UT Bank Limited Report and financial statement 2012
Contents Page
Directors, officials and registered office 2
Corporate governance information 3 - 4
Directors report 5
Statement of directors' responsibilities 6
Independent auditors' report 7- 8
Statement of comprehensive income 9
Statement of financial position 10
Statement of changes in equity 11
Statement of cash flows 12
Notes to the financial statements 13 - 52
1 UT Bank Limited Directors, officials and registered office
Directors: Joseph Nsonamoah - Chairman Prince Kofi Amoabeng - Chief Executive Officer Pearl Esua-Mensah - Executive Director Linda Osei Akoto - Non Executive Director Martyn Mensah - Non Executive Director Charles Aidoo - Non Executive Director
Secretary: Mary Kessie
Registered office: 25B Manet Towers P. O. Box 14776 Accra
Solicitors: Rosemary Sahnoon Gwendy Bannerman
Auditors: Deloitte & Touche Chartered Accountants 4 Liberation Road P.O. Box GP 453 Accra
Tax Consultants: BakerTilly Andah & Andah C 645/3 4 Crescent Asylum Down P. O Box AN 5845 Accra, Ghana
Bankers: Bank of Ghana Ghana International Bank PLC BHF-Bank Aktiengesellschaft Standard Chartered Bank
2 UT Bank Limited Corporate governance statement
Introduction
UT Bank Limited (the Bank) operates in a highly regulated industry and therefore recognizes the importance of complying with legislation, regulation and codes of best practice. The Bank is committed to business integrity and professionalism in all its activities. As part of this commitment the Board supports the highest standards of corporate governance and the development of best practice.
UT Bank Limited has adopted its own internal corporate governance guidelines, which is embodied in the Bank's governance practices. These practices are constantly being monitored to ensure that they are the best fit for the Bank and serve to enhance business and community objectives.
The Board of Directors
The Board effectively sets the strategic direction for leading and controlling the Bank and monitoring the activities of the Executive Management. The Board also represents and promotes the interests of stakeholders with a view to maintaining and adding long-term value to UT Bank and its shareholders wealth.
The Directors continue to receive training in order to keep abreast with currents issues. In addition to Corporate Governance, the Board of Directors have also attended training on Information Security Systems and Anti-Money Laundering (AML).
The Board consists of a Non-Executive Chairman, three (3) Non-Executive Directors of whom one is an Independent Director and two (2) Executive Directors. The Non- Executive Directors are independent of Management and free from any business or other relationships with the Bank which could materially interfere with the exercise of their independent judgment. The Chief Executive Officer is a separate individual from the Chairman and implements the management strategies and policies adopted by the Board. The Board meets at least once every quarter i.e. 4 times a year. The Board met six (6) times in the year 2012.
The Board has delegated various aspects of its work to the following committees:
The Audit, Risk and Compliance Committee
The Audit Committee was reconstituted and renamed the Audit, Risk and Compliance Committee comprising three Non-Executive members; Mr. Charles Aidoo (Chairman), Mr. Martyn Mensah and Mrs. Linda Osei Akoto, an Independent Non-Executive Director. The Heads of Internal Audit, Risk Management and Compliance are ordinarily in attendance at the meetings.
The Committee is responsible for authorizing, directing and reviewing the programme of the Internal Audit Unit, reviewing the Bank's compliance with financial and risk management control systems as well as reviewing the current statutory and audit reports. It also reviews significant financial and other risk exposures and the steps management takes to monitor, control, and report such exposures. The Committee met five (5) times in 2012.
The Credit and Finance Committee
The Finance and Credit Committee comprises two (2) Non-Executive Members and two (2) Executive Members. The Committee is chaired by Mr. Joseph Nsonamoah; the other members are Mr. Prince Kofi Amoabeng, Mrs. Pearl Esua-Mensah and Mr. Charles Aidoo. The Finance and Credit Committee is responsible for determining the broad Lending Policy, Loan Performance Monitoring and Recovery for the Bank. It is also responsible for reviewing and advising on the financial operations, budgets and liquidity of the Bank.
The Committee's main terms of reference include: i Setting the Bank's credit governance structure to ensure that there is a clearly defined mandate and delegated authorities within the structure. ii Reviewing the Bank's credit portfolio, including trends and provisions and ensuring alignment with the Bank's credit strategy and risk appetite. iii Noting and /or approving large exposures as required by the regulatory authorities.
The Governance and Strategy Committee The Governance and Strategy Committee comprised of two (2) Non-Executive Directors and one (1) Executive Director namely Mr. Joseph Nsonamoah, Mr. Martyn Mensah, and Mr. Prince Amoabeng.
The duties of the Committee are to review the composition of the Board annually and make recommendations where considered necessary to ensure that the Board comprises a majority of Non-Executive Directors with an appropriate mix of skills and experience. It is also responsible for recommending strategies for the Bank and for ensuring that the Bank upholds good corporate governance principles in all its operations.
3 UT Bank Limited
Corporate governance statement - continued
The HR, Performance and Remuneration Committee The HR, Performance and Remuneration Committee is made up of three (3) Non-Executive Directors namely Mr. Joseph Nsonamoah, Mr. Martyn Mensah, Mrs. Linda Osei- Akoto.
The Committee is responsible for reviewing all HR Policies to ensure that employees are treated fairly and work in very conducive environments. High standards of health and safety are upheld and promoted at the work place. It is also responsible for setting performance indicators for the Bank and determining the framework for remuneration of the Bank's Chairman and Executive Directors. The HR, Performance and Remuneration Committee also reviews and approves the remuneration packages, incentive plans and staff bonuses for the Bank.
Systems of Internal Control UT Bank has a well established internal control system for identifying, managing and monitoring risks. These are designed to provide reasonable assurance that the risks facing the Bank are being controlled.
The Internal Audit function of the Bank plays a role in providing objective views and continuing assessment of the effectiveness of the internal control systems in the business. The systems of internal controls are implemented and monitored by appropriately trained personnel and their duties and reporting lines are clearly defined.
Risk Management Framework
The Bank has a very active and efficient Risk Management and Compliance Department. This is because taking on various types of risk is integral to the banking business. Of the various types of risks the Bank is exposed to, the most important are credit risk, market risk (which includes liquidity and price risk), and operational risk. The identification, measurement, monitoring and controlling of risks remain a key focus area for the Bank. The policies approved by the Board form the governing framework for each type of risk. The Risk Management and Compliance function ensures that business activities are undertaken within this policy framework.
Business Continuity Plan
The Bank has Business Continuity and Disaster Recovery plans for its Head Office and branches that will enable it to respond to any unplanned and significant interruption in its essential business functions. It provides guidelines to fully recover operations and ensure that coordinated processes of restoring systems data and infrastructure are met until normal operations are resumed. The plan is tested regularly to assess the readiness of the Bank to respond to unplanned interruptions to its operations.
Code of Business Ethics
Management has communicated the principles of the Bank's Code of Conduct to its employees in the discharge of their duties. This code spells out the professionalism and integrity required for the Bank's operations which covers compliance with applicable laws, conflicts of interest, environmental issues, reliability of financial reporting and strict adherence to laid down principles in line with best practice.
Anti- Money Laundering
The Bank also has a well established Anti-Money Laundering Compliance Program in place. This is in compliance with the requirements of Ghana's Anti-Money Laundering Act, 2008(Act 749) and the Bank of Ghana's Guidelines on Anti-Money Laundering. These include Customer Due Diligence Procedures, record keeping and training of staff which would assist in reducing regulatory and reputational risk to its business. Members of staff are trained periodically on anti- money laundering policies.
4 UT Bank Limited Directors' report
The Directors have the pleasure in submitting to the members of the Bank, their report together with the financial statement for the year ending 31 December 2012.
Principal activities
The Bank is licensed to carry out universal banking business in Ghana. There was no change in the nature of the Bank's business during the year under review.
Results for the year end Dec. 2012 The financial results of the bank are set out below: GH¢'000
The net profit for the year before tax is 26,708 From which is deducted taxation of (5,777) ------giving a profit for the year after taxation of 20,931
To which must be added the balance brought forward on income surplus account of 8,539 ------29,470 Transfer to statutory reserves and credit risk reserve (10,264) ------Leaving a balance on the income surplus account of 19,206 Transfer to stated capital (3,000) ------Leaving a balance to be carried forward on the income surplus account of 16,206 ======Auditors In accordance with section 134 (5) of the Companies Code, 1963 (Act 179) the Auditors, Messrs Deloitte and Touche, continue in office as Auditors of the Bank.
On behalf of the board
…………………………. …………………………. Director Director
Statement of directors' responsibilities
The Directors are responsible for preparing financial statements for each financial year which give a true and fair view of the state of affairs of the bank at the end of the financial year and of the profit or loss of the bank for that year.
In preparing those financial statements, the directors are required to:
Select suitable accounting policies and then apply them consistently
Make judgments and estimates that are reasonable and prudent
State whether the applicable accounting standards have been followed
Prepare the financial statement on the going concern basis unless it is Inappropriate to presume that the Bank will continue in business
The Directors are responsible for ensuring that the Bank keeps accounting records which disclose with reasonable accuracy the financial position of the Bank and which enables them to ensure that the financial statement comply with International Financial Reporting Standards. They are responsible for taking such steps as are reasonably open to safeguard the assets of the Bank, and to prevent and detect fraud and other irregularities.
5 Independent auditors' report To the members of UT Bank Limited
We have audited the accompanying financial statements of UT Bank Limited on pages 9 to 52 which comprise the statement of financial position as at 31 December 2012, statement of comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, together with the summary of significant accounting policies and other explanatory notes, and have obtained all information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.
Directors' responsibility for the financial statement
The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with the Companies Code, 1963 (Act 179). These responsibilities include: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors' responsibilities Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statement are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statement are to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Bank as at 31 December 2012, and of its financial performance and statement of cash flow for the year then ended in accordance with the International Financial Reporting Standards and in the manner required by the Companies Code, 1963 (Act 179), and the Banking Act, 2004 (Act 673), as amended by the Banking Amendment Act, 2007 (Act 738).
6 Independent auditors' report - continued To the members of UT Bank Limited
Report on other legal and regulatory requirements
The Ghana Companies Code, 1963 (Act 179) requires that in carrying out our audit work we consider and report on the following matters. We confirm that: i. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; ii. in our opinion proper books of accounts have been kept by the Bank, so far as appears from our examination of those books; and iii. the statement of financial position and statement of comprehensive income of the Bank are in agreement with the books of accounts.
The Banking Act 2004 (Act 673) section 78 (2) requires that we state certain matters in our report. We hereby state that: - The accounts give a true and fair view of the state of affairs of the bank and its results for the year under review; - We were able to obtain all the information and explanation required for the efficient performance of our duties as auditors; - The Bank’s transactions were within its powers; and - The Bank has generally complied with the provisions in the Banking Act 2004(Act 673) and the Banking (Amendment) Act 2007 (Act 738).
Andrew Opuni-Ampong Deloitte & Touche Practising Certificate: Licence No. ICAG/P/1132 Licence No. ICAG/F/026 Chartered Accountants Accra, Ghana
……………………… 2013
7 UT Bank Limited Statement of comprehensive income For the year ending 31 December 2012
Note Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Interest income 4 134,110 99,901 Interest expense 5 (72,621) (50,232) ------Net interest income 61,489 49,669
Net fees and commissions income 6 29,753 18,607 Other operating income 7 13,421 10,681 ------Operating income 104,663 78,957
Operating expenses 8 (64,802) (47,413) Impairment charge and bad debt 10 (13,153) (14,244) ------Profit before taxation 26,708 17,300
Taxation 11(i) (5,777) (3,380) National Stabilization Levy 11(ii) - (855) ------Profit for the year 20,931 13,065 ======
Basic earnings per share 27 0.05 0.04 Diluted earnings per share 27 0.05 0.04
8 UT Bank Limited Statement of financial position As at 31 December 2012
Dec. 2012 Dec. 2011 Note GH¢'000 GH¢'000 Assets Cash and balances with Bank of Ghana 14 92,147 62,183 Due from other Banks and financial institutions 15 52,579 31,288 Loans and advances (Net) 16 679,648 475,232 Other assets 19 54,720 77,424 Income tax assets 11 278 938 Investment securities 20 68,988 31,480 Goodwill 25 10,397 10,397 Property, plant and equipment 17 21,033 18,109 Lease property - 2,060 Intangible assets 18 7,115 3,753 ------Total assets 986,905 712,864 ======Current Liabilities Customer deposit and current account 22 797,782 545,808 Interest payable and other liabilities 21 30,776 48,416 Due to other banks and financial institutions 23 2,000 44,970 Defined benefit obligation - 289 Deferred income 24 2,665 637 ------Total current liabilities 833,223 640,120 ------Long term liabilities Deferred tax 16 607 176 Term debt 26 24,640 11,339 ------25,247 11,515 ------Total liabilities 858,470 651,635 ------Shareholders' Funds Stated capital 85,275 36,000 Income surplus 16,206 8,539 Statutory reserve fund 25,462 14,996 Credit risk reserves 1,492 1,694 ------Total shareholders' fund 128,435 61,229 ------Total liabilities and shareholders' fund 986,905 712,864 ======
These financial statements were approved by the Board of Directors and signed on its behalf by:
……………………………. ……………………………. Director Director
9 UT Bank Limited Statement of changes in equity For the year ended 31 December 2012
Attributable to equity holders Stated Income Statutory Credit risk capital surplus reserve reserves Total GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000
Balance at 1 January 2011 30,000 11,275 8,464 1,348 51,087 Total recognised income - 13,065 - - 13,065 Transfer (from)/to reserve 6,000 (12,878) 6,532 346 - Dividend to shareholders - (2,923) - - (2,923) ------Balance at 31 December 2011 36,000 8,539 14,996 1,694 61,229 ======
Stated Income Statutory Credit risk capital surplus reserve reserves Total GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000
Balance at 1 January 2012 36,000 8,539 14,996 1,694 61,229 Total recognised income - 20,931 - - 20,931 Transfer (from)/to reserve 3,000 (13,264) 10,466 (202) - Shares on acquisition 46,275 - - - 46,275 ------Balance at 31 December 2012 85,275 16,206 25,462 1,492 128,435 ======
10 UT Bank Limited Statement of cash flow For the year ended 31 December 2012
Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Profit before tax 26,708 17,300 Adjustments for: Depreciation and amortisation 4,525 4,934 Loss on disposal 5 ------31,238 22,234 Increase in loans and advances (204,416) (159,935) Decrease in other assets 22,704 (29,871) Increase in customer deposit and current account 251,974 168,522 Due to other banks and financial institutions (42,970) 22,757 Decrease in interest payable & other payables (17,640) (7,680) Decrease in defined benefit obligation (289) - Increase in deferred income 2,028 (193) ------42,629 15,834
Tax paid (4,686) (3,989) ------(4,686) (3,989) ------Net cash (used in)/generated from operating activities 37,943 11,845 ------
Investing activities Purchase of property, plant and equipment (11,010) (6,452) Changes in lease property and equipment 2,060 804 Proceeds from sales of PP&E 194 Purchase of Investment securities (37,508) 4,500 Additional Shares 46,275 ------Net cash used in investing activities 11 (1,148) ======
Financing activities Dividend paid - (2,923) Increase in term debt 13,301 2,633 ------Net cash generated from financing activities 13,301 (290) ------Increase in cash and cash equivalents 51,255 10,407
Cash and cash equivalents at 1 January 93,471 83,064 Increase in cash and cash equivalents 51,255 10,407 ------Cash and cash equivalents at 31 December 144,726 93,471 ======
Analysis of cash and cash equivalents during the year Cash 92,147 62,183 Cash with other banks and financial institutions 52,579 31,288 ------144,726 93,471 ======
11 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
1. Reporting entity
UT Bank Limited is a listed company which operates the services of banking under the supervision of the Bank of Ghana.
2. Basis of preparation a. Statement of compliance The financial statement have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). b. Basis of measurement
The financial statement are presented in Ghana cedis which are the Bank’s functional currency, rounded to the nearest thousand. They are prepared on the historical cost basis except for the following assets and liabilities that are stated at their fair value: financial instruments that are fair value through profit or loss and financial instruments classified as available-for-sale.
Presentation of financial statements
The Bank presents its statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in note 32.
Significant accounting estimates and assumptions
Going concern
The Bank's directors has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, directors are not aware of any material uncertainties that may cast significant doubt upon the Bank's ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values.
Impairment losses on loans and advances
The Bank reviews its individually significant loans and advances at each statement-of-financial-position date to assess whether an impairment loss should be recorded in the income statement. In particular, management's judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually (and found not to be impaired) are assessed together with all individually insignificant loans and advances in groups of assets with similar risk characteristics. This is to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident.
Impairment of available-for-sale investments
The Bank reviews its debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgement as applied to the individual assessment of loans and advances. The Bank also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is 'significant' or 'prolonged' requires judgement. In making this judgement, the Bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.
12 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
Deferred tax assets
Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax-planning strategies.
Summary of significant accounting policies 3. Significant accounting policies
The accounting policies set out below have been applied consistently to all years presented in these financial statements by the Bank. a. Revenue recognition Interest income and expense on financial assets and liabilities held at amortised cost, are recognised in the income statement using the effective interest method.
Gains and losses arising from changes in the fair value of financial assets and liabilities held at fair value through profit or loss, as well as any interest receivable or payable, is included in the income statement in the year in which they arise. Gains and losses arising from changes in the fair value of available- for-sale financial assets, other than foreign exchange gains and losses from monetary items, are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Dividends are recognised in the income statement when the Bank’s right to receive payment is established. b. Interest income and expense
The effective interest rate is the rate that discounts estimated future receipts or payments through the expected life of the financial instruments or, when appropriate, a shorter year, to the net carrying amount of the financial asset or financial liability. The effective interest rate is established on initial recognition of the financial asset or liability and is not revised subsequently. When calculating the effective interest rate; the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees received or paid between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Transactions costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
The recognition of interest income ceases when the payment of interest or principal is in doubt, and does so automatically if principal or interest payments are 90 or more days late. Thereafter, interest is included in income only when it is received.
When a financial asset or a group of similar financial assets have been written down as a result of impairment, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Interest income and expense on financial assets and liabilities held at fair value through profit or loss is recognised in the income statement in the year they arise. c. Fees and commissions Fees and commission income and expenses that are an integral part of the effective interest rate on financial instruments are included in the measurement of the effective interest rate.
Other fees and commission income are recognised as the related services are performed. d. Other operating income
Other operating income comprises other income including bad debt recovered, interest on savings accounts with other financial institutions, profit on disposal of property, plant and equipment, derecognised available for sale financial assets, and foreign exchange differences.
13 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued e. Foreign currency
Foreign currency transactions are translated into the Bank’s functional currency using theinterbank exchange rate by Association of Bankers. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Non-monetary assets and liabilities are translated at historical exchange rates if held at historical cost or exchange rates at the date the fair value was determined if held at fair value, and the resulting foreign exchange gains and losses are recognised in the income statement or shareholders’ equity as appropriate. f. Leases (i) Classification
Leases that the Bank assumes substantially all the risks and rewards of ownership of the underlying asset are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum lease payments. Subsequent to initial recognition, the leased asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are classified as operating leases.
(ii) Lease payments Payments made under operating leases are charged to the income statement on a straight-line basis over the year of the lease. When an operating lease is terminated before the lease year has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the year in which termination takes place.
Minimum lease payments made under finance leases are apportioned between the finance expense and as reduction of the outstanding lease liability. The finance expense is allocated to each year during the lease term so as to produce a constant yearic rate of interest on the remaining balance of the liability.
(iii) Leasehold property
The Bank recognises assets leased out under a finance lease in the balance sheet as a receivable at an amount equal to the net investment in the lease. The receipts under finance lease are allocated between the principal lease receipts and finance income. The recognition of finance income is based on a pattern that reflects a constant yearly rate of return on entity’s outstanding net investment in the finance lease.
14 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
Financial instruments - initial recognition and subsequent measurement (i) Date of recognition All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Bank becomes a party to the contractual provisions of the instrument. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
(ii) Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management's intention in acquiring them. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.
Financial assets or financial liabilities held for trading
Financial assets or financial liabilities held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in Net trading income. Interest and dividend income or expense is recorded in Net trading income according to the terms of the contract, or when the right to the payment has been established. Included in this classification are debt securities, equities and short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term.
Financial assets and financial liabilities designated at fair value through profit or loss
Financial assets and financial liabilities classified in this category are those that have been designated by management upon initial recognition. Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument-by-instrument basis:
The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis.
The assets and liabilities are part of a group of financial assets, financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in Net gain or loss on financial assets and liabilities designated at fair value through profit or loss. Interest earned or incurred is accrued in Interest income or Interest expense, respectively, using the effective interest rate (EIR), while dividend income is recorded in Other operating income when the right to the payment has been established.
'Day 1' profit or loss
When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Bank immediately recognises the difference between the transaction price and fair value (a Day 1 profit or loss) in Net trading income. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the income statement when the inputs become observable, or when the instrument is derecognised.
15 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
Available-for-sale financial investments
Available-for-sale investments include equity and debt securities. Equity investments classified as available-for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.
The Bank has not designated any loans or receivables as available-for-sale. After initial measurement, available-for-sale financial investments are subsequently measured at fair value.
Unrealised gains and losses are recognised directly in equity (Other comprehensive income) in the Available-forsale reserve. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement in other operating income. Where the Bank holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available- for-sale financial investments is reported as interest income using the EIR. Dividend earned whilst holding available-for-sale financial investments are recognised in the income statement as Other operating income when the right of the payment has been established. The losses arising from impairment of such investments are recognised in the income statement in 'Impairment losses on financial investments' and removed from the Available-for-sale reserve.
Held-to-maturity financial investments
Held-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Bank has the intention and ability to hold to maturity. After initial measurement, held to maturity financial investments are subsequently measured at amortised cost using the EIR less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortisation is included in Interest and similar income in the income statement. The losses arising from impairment of such investments are recognised in the income statement line Credit loss expense.
If the Bank were to sell or reclassify more than an insignificant amount of held to maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Bank would be prohibited from classifying any financial asset as held to maturity during the following two years.
Due from banks and loans and advances to customers
Due from banks and Loans and advances to customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:
Those that the Bank intends to sell immediately or in the near term and those that the Bank, upon initial recognition, designates as at fair value through profit or loss. Those that the Bank, upon initial recognition, designates as available-for-sale. Those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration
After initial measurement, amounts Due from banks and Loans and advances to customers are subsequently measured at amortised cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in Interest and similar income in the income statement. The losses arising from impairment are recognised in the income statement in Credit loss expense. The Bank may enter into certain lending commitments where the loan, on drawdown, is expected to be classified as held for trading because the intent is to sell the loans in the short term. These commitments to lend are recorded as derivatives and measured at fair value through profit or loss.
Where the loan, on drawdown, is expected to be retained by the Bank, and not sold in the short term, the commitment is recorded only when it is an onerous contract that is likely to give rise to a loss (e.g., due to a counterparty credit event).
16 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
Debt issued and other borrowed funds
Financial instruments issued by the Bank that are not designated at fair value through profit or loss, are classified as liabilities under Debt issued and other borrowed funds, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.
After initial measurement, debt issued and other borrowings are subsequently measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR
Derecognition of financial assets and financial liabilities (i) Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: - The rights to receive cash flows from the asset have expired - The Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either: - The Bank has transferred substantially all the risks and rewards of the asset or
- The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank's continuing involvement in the asset. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.
(ii) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.
Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date are not derecognised from the statement of financial position as the Bank retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognised in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within Cash collateral on securities lent and repurchase agreements, reflecting the transaction's economic substance as a loan to the Bank. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the EIR. When the counterparty has the right to sell or repledge the securities, the Bank reclassifies those securities in its statement of financial position to Financial assets held for trading pledged as collateral or to Financial investments available-for-sale pledged as collateral, as appropriate. Conversely, securities purchased under agreements to resell at a specified future date are not recognised in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position, within Cash collateral on securities borrowed and reverse repurchase agreements, reflecting the transaction's economic substance as a loan by the Bank. The difference between the purchase and resale prices is recorded in Net interest income and is accrued over the life of the agreement using the EIR. If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within financial liabilities held for trading and measured at fair value with any gains or losses included in net trading income.
17 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
Renegotiated loans
Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan's original EIR.
Collateral valuation
The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Bank's quarterly reporting schedule, however, some collateral, for example, cash or securities relating to margining requirements, is valued daily. To the extent possible, the Bank uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have a readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers, housing price indices, audited financial statements, and other independent sources.
Collateral repossessed
The Bank's policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be useful for the internal operations are transferred to their relevant asset category at the lower of their repossessed value or the carrying value of the original secured asset. Assets that are determined better to be sold are immediately transferred to assets held for sale at their fair value at the repossession date in line with the Bank's policy and all attempts are made to sell them within one year in line with BOG rules
Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the Statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the Statement of financial position.
Business combinations and goodwill
Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognised directly in the income statement in the year of acquisition.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Bank's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Bank's cash-generating units (CGUs) or group of CGUs, which are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit to which the goodwill is allocated represents the lowest level within the Bank at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment in accordance with IFRS 8 Operating Segments.
Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstance is measured based on the relative values of the disposed operation and the portion of the CGU retained.
18 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
(iii) Identification and measurement of impairment
The Bank assesses at each balance sheet date whether there is objective evidence that a financial assets or group of financial assets are impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan and other observable data that suggests adverse changes in the payment status of the borrowers.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised, are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on a loan and receivable has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan and receivable has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure, less cost for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank's grading process which considers asset type, industry, geographical location, collateral type, past due status and other relevant factors). These characteristics are relevant to the estimation of future cash flows for group of such assets being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a Bank of financial assets that are collectively evaluated for impairment are estimated on the basis of the historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the year on which the historical loss experience is based, and to remove the effects of conditions in the historical year that do not exist currently.
If in a subsequent year, the amount of the impairment loss decrease and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.
Impairment losses on available-for-sale financial assets are recognised by transferring the difference between the amortised acquisition cost and current fair value out of equity to the income statement. When a subsequent event causes the impairment loss on an available for sale financial asset to recover, the impairment loss is reversed through the income statement. However, any subsequent recovery in the fair value of an impaired available for sale financial asset is recognised directly in equity.
19 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued g. Cash and cash equivalent Cash and cash equivalents include notes and coins on hand, and highly liquid financial assets with maturities less than three months. Cash and cash equivalents are carried at amortised cost in the balance sheet. h. Property, plant and equipment (PPE)
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, and any other costs directly attributable to bringing the asset to a working condition for its intended use.” Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components)”.
(ii) Subsequent cost The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in the income statement as incurred.
(iii) Depreciation
Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
The estimated useful lives for the current and comparative years are as follows:
Leasehold land & buildings Over the period of the lease Office furniture 4 years Motor vehicles 5 years Plant & machinery 4 years Software 5 years
PPE is redecognised on disposal or when no future economic benefits are expected from its use.
Gains and losses on disposal of PPE are determined by comparing proceeds from disposal with the carrying amounts of PPE and are recognised in the income statement as other income.
A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
20 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued i. Intangible assets
(i) Software
Software acquired by the Bank is stated at cost less accumulated amortisation and accumulated impairment losses.
Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful life of the software, from the date that it is available for use. The estimated useful life of software is three to five years. j. Taxation
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. k. Deferred taxation
Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. l. Deferred Income Income that relates to transactions that have unexpired terms are deferred and only taken into income only epriation. This do not apply to loans and advances m. Events after the reporting period
Events subsequent to the balance sheet date are reflected in the financial statement of affairs only to the extent that they relate to the year under consideration and the effect is material. n. Dividend
Dividend income is recognised when the right to receive income is established. Dividend payable is recognized as a liability in the year in which they are approved. o. Provisions
A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. p. Financial guarantees Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantees are initially recognised at their fair value, and the fair value is amortised over the life of the financial guarantee. The financial guarantees are subsequently carried at the higher of the amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable).
21 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
q. Employee Benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due.
(ii) Defined benefit plans
The Bank's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any unrecognised past service costs. The discount rate is the yield at the reporting date on a long-dated instrument on the Ghana market. The calculation is performed using the projected unit credit method. Changes in the fair value of the plan liabilities are recognised in the income statement.
Actuarial gains and losses on the plan are recognised in the income statement.
(iii) Termination benefits
Termination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted and the number of acceptances can be estimated reliably.
(iv) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably
r. Impairment on non-financial assets.
The carrying amount of the Bank’s non-financial assets other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.
An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessment of the time value of money and risks specific to the asset. Impairment losses are recognised in the income statement.
Impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
s. Ordinary share capital.
(i) Share issue costs
Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments.
t. Earnings per share
The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the number of ordinary shares outstanding during the year. The Bank has no convertible notes and share options which could potentially dilute its EPS and therefore the Bank’s Basic and diluted EPS are essentially the same.
22 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
u. Segment reporting
For management purposes, the Bank is organised into three operating segments based on products and services, as follows:
(i) Retail banking, Individual customers' deposits and consumer loans, overdrafts, credit card facilities and funds transfer facilities.
(ii) Corporate banking ; Loans and other credit facilities and deposit and current accounts for corporate and institutional customers.
(iii) Treasury and finance and other central functions
The Executive Management Committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.
Retail Banking Corporate Banking Treasury Total 2012 2012 2012 2012
Operating income 58,452 29,049 17,166 104,667 ------Total operating income 58,452 29,049 17,166 104,667 ======
Credit loss expense 9,919 3,234 - 13,153 ------Net operating income 48,533 25,815 17,166 91,514 ======
Extracts of results Interest and similar expense 46,851 24,441 1,329 72,621 Net interest income expense 40,176 15,687 5,626 61,489 Fees and commission income 26,740 13,617 2,817 43,174 ------Net fees and commission income 66,916 29,304 8,443 104,663 ======
Net trading income 66,916 29,304 8,443 104,663 Depreciation & Amortisation 2,893 1,267 365 4,525 ------Segment profit/(loss) 17,003 7,534 2,171 26,708 ======
Income tax expense 3,694 1,652 431 5,777 ------Profit for the year 13,309 5,882 1,740 20,931 ======
------Total assets 551,144 273,903 161,858 986,905 ======
Total liabilities 548,860 240,358 69,251 858,469 ======
23 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
Retail Banking Corporate Banking Investment Banking Total 2011 2011 2011 2011
Operating income 50,481 22,107 6,369 78,957 Third party - - - - Inter-segment ------Total operating income 50,481 22,107 6,369 78,957 ======
Credit loss expense 9,107 3,988 1,149 14,244 Impairment losses on financial investments ------Net operating income 41,374 18,119 5,220 64,713 ======
Extracts of results Interest and similar expense 32,116 14,064 4,052 50,232 Net interest income expense 31,756 13,907 4,007 49,669 Fees and commission income 18,725 8,200 2,363 29,288 Fees and commission expense ------Net fees and commission income 50,481 22,107 6,369 78,957 ======
Net trading income 50,481 22,107 6,369 78,957 Depreciation & Amortisation - - - -
Segment profit/(loss) 11,061 4,844 1,396 17,300
Income tax expense 2,708 1,186 342 4,235 ------Profit for the year 8,353 3,658 1,054 13,065 ======
Total assets 455,768 199,591 57,506 712,865 ======
Total liabilities 416,621 182,448 52,566 651,635 ======
24 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
New standards and interpretations not yet adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
IFRS 1 Government Loans - Amendments to IFRS 1
These amendments require first-time adopters to apply the requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans existing at the date of transition to IFRS. Entities may choose to apply the requirements of IFRS 9 (or IAS 39, as applicable) and IAS 20 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for that loan. The exception would give first-time adopters relief from retrospective measurement of government loans with a below-market rate of interest. The amendment is effective for annual periods on or after 1 January 2013. The amendment has no impact on the Company.
IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7
These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity's financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation.
The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Company's financial position or performance and will become effective for annual periods beginning on or after 1 January 2013.
IFRS 9 Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB's work though the adoption date is subject to the recently issued Exposure Draft on the replacement of IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2012, moved the mandatory effective date to 1 January 2015. In subsequent phases, the Board will address impairment and hedge accounting. The Company will quantify the effect of the adoption of the first phase of IFRS 9 in conjunction with the other phases, when issued, to present a comprehensive picture.
IFRS 10 - Consolidated Financial Statements, IAS 27 Separate Financial Statements The standard becomes effective for annual periods beginning on or after 1 January 2013. It replaces the requirements of IAS 27 Consolidated and Separate Financial Statements that address the accounting for consolidated financial statements and SIC 12 Consolidation - Special Purpose Entities. What remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Company is currently assessing the impact of adopting IFRS 10.
IFRS 11 - Joint Arrangements
The standard becomes effective for annual periods beginning on or after 1 January 2013. It replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities - Non-monetary Contributions by Venturers. Because IFRS 11 uses the principle of control in IFRS 10 to define control, the determination of whether joint control exists may change. The adoption of IFRS 11 is not expected to have a significant impact on the accounting treatment of investments currently held by the Company.
IFRS 12 - Disclosure of Involvement with Other Entities
The standard becomes effective for annual periods beginning on or after 1 January 2013. It includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 Interests in Joint Ventures and IAS 28 Investment in Associates. These disclosures relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is now required to disclose the judgments made to determine whether it controls another entity. Many of these changes were introduced by the IASB in response to the financial crisis. Now, even if the Company concludes that it does not control an entity, the information used to make that judgment will be transparent to users of the financial statements to make their own assessment of the financial impact were the Company to reach a different conclusion regarding consolidation. The standard will not have any impact on the financial position or performance of the Company.
25 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
IFRS 13 - Fair Value measurement The standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure the fair value of financial and non-financial assets and liabilities when required or permitted by IFRS. There are also additional disclosure requirements. Adoption of the standard is not expected to have a material impact on the financial position or performance of the Company.
IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1
The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, net gains on hedges of net investments, exchange differences on translation of foreign operations, net movements on cash flow hedges and net losses or gains on available-for-sale financial assets) would be presented separately from items that will never be reclassified (for example, actuarial gains and losses on defined benefit plans). The amendment affects presentation only and has no impact on the Company's financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012.
IAS 19 Employee Benefits - Amendments
The amendments to IAS 19 remove the option to defer the recognition of actuarial gains and losses, i.e., the corridor mechanism. All changes in the value of defined benefit plans will be recognised in profit or loss and other comprehensive income. The effective date of the standard is 1 January 2013. The amendment has no impact on the Company's financial position or performance
IAS 27 Separate Financial Statements (as revised in 2012) As a consequence of the new IFRS 10 and IFRS 12, what remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities and associates in separate financial statements. The Company does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013.
IAS 28 Investments in Associates and Joint Ventures (as revised in 2012)
As a consequence of the new IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revised standard becomes effective for annual periods beginning on or after 1 January 2013.
IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of "currently has a legally enforceable right to set-off". It will be necessary to assess the impact to the Company by reviewing settlement procedures and legal documentation to ensure that offsetting is still possible in cases where it has been achieved in the past. In certain cases, offsetting may no longer be achieved. In other cases, contracts may have to be renegotiated. The requirement that the right of set-off be available for all counterparties to the netting agreement may prove to be a challenge for contracts where only one party has the right to offset in the event of default. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. This amendments has no effect on the company. These amendments become effective for annual periods beginning on or after 1 January 2014.
Annual Improvements May 2012
These improvements will not have an impact on the Company, but include:
IFRS 1 First-time Adoption of International Financial Reporting Standards
This improvement clarifies that an entity that stopped applying IFRS in the past and chooses, or is required, to apply IFRS, has the option to re-apply IFRS 1. If IFRS 1 is not re-applied, an entity must retrospectively restate its financial statements as if it had never stopped applying IFRS.
IAS 1 Presentation of Financial Statements This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period.
IAS 16 Property Plant and Equipment
This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory
IAS 32 Financial Instruments, Presentation
This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes.
26 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. These improvements are effective for annual periods beginning on or after 1 January 2013.
4. Interest income (i) Classification Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Loans and advances 126,317 94,821 Investment securities 5,062 1,223 Placements, special deposits 2,731 3,837 Other investment income - 20 ------134,110 99,901 ======
5. Interest expense Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Managed funds 88 274 Current accounts 2,340 2,160 Savings accounts 2,711 642 Term deposits 67,482 47,156 ------72,621 50,232 ======
6. Fee and commission income Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Fee and commission income 29,753 18,607 ------29,753 18,607 ======
The fees and commission income disclosed above are fees other than those included in determining the effective interest rate.
7. Other operation income Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Bad debt/Loan recoveries 547 2,095 Exchange gain 8,479 2,220 Other market income 4,395 6,366 ------13,421 10,681 ======
27 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
8. Operating expenses Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Staff cost (Note 12) 25,608 19,129 Advertising and marketing 5,299 2,239 Administrative expenses 20,108 18,472 Depreciation and Amortisation 4,525 4,934 Directors' emoluments 457 413 Auditors' remuneration 92 75 Donation and sponsorship 181 210 Other costs 8,532 1,941 ------64,802 47,413 ======
9. Staff cost Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Wages, salaries, bonus and allowances 19,562 13,108 Social security cost 1,506 1,167 Pension and retirement benefit 444 513 Training 841 397 Other cost 3,255 3,944 ------25,608 19,129 ======The average number of persons employed by the Bank during the year was 582 (2011:560).
10. Impairment charge and bad debt Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Specific impairment 8,498 10,804 Collective impairment 202 876 Bad debt 4,453 2,564 ------Impairment loss 13,153 14,244 ======
11. Taxation Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
(i) Income tax expense Current tax [note 15(iii)] 5,346 3,330 Deferred tax (Note 16) 431 50 ------5,777 3,380 ======National Stabilization Levy - 855 ======
28 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
(iii) Taxation payable Payments Balance at during Charge for Balance at 01/01/12 the year the year 31/12/12 GH¢'000 GH¢'000 GH¢'000 GH¢'000 Income tax 2007 (76) - - (76) 2008 (1) - - (1) 2009 184 - - 184 2010 (834) - - (834) 2011 200 - - 200 2012 - (4,686) 5,346 660 ------(527) (4,686) 5,346 133 ------National Fiscal Stabilization levy 2009 45 - - 45 2010 (452) - - (452) 2011 (4) - - (4) 2012 ------(938) (4,686) 5,346 (278) ======
The income tax for the year is based on a tax rate of 22% on profit before tax. The tax liabilities up to 2011 have been agreed with the Internal Revenue Service. The remaining liabilities are subject to the agreement of the Internal Revenue Service.
12. Taxation
(v) Reconciliation of effective tax rate
Analysis of taxation charge in the year: Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
The charge for taxation based upon the profits for the year comprises: 5,346 4,185
Current tax on income for the year Adjustments in respect of prior years ------Total current tax 5,346 4,185 Deferred tax: Origination/reversal of temporary differences 431 ------Tax on profits on ordinary activities 5,777 4,185 ======
Effective tax rate 22% 23%
Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Profit before tax 26,708 17,300
Tax at 22% (2011:22%) 5,656 3,634 Non-deductible expenses 1,702 1,147 Tax exempt revenues - - Capital allowances (1,230) (946) Deferred tax 431 50 Other (782) 350 ------Current tax charge 5,777 4,235 ======The tax for the year is based on a tax rate of 22% on profit before tax.
The effective tax rate for the year is lower than the standard rate of corporation tax in Ghana, 22% in 2012 (2011: 22%).
29 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
13. Deferred tax Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Balance at 1 January 176 126 Charged/(released) for the year 431 50 ------Balance at 31 December 607 176 ======
14. Cash Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Cash in hand 19,153 17,392 Balances with Bank of Ghana 72,994 44,791 ------92,147 62,183 ======
Mandatory reserve deposits representing 9% of the bank's deposit are not available for use in the bank's day to day operations and are non interest bearing.
15. Due from other Banks and Financial Institutions Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Placement with other banks 52,579 31,288
------52,579 31,288 ======
16. Loans and advances Dec. 2012 Dec. 2011 GH¢'000 GH¢'000 (i) Net loans Gross loans and advances 617,044 444,461 Overdraft 96,441 54,561 ------713,485 499,022 Impairment loss (33,837) (23,790) ------Net loans and advances 679,648 475,232 ======(ii) Key ratios on loans and advances a. Loan loss provision charge ratio is 1.8% (2011: 2.9%). b. Gross Loan Loss Provision is 4.7% (2011 : 5%) c. Gross non-performing loan ratio is 11.86% (2011: 13.9%). d. Ratio of fifty (50) largest exposure (gross funded and non-funded) to total exposures is 43.5% (2011: 43%).
Analysis for impairment Balance at 1 January 23,790 29,391 Impairment charge for the year 13,153 14,244 Write offs (3,106) (19,845) ------Balance at 31 December 33,837 23,790 ======
30 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
17. Property, plant and equipment At 1 Jan Additions Disposal At 31 Dec GH¢'000 GH¢'000 GH¢'000 GH¢'000 Cost/Revaluation Leasehold, land and buildings 10,569 2,185 (166) 12,588 Plant and machinery 346 5 (119) 232 Office equipment 6,015 720 (1530) 5,205 Furniture and fittings 3,198 256 (200) 3,254 Motor vehicles 5,215 858 (413) 5,660 Capital work in progress 2,733 3,474 - 6,207 ------28,076 7,498 (2,428) 33,146 ======
Depreciation At Charge for At 1 Jan the year Disposal 31 Dec GH¢'000 GH¢'000 GH¢'000 GH¢'000
Leasehold, land and buildings 1,285 613 - 1,898 Plant and machinery 240 46 (119) 167 Office equipment 2,961 1,931 (1530) 3,362 Furniture and fittings 2,206 653 (200) 2,659 Motor vehicles 3,275 1,132 (380) 4,027 ------9,967 4,375 (2,229) 12,113 ======
At 31 December 2012 21,033 ======At 31 December 2011 18,109 ======
Disposal Cost Acc Depn NBV Preceeds Profit/(Loss) GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000
Leasehold, land and buildings 166 - 166 166 - Plant and machinery 119 119 - - - Office equipment 1,530 1,530 - - - Furniture and fittings 200 200 - - - Motor vehicles 413 380 33 28 (5) ------2,428 2,229 199 194 (5) ======
31 UT Bank Limited
Notes to the financial statements For the year ended 31 December 2012 - continued
18. Intangible assets(Banking Software) Dec. 2012 Dec. 2011 GH¢'000 GH¢'000 Cost Balance at 1 January 5,381 2,937 Additions 3,512 2,444 ------Gross value at 31 December 8,893 5,381 ======Amortisation Balance at 1 January 1,628 1,628 Charge for the year/Reclass 150 ------Balance at 31 December 1,778 1,628 ======Carrying amount 7,115 3,753 ======This relates to the cost of purchased software
19. Other assets Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Sundry debtors - 9,534 Converted collaterals 29,397 33,136 Interest receivable 11,592 5,136 Accounts receivable & prepayments 7,263 8,072 Other account receivable 6,468 21,546 ------54,720 77,424 ======
20. Investment Securities Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Treasury bill 61,730 18,889 Medium term Investment in other securities 7,258 12,591 ------68,988 31,480 ======
21. Interest payable and other liabilities Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Accrued interest payable 27,492 14,557 Sundry creditors 1,552 29,470 Accruals and other liabilities 1,732 4,389 ------30,776 48,416 ======
32 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
22. Customer deposit and current account Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Current account 289,200 110,293 Savings account 43,633 53,535 Term deposit 464,949 381,980 ------797,782 545,808 ======
23. Due to other banks & financial Institutions Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Deposit from other banks and financial Institutions 2,000 44,970 ------2,000 44,970 ======
24. Deferred income Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Deferred commitment fee - 141 Deferred administration fee 2,665 496 ------2,665 637 ======
25. Goodwill Dec. 2012 Dec. 2011 GH¢'000 GH¢'000 Cost Balance at 1 January 10,397 11,388 (Write-off)/additions during the year - (991) ------Balance at 31 December 10,397 10,397 ======
The goodwill arose as a result of the acquisition of the "Old" UT Bank Limited by former UT Financial Services which subsequently changed its name to UT Bank Ltd. In line with IFRS 3, the value of goodwill are assessed on annual basis. In line with IFRS 3, (post combination accounting) the goodwill was re- assessed during the year 2012 and was not found to be impaired.
33 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to three individual cash generating units, which are also reportable segments, for impairment testing as follows:
2012 2011 GH¢'000 GH¢'000
Corporate banking 2,886 2,886 Retail banking 5,806 5,806 Treasury 1,705 1,705 ------10,397 10,397 ======
Key assumptions used in value in use calculations
The recoverable amount of the Corporate Banking, Retail Banking and Treasury units have been determined based on value-in-use calculations, using a discounted cash flow projections based on financial budgets approved by senior management covering a five-year period.
On the basis of the assessment, it is the consideration of management that the goodwill is not impaired.
26. Term debt Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Subordinated debt 9,400 11,339 Other term debt 15,240 ------24,640 11,339 ======The subordinated debt is an unsecured non redeemable term debt payable after 5 years.
27. Capital and reserves (ii) Stated capital December 2012 December 2011 No of shares Proceeds No of shares Proceeds GH¢'000 GH¢'000 (a) Ordinary shares Authorised No. of ordinary shares of no par value 750,000,000 750,000,000 ======Issued and fully paid
Issued for cash consideration 456,310,181 82,275 302,036,848 30,000
Issued to Shareholders of old UT Bank - - - - Transferred from income surplus account - 3,000 - 6,000 ------Total stated capital 456,310,181 85,275 302,036,848 36,000 ======
34 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
(iii) Income surplus This represents the residual of cumulative annual profits that are available for distribution to shareholders.
(iv) Statutory Reserve This represents amounts set aside as a non-distributable reserve from annual profits in accordance with section 29 of the Banking Act, 2004 (Act 673) as amended .
Capital and reserves
(v) Credit risk
This comprises an amount set aside from income surplus account to meet minimum requirements of statutory impairment allowance for non-performing loans and advances.
28. Related party transactions
(i) Directors, officers and other employees: The following are loan balances due from related parties:
Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Directors - 37 Officers and other employees 6,378 961 ------6,378 998 ======(ii) Associated companies Due from associated companies 3,935 33,539 Due to associated companies (5,054) (500) ------(1,119) 33,039 ======These are as a result of business loans that were granted at arms length and deposits lodged with the bank
35 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
29. Financial risk management
(i) Introduction and overview
The Bank has exposure to the following risks from its use of financial instruments:
- Credit Risk - Liquidity Risk - Market Risks - Operational Risks.
This note presents information about the Bank's exposure to each of the above risks, the Bank's objectives, policies and processes for measuring and managing risk, and the Bank's management of capital.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework. The Board has established a risk management committee compromising chief executive officer, the deputy managing diractor and general manager risk management, who are responsible for developing and monitoring the Bank's risk management policies. The committee meets monthly to review reports from credit managers, liquidity management, markets situation and operations. The Board of Directors meets regularly to review the report of this committee.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.
The Bank's Compliance and Internal Audit unit (CIA) is responsible for monitoring compliance with the Bank's risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank.
(ii) Credit risk
Credit risk management
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank's loans and advances to customers.
36 UT Bank Limited
Notes to the financial statements For the year ended 31 December 2012 - continued
30. Financial risk management
A facility is considered to be in default when payment is not received on the due date. Facilities that are overdue by more than 90 days are considered delinquent. Those accounts are monitored closely to ensure that the amounts granted are recovered.
Loans are designated as impaired and considered non-performing where recognised weakness indicates that full payment of either interest or principal becomes questionable. Where any amount is considered uncollectible, an individual impairment provision is raised, being the difference between the loan carrying amount and the present value of estimated future cash flows. In any period relating to the raising of provisions, the Bank attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering an element of an account against which an impairment provision has been raised, then that amount will be written off.
A portfolio impairment provisions is held to cover the inherent risk of losses, which although not identified, are known through experience to be present in any loan portfolio. The portfolio impairment provision is set with reference to past experience using loss rates, and judgmental factors such as the economic environment and the trends in key portfolio indicators.
Analysis by credit grade of loans and advances Dec. 2012 Dec. 2011 GH¢'000 GH¢'000 Impaired loans Individually impaired 84,624 67,804 Allowance for impairment (30,693) (22,470) ------Impaired loans, net of individual provisions 53,931 45,334 ======
Loans past due but not impaired 10,384 8,357 Past due up to 30 days 13,959 11,235 Past due 31-60 days 15,171 12,210 Past due 61-90 days ------39,514 31,802 ======
Loans neither past due nor impaired 589,348 399,417 Less: collective impairment provision (3,144) (1,320) ------Total net loans 679,648 475,232 ======
iii. Analysis by Business Segments Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Agriculture, forestry and fishing 119,498 83,579 Manufacturing 12,373 8,654 Construction 70,609 49,385 Electricity, gas and water 88,109 61,625 Commerce and Finance 156,048 109,142 Transport, storage and communication 27,733 19,397 Mass market 39,662 27,740 Services 145,889 102,037 Miscellaneous 53,563 37,463 ------Gross Loans and advances 713,485 499,022 Impairment loss (33,837) (23,790) ------Net Loans and advances 679,648 475,232 ======
37 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
Analysis of credit concentration risk The concentration of loans and advances by business segment and customer types are disclosed in Note 3(v). Investment securities are held largely in Government instruments.
Maximum credit exposure
At 31 December 2012, the maximum credit risk exposure of the Bank in the event of other parties failing to perform their obligations is detailed below. No account has been taken of any collateral held and the maximum exposure to loss is considered to be the instruments' balance sheet carrying amount or, for non-derivative off-balance sheet transactions, their contractual nominal amounts.
Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Loans and advances 713,485 499,022 Unsecured contingent liabilities and commitments 152,380 44,830 ------865,865 543,852 ======
Fair value of collateral held
The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, vehicles and other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired.
An estimate of the fair value of collateral and other security enhancements held against financial assets is shown below:
Loans and receivables Dec. 2012 Dec. 2011 GH¢'000 GH¢'000
Against impaired assets 269,248 135,180 Against assets not impaired 1,258,000 1,152,030 ------1,527,248 1,287,210 ======(ii) Liquidity risk
The Bank defines liquidity risk as the risk that the Bank either does not have sufficient financial resources available to meet all its obligations and commitments as they fall due, or can access them only at excessive cost.
It is the policy of the Bank to maintain adequate liquidity at all times, and for all currencies. Hence the Bank aims to be in a position to meet all obligations, to repay investors on demand, to fulfil commitments to lend and to meet any other commitments.
Liquidity risk management is the responsibility of the General Manager, Wholesale Banking & Investor Relations who is assisted by the Treasurer. This is to ensure that cash balances do not go below some minimum threshold. He is also responsible for both statutory and prudential liquidity. These responsibilities include the granting of authorities, policies and procedures.
The General Manager Wholesale Banking and Investor relations has primary responsibility for compliance with regulations with the Bank's policy and maintaining a liquidity crisis contingency plan.
A substantial portion of the Bank's assets are funded by market borrowings. These borrowings diversified by maturity, and represent a stable source of funds. Lending is normally funded by liabilities in the same currency.
38 UT Bank Limited
Notes to the financial statements For the year ended 31 December 2012 - continued
The General Manager wholesale banking and investor relations also oversees the structural foreign exchange and interest rate exposures that arise within the Bank. These responsibilities are managed through the granting of authorities, policies and procedures that he co-ordinates. He also monitors compliance with Bank ratios.
An analysis of various maturities of the Bank's assets and liabilities is provided below.
0-3 3-6 6-12 Over Dec. 2012 Dec. 2011 months months months 1 Year Total Total
GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000 Assets Cash and balances with BoG 92,147 - - - 92,147 62,183 Due from other Banks 52,579 - - - 52,579 31,288 Loans and advances (Net) 115,540 202,944 215,138 146,229 679,850 475,230 Other assets 8,523 25,000 21,527 3,605 58,655 77,424 Investment securities - 68,988 - - 68,988 31,480 ------Total assets 268,789 296,932 236,664 149,834 952,219 677,605 ------Liabilities
Customer deposit and current account 242,362 176,491 361,340 21,523 801,717 545,808 Interest payable and other liabilities 13,362 7,081 10,333 - 30,776 48,416 Due to other banks and financial institutions - 2,000 - - 2,000 44,970 Defined benefit obligation - - - - - 289 Term Debt - - 24,640 24,640 11,339 ------Total liabilities 255,724 185,572 371,673 46,163 859,133 650,822 ------
------Net Liquidity Gap 13,065 111,359 (135,009) 103,671 93,086 26,783 ======
39 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
32 Financial risk management
(iii) Market risks
Management of market risk
The Bank recognises market risk as the exposure created by potential changes in market prices and rates, such as interest rates, equity prices and foreign exchange rates. The Bank is exposed to market risk arising principally from customer driven transactions.
Market risk is governed by the General Manager Risk Management who is assisted by the market risk manager. The Bank has policies on market risk and limits are proposed within the terms of agreed policy.
Limits are also approved within delegated authorities and exposures monitored against these limits. Additional limits are placed on specific instruments and currency concentrations where appropriate. Sensitivity measures are used in addition to other risk management tools.
Foreign exchange exposure
The Bank's foreign exchange exposures comprise foreign currency translation exposures. Currently the Bank engages in very limited foreign currency transactions which mean low foreign currency risk exposure.
Exchange rate analysis
The Bank operates wholly within Ghana and its assets and liabilities are carried in local currency. The Bank is exposed to the risk that the value of the financial instrument will fluctuate due to changes in foreign exchange rates. The Bank's currency position and exposure are managed within the exposure guideline stipulated by the Bank of Ghana. This position is reviewed on a daily basis by management.
The Bank has very little exposure to other currencies as investments and loans are mainly taken in Ghana Cedis.
Foreign exchange risk - Appreciation/depreciation of GHS against other currencies.
The Foreign exchange risks sensitivity analysis is based on the following assumptions: • Foreign exchange exposures represent net currency positions of all currencies other than Ghana Cedis (GH¢). • The currency risk sensitivity analysis is based on the assumption that all net currency positions are highly effective. • The base currency in which the Bank’s business is transacted is Ghana Cedis. (GH¢).
32 Financial risk management - continued
Applicable exchange rate as at 31 December were as follows:
Dec. 2012 Dec. 2011
United States Dollar ($) 1.8968 1.6413 Great British Pounds ( £) 3.0718 2.5365 Euro ( €) 2.5041 2.1273
A best case scenario 5% weakening of the cedi against the above currencies at 31 December would have had the equal but opposite effect on the above
40 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
Management of Interest rate exposure
The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre- approved limits for repricing bands. This is supervised by the General Manager risk management.
(iv) Operational risks
Operational risk is the risk of direct or indirect loss due to an event or action resulting from the failure of internal processes, people and systems, or from external events. The Bank seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify assess, monitor, control and report such risks.
The Bank's compliance and internal audit unit has been established to supervise and direct the management of operational risks across the Bank. It is also responsible for ensuring adequate and appropriate policies, procedures are in place for the identification, assessment, monitoring, control and reporting of operational risks.
(v) Compliance and regulatory risk Compliance and Regulatory risk includes the risk of non-compliance with regulatory requirements. The Bank's Compliance and Internal Audit function is responsible for establishing and maintaining an appropriate framework of the Bank's compliance policies and procedures. Compliance with such policies and procedures is the responsibility of all managers.
41 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
(vi) Capital Management
The Central Bank sets and monitors capital requirements for the Bank. Under the guidelines of the Central Bank, the Bank is required to maintain a prescribed ratio of total capital to total risk-weighted assets.
The Bank's capital is analysed into two tiers:
Tier 1 capital, which includes ordinary paid up share capital, permanent preference shares and disclosed reserves, after deducting certain assets such as investments in capital of other Banks and financial institutions.
Tier 2 capital, which includes some reserves such as the element of the fair value reserve relating to unrealised gains on equity instruments classified as available-for-sale.
Various limits are applied to elements of the capital base, and other assets are given various classifications such as claims on government, claims on the Central Bank and contingent liabilities and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.
The Bank's policy is to maintain a strong capital base so as to maintain investor, and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders' return is also taken into consideration, and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.
The Bank has complied with all externally imposed capital requirements throughout the year.
There has been no material changes in the Bank's management of capital during the year.
USD GBP EUR Others 2012 2011 GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000 Assets Cash and Balances with Bank of Ghana 21,398 2,615 2,170 - 26,183 12,538 Due from other Banks and Financial Institutions 49,450 2,674 257 - 52,381 23,518 Loans and Advances 127,238 24 - - 127,262 99,738 Other Assets 1,321 - - - 1,321 3,839 ------Total Assets 199,407 5,313 2,427 - 207,147 139,633 ======
Liabilities Customer Deposits 145,329 3,100 1,592 150,021 104,378 Due to other Banks and Financial Institutions 31,470 - 2,519 - 33,989 32,504 Interest Payable and other 8,203 7 11 - 8,221 1,257 ------Total Liabilities 185,002 3,107 4,122 - 192,231 138,139 ------
Net-on Balance Sheet Position 14,405 2,206 (1,695) - 14,916 1,494 ======Off-Balance Sheet Credits And Commitments 133,184 805 17,686 705 152,380 44,830 ======
42 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
Determination of fair value and fair values hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: - Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities - Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. And - Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions are assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes, investments in private equity funds with fair values obtained via fund managers and assets that are valued using the Company's own models whereby the majority of assumptions are market observable.
Non market observable inputs means that fair values are determined, in whole or in part, using a valuation technique (model) based on assumptions that are neither supported by prices from observable current market transactions in the same instrument, nor are they based on available market data. The main asset classes
in this category are unlisted equity investments and debt instruments. Valuation techniques are used to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of the Company. Therefore, unobservable inputs
reflect the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available, which might include the Company's own data.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
Level 1 Level 2 Total GH¢'000 GH¢'001 GH¢'002 2012 Government securities 68,927 - 68,927 Equity investment 61 - 61 ------Total at 31 Decemebr 2011 68,988 - 68,988 ======2011 Government securities 31,419 - 31,419 Equity investment 61 - 61 ------Total at 31 Decemebr 2011 31,480 - 31,480 ======
2012 Other liabilities 30,776 ======
2011 Other liabilities 48,416
43 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
33. Financial instruments classification summary
Financial instruments are classified between four recognition principles: held at fair value through profit or loss (comprising trading and designated), available-for-sale, held-to-maturity and loans and receivables. These categories of financial instruments have been combined for presentation on the face of the balance sheet.
The Bank’s classification of its principal financial assets and liabilities are summarised below: Total Available Loans & Carrying for sale receivables Amount GH¢'000 GH¢'000 GH¢'000
Cash - 19,153 19,153 Due from other banks and financial institutions - 52,579 52,579 Loans and advances - 679,648 679,648 Investment 68,988 - 68,988 ------At 31 December 2012 68,988 751,380 820,368 ======
Cash and balances - 10,626 10,626 Due from other banks and Due from other financial institutions - 43,325 43,325 Loans and advances - 315,297 315,297 Investment 35,980 - 35,980 ------At 31 December 2011 35,980 369,248 405,228 ======
Financial Liabilities Total Measured at carrying Amortised cost Amount GH¢'000 GH¢'000 Due to other banks and Financial institutions 2,000 2,000 Borrowings 797,782 797,782 ------At 31 December 2012 799,782 799,782 ======
Financial Liabilities Total Measured at carrying Amortised cost Amount GH¢'000 GH¢'000 Due to other banks and Financial institutions 22,213 22,213 Borrowings 377,286 377,286 ------At 31 December 2011 399,499 399,499 ======
44 UT Bank Limited Notes to the financial statements For the year ending 31 December 2012
34 Directors' shareholding
The Directors named below held the following number of shares in the Bank as at 31 December 2012:
Ordinary shares Dec. 2012 Dec. 2011
Joseph Nsonamoah (UT Holdings Limited) 92,282,549 92,282,549 Prince Kofi Amoabeng (UT Holdings Limited) 92,282,549 92,282,549 Charles Aidoo 500,000 500,000 Esua-Mensah Pearl Aba 287,200 287,200 Mensah Martyn 168,300 168,300 ------185,520,598 185,520,598 ======All shares owned by Mr. Joseph Nsonamoah and Mr. Prince Amoabeng are held at UT Holdings.
35 Number of shares in issue
(i) Dividend and net assets per share
Dividend and net assets per share are based on 456,310,181 ordinary shares in issue during the year.
(ii) Basic and diluted earnings per share
The calculation of basic and diluted earnings per share at 31 December 2012 was based on the profit attributable to ordinary shareholders of GH¢21,065,000 (2011: GH¢13,065,000) and 456,310,181 (2011: 302,036,848) shares in issue.
36 Number of shareholders
(i)
Number of Total Shareholders Holding Percentage
1 - 1,000 5,835 3,393,529 0.74% 1,000 - 5,000 2,869 7,300,371 1.60% 5,000 - 10,000 607 4,994,371 1.09% Over 10,000 527 440,621,910 96.56% ------9,838 456,310,181 100.00 ======
37 Employee benefits
(a) Social Security Under a national pension scheme, the Bank contributes 13% of employee's basic salary to the Social Security and National Insurance Trust (SSNIT) for employee pensions. The Bank's obligation is limited to the relevant contributions, which were settled on due dates. The pension liabilities and obligations, however, rest with SSNIT.
(b) Provident fund The Bank has a provident fund scheme for staff under which the entity contributes 5% of staff basic salary. The Bank's obligations under the plan is limited to the relevant contributions and these are settled on due dates to the Fund Manager.
45 UT Bank Limited Notes to the financial statements For the year ended 31 December 2012 - continued
38 Details of shareholders at 31 December 2012
(i) Details of 20 largest ordinary shareholders at 31 December 2012
Name of Number of Percentage Shareholder Shares held (%) holding
UT HOLDINGS LIMITED 184,565,098 40.45% SCGN/SS MUN C/O SSB&T FOR DEG-DEUTSCHE INVESTITIONS-UND ENT WICKLUNGSGESELLSCHAFT MBH- 61,709,3334671 13.52% SCGN/JPMC AFRICA CAPITALIZATION FUND LTD 46,282,000 10.14% SCGN/CITIBANK NEWYORK INTERNATIONAL FINANCE CORPORATION 46,282,000 10.14% SCBN/SSB LONDON INVESTEC PREMIER FUNDS PCC LTD AFRICA FUND. 17,000,000 3.73% SCBN/SSB LONDON CARE OF SSB LDN. INV. ASSETS MGT.(PTY) 9,639,750 2.11% SCGN/JP MORGAN CHASE DUET AFRICA OPPORTUNITIES FUND IC 6,707,100 1.47% SCBN/ STANDCHART MAURITIUS RE KURA AFRICA FUND 6,245,679 1.37% SCBN/INVESTEC INSTITUTIONAL PAN AFRICA FUND LLC - IAM4 4,557,800 1.00% SCGN/JP MORGAN CHASE DUET GAMLA LIV AFRICA OPPORTUNITIES FUND IC 4,373,700 0.96% SCBN/CHASE OFFSHORE 6179C 2,916,700 0.64% SCGN/CITIBANK LONDON OP - AFRICA FUND (NON-UCITS) 2,900,000 0.64% SCBN/EPACK INVESTMENT FUND LTD - TRANSACTIONS A/C 2,716,600 0.60% KURA AFRICA FUND SHARE WAREHOUSING ACCOUNT 2,552,600 0.56% SCBN/ELAC POLICYHOLDERS FUND 2,436,300 0.53% SCBN/SSB INVEST AD-EMERGING AFRICA FUND LTD. FUND - AACG 2,000,000 0.44% UTFSL ESOP 1,674,633 0.37% BBGN/BARCLAYS MAURITIUS RE KURA AFRICA FUND 1,513,600 0.33% SCGN/JPMC THE FULCRUM AFRICA ALL CAP MASTER FUND 1,307,800 0.29% SCBN/UNIL GH MANAGERS PENSION FUND 1,200,000 0.26% ------408,580,693 89.54% ======
38 Regulatory capital
The Bank's regulatory capital position at 31 December was as follows:
Capital adequacy ratio 13.42% 8.62%
(Total regulatory capital as a percentage of adjusted asset base)
41 Capital commitments The Bank had no commitment for capital expenditure as at 31 December 2012 (2011: Nil).
42 Regulatory breaches The Bank did not breach any regulatory requirement during the year.
43. Contingent liabilities and commitments
(i) Contingent liabilities
Pending legal suits: There are currently no pending suits against the bank (December 2011: Nil) `
(ii) Commitments for capital expenditure
Under contract: There were no outstanding commitments for capital expenditure not provided for in the financial statement at 31 December, 2012
Dec. 2012 Dec. 2011 GH¢'000 GH¢'000 (iii) Contingent liabilities and commitments Unsecured Contingent liabilities and commitments 152,380 44,830 ======
44 Social responsibility cost
An amount of GH¢181,284 (2011: GH¢210,284) was spent as part of corporate social responsibility of the Bank on institutions such as The Ghana Heart Foundation, Family Outreach International, Hope for Kids, Ghana National Trust Fund, Enablis business launchpad, and the 37 Military Hospital just to mention a few.
46