261 Others liabilities 678,369 712,145

1,210,908 1,342,635

Other liabilities are expected to be settled within no more than 12 months after the reporting date.

34 Provisions 2017 2016

At 1 January 28,782 28,694 Additional provisions charged to income statement 32,202 15,745 Provision no longer required (1,253) (16) Utilised during year (6,202) (5,059) Exchange differences (1,079) (10,582)

At 31 December 52,450 28,782

Provisions represent amounts provided for in respect of various litigations pending in court. Based on professional advice, the amounts for pending litigations have been set aside to cover the expected losses to the Group on the determination of these litigations. 2017 Annual Report 200 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

35 Deferred income taxes Deferred income taxes are calculated using the enacted tax rate of each subsidiary.

The movement on the deferred income tax account is as follows:

2017 2016

At 1 January (41,838) (5,592) Income statement charge (20,419) (13,594) Available-for-sale securities (directly in OCI): • fair value remeasurement (1,805) (22,658) Revaluation of property and equipment (directly in OCI) (3,144) (5,704) Exchange differences 9,760 5,710

At 31 December (57,446) (41,838)

Deferred income tax assets and liabilities are attributable to the following items: Deferred income tax liabilities Accelerated tax depreciation 1,701 2,265 Available-for-sale securities 2,280 3,566 Revaluation of property and equipment 42,859 39,396 Provision for loan impairment (recovery) 14,334 10,746 Other temporary differences 3,095 4,196

64,269 60,169

Deferred income tax assets Pensions and other post retirement benefits 202 447 Provisions for loan impairment 20,525 13,930 Other provisions 10,393 9,755 Tax loss carried forward 43,236 32,323 Other temporary differences 7,839 3,519 On untilised capital allowances 34,822 34,562 On revaluation PPE 363 45 Available-for-sale securities 4,335 7,426

121,715 102,007

Deferred tax liabilities • To be recovered within 12 months 62,636 55,102 • To be recovered after more than 12 months 1,633 5,067

64,269 60,169

Deferred tax assets • To be recovered within 12 months 86,530 91,024 • To be recovered after more than 12 months 35,185 10,983

121,715 102,007

The deferred tax charge in the income statement comprises the following temporary differences: Accelerated tax depreciation (322) 242 Provision for loan impairment (recovery) 4,261 673 Pensions and other post retirement benefits 251 6 Allowances for loan losses (10,157) (3,562) Other provisions (6,479) (5,841) Tax losses carry forward (18,776) (7,863) Other temporary differences 29,692 (1,885) Exchange differences (18,889) 4,636

(20,419) (13,594) Financial Statements 201

35 Deferred income taxes (continued) Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes related to the same fiscal authority.

Income tax effects relating to components of other comprehensive income:

31 December 2017 31 December 2016 Gross Tax Net Gross Tax Net

Fair value gains/loss on available for sale 43,970 (1,805) 42,165 (54,135) 22,658 (31,477) Revaluation gains/loss on property and equipment 6,255 (3,144) 3,111 6,221 (5,704) 517

50,225 (4,949) 45,276 (47,914) 16,954 (30,960) 36 Retirement benefit obligations Other post-retirement benefits Apart from the pension schemes, the Group operates a post employment gratuity payment scheme. The method of accounting and the frequency of valuations are as described in Note 2.24. The Group operates a post employment gratuity payment scheme. The amounts recognised in the statement of financial position are as follows:

2017 2016

Present value of funded obligations 55,177 47,817 Fair value of plan assets (47,289) (45,965) 7,888 1,852

Present value of unfunded obligations 16,176 13,879

Liability in the statement of financial position 24,064 15,731

In 2017, the movement in the defined benefit obligation over the year is as follows :

31 December 2017 31 December 2016 Present value of Fair value of plan Present value of Fair value of plan obligation assets Total obligation assets Total

At 1 January 61,696 (45,965) 15,731 62,055 (44,619) 17,436 Current service cost 2,019 — 2,019 3,116 — 3,116 Interest expense and income 3,197 (2,298) 899 2,821 (2,365) 456

5,216 (2,298) 2,918 5,937 (2,365) 3,572

Remeasurements Return on plan assets — (2,108) (2,108) — (2,629) (2,629) Actuarial (gain)/losses (3,085) 958 (2,127) (6,078) (75) (6,153)

(3,085) (1,150) (4,235) (6,078) (2,704) (8,782)

Exchange difference 7,069 7,069 (417) 6,634 6,217 Contributions 457 (4,046) (3,589) — (8,989) (8,989) Benefit payments — 6,170 6,170 199 6,078 6,277

At 31 December 71,353 (47,289) 24,064 61,696 (45,965) 15,731 2017 Annual Report 202 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

36 Retirement benefit obligations (continued) The defined benefit obligation and plan assets are composed by regions/countries as follows:

31 December 2017 31 December 2016 UEMOA/ UEMOA/ Nigeria ETI CEMAC Others Total Nigeria ETI CEMAC Others Total

Present value obligation 26,252 16,176 12,520 16,405 71,353 21,002 13,879 18,807 8,008 61,696 Fair value of plan assets (28,520) — (15,443) (3,326) (47,289) (27,225) — (12,249) (6,492) (45,966) Total liability (2,268) 16,176 (2,923) 13,079 24,064 (6,223) 13,879 6,558 1,516 15,730

Income tax effects relating to components of other comprehensive income

At 31 December 2017 2016

The amounts recognised in the income statement are as follows: Current service cost 2,019 5,153 Net interest cost 3,197 119

Total included in staff costs 5,216 5,272

Other Comprehensive Income Actuarial gain/(losses) on obligations 852 1,790 Actuarial gain/(losses) on plan assets (6,064) 2,046

(5,212) 3,836

As the plan assets include significant investments in government bonds, the Group is also exposed to interest rate risks and impact of changes monetary policies on bond yields. The defined benefit plan does not have any significant impact on the group’s cash flows.

The net actuarial gain on the fair value of plan assets arose as a result of the actual returns on the assets being greater than the calculated expected return on assets.

Plan assets are comprised as follows: 31 December 2017 31 December 2016 % Quoted Unquoted Total % Quoted Unquoted Total

Cash 13% — 6,148 6,148 18% — 8,274 8,274 Equity instruments 23% 10,876 — 10,876 26% 11,951 — 11,951 Debt instruments (Bonds) 64% 30,265 — 30,265 56% 25,741 — 25,741

100% 41,141 6,148 47,289 100% 37,692 8,274 45,966

The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy.

The principal assumptions used for the subsidiaries operating in the UEMOA region were as follows:

2017 2016

Discount rate 3% 3% Expected return on plan assets 1.8% 1.8% Future salary increases 2% 2%

The principal assumptions used for the employees of Ecobank Nigeria Plc were as follows: Discount rate 16% 16% Expected return on plan assets 9% 9% Future salary increases 5% 5% Financial Statements 203

36 Retirement benefit obligations (continued) The principal assumptions used for the employees of Ecobank Transnational Incorporated were as follows:

2017 2016

Discount rate 3.0% 3.0% Exit rate 4.85% 4.85% Dismissal rate 1.80% 1.80% 37 Contingent liabilities and commitments a) Legal proceedings The Group is a party to various legal actions arising out of its normal business operations. The Directors believe that, based on currently available information and advice of counsel, none of the outcomes that result from such proceedings will have a material adverse effect on the financial position of the Group, either individually or in the aggregate. The amounts that the directors believe will materialize are disclosed in Note 34. b) Capital commitments At 31 December 2017, the Group had capital commitments of $2.0 m (December 2016: $4.2m) in respect of buildings and equipment purchases. The Group’s management is confident that future net revenues and funding will be sufficient to cover this commitment. c) Loan commitments, guarantee and other financial facilities At 31 December 2017 the Group had contractual amounts of the off-statement of financial position financial instruments that commit it to extend credit to customers guarantees and other facilities are as follows: 2017 2016

Guaranteed commercial papers 101,038 97,111 Documentary and commercial letters of credit 1,377,024 1,147,441 Performance bond, guarantees and indemnities 1,729,101 2,608,650 Loan commitments 713,654 477,246

3,920,817 4,330,448 d) Tax exposures The Group is exposed to ongoing tax reviews in some subsidiary entities. The Group considers the impact of tax exposures, including whether additional taxes may be due. This assessment relies on estimates and assumptions and may involve series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities would impact tax expense in the period in which such a determination is made. The total amount of tax exposure as at 31 December 2017 is $44 million (December 2016: $38 million). Based on Group’s assessment, the probable liability is not likely to exceed $3 million (December 2016: $15 million) which provisions have been made in the books in Note 34. 2017 Annual Report 204 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

38 Share capital No of shares (‘000) Ordinary shares Share premium Treasury shares Total

At 1 January 2016 23,977,313 602,496 1,430,339 (3,138) 2,029,698

Proceeds from share subscription: • Conversion of Preference shares 630,326 15,758 68,806 — 84,564 Treasury shares — — — 70 70 At 31 December 2016/ 1 January 2017 24,607,639 618,254 1,499,145 (3,068) 2,114,332

Treasury shares — — — (375) (375)

At 31 December 2017 24,607,639 618,254 1,499,145 (3,443) 2,113,957

The total authorised number of ordinary shares at period end was 50 billion (December 2016: 50 billion) with a par value of US$0.025 per share (December 2016: US$0.025 per share). Total issued shares as of 31 December 2017 were 24.730 billion shares. The adjustment for treasury shares on consolidation resulted in the share count of 24.608 billion shares.

Treasury shares were ETI shares held by subsidiaries and related entities within the Group as at period end. The treasury shares count as at 31 December 2017 is 137.7 million shares.

Share options The Group offers share option to certain employees with more than three years’ service. Options are conditional on the employee completing three year’s service (the vesting period). The options are exercisable starting three years from the grant date. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Movement in the number of share options outstanding are as follows:

2017 2016

At 1 January 138,988 448,665 Forfeited (14,000) — Lapsed — (309,677)

At 31 December 124,988 138,988

The range of exercise price of outstanding shares as at 31 December 2017 is 6 cents to 9.2 cents (average price 7.6 cents). All of the outstanding shares as at 31 December 2017 were exercisable.

New share options totalling 119 million shares were also granted on 16 July 2012 with a contractual life of 5 years. New share options totalling 50 million shares were also granted in September 2015 with a contractual life of 5 years. Financial Statements 205

38 Share capital (continued) The number of shares outstanding at the end of the year was as follows:

Expiry date: 2017 2016

2016 — — 2017 — — 2019 50,000 50,000 2022 74,988 88,988

124,988 138,988

Measurement of fair values – share options The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Scholes formula. The service and non-market performance conditions attached to the transactions were not taken into account in measuring fair value.The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows.

Fair value of share options and assumptions 2012 scheme 2015 scheme

Fair value at grant date (US$) 0.012 0.025 Share price at grant date (US$) 0.063 0.092 Exercise price (US$) 0.063 0.092 Expected volatility 0.75% 1.73% Expected life (number of years) 4 5 Expected dividends 6% 3.24% Risk-free interest rate 11.8% 11.8%

The expected volatility is based on both historical average share price. 2017 Annual Report 206 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

39 Retained earnings and other reserves 2017 2016

Retained earnings 216,142 230,847 Other reserves (449,355) (767,255)

(233,213) (536,408) a) Retained earnings Movements in retained earnings were as follows: At 1 January 230,847 529,427 Profit / (loss) for year 178,585 (249,898) Dividend — (48,200) Transfer to general banking reserve (17,049) 6,827 Transfer to statutory reserve (45,450) (19,346) Transfer from share option (344) 12,037 Transfer to other Group reserve (130,447) —-

At 31 December 216,142 230,847 b) Other Reserves General banking reserve 357,344 340,295 Statutory reserve 432,856 387,406 Revaluation reserve – Available-for-sale investments 5,513 (36,652) Convertible bond – equity component 7,779 9,195 Revaluation reserve–- property and equipment 141,565 138,454 Share option reserve 938 594 Remeasurements of post-employment benefit obligations (9,175) (3,111) Translation reserve (1,620,903) (1,707,717) Other Group reserves 234,728 104,281

(449,355) (767,255)

Movements in the other reserves were as follows: i) General banking reserve At 1 January 340,295 347,122 Transfer from retained earnings 17,049 (6,827)

At 31 December 357,344 340,295

The general banking reserve represents transfers from retained earnings for unforeseeable risks and future losses. General banking reserves can only be distributed following approval by the shareholders in general meeting. ii) Statutory reserve At 1 January 387,406 368,060 Transfer from retained earnings 45,450 19,346

At 31 December 432,856 387,406

Statutory reserves represents accumulated transfers from retained earnings in accordance with relevant local banking legislation. These reserves are not distributable. Financial Statements 207

39 Retained earnings and other reserves (continued) iii) Share option reserve 2017 2016

At 1 January 594 12,631 Transfer to retained earnings 344 (12,037)

At 31 December 938 594

Statutory reserves represents accumulated transfers from retained earnings in accordance with relevant local banking legislation. These reserves are not distributable. iv) Remeasurements of post-employment benefit obligations At 1 January (3,111) 3,042 Actuarial gains on retirement benefit (6,064) (6,153)

At 31 December (9,175) (3,111) v) Revaluation reserves – Available-for-sales At 1 January (36,652) (5,175) Net gain/(loss) from changes in fair value 43,970 (54,135) Deferred income taxes (Note 36) (1,805) 22,658

At 31 December 5,513 (36,652)

The revaluation reserve shows the effects from the fair value measurement of available-for-sale investment securities after deduction of deferred taxes. vi) Convertible Loan – equity component Movement in equity component of convertibles were as follows: At 1 January 9,195 9,494 Exercise of the convertible option (1,416) (299)

At 31 December 7,779 9,195

This reserve shows the residual equity component after deducting from the fair value of the instrument as a whole the amount separately determined as the liability (debt) component on convertible loan. This is in line with IAS 32 para. 31. vii) Revaluation Reserve – property and equipment At 1 January 138,454 137,937 Adjustment opening balance Net gains from changes in fair value 6,255 6,221 Deferred income taxes (3,144) (5,704)

At 31 December 141,565 138,454 viii) Translation reserve At 1 January (1,707,717) (1,086,227) Currency translation difference arising during the year 86,814 (621,490)

At 31 December (1,620,903) (1,707,717) ix) Other Group reserve At 1 January 104,281 — Movement arising during the year 130,447 104,281

At 31 December 234,728 104,281 2017 Annual Report 208 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

40 Cash and cash equivalents For the purposes of statement of cash flows, cash and cash equivalents comprise the following balances with less than three months maturity. 2017 2016

Cash and balances with central banks (Note 16) 1,472,178 1,435,894 Treasury Bills and other eligible bills (Note 21) 338,252 390,294 Deposits with other banks (Note 19) 1,036,270 920,998 Deposits from other banks (Note 30) (881,089) (726,347)

1,965,611 2,020,838 41 Group entities a) Significant subsidiaries Country of incorporation Ownership interests 2017 2016

Ecobank Nigeria Limited Nigeria 100% 100% Ecobank Ghana Limited Ghana 69% 69% Ecobank Cote d’Ivoire Cote d’Ivoire 75% 94% Ecobank Burkina Burkina Faso 85% 85% Ecobank Senegal Senegal 80% 80% Ecobank Benin Benin 79% 79% Ecobank Cameroon Cameroon 80% 80% Ecobank Mali Mali 93% 93% Ecobank Togo Togo 82% 82% b) Non-controlling interests in subsidiaries The following table summarises the information relating to the Group’s subsidiary that has material non-controlling interests (NCI), before any intra-group eliminations. Entity Ecobank Ghana Ecobank d’Ivoire Ecobank Burkina

NCI percentage 31% 31% 25% 4% 15% 15% Period 2017 2016 2017 2016 2017 2016 Loans and advances to customers 598,238 832,447 1,229,365 893,617 732,948 601,890 Investment securities 546,238 73,128 850,779 598,837 433,957 283,280 Other assets 912,534 1,001,814 633,434 656,900 483,682 455,243 Deposits from customers 1,481,955 1,295,572 1,487,239 1,174,366 1,013,620 900,958 Other liabilities 340,170 381,238 2,506,881 2,050,658 1,553,448 1,264,097 Net assets 234,884 230,580 206,698 98,696 97,138 76,316

Carrying amount of NCI 72,979 71,641 51,674 3,948 14,571 11,447

Operating income 256,397 305,653 136,684 118,577 78,238 68,833 Profit before tax 82,308 117,170 50,166 41,646 24,265 25,029 Profit after tax 58,246 83,038 49,960 36,605 22,648 21,539 Total comprehensive income 70,232 80,058 55,432 42,471 25,078 18,758

Profit allocated to NCI 18,097 25,800 12,490 1,464 3,397 3,231

Cashflows from operating activities 473,757 91,870 77,983 645,987 92,395 336,117 Cashflows from investing activities (565,035) (77,912) (165,845) (319,012) (116,282) (122,625) Cashflows from financing activities (97,196) (48,471) (18,279) 39,092 (15,243) (9,286)

Net increase/(decrease) in cash and cash equivalents (188,474) (34,513) (106,140) 366,068 (39,130) 204,206 Financial Statements 209

41 Group entities (continued) c) Significant restrictions The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios. d) Involvement with unconsolidated structured entities The table below describes the structured entities in which the Group does not hold an interest but is a sponsor. The Group considers itself a sponsor of a structured entity when it facilitates the establishment of the structured entity. These entities were not consolidated in 2017.

Name Type of structured entity Nature and purpose Investment held by the Group

FCP UEMOA DIVERSIFIE Asset-backed structured entity a) Pr ovide investors with an exposure None (incorporated in Ivory Cost in 2007) to a referenced asset such as a debt instrument FCP UEMOA RENDEMENT Asset-backed structured entity b) Gener ate fees for agent activities None (incorporated in Ivory Cost in 2007) and funding for the Group’s lending activities.

The table below sets out information as at 31 December 2017 in respect of structured entities that the Group sponsors, but which the Group does not have an interest.

FCP UEMOA FCP UEMOA Asset-backed structured entities DIVERSIFIE RENDEMENT

Fee income earned from asset-backed structured entities 914 124 *Carrying amount of assets transferred by third parties to conduit vehicle 59,899 4,194 Carrying amount of the financing received from unrelated third parties 67,488 5,052

The carrying value is stated at book value (costs less impairment)

The Group does not have any exposure to any loss arising from these structured entities.

42 Related party transactions The related party is the key management personnel, their related companies and close family relations. The key management personnel included directors (executive and non-executive), and other members of the Group Executive Committee.

A number of banking transactions are entered into with related parties in the normal course of business and at commercial terms. These transactions include loans, deposits, and foreign currency transactions. The volumes of related party transactions, outstanding balances at the end of the period, and relating expense and income for the period as follows:

Loans and advances to related parties Directors and key management personnel Related companies 2017 2016 2017 2016

Loans outstanding at 1 January 177 — — 16,202 Loans issued during the year — 445 — 830 Loan repayments during the year — (268) — (17,398) Exchange difference — — — —

At 31 December 177 177 — (366)

Interest income earned (28) 9 — —

No provisions have been recognised in respect of loans given to related parties (2016: nil).

The loans issued to executive directors during the year and related companies controlled by directors were given on commercial terms and market rates. 2017 Annual Report 210 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

42 Related party transactions (continued) Deposits from related parties Directors and key management personnel Related companies 31 Dec. 2017 31 Dec. 2016 31 Dec. 2017 31 Dec. 2016

Deposits at 1 January 2,381 2,204 — — Deposits received during the year — 445 — Deposits repaid during the year — (268) — Exchange difference — — — —

At 31 December 2,381 2,381 — —

Interest expense on deposits — 36 — —

31 Dec. 2017 31 Dec. 2016

Directors’ remuneration Total directors fees and allowances 1,498 1,481

Key management compensation Salaries and other short term benefits — —

Related party credits During the period the Group through its subsidiaries granted various credit facilities to directors and companies whose directors are also directors of ETI at rates and terms comparable to other facilities in the Group’s portfolio. An aggregate of US$16 million was outstanding on these facilities at the end of the reporting period. The status of performance of each facility is as shown below:

Name of company/ individual Relationship Type Status Nature of security Amount BIDC Director related Bonds Non-impaired Unsecured 15,963

15,963

Parent The parent company, which is also the ultimate parent company, is Ecobank Transnational Incorporated Financial Statements 211

43 Banking subsidiaries Ownership interests

Ecobank Cameroon 80% Ecobank Chad 74% Ecobank Sao Tomé 100% Ecobank Central Africa 75% Ecobank Congo Brazzaville 89% Ecobank Gabon 75% Ecobank Guinea Equatoriale 60% Ecobank Benin 79% Ecobank Burkina Faso 85% Ecobank Côte d’Ivoire 75% Ecobank Mali 93% Ecobank Niger 70% Ecobank Sénégal 80% Ecobank Togo 82% Ecobank Guinea Bissau 84% Ecobank Cape Verde 99% Ecobank Ghana 69% Ecobank Guinea 83% Ecobank Liberia 100% Ecobank Sierra Leone 100% Ecobank Gambia 97% Ecobank Rwanda 94% Ecobank Tanzania 100% Ecobank Kenya 100% Ecobank Burundi 75% Ecobank Uganda 100% Ecobank South Sudan 100% Ecobank Nigeria 100% Ecobank Malawi 96% Ecobank Congo RDC 100% Ecobank Zambia 100% Ecobank Zimbabwe 100% Ecobank Mozambique 98%

Non Banking subsidiaries SOFIPE Burkina 85% Ecobank Micro Finance Sierra Leone 100% EDC Holding 91% EKE Property Limited Kenya 100% Treasury Bond Protected Investment Company (TBPIC) 100% ECB One 100% FCP Obligataire 80% E Process international 100% EBI SA (France) 100% Bewcastle 100% Ecobank Specialised Finance Company LLC 100% 2017 Annual Report 212 Notes to consolidated financial statements

(All amounts in US dollar thousands unless otherwise stated)

44 Major business acquisitions There were no major business acquisitions in 2017.

45 Events after reporting date No significant event has occurred after the reporting date that could have a material impact on the financial statements. Financial Statements 213 Five-year summary financials

(All amounts in US dollar thousands unless otherwise stated)

2017 2016 2015 2014 2013

At the year end Total assets 22,431,604 20,510,974 23,553,919 24,243,562 22,532,453 Loans and advances to customers 9,357,864 9,259,374 11,200,349 12,311,642 11,421,605 Deposit from customers 15,203,271 13,496,720 16,427,553 17,436,970 16,489,904 Total equity 2,172,083 1,764,078 2,523,245 2,655,085 2,134,648

For the year Revenue 1,831,202 1,972,263 2,105,975 2,279,881 2,003,456 Profit / (loss) before tax 288,340 (131,341) 205,239 519,549 221,778 Profit / (loss) for the Year 228,534 (204,958) 107,464 394,770 147,773 Profit / (loss) attributable to owners of the parent 178,585 (249,898) 65,539 337,863 95,541

Earnings per share – basic (cents) 0.72 (1.01) 0.28 1.69 0.6 Earnings per share – diluted (cents) 0.72 (1.01) 0.28 1.6 0.56 Dividend per share (cents) — — 0.20 — —

Return on average equity (%) 11.6% (9.6%) 4.2% 16.5% 6.9% Return on average assets (%) 1.1% (0.9%) 0.4% 1.7% 0.73% Cost-to-income ratio (%) 61.8% 62.7% 64.9% 65.4% 70.1%

* Results for 2013 to 2015 are shown for continuing operations.. 2017 Annual Report 214 Parent Company’s financial statements

(All amounts in US dollar thousands unless otherwise stated)

Statement of comprehensive income Year ended 31 December 2017 2016

Interest income 36,356 25,109 Finance cost (55,502) (51,259)

Net interest income (19,146) (26,150)

Net fees and commission income 31,674 31,338 Other operating income/(loss) 6,707 (5,841) Personnel expense (33,496) (40,222) Depreciation and amortization expense (4,517) (5,276) Other operating expense (15,307) (17,644) Foreign exchange translation loss (565) (2,615)

(34,650) (66,410)

Provision for other assets (38,757) (110,494)

Operating loss for the year (73,407) (176,904)

Share of loss of associates (1,067) (2,249) Share of profit 302,754 192,211 Share of affiliate’s tax (46,174) (51,737)

Profit for the year 182,106 (38,679)

Other comprehensive income:

Items that will be reclassified to profit or loss: Share of affiliates other comprehensive income/(loss) 106,877 (33,949) Net valuation (loss)/gain on available for sale securities (82,966) 36,238 Other comprehensive income for the year 23,911 2,289

Total comprehensive income/(loss) for the year 206,017 (36,390) Financial Statements 215

Statement of financial position As at 31 December 2017 Restated 2016 Restated 2015

Assets

Loans and advances to banks 603,203 269,461 431,075 Investment in securities: available- for-sale 68,183 151,149 114,911 Share of OCI 72,928 (33,949) — Other assets 129,433 301,631 161,526 Investment properties 11,895 12,144 21,751 Investment in associates 6,836 8,212 12,889 Investment in subsidiaries and structured entities 2,186,088 1,763,390 2,258,265 Goodwill 227,440 228,186 336,775 Intangible assets 46 18 92 Property and equipment 43,780 46,589 50,783

Total assets 3,349,832 2,746,831 3,388,067

Liabilities Other liabilities 49,375 65,794 196,046 Borrowed funds 1,149,025 952,194 788,275 Retirement benefit obligations 16,176 13,879 13,107

Total liabilities 1,214,576 1,031,867 997,428

Equity Share capital 618,255 618,255 602,497 Share premium 1,499,144 1,499,144 1,430,338 Retained earnings 289,334 107,228 181,726 Other reserves (271,477) (509,663) 176,078

Total equity 2,135,256 1,714,964 2,390,639

Total liabilities and equity 3,349,832 2,746,831 3,388,067 2017 Annual Report 216 Parent Company’s financial statements

(All amounts in US dollar thousands unless otherwise stated)

Statement of changes in equity Retained Share capital Share premium earnings Other reserves Total

At 1 January 2016 602,497 1,430,338 181,726 176,078 2,390,639

Profit for the year — — (38,679) — (38,679) Exchange difference on translation of foreign operations — — — (2,428) (2,428) Net unrealized gain on available for sale investments — — — 2,289 2,289

Total Comprehensive loss — — (38,679) (139) (38,818)

Forfeited share — — 12,381 (12,381) — Dividend relating to 2015 — — (48,200) — (48,200) Ajustement due to equity accounting changes — — (673,565) (673,565) Share option granted — — — 344 344 Conversion of preference shares 15,758 68,806 — — 84,564

At 31 December 2016 618,255 1,499,144 107,228 (509,663) 1,714,964

Profit for the year — — 182,106 — 182,106

Exchange difference on translation of foreign operations — — — (309) (309) Net unrealized gain on available for sale investments — — — 23,911 23,911

Total comprehensive income — — 182,106 23,602 205,708

Adjustment — — — 215,656 215,656 Share option — — — 344 344 Equty component on convertible loan issued during the year — — — 5,084 5,084 Redemption of preference shares — — — (6,500) (6,500)

At 31 December 2017 618,255 1,499,144 289,334 (271,477) 2,135,256 Financial Statements 217

Statement of cash flows 2017 2016

Cash flows from operating activities

Profit/(loss) for the year 182,106 (38,679)

Adjustment for non cash items: Interest income (36,356) (25,109) Finance cost 55,502 51,259 Fair value loss on investment property 249 9,607 Share of associates loss 1,067 2,249 Ajustments (159,454) (42,101) Gain on disposal of property plant and equipment (53) (30) Depreciation and amortization 4,517 5,276 Amortization of government grant (192) (193) Provision for doubtful receivables 38,757 110,494 Share option vested during the year 344 344 Foreign exchange loss/(gain) on retirement benefit obligation 1,888 (417) Current service cost and interest on benefit obligation 409 1,188

88,784 73,888

Interest paid (49,178) (44,521) Interest received 36,356 25,109

Changes in working capital • other assets 133,441 (250,598) • other liabilities (16,226) (130,060) • Loans and advances (327,483) 171,476

Net cash used in operating activities (134,306) (154,706)

Cash flows from investing activities Purchase of property, plant and equipment and intangible assets (1,715) (1,017) Proceeds from the sale of property, plant and equipment 522 600 Addition to investment in subsidiaries (46,842) (28,000)

Net cash used in investing activities (48,035) (28,417)

Cash flows from financing activities Proceeds from borrowings 758,307 744,999 Repayment of borrowed funds (569,707) (506,205) Dividends paid — (45,809)

Net cash from financing activities 188,600 192,985

Net increase in cash and cash equivalents 6,259 9,862

Cash and cash equivalent at start of year 30,283 20,421

Cash and cash equivalents at end of year 36,542 30,283 2017 Annual Report 218

We encourage open and constructive dialogue with all our stakeholders about our products, services, financial and business performance, and, also about Ecobank’s role in society. Your indispensable feedback helps us to understand your expectations and address issues efficiently. Our aim is always focussed on providing our customers with exactly what they need whilst engendering stakeholder loyalty as we strive to reach our full potential across Africa. Corporate Information Corporate Information 219

Select Service

Transactions

30% 50% 75% 2017 Annual Report 220 Executive management As at 31 December 2017

Group Management Committee

Ade Ayeyemi Charles Kie Eddy Ogbogu Group Chief Executive Officer Regional Executive, Nigeria Group Executive, Operations and Technology

Charles Daboiko Julie Essiam Amin Manekia Regional Executive, Francophone West Africa Group Executive, Human Resources Group Executive, Corporate and Investment (UEMOA) & Corporate Affairs Bank Samuel Adjei Moustapha Fall Patrick Akinwuntan Regional Executive, Central, Eastern, and Group Head, Internal Audit Group Executive, Consumer Bank Southern Africa (CESA) Daniel Sackey Eric Jones Odhiambo Laurence do Rego Regional Executive, Anglophone West Africa Group Chief Risk Officer Group Executive, Commercial Bank (AWA) Greg Davis Madibinet Cisse Group Executive Director, Finance Group Head, Legal & Company Secretary

All country Managing Directors (African banking subsidiaries)

Jean Baptiste Siate Kouame Olivier Brou Alice Kilonzo-Zulu Angola Equitorial Guinea Rwanda Lazare Noulekou Gaelle Biteghe Dalton Costa Gonçalves Benin Gabon Sao Tome and Principe Cheick Travaly Josephine Ankomah Serge Ackre Burkina Faso Gambia Senegal Victor Noumoue Daniel Sackey Aina Moore Burundi Ghana Sierra Leone Tene Sonia Abo Moukaram Chanou Leonard Munene (Acting) Bissau Guinea Guinea (Conakry) South Sudan Gwendoline Abunaw Samuel Adjei Mwanahiba Muhammed Mzee Cameroon Kenya Tanzania Jose Mendes Georges Mensah-Asante Mamady Diakite Cape Verde Liberia Togo Sylvain Pendi-Bisseyou Charles Asiedu Clement Dodoo Central African Republic Malawi Uganda Alassane Sorgo Coumba Touré Kola Adeleke Chad Mali Zambia Ibrahim Aboubakar Bagarama Nadeem Cabral de Almada Moses Kurunjekwa Congo (Brazzaville) Mozambique Zimbabwe Yves Coffi Quam-Dessou Didier Correa Congo (Democratic Republic) Niger Charles Daboiko Charles Kie Côte D’Ivoire Nigeria Corporate Information 221

Heads of Representative Offices and Paris Subsidiary

Amin Manekia South Africa (Johannesburg)

Ibrahima Diouf France (Paris)

George Edward United Kingdom (London)

Ara Bakjejian United Arab Emirates (Dubai)

Shen Li China (Beijing)

James R Kanagwa Ethiopia (Addis Ababa)

Disclaimer This annual report or any extract thereof including its abridged version could or may contain forward looking statements that are based on current expectations or beliefs, as well as assumptions about future events.

These forward looking statements involve known and unknown risks, uncertainties and other important factors that could in future cause actual results, performance or achievements of the Group to be materially different from those expressed or implied in the forward looking statements.

These forward looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning.

Such forward looking statements are based on assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operate in the future.

The Group expressly disclaims any obligation or undertaking to release any updates or revisions to any forward looking statements contained herein to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Ecobank has made every effort to ensure the accuracy of the information contained in this annual report relating to such forward looking statements and believes such information is reliable but does not warrant its completeness or accuracy. The Company shall not be held liable for errors of fact or opinion connected to such forward looking statements. This however does not exclude or restrict any duty or liability that Ecobank has to its customers under any regulatory system. 2017 Annual Report 222 Share capital overview

Share capital Ordinary shares Authorised share capital of 50,000,000,000 shares with a nominal value of 2.5 US cents ($0.025) per share, out of which 24,730,354,443 are issued and outstanding.

Major shareholders (as of 31 December 2017)

ean ata atinal an F iect an manae ns F SS set

Potential Dilutive securities ETI has a number of potential dilutive securities as outlined below. For more details please refer to the full 2017 Annual Report.

Opec Fund for International Development (OFID) – convertible and subordinated loan A total outstanding balance of $17.67 million in loans granted by OFID are convertible into ordinary shares. The conversion price is the lower of i) 10.41 $ cents plus a premium that varies from 30% to 50%, depending on exercise date; and ii) the prevailing market price, based on a 45 day average.

Conversion can occur any time from 15 June 2016 until 3 July 2019.

ETI $400 million convertible debt The $400 million convertible debt due 2022 will have a maturity of five (5) years from date of issuance, a coupon rate comprising a reference rate of 3-month LIBOR plus a spread of 6.46% (i.e. 3-month LIBOR + 6.46%), payable semi-annually in arrears. The debt will be convertible into ETI ordinary shares at an exercise price of 6.00 $ cents (NGN21.60, GHS0.26, XOF34.26 at current exchange rates for illustrative purposes only) during the conversion period of 19 October 2019 to 13 October 2022. These debt will be redeemed at 110% of principal amount if the conversion option is not exercised.

Share options These are options outstanding to staff and management in respect of 125 million shares

Ordinary share dividend history Financial Year Dividend per ordinary share (US$ cents) Total dividend (US$ thousands)

2006 3.0 18,355 2007 2.0 26,940 2008 0.2 17,500 2009 0.3 29,744 2010 0.4 39,653 2011 0.4 51,349 2012 0.4 68,849 2013 — — 2014 — — 2015 0.2 48,200 2016 — — 2017 –– –– Corporate Information 223

Listings Ecobank Transnational Incorporated’s (ETI’s) ordinary shares are listed on three stock markets in Africa:

Stock Market NSE GSE BRVM Location Lagos, Nigeria Accra, Ghana Abidjan, Côte d'Ivoire

Share price as of 31 December 2017 NGN 17.00 GHS 0.16 XOF 17.00

% change during 2016 65% 60% (32)%

Average daily trading volume (units) 3,228,256 72,306 786,437

% change from 2016 20% 29% 10%

ETI share price (NGN) performance relative to the NSE All-Share and Banking 10 Indices (All data rebased to 100) The graph below plots the performance of ETI’s Nigerian Stock Exchange (NSE) share price and the NSE All- Share and NSE Banking 10 Indices over the course of 2017. The NSE All-Share Index tracks the general market movement of all listed equities, including those on the Alternative Securities Market (ASeM), regardless of market capitalisation. The NSE Banking 10 Index comprises the largest 10 banking stocks. ETI is a component of both indices

2017 ETI share price (NGN) performance relative to the NSE All-Share and Banking 10 Indices (All data rebased to 100)

S anin S ll Sae

F S

Source: Bloomberg 2017 Annual Report 224 Share capital history

Year Operation Additional shares Share capital

2006 Private Placement 53,648,147 454,920,279 2006 Conversion of Convertible Debt 47,500,000 502,420,279 2006 5th Bonus Issue (1:5) 101,533,183 603,953,462 2006 Private Placement 5,248,881 609,202,343 2006 Issue for Market Making at Listing 1,801,205 611,003,548 2006 Employee Share Issue 1,284,449 612,287,997 2007 Share Split (2:1) 612,287,997 1,224,575,994 2007 6th Bonus Issue (1:10) 122,457,599 1,347,033,593 2008 Share Option (CEO) 7,920,000 1,354,953,593 May 2008 Share Split (5:1) 5,419,814,372 6,774,767,965 Aug-Oct 2008 Rights Issue 681,958,227 7,456,726,192 Aug-Oct 2008 Public Offer 1,275,585,719 8,732,311,911 Nov 2009 Conversion of the IFC Convertible loan 1,181,055,863 9,913,367,774 Nov 2011 Issue to Oceanic Shareholders 2,488,687,783 12,402,055,557 Dec 2012 Issue to Ecobank Nigeria minority shareholders 401,524,001 12,803,579,558 Dec 2012 Share Option (CEO) 33,572,650 12,837,152,208 Jul 2012 Issue to GEPF-PIC 3,125,000,000 15,962,152,208 Sep 2012 Issue to IFC CAP FUND 596,590,900 16,558,743,108 Sep 2012 Issue to AFRICA CAP FUND 340,909,100 16,899,652,208 Sep 2012 Issue to IFC ALAC HOLDING COMPANY II 312,500,000 17,212,152,208 Jul 2014 Issue to IFC CAP FUND 628,742,514 17,840,894,722 Jul 2014 Issue to IFC ALAC HOLDING COMPANY II 209,580,838 18,050,475,560 Oct 2014 Issue to NEDBANK GROUP LIMITED 4,512,618,890 22,563,094,450 Dec 2014 Share Option Staff 425,000 22,563,519,450 Jun 2015 Share Option Staff 3,300,000 22,566,819,450 Jul 2015 Conversion of preference shares 26,988,980 22,593,808,430 Jul 2015 Bonus Issue 1,506,220,104 24,100,028,534 Oct 2016 Conversion of preference shares1 630,325,909 24,730,354,443

1. The converted preference shares are yet to be listed. Corporate Information 225 Holding company and subsidiaries

Headquarters: 11. Equatorial Guinea 21. Mozambique 32. Zambia Ecobank Transnational Incorporated Avenida de la Independencia Avenue Vladimir Lenine, nº 210 – 22768 Thabo Mbeki Road 2365, Boulevard du Mono APDO.268, Malabo – Cidade de Maputo P.O. Box 30705 B.P. 3261, Lomé – Togo Républica de Guinea Ecuatorial Maputo – Mozambique Lusaka – Zambia Tel: (228) 22 21 03 03 Tel: (240) 333 098 271 Tel: (258) 21 31 33 44 Tel: (260) 211 67 390 (228) 22 21 31 68 (240) 555 300 203 Fax: (258) 21 31 33 45 (260) 211 250 056 Fax: (228) 22 21 51 19 (260) 211 250 057 12. Gabon 22. Niger Fax: (260) 211 250 171 1. Benin 214, Avenue Bouët Angle Boulevard de la Liberté Rue du Gouverneur Bayol 9 Étages, Montagne Sainte et Rue des Bâtisseurs 33. Zimbabwe 01 B.P. 1280, Cotonou – Benin B.P. 12111 B.P.: 13804, Niamey – Niger Block A, Sam Levy’s Office Park Tel: (229) 21 31 30 69 Libreville – Gabon Tel: (227) 20 73 71 81/82 2 Piers Road (229) 21 31 40 23 Tel: (241) 01 76 20 71 Fax: (227) 20 73 72 03/04 P.O. Box BW1464, Borrowdale Fax: (229) 21 31 33 85 (241) 01 76 20 73 Harare – Zimbabwe Fax: (241) 01 76 20 75 23. Nigeria Tel: (263–4) 851644-9/885 231 2. Burkina Faso Plot 21, Ahmadu Bello Way Fax: (263–4) 851630 49, Rue de l’Hôtel de Ville 13. The Gambia P.O.: Box 72688, Victoria Island 01 B.P. 145 42 Kairaba Avenue Lagos – Nigeria 34. EBI SA Groupe Ecobank Ouagadougou 01 – Burkina Faso P.O. Box 3466 Tel: (234) 1 271 0391/92 Les Collines de l’Arche Tel: (226) 25 33 33 33 Serrekunda – The Gambia Fax: (234) 1 271 0111 Immeuble Concorde F (226) 25 49 64 00 Tel: (220) 439 90 31 – 33 76 route de la Demi-Lune Fax: (226) 25 31 89 81 Fax: (220) 439 90 34 24. Rwanda 92057 Paris La Défense Cedex France 314, KN4 Avenue Tel: (33) 1 70 92 21 00 3. Burundi 14. Ghana P.O Box 3268 Fax: (33) 1 70 92 20 90 6, Rue de la Science 2 Morocco Lane, Off Independence Kigali – Rwanda B.P. 270, Bujumbura – Burundi Avenue, Ministerial Area Tel: (250) 788 16 10 00 35. EBI SA Representative Office Tel: (257) 22 20 8100 P. O. Box AN16746 Accra, Ghana (250) 788 16 33 00 2nd Floor, 20 Old Broad Street Fax: (257) 22 22 5437 Tel: (+233) 302 251 720 / 23 / 24 Fax: (250) 252 50132 London EC2N 1DP, United Kingdom Fax: (+233) 302 251 734 Tel: +44 (0)20 3582 8820 4. Chad 25. São Tomé and Príncipe Fax: +44 (0)20 7382 0671 Avenue Charles de Gaulle 15. Guinea (Conakry) Edifício HB, Travessa do Pelourinho B.P. 87, N’Djaména – Chad Immeuble Al Iman C.P. 316 36. Ecobank Office in China Tel: (235) 22 52 43 14/21 Avenue de la République São Tomé – São Tomé e Príncipe Representative Office Fax: (235) 22 52 23 45 B.P. 5687 Tel: (239) 222 21 41 Suite 611, Taikang International Tower Guinea – Conakry Fax: (239) 222 26 72 2 Wudinghou, Financial Street 5. Cameroon Tel: (224) 631 70 14 34 Xicheng District, 100033 Rue Ivy French– Bonanjo (224) 631 70 14 35 26. Senegal Beijing, China B.P 582, Douala – Cameroon Fax: (224) 30 45 42 41 Km 5 Avenue Cheikh Anta DIOP Tel: (8610) 66 29 00 98 Tel: (237) 33 43 82 51 B.P. 9095, Centre Douanes Fax: (8610) 66 29 05 33 (237) 33 43 82 53 16. Guinea-Bissau Dakar – Senegal Fax: (237) 33 43 84 87 Avenue Amilcar Cabral Tel: (221) 33 859 99 99 37. Ecobank Office in South Africa B.P. 126, Bissau – Guinea-Bissau Fax: (221) 33 859 99 98 Block F, 8th Floor 6. Cape Verde Tel: (245) 95 560 40 26 135 Rivonia Road Avenida Cidade de Lisboa Fax: (245) 320 73 63 27. Sierra Leone Sandown 2196 CP 374C 3 Charlotte Street Johannesburg – South Africa Praia – Cape Verde 17. Kenya Freetown – Sierra Leone Tel: (27) 11 505 0300 Tel: (238) 260 36 60 Fortis Office Park Tel: (232) 88 141 015 Fax: (27) 11 783 6852 Fax: (238) 261 82 50 Muthangari Drive, Nairobi Fax: (232) 22 290 450 P.O. Box 49584, Code 00100 38. Ecobank Office in Dubai 7. Central African Republic Nairobi – Kenya 28. South Sudan Representative Office Place de la République Tel: (254) 20 288 30 00 Koita Complex, Ministries Road, Level 26d, Jumeirah Emirates Towers B.P. 910 Bangui – République (254) 20 496 80 00 P.O. Box 150, Juba Shaikh Zayed Road, P.O. Box: 29926 Centrafricaine (254) 719 098 000 South Sudan Dubai – UAE Tel: (236) 21 61 00 42 Fax: (254) 20 288 33 04 Tel: (211) 922 018 018 Tel: (971) 4 327 6996 Fax: (236) 21 61 61 36 (211) 922 118 118 Fax: (971) 4 327 6990 18. Liberia 8. Congo Sinkor 11th Streets 29. Tanzania 39. Ecobank Angola Immeuble de l’ARC, 3ème étage Tubman Boulevard Acacia Building Edificio SIGMA Avenue du Camp P.O. Box 4825 Plot no. 84, Kinondoni Road Rua Centro de Convenções – B.P. 2485, Brazzaville – Congo 1000 Monrovia 10 – Liberia P.O.Box 20500, Via S8 Talatona, Tel: (242) 06 621 08 08 Tel: (231) 886 514 298 Dar es Salaam – Tanzania Luanda – Angola Tel: (255) 22 292 3471 9. Côte d’Ivoire (231) 886 974 494 Tel: (244) 933 451 159 Cel: (231) 886 484 116 Fax: (255) 22 292 3470 Immeuble Alliance 40. Ecobank Office in Ethiopia Avenue Houdaille 19. Malawi 30. Togo Gerdi Rd Yerer Ber Area, Place de la République Ecobank House 20, Avenue Sylvanus Olympio SAMI Building, 6th Floor 602A 01 B.P. 4107 – Abidjan 01 Corner Victoria Avenue and B.P. 3302 P.O. Box 90598 Côte d’Ivoire Henderson Street, Private Bag 389 Lomé – Togo Addis Ababa – Ethiopia Tel: (225) 20 31 92 00 Chichiri, Blantyre 3 – Malawi Tel: (228) 22 21 72 14 Tel: (251) 116 291 101 (225) 20 21 10 41 Tel: (265) 01 822 099 Fax: (228) 22 21 42 37 Cell: (251) 934 169 784 Fax: (225) 20 21 88 16 Fax: (265) 01 820 583 31. Uganda Fax: (251) 116 291 425 10. Democratic Republic 20. Mali Plot 4, Parliament Avenue eProcess International SA of the Congo Place de la Nation P.O. Box 7368 2365, Boulevard du Mono 47, Avenue Ngongo Lutete Quartier du Fleuve Kampala – Uganda B.P. 3261, Lomé –Togo Gombe – RD Congo B.P. E1272 Tel: (256) 417 700 100 Tel: (228) 22 22 23 70 B.P. 7515, Kinshasa Bamako – Mali Fax: (256) 312 266 079 Fax: (228) 22 22 24 34 Tel: (243) 99 60 16 000 Tel: (223) 20 70 06 00 Fax: (243) 99 60 17 070 Fax: (223) 20 23 33 05 2017 Annual Report 226 Shareholder contacts

Questions about your shares? To buy or sell shares in ETI Other investor queries Please contact the Registrars Nigeria For other queries about investing in ETI: for queries about: EDC Securities Limited • Missing dividends EDC Securities Limited Investor Relations • Lost share certificates 19A Adeola Odeku Street Ecobank Transnational Incorporated Victoria Island 2365, Boulevard du Mono • Estate questions Lagos, Nigeria B.P. 3261, Lomé – Togo • Change of address on the share register Tel: (234) 1 270 8955 Tel: (228) 22 21 03 03 • Direct payment of dividends into (234) 1 271 3407 Fax: (228) 22 21 51 19 bank accounts Contact: Josephine Onwubu Contact: Ato Arku • Eliminating duplicate mailings of [email protected] [email protected] shareholder materials • Uncashed dividend cheques. Côte d’Ivoire Company Secretary EDC Investment Corporation Madibinet Cisse Immeuble Alliance 2365, Boulevard du Mono Registrars Avenue Houdaille B.P. 3261, Lomé – Togo Place de la République Abidjan Tel: (228) 22 21 03 03 01 BP 4107 Abidjan 01 – Côte d’Ivoire (228) 22 21 31 68 EDC Investment Corporation Tel: (225) 20 21 10 44 Fax: (228) 22 21 51 19 Immeuble Alliance, 4ème étage (225) 20 31 92 24 Contact: [email protected] Avenue Terrasson de Fougères Adonis Seka 01 BP 4107 – Abidjan 01 [email protected] Côte d’Ivoire Tel: (225) 20 21 10 44 Cameroon Fax: (225) 20 21 10 46 Contact : Moise Cocauthrey EDC Investment Corporation [email protected] 2ème Etage, Immeuble ACTIVA Rue Prince de Galles, Akwa Accra BP 15385 Douala – Cameroon Tel: (237) 233 43 13 71 GCB Bank Limited Contact: [email protected] Share Registry Department Thorpe Road, High Street P. O. Box 134, Accra-Ghana Ghana Tel: (233) 0 302 668 656 EDC Stockbrokers Ltd Fax: (233) 0 302 668 712 2nd Floor, 2 Morocco Lane, Contact: Michael K. Wereko Off Independence Avenue, Ministerial Area [email protected] P. O. Box AN16746 Accra, Ghana [email protected] Tel: (+233) 302 251 720 / 23 / 24 Fax: (+233) 302 251 734 Lagos Email: [email protected] GTL Registrars Limited 2, Burma Road, Apapa Lagos – Nigeria Tel: (234) 1 279 3160 (234) 1 279 3161 (234) 1 279 3162 Contact: [email protected] Corporate Information 227 Customer contact centres

For all enquiries, kindly email or call one of our Services: Contact Centres listed below: Balance enquiry All countries: • Account balance [email protected] • Transaction confirmations • Transfer confirmations Cameroon Card services Please dial: Toll free (Cameroon only): • Card activation for online transaction (237) 233 43 13 63 8100 • Pin resets • Card blocking

Complaints • ATM complaints Côte d’Ivoire • Card complaints Please dial: Toll free (Côte d’Ivoire only): • Transaction complaints (225) 22 40 02 00 800 800 88 (MTN, Orange, • Service/product delivery delays [email protected] CITelecom, Moov) • Staff attitude [email protected]

General enquiries • Information on Ecobank services/products • Interest/exchange rates Ghana • Directions to ATMs/branches Please dial: Toll free (Ghana only): • Account opening requirements (233) 302 231 999 3225 (MTN, Airtel, Vodafone) • Branch contacts • Fees and charges

Kenya Please dial: Toll free (Kenya only): (254) 020 288 3000 0800 221 221 8

Nigeria Please dial: Toll free (Nigeria only): (234) 700 500 0000 0800 326 2265 (0800ECOBANK) [email protected] 2017 Annual Report 228 Notes 229 Notes 2017 Annual Report 230 Notes

Ecobank Transnational Incorporated 2365, Boulevard du Mono B.P. 3261, Lomé – Togo ecobank.com