VISION

To be a leading financial institution, with the best people, providing unequalled customer experience and delivering superior shareholder value.

MISSION

We will consistently exceed customer expectation by providing value-adding solutions through professional and highly motivated people, delivering excellent financial performance in all markets where we operate. 2012 | ANNUAL REPORT & ACCOUNTS 7

OUR CORE VALUES

Integrity: We are honest and truthful. This explains our moral obligations as a Bank to our customers, stakeholders and employees.

Competence: We are equipped with clusters of related abilities, commitments, knowledge and skills that enable us effectively exceed our customer's expectations.

Leadership: We are leading financial institution and takes leadership role in the industry that involves providing the information, knowledge and methods that enable us serve our customers better.

Accountability: We account for our activities, deliver our promises, accept our responsibilities and are transparent in all our dealing in line with global best practices.

Passion: We are professionals, dedicated and relentlessly devoted to the pursuit of excellence by providing value-adding solutions. FINANCIALS 64 Directors’ Report 73 Responsibility for Annual Financial cont Statement 74 Report of the Audit Committee 75 Report of the External Consultants -ents 76 Report of the Independent Auditor 78 Consolidated Income Statement 06 Mission and Vision 79 Consolidated Statement of Other 07 Our Core Values Comprehensive Income 09 Key Milestones 82 Consolidated Statement of Financial Position 10 Result at a Glance 84 Statement of Changes in Equity 11 Corporate Profile 86 Consolidated Cash Flow Statement 16 Sustainability Report 88 Notes to the Consolidated Financial -Delivering Sustainable Wealth Statements 22 Notice of Annual General Meeting 275 Statement of Value Added 24 Chairman’s Statement 277 Five Year Financial Summary 31 CEO’s Letter to Shareholders 281 Our Branch Network 47 Board of Directors 288 Proxy Form 48 Management Team 289 E-Mandate Form 49 Corporate Governance Report 2012 290 Corporate Information 2012 | ANNUAL REPORT & ACCOUNTS 9

KEY MILESTONES

1991 Diamond Bank founded as Private Limited Liability Company

2001 Diamond Bank becomes a Universal Bank

2005 Diamond Bank PLC becomes a Public Limited Company

2005 Diamond Bank PLC listed on the Nigerian Stock Exchange

2005 Diamond Bank PLC acquires the former Lion Bank of Nigeria PLC

2007 Voted Most Improved Bank of the Year in the Thisday Annual Awards

2008 1st African company / Bank quoted on the Professional Securities Market of the London Stock Exchange

2009 Rated A- by Fitch, A+ by Agusto and A by GCR reflecting the Bank's sustainable liquidity, sound and professional practices and good standing as a high Investment grade institution.

2010 Appointed as primary lending institution for the disbursement of NIMASA Cabotage Vessel Finance Fund (CVFF)

2011 Appointed as a partner bank by the Nigeria Content Development Monitoring Board (NCDMB)

2011 Named Best Credit Card Bank in the 11th Card, ATM & Mobile Expo Africa 2011

2012 Named Best Credit Card Bank in the 12th Card, ATM & Mobile Expo Africa 2012

2012 Named Best Online Bank in Nigeria

2012 Named Best Oil and Gas Investment Company 2012, Africa awarded by London-based World Finance Magazine 2012 | ANNUAL REPORT & ACCOUNTS 10 RESULT AT A GLANCE

BANK

Gross Earnings Profit Before Tax Total Assets Total Deposits 41 ,1 787 ,260 , ,257 095 , 090 131,166 659 , 090 ,137 965 , , 45 959 , ,163 723 101, 401 , 059 ,259 490 , 823 , ,118 ,364 019 1, 98 , 85 016 ,161,1 738 063 , , , 28 793) 667 020 ,891,836 , , , 098 4 ,815 ,361,884 545 ,344 71 468 64 , ,132,209) ,343 650 055 449 9 444 , 8 604 542, 379 (27 (9 Apr 2009 Apr 2009 Apr 2009 Apr 2009 Dec 2011 Dec 2011 Dec 2011 Dec 2011 Dec 2012 Dec 2012 Dec 2012 Dec 2012 Dec 2010 Dec 2010 Dec 2010 Dec 2010 Dec 2009 Dec 2009 Dec 2009 Dec 2009

GROUP

Gross Earnings Profit Before Tax Total Assets Total Deposits 669 754 , , 444 , ,103 ,848 007 476 , ,234 4 138 792 722, 979 1,178 ,229 , 91 , 601 910 , 763 481,541 , ,310 ,851 ,231, 022,288 694 102, 003 108 , 077 , 754 27 ,395 91, 056 951 929) 796 , ,889 735 ,154) , 603 682, 992, 4 650 592,851, 67 772,863 482, 901, 964 , 466 , , 4 5 412, (17 (12,37 Apr 2009 Apr 2009 Apr 2009 Apr 2009 Dec 2011 Dec 2011 Dec 2011 Dec 2011 Dec 2012 Dec 2012 Dec 2012 Dec 2012 Dec 2010 Dec 2010 Dec 2010 Dec 2010 Dec 2009 Dec 2009 Dec 2009 Dec 2009 2012 | ANNUAL REPORT & ACCOUNTS 11 CORPORATE PROFILE

iamond Bank Plc was incorporated in December 1990 and began operation as a private limited liability company on March 21, 1991. Today, Diamond Bank is one of Nigeria's leading universal banks with strong Dofferings in Retail and Corporate Banking. We are in a strategic partnership with the International Finance market by providing a wide range of unmatched convenience in Corporation (IFC) who in June 2012 availed the bank a $70 million its retail products and services. The Bank equally has strong focus facility. Also, Actis invested N17 billion in equity in Diamond Bank on corporate banking. The Bank is therefore structured to in 2007, a transaction adjudged as the largest single private equity operate in four strategic business units; The Retail Banking, this investment made in Nigeria by foreign investors. provides innovative products and solutions for the retail mass market, mass affluent customers and MSME - small and medium The first Nigerian bank to operate in the Francophone West Africa scale entrepreneurs. The Business Banking caters for the banking with strong presence in the Republic of Benin and branches in needs of the middle market customers. The Corporate Banking Senegal, Togo and Ivory Coast. As at December 2012, the Bank provides services to multi- nationals and large corporations in had over 222 branches located in various cities and commercial such sectors as Oil and Gas, Power, Maritime, Manufacturing, centres in Nigeria. Aviation, Telecommunication and the Public Sector structured to do business with the Federal Government, its agencies and Diamond Bank PLC is a leading financial institution respected for parastatals. its excellent innovation in providing value-adding solutions to customers' business needs. Over the years, the Bank has In providing unequalled customer experience, our approach is a leveraged on its underlying resilience to grow its asset base, and holistic mix of propositions comprising a growing network of to successfully retain its key business relationships. Diamond strategically located “brick and mortar” outlets, efficient bank strives to provide an exceptional customer experience using electronic banking platforms and well structured financing technology and people to exceed customers' expectation. models that address the needs of the entire value chains of The Bank is strategically focused to grow the retail segment of the customers business. CORPORATE PROFILE 2012 | ANNUAL REPORT & ACCOUNTS 12

Overall, our people remain our key differentiating factor in u Diamond SavingsXtra Account: This is an interest-yielding providing this unique customer experience across all markets savings account, which allows the deposit of both cash and where we operate and we are fully committed to consistently third party cheques with a minimum opening balance of attracting only the best people to maintain our competitive edge. N5,000

MSME BUSINESS DEVELOPMENT u Diamond Kiddies Account: This is an account is for children under 18 years with a minimum opening balance of N 5,000. Diamond Bank is a pacesetter in providing financial services to Micro, Small, Medium scale Enterprises in Nigeria. We recognised u Diamond High Interest Deposit Account (HIDA): This is this sector as the base on which the future growth and designed for individuals interested in saving for a longer term development of the nation depends and that informed our initial and maximising interest. The account is opened with a partnership with the IFC in 2008 to build a sustainable framework minimum balance of N 100,000 for MSME financing which has stood the test of time. u Diamond Term Deposit: This is a long-term capital growth In 2011, we launched the “Borrow For Free” promo through which account designed for individuals interested in saving for a set we granted interest free loans to Micro, Small and Medium period of time. The minimum investment amount is Enterprises (MSMEs), providing them a platform for easy access to N5,000,000 capital and entrepreneurial capacity building. The facility allows MSMEs easy access to credit with a very short turnaround time Diamond Current Accounts and non-stringent conditions. Overall, Diamond Bank has Diamond Current Accounts is your key to real time banking. Our effectively awarded loans exceeding N65bn to over 30,000 online facility ensures that you can transact using your Diamond MSMEs in Nigeria since 2009, making it the single most active Current Account from any Diamond branch. The Diamond lender to this sector in Nigeria. current accounts consists of; Diamond PERSONAL CURRENT, Diamond ASPIRE, Diamond XCLUSIVE and Diamond PRIVILEGE. OUR PRODUCTS & SERVICES u Diamond Personal Current: This is a personal current Diamond Savings Account account designed to make your banking as easy and efficient Diamond Saving Accounts is an account designed to help our as possible. It offers you all the benefits of a current account customers meet their personal needs and lifestyle. The Diamond packaged with a range of free added-value. Savings account consists of; Diamond Savings Account, Diamond SavingsXtra, Diamond Kiddies, Diamond HIDA and Diamond Term u Diamond Aspire: This is designed to respond to your need for Deposit a flexible current account that caters for your everyday transactional needs. No monthly fee if a minimum of u Diamond Savings Account: With this account you can start N250,000 is maintained. saving today with as little as N 1,000 u Diamond Xclusive: This is a current account that promises CORPORATE PROFILE 2012 | ANNUAL REPORT & ACCOUNTS 13

exclusive services and high level preferential treatment. As an in Naira when you get home. Each time you use your Diamond exclusive client you have access to our dedicated Xclusive Visa Credit Card you earn Diamond Gem Points that you can lounges and a dedicated Xclusive Banker. redeem at a variety of loyalty partners for goods and services including free flights. The Bank offers the following cards to u Diamond Privilege: This is an account that offers a wide customers; range of services specially designed to cater for financial and u Classic Visa Credit Card lifestyle needs of the very top of our customers. Clients enjoy u Gold Visa Credit Card financial and investment advisory services ranging from u Platinum Visa Credit Card financial planning to global investment advisory services; u Diamond Savingsxtra Credit Card wealth management; and other lifestyle benefits like a special u Diamond Park n Shop Credit Card Visa credit card “Diamond Card”. The card is embedded with a u DiamondXclusive Credit Card real diamond and featuring a high credit limit. u Diamond Corporate Charge Credit Card u Diamond Card (this card is specially crafted with Platinum Diamond BusinessXpress Account lettering and a real Diamond to suit your payment needs and Diamond BusinessXpress is an account designed for customers in meet your life aspirations as a high-achiever) the micro, small or medium scale enterprise (MSME). The account aims to help you grow your MSME business till it graduates to the Diamond Channel Services upper level market. We understand the need of a flexible account With our e-banking channels, you can bank with us anytime, any that allows you to transact at a minimal rate. That's why Diamond day and anywhere. Choose from many options of our electronic BusinessXpress has zero COT and the modest fixed monthly banking channels designed for your convenience to access your service fee. The account in 3 categories; account. u Diamond Businessxpress Basic for Micro Business with u Diamond Online: This gives you real-time access to your maximum monthly turnover of N4 Million account 24/7. That means you can handle the day-to-day intricacies of managing your finances conveniently from u Diamond Businessxpress Growing for Small Business with anywhere on the globe. maximum monthly turnover of N12 Million. u Diamond Mobile: Diamond Mobile is our banking service that u Diamond Businessxpress Established for Medium allows you access to basic banking transactions through your Businesses with maximum monthly turnover of N40 Million. mobile phone. Diamond mobile is basically putting your bank in your hands. Diamond Visa Credit Cards The Diamond Visa Card is the only NAIRA denominated card on u Diamond ATM: Our ATM service gives you access to you the market. The Visa Credit Cards are safe, secure and offer you money 24/7.Diamond Care: Diamond Care is our interactive superb value and benefits. You can use your diamond visa at over contact centre that allows you access to your account 24/7 24 million merchant locations and ATMs across the world, and pay from anywhere in the world by telephone. With Diamond CORPORATE PROFILE 2012 | ANNUAL REPORT & ACCOUNTS 14

Care, you can carry out basic banking transactions on your mail and SMS alerts at every stage of their trade transaction. own through our self-service platform or you can speak to an agent, who provides assistance. The service is available in CASH MANAGEMENT SERVICES English, Pidgin English, Yoruba, Igbo, Hausa and French. Diamond Cash Management Services provides organisations with TRADE SERVICES value added services to reduce the transactional costs of everyday business and increase revenue collection and payment facilitation u DL Support: This is an innovative import service which efficiency. Our services include; manages your entire import business from inception (at the point of opening form M) through to the end (at the point of u Diamond Pay Services: This is a web-based payment delivery of goods to the customer's warehouse or factory). It solution that offers organisations a secure, simple and cost handles the trade processing, clearing and local effective alternative to cash and cheque payments across transportation requirements of import transactions, enabling multiple banks. us handle your imports while you focus on your core business u Diamond Instant Payments: This allows individuals and organisations to easily and conveniently transfer or receive u Diamond Trade Centre: This is positioned to assist customers funds from any bank account In Nigeria and the beneficiary (internal and external) in achieving their business objectives will receive the value within seconds. by deploying the knowledge, experience and resources of the bank to provide all the advice on all areas of trade products, u Diamond RTGS: This allows the transfer of single and large supply chain management covering logistical and financial payments to any bank account in Nigeria with beneficiaries concerns at each stage of the international trade transaction. receiving the value within 2 hours.

u Diamond Trade Customer Service Centre: This is a one stop u Diamond NEFT: This is an electronic payments service that hub for the best source of trade information and service in the allows single or multiple payments to any bank account in industry. The centre is manned by a team of trade experts Nigeria.Diamond Collect: The bank offers specialised internet who are dedicated to providing quick and courteous based sales collection solutions to large corporates aimed at responses to trade related responses to trade related providing payment convenience to their customers. This enquiries from internal and external customers. service has a robust transaction database that facilitates seamless transactions Including: Dealer collections, u Diamond Trade Tracker: Diamond trade tracker is a trade dealer/distribution payments, school fees and ticket sales. document and transaction monitoring service which enables customer monitor their trade transactions from anywhere in u Diamond Money Transfer: This is a domestic money transfer the world. This service provides them with real-time access to service that allows customers and non-customers of the information on their trade transactions via a web service and a bank to send and receive money from any of our locations in transaction notification service which provides them with e- Nigeria. CORPORATE PROFILE 2012 | ANNUAL REPORT & ACCOUNTS 15

SPONSORSHIPS AND DONATIONS opportunities and challenges the market faces.

As a corporate citizen, Diamond Bank PLC supports the cultural, u 1st Annual Greensprings/Kanu Football Camp: Diamond social and economic life of Nigeria through donations & Bank in conjunction with Greensprings School sponsored the sponsorships of programmes and events. We have made 1st Annual Greensprings/Kanu Football Camp. The event is significant contributions to the following initiatives and events; aimed at developing sporting talent among young children between the ages of 5 – 17 years. u The Vision of the Child: The Bank partnered with Black Heritage Festival in conjunction with the Lagos State u Card, ATM And Mobile Expo Africa: The Card ATM and Government to sponsor the Vision of the Child. The VISION Mobile Expo is the biggest card and Payment exhibition in OF THE CHILD is a painting competition targeted at children Africa where the biggest and best converge yearly. Diamond between the ages of 9 – 12 years from various schools in the Bank has continued to partner with Intermac Consulting Lagos environs. The event is aimed at nurturing young talents Limited over the years in sponsoring this event. to express through painting their own understanding of the world they live in, their vision of what it should be, and their .We have also made significant contributions to the following dreams and fantasies. initiatives and events: u Last Flight to Abuja: Diamond Bank identified with the u Nigeria Oil & Gas Conference 2012 Nollywood movie industry by sponsoring the premiere of the u St. Saviour's School Fun Day “Last Flight to Abuja”. The movie which raised the bar in u International Federation of Women Lawyers Conference movie production in Nigeria is based on true life events u African Business Roundtable and Global Investment Initiative surrounding the two air crashes that occurred in Nigeria in for Nigeria 2006. The movie was a fantastic storyline and painstaking u The Bridge Leadership Foundation 2012 Career and production with out-of-this world special effects and was Foundation's Day aimed at putting spotlight on the issue and the need for u The African and Caribbean 2012 Business Expo reforms in the aviation industry in Nigeria. In addition to the u The 2012 Nigeria Cup sponsorship, the Bank donated 50% of the Box Office sales u World Corporate Golf Challenge (WCGC) on the movie to support the families of the June 3, 2012 plane u World Golfers Championship (WGC) crash. u The 6th Lagos State Economic Summit “EHINGBETI 2012” u The Nigeria South Africa Week 2012 – The Tales of Two Cities u 4th Annual West Africa Trade and Commodity Conference: u Hair dressers Conference & Exhibition 2012 The Bank sponsored the 4thAnnual West Africa Trade and u Life in my City Art Festival Commodity Conference held in Accra. In sponsoring the event, the Bank provided a central meeting point for the regional and international trade finance community to explore key issues affecting trade flows; the extensive 2012 | ANNUAL REPORT & ACCOUNTS 16 DELIVERING SUSTAINABLE WEALTH

…the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and value of our society.” (Bowen 1953)

At Diamond Bank, Corporate Social Responsibility is embedded in our long-standing commitment to conducting our business operations. Our commitment to building sustainable value for shareholders and stakeholders within the communities in which we operate, is demonstrated in what we have achieved and how we have achieved it in 2012.

In the financial year of 2012, we were involved in a host of received. In partnership with EDS and Fate Foundation, 25 initiatives with expert partners through programs/project people were short listed and went through six weeks sponsorships, donations, and social investments outlined under training programme after which 10 of the candidates the following key areas: eventually received funding for their business ideas.

1. Entrepreneurship From 2010 the Bank has partnered with EDS (now EDC) in 2. Arts and Culture the training of entrepreneurs under the BET program. 3. Youth Development Currently in its 3rd year, the BET (Building Entrepreneurs 4. Women Economic Empowerment. Today) involves the training of over 50 entrepreneurs for a period of one year in which 5 of them will be awarded N3m (1) ENTREPRENUERSHIP/SME DEVELOPMENT grant each to take their business to the next level.

The bright ideas campaign was a platform used to launch The Bank also engages in entrepreneurship training under the old Diamond bank brand. This campaign threw up a the Diamond Business Express Account (DBXA) platform basket of viable business ideas. Over 5,000 ideas were because we realized that there is need to support DELIVERING SUSTAINABLE WEALTH 2012 | ANNUAL REPORT & ACCOUNTS 17

innovation and enterprising ideas in Nigeria. MSMEs are 4. Access to lessons learned from other successful increasingly seen as the drivers of economic growth in business incubation ecosystems Africa; Diamond Bank has contributed immensely to this area by creating more impact by: DIAMOND MOBILE TRUCK

1. Promoting a culture of entrepreneurship and building Aimed at providing access to financial services for the unbanked the capacity of entrepreneurship education providers population, the Diamond Mobile Truck was developed and put 2. Developing new entrepreneurs, and supporting into full operation in November 2012. Equipped as a mobile existing entrepreneurs, to move their businesses from bank with state of the art facilities, the truck is able to reach small to medium or large enterprises members of the public in less accessible areas as well as provide 3. Enabling the start-up of innovative businesses a number of services such as account opening, cash/cheque deposits and withdrawals within the convenience of their BUSINESSXPRESS SEMINARS/NETWORKS/CLINICS neighborhoods.

Offering practical solutions and training to small and medium (2) ARTS & CULTURE size business entrepreneurs is vital to their survival and growth. Our Business Xpress Seminars, Clinics and Networks are Our commitment to fostering education and creativity in designed specifically to grow and enable Micro, Small and the Nigerian child is evident in our flagship initiative “Vision Medium Scale Enterprise (MSMEs). Collaborating with the best of the Child.” In partnership with the Nobel Laureate Wole Consultants, and leveraging both National and International Soyinka and the Lagos State Black Heritage Festival this expertise, small businesses get expert advice on how to manage initiative is now in its second year. and grow their business as well as how to access finance. Till date, Diamond has contributed over N30billion to providing Vision of the Child is a painting competition organized for loans to over 17,000 SMEs across the country. children between the ages of 8 and 12 and is open to over 3000 primary and secondary schools pupils in and around This initiative is a direct response to the gaps in entrepreneurship Lagos State. In a bid to foster financial inclusion and development, and brings together a comprehensive set of promote equality, children outside the formal school services targeted at high potential entrepreneurs and offered at environment are also encouraged to participate. By convenient locations. These services include: fostering creativity in children, we hope to help grow a new generation of citizens who can contribute positively to the 1. High calibre business advisory services e.g. business country's development. strategy, legal advice 2. Access to diverse and appropriately structured sources (3) YOUTH DEVELOPMENT of finance 3. Close mentorship by the Bank or successful business Diamond Bank also supported initiatives that promote leaders productivity among youths in Nigeria through educational DELIVERING SUSTAINABLE WEALTH 2012 | ANNUAL REPORT & ACCOUNTS 18

S/N PROJECT (ORGANISATION) IMPACT REGION

1 Cross River State Youth A career guidance and personal South East Development Programme (Cross development programme by Cross River River State Government) State Government targeted at youths between ages 16-25. This initiative featured seminars focused on developing business and entrepreneurial skills in young people in Calabar and environs.

2 Community Development & Building of a Multi Skills Acquisition centre in South East Empowerment Centre (CDEC) Abia State.

3 The Bridge Leadership Foundation Funding of the 2012 Career Day Initiative South South which provided personal Development Support to over 2000 youths across all LGAs of the Cross River state.

4 Save Child Initiative Campaign against Child Labour Nationwide

and leadership building activities. Our underlying objective Obafemi/Owode Local Government Area, Mowe, Ogun is the need to engage youths positively to enhance their State. personal and career development. In this regard, we supported the following programmes. u Support for 'Run for a Cure', a breast cancer awareness drive organized by the Child survival and Development (4) HEALTH CARE Organization of Nigeria (CS-DON) in Lagos State.

It is our belief that we remain productive as a financial OTHER AREAS/INITIATIVES institution when our stakeholders have access to primary health care facilities and emergency services. Accident Employment Standards relief and the availability of emergency services form an The Bank encourages both personal and professional integral part of our corporate social investments in health development amongst staff through the provision of in-house care. and offshore training for all levels of staff. We recognise that our people are critical to the success and sustainability of our u To mitigate the spate of deaths arising from road accidents business and this informs our commitment to providing a safe, and also to provide prompt medical intervention to the rewarding yet challenging environment that helps each community and road users, Diamond Bank constructed an employee reach full potential. Accident & Emergency Centre in Mowe, Ogun State. The Bank also recently commenced the enrolment of staff for u Renovation of Primary Health Care Centre in the various e-learning programmes, which are conducted quarterly, DELIVERING SUSTAINABLE WEALTH 2012 | ANNUAL REPORT & ACCOUNTS 19

in order to facilitate further self development in a convenient Nigeria, agriculture is the slowest growing sector with an annual manner. This ultimately helps the bank to meet its short and long growth rate of approximately 5.1%. Our commitment to term goals. contribute significantly to wealth creation positions us to play an important role in Agriculture development. The Bank is keen to Diamond remains an equal opportunity employer and does not provide financial solutions to the many challenges that face discriminate against any category of employee. small scale farmers and other agricultural value chain players. This can be done through strategic partnership with 2013 STRATEGIC OUTLOOK organizations that support farmers both in private and public sector as well as Development Agencies. In 2012, Diamond Bank joined other leading financial institutions to sign a joint commitment on Sustainable Finance in Nigeria. In WOMEN ECONOMIC EMPOWERMENT (WEE) so doing, the Bank agrees to implement the Nigerian Sustainable Banking Principles by adhering and integrating the nine (9) According to the International Centre for Research on Women, sustainable banking principles which make up the foundation of ICRW; a woman is economically empowered when she has both a sustainable financial institution. the ability to succeed and to advance economically. This has also been validated by the Nigerian Sustainable Banking Principle Our strategy for 2013 stems from our drive to build a sustainable which aims at providing more opportunities for women. In 2013 business. Our Sustainability initiatives will remain focused in the we aim to work closely with expert partners to provide skills areas of Entrepreneurship, wealth creation and promoting training and capacity building for women in under-served parts Nigeria's Arts and Culture. In addition, we will also support other of the country. initiatives such as agribusiness as well as women economic 2013 promises to be a much more fulfilling year as we intend to empowerment. scale up our commitment to social responsibility by mitigating Nigeria's risks to social, environment and governance impact. AGRIBUSINESS Accordingly, we have already commenced work to develop and Agriculture contributes between 40-42% to GDP and provides implement the following key milestones: over 60% of employment in Nigeria. In spite of its importance in CSR ESRM NSBP DELIVERING SUSTAINABLE WEALTH 2012 | ANNUAL REPORT & ACCOUNTS 20

Increasingly, sustainable businesses in emerging markets such as u Demonstrate Thought Leadership in emerging sustainability ours, recognize Corporate Community Involvement (CCI), and social responsibility trends on the future of banking in Corporate Sustainability & Responsibility (CSR) and tangible Africa; contributions to Sustainable Development as core components of standard business functions and operating practices. u Ensure our Social Responsibility strategy constantly delivers initiatives that align with our operations for more tangible Consequently, we look forward to the following outcomes: impact through a sound policy and framework subject to reviews and needed improvement; u To become a leading bank in implementation of Nigerian Sustainable Banking Principles & practice of Sustainability in u Scale up socially responsible investments to enhance our Banking operations; contributions to sustainable development in all our operations and activities; u Socially relevant products, services and operational strategies that influence our bottom line as well as those of u Constantly communicate with our stakeholders in order to our esteemed clients and entire value chain; provide more robust support for & sustainability-oriented products, services and value-adds. u Drastically reduce our environmental footprints across all operations and extended areas of influence; Why don't you take this journey with us?

u Adherence and compliance to all relevant local and Contact: international conventions, standards and principles that Web: http://www.diamondbank.com/investor-relations/csr enhance our sustainability outlook and those of our Tel: 0700-300-0000 numerous stakeholders; DELIVERING SUSTAINABLE WEALTH 2012 | ANNUAL REPORT & ACCOUNTS 21 22

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 22nd Annual General Meeting of DIAMOND BANK PLC will be held on Tuesday, the 30th day of April, 2013 at the Civic Center, Ozumba Mbadiwe Road, Victoria Island, Lagos, at 10:00 a.m. prompt to transact the following business:

AGENDA N10,000,000,000 (Ten Billion Naira) to N15,000,000,000 (Fifteen Billion Naira) by the Ordinary Business creation of additional 10,000,000,000 ordinary shares of 50 Kobo each, ranking pari 1. To receive the Audited Financial Statements passu in all respects with the existing ordinary for the period ended December 31, 2012, and shares of the Company” the Reports of the Directors, Auditors and Audit Committee thereon. 7. That the Memorandum and Articles of Association of the Company be and is hereby 2. To elect/re-elect Directors amended as follows:

3. To appoint Auditors (a) by deleting clause 7(a) of the Memorandum and substituting it with: 4. To authorize the Directors to fix the “The share capital of the Company is remuneration of the Auditors N15,000,000,000 (Fifteen Billion Naira) divided into 30,000,000,000 (Thirty 5. To elect members of the Audit Committee Billion) ordinary shares of 50 Kobo each”

Special Business 8. That subject to the approval of regulatory authorities, the Directors be and are hereby To consider and if thought fit, pass the following as authorized to raise additional capital of up to special resolutions: $750,000,000 (Seven Hundred and Fifty Million United States Dollars) or its Naira 6. “That the authorized share capital of the equivalent through the issuance of any form Company be and is hereby increased from of debt and/or equity and/or any other NOTICE OF ANNUAL GENERAL MEETING 2012 | ANNUAL REPORT & ACCOUNTS 23

instrument which may be appropriate to meet the Bank's capital the Directors authorised by the Directors in that behalf and every requirements, to be undertaken by way of a rights issue and/or an instrument to which the seal shall be affixed shall be signed by a Offer for Subscription with or without a preferential allotment, Director and shall be counter-signed by the Secretary, or by a either locally or internationally and upon such terms and second Director or signed by two other persons appointed by the conditions as the Directors may deem fit in the interest of the Bank Directors from time to time for the purpose” for the purposes of enhancing the Bank's working capital and financing business development initiatives” 12. That Clause 85 of the Articles of Association be amended by deleting and substituting it with: 9. ”That subject to the approval of the regulatory authorities, the Directors be and are hereby authorized that in the event of over “However, a Director shall abstain from discussions and voting on subscription, excess monies arising from the Offer be absorbed to any matter in which the Director has or may have conflict of the extent required by the Bank” interest”

10. That the Directors' fees shall until reviewed by the Company in Dated this 29th day of March 2013 Annual General Meeting be fixed at N124,000,000.00 (One Hundred and Twenty-four Million Naira) for each financial year. BY ORDER OF THE BOARD

11. That Clause 104 of the Articles of Association be amended by deleting and substituting it with: Nkechi Nwosu “The Directors shall provide for the safe keeping of the seal, which Company Secretary shall be used by the authority of the Directors or of a Committee of FRC/2013/NBA/00000001571

NOTES 1. Proxy (ii) The appointment of Mrs Ifueko Omoigui Okauru as Independent Director is A member of the Company entitled to attend and vote at any Annual General also being tabled for your ratification. Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company. For the appointment to be valid, a completed (iii) The appointment of a non-executive Director (Mr. Allan Christopher and duly stamped proxy form must be deposited at the office of the Registrar of Michael Low) for your ratification. the Company, Centurion Registrars Limited, 59, Ogunlana Drive, Surulere, Lagos State, not less than 48 hours before the time fixed for the meeting. 5. Appointment of Auditors That the appointment of KPMG Professional Services as the new Auditors to the 2. Closure of Register of Members Bank, be and is hereby approved. The Register of Members will be closed from April 16th 2013 to April 17th, 2013 (both days inclusive) to enable the Registrars to update the register. 6. Audit Committee In accordance with Section 359 (5) of the Companies and Allied Matters Act, 3. Re-election of Director over 70 years 1990, any shareholder may nominate another shareholder for appointment to the Special Notice is hereby given that HRM Igwe Nnaemeka Alfred Ugochukwu Audit Committee. Such nomination should be in writing and must reach the Achebe who is over 70years will be proposed for re-election as a Director Company Secretary not less than twenty one (21) days before the Annual General pursuant to Section 256 of the Companies and Allied Matters Act, 1990: Meeting.

4. Election of Directors/Appointment of Independent Director The Central Bank of Nigeria's Code of Corporate Governance has indicated that (I) In accordance with the provisions of the Articles of Association of the some members of the Audit Committee should be knowledgeable in internal Company, Mr. Chris Ogbechie, Mr. Ian Greenstreet and Ms. Ngozi Edozien control processes. We therefore request that nominations be accompanied by a retire by rotation and being eligible, offer themselves for re-election. copy of the nominee's curriculum vitae. 2012 | ANNUAL REPORT & ACCOUNTS 24 CHAIRMAN’S STATEMENT

Distinguished Shareholders,

n behalf of the Board of Directors, I welcome you all to the 22nd Annual General Meeting (AGM) of our great institution. It is my pleasure to present Othe Audited Accounts and Annual Report of our Bank for the year ended December 31st 2012 to you.

2012 was a year of significant achievements and turnaround for Institution is a clear testament that the steps we took in 2011 to our Bank as it marked the first year of our New Strategic Focus: reposition the Bank was well thought out. Project: Reclaiming the Diamond. The project saw us adopting a new vision and mission statements including new core values, Fellow shareholders, permit me to quickly review the economic and was anchored on a tripod of excellent people, unique conditions and the environment under which our Bank operated customer experience and financial performance (value to during the year, and their impact on the performance of the stakeholders). Bank. That would put the financial performance of the Bank in proper context. Broadly, the Project: Reclaiming the Diamond is a change process designed to reposition the Bank as the top bank in the International Business Environment industry by December 2016, using the progress made on some select metrics as yardsticks. Excitedly, the year under review saw In 2012, the International business environment remained the Bank thrive under the strategic leadership of the largely unpredictable as we witnessed a large amount of political management team led by Dr Alex Otti, who joined the Bank in and economic turmoil. This includes disturbances in the Middle March 2011. Our financial performance in 2012 shows that the East and North Africa (MENA) and the sovereign debt crisis in the Bank not only returned to profitability but also showed very euro zone, resulting to volatility in commodity prices, and strong performance indices. The remarkable turnaround of the disruption in supply chains; and slow recovery in both emerging Having one of the strongest teams of professionals, driven by a collaborative work culture and accountability is an important feature that will continue to drive our Bank's success in the years ahead.

HRM, NNAEMEKA ALFRED UGOCHUKWU ACHEBE, Obi of Onitsha Chairman CHAIRMAN’S STATEMENT 2012 | ANNUAL REPORT & ACCOUNTS 26

and advanced markets. There was decreased economic of growth, recording 8.23% increase in contrast to the oil sector, performance in oil importing countries, with an estimated which contracted by 0.17% during the period. Also, on the growth of 2% in 2012 while the oil exporting countries grew at an sectoral level, the contributions of the agricultural sector average rate of 6.6%. maintained the highest, followed by the wholesale and retail trade, and the crude oil and natural gas sector. In the Euro area, economic and financial conditions remained severely weak, caused by the sovereign debt crisis in the Euro The subdued performance of the economy in 2012 was largely zone. Emerging economies, which had shown signs of strong attributed to the following: rebound from the credit crisis, was hit by the slow export growth u The impact of the global crises on trade flows which slowed down real GDP growth. The troubled PIIGS u Escalating state of insecurity in the country (Portugal, Ireland, Italy, Greece and Spain) economies remained u The contagious effect of the partial removal of fuel subsidy largely weak. Greece and Spain were worst hit with high on inflation unemployment. Economic conditions in sub-Saharan Africa was u The high incidence of flooding across the country and its however robust despite the slow growth in the global economy. devastating impact on food production Prudent policies and improved fundamentals in most countries u Higher food inflation rates and unimpressive growth of enhanced increased economic activities in the region. credit to the private sector

According to International Monetary Fund's World Economic However, the external sector recorded a fairly stable trend during Outlook (WEO) Update of January 2013, the world economy the year. The exchange rate was fairly stable throughout the year grew by 3.2% in 2012, and is projected to grow by 3.5% in 2013. as it remained sticky around N155/1US$, maintaining a target The advanced economies grew lower by 1.3% in 2012 and are margin of +/-3%. The fairly stable exchange rate was driven by projected to grow at 1.5% in 2013, while emerging markets grew rising external reserves, favourable oil price and good by 5.1% in 2012 and are projected to grow by 5.5% in 2013; macroeconomic policies. The external reserves grew by 34.2% in growth in Sub-Saharan Africa was 4.8% in 2012 and is projected 2012 to stand at US$44.18billion as at December 31st, 2012 up to close 2013 at 5.8%. from US$32.92billion as at end December 2011. The accretion to reserves was due to the monetary policy stance of the Monetary Domestic Business Environment Policy Committee (MPC), the fall in demand by oil importers, increase in foreign inflow, favourable price of oil in the The performance of the domestic economy in 2012 was not as international market and fiscal prudence. The headline inflation robust as that of 2011. This was largely a reflection of the however remained relatively high throughout 2012 closing at developments in the global economy following global 12.0% down from 12.6% at the start of the year, and had an economic downturn in 2012. According to the National Bureau average rate of 12.2%. of Statistics (NBS), the economy slowed down to an estimated 6.58% in 2012, which is lower than 7.5% achieved in 2011. The From the standpoint of monetary policy, the CBN elected to non-oil sector (notably Agriculture, Wholesale & Retail Trade, keep the bench mark interest rate at 12% throughout 2012 in a Telecoms and Hotels & Restaurants) remained the major drivers bid to prevent inflation hike and achieve single digit inflation, in CHAIRMAN’S STATEMENT 2012 | ANNUAL REPORT & ACCOUNTS 27 addition to various liquidity management techniques. The high expected to help reduce the high cost of cash and the risk of Monetary Policy Rate (MPR) led to liquidity tightening, credit using cash. The changes to the cashless policy commenced on contraction and high lending rates by banks which adversely April 1, 2012 and extended until December 31, 2012. The affected the development of the real sector. programme is expected to be initiated in other states of the country in 2013. In contrast, the capital market generally performed well compared to other capital markets globally, recording 30% gain In addition, during the year, there was successful on index in 2012 and it is expected to continue in 2013. The key implementation of Risk based approach to combating money reforms carried out in the sector a few years ago are now paying laundering and terrorist related activities financing. The financial off. The good performance is largely due to sustained interest in support from the Asset Management Corporation of Nigeria foreign investment. The market capitalization rose to (AMCON) also helped to reduce credit risk. As the year N8.97trillion on the last day of 2012 up from N6.53 trillion progressed, we saw better performance from the industry in the recorded in the beginning of the year. areas of service delivery and productivity, product innovation, credit disbursement to the real sector but more investment in THE BANKING ENVIRONMENT fixed income as interest rate remained relatively high and tax free. There was also a strong appetite across the industry for Notwithstanding the fairly difficult operating environment both organic and inorganic growth as banks moved to capture occasioned by the on-going reforms in the industry and the less additional market share in their target segments. than salutary development in the global economy, Banks as early as first quarter of 2012, commenced a sustained return to FINANCIAL RESULTS profitability across board. This was sustained throughout the remaining quarters like Diamond Bank Plc did. Some of the key Distinguished Shareholders, I am very delighted to announce to developments and reforms that shaped the industry 2012 you that your Bank has bounced back to profitability following include the implementation of the International Financial the significant write-offs we had to do in 2011 to clean up our Reporting Standards (IFRS); improvement in Banks' rating, with books and reposition the Bank. Today, the result before us Fitch rating assigning a 'B' range viability rating on Nigerian confirms that the steps we took in 2011 were in order. Banks. There was improvement in the banks' asset quality in 2012, following more sales of bad loans to the Asset The Group's total asset base hit the one trillion mark for the first Management Corporation of Nigeria (AMCON). time in our history as Total Asset stood at N1.2trillion, up by over 47% from 2011 position of N796.2billion. Similarly, customer In 2012, the Central Bank of Nigeria initiated a pilot cashless deposits inched towards the trillion naira mark, increasing by 51% policy program for 'cash-lite' Lagos, which was launched on to N910.2billion compared to N603billion in the previous year. January 1, 2012. The policy was basically designed to reduce the Our commitment to the development of the real sector physical cash involved in business transactions and encourage remained unabated as we increased our loans and advances by the use of alternative distribution channels, like ATMs, Point of over 51% from 2011 position of N388.1billion to N585.2billion at a Sales Terminals and Online Banking etc. Ultimately, the policy is time most peers were slowing down on lending. This growth rate CHAIRMAN’S STATEMENT 2012 | ANNUAL REPORT & ACCOUNTS 28

remained one of the most bullish in the industry in 2012. Profit N4.94 in the last trading day in 2012 Before Tax (PBT) and Profit After Tax (PAT) increased astronomically by over 250% to N27.5billion and N22.1billion u While the NSE All share index recorded a 35.45% year on respectively from loss position of N18.0billion and N13.7billion in year growth, Diamond Bank's share price appreciated by 2011. 157% from the N1.92 in December 2011 to N4.94 in the last trading day of 2012 Clearly, this is a commendable performance by all standards and it is down to the hard work, dedication and visionary leadership The growth was on the back of management restructuring, and of the Board, Management and staff of our great institution. strategic reformation which led to strong balance sheet performance and profit growth. RETAINED EARNINGS AND SHARE PRICE PERFORMANCE While thanking all shareholders for their understanding and Following the impressive performance of the Bank and the need continuous efforts, overall, we will continue to adopt policies to ensure sustainable performance going forward, the Bank is and practices that will allow the market to positively reward all planning to raise additional capital by increasing its authorised our stakeholders. share capital from N10billion to N15billion by the creation of additional 10billion ordinary shares of 50kobo each. Part of the OUR PEOPLE – THE BEST PEOPLE special resolution we are seeking the approval of the shareholders during this AGM is the approval to allow the Board In 2012, our work force lived up to expectations as the most and Management of the Bank to raise $750million through important asset of the Bank. The Bank is now blessed with private placement, public offer or debt issuance. exceptional, experienced and cohesive management team and staff with a clear strategic objective to deliver profitable growth As a first step towards increasing the capacity of the Bank to do to stakeholders. I am pleased that 2012 financial performance of business, support future expansion plans towards the realization the Bank gives me the opportunity to express my appreciation. of the leadership aspirations of the Bank and generally address the capital adequacy issues; it is expedient therefore to write the On behalf of the board and shareholders, I would like to thank all 2012 profit into retained earnings before approaching the of them for their contribution towards the outstanding progress shareholders for additional investments. It is interesting to note that the Bank has made during the year. Having one of the that the Bank is on track to deliver its performance targets in the strongest teams of professionals, driven by a collaborative work years ahead and it is pleasing to note that the market is rewarding culture and accountability is an important feature that will the Bank's strong fundamentals as reflected in the share price continue to drive our Bank's success in the years ahead. The performance of the Bank during the year under review. development of tomorrow's management talent, and indeed the development of all the Bank's employees to enable them to Diamond Bank's share price recorded the highest year on year perform at their full potential, which is vital to Bank's future, will growth when compared to other banks: continue to be a top priority for the Board. u It appreciated by 157% from the last trading day in 2011 to CHAIRMAN’S STATEMENT 2012 | ANNUAL REPORT & ACCOUNTS 29

TRAINING AND RECRUITMENT Balance Scorecard. We will continue to develop management and staff talents and skills by investing in their future through 2012 financial year saw us improving significantly in our training training and some development initiatives to properly position activities, which remained a top priority for the Board. To us, them to leverage the opportunities in the market place and equipping our workforce with the right training and exposure is ultimately deliver on our Project: Reclaiming the Diamond. . very important for the Bank's competitiveness in the market place. Accordingly, 2012 financial year saw over three thousand, BOARD OF DIRECTORS eight hundred (3,800) staff going through our class room based programmes compared to two thousand, two hundred and forty During the period under review, Mazi Clement Owunna retired eight (2,248) participants in 2011. Over three thousand, three from the Board in July 2012 in line with the Central Bank of hundred and fifty (3, 350) staff members took our e-learning Nigeria's directive regarding the tenure of directors. Mazi training programmes cutting across different segments of the Owunna was a great asset to the Board. His well thought out Bank. insights and unwavering commitments throughout his tenure as a director helped to propel the Bank to enviable heights in the Our training activities was not limited to local training as forty Banking industry. The entire Board and management of the Bank seven (47) staff members took relevant business courses in some will greatly miss his invaluable contributions. On behalf of of the best business schools in the world to hone their skills and everybody, I wish Mazi Clement Owunna the very best in his strengthen their capacity for the challenges ahead. This number future engagements and remain confident that he will continue was more than the thirty five (35) staff who went through similar to identify with the Bank. programmes in 2011. In response to the developments in the global financial system, we have positioned ourselves to Within the 2012 financial year, Mrs Ifueko Marina Omoigui maximize emerging opportunities in financial derivatives by Okauru joined us as an independent director. The CBN approved deploying intensive capital market and derivatives products her appointment in October 2012. Mrs Okauru holds a first class trainings to the executive management team, senior degree in Accounting from the University of Lagos and a Master management and the relevant operations level teams. of Science degree in Management Science as well as Diploma of Imperial College University of London. She is a fellow of the In pursuit of the Bank's branch expansion project, six hundred Institute of Chartered Accountants of Nigeria and Chartered and eleven (611) Graduate Trainees were trained in our intensive Institute of Taxation of Nigeria and former Executive Chairman of 10 week orientation programme while over one hundred and the Federal Revenue Service and Federal Inland Revenue Service, twenty (120) experienced hires were made to undergo our one FIRS. Her career spans over 31 years. She is currently the week induction programme. The total man hour invested in Managing Partner of Compliance Professionals Plc, the human capacity development initiatives in 2012 was 312,343 company she founded in 1996. compared to 105,500 man hours in 2011. Finally, let me also use this opportunity to acknowledge the Overall, the Bank has overhauled its Talent and Career important contributions of my other colleagues on the Board Management framework which is now properly aligned to the throughout 2012. I have no doubt in my mind that we will CHAIRMAN’S STATEMENT 2012 | ANNUAL REPORT & ACCOUNTS 30

collectively continue to give our very best in the years to come. My sincere gratitude also goes to all our regulators including FUTURE OUTLOOK CBN, NDIC, NSE, SEC and EFCC for their support. Again let me appreciate the contribution of the Management and staff of the The global economic outlook is not too benign as the IMF has Bank for returning the Bank to profitability within 12months. shaved its 2013 forecast for global growth to 3.8% from the 4.1% Indeed it was no mean achievement. It is clear that they have it earlier projected. Emerging countries are not spared in the worked tirelessly and relentlessly to keep our business afloat and downgrade. Policy makers have been adjudged to be ready to on a sound footing. As the Board and Management enter into cope with trade declines and the high volatility of capital flows. year two of Project: Reclaiming the Diamond, I want to assure all stakeholders that your Bank is primed to reclaim its leadership In the domestic economy, robust rate of growth is expected in position in the industry and deliver superior shareholder value to 2013 (7.24%) as investor sentiment continues to rise despite the all our stakeholders. challenges of doing business in Nigeria. The FGN Budget 2013 based on 2013 -2015 Medium Term Economic Framework, with Distinguished Shareholders, Ladies and Gentlemen, I thank you the theme: Fiscal Consolidation with Inclusive Growth, is all for your kind attention. expected to place emphasis on completing the stock of ongoing projects as well as investment in critical projects, particularly in the badly lagging power sector, Nigeria's ports, and human development sectors. The expected growth in the economy in 2013 and government continued implementation of its reform program will continue to offer Bank's more business HRM, Nnaemeka Alfred Ugochukwu Achebe, opportunities. Obi of Onitsha Chairman As a Bank, we have developed a strong internal framework to tap these opportunities in the market place. We remain firmly committed to surpassing all performance benchmarks for the year and we are confident that we shall achieve this.

CONCLUSION

On behalf of the Board, I thank all our Shareholders for their confidence in Diamond Bank Group. I am really grateful for the support and encouragement we have continued to receive from all of you especially during the trying time. I am confident that we can continue to count on this support to move the Bank forward. 2012 | ANNUAL REPORT & ACCOUNTS 31 CEO’s LETTER TO SHAREHOLDERS

Distinguished Stakeholders,

thank you for supporting Diamond Bank Plc, and it is with great pleasure that I present to you, the financial results and major activities of your Bank Iduring 2012 financial year. Your bank earned a record profit before tax of N27.5 billion for dislocations in economic structures, which peaked before the 2012, a remarkable improvement over the loss of N18.0 billion financial crisis of 2008-2009 and in some ways contributed to declared in 2011. Our return on average equity (ROAE) was the crises. Going from reports in World Economic Outlook 22.7%, again an improvement over the negative ROAE for 2011, (Publication of IMF), global growth reduced to 3.3 % in 2012 from and we believe that as other banks release their results, you will 3.8% in 2011. The euro zone saw a marked decline in economic find that your bank's ROAE will rank amongst the best in the activities driven mainly by financial difficulties. industry. Cost to Income Ratio (CIR) went up marginally from 60.1% in 2011 to 60.6% in 2012, while Net interest Margin (NIM) was 9.9% in 2012. On an absolute basis, profit before tax ought Despite the global slowdown, West African regional economic to have been about N44 billion, but the main reason for the growth remained robust with an estimated growth rate of 6.9% variance were the additional loans written off after further in 2012 which was higher than 5.9% recorded in 2011. Sierra assessment of our loan book, and the financial condition of Leone recorded the highest economic growth rate in 2012 some obligors showed that it was the most prudent thing to do. among the 15-member countries in the sub-region, growing at These write-offs have ensured a healthier Non Performing loan 18.3% compared to average rate of 8% for Burkina Faso, Ivory ratio of 4.7% in 2012, compared to the 9.3% we grappled with in Coast, Ghana, Liberia and Niger. These growth rates were driven 2011. mainly by favourable terms of trade and rise in commodity prices as these countries run mostly commodity based 2012 presented an interesting operating landscape. The global economies. economy slowed down, reflecting the continuing adjustment to Our focus is to optimize balance sheet efficiency while increasing returns and minimizing risks, all within the context of financial intermediation which is our primary mandate.

DR. ALEX OTTI Group Managing Director/CEO CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 33

Data released from the National Bureau of Statistics indicates the impact will be significant in the short or long term. that the Nigeria economy grew by 6.5% in 2012. The non-oil sector was the main driver of growth with agriculture, wholesale u The impact of decaying public infrastructure especially in & retail trade, and telecommunication as the leading sectors. The education, health, transportation and power sectors oil sector accounted for the high export and federal government affected not just your bank but other operators as well. As revenue. Government ramps up its remodelling and rebuilding of aviation infrastructure, and concludes the disposal of power On the domestic scene, there were socio-economic assets nationwide, improvements may become noticeable developments which presented your bank and indeed the in some of the national services. The last quarter of the year industry with significant challenges during 2012 and I will talk proved more positive in this regard with more financial about these briefly: investments being pumped into road construction and rail lines rehabilitation. The 2013 budget renews hope that more u The various acts of violence in some parts of the country sectors are receiving attention from the right government affected us directly. Early in 2012, we lost 3 members of staff agencies; in a brutal attack on our branch in Mubi, Adamawa State, suspected to have been launched by the group “Boko u The regulation of Deposit Money Banks, (DMBs), has Haram”. One other member of staff who received serious remained dynamic though in some cases putting additional head and facial injuries is still undergoing treatment abroad. burden and costs on the banks. However, judging from We had to shut the branch temporarily. This was also the events of the recent past, it is important to focus on the case in many other locations where we had to suspend intended purpose of the tightened regulations which is to operations due to an intemperate operating environment. guarantee that the DMBs remain healthy and safe for While this affected business negatively, our action reflects depositors and investors. As shareholders, it will interest you the premium we place on the lives of our staff over short to note that a new capital adequacy ratio of 15% for term profits; international banks, which affects your bank, came into effect in 2012. u The floods witnessed in the country from August to October 2012 displaced whole communities and hampered u As mentioned earlier, available statistics indicate that GDP movements of goods and people across geographic grew by 6.5% in 2012. This is healthy. However, as a core locations. It didn't stop at that as it destroyed farmlands, retail bank, we expect there will be a lag before it starts to personal property and stock of goods held for business. The translate to improved disposable income in the hands of our implications for your bank is that we remained shut in some customers. We remain committed to helping our customers locations for long periods of time and had to deal with to engage in activities that will boost macro and micro customers who lost goods and property financed by us. The economies of the country. effects of the flood on your bank will be more manifest in the months ahead as we start taking stock of loans that have Despite all these, I am delighted to report that our 2012 financial become challenged as a result. I do not however expect that year was a huge success and our quest to become a leading bank CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 34

N'Bn N'Bn

1,400 TOTAL ASSETS RISK ASSETS 700 1,200 600 1,000 500 800 400

600 1,178 300 585 400 796 200 388 593 307 200 100

- - 2010 2011 2012 2010 2011 2012

N'Bn 18,000 16,997 Card Sales DEPOSITS 1,000 16,000 15,100 Cards Activated 14,000 11,805 800 12,000

10,000 9,187 600 8,000 6,234 910 400 6,000 5,601 603 4,000 200 413 2,000

- - 2010 2011 2012 2010 2011 2012

in the industry and one of Africa's leading financial institutions is communities we interact with. on course. In 2012, your Bank raised about $200 million in Tier 2 capital to In the face of many difficult challenges, your Bank is doing its support growth in different business segments and also to best to exceed the expectations of its stakeholders. We owe a lot comply with the minimum capital adequacy ratio of 15% for to our dedicated employees who have displayed exemplary international banks as required by regulation. Prior to this, we commitment to the bank and its ideals. Together, we have made recapitalized our West African subsidiary to put them in a positive impacts on the fortunes of people, businesses and position to leverage on the opportunities in that market. The CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 35 additional loan write-offs this year means that we have less profit i. Our Mission that can be retained to support operations and will need to ii. Group financial performance consider other options to shore up our capital base. iii. Review of business segments iv. Review of subsidiaries The last few years have been trying for our shareholders, partly v. On-going initiatives because of the general economic downturn and partly because vi. Priorities for 2013 of the internal issues that needed to be fixed. I am however vii. Comments on the future convinced that we have gone past the worst period and are viii. Conclusion firmly back on track in creating value for our shareholders. The best way to do this is to build a great bank, offering unequalled i. OUR MISSION customer experience day after day and ensuring this experience is available on a sustainable basis. Rise in shareholder value as “We will consistently exceed customer expectation by providing reflected in stock prices will naturally track how well we have value-adding solutions through professional and highly done in achieving this. Normally I do not comment on price of motivated people, delivering excellent financial performance in the bank's stock but will want to note in this instance how it all markets where we operate.” performed in the last nine months. - Diamond Bank Mission Statement - February 2012

We believe you own a great company. As we continue to The practice of banking has evolved through time but our restructure and unlock value from many areas of our business mission as a bank remains to ensure that relevant banking operations, our latent strengths will become more evident. In services are offered to all who need it, all the time, and through 2012, we saw phenomenal growth in some of our business channels that are easy and convenient to use. Our ability to fulfil segments and will examine these more closely in this letter. this mission has been made possible through 4 core Importantly, we have an outstanding crop of people and stakeholders; customers, shareholders, employees, and our business leaders who are now excelling in the market. communities.

Embedded in this bank is a DNA for excellence and success and Our Customers: We owe a lot to our customers. Without our this has provided us with a platform to engage in meaningful customers, be they individuals, small businesses or large ways with our people, customers, regulators, investors and other corporates, there would be no Diamond Bank. Period. Over the stakeholders. past 22 years that we have operated in the country, our customers have kept faith and remained committed to us more In the rest of this letter, I will focus briefly on the results we have so in the last few years when there was a level of uncertainty in presented in the annual reports and accounts, which has been the economy and the industry. Our mission in the years ahead is made public and explained exhaustively in the investors to retain their loyalty and we realize we can only do this by conference call on Wednesday, April 17, 2012, and then on to treating our customers the way we would want them to treat us other issues that will impact our operations in the year ahead. For – as indispensable partners in the quest for success. ease of reading, they will be in the following sections: CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 36

At Diamond Bank, we know our customers' expectations of us equip them to do a great job in serving our customers. They do and we are focused on looking for ways to exceed these this in teams that are symbiotic so that a customer can benefit expectations by delivering products and services at the right from expertise in different areas of the bank. price using the right systems and people. We pay attention when our customers speak. Our employees are committed to innovation and seeking out new methods that make banking with us more convenient and at Our Shareholders: The demands of our shareholders to have a the right price. They are knowledge leaders and experts in their great company that is socially responsible drives our corporate various fields, so regardless of if you are a small business, a large strategy as well as day to day actions. At Diamond Bank we have corporate, multinational or an individual, we can match you with accepted that shareholder value is defined by financial networth an employee that understands your needs and is equipped to as well as how effectively we implement sustainable banking provide creative solutions. principles. The two are intertwined. That is why we have signed on to Sustainable Banking Principles and Initiatives and have We are proud of our employees! indeed started taking steps to implement them. To note, we are the lead agent of the Federal Government's “Access to Finance” Our Communities – Being Diamond Bank: Being a bank comes initiatives, signatory to, and participant in the Agricultural Finance with a lot of responsibilities. Being Diamond Bank comes with Program amongst others. Our belief is that these are projects we magnified responsibilities. We have offices in all 36 states in should be involved in to create enhanced shareholder value in Nigeria, four additional West African countries, and the United the long run. Kingdom, and we are still growing. Because of the diverse nature of our customers and markets, we need to see things from the I will also like to thank all our shareholders who have kept faith local perspective while maintaining a global view. We bank small with us in recent years when we did not pay dividends; years in businesses in Senegal, advice Government in Republic of Benin, which the share prices dropped and underperformed the and are involved in multimillion dollar finance for projects across Banking sector index at the Nigerian Stock Exchange. Again, this countries. We also see ourselves as involved in building the year, despite making a healthy profit, we will be unable to pay any future: so be it sponsoring an art competition for primary school dividend because we are constrained by statute to plug the hole students, promoting entrepreneurial business plan competitions, in our retained earnings reserve. We are also in the market to look or supporting the domestic movie industry, Diamond Bank is for additional capital to run our business and see retention of all interwoven with its communities beyond banking. we earned in 2012 as the most prudent thing to do. In any case, your bank has turned the corner and the years ahead should be Going “Beyond Banking” compels us as an institution to support more interesting times. causes that increase income levels and help communities out of poverty. Take our Small and Medium Enterprises (SMEs) Banking Our employees: It is only great employees that can build a great for instance, we have programs that help small business owners company. We are painstaking in recruiting and retaining high build and increase capacities for more business through bank quality employees with great potentials. During the course of organized seminars, networking events and a host of other their careers at the bank, starting from day one, we train and initiatives. CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 37

We have also built partnerships with multilateral financial risk management process, restructure of the loan book, and developmental institutions, which use the bank as a platform to prudent cost management across the bank. This is reflected in reach SMEs and other institutions that are focused on maternal the cost to income ratio that remained stable at 60.6% in 2012. healthcare etc. Other ratios that will interest you with regards to our final results include Return on Average Equity (ROAE) which grew from We are proud of the way we engage our communities and as we negative returns of 14.3% in 2011 to 22.7% in 2012 and revenue put the right framework in place and go on full throttle with per staff that climbed to N47.6 million in 2012 from N38.3 million sustainable banking initiatives, we envisage engagements on an in 2011. even wider scale.

FY 2012 FY 2011 YoY ii. GROUP FINANCIAL PERFORMANCE N' billion N' billion % ∆

As I mentioned at the beginning of this letter, our group financial Aggregate Loans & performance for 2012 financial year shows what is possible if all Advances to Customers 585 388 50.8 stakeholders apply themselves to build a great institution. In Aggregate Deposits 910 603 50.9

FY 2012 FY 2011 YoY Total Assets 1,178 796 48.0 N' billion N' billion % ∆ Equity 109 86 26.7 Gross Earnings 138.8 102.7 35.2

Net Interest Income 89.3 70.9 26.0 At the beginning of 2012, we did not envisage that we would take Impairment Charge (1 7.0) (55.4) 69.3 additional charges due to impairment of risk assets. However, Operating Income 96.0 38.5 149.4 operational realities have compelled us to write down the value Operating Expenses (68.5) (56.5) (20.8) of some assets and the total charge for 2012 is N17.0 billion. This

has made us to take a new look at our books to be sure that Profit Before Tax 27.5 (18.0) 252.6 assets that are retained are only those that meet our minimum risk criteria. some ways, it is a rebirth for us as it reflects the results of the first Your bank also grew in size during 2012. Loan and advances grew year of operations under our change and growth initiative tagged by 50.8%, aggregate deposits grew by 50.9% while our total “Reclaiming the Diamond". assets crossed the one trillion naira mark. Growing the size of the bank is useful but more important is the efficiency of that size, During the year we witnessed top line and bottom line growth and the ability to create value for you by leveraging on the bigger which should excite shareholders. While the top line grew by size. This we are doing as evidenced by our return on average 35.2%, the bottom line grew by 253% to showcase efficiencies in equity. Our five year plan has outlined efficiency targets that we CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 38

500 Business Banking (N'bn) 250 Corporate Banking (N'bn) 400 200 RISK ASSETS RISK ASSETS DEPOSITS 300 DEPOSITS 150

200 100

100 50

- 2010 2011 2012 - 2010 2011 2012

are aggressive about achieving, and as we tick off the commercial financing to companies and projects in their achievement column in each of these targets, it will be as a result domains. of having created additional value for you. b. Corporate Banking iii. REVIEW OF BUSINESS SEGMENTS Our Corporate Banking business continues to grow following a. Business Banking the appointment of a staff to run this directorate separately.

Your bank's business banking segment includes all our In this business segment your bank has gained new commercial banking businesses as well as the public sector competencies over the last 24 months and has become a market banking in all the states and Abuja. model through information leadership. Our scope of involvement spans commercial lending, project finance and In 2012 the business growth was remarkable. Risk assets advisory services, and sectors we are very active in includes Oil & increased from N150 billion in 2011 to over N200 billion in 2012. Gas, Power, Infrastructure and Manufacturing. Similarly, deposits jumped from N260 billion in 2011 to about N415 billion in 2012. In all, Business banking contributed over As the power sector is privatized and infrastructure is upgraded 46% of the group deposit liability. across the country in 2013 and beyond, we envisage significant growth for your bank in these sectors. Corporate Banking We are happy with these results because it reflects the continued accounted for most of the 51% growth in loans and advances growth of our mid-tier business. As we open new locations during 2012. across the country and West African region this year, we expect to sign on additional businesses. Our activities in the upper c. Retail Banking echelon of this segment have continued to gain traction, as well as our partnerships with some state governments to provide We witnessed growth in our Retail Banking business in 2012. This CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 39

400 Retail Banking (N'bn) subsidiaries, we took a step forward to recapitalize our banking subsidiary in West Africa known as DB Benin. We have a second subsidiary in the pension fund industry. 300 RISK ASSETS

DEPOSITS 120 200 WAMU Zone (N'bn) 100 RISK ASSETS DEPOSITS 100 80

- 60 2010 2011 2012 40 is a segment where we are paying lots of attention to out of our 20 conviction that the demography of the country as well as that of - the West African sub region points to it as growth markets.

Already we are positioning in different ways to be part of this Owning the West African subsidiary provides us leverage across growth. Part of this is the recent reconfiguration of our branch French speaking West Africa for now, and English speaking, we architecture which is evident as new branches come on board, believe, in the not too distant future. and also our aggressive deployment of alternative channels for you to transact banking business, some of these enabling you to a. DB WAMU Zone do this from the comfort of your homes. After a loss in 2011, DB Wamu Zone bounced back to profitability We are also at the stage of testing many products which are in 2012 and contributed about N570 million to Group designed to make banking convenient and accessible to all who profitability. However, following IFRS accounting methodology desire it and these will gradually enter the market as from the for the parent which involved more stringent impairment second quarter of 2013. process than BCEAO requirements, the PBT for the zone was a loss of N1.1 billion. Growth was however witnessed in customers' Our intention is that by 2017, Retail Banking segment will be the deposits as well as risk assets. largest part of the bank in assets, deposits and profitability and we believe we are on track to achieve this. In 2013, we shall continue to collaborate with this important subsidiary to ensure that their business continues to grow. I also iv. REVIEW OF SUBSIDIARIES expect that this year, there will be new branches in Benin and Cote d'Ivoire markets as they continue to track the opportunities In 2012, following the completion of disposal of non-banking in the markets and expand their businesses. The relative political CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 40

stability across our primary markets in West Africa has been very financial services in Nigeria and the sub region has improved helpful. tremendously (we are lead agents of this change) and your bank will continue to position to take advantage of this. b. Diamond Pension Fund Custodian In recent investor conference calls, I have been asked repeatedly Our initial decision to dispose this subsidiary affected its business what the bank's growth strategy will be; through organic growth severely and it is only just gaining some stability in the past or by acquisition? My response has always been that we are couple of years. Nevertheless it continues to make positive focused on growing organically, at least in the domestic market, contribution to group profitability. The group recorded a PBT of but will be open to evaluate any acquisition opportunities that N255 million in 2012 from N152 million in 2011 emerge only if there is a compelling business reason for this.

In pursuit of our domestic growth, we are scheduled to open 80 DBPFC (N'bn) many new locations this year especially in under-represented 70 markets with strong economic fundamentals and where our ASSETS UNDER CUSTODY 60 services will be a strong agent for growth. Already, we have 50 received approval for 30 of these locations and expect more will

40 follow shortly.

30 Internationally, on March 26, 2013, we concluded the acquisition 20 and took over control of a niche bank in the UK. This underscores 10 our intention for a two pronged approach, acquisition and - - organic growth, to expansion. This new member of the group 2010 2011 2012 will facilitate our Trade finance and treasury services. We continue to search the West African market and indeed rest of A new CEO was installed in late 2011, and he continues to make Africa for opportunities that will add value to your wealth in the the necessary changes to grow the business. We are convinced bank. In these markets, we have seen significant opportunities to this is paying off and your bank is committed to providing all the create access to finance and scale our expertise in SME and support needed to make it gain a respectful position in its Retail banking. industry. Alternative Delivery Channels v. ONGOING INITIATIVES Beyond expanding our networks through physical buildings in Branch Expansion our quest to capture the growing retail wave in the country, we are also leveraging on our robust technology to further deploy The opportunities for Diamond Bank in the next decade will be new e-banking solutions to reach out to more customers in line greater than those of the last ten years. The adoption rate of with Central Bank's financial inclusion strategy and cashless CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 41 CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 42

economy. Thus, we have increased considerably all our Corporate Banking from the erstwhile Lagos Directorate. alternative delivery channels both in numbers and quality. The We hired an experienced Banker from outside to lead the Bank's ATM has grown from 240 in 2011 to 408 in 2012. To business in the West directorate while corporate banking underscore our ambitions here, your bank pioneered the waiver directorate was filled from within; of ATM fees for withdrawals using other banks ATMs. This has now become standard industry practice after the Central Bank u Excision of financial Institutions Group from Corporate compelled other banks to follow suit. In addition, we are a Banking and merging it with Treasury to form a new Treasury member of the ATM Consortium that has ATMs in strategic and Financial Institutions Division; locations outside bank premises. Our POS deployment grew astronomically in one year from just 126 in 2011 to 8,354 in 2012. u Creation of 6 new regions; 3 in Lagos Directorate, 1 in North We had a total of 16,997 active credit cards and 522,908 active Directorate and 2 in West Directorate. In keeping faith with debit cards as at the end of 2012. The Bank had 35,727 active our home grown talent, we filled all but one of these new diamond online users with transactions valued at over senior roles from inside; N4.5billion in 2012. To reach the “Unbanked” in a cost effective manner, we are at the final stages of developing a plan for u Introduction of a Corporate Planning Division to oversee Agency Banking that enables small volume savers access to our group strategic planning, performance management and banking services through a savings account with an opening group co-ordination. balance as little as N1,000. Brand Refresh The phenomenal growth in our card and alternative channel services have resulted in queues disappearing from our banking Starting from the last quarter of 2012, you would have noticed halls, thereby contributing to our customers overall satisfaction. that the colours of our logo changed and the facade of most, if We intend to continue in this path by growing our ATMs, POS and not all of our branches, reflect this change. I have been asked to Cards. We will continue to create the required awareness, explain the reason for this change several times. We refreshed highlighting the convenience of the service, and introduce our brand primarily to send a message about what the priorities loyalty schemes that would drive adoption and usage. Overall, of the Bank are – determination to continue to lead with a range we will continue to improve and expand our e-channels without of innovative products, develop deeper relationships with our compromising the high level of security we have built into them. customers and support whatever their goals are, be it saving for a future project or looking for capital to start or grow their Restructure of our Business business.

Several changes took place inside your bank during 2012 and In many ways the refreshed logo, which has the full colour these changes will be a constant feature as we continue to spectrum of a diamond, also gives us the visibility we desire in the experiment towards building a model that is most responsive to market. But the important changes go beyond the logo and its our target market. colours. I invite you to visit our locations to get a glimpse of what u Creation and manning of two new directorates, West and financial services of the future will look like. These are business CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 43 offices designed to support retail banking and financial inclusion, Human Capital Management and reduce drastically the time spent on transacting banking services. As at the end of 2012, the Bank had over 2,900 full time employees and 4,856 associates with women accounting for an I hope that in addition to being shareholders of the bank, you'll average of 38.8% of all employees. Our revamped DB Academy also let us be your banker of first choice. produced over 450 trainees in 2012 through the Entry Level Traineeship Program while over 260 experienced staff joined the Risk Management Bank in various capacities nationwide.

As we continue to expand to new domestic and international It is clear that we can only fulfil our strategic objectives with the markets, we must pay attention to the full spectrum of risks that “Best People”, equipped with the necessary skills and having the we are exposed to. Inability to correctly assess and plan for these right attitude, and commitment to go the extra mile for our risks can expose us to losses through two major sources: clients. Thus, in order to attract and retain some of the best operational risks from frauds, forgeries and incidental hazards, talents in the industry, your Bank initiated a number of Human and credit risks from impairment of assets. We are mindful of our Resources measures like competitive wage structure, recent history where in about two years we had written off over introducing a balanced scorecard based performance N96 billion due to impaired risk assets. We have been more management framework, instituting a performance linked bonus circumspect in keeping our operational related losses to system and employee development programs among others. negligible amounts not warranting any mention. In addition, we made real progress on employee engagement. Banking is a dynamic business and the channels of delivery are Listening to our staff through various feedback mechanisms like constantly evolving. We recognize the need to constantly the bi-annual staff satisfaction surveys and the quarterly online manage our risks and that is why we will continue to invest in our interactive session with me. In all we have built an open risk management systems. As I pointed out in my letter to you last organization where communication flow is encouraged. year, we had upgraded the function to a directorate. In 2012, we recognized the need to keep track of the retail banking risk Because we realize the great advantage that can be gained in especially as the retail portfolio was growing. We therefore hired Banking by having a pool of talent to draw from, we are taking a a specialist in retail risk management. second look at how we build knowledge capital within the institution. We are committed to having a functional Academy by This year, as we upgrade our banking software, we have carefully the second half of 2013 which will serve many roles for the bank chosen one that enables us add-on enterprise risk management amongst which are Leadership development and acculturation solutions and special fraud management softwares. These are in of new and existing staff. addition to other in-house initiatives like a review and modification of the credit process. CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 44

vi. PRIORITIES FOR 2013 Some of these became available due to government policies and general shift in the economy but many were created by the bank Growth and Profitability in the course of its normal business arising from our information leadership, and depth of knowledge capital we have built In 2013, we intend to continue our pursuit of growth in size and carefully in the last 24 months. In a zero sum world, forgoing at the same time ensure that growth profits our customers and these opportunities means that someone else takes them. shareholders. I have often been asked which should take priority and my response to that is that they are both important. One We believe that as we seize such opportunities, we will ultimately drives the other. Your bank is mindful of these and that is why our turn them into tangible value for you, and the incremental value 5 year strategic plan encapsulated in “Reclaiming the Diamond” will eventually outstrip whatever value we give up by a share sale outlines the industry positioning, financial ratios and perception this year, should that become the clear choice. indices that are most important to us. From the results of 2012 operations, I will say that we are well on our way to meeting the Access to Finance internally set targets within the stipulated time frame. Visit our branches, ATMs or virtual channels for business and you'll We are taking our commitments to sustainable banking and understand my reason for being optimistic. access to finance seriously. We have just become a signatory to the sustainable banking principles and have started to embed this Capital in our decision making. This is because at Diamond Bank we believe that along with our clients, we should do business in a The growth and profitability I wrote about in the previous responsible way that assures that future generations are not put paragraph are possible if you have a bank with adequate capital at a disadvantage. We are committed to this and more to do business. At the last annual general meeting in 2012, you communication will be released as we go along. gave approval for the bank to raise a total of US$750 million of Tier 2 capital. Since that approval we have raised about $200 We also believe that in the markets we serve, every qualified million. person that desires it should have access to financial services. Already, a lot of innovative offerings by the bank to ensure this We are in a situation where we must raise additional capital to access are in pilot phases and will reach the market soon. Our move forward and are considering additional options like rights commitment to promote access to finance also goes to support issues and public offer as we continue to look at Tier II market. our retail banking growth. Concerns have been expressed on if this is the right time to raise equity capital in view of the equity market that is just recovering Integrating our Value Chain and the general notion that many companies, especially your bank is trading below its intrinsic value. These are legitimate Recently we concluded the acquisition of a United Kingdom concerns and I have spent considerable time evaluating the Bank. The intent of this acquisition is to support our desire to opportunity cost of deferring the capital raise. There are many have a closely integrated value chain. While the UK acquisition opportunities on the table we would like to take advantage of. goes to support our trade finance and treasury business, we CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 45 know that overall, such an integrated system will increase our The demand for modern transportation, health and education capacity for business, enable us assume greater control over the infrastructure is expected to escalate. New airport terminals are speed and quality of service we offer our existing customers, and expected in five locations, construction of the second Niger those that come on board as we continue our regional bridge will commence and the network of interstate roads is expansion across West Africa. In the months and years ahead, expected to be upgraded. Already a lot of work continues on this goal will drive future acquisitions and investments in partner modernizing the rail lines with tangible results now seen in the institutions. narrow gauge lines. These are in addition to anticipated changes in educational and health care delivery systems. vii. COMMENTS ON THE FUTURE With the renewed efforts by the Federal Government, supported The global economy is projected to grow in 2013 as some by the Central Bank of Nigeria, the agriculture sector is expected adverse factors underlying current economic activities are to receive a boost as banks finally start lending under the expected to subside. In addition, the global economy is forecast agricultural input support program. This will go a long way to to grow by 3.5% in real terms, a slight improvement on the 2012 improve agricultural yield. growth rate of 3.3%, but still far from the pre-crisis record of 5.4% reached in 2007. With our strong head start in 2013 and continued implementation of our strategic framework, Diamond Bank is The outlook of the Nigerian economy is bright despite the global primed to consolidate its position as a major player. That is our uncertainty. The improved macroeconomic indices present an goal and we are determined to achieve it. As an institution, we optimistic scenario: Inflation dropped to single digit of 8.6% in have collectively resolved to re-establish strong competitive March 2013 compared to 12.6% a year ago; the exchange rate presence in the marketplace. We will ensure we invest remained fairly stable at the official and parallel markets; budget responsibly to deliver excellent service and unequalled customer deficit is less than 2% of Gross Domestic Product (GDP); and experience and ultimately deliver superior shareholder value to national debt is about 19.4% of GDP and considered sustainable. you. Above all, we will continue to play an active part in helping Capital Inflows are expected into the domestic economy and will our communities to thrive in all the markets where we operate. help sustain the gains of 2012 with a likelihood of a reduction in the Monetary Policy Rate at some stage during the year, if the viii. CONCLUSION recent drop in headline inflation is sustained. If you have read this letter up to this stage, I want to thank you for We also expect the reforms in the power sector to gain your patience. It is a good sign that you are keenly interested in momentum. Your bank has years of experience in financing what goes on at the bank and what our future plans are. power projects and we are leveraging on these experiences to continue to be the bank of choice in energy financing. During the I also want to thank the over 100,000 shareholders who are part year we intend to unwind some of our investments in earlier owners of the bank as well as our close to 10,000 member work power projects as these projects reach completion and become force who apply themselves on a daily basis all year round to operational. ensure we build a bank you will be proud to own. CEO’s LETTER TO SHAREHOLDERS 2012 | ANNUAL REPORT & ACCOUNTS 46

My profound thanks go to the Board of Directors led by the The questions should be sent to Chairman, His Royal Highness, Igwe Nnaemeka Alfred Achebe, [email protected]. The subject of the mail Obi of Onitsha. During 2012, Mazi Clement Owunna retired from should be “AGM Questions” to ensure it is not missed in the the board after 12 years of exemplary service. We miss the pile of mails that will be received. erudition and deep knowledge of the Bank which Mazi Clement Owunna brought to the board. During the year also, we Additionally, with effect from this year, we intend to start welcomed Mrs. Ifueko Omogui-Okauru as an independent distributing soft copies of the annual report in pursuit of our director of the bank. Her solid background and pedigree is a commitment to help preserve the environment. We also believe good addition to the quality of the board. this will reach you faster than if sent by surface mail. If you elect to receive the soft copies of the full annual report, please The annual general meeting of shareholders is scheduled to hold complete the form which is attached to the annual report. on April 30, 2013 at the Civic Center in Victoria Island, Lagos. I Otherwise, do nothing and you will continue to receive an encourage as many as can make it to attend the meeting and be abridged hard copy of the report. part of our deliberations. Seeing that we have a large shareholder base with members resident in all continents of the world, it will Once again thank you for your support. be impossible for all to attend. For the first time, we will provide an email address to enable you send in your questions in advance and we will try to answer as many as possible during the meeting. Those that cannot be answered will be addressed in a Frequently Asked Questions (FAQ) to be sent out to shareholders who we have their email addresses on file not later than 30 days Dr. Alex Otti after the annual general meetings. Group Managing Director/CEO STANDING (FROM LEFT TO RIGHT) SITTING (FROM LEFT TO RIGHT) BOARD OF u Mr. Oladele Akinyemi - Executive Directors, Regional Business, North u Mrs. Ifueko Omoigui Okauru - Independent Director u Mr. Victor Ezenkwo - Executive Director, Regional Business, South u HRM Igwe Nnaemeka Alfred Achebe - Chairman u Dr. Olubola Adekunle Hassan - Non-Executive Director u Dr. Alex Otti - Group Managing Director/Chief Executive Officer DIRECTORS u Mr. Uzoma Dozie - Executive Director, Lagos Business u Ms. Ngozi Edozien - Non-Executive Director u Mr. Thomas Barry - Non-Executive Director u Lt. General Jeremiah Timbut Useni (Rtd) - Non-Executive Director u Mrs. Caroline Anyanwu -Executive Director, Risk Management & Control u Chief John D. Edozien - Non-Executive Director u Mr. Chris Ogbechie - Non-Executive Director u Mr. Abdulrahman Yinusa - Executive Director/Chief Financial Officer u Mr. Ian Greenstreet - Independent Director MANAGEMENT TEAM 2012 | ANNUAL REPORT & ACCOUNTS 48

MANAGEMENT TEAM

ALEX OTTI, GROUP, MANAGING DIRECTOR/CEO UZOMA DOZIE, EXECUTIVE DIRECTOR, LAGOS BUSINESSES OLADELE AKINYEMI, EXECUTIVE DIRECTOR, REGIONAL BUSINESSES, NORTH VICTOR EZENWOKO, EXECUTIVE DIRECTOR, REGIONAL BUSINESSES, SOUTH CAROLINE ANYANWU, EXECUTIVE DIRECTOR, RISK MANAGEMENT & CONTROL ABDULRAHMAN YINUSA, EXECUTIVE DIRECTOR, CHIEF FINANCIAL OFFICER NKECHI NWOSU, COMPANY SECRETARY/LEGAL ADVISER BENEDICT IHEKIRE, MD, DIAMOND BANK DU-BENIN PREMIER OIWOH, DIRECTOR, OPERATIONS & TECHNOLOGY SAMUEL EGUBE, DIRECTOR, CORPORATE BANKING SOLA AJAYI, REGIONAL DIRECTOR, WEST CHRIS OFIKULU, REGIONAL MANAGER, BENIN CHIZOMA OKOLI, DIVISIONAL HEAD, INSTITUTIONAL BANKING BENSON ORAELOSI, REGIONAL MANAGER, IKEJA ANYA DUROHA, REGIONAL MANAGER, VICTORIA ISLAND ABIYE KOKO, HEAD, IT SERVICES AWELE AJIBOLA, HEAD, INTERNAL CONTROL JOHN OGWO, REGIONAL MANAGER, PORT HARCOURT CHIUGO NDUBISI, HEAD, FINANCIAL MANAGEMENT CHIDINMA LAWANSON, HEAD, HUMAN CAPITAL MANAGEMENT MAUREEN OFFOR, REGIONAL MANAGER, APAPA JUDE ANELE, HEAD, RETAIL BANKING ANGELA OKONMAH, GROUP HEAD, PRIVILEGE BANKING SAMPSON ANEKE HEAD, PUBLIC SECTOR COLLECTION, LAGOS ADEGBOYEGA ADEBAJO, HEAD, STRUCTURED FINANCE & ADVISORY CHINEDU EKEOCHA, ACTING MANAGING DIRECTOR, DIAMOND PENSION FUND CUSTODIAN PAUL OKOROAFOR, HEAD, CREDIT ANALYSIS AND PROCESSING LANRE SHOWUNMI, HEAD, CORPORATE PLANNING ABUBAKAR SULEIMAN, REGIONAL MANAGER, ABUJA - GARKI AKINLEYE OGUNLEYE, REGIONAL MANAGER, WEST OGECHI ALTRAIDE, REGIONAL MANAGER, LAGOS ISLAND KINGSLEY NWAGBO, HEAD, GENERAL INTERNAL SERVICES EMEKA UZOMBA, HEAD, TREASURY & FINANCIAL INSTITUTIONS EHIANETA EBHOHIMHEN, HEAD, INFRASTRUCTURE & TRANSPORT ALEXANDER OLISE HEAD, CORPORATE AUDIT SUFIYANU GARBA, DIVISIONAL HEAD, PUBLIC SECTOR CHARLES ONYENSO, HEAD, CREDIT RISK MANAGEMENT AYONA AGUELE-TRIMNELL, HEAD, CORPORATE COMMUNICATIONS.

ABDULRAHMAN UZOMA VICTOR CAROLINE OLADELE ALEX 2012 | ANNUAL REPORT & ACCOUNTS 49 CORPORATE GOVERNANCE REPORT 2012

...Over the years, as our vision has been fulfilled we have not lost sight of our core values of integrity, excellence, customer and stakeholder satisfaction.

iamond Bank Plc was conceived with the vision of creating a “strong financial services institution with effective presence in Nigeria, Africa and Dindeed all the key financial centers of the world.” We are pleased to state that over the years, as our vision has been fulfilled we have not lost sight of our core values of integrity, excellence, customer and stakeholder satisfaction.

Diamond Bank is managed in compliance with the relevant HRM Igwe Nnaemeka Alfred Ugochukwu Achebe, CFR, MNI, Codes of Corporate Governance and International Best The Obi of Onitsha - Chairman Practices. Compliance is the joint responsibility of the Board, Management and the entire staff of the Bank, and there is an HRM Nnaemeka Achebe is a Chemistry graduate of the Stanford established system of controls to ensure strict adherence with University, California, USA. He holds Masters in Business these principles. Administration (MBA) from Columbia University, New York, amongst others. He is the traditional ruler (Obi) of Onitsha, THE BOARD Anambra State. During the extensive period of his career in the Royal Dutch Shell companies (both local and international), he The primary mission of the Board is to effectively represent and held several top level managerial positions before he was promote the interest of shareholders and relevant stakeholders, appointed Executive Director at Shell Petroleum Development by adding value to the Company's performance. To achieve this Company in 1981, a position he held till 1996 when he was and other objectives, we have brought together these highly appointed Senior Corporate Adviser, Shell International Co. accomplished individuals who comprise the Board of Directors Limited, London. He has held directorship positions in many of Diamond Bank Plc: multinationals and reputable organizations and is a patron of the CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 50

MTN Foundation. In 2004, Igwe Achebe was honoured by the Deputy General Manager. In September 2005, Alex Otti was Federal Government of Nigeria with a national merit award, appointed Executive Director in First Bank Nigeria Plc. As Commander of the Order of the Federal Republic (CFR). He Executive Director, he started as Head of Commercial Banking belongs to a number of professional bodies such as the Nigeria and subsequently, Head of the Regional Businesses in the South- Economic Society, Nigerian Institute of Management and the Southern and South-Eastern Geo-Political Zones comprising Nigerian Institute of Public Relations. He is Chancellor of Kogi over 180 branches. He joined the Board in 2011. State University and Chairman, Anambra State Traditional Rulers Council. HRM Nnaemeka Achebe joined the Board in 2005. Mr. Uzoma Dozie Executive Director, Lagos Regional Businesses Dr. Alex Otti Group Managing Director/Chief Executive Officer Uzoma Dozie graduated in 1991 with a Bachelor of Science degree in Chemistry from the University of Reading, Berkshire Alex Otti graduated from the University of Port Harcourt with a England. He obtained a Master of Science degree in Chemical First Class Honours Degree in Economics in 1988. He Research from University College, London in 1992 and an MBA subsequently received an MBA from the University of Lagos in from Imperial College Management School, London in 1998. Mr. 1994. At the University of Port Harcourt, he was the best Dozie started his banking career in the Commercial Banking Unit graduating student in the Department of Economics and won at Guaranty Trust Bank Plc where he worked for some years and the subject prize. He was also the best graduating student in the later moved to Citizens International Bank Limited where he Faculty of Social Sciences and won the Dean's Prize, as well as worked in the Oil and Gas Division. Thereafter, he joined the overall Best Graduating Student for the Year and Diamond Bank Limited as an Assistant Manager and Head of the Valedictorian. He started his banking career with Nigeria Bank's Oil and Gas Unit. He was at a time Head, Financial Control, International Bank Limited, a subsidiary of Citibank N.Y. in 1989 then Retail banking (where he spear-headed the introduction of where he worked in the Operations Department. He lifestyle-changing retail products in the bank) and also headed subsequently moved on to Nigerian Intercontinental Merchant two distinctive strategic business units in the Bank before his Bank Ltd (renamed Intercontinental Bank Plc). At appointment as Executive Director in 2005. He has attended Intercontinental, he was at various times in the Treasury and various specialist and executive development courses in Nigeria Financial Services and Corporate Banking Divisions. In 1992, he and overseas. joined the then Societe Bancaire Nigeria Ltd (Merchant Bankers), a subsidiary of Banque SBA Paris. He left as Senior Manager in Mr. Oladele Akinyemi 1996. Towards the end of 1996, he moved to United Bank for Executive Director, Regional Businesses, North Africa Plc as Principal Manager, heading Corporate Banking Sector, South. His major responsibility was the development of Oladele Akinyemi holds a B.Sc. in Computer Science and an MBA the Oil and Gas businesses for the Bank. In the year 2000, he was from International Graduate School of Management, IESE promoted Assistant General Manager. In May 2001, he joined University of Navarra, Madrid, Spain. He first joined Diamond First Bank of Nigeria Plc as an Assistant General Manager with Bank from erstwhile Lead Merchant Bank in 1991 as Head of responsibility for Energy Group. In April 2004, he was promoted Systems Unit. He later headed the Commercial & Consumer CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 51

Banking and the Retail Banking Units of the Bank before leaving Commercial Banking Lagos Island. He was appointed an for UBA in 1997. He left UBA to become an Executive Director of Executive Director in 2010. One-to-One Nigeria Limited and whilst there, he built the first database marketing service company in Nigeria and pioneered Mr. Abdulrahman Yinusa List Rental business in Nigeria. He then joined Citibank Nigeria in Executive Director/Chief Financial Officer 1999 as Head of Cards, Cash Management and e-Solutions Group. He rejoined Diamond Bank in 2002 as Head of the Yinusa Abdulrahman joined Diamond Bank in 2011 as Chief Information Technology Group and was appointed an Executive Financial Officer from his CBN appointment in Finbank as Director in 2006. Executive Director, Finance and Strategy. Prior to the CBN appointment, he was Managing Director/CEO of United Bank for Mr. Victor Ezenwoko Africa subsidiary in Sierra Leone. And prior to that, he was the Executive Director, Regional Businesses, South Managing Director/CEO of UBA Asset Management Limited, where he launched four Mutual Funds within the two years of his Victor Ezenwoko was Head, Regional Businesses Upcountry, a tenor. He has over two decades of quality banking experience, position he attained in 2008 with the Bank. Since he joined since joining Nigeria International Bank (Citibank Group) for Diamond Bank Plc, Victor has worked across virtually every part NYSC in 1989 and rose to the position of Senior Financial Analyst of the country and his performance over the years underscores before he left in 1993 to join FSB International Bank (now part of the aptness of his elevation to the Board. Victor is a 1986 Fidelity Bank) as the Financial Controller, a position he combined Accountancy Graduate and qualified as a Chartered Accountant with being Head of Strategy till he left in 1996 to join UBA Plc. He in 1991. He is an Alumnus of the prestigious Wharton Business held various senior level positions within U. B. A., including School and an Honorary Senior Member of the Chartered Treasurer and Chief Finance Officer, before being posted to head Institute of Bankers of Nigeria. He has attended several business, two subsidiaries at various times, prior to his appointment to professional and manpower development courses both within Finbank by CBN. and outside Nigeria. He has altogether over 25 years working experience as an accountant and a banker from manufacturing, Mrs. Caroline Anyanwu information technology and banking sectors with over 18 of Executive Director/Chief Risk Officer those years in the banking sector. His banking career started at Ecobank Nigeria Plc in 1992 where he worked in the Financial Caroline Anyanwu returned to Diamond Bank in April, 2011 as Controls Department and later moved into a branch the Executive Director, Risk Management & Control, from her management position. He joined Diamond Bank in July 1997 as a Central Bank of Nigeria's (CBN) appointment as Executive start-up Branch Manager for Onitsha Bridgehead Branch and Director Risk Management in Finbank Plc. Until her appointment subsequently Branch Manager of Onitsha New Market Road by the CBN, Caroline was the Head, Risk Management & Control Branch and for Abuja Branch. Having made his mark in Branch Division in Diamond Bank Plc having joined the Bank in February, Management, Victor was promoted to Regional Manager East. 2006 from UBA Plc where she was Head, Credit Risk Between 2002 and 2003, he functioned as Group Head, Large Management. She commenced her professional career in Commercial Businesses (Head Office) and Group Head, PriceWaterhouseCoopers (Chartered Accountants) where she CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 52

trained and qualified as a Chartered Accountant and bodies locally and internationally. Dr. Hassan joined the Board of subsequently held the position of an Auditor Senior/Consultant. Diamond Bank Plc in 2005. Her Banking career started with the then African Continental Bank Plc where she served as the Head, Strategic Planning. She Lieutenant General Jeremiah Timbut Useni (Rtd) DSS, PSC, MNI subsequently worked in Oceanic Bank Plc. Caroline's exposure Non-Executive Director in the banking Industry spanned through a number of job functions including: Strategic Planning, Financial control, Credit Lt. General Useni (Rtd) is a graduate of the Indian Military and Marketing, Banking Operations, Business Process Re- Academy and holds a Diploma in Advance Military engineering and Risk Management. Caroline is a first class Transportation from the US Army. He passed through notable graduate of Statistics and a Fellow of the Institute of Chartered institutions including the British Army Apprentices College Accountants of Nigeria (ICAN) where she obtained a Second Chepstow, and Command and Staff College, Jaji. He is a fellow Place Overall Merit Award for ICAN Professional Examination II in of the following institutions: the Nigerian Institute of May 1988. She is also an Honorary Fellow of the Institute of Management (FNIM), the Chartered Institute of Transport (UK Bankers of Nigeria. and Nigeria) and the National War College (FNWC). During his many years of meritorious service in the Nigerian Army, Lt. Gen Mazi Clement I. Owunna, MFR Useni held various top military and political appointments Non-Executive Director including Director of Supply and Transport, Director of Ordinance Services and Quartermaster General of the Nigerian An accomplished pharmacist and businessman, Mazi Owunna is Army. He was Chairman of the Nigerian Railway Corporation, a graduate of the Drake College of Pharmacy, Iowa, United Military Governor of the former Bendel State, and Minister of the States. He is a director of Diamond Bank. Mazi Owunna is the Federal Capital Territory. He received many Military decorations Chairman of several successful companies spanning including Forces Service Star, Long Service Medal, Defence pharmaceuticals, manufacturing, commerce, real estate, food Medal, and Independence Medal. As a nationalist, Lt Gen Useni and chemicals. He is also a Fellow of the Nigerian Institute of has been bestowed with twelve (12) chieftaincy/traditional titles Management. Mazi Owunna retired from the Board in July 2012. from various states of the Federation most notably the Sardauna of Plateau and Nasarawa States. He is currently the Chairman of Dr. Olubola Adekunle Hassan, M.B, B.S, D.O, FRCS, FRCOPH, FWACS the Arewa Consultative Forum. He joined the Board of Diamond Non-Executive Director Bank in 2005.

Dr. Hassan holds a Bachelor of Medicine, Bachelor of Surgery, Mr. Chris Ike Ogbechie M.BB.S and Diploma in Ophthalmology amongst other Non-Executive Director qualifications. He is the Chief Consultant Ophthalmic Surgeon and Medical Director, Eye Foundation Hospital, Lagos and also Chris Ogbechie has a First Class Honours degree in Mechanical acts as a consultant ophthalmologist to a number of local and Engineering from Manchester University and an MBA from foreign hospitals. He has sixteen academic distinctions and Manchester Business School. He has wide experience in awards and belongs to a host of professional and academic marketing and strategy derived from his work as head of CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 53

marketing/sales at Nestle Nigeria, Xerox and from his consulting Limited and Mercedes Benz Automobile Services Limited. He work with Nigerian firms over the years. While in Nestle he had also holds other directorate positions in several companies. wide international exposure in Malaysia, Singapore and John Edozien joined the Board of Diamond Bank in 2008. Switzerland. He has been involved with several start-ups and is on the Board of several companies. Mr. Ogbechie is a faculty staff Mr Ian Greenstreet of the Lagos Business School, where he teaches Strategy and Independent Director Corporate Governance. He joined the Board of Diamond Bank in 2005. Ian Greenstreet is considered by many as one of the world's leading Risk Management professionals. Greenstreet, a Mr. Simon Harford Chartered Accountant (Institute of Chartered Accountants of Non-Executive Director England and Wales) holds a B.Sc (Hons) in Computer Science & Accounting from the University of Manchester. His career spans Simon Harford represents Actis on the Board of Diamond Bank. over 25 years in the financial sector, specialising in risk He is a Partner of Actis based in the Johannesburg office, and management and credit analysis. In 1996 Greenstreet was was previously based in Lagos as the Head of Actis West Africa appointed Regional Country Risk Officer (Managing Director) from 2006 to 2009. Prior to Actis, Simon was founder and CEO ABN AMBRO Bank- London. For ten years he was responsible for of Virgin Nigeria, with his earlier career encompassing S.G the bank's credit approval, credit monitoring and credit risk Warburg, Boston Consulting Group, British Airways and various quantification of exposures working closely with client coverage entrepreneurial ventures. Simon holds an MBA from INSEAD, and trading floors providing structuring advice on transactions to France and a BA (Hons) in Philosophy, Politics and Economics ensure that risks are mitigated and comply with the bank's risk from Oxford University, UK. He has been a Director of Diamond appetite. This enabled him to gain indepth understanding of all Bank from 2007. wholesale bank's products and project finance. In 2006, he joined the Medicapital Bank as the head of risk where he set up Chief John D. Edozien enterprise risk management for the Bank covering market risk, Non-Executive Director credit risk and operational risk including systems, procedures and policy manuals which gained FSA approval. Earlier in his John Edozien holds a B.Sc. (Hons) (Econs.) from the University of career, he had worked as the Head of Credit Yamaichi Ibadan and an M.A. Economics from the University of Wisconsin. International (Europe) Ltd, Lloyds Bank, Luxembourg (Private As a Civil Servant, he rose to the position of Permanent Secretary Bank), Stoy Hayward, Luxembourg, Henderson Fund of the Cabinet Office in 1987 and National Planning, Office of Management, Luxembourg, Midland Bank and +Touche Ross & Planning and Budget both in the Presidency. Chief Edozien Co London. Greenstreet joined the Board of Diamond Bank in served as Deputy Governor of Bendel state and later Delta State. 2011. He was the Group Managing Director/CEO of Afribank Nigeria Plc as well as Chairman of Afribank International Limited (Merchant Bankers) from 1993 to 1999. He is the Chairman of a number of Nigerian companies such as Jenkyns Consult Nigeria CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 54

Ms. Ngozi Edozien of Emerging Markets Private Equity Association (EMPEA) of which Non-Executive Director he is a Director and Chairman of the Finance Committee. Barry joined the Board of Diamond Bank in 2011. Ngozi Edozien is the Chief Executive Officer of Actis West Africa. Ms. Edozien is responsible for all aspects of Actis's Private Equity Mrs. Ifueko Marina Omoigui Okauru Business in West Africa, including Diamond Bank. Ms Edozien Independent Director started her professional career in investment banking with training in financial markets and corporate finance first at Solomon Mrs. Okauru is a Chartered Accountant. She graduated with a First Brothers and then at JP Morgan (JPM), both in New York City. She Class degree in Accounting from the University of Lagos. Her subsequently left JPM returning to Harvard University to conclude career spans over 30 years. She joined Akintola Williams & Co, her academic training by pursuing an MBA. Post MBA, Ms Edozien Chartered Accountants in 1981. Between 1983 to 1996 she worked for McKinsey & Co. in London and Paris where she worked with Arthur Andersen (now KPMG Professional Services), became an Associate Principal. At McKinsey she gained Andersen Consulting (now Accenture). She founded the ReStral experience in strategy and business development. Ngozi joined Limited in 1996 and was Chief Responsibility Officer of the the Board of Diamond Bank in 2010. company till 2004 when she was appointed the Chairman of the Federal Inland Revenue Service of Nigeria, a position she held till Mr. Thomas Barry April 2012. Mrs. Okauru is presently a Managing Partner with Non-Executive Director Compliance Professionals Plc. She was recently appointed to the Board of Women in Management, Business and Public Services, a Thomas Barry is the Chief Executive Officer and founder of Zephyr Non-Governmental Organization. She joined the Board of Management Company (Zephyr), an investment company, which Diamond Bank in 2012. he founded in 1994. In Africa, Mr. Barry is Chairman of Kingdom Zephyr Africa Management Company, which has offices in Mr. Chris Cole Johannesburg, Accra, Lagos, London and New York. Prior to (Alternate to Ms. Ngozi Edozien) founding Zephyr, Mr. Barry was President and Chief Executive Officer of Rockefeller & Co, the investment management arm of Chris Cole is the Partner responsible for Business Development at the Rockefeller family from 1983 to 1993. Previously, Mr. Barry was Actis LLP. Prior to joining Actis, Mr. Cole was formerly, Managing employed by T. Rowe Price Associates, Inc. from 1969 to 1982, Director and Head of EMEA & Asian Leveraged Finance at Barclays where among having other responsibilities, he was President of T. Capital in London where he initiated and executed start-up plan to Rowe Price New Horizons Fund and Director of Research. Mr. establish a leveraged finance business in the United Kingdom and Barry received an MBA from Yale University in 1966 where he Europe. He was also Director, Advisory & Financing Division of SG majored in Latin American Studies. He is a Chartered Financial Warburg & Co. Ltd in charge of corporate advisory, restructuring Analyst (CFA). He is active in numerous not-for- profits in Africa and acquisition finance transactions in the United Kingdom, focused on economic development. Currently, he serves as a Europe and North America. Mr. Coles holds a Masters degree in Director or Trustee of TechnoServe, Trikle Up, Kucetekela International Development from University of Bath, England. Foundation, and ACCION International. Mr. Barry was a Founder CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 55

TRAINING AND EVALUATION u Approval of the remuneration of the Chairman, Non- Executive Directors and Management. In order to further develop the skill level of the Board, members u Reviewing risk management policies and controls, including attend courses and training programmes suited to enhancing compliance with legal and regulatory requirements. their functions. If the situation necessitates it, the Directors are u Reviewing the Bank's code of conduct and ethical standards. entitled to seek independent professional advice on matters for u Reviewing shareholder and client relationships. which they require clarification. Diamond Bank has always placed emphasis on the performance of the Board as a whole as The Board also performs certain of its functions through Board well as on the performance of individual members in relation to Committees and Management Committees. The delegation of their contributions to the Board and the Bank. Evaluation of the these functions does not in any way derogate from the discharge Executive Directors is carried out by the Governance and by members of their duties and responsibilities. Personnel Committee which is comprised entirely of Non- Executive Directors while the evaluation of the Non Executive BOARD COMMITTEES Directors is done by external consultants. The Board Governance and Personnel Committee: The FUNCTIONS OF THE BOARD Governance and Personnel Committee is made up of four Non- Executive Directors. As the name suggests, this Committee is The Board meets regularly (at least once every quarter) to responsible for the overall governance and personnel function perform its stewardship and oversight functions, primary among of the Bank. Some functions of the Committee are as follows: To which are: consider and make recommendations to the Board on its composition and that of the Committees and Subsidiaries; u Review of the Bank's goals as well as the strategy for Review and recommend nomination of Directors to the Board achieving these goals. based on a proper selection process; Ensure adequate u Evaluation of present and future strengths, weaknesses and succession planning for Board of Directors and the Chief opportunities of the Bank. Comparisons with competitors, Executive Officer; Ensure the orientation and continuous locally and internationally, and best practice. education of Directors; Monitor the procedures established for u Review and approval of the Bank's financial objectives, plans compliance with regulatory requirements for related party and actions and significant allocation and expenditure. transactions; Monitor staff compliance with the Code of Ethics u Approval of the annual budget; and Business Conduct of the Bank; Ensure compliance with u Approval of the annual and half-yearly financial statements, regulatory standards of Corporate Governance and regularly annual report and reports to shareholders; identify international Best Practices of Corporate Governance u Consideration and where appropriate, declaration or and close any identified gaps; Recruitment or promotion of staff recommendation of the payment of dividends. to Assistant General Manager level and above and to approve the u Reviewing the Bank's audit requirements. remuneration, benefits and other terms and conditions of the u Reviewing the performance of, necessity for, and service contracts of such officers; Recommend to the Board the composition of Board Committees. terms and conditions of the service contract, including CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 56

remuneration packages of the Executive Directors with a view to Mr. Thomas Barry, Ms. Ngozi Edozien, Dr. Alex Otti, Mr. ensuring that these officers are fairly rewarded for their effort; Abdulrahman Yinusa and Mrs. Caroline Anyanwu. Review cases of infractions of the Bank's policies committed by staff of Assistant General Manager level and above and apply The Board Credit Committee: The Credit Committee is made appropriate sanctions where necessary; Review and approval of up of 7 (Seven) members, 4 (Four) Non-Executive Directors and 3 policies on staff welfare and fringe benefits; Annual review of the (Three) Executive Directors. The primary function of this Board Charter; and Ensuring the annual review of the Board and Committee is to consider all matters pertaining to the granting of Board Committees' performance. credits by the Bank in accordance with approved policies and approval of credits in excess of the limits delegated to the Members of the Board Governance and Personnel Committee Management Credit Committee, significant revisions to credit are: Dr. Olubola Hassan (Chairman), Chief John D. Edozien, Ms. policies, and establish portfolio distribution guidelines in Ngozi Edozien, Mrs. Ifueko Omoigui Okauru. conformity with government regulations. In achieving this objective, the Committee ensures that the overall credit policies The Board Audit and Risk Management Committee: The Board are aligned with the Bank's Risk Tolerance level. In addition, the Audit and Risk Management Committee is comprised of 4 (Four) Committee performs the following functions: Reviewing the Non-Executive Directors and 3 (Three) Executive Directors. The policies and methodologies for assessing the Bank's credit risks functions of this Committee include: Understanding the and recommending appropriate exposure limits; and reviewing principal risks to achieving the Group's strategy; Establishing the large exposures and impaired assets. Bank's risk appetite and ensuring that the business profile and plans are consistent with the risk appetite; Establish and Members of the Board Credit Committee are: Mr. Chris communicate the risk management framework including Ogbechie (Chairman), Chief John D. Edozien, Mr. lan responsibilities, authorities and key controls; Establishing key Greenstreet, Lt. Gen. Jeremiah Useni (rtd), Dr. Alex Otti, Mr. control processes and practices, including limit structures, Uzoma Dozie, Mrs. Caroline Anyanwu. impairment, allowance criteria and reporting requirements; Monitoring the operation of the controls and adherence to risk The Audit Committee: This Committee is established in direction and limits; Interpret and report on risk exposures, accordance with the provisions of section 359(3) to (6) of the concentrations and risk- taking outcomes as well as on Companies and Allied Matters Act and in compliance with the sensitivities and key risk indicators; Reviewing and challenging all provisions of the CBN Code of Corporate Governance for Banks aspects of the Group's risk profile; Review the financial reporting Post Consolidation. The Committee consists of 3 (Three) process with a view to ensuring the company's compliance with Shareholder Representatives and 3 (Three) Non-Executive accounting and reporting standards, other financial matters and Directors. The Chairman of the Committee is a Shareholder and the applicable laws and regulations; and reviewing and a Chartered Accountant. All members of the Committee are challenging risk management processes. independent of the Bank's management. The Committee's primary functions are, to review and ensure the effectiveness of Members of the Board Audit and Risk Management Committee accounting systems and internal controls; review the scope and are: Mr lan Greenstreet (Chairman), Mrs. Ifueko Omoigui Okauru, planning of audit requirements; make recommendations to the CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 57

Board regarding the appointment, removal and remuneration of Personnel Management Committee (PMC): The Personnel the external auditors; and to ensure that the accounting policies M a n a g e m e n t C o m m i t t e e r e v i e w s a n d m a k e s of the Bank are in accordance with legal requirements and recommendations on policies regarding Manpower Planning agreed ethical principles. and Career Development; recruitment, selection and training of staff; performance management and staff appraisal; Members of the statutory Audit Committee are Mr. Kabir Alkali compensation, staff welfare and benefits schemes; Staff Mohammed (mni) (Chairman) - Shareholder, Sir Enoch Iwueze - Movement and Audit; moderation of staff appraisal exercises and Shareholder, Mr. Abayomi Olaofe – Shareholder, Lt. Gen. the implementation of the existing staff personnel policies and Jeremiah T. Useni (rtd) (mni), Mr. Chris Ogbechie and Dr. Olubola guidelines. The PMC reviews cases of infraction on the Bank's Hassan. policies and procedures and applies adequate sanctions where necessary. MANAGEMENT COMMITTEES IT Steering Committee: The Committee serves as a Think Tank Assets and Liabilities Committee (ALCO): The primary functions for all Information Technology (IT) matters and determines IT of this Committee are the creation of a balance sheet structure strategy and policies and coordinates the implementation of to allocate sources and utilization of funds in a manner that these policies. would improve the Bank's financial performance; maximizing the value of capital overtime whilst controlling risk exposures; Members include: Executive Director Regional Businesses Lagos and managing the Bank's liquidity with respect to the as Chairman, Executive Director Regional Businesses North, composition of portfolio of liquid assets, control of cash flow, Executive Director/Chief Financial Officer, Senior Advisor Retail control of short-term borrowing capacity, monitoring of Banking, Executive Director Risk Management & Control, Head undrawn commitments, and contingency funding plans. Operations & Technology, Regional Manager Lagos Island, Head IT Services and Head Business Transformation. Management Credit Committee (MCC): Primarily, the Management Credit Committee approves credits in line with the Budget and Revenue Sharing Committee: This Committee Bank's credit policy. All credits exceeding the approval limit of the prepares budget outlines for all the units of the Bank; carries out MCC are recommended to the Board Credit Committee for a half yearly review of the budget in order to prepare an updated approval. The MCC also regularly assesses the Bank's risk asset budget for the remaining months of the year; evaluates and portfolio to determine the optimum mix; the amount of approves extra budgetary expenditure. exposures per customer and related group of customers; and approves the limits of interbank placements. The MCC meets New Product Committee: Serves as a clearing house for new regularly to review watch-listed/non-performing accounts and product proposals and in the process, determines and makes approve specific provisions to be made on non-performing appropriate recommendations to Executive Management accounts. concerning product name and features; co-ordinates activities for the introduction of new products; and reviews existing products where necessary. CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 58

Cost Management Committee: The Committee periodically relevant Codes of Corporate Governance in Nigeria with a view reviews the costs/expenses of the Bank and recommends to ensuring adherence to the highest standards of Corporate appropriate cost reduction/control measures; reviews and Governance. streamlines the acquisition of capital expenditure and bulk purchases of consumables with a view to reducing cost without Remuneration Principles compromising quality; and generally reviews the procurement procedures of the Bank. 1. Appropriately compensate directors for the services they provide to the Group; Group Risk Management Committee: This Committee provides central oversight of risk management across the Group, 2. Align director remuneration with shareholders' interest; formulates policies and standards for the management of risk within the Group, monitors implementation of risk policies and 3. Attract and retain the right skills required to efficiently implements Board decisions across the Group. manage the operations and growth of our business;

SHAREHOLDER RELATIONS 4. Implement performance based incentive program to motivate directors to perform in the best interest of the Diamond Bank believes in strengthening shareholder relations Group; and and has a dedicated Investor Relations Unit to cater to shareholders' needs. In addition to this, the entire staff of the 5. Ensure transparency, equity and consistency in Bank are always available to resolve any issues which our highly remuneration matters across the Group. esteemed shareholders may bring forward. The establishment of Shareholders' Associations has further improved the lines of Objectives of Remuneration Policy communication between shareholders and the Bank such that the duly appointed representatives are able to table the concerns The primary objectives of the Group's remuneration policy and of the shareholders to the Management of the Bank. practices are to: Shareholders are also encouraged to express their opinions at General Meetings. a) Motivate directors to pursue and promote balance between the short term and long term growth of the Group while Directors' Remuneration Policy maximising shareholders' return;

The remuneration policy of Diamond Bank Plc and its subsidiary b) Enable the Group to attract and retain people of proven companies (“the Group”) is designed to establish a framework for ability, experience and skills in the market in which it defining and structuring the remuneration of executive and non- competes for talent; executive directors noting the Group's scope of operations, c) Link rewards to the creation of value for shareholders; productivity and performance as well as shareholder value creation. The remuneration policy also takes cognisance of the d) Ensure an appropriate balance between fixed and variable CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 59

remuneration while reflecting the short and long term Composition of Remuneration objectives of the Group; u The remuneration packages of the Group Managing e) Encourage fairness and demonstrate a clear relationship Director (GMD), Executive Directors and other executives in between remuneration and performance based on set the subsidiary companies will be determined by the targets on individual and corporate performance; Governance and Personnel Committee and are subject to the Board' approval. f) Encourage behaviour consistent with Diamond Bank's values, principles and Code of Business Conduct. This will u The compensation of the GMD and the Executive Directors' lead to an appropriate balance in performance, governance, shall include incentive schemes to encourage continued controls, risk management, customer service, people improvement in performance against the criteria set and management, brand and reputation management; agreed by the Board. g) Ensure that remuneration arrangements are equitable, u The Governance and Personnel Committee will set transparent, well communicated and easily understood, operational targets consisting of a number of key aligned with the interest of shareholders and adequately performance indicators (KPI's) covering both financial and disclosed; non-financial measures of performance for the executives at the beginning of each year. h) Limit severance payments on termination to pre-approved contractual arrangements which does not commit the Typical KPI's and assessment criteria include: Group to paying for non- performance; and u Achieving pre-determined growth in the Group's turnover, i) Comply with the relevant legal and regulatory requirements. profit after tax, return on asset etc; u Meeting Strategic and operational objectives; and Executive Directors' Remuneration u Assessment of personal effort and contribution.

The remuneration of Executive Directors is designed to: Remuneration of the GMD and other Executive Directors consist of both fixed and variable remuneration components. The u Attract and retain directors; components of remuneration for Executive Directors comprise u Align their interests with those of shareholders; base salary (a fixed sum payable monthly which is reviewed u Link rewards to set targets on individual and corporate annually), benefits (including car allowances, medical allowance performance; and etc.), an annual bonus, long term incentives (comprising share u Ensure total remuneration is competitive by market options where applicable) and pension contributions. standards. The performance of the executives directors are measured against these criteria at the end of the financial year and their CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 60

evaluation result is used to determine the variable element of with the constantly evolving nature of Information Technology their remuneration. has made substantial investments in Information Technology to provide the best services for its customers while ensuring CORPORATE GOVERNANCE PRINCIPLES the safety of information. To further strengthen its Corporate Governance structure, the Bank implemented a Compliance Diamond Bank ensures compliance with the Corporate Risk Management framework, which highlights the strategies Governance Principles established by the Code of Corporate required to effectively manage the risk of non-compliance. Governance for Banks in Nigeria, Post Consolidation, issued by the Central Bank of Nigeria (CBN) and the Securities and This includes the following: Exchange Code of Corporate Governance for Public Companies in Nigeria. In the quest to adopt best practices in u Development of a regulatory universe comprising a rule the industry, the Bank established its own Corporate book of all the laws, rules and regulations governing the Governance Framework Manual which sets out a top-level banking industry with inbuilt controls to ensure framework for corporate governance in the Bank. transactions and relationships are conducted in consonance with the laws of the land. FINANCIAL REPORTING AND ACCOUNTING u Establishment of a full-fledged compliance unit and The audit for the period under review was conducted by the ensuring its independence by appointing a senior firm of PricewaterhouseCoopers (PwC) which is independent management staff who reports to the Board through the of the Bank. In keeping with the provisions of section 359 Board Audit Committee as the Bank's Chief Compliance subsections (3) & (4) of the Companies and Allied Matters Act, Officer. Adequate human and financial resources are the report of the Auditors is submitted to the Audit Committee made available to Compliance Support Unit to ensure which examines the report and makes recommendations to effective management of Compliance Risk. the shareholders at each Annual General Meeting. u To effectively identify and assess Compliance Risks COMPLIANCE presented by customers, products and services, the Bank, through the Compliance function developed a risk The Compliance Division is vested with compliance risk measurement and monitoring information system that management, security and loss prevention functions. This will provide management with timely and meaningful division is divided into two units, namely: Compliance Support reports related to compliance with laws and regulations at and Security. The Compliance Support unit is responsible for the business unit and transaction levels. promoting compliance with statutory and regulatory requirements and the anti- money laundering program of the u The Compliance Support Unit through risk management Bank among other things. The Security unit of the Bank is process analyses rules, regulations and laws in order to responsible for developing, implementing and monitoring the ensure that these are incorporated into the Bank's Bank's Security and Loss Prevention policies. The Bank in line processes and procedures on day-to-day relationship CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 61

management and transactions. u Deployment of world-acclaimed Anti-Money Laundering (AML) software, OMNI Enterprise, by Infrasoft Technologies u Establishment of a well-defined and clearly communicated Ltd (India) to ease identifying, tracking and reporting of process for ensuring that identified compliance risks and suspicious transactions in line with the Money Laundering breaches are escalated to the appropriate level and (Prohibition) Act, 2011. corrective actions taken promptly. u Implementation of a robust whistle-blowing procedure that encourages reporting of financial improprieties through confidential channels. The Board of Directors has full ownership of the procedure and encourages all stakeholders to utilize the facility. CORPORATE GOVERNANCE REPORT 2012 | ANNUAL REPORT & ACCOUNTS 62

DIRECTORS’ ATTENDANCE AT MEETINGS 2012

Notes: FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2012 64 2012 | ANNUAL REPORT & ACCOUNTS

DIRECTORS’ REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012

The directors present their annual report on the affairs of Diamond Bank Plc (“the Bank”) and its subsidiaries ("the Group"), together with the financial statements and auditors' report for the period ended 31 December, 2012.

a. Legal Form

The Bank was incorporated in Nigeria under the Companies and Allied Matters Act 1990 as a private limited liability company on 15 March 1991. It was granted license on the 20 December 1990 to carry on the business of commercial banking and commenced business on 21 March 1991. The Bank converted to a Public Limited Liability Company on 28 February 2005. The Bank's shares were listed on the 27 May 2005 on the floor of the Nigerian Stock Exchange by way of introduction.

b. Principal Activity and Business Review

The principal activity of the Group continues to be the provision of banking and other financial services to corporate and individual customers. Such services include granting of loans and advances, corporate finance and money market activities.

The Bank has two operating subsidiaries including Diamond Bank S.A (97.07%) and Diamond Pension Fund Custodian Limited (100%). The Bank's consolidated financial statements include the results of all operating subsidiaries.

The indirectly wholly owned subsidiaries (via Diamond Bank S.A) are Diamond Bank Togo, Diamond Bank Senegal, and Diamond Bank Cote d'ivoire. These are consolidated with the results of Diamond Bank du Benin and the consolidated group is consequently consolidated with the Bank.

c. Operating Results

Gross earnings of the Group increased by N30 billion from N107 billion to N137 billion. DIRECTORS’ REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS 65

Highlights of the Group's operating results for the period under review are as follows:

Dec.' 2012 Dec.' 2011 Dec.' 2012 Dec.' 2011 N'000 N'000 N'000 N'000 Group Group Bank Bank

Gross earnings 138,848,669 102,722,007 131,166,141 98,163,095 Profit before taxation 27,481,541 (17,964,929) 28,364,965 (27,132,209) Taxation (5,373,457) 4,023,944 (5,291,538) 4,263,955 Profit after taxation 22,108,084 (13,940,985) 23,073,427 (22,868,254) Profit - discontinued operations - 217,198 - - Profit/(Loss) For The Period 22,108,084 (13,723,787) 23,073,427 (22,868,254) Non-controlling interest (33,294) 6,319 - - Profit attributable to group shareholders 22,141,378 (13,730,106) 23,073,427 (22,868,254) Appropriations: Transfer to statutory reserves 3,504,228 - 3,461,014 - Transfer to small scale industries reserves 1,153,670 - 1,153,670 - Transfer to contingency reserve - - - - Transfer to retained earnings reserve 17,483,480 (13,730,106) 18,458,743 (22,868,254) 22,141,378 (13,730,106) 23,073,427 (22,868,254)

d. Directors and their Interests

The direct and indirect interests of directors in the issued share capital of the Bank as recorded in the register of directors shareholding and/or as notified by the directors for the purposes of sections 275 and 276 of the Companies and Allied Matters Act and the listing requirements of the Nigerian Stock Exchange is noted: DIRECTORS’ REPORT 66 FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS

Direct Shareholding Indirect Shareholding

Number of Number of Number of Number of 50k Ordinary 50k Ordinary 50k Ordinary 50k Ordinary Shares Held Shares Held Shares Held Shares Held Dec 2012 Dec 2011 Dec 2012 Dec 2011

HRM Igwe Nnaemeka Alfred Achebe (Chairman) 3,547,637 3,547,637 _ _ Dr. Alex Otti (Managing Director) 16,000,000 10,000,000 _ _ Mr. Uzoma Dozie (Executive) 20,630,610 20,630,610 848,872,310 848,872,310 Mr. Oladele Akinyemi (Executive) 8,503,293, 8,503,293 _ _ Mr. Abdulrahman Yinusa (Executive/CFO) 12,499,000 4,000,000 _ _ Mr. Victor Ezenwoko (Executive) 7,044,157 7,044,157 _ _ Mrs. Caroline Anyanwu (Executive) 2,550,000 1,650,000 _ _ Mazi Clement Owunna MFR 33,000 33,000 262,396,498 264,901,398 (Retired with effect from July 2012) Mr. Chris Ogbechie 9,279,453 10,845,000 _ _ Lt. General Jeremiah Timbut Useni (Rtd) 6,672,306 6,672,306 176,865,355 184,690,219 Dr. Olubola Adekunle Hassan 6,101,500 6,101,500 _ _ Mr. Simon Harford _ _ 2,141,349,189 2,141,349,189 Ms. Ngozi Edozien _ _ _ _ Chief John D. Edozien 7,614,700 5,842,400 _ _ Mr. lan Greenstreet _ _ _ _ Mr. Thomas Barry _ _ _ _ Mrs. Ifueko Omoigui Okauru (Appointed with effect from October 2012)

In line with the provisions of the Articles of Association the Directors to retire by rotation are Ian Greenstreet, Chris Ogbechie and Ms. Ngozi Edozien who being eligible for re-election offer themselves for re-election. Also HRM Igwe Nnaemeka Alfred Ugochukwu Achebe who is over 70 years of age will be proposed as Director for re-election pursuant to Section 256 of the Companies and Allied Matters Act, Laws of the Federation of Nigeria, 1990.

e. Directors interests in contracts

For the purpose of section 277 of the Companies and Allied Matters Act 1990, none of the Directors had direct or indirect interest in contracts or proposed contracts with the company during the year. DIRECTORS’ REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS 67 f. Property, Plant and Equipment

Information relating to changes in property, plant and equipment is given in Note 30 to the financial statements. g. (i) Shareholding Analysis

The shareholding pattern of the Bank as at 31 December 2012 is as stated below:

Share Range No. of Percentage of No. of Holdings Percentage Shareholders Shareholders Holdings

1 - 10,000 92,832 77.43 201,130,203 1.39 10,001 - 50,000 17,463 14.56 342,946,922 2.37 50,001 - 100,000 5,145 4.29 329,939,756 2.28 100,001 - 500,000 3,517 2.93 661,156,113 4.57 500,001 - 1,000,000 382 0.32 267,984,548 1.85 1,000,001 - 5,000,000 373 0.31 781,844,108 5.40 5,000,001 - 10,000,000 69 0.06 502,950,430 3.47 10,000,001 - 50,000,000 81 0.07 1,803,535,058 12.46 50,000,001 - 100,000,000 13 0.01 884,084,944 6.11 100,000,001 - 500,000,000 17 0.01 3,292,702,764 22.75 500,000,001 - 1,000,000,000 5 0.00 3,431,032,470 23.70 1000,000,001 - 10,000,000,000 1 0.00 1,975,935,789 13.65 TOTAL 119,898 100 14,475,243,105 100

(ii) Share Capital History

YEAR INCREASE CUMULATIVE INCREASE CUMULATIVE CONSIDERATION

1991 25,000,000 25,000,000 25,000,000 25,000,000 Cash 1992 25,000,000 50,000,000 25,000,000 50,000,000 Cash 1993 50,000,000 100,000,000 50,000,000 1994 100,000,000 200,000,000 45,000,000 95,000,000 Bonus issue of N20m and Cash deposit of N25m for share 1995 200,000,000 19,000,000 114,000,000 Bonus issue of N19,000,000 DIRECTORS’ REPORT 68 FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS

YEAR INCREASE CUMULATIVE INCREASE CUMULATIVE CONSIDERATION

1996 200,000,000 38,000,000 152,000,000 Bonus issue of N38,000,000 1997 800,000,000 1,000,000,000 412,300,000 564,300,000 Bonus issue of N412,300,000 1998 1,000,000,000 156,750,000 721,050,000 Rights issue of N156,750,000 1999 1,000,000,000 721,050,000 2000 1,000,000,000 721,050,000 2001 1,000,000,000 721,050,000 2002 1,000,000,000 2,000,000,000 360,525,000 1,081,575,000 Bonus issue of N360,525,000 2003 2,000,000,000 1,081,575,000 2004 2,000,000,000 458,230,033 1,539,805,033 Rights issue of N458,230,033 2004 1,500,000,000 3,500,000,000 513,268,327 2,053,073,360 Bonus issue of N513,268,327 2004 3,500,000,000 3,159,809 2,056,233,169 Rights issue of N3,159,809 2005 3,500,000,000 981,373,342 3,037,606,511 Private placement proceed of N12,365,304,109 2005 1,500,000,000 5,000,000,000 420,000,000 3,457,606,511 Share exchange btw DB & LB

2005 5,000,000,000 344,197,564 3,801,804,075 IPO proceed of N4,681,086,875 2006 2,000,000,000 7,000,000,000 898,152,632 4,699,956,707 Private placement proceed of N17,064,900,000 (Actis Holding Limited) 2007 7,000,000,000 1,879,699,250 6,579,655,957 GDR proceeds of N59,050,000,000.00 2008 3,000,000,000 10,000,000,000 657,965,596 7,237,621,553 Bonus issue of N657,965,596 2009 10,000,000,000 7,237,621,553 2010 10,000,000,000 7,237,621,553 2011 10,000,000,000 7,237,621,553 2012 10,000,000,000 7,237,621,553 DIRECTORS’ REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS 69 h. Substantial interest in shares

According to the register of members as at 31 December 2012, no shareholder held more than 5% of the issued share capital of the Bank except the following:

Shareholder Number of shares held Percentage Of Shareholding (%) Actis DB Holdings Limited 2,141,349,189 14.79 *Stanbic Nominees Nigeria Limited 1,309,988,772 9.05 Kunoch Limited 848,872,310 5.86

*Exclusive of Actis DB's GDR holding of 165,413,400 units and Kunoch’s GDR holding of 41,394,600 units. i. Charitable Contributions

The Bank made contributions to charitable and non-political organizations amounting to N214 million (December 2011: N550 million) during the period. The schedule of charitable donations is shown below.

DONATION AMOUNT N'000

Contribution to HYPREP project 50,000 Education and youth development 45,878 Sports and cultural development 40,382 Contribution to IFRS academy 21,000 Donation to security trust fund 10,185 Sponsorship of annual bankers retreat 12,312 Sponsorship of golf tournament 6,500 Sponsorship of 4th west African trade and commodity finance conference 6,320 Sponsorship of international womens conference 3,000 Sponsorship of Sam Ohabunwa foundation 1,000 Contribution to annual financial reporting summit 3,150 Others 14,625 Total 214,352 DIRECTORS’ REPORT 70 FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS

j. Human Resources

Employment of Disabled Persons

The Bank operates a non-discriminatory policy on recruitment. Applications by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Bank continues and that appropriate training is provided. It is the policy of the Bank that the training, career development and promotion of disabled persons should as far as possible, be identical with those of other employees.

The bank has one disabled person in its employment as at 31st December 2012.

Analysis of women employed during the year

DESCRIPTION NUMBER PERCENTAGE % TO TOTAL TO TOTAL STAFF NEW HIRE Female new hire 261 9.0 45 Male new hire 319 11.0 55 Total new hire 580 19.9 100 Total Staff 2912 100 Female as at December 2012 1,116 38.3 Male as at December 2012 1,796 61.7

Analysis of top management positions by gender as at December 31, 2012:

GRADE FEMALE MALE NUMBER General Manager 1 4 5 Deputy General Manager 3 6 9 Assistant General Manager 4 14 18 Total 8 24 32 Percentage 25 75 100 DIRECTORS’ REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS 71

Analysis of executive and non-executive positions by gender as at December 31, 2012:

GRADE FEMALE MALE NUMBER Executive Director 1 4 5 Managing Director 0 1 1 Non-Executive Director 2 8 10 TOTAL 3 13 16 Percentage (%) 19 81 100 k. Health, Safety and Welfare at Work

The Bank's employees are adequately insured against occupational hazards. In addition, medical facilities to specified limits are provided to employees and their immediate families at the Bank's expense l. Employee Involvement and Training

The Bank places considerable value on the involvement of its employees and has continued its practice of keeping them informed on matters affecting them as employees and the various factors affecting the performance of the Bank. This is achieved through regular meetings between management and staff.

The Bank has in-house facilities for staff training supplemented by facilities of local and foreign educational institutions m. Complaints

Total Number of Complaints Received 19,936 Number Resolved 18,940 Number Unresolved 996 Referred to CBN for intervention 0 DIRECTORS’ REPORT 72 FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS

The schedule of total amount in dispute is shown below:

Currency Amount NGN 8,976,816,176 USD 17,346,724 EUR 58,795 GBP 62,633 DKK 10,000 UN 5,460 CAD 77 CFA 698,691 RM 8,300

n. Auditors

The Auditors, PricewaterhouseCoopers have resigned their appointment pursuant to the provisions of Articles 8.2.3 of the Central Bank of Nigeria Code of Corporate Governance for Banks in Nigeria, Post consolidation, effective after 2012 financial audit. Messrs KPMG would be proposed to the members for approval of their appointment as replacement commencing from the audit of the 2013 financial statements. A resolution of the members will be required to determine their remuneration.

BY THE ORDER OF THE BOARD

Nkechi Nwosu Company Secretary FRC/2013/NBA/00000001571 PGD’s Place Plot 4, Block V, BIS Way, Oniru Estate Victoria Island, Lagos

22 March 2013 73 RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS

he Companies and Allied Matters Act and the Banks and Other Financial Institutions Act 1991, require the Directors to prepare financial statements for each financial period that give a true and fair view of the state of financial affairs of the Bank at the end Tof the period and of its profit or loss. The responsibilities include ensuring that the Bank: i. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Bank and comply with the requirements of the Companies and Allied Matters Act and the Banks and Other Financial Institutions Act 1991;

ii. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and

iii. prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates, that are consistently applied.

The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with, u International Financial Reporting Standards; u Nigerian Accounting Standards; u Prudential Guidelines for Licensed Bank; u Relevant circulars issued by the Central Bank of Nigeria; u The requirements of the Banks and Other Financial Institutions Act of 1991; and u The requirements of the Companies and Allied Matters Act.

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

Nothing has come to the attention of the Directors to indicate that the Bank will not remain a going concern for at least twelve months from the date of approval of the financial statements.

HRM Igwe Nnaemeka Alfred Achebe Dr. Alex Otti Abdulrahman Yinusa Chairman Group Managing Director/CEO Executive Director/CFO FRC/2013/NIM/00000001568 FRC/2013/CIBN/00000001567 FRC/2013/ICAN/00000001564 74 AUDIT COMMITTEE REPORT

n accordance with the provisions of section 359(6) of the Companies and Allied Matters Act. Cap. C20 Laws of the Federation of Nigeria, 2004, we, the Members of the Audit Committee of the Board of Directors of Diamond Bank Plc, having carried out our Istatutory functions under the Act with the co-operation of management and staff, hereby report that: 1. the accounting and reporting policies of the Bank and Group are in accordance with the legal requirements and agreed ethical practices;

2. the scope and planning of both the external and internal audit programmes for the year ended December 31, 2012 were satisfactory and reinforce the Group's internal control system;

3. having reviewed the external auditor's findings and recommendations on the management matters, we are satisfied with the management responses thereon;

In addition to the foregoing, we have complied with the provisions of Central Bank of Nigeria Circular BSD/1/2004 dated February 18, 2004 on “Disclosure of insider related credits in the financial statements of banks”, and hereby confirm that an aggregate amount of N33.4 billion was outstanding as at December 31, 2012.

Mr. Kabir Alkali Mohammed (mni) Chairman, Audit Committee FRC/2013/ICAN/00000002021 21 March 2013

Members of the Audit Committee:

Mr. Kabir Alkali Mohammed (mni) Chairman Sir Enoch Iwueze Member Mr. Abayomi Olaofe Member Lt. Gen. Jeremiah T. Useni (rtd) (mni) Member Mr. Chris Ogbechie Member Dr. Olubola Hassan Member

In attendance Nkechi Nwosu Secretary 75

REPORT OF THE EXTERNAL CONSULTANTS ON THE APPRAISAL OF THE BOARD OF DIRECTORS

In compliance with the Central Bank of Nigeria (CBN) Code of Corporate Governance for Banks in Nigeria Post Consolidation (“the CBN Code”), Diamond Bank Plc (“Diamond Bank” or “the Bank”) engaged KPMG Advisory Services to carry out an appraisal of the Board of Directors (“the Board”) for the year ended 31 December 2012. The CBN Codes mandates an annual appraisal of the Board with specific focus on the Board's structure and composition, responsibilities, processes and relationships, individual director competencies and respective roles in the performance of the Board.

Corporate governance is the system by which business corporations are directed and controlled to enhance performance and shareholder value. It is a system of checks and balances among the Board, management, and investors to produce a sustainable corporation geared towards delivering long –term value.

Our approach to the appraisal of the Board involved a review of the Bank's key corporate governance structures, policies and practices. This included the review of the corporate governance framework and representations obtained during one –on-one interviews with the members of the Board and management.

On the basis of our review, except as noted below, the Bank's corporate governance practices are largely in compliance with the key provisions of the CBN Code. Specific recommendations for further improving the Bank's governance practices have been articulated and included in our detailed report to the Board. These include: training and continuous education for Directors and timeliness of receipt of board papers by board members.

Tomi Adepoju Partner, KPMG Advisory Services 7 March 2013

FRC/2013/ICAN/00000001185 76

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF DIAMOND BANK PLC

Report on the financial statements

We have audited the accompanying separate and consolidated financial statements of Diamond Bank Plc (“the bank”) and its subsidiaries (together “the group”). These financial statements comprise the statement of financial position as at 31 December 2012 and the income statement, statement of other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors' responsibility for the financial statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Companies and Allied Matters Act and the Banks and Other Financial Institutions Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an independent opinion on the financial statements bases 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 our audit to obtain reasonable assurance that the financial statements 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 statements, 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 statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the bank's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the accompanying financial statements give a true and fair view of the state of the financial affairs of the bank and the group at 31 December 2012 and of the financial performance and cash flows of the group for the year then ended in accordance REPORT OF THE INDEPENDENT AUDITOR FOR THE PERIOD ENDED 31 DECEMBER 2012 2012 | ANNUAL REPORT & ACCOUNTS 77 with International Financial Reporting Standards and the requirements of the Companies and Allied Matters Act, the Banks and Other Financial Institutions Act and the Financial Reporting Council Act.

Report on other legal requirements

The Companies and Allied Matters Act and the Banks and Other Financial Institutions Act require that in carrying out our audit we consider and report to you 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. the bank has kept proper books of account, so far as appears from our examination of those books and returns adequate for our audit have been received from branches not visited by us;

iii. the bank's balance sheet and profit and loss account are in agreement with the books of account;

iv. related party transactions and balances are disclosed in Note 48 to the financial statements in accordance with the Central Bank of Nigeria Circular BSD/1/2004;

v. except for the contravention disclosed in Note 51 to the financial statements, the bank has complied with the requirements of the relevant circulars issued by the Central Bank of Nigeria.

Chartered Accountants 31 March 2013 Lagos, Nigeria

FRC/2013/ICAN/00000000980 CONSOLIDATED INCOME STATEMENT 78 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December GROUP Note 2012 2011

Interest and similar income 5 112,351,955 83,360,462 Interest expense 6 (23,030,433) (12,502,541)

Net interest income 89,321,522 70,857,921

Impairment charge for credit losses 7 (17,028,290) (55,408,691) Net interest income after impairment charge for credit losses 72,293,232 (15,499,230) Fee and commission income 8 26,496,714 19,361,545 Fee and commission expense 8 (1,311,710) (350,228)

Net fee and commission income 25,185,004 19,011,317 Net gains from financial assets classified as held for trading 9 1,025,151 1,232,906 Net gains/(losses) on available for sale investment securities 10 (996,493) (514,766) Fair value loss on Investment property 29 (63,031) - Fair value loss on derivative liability 36 (5,639,247) - Foreign exchange income 11 3,069,473 2,020,274 Dividend income 12 281,253 508,704 Other income 13 876,442 804,735

Total operating income 96,031,784 38,512,400 Employee benefit expenses 14 (25,963,200) (16,730,642) Operating expenses 15 (42,584,744) (39,741,491)

Operating profit/(loss) 27,483,840 (17,959,733) Share of loss of associates 29 (2,299) (5,196)

Profit/ (loss) before tax 27,481,541 (17,964,929) Income tax 16 (5,373,457) 4,023,944 Profit/ (loss) from continuing operations 22,108,084 (13,940,985) Profit from discontinued operations 17 - 217,198

PROFIT/(LOSS) FOR THE PERIOD 22,108,084 (13,723,787)

Attributable to: Equity holders of the parent entity (total) 22,141,378 (13,730,106) - Profit/ (loss) for the period from continuing operations 22,141,378 (13,954,261) - Profit for the period from discontinued operation - 224,155 Non-controlling interests (total) (33,294) 6,319 - (Loss)/profit for the period from continuing operations (33,294) 13,275 - Loss for the period from discontinued operations - (6,956) 22,108,084 (13,723,787) CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 79 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December Note 2012 2011

GROUP

PROFIT FOR THE PERIOD 22,108,084 (13,723,787)

Other comprehensive income: Exchange difference on translation of foreign operations 636,614 (77,008)

Net gains on available-for-sale financial assets -Unrealised net gains arising during the period, before tax (866,304) (3,107,942) Income tax relating to components of other comprehensive income - -

Other comprehensive income for the year, net of tax (229,690) (3,184,950)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 21,878,394 (16,908,737)

Total comprehensive income attributable to: Equity holders of the parent entity (total) 21,816,754 (16,927,648) - Total comprehensive income for the period from continuing operations 21,816,754 (17,151,802) - Total comprehensive income for the period from discontinued operations - 224,154

Non-controlling interests (total) 61,640 18,912 - Total comprehensive income for the period from continuing operations 61,640 25,868 - Total comprehensive income for the period from discontinued operations - (6,956)

21,878,394 (16,908,737) INCOME STATEMENT 80 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December Note 2012 2011 BANK

Interest and similar income 5 105,511,587 79,888,531 Interest expense 6 (20,710,729) (10,685,517)

Net interest income 84,800,858 69,203,014

Impairment charge for credit losses 7 (14,944,275) (52,949,031) Net interest income after impairment charge for credit losses 69,856,583 16,253,983 Fee and commission income 8 25,654,554 18,274,564 Fee and commission expense 8 (1,311,710) (348,223)

Net fee and commission income 24,342,844 17,926,341

Net gains from financial assets classified as held for trading 9 1,025,151 1,166,719 Net gains/(losses) on available for sale investment securities 10 (996,312) (513,539) Fair value loss on Investment property 29 (76,031) - Fair value loss on derivative liability 36 (5,639,247) - Loss on disposal and absorption of Subsidiaries 17b - (11,582,011) Foreign exchange income 11 2,774,584 2,006,686 Dividend income 12 281,253 51,462 Other income 13 558,704 116,981

Total operating income 92,127, 529 25,426,622

Employee benefit expenses 14 (24,213,430) (17,693,097) Operating expenses 15 (39,549,134) (34,865,734)

Profit/(loss) before tax 28,364,965 (27,132,209) Income tax 16 (5,291,538) 4,263,955

PROFIT/(LOSS) FOR THE PERIOD 23,073,427 (22,868,254)

Earnings per share from continuing and discontinued operations attributable to the equity holders of the parent during the period Basic 18 159.40 (157.98) From continuing operations (Kobo) 159.40 (157.98) From discontinued operations (Kobo) - - STATEMENT OF OTHER COMPREHENSIVE INCOME 81 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December Note 2012 2011

BANK

PROFIT FOR THE PERIOD 23,073,427 (22,868,254)

Other comprehensive income:

Net gains on available-for-sale financial assets -Unrealised net gains arising during the period (889,759) (3,107,943)

Other comprehensive income for the year (889,759) (3,107,943)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 22,183,668 (25,976,197) CONSOLIDATED STATEMENT OF FINANCIAL POSITION 82 AS AT 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 1 January Note 2012 2011 2011 GROUP

ASSETS Cash and balances with central banks 19 132,196,061 55,784,079 27,606,200 Loans to banks 21 139,803,281 90,648,011 72,155,340 Loans and advances to customers 22 585,200,158 388,136,486 307,212,457 Financial assets held for trading 23 90,111,236 8,041,618 1,345,552 Investment securities -Available-for-sale investments 24 10,601,609 85,990,731 19,891,359 -Held to maturity investments 24 65,762,681 61,712,761 56,977,064 Asset pledged as collateral 25 79,302,531 34,940,000 37,820,000 Insurance receivables 26 - - 705,659 Other assets 27 13,793,105 10,663,445 16,649,442 Investments in associates 29 3,182,250 3,184,549 3,502,339 Investment property 30 4,070,340 3,833,335 3,755,064 Property, plant and equipment 31 44,980,333 39,664,459 36,954,186 Intangible assets 32 834,815 819,076 596,025 Deferred tax 33 8,265,354 12,363,242 7,681,076 1,178,103,754 795,781,792 592,851,763 Asset classified as held for sale 34 - 450,000 - Total assets 1,178,103,754 796,231,792 592,851,763

LIABILITIES Deposits from banks 35 31,207,298 20,982,788 15,347,216 Deposits from customers 36 910,234,444 603,003,229 412,992,754 Derivative Liability 37 13,248,585 - - Other liabilities 38 42,095,096 29,988,365 26,691,492 Retirement benefit obligations 39 99,574 51,607 29,366 Provision 40 1,056,378 - - Current income tax liability 16 1,972,540 1,346,904 1,995,250 Provision for insurance contracts 41 - - 2,219,578 Borrowings 42 49,966,360 54,877,883 28,265,428 Long term debt 43 19,367,757 - - Total liabilities 1,069,248,032 710,250,776 487,541,084

EQUITY Share capital 44 7,237,622 7,237,622 7,237,622 Share premium 45 89,629,324 89,629,324 89,629,324 Retained earnings 45 (6,629,221) (24,112,701) (8,387,489) Other reserves - Statutory reserve 14,898,751 11,394,523 11,214,864 - Small scale industries (SSI) reserve 45 3,966,628 2,812,957 2,812,957 - Fair value reserve 45 (1,292,728) (1,422,736) 1,686,305 - Contingency reserve 45 - - 354,741 - Foreign currency translation reserve (FCTR) 45 792,068 217,094 306,694 108,602,444 85,756,083 104,855,018 Non-controlling interest 253,278 224,932 455,661 Total equity 108,855,722 85,981,016 105,310,679

Total equity and liabilities 1,178,103,754 796,231,792 592,851,763

The notes on pages 84 to 280 are an integral part of these financial statements. The financial statements were approved by the Board of Directors on 7 March 2013 and signed on its behalf by

HRM Igwe Nnaemeka Alfred Achebe Dr. Alex Otti Abdulrahman Yinusa Chairman Group Managing Director/CEO Executive Director/CFO FRC/2013/NIM/00000001568 FRC/2013/CIBN/00000001567 FRC/2013/ICAN/00000001564 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 83

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 1 January Note 2012 2011 2011 BANK

ASSETS Cash and balances with central banks 19 123,224,590 54,396,524 17,871,129 Loans to banks 21 113,384,200 72,098,846 61,620,185 Loans and advances to customers 22 523,374,608 344,397,331 299,534,692 Financial assets held for trading 23 90,111,236 8,041,618 1,109,080 Investment securities -Available-for-sale investments 24 10,555,061 76,762,309 11,095,806 -Held to maturity investments 24 64,751,769 52,253,105 43,978,424 Asset pledged as collateral 25 57,438,896 34,940,000 37,820,000 Other assets 27 10,240,209 6,529,297 8,664,365 Investment in Subsidiaries 28 7,865,622 7,865,622 17,442,980 Investments in associates 29 3,205,140 3,205,140 - Investment property 30 3,910,340 3,686,335 - Property, plant and equipment 31 41,879,449 36,276,819 34,645,547 Intangible assets 32 740,370 624,139 596,025 Deferred tax 33 8,455,767 12,536,874 7,720,257 1,059,137,257 713,613,959 542,098,490 Asset classified as held for sale 34 - 450,000 -

Total assets 1,059,137,257 714,063,959 542,098,490

LIABILITIES Deposits from banks 35 8,173,286 3,939,956 4,104,098 Deposits from customers 36 823,090,787 545,161,145 379,344,019 Derivative Liability 37 13,248,585 - - Other liabilities 38 34,939,235 24,678,784 17,682,674 Retirement benefit obligations 39 99,574 20,141 21,948 Provision 40 1,056,378 - - Current income tax liability 16 1,878,880 1,249,616 1,649,557 Borrowings 42 49,966,360 54,877,883 28,031,831 Long term debt 43 19,367,757 - -

Total liabilities 951,820,842 629,927,525 430,834,127

EQUITY Share capital 44 7,237,622 7,237,622 7,237,622 Share premium 45 89,629,324 89,629,324 89,629,324 Retained earnings 45 (6,851,491) (25,310,234) (270,693) Other reserves - Statutory reserve 45 14,650,515 11,189,501 11,189,501 - Small scale industries (SSI) reserve 45 3,966,628 2,812,957 2,812,957 - Fair value reserve 45 (1,316,183) (1,422,736) 665,652 Total equity 107,316,415 84,136,434 111,264,363

Total equity and liabilities 1,059,137,257 714,063,959 542,098,490

The notes on pages 84to 280 are an integral part of these financial statements. The financial statements were approved by the Board of Directors on 7 March 2013 and signed on its behalf by

HRM Igwe Nnaemeka Alfred Achebe Dr. Alex Otti Abdulrahman Yinusa Chairman Group Managing Director/CEO Executive Director/CFO FRC/2013/NIM/00000001568 FRC/2013/CIBN/00000001567 FRC/2013/ICAN/00000001564 STATEMENT OF CHANGES IN EQUITY 84 FOR THE YEAR ENDED 31 DECEMBER 2012

GROUP

(All amounts in thousands of Nigeria Naira unless otherwise stated Non- Attributable to equity holders of the parent Controlling Total Interest equity Foreign Currency Share Share Retained Statutory SSI Fair value Contingency Translation capital premium earnings reverse reserve reserve reserve reserve Total

Balance at 1 January 2011 7,237,622 89,629,324 (8,387,489) 11,214,864 2,812,957 1,686,305 354,741 306,694 104,855,018 455,661 105,310,679

Profit - - (13,730,106) - - - - - (13,730,106) 6,319 (13,723,786) Foreign currency translation differences ------(89,600) (89,600) 12,592 (77,008)

Fair value movement on available-for-sale financial assets - - - - - (3,107,942) - - (3,107,942) - (3,107,942)

Total comprehensive income - - (13,730,106) - - (3,107,942) - (89,600) (16,927,648) 18,911 (16,908,736) Dividends - - (2,171,287) - - - - - (2,171,287) - (2,171,287) Transfer from/ (to) retained earnings - - 176,181 179,659 - (1,099) (354,741) - - - - Non controlling interest of subsidiary disposed ------(249,640) (249,640)

At 1 January 2012 / 31 December 2011 7,237,622 89,629,324 (24,112,701) 11,394,523 2,812,957 (1,422,736) - 217,094 85,756,083 224,932 85,981,016

Profit - - 22,141,378 - - - - - 22,141,378 (33,294) 22,108,084 Foreign currency translation differences ------574,974 574,974 61,640 636,614

Fair value movement on available-for-sale financial assets - - - - - (866,304) - - (866,304) - (866,304)

Fair value movement on disposed AFS investments - - - - - 996,312 - - 996,312 - 996,312 Transfer from/ (to) retained earnings - (4,657,898) 3,504,228 1,153,671 ------

Total comprehensive income - - (4,657,898) 3,504,228 1,153,671 130,008 - 574,974 704,982 61,640 766,622

At 31 December 2012 7,237,622 89,629,324 (6,629,221) 14,898,751 3,966,628 (1,292,728) - 792,068 108,602,443 253,278 108,855,722 STATEMENT OF CHANGES IN EQUITY 85 FOR THE YEAR ENDED 31 DECEMBER 2012

BANK

(All amounts in thousands of Nigeria Naira unless otherwise stated

Share Share Retained Statutory SSI Fair value capital premium earnings reverse reserve reserve Total

Balance at 1 January 2012 7,237,622 89,629,324 (270,693) 11,189,501 2,812,957 665,652 111,264,363

Profit - - (22,868,254) - - - (22,868,254) Fair value reserve of subsidiaries 1,019,555 1,019,555 Fair value movement on available-for-sale financial assets, net of tax - - - - - (3,107,943) (3,107,943) ------

Total comprehensive income - - (22,868,254) - - (2,088,388) (24,956,642) Dividends - - (2,171,287) - - - (2,171,287)

At 1 January 2012 / 31 December 2011 7,237,622 89,629,324 (25,310,234) 11,189,501 2,812,957 (1,422,736) 84,136,434

Profit - - 23,073,427 - - - 23,073,427 Fair value movement on available-for-sale financial assets - - - - - (889,759) (889,759) Fair value movement on disposed AFS investments - - - - - 996,312 996,312 Total comprehensive income - - 23,073,427 - - 106,553 23,179,980

Transfer from retained earnings - - (4,614,684) 3,461,014 1,153,671 - -

At 31 December 2012 7,237,622 89,629,324 (6,851,491) 14,650,515 3,966,628 (1,316,183) 107,316,414 CONSOLIDATED STATEMENT OF CASHFLOWS 86 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December Note 2012 2011 GROUP

Operating activities Cash flow (used in)/generated from operations 46 (23,702,429) 27,260,773 Interest received 75,853,628 63,234,363 Interest paid (21,974,644) (13,596,146) Tax paid (649,933) (1,106,844)

Net cash flow (used in)/generated from operations 29,526,622 75,792,146

Investing activities Proceeds of investment securities 482,939,008 405,260,320 Purchase of investment securities (410,572,370) (481,821,820) Additions to investment property (237,005) (309,402) Purchase of fixed and intangible assets (11,304,765) (10,157,624) Proceed from sale of fixed and intangible assets 133,856 1,221,530 Proceed from sale of investment property - 231,131 Proceed from sale of subsidiaries - 312,594 Dividends received 281,253 508,704 Proceeds from sale and redemption of investments - -

Net cash generated from/ (used in) investing activities 61,239,977 (84,754,567)

Financing activities Dividend paid - (2,180,042) Proceeds from new borrowings 7,103,460 34,132,833 Repayment of borrowings (12,279,525) (7,480,384) Proceeds from long term borrowing (Tier 2 Capital) 26,741,809 -

Net cash generated from/ (used in) financing activities 21,565,744 24,472,407

Increase in cash and cash equivalents 20 112,332,342 15,509,987

Cash and cash equivalents at start of year 114,052,389 98,384,772 Exchange gains/losses on cash & cash equivalents 1,763,279 157,630 Cash and cash equivalents at end of year 228,148,010 114,052,389

Increase in cash and cash equivalents 112,332,342 15,509,987 CONSOLIDATED STATEMENT OF CASHFLOWS 87 FOR THE YEAR ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December Note 2012 2011 BANK

Operating activities 46 Cash flow (used in)/generated from operations (15,211,028) 28,268,268 Interest received 70,499,130 58,731,734 Interest paid (19,181,779) (10,146,763) Tax paid (581,167) (2,434,843)

Net cash flow (used in)/generated from operations 35,525,155 74,418,396

Investing activities Proceeds of investment securities 325,014,475 342,396,350 Purchase of investment securities (270,374,582) (411,451,540) Additions to investment property (224,005) (6,918,136) Purchase of fixed and intangible assets (10,428,678) (8,139,582) Proceed from sale of fixed and intangible assets 156,221 925,085 Dividends received 281,253 51,462

Net cash generated from/ (used in) investing activities 44,424,684 (83,136,361)

Financing activities Dividend paid - (2,171,287) Proceeds from new borrowings 7,038,770 34,370,759 Repayment of borrowings (12,090,730) (7,480,384) Proceeds from long term borrowing (Tier 2 Capital) 26,741,809 -

Net cash generated from/ (used in) financing activities 21,689,849 24,719,088

Increase in cash and cash equivalents 20 101,639,688 16,001,123

Cash and cash equivalents at start of year 94,115,669 78,114,546 Exchange gains/losses on cash & cash equivalents 235,286 - Cash and cash equivalents at end of year 195,990,643 94,115,669

Increase in cash and cash equivalents 101,639,688 16,001,123 NOTES TO THE FINANCIAL STATEMENTS 88 FOR THE YEAR ENDED 31 DECEMBER 2012

1. General information

Diamond Bank Plc and its subsidiaries (together, 'the group') provide banking and other financial services including investment, commercial and retail banking and custodian services to corporate and individual customers. Diamond Bank Nigeria Plc operates through subsidiaries, including Diamond Pension Fund Custodians, Diamond Bank du Benin SA, Diamond Bank Cote D'Ivoire, Diamond Bank Senegal and Diamond Bank Togo. In 2011, the Bank divested from or liquidated the following subsidiaries: Diamond Capital and Financial Markets, Diamond Securities Limited, Diamond Registrars Limited, Diamond Mortgages Limited and ADIC Insurance Limited.

The Bank is a public limited company, which is listed on the Nigerian Stock Exchange and incorporated and domiciled in Nigeria. The address of its registered office is: Plot 1261, Adeola Hopewell Street, Victoria Island, and Lagos.

The consolidated financial statement were authorised for issue on 7 March 2013 by the board of directors. Neither the entity's owners nor others have the power to amend the financial statements after issue.

2. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

An explanation of how the transition to International Financial Reporting Standards (IFRS) has affected the reported financial position, financial performance and cash flows of the Group is provided in note 48. This note includes reconciliations of equity and statement of comprehensive income for the comparative periods reported under Nigerian GAAP (Previous GAAP) to those reported for this period under IFRS.

2.1 Basis of preparation

These financial statements are the consolidated financial statements of the Bank, and its subsidiaries (together, "the Group").

The Group's consolidated financial statements for the period ended 31 December 2012 have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board ("IASB"). Additional information required by national regulations is included where appropriate. These are the first financial statements of the Group prepared in accordance with IFRS 1 (First-time Adoption of IFRS).

The consolidated financial statements comprise the consolidated statement of comprehensive income, the statement of financial position, the statement of changes in equity, the cash flow statement and the notes. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 89

The consolidated financial statements have been prepared in accordance with the going concern principle under the historical cost convention, except for financial assets and financial liabilities and investment properties.

The consolidated financial statements are presented in Naira, which is the Group's functional currency. The figures shown in the consolidated financial statements are stated in Naira thousands (N'000).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires directors to exercise their judgment in the process of applying the group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.6c.

2.2 Changes in accounting policies and disclosures

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012 and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the group, except the following set out below:

IFRS 9: Financial instruments: Classification and measurement (effective for periods beginning on or after 1 January 2015)

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in Other Comprehensive Income rather than the Income Statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9's full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2015. The group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.

IFRS 10: Consolidated financial statements (effective for periods beginning on or after 1 January 2013)

IFRS 10, Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to ascertain. The group is yet to assess IFRS 10's full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013. NOTES TO THE FINANCIAL STATEMENTS 90 FOR THE PERIOD ENDED 31 DECEMBER 2012

IFRS 12: Disclosures of interests in other entities (effective for periods beginning on or after 1 January 2013)

This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The group is yet to assess IFRS 12's full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013.

IFRS 13: Fair value measurement (effective for periods beginning on or after 1 January 2013)

This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS.

IAS 1 (Amended): Presentation of financial statements (effective for periods beginning on or after 1 July 2012)

The standard includes a requirement for entities to group items presented in "other comprehensive income” (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items in OCI.

2.3 Consolidation

The financial statements of the consolidated subsidiaries used to prepare the consolidated financial statements were prepared as at the parent company's reporting date.

(a) Subsidiaries

The consolidated financial statement of the group, comprises of the financial statement of the parent entity and all consolidated subsidiaries as of 31 December 2012.

Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. The group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the group's voting rights relative to the size and dispersion of holdings of other shareholders give the group the power to govern the financial and NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 91

operating policies, etc.

Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred by the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non- controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to Other Comprehensive Income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in Profit or Loss.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

Subsidiaries are measured at cost in the separate financial statement

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, NOTES TO THE FINANCIAL STATEMENTS 92 FOR THE PERIOD ENDED 31 DECEMBER 2012

as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the group ceases to have control or any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in Other Comprehensive Income are reclassified to Profit or Loss.

(d) Associates

Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in Other Comprehensive Income is reclassified to Profit or Loss where appropriate.

The group's share of post-acquisition profit or loss is recognised in the Income Statement, and its share of post acquisition movements in Other Comprehensive Income is recognised in Other Comprehensive Income with a corresponding adjustment to the carrying amount of the investment. When the group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/ (loss) of an associate' in the income statement.

Profits and losses resulting from upstream and downstream transactions between the group and its associate are recognised NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 93

in the group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.

Investment in associate is carried at cost less impairment in the separate financial statement. For summarised financial information on the Group's associates accounted for using the equity method, see Note 28.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency").

The consolidated financial statements are presented in Naira thousands.

(b) Transactions and balances

Foreign currency transactions (i.e. transactions denominated, or that require settlement, in a currency other than the functional currency) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured.

Monetary items denominated in foreign currency are translated with the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised as foreign exchange income in the consolidated income statement.

In the case of changes in the fair value of monetary assets denominated in foreign currency classified as available-for-sale, a distinction is made between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount, except impairment, are recognised in Other Comprehensive Income. NOTES TO THE FINANCIAL STATEMENTS 94 FOR THE PERIOD ENDED 31 DECEMBER 2012

Translation differences on non-monetary financial instruments, such as equities held at fair value through profit or loss, are reported as gain or loss from financial assets classified as held for trading in the consolidated income statement. Translation differences on non-monetary financial instruments, such as equities classified as available-for-sale financial assets, are included in other comprehensive income and cumulated in the foreign currency translation.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

u assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date of that Statement of Financial Position;

u income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

u all resulting exchange differences are recognised in Other Comprehensive Income and cumulated in Foreign Currency Translation Reserve Income.

On the disposal of a foreign operation, the Group recognises in Profit or Loss the cumulative amount of exchange differences relating to that foreign operation. When a subsidiary that includes a foreign operation is partially disposed of or sold, the Group re- attributes the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income to the non-controlling interests in that foreign operation. In the case of any other partial disposal of a foreign operation, the Group reclassifies to profit or loss only the proportionate share of the cumulative amount of exchange differences recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5: Financial assets and liabilities

All financial assets and liabilities - which include derivative financial instruments are recognised in the Consolidated Statement of Financial Position and measured in accordance with their assigned category. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 95

A) Initial recognition and measurement

Financial instruments are initially recognised at fair value while the treatment of directly attributable transaction cost depends on the classification accorded the instrument. Derivatives are initially recognised at fair value on the date a derivative contract is entered into.

The Group does not currently apply hedge accounting.

B) Subsequent measurement

Subsequent to initial measurement, financial instruments are measured either at fair value or amortised cost depending on their classification. Derivatives are subsequently re-measured at their fair value.

C) Classification and related measurement

The Directors determines the classification of its financial instruments at initial recognition. Reclassification of financial assets are permitted in certain instances as discussed below.

i) Financial assets

The Group classifies its financial assets in terms of the following IAS 39 categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity financial assets; and available-for-sale financial assets.

a) Financial assets at fair value through profit or loss

This category comprises two sub-categories: financial assets classified as held for trading, and financial assets designated by the Group as fair value through profit or loss upon initial recognition. At the reporting dates covered by these financial statements, financial assets at fair value through profit or loss comprise financial assets classified as held for trading only.

A financial asset is classified as Held for Trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as Held for Trading unless they are designated and effective as hedging instruments.

Financial instruments included in this category are recognised initially at fair value; transaction cost are taken directly to the Consolidated Income Statement. Gains and losses arising from changes in fair value are included directly in the Consolidated NOTES TO THE FINANCIAL STATEMENTS 96 FOR THE PERIOD ENDED 31 DECEMBER 2012

Income Statement and are reported as “Net Gains/(losses)” on financial instruments classified as held for trading. Interest income and expenses and dividend income and expenses on financial assets held for trading are included in “Net Interest Income'” or "Dividend Income”, respectively. The instruments are derecognised when the rights to receive cash flows have expired or the Group has transferred substantially all the risk and rewards of ownership and the transfer qualifies for derecognising.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

u those that the Group intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon initial recognition designates as fair value through profit or loss;

u those that the Group upon initial recognition designates as available-for-sale; or

u those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivable are initially recognised at fair value - which is the cash consideration to originate or purchase the loan including any transaction cost - are subsequently measured at amortised cost using the effective interest rate method. Loans and receivables are reported in the consolidated statement of financial position as Loans to banks or customers or as investment securities. Interest income is included in 'Interest and similar income' in the consolidated income statement. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the consolidated income statement as 'Loan impairment charges'.

c) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity, other than:

u those that the Group upon initial recognition designates as fair value through profit or loss;

u those that the Group upon initial recognition designates as available-for-sale; or

u those that meet the definition of loans and receivables. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 97

These financial assets are subsequently measured at amortised cost using the effective interest rate method. Interest income is included in 'Interest and Similar Income' in the Statement of Comprehensive Income. Refer to accounting policy 2.8 for the impairment of financial assets.

d) Available-for-sale financial assets

Available-for-Sale financial assets are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices or that are not classified as loans and receivables, held-to-maturity financial assets or financial assets at fair value through profit or loss.

Available-for-sale financial assets are initial recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognised in the consolidated statement of Other Comprehensive Income and cumulated in the fair value reserve, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If the Available-for-Sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the Consolidated Statement of Other Comprehensive Income is recognised in the Consolidated Income Statement. However, interest is calculated using the effective interest method, and the foreign currency gains and losses on monetary assets classified as Available for Sale are recognised in the consolidated Income Statement. Dividends on available-for-sale equity instruments are recognised in the Consolidated Income Statement in “Dividend Income”when the group's right to receive payment is established.

ii) Financial liabilities

Financial liabilities are classified as at fair value through profit or loss and financial liabilities at amortised cost.

a) Financial liabilities at amortised cost

Financial liabilities that are not classified as at fair value through profit or loss are measured at amortised cost using the effective interest method. Interest expense is included in 'Interest Expense' in the Statement of Comprehensive Income.

b) Financial liabilities at fair value

The Bank has a hybrid contract that contains both a derivative and a non-derivative component. The derivative is the embedded derivative and the non- derivative represents the host contract. The derivative is fair valued with gains and losses recognised in the Income Statement and the host contract will be accounted for in accordance with (a) above. NOTES TO THE FINANCIAL STATEMENTS 98 FOR THE PERIOD ENDED 31 DECEMBER 2012

c) Reclassification of financial assets

The Group may choose to reclassify a non-derivative financial asset held for trading out of the held for trading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the Held for Trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near-term. In addition, the Group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the Held for Trading or Available-for-Sale categories if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively.

On reclassification of a financial asset out of the fair value through profit or loss category, all embedded derivatives are re- assessed and, if necessary, separately accounted for.

d) Determination of fair value

At initial recognition, the best evidence of the fair value of a financial instrument is the transaction price (i.e. the fair value of the consideration paid or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument, without modification or repackaging, or based on valuation techniques such as discounted cash flow models and option pricing models whose variables include only data from observable markets.

Subsequent to initial recognition, for financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations. This includes listed equity securities and quoted debt instruments on major exchanges and broker quotes.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. If the above criteria are not met, the market is regarded as being inactive. An indication that a market is inactive is when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 99

For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using inputs (for example, LIBOR yield curve, foreign exchange rates, volatilities and counterparty spreads) existing at the reporting dates.

The Group uses widely recognised valuation models for determining fair values of non-standardized financial instruments of lower complexity, such as options or interest rate and currency swaps. For these financial instruments, inputs into models are generally market-observable.

For more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value derivatives transacted in the over-the-counter market, unlisted debt securities (including those with embedded derivatives) and other debt instruments for which markets were or have become illiquid. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Group holds. Valuations may therefore be adjusted, where appropriate, to allow for additional factors including model risks, liquidity risk and counterparty credit risk. Based on the established fair value model governance policies, and related controls and procedures applied, management believes that these valuation adjustments are necessary and appropriate to fairly state the values of financial instruments carried at fair value in the consolidated statement of financial position. Price data and parameters used in the measurement procedures applied are generally reviewed carefully and adjusted, if necessary.

e) Derecognition

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Group tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

Collateral (shares and bonds) furnished by the Group under standard repurchase agreements and securities lending and borrowing transactions is not derecognised because the Group retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met.

Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the Statement of financial position as 'Assets Pledged as Collateral'. NOTES TO THE FINANCIAL STATEMENTS 100 FOR THE PERIOD ENDED 31 DECEMBER 2012

2.6 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

2.7 Revenue recognition

Interest income and expense

Interest income and expense for all interest-bearing financial instruments are recognised within 'Interest Income' and 'Interest Expense' in the Statement of Comprehensive Income using the effective interest rate method.

The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Where the estimated cash flows on financial assets are subsequently revised, other than impairment losses, the carrying amount of the financial assets is adjusted to reflect actual and revised estimated cash flows.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Fees and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party, are recognised on completion of the underlying transaction. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 101

Income from bonds or guarantees and letters of credit

Income from bonds or guarantees and letters of credit are recognised on an amortised cost basis.

Dividend income

Dividends are recognised' when the entity's right to receive payment is established.

2.8 Impairment of financial assets

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment of available-for-sale equity financial assets The Group determines that available-for-sale equity financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flow. Impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and financing and operational cash flows.

(b) Fair value of financial instruments The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example, models)are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

(c) Loans and receivables and held to maturity financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment, as a result of one or more events that occurred after the initial recognition of the NOTES TO THE FINANCIAL STATEMENTS 102 FOR THE PERIOD ENDED 31 DECEMBER 2012

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.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: u Delinquency in contractual payments of principal or interest; u Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales); u Breach of loan covenants or conditions; u Initiation of bankruptcy proceedings; u Deterioration of the borrower's competitive position; u Deterioration in the value of collateral; u Downgrading below investment grade level; u Significant financial difficulty of the issuer or obligor; u A breach of contract, such as a default or delinquency in interest or principal payments; u The lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; u It becomes probable that the borrower will enter bankruptcy or other financial reorganization; u The disappearance of an active market for that financial asset because of financial difficulties; and u Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: adverse changes in the payment status of borrowers in the portfolio; and national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group 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.

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 financial 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 recognised in profit or loss. If a financial instrument 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 costs for obtaining and selling the collateral, whether or not foreclosure is probable. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 103

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 Group's grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by 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 group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets are reflected and directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

Impairment charges on financial assets are included in profit or loss within 'Impairment charges for credit losses'.

2.9 Impairment of non-financial assets

Other receivables included in other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment charges on such balances are included in profit and loss within "other operating expenses". Additionally, assets that have an indefinite useful life and are not subject to amortisation are tested annually for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating units). The impairment test may also be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Impairment losses recognised in prior periods 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 NOTES TO THE FINANCIAL STATEMENTS 104 FOR THE PERIOD ENDED 31 DECEMBER 2012

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. An impairment loss in respect of goodwill is not reversed.

2.10 Statement of cash flows

The Statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating activities, investing activities and financing activities. Cash and cash equivalents include highly liquid investments.

The cash flows from operating activities are determined by using the indirect method. Net income is therefore adjusted by non- cash items, such as measurement gains or losses, changes in provisions, as well as changes from receivables and liabilities. In addition, all income and expenses from cash transactions that are attributable to investing or financing activities are eliminated.

The Group's assignment of the cash flows to operating, investing and financing category depends on the Group's business model (management approach). Interest and dividends received and interest paid are classified as operating cash flows, while dividends paid are included in financing activities.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months' maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

For the purposes of the statement of cash flows, cash and cash equivalents include cash and non-restricted balances with central banks.

2.12 Leases

Leases are divided into finance leases and operating leases.

(a) A group company is the lessee

(i) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. When an operating NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 105

lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

(ii) Finance lease

Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in 'Deposits from banks' or 'Deposits from customers' depending on the counter party. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The properties acquired under finance leases are measured subsequently at their fair value.

(b) A group company is the lessor

(i) Operating lease

When assets are subject to an operating lease, the assets continue to be recognised as property and equipment based on the nature of the asset. Lease income is recognised on a straight line basis over the lease term.

Lease incentives are recognised as a reduction of rental income on a straight-line basis over the lease term.

(ii) Finance lease

When assets are held subject to a finance lease, the related asset is derecognised and the present value of the lease payments (discounted at the interest rate implicit in the lease) is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. The recognised receivable is included within "Loans and Advance to Customers" or "Loans to banks" depending on the counter party.

2.13 Investment properties

Properties that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by the entities in the Group, are classified as investment properties. NOTES TO THE FINANCIAL STATEMENTS 106 FOR THE PERIOD ENDED 31 DECEMBER 2012

Recognition of investment properties takes place only when it is probable that the future economic benefits that are associated with the investment property will flow to the entity and the cost can be measured reliably. This is usually the day when all risks are transferred.

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing parts of an existing investment property at the time the cost was incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting date. Gains or losses arising from changes in the fair value of investment properties are included in the consolidated profit or loss in the year in which they arise. Subsequent expenditure is included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.

The fair value of investment properties is based on the nature, location and condition of the specific asset. The fair value is obtained from professional third party valuers contracted to perform valuations on behalf of the Group. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure. These valuations are performed annually by external appraisers.

2.14 Property and equipment

All property and equipment used by the Group is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent expenditures are included in the asset's carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to 'Other operating expenses' during the financial period in which they are incurred.

The assets' residual values and useful lives are reviewed annually, and adjusted if appropriate. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in 'Other operating expenses' in profit or loss.

Construction cost and improvements in respect of offices is carried at cost as capital work in progress. On completion of construction or improvements, the related amounts are transferred to the appropriate category of property and equipment. Payments in advance for items of property and equipment are included as Prepayments in “Other Assets” and upon delivery are reclassified as additions in the appropriate category of property and equipment. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 107

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost less residual values over their estimated useful lives, as follows:

u Land is not depreciated u Motor Vehicles - 4 years u Furniture and fittings - 4 years u Office Equipment - 5 years u Computer Equipment - 3 years u Building - 25 years u Leasehold Improvement - Over the unexpired lease term

Leasehold improvement relates to capital expenditures incurred in modifying properties acquired by the group for the purpose of establishing new branches. Such expenses include structural and civil engineering works, beautification, landscaping, and electrical works. Leasehold improvement applies only to rented properties. Improvements made to property owned by the group are additions to building and are depreciated in line with the depreciation policy on building.

2.15 Intangible assets

(a) Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the consideration transferred over IFRS GAAP Plc's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, and impairment is booked where the carrying value is higher. Impairment losses on goodwill are not subsequently reversed.

(b) Software licenses

Intangible assets comprise of acquired software licenses. These are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These cost are amortised using the straight-line method over their estimated useful economic NOTES TO THE FINANCIAL STATEMENTS 108 FOR THE PERIOD ENDED 31 DECEMBER 2012

life (3 years). At each reporting date of the consolidated statement of financial position, intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exist, the intangible assets are analyzed to assess whether their carrying amount if fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount.

2.16 Non-current assets classified as held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of the carrying amount and fair value less costs to sell.

The Group presents discontinued operations in a separate line in the consolidated statement of comprehensive income if an entity or a component of an entity has been disposed of or is classified as held for sale and:

(a) Represents a separate major line of business or geographical area of operations; (b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) Is a subsidiary acquired exclusively with a view to resale (for example, certain private equity investments).

Net profit from discontinued operations includes the net total of operating profit or loss before tax from operations, including net gain or loss on sale before tax or measurement to fair value less costs to sell and discontinued operations tax expense. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Group's operations and cash flows. If an entity or a component of an entity is classified as a discontinued operation, the Group restates prior periods in the consolidated statement of comprehensive income.

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. This measurement provisions do not apply to deferred tax assets and liabilities (IAS 12), financial assets in the scope of IAS 39, investment properties that are accounted for in accordance with the fair value model in IAS 40. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when subject to terms that are usual and customary for sales of such assets. The Directors must ensure that the sale is highly probable and the asset is available for immediate sale in its present condition, be committed to the sale and must actively market the property for sale at a price that is reasonable in relation to the current fair value. The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

2.17 Income taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in arriving at profit or loss, except to the extent that it relates to items recognised in Other Comprehensive Income or directly in equity. In this case, the tax is also NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 109

recognised in Other Comprehensive Income or directly in equity, respectively.

(a) Current income tax The current income tax charge is calculated on the basis of the applicable tax laws enacted or substantively enacted at the reporting date in the respective jurisdiction.

(b) Deferred income tax Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred Income Tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred Income Tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred Income Tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future.

Deferred Income Tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to Income Taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balance on a net basis.

2.18 Retirement benefit obligation

Defined contribution scheme The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a contractual basis. The Group contributes 7.5% of basic salary, rent and transport allowances, with the employee contributing a further 7.5%. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. NOTES TO THE FINANCIAL STATEMENTS 110 FOR THE PERIOD ENDED 31 DECEMBER 2012

Gratuity scheme The Group had a non contributory defined gratuity scheme whereby on separation, staff who have spent a minimum number of periods are paid a sum based on their qualifying emoluments and the number of periods spent in service of the Company. With effect from October 2008, this scheme was discontinued and payments to staff made over a three year period.

2.19 Provisions

Provisions for restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The Group recognises no provisions for future operating losses.

2.20 Financial guarantee contracts

A financial guarantee contract is a contract that requires the Group (issuer) 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 original or modified terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantee liabilities are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Subsequent to initial recognition, the financial guarantee liability is measured at the higher of the present value of any expected payment, when a payment under the guarantee has become probable, and the unamortised premium. Financial guarantee contracts entered into by the Group include advance payment bonds, loan guarantees, performance bonds, confirmed and unfunded letters of credit commitment and guaranteed pension assets.

2.21 Share capital

(a) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in Equity as a deduction, net of tax, from the proceeds.

(b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the bank's shareholders. Dividends for the year that are declared after the date of the Statement of Financial Position are dealt with in the subsequent events note.

Dividends proposed by the Directors but not yet approved by members are disclosed in the financial statements in accordance with the requirements of the Company and Allied Matters Act. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 111

(c) Treasury shares Where the Company or other members of the Group purchase the bank's equity share capital, the consideration paid is deducted from total shareholders' equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders' equity.

(d) Statutory reserve Central Bank of Nigeria (CBN) regulation requires the Company to make an annual appropriation to a statutory reserve. As stipulated by Paragraph G(1) of the Revised Guidelines for Discount Houses, an appropriation of 15% of profit after tax is made if the statutory reserve is less than the paid-up share capital and 10% of profit after tax if the statutory reserve is greater than the paid up share capital. For purposes of this appropriation, 'Profit for the Year' as reported in the Statement of Comprehensive Income is used. This appropriation is reported in the statement of changes in equity.

(e) Credit risk reserve In compliance with the Prudential Guidelines for Licensed Banks, the Group assesses qualifying financial assets using the guidance under the Prudential Guidelines. These apply objective and subjective criteria towards providing for losses in risk assets. Assets are classed as performing or non-performing. Non- performing assets are further classed as Substandard, Doubtful or Lost with attendant provisions as shown below based on objective criteria.

(a) substandard assets with arrears period between 90 and 180 days - 10% (b) doubtful assets with arrears period between 180 days and 360 days - 50% (c) loss assets with arrears period over 360 days - 100%; and

A more accelerated provision may be done using the subjective criteria. A 1% provision is taken on all risk assets not specifically provisioned.

The results of the application of Prudential Guidelines and the impairment determined for these assets under IAS 39 are compared. The IAS 39 determined impairment charge is always included in the Income Statement. Where the Prudential Guidelines provision is greater, the difference is appropriated from Retained Earnings and included in a non-distributable reserve called "Credit Risk Reserve". Where the IAS 39 impairment is greater, no appropriation is made and the amount of the IAS 39 impairment is recognised in the Statement of Comprehensive Income.

In subsequent periods, reversals or additional appropriations between the "Credit Risk Reserve" and Retained Earnings to maintain total provisions at the levels expected by the Regulator. NOTES TO THE FINANCIAL STATEMENTS 112 FOR THE PERIOD ENDED 31 DECEMBER 2012

2.22 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined the Executive Committee as its chief operating decision maker.

All transactions between business segments are conducted on an arm's length basis, with intra-segment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance. Refer to note 49 for the Group segment report.

2.23 Fiduciary activities

The Group acts as trustees and in other fiduciary capacities through Diamond Pension Fund Custodian Limited that result in the holding or placing of assets on behalf of trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.

2.24 Insurance contracts

IFRS 4 requires contracts written by insurers to be classified as either 'insurance contracts' or 'investment contracts' depending on the level of insurance risk transferred.

The company issues contracts that transfer insurance risk or financial risk or both.

Insurance contracts are those contracts where a party (the policy holder) transfers significant insurance risk to another party (insurer) and the latter agrees to compensate the policy holder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder, or other beneficiary. Such contracts may also transfer financial risk when the insurer issues financial instruments with a discretionary participation feature.

A number of insurance and investment contracts contain a discretionary feature. This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses

u That is likely to be a significant portion of the total contractual benefits. u Whose amount or timing is contractually at the discretion of the company; and u That are contractually based on: - the performance of a specified pool of contracts or a specified type of contract - realised and /or unrealized investment returns on a specified pool of assets held by the company - the profit or loss of the company, fund or other entity that issues the contract. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 113

General Insurance Business

General Insurance Business means insurance business of any class or classes not being long term insurance business. Classes of General Insurance include: u Fire insurance business u General accident insurance business; u Motor vehicle insurance business; u Marine and aviation insurance business; u Oil and gas insurance business; u Engineering insurance business; u Bonds credit guarantee and surety-ship insurance business; and u Miscellaneous insurance business

For all these contracts, premiums are recognized as revenue proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risk at the end of reporting date is reported as the unearned premium liability.

Premiums are shown before deductions of commissions and are gross of any taxes or duties levied on premiums.

Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders.

Recognition and Measurement of Insurance Contracts

a) Insurance contracts

In terms of IFRS 4, insurance liabilities are measured under the existing local practice at the date of adoption of IFRS 4. The Group had prior to the adoption of IFRS 4 valued insurance liabilities using certain actuarial techniques as described below. The Group has continued to value insurance liabilities in accordance with these.

Insurance contracts are classified into two broad categories, depending on the duration of the risk and the type of risk insured, namely Life Insurance (Individual Life and Group Life) and General Insurance.

(i) Life insurance At the end of each reporting period, Liability Adequacy Tests are performed to ensure that material and reasonably foreseeable losses arising from existing contractual obligations are recognised. In performing these tests, current best NOTES TO THE FINANCIAL STATEMENTS 114 FOR THE PERIOD ENDED 31 DECEMBER 2012

estimates of future contractual cash flows, claims handling and administration expenses, investment income backing such liabilities are considered. Long-term insurance contracts are measured based on assumptions set out at the inception of the contract. Any deficiency is charged to income statement by increasing the carrying amount of the related insurance liabilities.

Group Life contracts insure against death on a group basis. These contracts are short term in nature and are typically renewed annually. For these contracts, gross premiums are recognised as revenue when due. Where the same policy includes both insurance and investment components and where the policy is classified as insurance, the insurance and investment benefits are valued separately.

i.a) Individual life These contract mainly insure against death. For the published accounts, the contracts are value based on a gross premium valuation taking into account the present value of expected future premium, claim and associated expense cash flow. The premium is recognised and credited to the fund when due for payment. Premiums written relate to risks assumed during the period, and include estimates of premiums due but not yet received, less an allowance for estimated lapses. Any resultant negative policyholder liabilities, measured on an individual policy level are set to zero ("zerorised") so as not to recognise profits prematurely.

Where the same policy includes both insurance and investment components and where the policy is classified as insurance, the insurance and investment benefits are valued separately.

Claims arising on maturity are recognised when the claim becomes due for payment. Death claims are accounted for on notification. Surrenders are accounted for on payment. The expense is determined in the same way as for general insurance. Claims handling expenses are charged to revenue when incurred.

Expenses and commissions are allocated to the life fund as incurred in the management of the life business. No deferred acquisition costs exist.

i.b) Group life These contracts insure against death on a group basis. These contracts are short term in nature and typically renewed annually. For these contracts, gross premiums are recognised as revenue when due.

(ii) General Insurance

Gross premiums are recognised as revenue when due. Premiums written relate to risks assumed during the period, and include estimates of premium due but not yet received, less an allowance for cancellations. Unearned premiums represent the proportion of the premiums written in periods up to the accounting date which relate to the unexpired terms of policies in force NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 115

at the balance sheet date, and are calculated on time apportionment basis.

Claims paid represent all payments made during the period, whether arising from events during that or earlier periods. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the balance sheet date, but not settled at that date. Outstanding claims are computed on the basis of the best information available at the time the records for the period are closed, and include provisions for claims incurred but not reported (“IBNR”) until after the statement of financial position date. Similarly provisions are made for "unallocated claims expenses" being the estimated administrative expenses that will be incurred after the balance sheet date in settling all claims outstanding as at that date, including IBNR. Differences between the provisions for outstanding claims at a balance sheet date and the subsequent settlement are included in the Revenue Account of the following period.

Expenses are allocated to the relevant revenue accounts as incurred in the management of each class of business. Prepaid expenses include deferred acquisition expenses and deferred maintenance expenses. These expenses are incurred as a result of direct business earned from brokers. The deferred portion is calculated based on the percentage of unexpired risk to premium income.

(b) Insurance contracts with Discretionary Participation Features

The Group issues single and regular premium endowment contracts that provide primarily savings benefits to policyholders but also transfer insurance risk. The benefit payable under each contract increases each year by a revisionary bonus. 40% of the surplus arising is allocated to shareholders each period. Bonus distribution to policyholders out of the remaining surplus is at the discretion of the Group. These contracts are valued on a gross premium valuation basis.

(c) Outstanding claims provisions

A full provision is made for the estimated cost of all claims notified but not settled at the date of the balance sheet, using the best information available at that time. Provision is also made for the cost of claims incurred but not reported (IBNR) until after the balance sheet date.

Similarly, provision is made for "unallocated claims expenses" being the estimated administrative expenses that will be incurred after the balance sheet date in settling all claims outstanding as at the date, including IBNR. Differences between the provision for outstanding claims at a balance sheet date and the subsequent settlement are included in income of the following year.

(d) Guaranteed Annuity Options

Guaranteed options are offered on deferred annuity products. This feature provided an option to the policyholder and is analyzed and valued separately where significant to the total liability, taking into account expected take-up rates, morality NOTES TO THE FINANCIAL STATEMENTS 116 FOR THE PERIOD ENDED 31 DECEMBER 2012

variation and investment variation.

(e) Insurance Receivables

Receivables are recognized when due, these include amounts due from agents, brokers and insurance contract holders. The group assesses at each reporting date whether there is objective evidence that an insurance receivable is impaired. If there is objective evidence that the insurance receivable is impaired, the carrying amount of the insurance receivable is reduced accordingly through an allowance account and recognized as impairment loss in income statement. The assessment process for loans and receivables is articulated in 2.8.

(f) Provision for insurance contracts

This amount is made up of unearned premium, outstanding claims and a valuation of liabilities in force in respect of life insurance business. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 117

3. Financial Risk Management

3.1 Introduction and overview

Enterprise risk review

The underlying premise of Enterprise Risk Management is that every entity exists to provide value for its stakeholders. All organizations face uncertainty, uncertainty presents both risks and opportunities, with the potential to erode or enhance value. In recent years, managing an enterprises' risk in a consistent, efficient and sustainable manner has become a critical priority, as the business environment faces unprecedented levels of complexity changing geopolitical threats, new regulations and increasing shareholders demand.

The Diamond Bank Group seeks to achieve an appropriate balance between risk and reward in its business and strategy, and continues to build and enhance the risk management capabilities that will assist it in delivering its growth plans in a controlled environment.

The Group has made significant progress in its vision to become world-class at managing risk. Recently an International firm of management consultants updated the Group's Enterprise Risk Management (ERM) framework and frameworks for specific risk areas such as credit, market, liquidity, operational, strategic and reputational risks.

Full implementation of the requirements of the ERM Framework is on-going under the oversight of the Board Audit & Risk Committee (BARC), which is tasked with monitoring the implementation on behalf of the Board.

The Group's Enterprise Risk Management (ERM) Framework ensures risks are managed using a structured and disciplined approach that aligns strategy, processes, people, technology and knowledge with the purpose of evaluating and managing the opportunities and threats faced. The Group's “Enterprise-wide” Risk Management methodology ensures the removal of functional, divisional, departmental or cultural barriers to managing risks.

The main benefits and objectives to the Group of the ERM implementation include the following: u It provides a platform for the Board and Management to confidently make informed decisions regarding the trade-off between risk and reward; u It aligns business decisions at the operating level to the Group's appetite for risk; u It balances operational control with the achievement of strategic objectives; u It enables Executives to systematically identify and manage significant risks on an aggregate basis; u It enables the evaluation of new and existing investments on both a standalone and portfolio basis; and u It minimizes operational surprises and related costs or losses. NOTES TO THE FINANCIAL STATEMENTS 118 FOR THE PERIOD ENDED 31 DECEMBER 2012

Enterprise Risk Management (ERM) Vision Diamond Bank's ERM Vision is: “To build a world-class risk management culture”

Risk Management governance structure The following management committees, comprising of senior management staff, support the Executive Committee in performing its risk management roles:

I. Asset & Liability Management Committee (ALCO) The Asset & Liability Committee (ALCO) is responsible for market and liquidity risk management.

II. Management Credit Committee (MCC) The Management Credit Committee (MCC) is responsible for managing credit risks in the Group. The committee focuses on management of the Group's credit risk exposures.

III. Group Risk Management Committee (RMC) The Group Risk Management Committee (RMC) has oversight responsibilities for all other risk categories except credit, market and liquidity risks. Risk categories within the purview of the committee include, but are not limited to, the following: Operational Risk; Strategic Risk; Legal Risk; Compliance Risk; Reputational Risk; Accounting & Taxation Risk; Human Capital Risk; and Information Security Risk.

Business units Business Units and their staff, as primary risk owners/managers, are responsible for the day-to-day identification, mitigation, management and monitoring of risks within their respective functions.

Business Units and their staff are also responsible for the following: u Implementing the Group's risk management strategies; u Managing day-to-day risk exposures by using appropriate procedures and controls in line with the Group's risk management framework; u Identifying risk issues and implementing remedial action to address these issues; and u Reporting and escalating material risks and associated issues to appropriate authorities.

Units and functions with primary responsibility for independent risk oversight and monitoring. These units and functions include the following: u Risk Management & Control Division; u Legal Unit; NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 119

u Corporate Communications Unit; u Strategic Planning & Research Unit; u Financial Control Unit. u Human Capital Management Unit u Compliance Unit

Units and functions with primary responsibility for evaluating and providing independent assurance Ÿ This is made of the following: Ÿ Internal Auditors (i.e. Corporate Audit function); and Ÿ The External Auditors.

3.2 Financial instruments

Financial Instruments are categorised as follows:

GROUP Financial Financial liabilities 31 December 2012 Held for Available assets held FV through Loans and FV through Amortised trading for sale to maturity Profit or loss receivables Profit or loss cost (designated) Financial assets Cash and balances with Central Bank - - - - 132,196,061 - - Loans to banks - - - - 139,803,281 - - Loans and advances to customers - - - 585,200,158 - - Financial assets held for trading 90,111,236 ------Investment securities - 10,601,609 65,762,681 - - - - Assets pledged as collateral 26,277,305 475,607 52,549,620 - - - - Other assets - - - - 6,576,257 - -

Total financial assets 116,388,541 11,077,216 118,312,301 - 863,775,757 - -

Financial liabilities Deposits from banks ------31,207,298 Deposit from Customers ------910,234,444 Derivative Liability - - - - - 13,248,585 - Borrowings ------49,966,360 Other liabilities ------25,794,788 Long Term Debt ------19,367,757

Total financial liabilities - - - - - 13,248,585 1,036,570,647 NOTES TO THE FINANCIAL STATEMENTS 120 FOR THE PERIOD ENDED 31 DECEMBER 2012

Financial Financial liabilities 31 December 2011 Held for Available assets held FV through Loans and FV through Amortised trading for sale to maturity Profit or loss receivables Profit or loss cost (designated) Financial assets Cash and balances with Central Bank - - - - 55,784,079 - - Loans to banks - - - - 90,648,011 - - Loans and advances to customers - - - - 388,136,486 - - Financial assets held for trading 8,041,618 ------Investment securities - 85,990,731 61,712,761 - - - - Assets pledged as collateral - 2,200,000 32,740,000 - - - - Other assets - - - - 5,995,262 - - Total financial assets 8,041,618 88,190,731 94,452,761 - 540,563,838 - -

Financial liabilities Deposits from banks ------20,982,788 Deposit from Customers ------603,003,229 Borrowings ------54,877,883 Other liabilities ------21,460,730 Total financial liabilities ------700,324,630

1 January 2011

Financial assets Cash and balances with Central Bank - - - - 27,606,200 - - Loans to banks - - - - 72,155,340 - - Loans and advances to customers - - - - 307,212,457 - - Financial assets held for trading 1,345,552 ------Investment securities - 19,891,359 56,977,064 - - - - Assets pledged as collateral - 5,050,000 32,770,000 - - - - Insurance receivables - - - - 705,659 - - Other assets - - - - 14,153,230 - - Total financial assets 1,345,552 24,941,359 89,747,064 - 421,832,886 - -

Financial liabilities Deposits from banks ------15,347,216 Deposit from customers ------412,992,754 Borrowings ------28,265,428 Other liabilities ------15,584,368 Total financial liabilities ------472,189,766 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 121

BANK Financial Financial liabilities 31 December 2012 Held for Available assets held FV through Loans and FV through Amortised trading for sale to maturity Profit or loss receivables Profit or loss cost (designated) Financial assets Cash and balances with Central Bank - - - - 123,224,590 - - Loans to banks - - - - 113,384,200 - - Loans and advances to customers - - - - 523,374,608 - - Financial assets held for trading 90,111,236 ------Investment securities - 10,555,061 64,751,769 - - - - Assets pledged as collateral 26,277,305 475,607 30,685,985 - - - - Other assets - - - - 5,163,883 - - Total financial assets 116,388,541 11,030,668 95,437,754 - 765,147,281 - -

Financial liabilities Deposits from banks ------8,173,286 Deposit from Customers ------823,090,787 Borrowings ------49,966,360 Derivative liability 13,248,585 Other liabilities ------22,970,520 Long Term Debt ------19,367,757 Total financial liabilities - - - - - 13,248,585 923,568,710

31 December 2011

Financial assets Cash and balances with Central Bank - - - - 54,396,524 - - Loans to banks - - - - 72,098,846 - - Loans and advances to customers - - - - 344,397,331 - - Financial assets held for trading 8,041,618 ------Investment securities - 76,762,309 52,253,105 - - - - Assets pledged as collateral - 2,200,000 32,740,000 - - - - Other assets - - - - 4,217,338 - - Total financial assets 8,041,618 78,962,309 84,993,105 - 475,110,039 - -

Financial liabilities Deposits from banks ------8,173,286 Deposit from Customers ------823,090,787 Borrowings ------49,966,360 Other liabilities ------10,553,034 Total financial liabilities ------891,783,467 NOTES TO THE FINANCIAL STATEMENTS 122 FOR THE PERIOD ENDED 31 DECEMBER 2012

Financial assets Financial liabilities 1 January 2011 Held for Available Held to FV through Loans and FV through Amortised trading for sale maturity Profit or loss receivables Profit or loss cost (designated) Financial assets Cash and balances with Central Bank - - - 17,871,129 - - Loans to banks - - - - 61,620,185 - - Loans and advances to customers - - - - 299,534,692 - - Financial assets held for trading 1,109,080 ------Investment securities - 11,095,806 43,978,424 - - - - Assets pledged as collateral - 5,050,000 32,770,000 - - - - Other assets - - - - 9,736,908 - - Total financial assets 1,109,080 16,145,806 76,748,424 - 388,762,914 - -

Financial liabilities Deposits from banks ------4,104,098 Deposit from customers ------379,344,019 Borrowings ------28,031,831 Other liabilities ------15,589,411 Total financial liabilities ------427,069,359

3.3 Credit risk

The Group takes on exposure to credit risk, which is the risk that a counter party will cause a financial loss for the Group by failing to discharge an obligation. Credit risk is the most important risk for the Group's business; management therefore carefully manages it's exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Group's asset portfolio. There is also credit risk in the off- balance sheet financial instruments. The credit risk management is centralized in Risk Management and Control at the group level, interacts with the head of each business segment regularly and reports to the board of directors.

Diamond Bank has a Credit Risk Management framework approved by its Board. The Credit Risk Management Objectives are: 1) To provide a clear and consistent direction for the Bank for creating and managing credit exposures; 2) To maintain a high quality risk assets portfolio and minimize credit losses arising from errors of judgement; 3) To achieve the lowest level of non-performing loans in the industry while maximizing returns on assets created; 4) To maximize stakeholder value; 5) To develop a strong credit risk culture where all staff actively participate in the bank's risk management process and respond to them with cost effective action. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 123

The Credit Risk Appetite of the bank is defined by it's expression or willingness to accept risk up to a level that minimizes erosion of earnings or capital due to avoidable losses from credit activities. The Bank's Credit Risk Management Strategy is driven by its objectives and includes adoption of the following strategies for the management of credit risk;

a) A selective and disciplined approach to credit origination and focus on customers that will create attractive value for the Bank; b) Adherence by all lending and approval individuals to the bank's credit risk policies, developed to enable staff identify, measure and manage credit risk exposures; c) The Board and Senior Management set the tone for the right risk culture in the Bank; d) Adequate pricing for the risks taken by the Bank; f) Establishment and enforcement of the bank's exposure and provisioning policies in accordance with the Prudential Guidelines and other regulatory requirements; and g) Broadening of the knowledge and skills of all credit personnel through training and capacity building programmes.

Credit risk measurement

(a) Loans and advances

In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Group reflects the following components: (I) the client or counterparty's character and capacity to pay off its contractual obligations; (ii) current exposures to the counterparty and it's likely future development; (iii) credit history of the counterparty and (iv) the likely recovery ratio in case of default obligations - value of collateral and other ways out.

The Group's rating scale, the Diamond Master Rating (DMR), reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events. NOTES TO THE FINANCIAL STATEMENTS 124 FOR THE PERIOD ENDED 31 DECEMBER 2012

Diamond Master Rating Table

DIAMOND CBN MID CBN MID BANK CBN WEIGHT DB REMARK WEIGHT D01 AAA 1.5 Investment Extremely low risk D02 AA 2.5 Investment Very low risk D03 A 3.5 Investment Low risk D04 BBB 4.5 Investment Acceptable risk D05 BB 5.5 Sub investment Moderately High risk D06 B 6.5 Sub investment High risk D07 CCC 7.5 Sub investment Very high risk D08 CC 8.5 Sub investment Extremely high risk D09 C 9.5 Watchlist High likelihood of default D10 D Default Default

(b) Debt securities and other bills

For debt securities and other bills, external rating such as Standard & Poor's rating or its equivalent used by Treasury to primarily manage their liquidity risk exposures.

Risk limit control and mitigation policies The Group manages limits and control concentrations of credit risk wherever they are identified - in particular, to individual counterparties and groups, and to industries and countries in general.

The Group structures the level of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers (single obligor limits), and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector and by country are approved quarterly by the Board of Directors

The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 125

The Group also sets internal credit approval limits for various levels in the credit process and are shown in the table below.

Authorizing level Approval limit Board N1.5BN to legal lending limit Board Credit Committee N500MM to N1.5BN MCC* N250MM to N500MM Mini-MCC N100MM to N250MM Managing Director N75MM to N250MM Executive Directors N50MM to N75MM Regional Managers N25MM to N50MM (Categorised)

*Management Credit Committee

Approval limits are set by the Board of Directors and reviewed from time to time as the circumstances of the Group demand.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.

Some other specific control and mitigation measures are outlined below:

(a) Collateral

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

a. Mortgages over residential properties; b. Charges over business assets such as premises, inventory and accounts receivable; c. Charges over financial instruments such as debt securities and equities.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss, the Group will seek additional collateral from the counterparty as soon as loss indicators are noticed for the relevant individual loans and advances.

Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar NOTES TO THE FINANCIAL STATEMENTS 126 FOR THE PERIOD ENDED 31 DECEMBER 2012

instruments, which are secured by portfolios of financial instruments.

(b) Master netting arrangements

The Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with which it undertakes a significant volume of transactions. Master netting arrangement do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with favourable contracts is reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a net basis.

(c) Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit - which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions - are collaterised by the underlying shipments of goods to which they relate and therefore carrry less risk than a direct loan.

Methodology for risk rating

Diamond Bank Plc. uses the Moody's rating tool as the core rating for all its corporate credits. In addition to the core rating, the bank has recently developed a new rating framework for rating all corporate exposure in its credit portfolio. Through the new corporate framework, each corporate borrowers will be given a rating on the 10-grade Diamond Master Rating Scale, which signifies the borrower's creditworthiness and risk of default. These ratings will be used to determine pricing, availability of credit, required collateral and other important decisions such as in relation to the extension of loans.

The new rating framework takes the core rating (i.e. Moody's) as a foundation and uses other factors such as the Group/country rating, early warning signals and any relevant new information to arrive at a more realistic rating for the borrower.

3.3.1 Maximum exposure to credit risk before collateral held or other credit enhancements

The Group's maximum exposure to credit risk at 1 Jan 2011, 31 Dec 2011 and 30 December 2012 respectively, is represented by the net carrying amounts of the financial assets set out in note 3.2 above, with the exception of financial guarantees issued by the Group for which the maximum exposure to credit risk is represented by the maximum amount the Group would have to pay if the guarantees are called on (refer to note 26 Contingent liabilities and commitments). NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 127

Risk Asset (Loans and Advances, Advances under Finance Leases, on-balance sheet direct credit substitutes, etc.)

Risk assets are summarised as follows:

GROUP Dec 2012 Dec 2011 Jan 2011

Neither probable nor impaired 575,342,221 381,086,234 295,057,845 Past due but not impaired 6,695,173 2,097,591 1,886,867 Individually impaired 28,682,909 39,390,837 51,121,674

Gross 610,720,303 422,574,662 348,066,386 Specific impairment (13,709,907) (28,750,929) (37,421,044) Collective impairment (11,810,238) (5,687,247) (3,432,885)

Net 585,200,158 388,136,486 307,212,457

BANK Dec 2012 Dec 2011 Jan 2011

Neither probable nor impaired 515,864,883 339,656,736 291,505,198 Past due but not impaired 5,546,427 1,233,105 1,108,637 Individually impaired 25,734,646 36,878,356 46,605,507

Gross 547,145,956 377,768,197 339,219,342 Specific impairment (13,187,211) (28,696,715) (36,570,496) Collective impairment (10,584,137) (4,674,151) (3,114,154)

Net 523,374,608 344,397,331 299,534,692

3.3.2 Credit concentrations

(a) Geographical sectors

The following table breaks down the Group's main credit exposure at their carrying amounts, as categorised by geographical region as of 1 January 2011, 31 December 2011 and 31 December 2012. For this table, the Group has allocated exposures to regions based on the region of domicile of the counterparties. NOTES TO THE FINANCIAL STATEMENTS 128 FOR THE PERIOD ENDED 31 DECEMBER 2012

GROUP Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total

31 December 2012

In Nigeria: North East ------2,402,200 2,402,200 North Central ------25,467,215 25,467,215 North West ------20,575,002 20,575,002 South East ------51,872,449 51,872,449 South South ------64,858,608 64,858,608 South West 123,224,590 90,111,236 67,179,403 57,438,896 5,178,864 29,289,045 358,199,133 730,621,167 Outside Nigeria 8,971,471.00 - 1,010,912 21,863,635 1,397,392 110,514,236 61,825,551 205,583,197

Total 132,196,061 90,111,236 68,190,315 79,302,531 6,576,256 139,803,281 585,200,159 1,101,379,839

BANK

31 December 2012

In Nigeria: North East ------2,402,201 2,402,201 North Central ------25,467,215 25,467,215 North West ------20,575,002 20,575,002 South East ------51,872,449 51,872,449 South South ------64,858,608 64,858,608 South West 123,224,590 90,111,236 67,179,403 57,438,896 5,163,883 29,289,045 358,199,133 730,606,186 Outside Nigeria - - - - - 84,095,155 - 84,095,155

Total 123,224,590 90,111,236 67,179,403 57,438,896 5,163,883 113,384,200 523,374,608 979,876, 816 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 129

GROUP Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total

31 December 2011

In Nigeria: North East ------2,871,934 2,871,934 North Central ------27,349,920 27,349,920 North West ------11,642,440 11,642,440 South East ------44,806,035 44,806,035 South South ------35,570,688 35,570,688 South West 54,396,524 8,041,618 120,064,854 34,940,000 5,648,897 25,163,928 222,156,314 470,412,135 Outside Nigeria 1,387,555 - 18,664,985 - 346,365 65,484,083 43,739,155 129,622,143

Total 55,784,079 8,041,618 138,729,839 34,940,000 5,995,262 90,648,011 388,136,486 722,275,295

BANK

31 December 2011

In Nigeria: North East ------2,871,934 2,871,934 North Central ------27,349,920 27,349,920 North West ------11,642,440 11,642,440 South East ------44,806,035 44,806,035 South South ------35,570,688 35,570,688 South West 54,396,524 8,041,618 120,064,854 34,940,000 4,217,338 25,163,928 222,156,314 468,980,576 Outside Nigeria - - - - - 46,934,918 0 46,934,918

Total 54,396,524 8,041,618 120,064,854 34,940,000 4,217,338 72,098,846 344,397,331 638,156,511 NOTES TO THE FINANCIAL STATEMENTS 130 FOR THE PERIOD ENDED 31 DECEMBER 2012

GROUP Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total

1 January 2011

In Nigeria: North East ------2,091,119 2,091,119 North Central ------22,294,301 22,294,301 North West ------17,957,305 17,957,305 South East ------23,490,495 23,490,495 South South ------27,288,367 27,288,367 South West 18,268,338 1,345,552 51,736,254 37,820,000 13,227,383 47,713,473 206,413,105 376,524,104 Outside Nigeria 9,337,862 - 12,946,425 - 925,847 24,441,867 7,677,765 55,329,766

Total 27,606,200 1,345,552 64,682,679 37,820,000 14,153,230 72,155,340 307,212,457 524,975,457

BANK

1 January 2011

In Nigeria: North East ------2,091,119 2,091,119 North Central ------22,294,301 22,294,301 North West ------17,957,305 17,957,305 South East ------23,490,495 23,490,495 South South ------27,288,367 27,288,367 South West 17,871,129 1,109,080 51,223,713 37,820,000 9,736,908 42,242,896 206,413,105 366,416,831 Outside Nigeria - - - - - 19,377,289 - 19,377,289

Total 17,871,129 1,109,080 51,223,713 37,820,000 9,736,908 61,620,185 299,534,692 478, 915,707 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 131

(b) Industry sectors Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total GROUP 31 December 2012

Agriculture ------11,772,454 11,772,454 Capital markets ------1,003,235 1,003,235 Communication ------22,467,926 22,467,926 Consumer credit ------19,075,598 19,075,598 Education ------5,552,492 5,552,492 Finance and insurance 132,196,061 90,111,236 68,190,315 79,302,531 - 139,803,281 4,075,847 513,679,271 General commerce ------118,881,615 118,881,615 Government ------33,333,879 33,333,879 Manufacturing ------76,958,601 76,958,601 Mining & Quarrying ------39,686 39,686 Mortgage ------9,891,742 9,891,742 Oil and gas ------148,476,267 148,476,267 Other - - - - 6,576,256 - 38,608,455 45,184,711 Power ------35,386,280 35,386,280 Real estate and construction ------43,608,353 43,608,353 Transportation ------16,067,729 16,067,729

Total 132,196,061 90,111,236 68,190,315 79,302,531 6,576,256 139,803,281 585,200,158 1,101,379,839

BANK 31 December 2012

Agriculture ------10,269,749 10,269,749 Capital markets ------1,003,235 1,003,235 Communication ------19,244,232 19,244,232 Consumer credit ------15,510,758 15,510,758 Education ------5,552,492 5,552,492 Finance and insurance 123,224,590 90,111,236 67,179,403 57,438,896 - 113,384,200 2,443,894 453,782,219 General commerce ------107,070,772 107,070,772 Government ------26,982,286 26,982,286 Manufacturing ------65,505,729 65,505,729 Mining & Quarrying ------39,686 39,686 Mortgage ------9,891,742 9,891,742 Oil and gas ------143,474,503 143,474,503 Other - - - - 5,163,883 - 30,273,029 35,436,912 Power ------35,386,280 35,386,280 Real estate and construction ------43,589,361 43,589,361 Transportation ------7,136,861 7,136,861

Total 123,224,590 90,111,236 67,179,403 57,438,896 5,163,883 113,384,200 523,374,608 979,876,816 NOTES TO THE FINANCIAL STATEMENTS 132 FOR THE PERIOD ENDED 31 DECEMBER 2012

Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total

GROUP 31 December 2011

Agriculture ------7,265,698 7,265,698 Capital markets ------1,692,581 1,692,581 Communication ------16,572,767 16,572,767 Consumer credit ------25,376,294 25,376,294 Education ------872,687 872,687 Finance and insurance 55,784,079 8,041,618 138,729,839 34,940,000 - 90,648,011 3,589,816 331,733,363 General commerce ------101,857,993 101,857,993 Government ------18,966,279 18,966,279 Manufacturing ------44,585,496 44,585,496 Mining & Quarrying ------24,496 24,496 Mortgage ------11,107,361 11,107,361 Oil and gas ------64,206,218 64,206,218 Other - - - - 5,995,262 - 23,175,116 29,170,378 Power ------23,901,386 23,901,386 Real estate and construction ------30,809,700 30,809,700 Transportation ------14,132,596 14,132,596

Total 55,784,079 8,041,618 138,729,839 34,940,000 5,995,262 90,648,011 388,136,484 722,275,295

BANK 31 December 2011

Agriculture ------5,781,448 5,781,448 Capital markets ------1,692,581 1,692,581 Communication ------16,572,767 16,572,767 Consumer credit ------21,735,455 21,735,455 Education ------872,687 872,687 Finance and insurance 54,396,524 8,041,618 120,064,854 34,940,000 - 72,098,846 2,119,735 291,661,577 General commerce ------83,518,106 83,518,106 Government ------17,727,677 17,727,677 Manufacturing ------42,824,248 42,824,248 Mining & Quarrying ------24,496 24,496 Mortgage ------11,107,361 11,107,361 Oil and gas ------64,186,303 64,186,303 Other - - - - 4,217,338 - 16,243,582 20,460,920 Power ------23,901,386 23,901,386 Real estate and construction ------30,383,828 30,383,828 Transportation ------5,705,668 5,705,668

Total 54,396,524 8,041,618 120,064,854 34,940,000 4,217,338 72,098,846 344,397,328 638,156,511 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 133

Financial Assets Loans & Loans & Cash & balances assets held Investment pledged as Other Advances Advances to with Central Bank for trading securities collateral assets to Banks Customers Total

GROUP 1 January 2011

Agriculture ------4,686,736 4,686,736 Capital markets ------7,438,089 7,438,089 Communication ------18,637,322 18,637,322 Consumer credit ------21,671,410 21,671,410 Education ------1,166,894 1,166,894 Finance and insurance 27,606,200 1,345,552 64,682,679 37,820,000 - 72,155,340 4,675,385 208,285,156 General commerce ------62,108,286 62,108,286 Government ------49,119 49,119 Manufacturing ------47,047,317 47,047,317 Mining & Quarrying ------14,882 14,882 Mortgage ------3,259,425 3,259,425 Oil and gas ------48,332,581 48,332,581 Other - - - - 14,153,230 - 19,584,329 33,737,559 Power ------28,366,236 28,366,236 Real estate and construction ------35,646,001 35,646,001 Transportation ------4,528,446 4,528,446

Total 27,606,200 1,345,552 64,682,679 37,820,000 14,153,230 72,155,340 307,212,457 524,975,457

BANK 1 January 2011

Agriculture ------4,581,700 4,581,700 Capital markets ------7,259,378 7,259,378 Communication ------18,200,025 18,200,025 Consumer credit ------21,177,214 21,177,214 Education ------1,141,487 1,141,487 Finance and insurance 17,871,129 1,109,080 51,223,713 37,820,000 - 61,620,185 4,573,490 174,217,597 General commerce ------60,498,520 60,498,520 Government ------48,034 48,034 Manufacturing ------45,884,748 45,884,748 Mining & Quarrying ------14,558 14,558 Mortgage ------3,188,457 3,188,457 Oil and gas ------46,909,635 46,909,635 Other - - - - 9,736,908 - 19,099,263 28,836,171 Power ------27,748,615 27,748,615 Real estate and construction - - - - - 34,864,419 34,864,419 Transportation ------4,345,150 4,345,150

Total 17,871,129 1,109,080 51,223,713 37,820,000 9,736,908 61,620,185 299,534,692 478,915,707 NOTES TO THE FINANCIAL STATEMENTS 134 FOR THE PERIOD ENDED 31 DECEMBER 2012

3.3.3 Credit quality

(a) Financial assets neither past due nor impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Group.

GROUP

31 December 2012 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 78,613,345 484,111,917 1,390,894 11,226,064 - 575,342,220

Total 78,613,345 484,111,917 1,390,894 11,226,064 - 575,342,220

BANK

31 December 2012 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 77,057,582 386,874,591 - 11,510,229 - 475,442,402

Total 77,057,582 386,874,591 - 11,510,229 - 475,442,402 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 135

GROUP

31-Dec-11 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 65,377,175 305,113,397 1,288,493 9,307,166 - 381,086,231

Total 65,377,175 305,113,397 1,288,493 9,307,166 - 381,086,231

BANK

31-Dec-11 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 62,634,455 266,667,912 - 9,307,164 - 338,609,531

Total 62,634,455 266,667,912 - 9,307,164 - 338,609,531

GROUP

31-Dec-10 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 62,844,097 226,961,290 393,511 4,858,949 - 295,057,847

Total 62,844,097 226,961,290 393,511 4,858,949 - 295,057,847

BANK

31-Dec-10 Overdrafts Term loans CP Finance lease Other Total

Grades: [Investment grade] (D1-D4) 67,543,421 218,709,319 393,511 4,858,949 - 291,505,200

Total 67,543,421 218,709,319 393,511 4,858,949 - 291,505,200 NOTES TO THE FINANCIAL STATEMENTS 136 FOR THE PERIOD ENDED 31 DECEMBER 2012

The credit quality of investments in debt securities that were neither past due nor impaired can be assessed by reference to Standard & Poor's rating at 31 December 2012, 31 December 2011 and 1 January 2011:

GROUP

Investments in debt securities

Rating Treasury bills Bonds Total

31 December 2012 Financial assets Held for Trading 87,927,723 2,183,513 90,111,236 Investment Securities - Held to Maturity - 65,762,681 65,762,681 Investment Securities - Available for sale - 2,427,634 2,427,634 Assets pledged as collateral 35,782,015 43,520,51 79,302,5327

B+ 123,709,738 113,894,345 237,604,083

31 December 2011 Financial assets Held for Trading 6,784,543 1,257,075 8,041,618 Investment Securities - Held to Maturity - 61,712,762 61,712,762 Investment Securities - Available for sale 74,182,342 2,834,738 77,017,080 Assets pledged as collateral 13,520,000 21,420,000 34,940,000

B+ 80,966,885 65,804,575 146,771,460 1 January 2011 Financial assets Held for Trading - 1,109,080 1,109,080 Investment Securities - Held to Maturity 30,152,986 26,824,077 56,977,063 Investment Securities - Available for sale - 7,705,614 7,705,614 Assets pledged as collateral 21,150,000 16,670,000 37,820,000

B+ 51,302,986 51,199,691 102,502,677 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 137

BANK

Investments in debt securities

Rating Treasury bills Bonds Total

31 December 2012 Financial assets Held for Trading 87,927,723 2,183,513 90,111,236 Investment Securities - Held to Maturity - 64,751,769 64,751,769 Investment Securities - Available for sale - 2,427,634 2,427,634 Assets pledged as collateral 26,277,305 31,161,591 57,438,896

B+ 114,205,028 100,524,507 214,729,535 31 December 2011 Financial assets Held for Trading 6,784,543 1,257,075 8,041,618 Investment Securities - Held to Maturity - 52,252,105 52,252,105 Investment Securities - Available for sale 2,834,738 64,977,011 67,811,749 Assets pledged as collateral 13,520,000 21,420,000 34,940,000

B+ 23,139,281 139,906,191 163,045,472 1 January 2011 Financial assets Held for Trading - 1,109,079 1,109,079 Investment Securities - Held to Maturity 21,913,637 22,064,787 43,978,424 Investment Securities - Available for sale - 7,245,289 7,245,289 Assets pledged as collateral 21,150,000 16,670,000 37,820,000

B+ 43,063,637 47,089,155 90,152,792 NOTES TO THE FINANCIAL STATEMENTS 138 FOR THE PERIOD ENDED 31 DECEMBER 2012

(b) Financial assets past due but not impaired

Loans and advances less than 90 days due are considered performing, unless other information is available to indicate the contrary. Gross amount of loans and advances by class to customers that were past due but performing were as follows:

GROUP

31 December 2012 Commercial Paper Overdrafts Term Loans Finance Lease Total

Past due up to 30 days - 930,502 3,653,998 319,818 4,904,318 Past due 30 - 60 days - 599,249 273,722 75,807 948,778 Past due 60 -90 days - 353,921 466,300 21,856 842,077

Total - 1,883,672 4,394,020 417,481 6,695,173

31 December 2011

Past due up to 30 days 1,073,031 291,949 232,592 29,850 1,627,422 Past due 30 - 60 days - 36,379 137,795 - 174,174 Past due 60 -90 days - 60,769 265,078 - 325,847

Total 1,073,031 389,097 635,465 29,850 2,127,442

1 January 2011

Past due up to 30 days - 263,233 1,134,383 70,853 1,468,469 Past due 30 - 60 days - 46,823 155,592 21,403 223,818 Past due 60 -90 days - 27,701 166,878 - 194,579

Total - 337,757 1,456,853 92,256 1,886,866 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 139

BANK

31 December 2012 Overdrafts Term Loans Finance Lease Total

Past due up to 30 days 610,731 3,186,752 319,818 4,117,301 Past due 30 - 60 days 599,205 112,557 75,807 787,569 Past due 60 -90 days 353,703 265,998 21,856 641,557

Total 1,563,639 3,565,307 417,481 5,546,427

31 December 2011

Past due up to 30 days 300,447 712,813 29,850 1,043,110 Past due 30 - 60 days 19,363 19,108 - 38,471 Past due 60 -90 days 35,245 116,279 - 151,524

Total 355,055 848,200 29,850 1,233,105

1 January 2011

Past due up to 30 days 114,917 788,919 70,853 974,689 Past due 30 - 60 days 31,211 46,696 21,403 99,310 Past due 60 -90 days 4,283 30,355 - 34,638

Total 150,411 865,970 92,256 1,108,637 NOTES TO THE FINANCIAL STATEMENTS 140 FOR THE PERIOD ENDED 31 DECEMBER 2012

(c) Financial assets individually impaired

31 December 2012 31 December 2011 1 January2011

GROUP

Non-performing loans by Classification

Overdraft 27,996,805 30,767,071 13,548,238 Term Loans 678,974 8,615,389 37,573,435 Finance Lease 7,130 8,377 - Total 28,682,909 39,390,837 51,121,673

Non-performing loans by Geography

Nigeria: North East 337,301 462,531 21,810 North Central 1,894,715 1,292,016 1,864,342 North West 589,187 163,784 4,679,013 South East 2,939,273 1,186,628 1,086,652 South-South 7,165,099 1,031,746 1,352,329 South West 12,809,071 32,741,650 39,817,873 Rest of West Africa 2,948,263 2,512,482 2,299,654 Total 28,682,909 39,390,837 51,121,673

BANK

Non-performing loans by Classification

Overdraft 25,048,542 28,254,590 9,032,071 Term Loans 678,974 8,615,389 37,573,435 Finance Lease 7,130 8,377 - Total 25,734,646 36,878,356 46,605,506

Non-performing loans by Geography

Nigeria: North East 337,301 462,531 21,810 North Central 1,894,715 1,292,016 1,842,320 North West 589,187 163,784 4,679,013 South East 2,939,273 1,186,628 1,086,652 South-South 7,165,098 1,031,747 1,313,512 South West 12,809,072 32,741,650 37,662,199 Total 25,734,646 36,878,356 46,605,506 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 141

3.4 Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

Liquidity risk management process The Group's liquidity management process is primarily the responsibility of the Assets and Liabilities Committee (ALCO). Treasury is the executory arm of ALCO and it's functions include:

a. Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The Group maintains an active presence in money markets to enable this to happen; b. Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flows c. Monitoring balance sheet liquidity ratio's against internal and regulatory requirements (in conjunction with financial control unit); and d. Managing the concentration and profile of debt maturities.

Funding approach Sources of liquidity are regularly reviewed by Treasury to maintain a wide diversification by currency, geography, provider, product and term.

3.4.1 Management of liquidity risk

Liquidity risk is the potential for loss to the bank arising from either its inability to meet its obligations or to fund increases in assets as they fall due without incurring unacceptable cost or losses. Liquidity risk arises when the cushion provided by liquid assets is not sufficient to meet outstanding obligations.

Liquidity risk management processes

Liquidity Gap analysis Liquidity gap analysis is used to monitor the current liquidity position of the Bank. It quantifies the cumulative gap in the bank's business as usual environment. The gap for any given tenor bucket represents the borrowings from or placements to the markets required to replace maturing liabilities or assets. The underlying assumptions are documented and used consistently. NOTES TO THE FINANCIAL STATEMENTS 142 FOR THE PERIOD ENDED 31 DECEMBER 2012

Concentration in sources and application of funds The Bank monitors concentration in the sources and application of funds to ensure that the funding bases are stable and diversified. A well diversified funding base makes the Bank less vulnerable to adverse changes in the perception of a group of depositors/investors, whose actions or inactions could significantly affect the Bank.

Liquidity Ratios Liquidity ratios are used to monitor changes in bank's liquidity in business as usual environment. The ratios are designed to indicate the Bank's ability to meet short-term obligations with liquid assets; reveal mismatches between tenured funding sources and uses; measure the concentration of the bank's funding sources to an individual or sector; and review the ability of the Bank to fund loans through customer deposits.

Liquidity risk monitoring Trigger points in the form of targets and limits on liquidity positions are monitored and deviations from "normal" ranges of operation reported to management. Trigger points and early warning indicators are based on industry standards. The Bank's liquidity management policies and procedures highlight and escalate exceptions promptly.

Liquidity Risk Reporting Liquidity risks are communicated to the applicable business units, Senior Management and the Board. The Market Risk Group maintains an independent liquidity risk reporting which effectively and consistently communicate liquidity risk information to ALCO for appropriate decision making. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 143

3.4.2 Maturity analysis

The table below analyses financial assets and liabilities into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date. The table includes both principal and interest cash flows.

GROUP Over 1 year but less 31 December 2012 0-30 days 31-90 days 91-180 days 181-365 days than 5 years Over 5 years Total

Financial assets Cash and balances with central banks 132,196,061 - - - - - 132,196,061 Loans to banks 132,733,972 5,973,820 1,095,489 - - - 139,803,281 Loans and advances to customers 79,751,510 121,116,251 22,444,535 60,771,308 220,310,821 106,325,877 610,720,302 Financial assets held for trading 17,902,394 40,711,061 27,919,479 4,250,000 - 1,850,000 92,632,934 Investments securities 1,903,870 163,553 - 13,268,899 48,306,909 27,891,272 91,534,503 Assets pledged as collateral - 24,541,750 11,874,500 5,714,272 25,470,668 12,377,742 79,978,932 Other assets 6,576,257 - - 6,576,257

Total financial assets 371,064,064 192,506,435 63,334,003 84,004,479 294,088,398 148,444,891 1,153,442,270

Financial liabilities Deposit from Banks 29,118,198 2,089,100 - - - - 31,207,298 Deposit from Customers 282,001,580 234,160,179 10,470,507 13,915,522 34,406,633 335,280,022 910,234,443 Borrowings 184,076 - 5,521,298 702,960 11,198,953 32,359,073 49,966,360 Other liabilities 34,451,808 - - - - - 34,451,808 Long Term Debt - - 25,288 - - 26,741,809 26,767,097

Total financial liabilities 345,755,662 236,249,279 16,017,093 14,618,482 45,605,586 394,380,904 1,052,627,006

Off balance-sheet Performance bonds and financial guarantees 5,073,191 19,869,856 22,327,876 31,171,007 14,590,095 184,800 93,216,826 Unconfirmed and unfunded Letters of Credit 3,399,621 24,272,923 14,392,963 33,362,578 24,575,617 - 100,003,702 Guaranteed Pension Assets - - - - - 45,718,491 - Capital commitments 453,411 328,957 1,142,928 410,492 66,440 - 2,402,228 8,926,223 44,471,736 37,863,767 64,944,077 39,232,152 184,800 195,622,756

Total 354,681,885 280,721,016 53,880,861 79,562,560 84,837,737 394,565,705 1,248,249,763 NOTES TO THE FINANCIAL STATEMENTS 144 FOR THE PERIOD ENDED 31 DECEMBER 2012

Over 1 year but less than 31 December 2011 0 - 30 days 31 - 90 days 91 - 180 days 181 - 365 days 5 years Over 5 years Total

Financial assets Cash and balances with CBN 55,784,079 - - - - - 55,784,079 Loans to banks 88,783,452 18,186 645,742 1,200,631 - 90,648,011 Loans and advances to customers 71,929,467 84,279,139 34,953,880 49,178,968 115,739,378 64,376,014 420,456,846 Financial assets held for trading - 3,238,114 3,589,633 250,000 540,377 1,100,000 8,718,124 Investments Securities 11,197,928 11,452,553 48,520,137 20,034,247 65,550,847 26,072,700 182,828,412 Assets pledged as collateral - - 6,270,000 16,470,000 9,650,000 2,550,000 34,940,000 Other assets 5,995,262 - - - - - 5,995,262

Total financial assets 233,690,188 98,987,992 93,979,392 85,933,215 192,681,233 94,098,714 799,370,734

Financial liabilities Deposits from banks 19,268,798 - 210,490 - 1,503,500 - 20,982,788 Deposits from customers 237,433,193 109,881,634 14,986,443 8,519,612 108,729,862 123,452,485 603,003,229 Borrowings 6,120,000 - 2,736,003 3,960,000 - 42,061,880 54,877,883 Other liabilities 23,668,590 - - - - - 23,668,590

Total financial liabilities 286,490,581 109,881,634 17,932,936 12,479,612 110,233,362 165,514,365 702,532,490

Off balance-sheet Performance bonds and financial guarantees 1,631,624 9,916,120 17,718,825 19,208,097 10,359,862 24,664,133 83,498,661 Contingent letters of credit 631,603 4,382,049 6,654,128 28,380,111 15,601,169 - 55,649,059 Capital commitments 129,392 80,870 113,218 - - - 323,480 2,392,619 14,379,039 24,486,171 47,588,207 25,961,031 24,664,133 139,471,200

Total 288,883,200 124,260,673 42,419,106 60,067,819 136,194,393 190,178,499 842,003,690 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 145

Over 1 year but less than 0 - 30 days 31 - 90 days 91 - 180 days 181 - 365 days 5 years Over 5 years Total

1 January 2011

Financial assets Cash and balances with CBN 27,606,200 - - - - - 27,606,200 Loans to banks 70,460,669 503,305 - 1,191,366 - - 72,155,340 Loans and advances to customers 64,786,367 58,404,117 29,086,338 34,111,910 106,015,761 55,850,049 348,254,542 Financial assets held for trading - - - - 950,000 200,000 1,150,000 Investment securities 1,371,649 7,233,333 9,532,521 18,422,787 26,434,337 18,511,869 81,506,496 Asset pledged as collateral 4,750,000 5,150,000 10,250,000 3,250,000 5,020,000 9,400,000 37,820,000 Other assets 14,153,230 - - - - - 14,153,230

Total financial assets 183,128,115 71,290,755 48,868,859 56,976,063 138,420,098 83,961,918 582,645,808

Financial liabilities Deposit from Banks 15,347,216 - - - - - 15,347,216 Deposit from Customers 213,289,511 50,497,740 16,084,352 31,760,731 101,136,523 223,897 412,992,754 Borrowings 4,620,960 3,750,917 5,158,351 6,688,937 8,046,263 - 28,265,428 Other liabilities 25,800,887 - - - - - 25,800,887

Total financial liabilities 259,058,574 54,248,657 21,242,703 38,449,668 109,182,786 223,897 482,406,285

Off-balance sheet Performance bonds and financial guarantees 1,610,128 12,238,160 20,820,989 19,400,711 18,267,343 696,854 73,034,185 Contingent letters of credit 10,646,746 22,155,576 10,928,063 6,877,947 6,727,566 - 57,335,898 12,256,874 34,393,736 31,749,052 26,278,658 24,994,909 696,854 130,370,083

Total 271,315,448 88,642,393 52,991,755 64,728,326 134,177,695 920,751 612,776,368 NOTES TO THE FINANCIAL STATEMENTS 146 FOR THE PERIOD ENDED 31 DECEMBER 2012

Bank Over 1 year but less 0-30 days 31-90 days 91-180 days 181-365 days than 5 years Over 5 years Total

31 December 2012

Financial assets Cash and balances with central banks 123,224,590 - - - - - 123,224,590 Loans to banks 106,314,891 5,973,820 1,095,489 - - - 113,384,200 Loans and advances to customers 82,021,665 106,736,228 17,953,983 51,718,109 182,627,050 106,088,922 547,145,956 Financial assets held for trading 17,902,394 40,711,061 27,919,479 4,250,000 - 1,850,000 92,632,934 Investments securities 785,477 163,553 - 13,268,899 47,412,748 28,813,708 90,444,385 Assets pledged as collateral - 24,390,000 9,750,000 800,000 14,800,000 8,052,867 57,792,867 Other assets 5,163,883 - - - - - 5,163,883

Total financial assets 335,412,900 177,974,662 56,718,951 70,037,008 244,839,798 144,805,497 1,029,788,814

Financial liabilities Deposit from Banks 6,084,186 2,089,100 - - - - 8,173,286 Deposit from Customers 268,704,960 214,626,992 4,068,454 6,076,033 18,035,130 311,579,219 823,090,788 Borrowings 184,076 - 5,521,298 702,960 11,198,953 32,359,073 49,966,360 Other liabilities 27,828,789 - - - - - 27,828,789 Long Term Debts - - 25,288 - - 26,741,809 26,767,097

Total financial liabilities 302,802,011 216,716,092 9,615,040 6,778,993 29,234,083 370,680,101 935,826,320

Off-balance sheet Performance bonds and financial guarantees 5,319,696 18,315,782 19,883,829 29,474,023 14,270,040 180,941 87,445,311 Contingent letters of credit 1,223,038 23,235,001 14,126,604 33,101,912 24,585,247 - 96,271,802 Capital commitments 2,402,228 6,542,734 41,550,783 34,010,433 62,575,935 38,856,287 180,941 186,119,341

Total 309,344,746 258,266,874 43,625,473 69,354,929 68,090,369 370,861,043 1,121,945,662 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 147

Over 1 year but less 0-30 days 31-90 days 91-180 days 181-365 days than 5 years Over 5 years Total

31 December 2011

Financial assets Cash and balances with CBN 54,396,524 - - - - - 54,396,524 Loans to banks 71,453,104 - 645,742 - - - 72,098,846 Loans and advances to customers 61,345,958 69,526,220 19,773,025 54,386,991 107,415,621 65,320,381 377,768,196 Financial assets held for trading 652,862 2,585,253 3,589,633 250,000 540,377 1,100,000 8,718,125 Investments Securities 200,000 10,283,097 43,566,348 18,468,488 56,777,245 27,154,540 156,440,718 Assets pledged as collateral - 1,750,000 4,520,000 8,750,000 17,370,000 2,550,000 34,940,000 Other assets 4,217,338 - - - - - 4,217,338

Total financial assets 192,265,786 84,144,571 72,094,748 81,855,479 182,103,243 96,115,921 708,579,747

Financial liabilities Deposits from banks 3,939,956 - - - - - 3,939,956 Deposits from customers 197,261,014 119,572,002 2,917,318 5,135,454 109,856,755 110,418,603 545,161,145 Borrowings 6,114,978 - 2,733,757 3,956,750 7,913 42,064,485 54,877,883 Other liabilities 19,129,194 - - - - - 19,129,194

Total financial liabilities 226,445,142 119,572,002 5,651,075 9,092,204 109,864,668 152,483,088 623,108,178

Off-balance sheet Performance bonds and financial guarantees 4,544,294 17,798,357 20,000,121 27,921,326 13,069,029 165,534 83,498,661 Contingent letters of credit 1,891,787 13,507,153 8,009,252 18,565,273 13,675,593 - 55,649,058 6,436,081 31,305,510 28,009,373 46,486,599 26,744,622 165,534 139,147,719

Total 232,881,223 150,877,512 33,660,447 55,578,803 136,609,289 152,648,622 762,255,897 NOTES TO THE FINANCIAL STATEMENTS 148 FOR THE PERIOD ENDED 31 DECEMBER 2012

Over 1 year 1 January 2011 but less than 0 - 30 days 31 - 90 days 91 - 180 days 181 - 365 days 5 years Over 5 years Total

Financial assets Cash and balances with CBN 17,871,129 - - - - - 17,871,129 Loans to banks 61,620,185 - - - - - 61,620,185 Loans and advances to customers 58,845,935 48,643,100 28,375,242 27,049,989 86,838,401 98,947,625 348,700,292 Financial assets held for trading - - - - 950,000 200,000 1,150,000 Investment securities 965,800 5,093,105 6,712,000 13,071,779 20,492,487 13,284,504 59,619,675 Asset pledged as collateral 4,750,000 5,150,000 9,000,000 4,500,000 11,870,000 2,550,000 37,820,000 Other assets 9,736,908 - - - - - 9,736,908

Total financial assets 153,789,957 58,886,205 44,087,242 44,621,768 120,150,888 114,982,129 536,518,189

Financial liabilities Deposit from Banks 4,104,098 - - - - - 4,104,098 Deposit from Customers 183,876,464 49,693,070 15,168,345 29,008,981 44,725,147 56,872,012 379,344,019 Borrowings 4,595,691 3,717,868 5,112,901 6,630,002 7,975,369 - 28,031,831 Other liabilities 16,335,259 - - - - - 16,335,259

Total financial liabilities 208,911,512 53,410,938 20,281,246 35,638,983 52,700,516 56,872,012 427,815,207

Off-balance sheet Performance bonds and financial guarantees 1,610,128 12,238,160 20,820,989 19,400,711 18,267,343 696,854 73,034,185 Contingent letters of credit 10,646,746 22,155,576 10,928,063 6,877,947 6,727,566 - 57,335,898 Capital commitments 319,377 159,688 239,533 79,844 - - 798,442 12,576,251 34,553,425 31,988,585 26,358,502 24,994,909 696,854 131,168,525

Total 221,487,763 87,964,363 52,269,831 61,997,485 77,695,425 57,568,866 558,983,732 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 149

3.5 Market risk

The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices such as interest rates, foreign exchange rates, equity prices and commodity prices.

3.5.1 Management of market risk

Market risk is the risk that movements in market factors, including foreign exchange rates and interest rates, credit spreads and equity prices, will reduce the bank's income or the value of its portfolios. Diamond Bank classifies its market risk into asset & liability management (ALM) risk, investment risk and trading risk.

The bank has robust methodology and procedures for the identification, assessment, measurement, control, monitoring and reporting of market risks within the Bank's trading portfolio and the rest of the Bank's balance sheet. The Market Risk Management Group is responsible for measuring market risk exposures in accordance with the policies defined by the Board, monitoring and reporting the exposures against the prescribed limits.

The Bank manages the impact of interest rate changes within self-imposed parameters set after careful consideration of a range of possible rate environments and business scenarios. These parameters in combination define the Bank's market risk tolerance.

Limits are used to control the Bank's interest rate risk exposure within its risk tolerance. Risk limits are set by product and risk types. They are usually approved by ALCO and endorsed by the Board. Limits are sets for position taken, value at risk, stop loss and profit take as well as counter party risks. The overall risk appetite of the Bank, size, complexity, capital adequacy, profitability of business/product areas, complexity of products, liquidity of specific markets and volatility of markets are considered while setting the limits.

Duration Gap Analysis It compares the price sensitivity of the bank's total assets with the price sensitivity of its total liabilities to assess whether the market value of assets or liabilities changes more when rates change. Diamond Bank uses Duration Gap (DGAP) for managing its value of equity, recognizing the timing of all cash flows for every security on the balance sheet.

Economic Value of Equity (EVE) sensitivity analysis It indicates how much the bank's economic value of equity will change in different rates environments. The Bank's exposure to changes in net economic value of equity is evaluated for six alternative interest rate shock scenarios and monitored.

Monitoring exposure limits and triggers The Bank manages the impact of changes in market factors – equity prices, interest rates and currency rates within self-imposed NOTES TO THE FINANCIAL STATEMENTS 150 FOR THE PERIOD ENDED 31 DECEMBER 2012

limits and triggers set after careful consideration of a range of possible rate environments and business scenarios. These limits are used to control the Bank's market risk exposures within its risk tolerance.

Risk Reporting Market Risk Management Group ensures that the Bank maintains an accurate risk reporting framework that effectively and consistently communicate market risk information across the Bank. Market Risk Management use independently sourced data to generate reports, which provides the Board and senior management with clear, concise and timely recommendations and supporting information needed to make decisions.

3.5.2 Measurement of market risk

The Group's major measurement technique used to measure and control market risk is outlined below.

Value at Risk (VAR)

One of the major tools used by the Group to monitor and limit market risk exposure is Value at Risk. Value-at-Risk estimates the potential maximum decline in the value of a position or portfolio, under normal market conditions, over a one-day holding period, at 99% confidence level. The Diamond Bank Value-at-Risk method incorporates the factor sensitivities of the trading portfolio, the volatilities and correlations of the market risk factors. The Group uses the variance covariance method which derives likely future changes in market value from historical market volatility. Value at risks is estimated on the basis of exposures outstanding at the close of business and therefore might not factor in the intra-day exposures. However, the Bank does not only based its risk estimates on Value at Risk, it uses sensitivity and what-if analysis to further complement it.

Trading

The Group trades on bonds, treasury bills and foreign exchange while Subsidiaries trade on foreign currencies only. Market risk in trading portfolios is monitored and controlled using tools such as position limits, value at risk and present value of an assumed basis points change in yields or exchange rates coupled with concentration limits. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 151

One Day VAR summary Average High Low Actual Group December 2012 Foreign exchange risk 8,979,736 33,078,182 952,319 3,645,431 Interest rate risk 250,438,592 481,420,399 65,323,134 181,731,045 Equity risk - - - - Total 259,418,328 514,498,581 66,275,453 185,376,476

Bank December 2012 Foreign exchange risk 8,922,350 32,980,389 917,949 3,547,638 Interest rate risk 250,438,592 481,420,399 65,323,134 181,731,045 Equity risk - - - - Total 259,360,942 514,400,788 66,241,083 185,278,683

Group December 2011 Foreign exchange risk 7,806,966 33,972,853 2,937,859 3,738,611 Interest rate risk 85,819,249 246,789,830 6,978,208 68,057,271 Equity risk - - - - Total 93,626,215 280,762,683 9,916,067 71,795,882

Bank December 2011 Foreign exchange risk 7,806,966 33,972,853 2,937,859 3,738,611 Interest rate risk 85,819,249 246,789,830 6,978,208 68,057,271 Equity risk - - - - Total 93,626,215 280,762,683 9,916,067 71,795,882

Group December 2010 Foreign exchange risk 16,689,024 52,588,755 641,916 9,891,837 Interest rate risk 67,355,290 167,173,309 23,902,514 109,866,259 Equity risk - - - - Total 84,044,314 219,762,064 24,544,430 119,758,096

Bank December 2010 Foreign exchange risk 16,689,024 52,588,755 641,916 9,891,837 Interest rate risk 67,355,290 167,173,309 23,902,514 109,866,259 Equity risk - - - - Total 84,044,314 219,762,064 24,544,430 119,758,096

Highest and Lowest VaR for each risk factor are independent and usually occur in different days NOTES TO THE FINANCIAL STATEMENTS 152 FOR THE PERIOD ENDED 31 DECEMBER 2012

Non-trading book: Other sensitivity analyses

Market risk in the Non trading book emanates mainly from adverse movement in future net interest income, resulting from changes in interest rates. Analysis of this risk involves the breaking down of demand and saving deposits as well as overdraft into different maturity time bands based on past observed trends with the use of a constructive model. Interest rate risk in non- trading portfolios is measured with maturity gap analysis, interest rate sensitivity and ratios analysis. The sensitivity of earnings to specified upward and downward instantaneous parallel 100 basis point shift in the yield curve, over one-year horizons under business-as-usual conditions assuming static portfolio indicates the potential risk.

3.5.3 Foreign exchange risk

Structural FX exposures arise because of balance sheet mismatches between foreign currency assets and foreign currency liabilities. These are mainly foreign currency loans and deposits, balances with foreign banks, customers' FX transactions, and borrowings in foreign currencies. FX trading exposures are discretionary (intentional) and typically short term FX exposures resulting from treasury trades to profit from currency movements. They contribute to the Bank's overall trading risk and are managed under the trading risk management framework.

The group structural foreign currency exposure is managed by the group ALCO. The primary objectives of the Banks foreign exchange risk management are to protect the Bank's capital base and earnings from fluctuations caused by currency rates movements in excess of approved limits, and to ensure that our open position limit is managed within existing regulatory guidelines. This is done by setting exposure limits, Gap Analysis, sensitivity and what if analysis and Value at Risk

The following shows the Group and the Bank's structural foreign currency exposures for the period. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 153

GROUP

31 December 2012 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 119,086,051 2,870,447 463,988 925,497 8,850,078 132,196,061 Loans to banks 22,004,191 84,937,497 1,041,260 23,369,165 8,451,168 139,803,281 Loans and advances to customers 519,778,132 112,955 6 2,053,019 63,256,047 585,200,159 Financial assets held for trading 90,111,236 - - - - 90,111,236 Investment securities 73,797,377 - - - 2,566,913 76,364,290 Assets pledged as collateral 58,633,859 - - - 20,668,672 79,302,531 Other assets 6,379,601 196,495 161 - - 6,576,257 Total 889,790,446 88,117,394 1,505,415 26,347,681 103,792,878 1,109,553,815

Financial liabilities Deposits from banks 27,143,058 132,336 1,684 2,897,781 1,032,439 31,207,298 Deposit from Customers 660,362,438 154,392,676 2,125,631 12,165,304 81,188,395 910,234,444 Derivative Liability - 13,248,585 - - - 13,248,585 Borrowings 27,000,613 5,132,652 80 6 17,833,009 49,966,360 Other liabilities 18,824,576 11,991,624 86,373 3,501,506 47,729 34,451,808 Long Term Debt - 19,367,757 - - - 19,367,757 Total 733,330,685 204,265,631 2,213,768 18,564,596 100,101,572 1,058,476,252

31 December 2011 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 45,623,877 951,983 170,862 199,991 8,837,366 55,784,079 Loans to banks 31,373,150 36,611,099 2,095,381 12,282,738 8,285,643 90,648,011 Loans and advances to customers 346,342,616 517 6 - 41,793,345 388,136,485 Financial assets held for trading 8,041,618 - - - - 8,041,618 Investment securities 146,572,495 - - - 1,130,997 147,703,492 Assets pledged as collateral 17,397,988 - - - 17,542,012 34,940,000 Other assets 5,811,582 183,520 161 - - 5,995,262 Total 601,163,326 37,747,119 2,266,410 12,482,729 77,589,362 731,248,947

Financial liabilities Deposit from Customers 470,970,270 63,680,815 1,613,332 6,810,645 59,928,167 603,003,229 Deposits from banks 17,319,154 350,662 2,592 775,555 2,534,825 20,982,788 Borrowings 24,672,729 12,805,484 - - 17,399,670 54,877,883 Other liabilities 6,064,457 9,849,817 558,490 3,533,232 3,662,593 23,668,590 Total 519,026,610 86,686,779 2,174,414 11,119,432 83,525,255 702,532,490 NOTES TO THE FINANCIAL STATEMENTS 154 FOR THE PERIOD ENDED 31 DECEMBER 2012

1 January 2011 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 16,216,922 1,172,864 219,466 217,547 9,779,400 27,606,200 Loans to banks 46,135,699 15,761,101 2,460,302 3,350,748 4,447,490 72,155,340 Loans and advances to customers 278,355,940 492 - - 28,856,024 307,212,457 Financial assets held for trading 1,345,552 - - - - 1,345,552 Investment securities 76,842,892 - - - 25,531 76,868,423 Assets pledged as collateral 24,010,738 - - - 13,809,262 37,820,000 Other assets 14,153,230 - - - 14,153,230 Total 457,060,974 16,934,458 2,679,768 3,568,295 56,917,708 537,161,202

Financial liabilities Deposit from Customers 14,889,696 249,456 4,341 92,666 111,056 15,347,216 Deposits from banks 334,763,441 31,067,789 1,239,145 1,183,051 44,739,328 412,992,754 Borrowings 2,177,600 14,285,309 - - 11,802,518 28,265,428 Other liabilities 11,351,230 9,621,984 1,411,810 1,278,540 103,213 23,766,777 Total 363,181,967 55,224,538 2,655,297 2,554,257 56,756,115 480,372,175

BANK

31 December 2012 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 119,086,055 2,861,523 463,969 812,043 1,000 123,224,590 Loans to banks 21,838,716 84,676,539 1,040,332 5,729,562 99,052 113,384,200 Loans and advances to customers 521,208,628 112,955 6 2,053,019 - 523,374,608 Financial assets held for trading 90,111,236 - - - - 90,111,236 Investment securities 75,306,830 - - - - 75,306,830 Assets pledged as collateral 57,438,896 - - - - 57,438,896 Other assets 4,967,227 196,495 161 - - 5,163,883 Total 889,957,588 87,847,512 1,540,467 8,594,623 100,052 988,004,243

Financial liabilities Deposits from banks 8,027,295 132,336 1,684 11,971 - 8,173,286 Deposit from Customers 664,694,026 154,201,509 2,125,630 2,068,934 688 823,090,788 Derivative Liability 13,248,585 - - - - 13,248,585 Borrowings 44,833,622 5,132,652 80 6 - 49,966,360 Other liabilities 12,201,557 11,991,624 86,373 3,501,506 47,729 27,828,789 Long Term Debt - 19,367,757 - - - 19,367,757 Total 743,005,085 190,825,879 2,213,767 5,582,416 48,417 941,675,565 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 155

31 December 2011 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 53,117,382 920,839 170,676 187,243 385 54,396,524 Loans to banks 24,049,976 36,017,793 2,090,948 9,759,577 180,552 72,098,846 Loans and advances to customers 344,396,807 517 6 - - 344,397,331 Financial assets held for trading 8,041,618 - - - - 8,041,618 Investment securities 129,015,414 - - - - 129,015,414 Assets pledged as collateral 34,940,000 - - - - 34,940,000 Other assets 4,033,658 183,520 161 - - 4,217,338 Total 597,594,855 37,122,668 2,261,791 9,946,820 180,936 647,107,071

Financial liabilities Deposit from Customers 3,859,644 50,659 2,592 27,061 - 3,939,956 Deposits from banks 473,919,543 63,286,020 1,613,332 6,342,095 155 545,161,145 Borrowings 42,072,399 12,805,484 - - - 54,877,883 Other liabilities 13,658,140 9,849,817 558,490 3,533,232 229,110 27,828,789 Total 533,509,725 85,991,980 2,174,414 9,902,388 229,265 631,807,773

1 January 2011 Naira '000 Dollar '000 GBP '000 Euro'000 Others'000 Total '000

Financial assets Cash and balances with Central Bank 16,324,294 1,168,160 218,675 159,587 413 17,871,129 Loans to banks 41,132,175 15,692,242 2,450,263 2,326,449 19,055 61,620,185 Loans and advances to customers 299,534,200 492 - - - 299,534,692 Financial assets held for trading 1,109,080 - - - - 1,109,080 Investment securities 55,074,230 - - - - 55,074,230 Assets pledged as collateral 37,820,000 - - - - 37,820,000 Other assets 9,736,908 - - - - - 9,736,908 Total 460,730,887 16,860,895 2,668,938 2,486,036 19,468 482,766,224

Financial liabilities Deposit from Customers 3,997,678 102,027 4,341 52 - 4,104,098 Deposits from banks 346,526,524 30,395,206 1,239,145 1,182,950 194 379,344,019 Borrowings 13,746,522 14,285,309 - - - 28,031,831 Other liabilities 3,919,712 9,621,984 1,411,810 1,278,540 103,213 16,335,259 Total 368,190,435 54,404,527 2,655,297 2,461,541 103,406 427,815,207 NOTES TO THE FINANCIAL STATEMENTS 156 FOR THE PERIOD ENDED 31 DECEMBER 2012

3.5.4 Interest rate risk

The tables below summarise the Bank’s non-trading book fair value exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts (non-derivatives), categorised by the earlier of contractual repricing.

GROUP Non-interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

31 December 2012

Financial assets Cash and balances with Central Bank 10,000,000 - - - - 122,196,061 132,196,061 Loans to banks 132,733,912 5,973,871 1,095,498 - - - 139,803,281 Loans and advances to customers 87,409,115 111,916,293 90,373,896 188,542,305 106,958,551 - 585,200,159 Financial assets held for trading 17,420,335 39,599,924 31,291,470 - 1,799,508 - 90,111,236 Investment securities: – Available-for-sale - - - 2,343,922 83,712 8,173,975 10,601,609 – Loans and receivables ------– Held-to-maturity 5,188,891 114,312 9,274,048 41,837,194 9,348,235 - 65,762,681 Assets pledged as collateral - 24,487,280 17,549,734 25,414,137 11,851,380 79,302,531 Other assets - - - - - 6,576,257 6,576,257

Total 252,752,253 182,091,680 149,584,646 258,137,558 130,041,384 136,946,293 1,109,553,815

Financial liabilities Deposits from banks 29,118,198 2,089,100 - - - 31,207,298 Deposits from customers 147,891,314 100,398,286 24,208,455 34,156,090 68,725,01-0 534,855,289 910,234,444 Derivative Liability - - - - 13,248,585 13,248,585 Borrowing 184,076 0 6,224,258 11,198,953 32,359,073 49,966,360 Other liabilities - - - - - 34,451,808 34,451,808 Long term debt - - - - 19,367,757 - 19,367,757

Total 177,193,588 102,487,386 30,432,713 45,355,043 133,700,425 569,307,097 1,058,476,252

Total interest repricing gap 75,558,665 79,604,294 119,151,933 212,782,516 (3,659,041) (432,360,804) 51,077,563 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 157

Non-interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

31 December 2011

Financial assets Cash and balances with Central Bank - - - - - 55,784,079 55,784,079 Loans to banks 88,783,452 18,186 645,742 1,200,631 - - 90,648,011 Loans and advances to customers 66,400,276 77,800,633 77,665,588 106,842,535 59,427,453 - 388,136,485 Financial assets held for trading 602,201 2,384,643 3,541,686 498,445 1,014,642 - 8,041,618 Investment securities: – Available-for-sale - 10,277,425 63,167,671 3,057,287 514,695 8,973,653 85,990,731 – Held-to-maturity 144,727 1,482,800 9,740,047 42,744,481 7,600,706 - 61,712,761 Assets pledged as collateral - - 22,740,000 9,650,000 2,550,000 - 34,940,000 Other assets - - - - - 5,995,262 5,995,262

Total 155,930,656 91,963,687 177,500,734 163,993,380 71,107,497 70,752,994 731,248,947

Financial liabilities Deposits from banks 19,268,798 - 210,490 - 1,503,500 - 20,982,788 Deposits from customers 115,336,024 63,501,133 9,033,926 70,262,072 273,556 344,596,517 603,003,229 Borrowings 6,114,978 0 6,690,507 7,913 42,064,485 - 54,877,883 Other liabilities - - - - - 23,668,590 23,668,590

Total 140,719,800 63,501,133 15,934,923 70,269,985 43,841,541 368,265,107 702,532,490

Total interest repricing gap 14,006,454 29,666,956 161,565,811 93,723,394 27,265,956 (297,512,113) 28,716,457 NOTES TO THE FINANCIAL STATEMENTS 158 FOR THE PERIOD ENDED 31 DECEMBER 2012

Non- interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

1 January 2011

Financial assets Cash and balances with Central Bank - - - - - 27,606,200 27,606,200 Loans to banks 70,460,669 503,305 - 1,191,366 - - 72,155,340 Loans and advances to customers 57,151,240 51,521,144 55,750,282 93,521,716 49,268,074 - 307,212,457 Financial assets held for trading - - - 926,383 195,028 224,142 1,345,552 Investment securities: – Available-for-sale - - - 5,154,962 2,550,653 12,185,744 19,891,359 – Held-to-maturity 4,069,850 7,293,450 23,628,015 16,984,771 5,000,978 - 56,977,064 Assets pledged as collateral 4,750,000 5,150,000 13,500,000 5,020,000 9,400,000 - 37,820,000 Other assets - - - - - 14,153,230 14,153,230

Total 136,431,759 64,467,899 92,878,298 122,799,198 66,414,733 54,169,316 537,161,202

Financial liabilities Deposits from banks 15,347,216 - - - - - 15,347,216 Deposits from customers 98,175,413 50,585,510 11,076,739 49,286,349 - 203,868,743 412,992,754 Borrowings 4,620,960 3,750,917 11,847,288 8,046,263 - - 28,265,428 Other liabilities - - - - - 23,766,777 23,766,777

Total 118,143,589 54,336,427 22,924,027 57,332,612 - 227,635,520 480,372,175

Total interest repricing gap 18,288,170 10,131,472 69,954,270 65,466,586 66,414,733 (173,466,204) 56,789,027 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 159

BANK Non- interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

31 December 2012

Financial assets Cash and balances with Central Bank 10,000,000 - - - - 113,224,590 123,224,590 Loans to banks 106,314,891 5,973,820 1,095,489 - - - 113,384,200 Loans and advances to customers 78,458,145 102,098,957 66,645,112 174,692,620 101,479,774 - 523,374,608 Financial assets held for trading 17,420,335 39,599,924 31,291,470 - 1,799,508 - 90,111,237 Investment securities: – Available-for-sale - - - 1,938,172 489,462 8,127,427 10,555,061 – Held-to-maturity 393,029 12,285,855 11,918,257 29,720,167 10,434,461 - 64,751,769 Assets pledged as collateral - 24,240,616 10,485,383 14,709,353 8,003,545 - 57,438,897 Other assets - - - - - 5,163,883 5,163,883

Total 212,586,400 184,199,172 121,435,711 221,060,312 122,206,750 126,515,900 988,004,245

Financial liabilities Deposits from banks 6,084,186 2,089,100 - - - - 8,173,286 Deposits from customers 145,567,874 91,489,905 10,144,487 18,035,130 65,305,046 492,548,346 823,090,788 Derivative Liability - 13,248,585 - 13,248,585 Borrowings 184,076 - 6,224,258 11,198,953 32,359,073 - 49,966,360 Other liabilities - - - - - 27,828,789 27,828,789 Long term debt - - - - 19,367,757 - 19,367,757

Total 151,836,136 93,579,005 16,368,745 29,234,083 130,280,461 520,377,135 941,675,565

Total interest repricing gap 60,750,264 90,620,167 105,066,966 191,826,229 (8,073,711) (393,861,235) 46,328,680 NOTES TO THE FINANCIAL STATEMENTS 160 FOR THE PERIOD ENDED 31 DECEMBER 2012

Non- interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

31 December 2011

Financial assets Cash and balances with Central Bank - - - - - 54,396,524 54,396,524 Loans to banks 71,453,104 - 645,742 - - - 72,098,846 Loans and advances to customers 55,926,847 63,384,491 67,608,952 97,926,860 59,550,182 - 344,397,332 Financial assets held for trading - 3,355,764 3,283,199 462,066 940,589 - 8,041,618 Investment securities: – Available-for-sale - 9,049,034 55,617,667 2,691,870 453,177 8,950,561 76,762,309 – Held-to-maturity 122,543 1,255,508 8,247,041 36,192,383 6,435,630 - 52,253,105 Assets pledged as collateral - 1,750,000 13,270,000 17,370,000 2,550,000 - 34,940,000 Other assets - - - - - 4,217,338 4,217,338

Total 127,502,494 78,794,797 148,672,601 154,643,179 69,929,578 67,564,423 647,107,072

Financial liabilities Deposits from banks 3,939,956 - - - - - 3,939,956 Deposits from customers 102,809,639 56,604,418 8,052,772 62,631,067 243,846 314,819,403 545,161,145 Borrowings 6,114,978 - 6,690,507 7,913 42,064,485 54,877,883 Other liabilities - - - - - 27,828,789 27,828,789

Total 112,864,573 56,604,418 14,743,279 62,638,980 42,308,331 342,648,192 631,807,773

Total interest repricing gap 14,637,921 22,190,379 133,929,322 92,004,199 27,621,247 (275,083,769) 15,299,299 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 161

Non- interest Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years bearing Total N'000 N'000 N'000 N'000 N'000 N'000 N'000

1 January 2011

Financial assets Cash and balances with Central Bank - - - - - 17,871,129 17,871,129 Loans to banks 61,620,185 - - - - - 61,620,185 Loans and advances to customers 50,548,851 41,784,582 47,610,455 74,594,471 84,996,333 - 299,534,692 Financial assets held for trading - - - 916,197 192,883 - 1,109,080 Investment securities: – Available-for-sale - - - 4,847,010 2,398,279 3,850,517 11,095,806 – Held-to-maturity 4,738,792 8,492,239 24,493,144 3,852,244 2,402,005 - 43,978,424 Assets pledged as collateral 4,750,000 5,150,000 13,500,000 11,870,000 2,550,000 - 37,820,000 Other assets - - - - - 9,736,908 9,736,908

Total 121,657,828 55,426,821 85,603,599 96,079,922 92,539,500 31,458,554 482,766,224

Financial liabilities Deposits from banks 4,104,098 - - - - - 4,104,098 Deposits from customers 89,120,283 40,228,172 15,746,710 44,740,462 - 189,508,392 379,344,019 Borrowings 4,595,691 3,717,868 5,112,901 6,630,002 7,975,369 - 28,031,831 Other liabilities - - - - - 16,335,259 16,335,259

Total 97,820,072 43,946,040 20,859,611 51,370,464 7,975,369 205,843,651 427,815,207

Total interest repricing gap 23,837,756 11,480,781 64,743,988 44,709,458 84,564,131 (174,385,097) 54,951,017

NOTES TO THE FINANCIAL STATEMENTS 162 FOR THE PERIOD ENDED 31 DECEMBER 2012

The table below sets out the impact on net interest income of a 100 basis points parallel fall or rise in all yields. A parallel increase in yields by 100 basis points would lead to an increase in net interest income while a parallel falls in yields by 100 basis points would lead to a decline in net interest income. The interest rate sensitivities are based on simplified scenarios and assumptions, including that all positions will be retained and rolled over upon maturity. The figures represent the effect of movements in net interest income based on the 100 basis point shift in interest rate and subject to the current interest rate exposures. However, the effect has not taken into account the possible risk management measures undertaken by the Bank to mitigate interest rate risk. In practice, ALCO seeks proactively to change the interest rate risk profile to minimize losses and optimise net revenues. The projections also assume that interest rates on various maturities will move within similar ranges, and therefore do not reflect any potential effect on net interest income in the event that some interest rates may change and others remain unchanged.

GROUP

Interest sensitivity analysis - 31 December 2012 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 75,558,665 31,483 (31,483) 1 – 3 Months 79,604,294 132,674 (132,674) 3– 12 Months 119,151,933 744,700 (744,700)

274,314,892 908,856 (908,856)

Interest sensitivity analysis - 31 December 2011 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 14,006,454 5,836 (5,836) 1 – 3 Months 29,666,956 44,945 (49,445) 3– 12 Months 161,565,811 1,009,786 (1,009,786)

205,239,220 1,065,067 (1,065,067)

Interest sensitivity analysis - 31 December 2010 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 18,288,170 7,620 (7,620) 1 – 3 Months 10,131,472 16,886 (16,886) 3– 12 Months 69,954,270 437,214 (437,214)

98,373,913 461,720 (461,720) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 163

BANK

Interest sensitivity analysis - 31 December 2012 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 60,750,264 25,313 (25,313) 1 – 3 Months 90, 620, 167 151,034 (151,034) 3– 12 Months 105,066,965 656,669 (655,669)

256,437,396 833,015 (833,015)

Interest sensitivity analysis - 31 December 2011 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 14,637,921 6,099 (6,099) 1 – 3 Months 22,190,378 36,984 (36,984) 3- 12 Months 133,929,321) 837,058 (837,058)

170,757,621 880,141 (880,141)

Interest sensitivity analysis - 31 December 2010 Impact of 100 basis points changes in rates over a one year period (N'000) 100 basis points 100 basis points Time Band Size of Gap decline in rates increase in rates < 1 Month 23,837,755 9,932 69,932 1 – 3 Months 11,480,782 19,135 (19,135) 3- 12 Months 64,743,988) 404,650 (404,650)

100,062,525 433,717 (433,717) NOTES TO THE FINANCIAL STATEMENTS 164 FOR THE PERIOD ENDED 31 DECEMBER 2012

The table below sets out information on the exposure to fixed and variable interest instruments.

Exposure to fixed and variable interest rate risk

FIXED FLOATING TOTAL N'000 N'000 N'000 GROUP

31 December 2012

ASSETS Cash and balances with Central Bank 10,000,000 - 10,000,000 Loans to banks 139,803,281 139,803,281 Loans and advances to customers 579,968,471 5,231,688 585,200,159 Financial assets held for trading 90,111,236 - 90,111,236 Investment securities: – Available-for-sale 2,427,634 - 2,427,634 – Held-to-maturity 65,762,681 - 65,762,681 Assets pledged as collateral 79,302,531 - 79,302,531

TOTAL 967,375,834 5,231,688 972,607,522

LIABILITIES Deposits from banks 31,207,298 - 31,207,298 Deposits from customers 375,379,155 - 375,379,155 Derivative Liability 13,248,585 13,248,585 Borrowing 44,888,892 5,077,468 49,966,360 Long term debt 19,367,757 19,367,757

TOTAL 464,723,930 24,445,225 489,169,155 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 165

Exposure to fixed and variable interest rate risk (cont’d)

FIXED FLOATING TOTAL N'000 N'000 N'000 31 December 2011

ASSETS Cash and balances with Central Bank - - - Loans to banks 90,648,011 90,648,011 Loans and advances to customers 387,664,438 472,047 388,136,485 Financial assets held for trading 8,041,618 - 8,041,618 Investment securities: – Available-for-sale 77,017,078 - 77,017,078 – Held-to-maturity 61,712,761 - 61,712,761 Assets pledged as collateral 34,940,000 - 34,940,000

TOTAL 660,023,906 472,047 660,495,953

31 December 2011

LIABILITIES Deposits from banks 20,982,788 - 20,982,788 Deposits from customers 258,406,712 - 258,406,712 Borrowing 42,072,399 12,805,484 54,877,883

TOTAL 321,461,899 12,805,484 334,267,383 NOTES TO THE FINANCIAL STATEMENTS 166 FOR THE PERIOD ENDED 31 DECEMBER 2012

Exposure to fixed and variable interest rate risk (cont’d)

FIXED FLOATING TOTAL N'000 N'000 N'000 31 December 2010

ASSETS Cash and balances with Central Bank - - - Loans to banks 72,155,340 72,155,340 Loans and advances to customers 307,212,457 - 307,212,457 Financial assets held for trading 1,121,410 - 1,121,410 Investment securities: – Available-for-sale 7,705,615 - 7,705,615 – Held-to-maturity 56,977,064 - 56,977,064 Assets pledged as collateral 37,820,000 - 37,820,000

TOTAL 482,991,887 - 482,991,887

LIABILITIES Deposits from banks 15,347,216 - 15,347,216 Deposits from customers 209,124,011 - 209,124,011 Borrowing 13,980,119 14,285,309 28,265,428

TOTAL 238,451,346 14,285,309 252,736,655 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 167

Exposure to fixed and variable interest rate risk (cont’d)

FIXED FLOATING TOTAL N'000 N'000 N'000 BANK

31 December 2012

ASSETS Cash and balances with Central Bank 10,000,000 - 10,000,000 Loans to banks 113,384,200 113,384,200 Loans and advances to customers 518,142,920 5,231,688 523,374,608 Financial assets held for trading 90,111,236 - 90,111,236 Investment securities: – Available-for-sale 2,427,634 - 2,427,63445 – Held-to-maturity 64,751,769 - 64,751,769 Assets pledged as collateral 57,438,896 - 57,438,896

TOTAL 856,256,655 5,231,688 861,488,343

LIABILITIES Deposits from banks 8,173,286 - 8,173,286 Deposits from customers 330,542,442 - 330,542,442 Derivative Liability 13,248,585 13,248,585 Borrowing 44,888,892 5,077,468 49,966,360 Long term debt 19,367,757 19,367,757

TOTAL 396,853,205 24,445,225 421,298,430 NOTES TO THE FINANCIAL STATEMENTS 168 FOR THE PERIOD ENDED 31 DECEMBER 2012

Exposure to fixed and variable interest rate risk (cont’d)

FIXED FLOATING TOTAL N'000 N'000 N'000 31 December 2011

ASSETS Cash and balances with Central Bank - - - Loans to banks 72,098,846 72,098,846 Loans and advances to customers 343,925,284 472,047 344,397,331 Financial assets held for trading 8,041,618 - 8,041,618 Investment securities: – Available-for-sale 67,811,748 - 67,811,748 – Held-to-maturity 52,253,105 - 52,253,105 Assets pledged as collateral 34,940,000 - 34,940,000

TOTAL 579,070,601 472,047 579,542,648

LIABILITIES Deposits from banks 3,939,956 - 3,939,956 Deposits from customers 230,341,742 - 230,341,742 Borrowing 42,072,399 12,805,484 54,877,883

TOTAL 276,354,097 12,805,484 289,159,581 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 169

Exposure to fixed and variable interest rate risk (cont’d)

FIXED FLOATING TOTAL N'000 N'000 N'000 31 December 2010

ASSETS Cash and balances with Central Bank - - - Loans to banks 61,620,185 61,620,185 Loans and advances to customers 299,534,692 - 299,534,692 Financial assets held for trading 1,109,080 - 1,109,080 Investment securities: – Available-for-sale 7,245,289 - 7,245,289 – Held-to-maturity 43,978,424 - 43,978,424 Assets pledged as collateral 37,820,000 - 37,820,000

TOTAL 451,307,670 - 451,307,670

LIABILITIES Deposits from banks 4,104,098 - 4,104,098 Deposits from customers 189,835,627 - 189,835,627 Borrowing 13,746,522 14,285,309 28,031,831

TOTAL 207,686,247 14,285,309 221,971,556 NOTES TO THE FINANCIAL STATEMENTS 170 FOR THE PERIOD ENDED 31 DECEMBER 2012

3.5.5 Sensitivity analysis on bonds and treasury bills

The table below shows the impact of likely movement in yields on the value of bonds and treasury bills. This relates to the positions held for trade and available for sales. Since an increase in yields would lead to decline in market values of bonds and treasury bills, the analysis was carried out to show the likely impact of 50 and 100 basis points increase in market yields. The impact of held for trading investments is on the income statement while the impact of available for sale instruments is on the statement of other comprehensive income.

Impact of 50 Impact of 100 basis points basis points Carrying Value increase in yields increase in yield

GROUP

31 December 2012 Held for trading 90,111,236 (144,017) (289,789) Available for sale investments 2,427,634 (24,369) (50,734)

TOTAL 92,538,870 (168,386) (340,522)

31 December 2011 Held for trading 8,041,618 (18,923) (36,421) Available for sale investments 67,811,749 (182,584) (358,921)

TOTAL 75,853,367 (201,507) (395,341)

31 December 2010 Held for trading 1,109,079 (16,207) (33,234) Available for sale investments 7,245,289 (68,098) (139,251)

TOTAL 8,354,368 (84,305) (172,485) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 171

3.5.5 Sensitivity analysis on bonds and treasury bills (cont’d)

Impact of 50 Impact of 100 basis points basis points Carrying Value increase in yields increase in yield

BANK

31 December 2012 Held for trading 90,111,236 (144,017) (289,789) Available for sale investments 2,427,634 (24,369) (50,734)

TOTAL 92,538,870 (168,386) (340,522)

31 December 2011 Held for trading 8,041,618 (18,923) (36,421) Available for sale investments 67,811,749 (182,584) (358,921)

TOTAL 75,853,367 (201,507) (395,341)

31 December 2010 Held for trading 1,109,079 (16,207) (33,234) Available for sale investments 7,245,289 (68,098) (139,251)

TOTAL 8,354,368 (84,305) (172,485) NOTES TO THE FINANCIAL STATEMENTS 172 FOR THE PERIOD ENDED 31 DECEMBER 2012

3.6 Fair value of financial assets and liabilities

(a) Financial instruments not measured at fair value

The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Group’s statement of financial position at their fair value:

GROUP 31 December 2012 31 December 2011 1 January 2011 Carrying Fair Carrying Fair Carrying Fair value value value value value value Financial assets Cash and balances with Central banks 132,196,061 132,196,061 55,784,079 55,784,079 27,606,200 27,606,200 - Cash 16,380,761 16,380,761 11,878,439 11,878,439 9,433,800 9,433,800 - Balances with central banks other than mandatory reserve deposits 42,463,968 42,463,968 11,525,939 11,525,939 14,795,632 14,795,632 - Mandatory reserve deposits with central banks 73,351,332 73,351,332 32,379,701 32,379,701 3,376,768 3,376,768 Loans to banks 139,803,281 139,803,281 90,648,011 90,648,011 72,155,340 72,155,340 - Current balances with banks within Nigeria - - - - 18,647 18,647 - Currrent balances with banks outside Nigeria 103,242,076 103,242,076 57,816,233 57,816,233 24,441,867 24,441,867 - Placements with banks and discount houses 36,561,205 36,561,205 32,831,778 32,831,778 47,694,826 47,694,826 Loans and advances to customers 585,200,159 578,073,442 388,136,484 332,435,825 307,212,457 267,612,679 - Overdrafts 99,836,276 103,527,951 74,482,979 67,141,536 51,651,416 62,323,748 - Term loans 467,780,931 457,190,845 300,903,001 254,231,611 245,089,400 196,129,273 - Staff loans 4,665,811 4,594,137 3,934,452 3,350,946 5,838,058 5,078,053 - Commercial papers 1,390,894 1,390,894 1,273,031 1,273,031 393,511 393,511 - Advances under finance lease 11,526,247 11,369,615 7,543,021 6,438,701 4,240,072 3,688,094 Asset pledged as collateral 52,549,620 49,504,819 32,740,000 28,071,180 32,770,000 30,394,364 Other assets 6,576,257 6,576,257 5,995,262 5,995,262 14,153,230 14,153,230 Investment securities 65,762,681 73,265,592 61,712,761 48,988,032 56,977,064 54,597,190 - Held to maturity 65,762,681 73,265,592 61,712,761 48,988,032 56,977,064 54,597,190 Insurance receivables - - - - 705,659 705,659

Total financial assets 982,088,058 979,419,452 635,016,597 561,922,389 511,579,950 467,224,662 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 173

GROUP 31 December 2012 31 December 2011 1 January 2011 Carrying Fair Carrying Fair Carrying Fair value value value value value value

Financial liabilities Deposits from banks 31,207,298 31,207,298 20,982,788 20,982,788 15,347,216 15,347,216 - Items in the course of collection 7,207,067 7,207,067 4,468,893 4,468,893 14,158,684 14,158,684 - Interbank takings within Nigeria 24,000,231 24,000,231 16,513,895 16,513,895 1,188,532 1,188,532 Deposits from customers 910,234,444 910,234,444 603,003,229 603,003,229 412,992,754 412,992,754 - Current 534,855,289 534,855,289 344,596,517 344,596,517 203,868,743 203,868,743 - Savings 153,755,865 153,755,865 125,002,987 125,002,987 97,692,352 97,692,352 - Term 221,623,290 221,623,290 133,403,725 133,403,725 111,431,659 111,431,659 Other liabilities 25,794,788 25,794,788 21,460,730 21,460,730 15,584,368 15,584,368 Long term debt 19,367,757 19,353,778 - - - - Borrowings 49,966,360 49,966,360 54,877,883 54,877,883 28,265,428 28,265,428

Total financial liabilities 1,036,570,647 1,036,556,668 700,324,630 700,324,630 472,189,766 472,189,766

Off-balance sheet financial instruments 193,684,399 193,684,399 139,147,719 139,147,719 155,424,498 155,424,498

Performance bonds and guarantees 93,680,697 93,680,697 83,498,661 83,498,661 129,809,177 129,809,177 Unconfirmed and unfunded Letters of Credit 100,003,702 100,003,702 55,649,058 55,649,058 25,615,321 25,615,321 NOTES TO THE FINANCIAL STATEMENTS 174 FOR THE PERIOD ENDED 31 DECEMBER 2012

Fair value of financial assets and liabilities (cont’d)

BANK 31 December 2012 31 December 2011 1 January 2011 Carrying Fair Carrying Fair Carrying Fair value value value value value value Financial assets Cash and balances with Central banks 123,224,590 123,224,590 54,396,524 54,396,524 17,871,129 17,871,129 - Cash 13,671,268 13,671,268 10,490,884 10,490,884 6,528,485 6,528,485 - Balances with central banks other than mandatory reserve deposits 39,435,175 39,435,175 11,525,939 11,525,939 7,965,876 7,965,876 - Mandatory reserve deposits with central banks 70,118,147 70,118,147 32,379,701 32,379,701 3,376,768 3,376,768 Loans to banks 113,384,200 113,384,200 72,098,846 72,098,846 61,620,185 61,620,185 - Current balances with banks within Nigeria ------Currrent balances with banks outside Nigeria 84,095,155 84,095,155 46,934,918 46,934,918 19,377,289 19,377,289 - Placements with banks and discount houses 29,289,045 29,289,045 25,163,928 25,163,928 42,242,896 42,242,896 Loans and advances to customers 523,374,608 516,109,378 344,397,330 335,700,748 299,534,692 294,859,429 - Overdrafts 88,835,313 91,823,145 68,969,257 71,399,957 51,830,044 70,708,861 - Term loans 418,823,005 408,795,008 263,950,602 253,119,972 237,233,006 214,229,740 - Staff loans 4,370,624 4,303,049 3,934,952 3,828,273 5,838,058 5,746,936 - Commercial papers - - - - 393,511 - - Advances under finance lease 11,345,665 11,188,176 7,543,019 7,352,546 4,240,072 4,173,892 Asset pledged as collateral 30,685,985 27,641,184 32,740,000 28,071,180 32,770,000 30,394,364 Other assets 5,163,883 5,163,883 4,217,338 4,217,338 9,736,908 9,736,908 Investment securities 64,751,769 72,254,679 52,253,105 48,979,437 43,978,424 41,598,549 - Held to maturity 64,751,769 72,254,679 52,253,105 48,979,437 43,978,424 41,598,549

Total financial assets 855,421,152 852,614,031 626,223,201 619,139,678 493,284,057 489,524,506 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 175

BANK 31 December 2012 31 December 2011 1 January 2011 Carrying Fair Carrying Fair Carrying Fair value value value value value value

Financial liabilities Deposits from banks 8,173,286 8,173,286 3,939,956 3,939,956 4,104,098 4,104,098 - Items in the course of collection 6,077,279 6,077,279 3,939,956 3,939,956 2,916,163 2,916,163 - Interbank takings within Nigeria 2,096,007 2,096,007 - - 1,187,935 1,187,935 Deposits from customers 823,090,787 823,090,787 545,161,145 545,161,145 379,344,019 379,344,019 - Current 492,548,344 492,548,344 314,819,403 314,819,403 189,508,392 189,508,392 - Savings 144,587,642 144,587,642 117,935,071 117,935,071 91,564,270 91,564,270 - Term 185,954,801 185,954,801 112,406,671 112,406,671 98,271,357 98,271,357 Other liabilities 22,970,520 22,970,520 10,553,034 10,553,034 15,589,411 15,589,411 Long term debt 19,367,757 19,353,778 - - - - Borrowings 49,966,360 49,966,360 54,877,883 54,877,883 28,031,831 28,031,831

Total financial liabilities 923,568,710 923,554,731 614,532,018 614,532,018 427,069,359 427,069,359

Off-balance sheet financial instruments 184,180,984 180,568,984 130,370,083 130,370,083 155,424,498 155,424,498

Performance bonds and guarantees 87,909,182 87,909,182 73,034,185 73,034,185 129,809,177 129,809,177 Unconfirmed and unfunded Letters of Credit 96,271,802 96,271,802 57,335,898 57,335,898 25,615,321 25,615,321

3.6 Fair value of financial assets and liabilities (cont'd)

(i) Cash and balances with CBN include cash and restricted and non - restricted deposits with Central Bank of Nigeria. The carrying amount of balances with other banks is a reasonable approximation of fair value which is the amount receivable on demand.

(ii) Loans to banks Loans to banks include balances with other banks within and outside Nigeria and short term placements. The carrying amount of balances with other banks is a reasonable approximation of fair value which is the amount receivable on demand. The estimated fair value of fixed interest bearing placement is based on discounted cash flows using prevailing money- market interest rates for the debts. The carrying amount represents the fair value which is receivable on maturity. NOTES TO THE FINANCIAL STATEMENTS 176 FOR THE PERIOD ENDED 31 DECEMBER 2012

(iii) Loans and advances to customers Loans and advances are net of charges for impairment. The estimated fair value of loans and advances represents the market vaue of the loans, arrived at by recalculating the carrying amount of the loans using the estimated market rate for the various loan types

(iv) Deposits from banks and customers The estimated fair value of deposits, with no stated maturity, is the amount repayable on demand.

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

(v) Carrying amounts of all other financial liabilities are reasonable approximation of their fair values which are payable on demand.

(vi) Off-balance sheet financial instruments The estimated fair values of the off-balance sheet financial instruments are based on markets prices for similar facilities. When this information is not available, fair value is estimated using discounted cash flow analysis.

3.6 (b) Financial instruments measured at fair value

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable input reflect market data obtained from independent sources; unobservable inputs reflect the Group's market assumptions. These two types of inputs have created the following fair value hierarchy:

u Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges

u Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

u Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs), This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 177

The table below analyses financial instruments measured at fair value at the end of each reporting period, by the level in the fair value hierachy into which the fair value measurement is categorised:

GROUP Level 1 Level 2 Level 3 Total

31 December 2012 Financial assets Financial assets held for trading - Debt securities 90,111,236 - - 90,111,236 Available for sale financial assets - Investment securities - debt 2,427,634 - - 2,427,634 - Investment securities - listed 251,653 - - 251,653 - Investment securities - unlisted - 1,230,880 6,691,442 7,922,322 Assets pledged as collateral 79,302,531 - - 79,302,531 Total assets 172,093,054 1,230,880 6,691,442 180,015,376

Financial liabilities Derivative liability - 13,248,585 - 13,248,585 Total liabilities

31 December 2011 Financial assets Financial assets held for trading - Debt securities 8,041,618 - - 8,041,618 Available for sale financial assets - Investment securities - debt 77,017,078- - - 77,017,078 Investment securities - listed 91,138 - - 91,138 Investment securities - unlisted - 1,231,425 7,651,089 8,882,154 Assets pledged as collateral 34,940,000 - - 34,940,000 Total assets 120,089,834 1,231,425 7,651,089 128,972,348

1 January 2011 Financial assets Financial assets held for trading - Debt securities 1,121,410 - - 1,121,410 -Listed equity 224,142 - - 224,142 Available for sale financial assets - - - - – Investment securities - debt 7,705,615 - - 7,705,615 - Investment securities - listed 605,904 - - 605,904 - Investment securities - unlisted - 3,692,787 7,887,053 11,579,840 Assets pledged as collateral 37,820,000 - - 37,820,000 Total assets 47,477,071 3,692,787 7,887,053 59,056,911 NOTES TO THE FINANCIAL STATEMENTS 178 FOR THE PERIOD ENDED 31 DECEMBER 2012

BANK

31 December 2012 Level 1 Level 2 Level 3 Total

Financial assets Financial assets held for trading - Debt securities 90,111,236 - - 90,111,236 Available for sale financial assets - Investment securities - debt 2,427,634 - - 2,427,634 - Investment securities - listed 205,105 - - 205,105 - Investment securities - unlisted - 1,230,880 6,691,442 7,922,322 Assets pledged as collateral 57,438,896 - - 57,438,896 Total assets 150,182,871 1,230,880 6,691,442 158,105,193

Financial liabilities Derivative liability - 13,248,585 - 13,248,585 Total liabilities

31 December 2011

Financial assets Financial assets held for trading - Debt securities 8,041,618 - - 8,041,618 Available for sale financial assets - Investment securities - debt 67,811,749 - - 67,811,749 - Investment securities - listed 68,045 - - 68,045 - Investment securities - unlisted - 1,231,425 7,651,089 8,882,514 Assets pledged as collateral 34,940,000 - - 34,940,000 Total assets 110,861,412 1,231,425 7,651,089 119,743,926

Financial liabilities Derivative liability - - - - Total liabilities

1 January 2011

Financial assets Financial assets held for trading - Debt securities 1,109,080 - - 1,109,080 - Equity securities 224,142 - - 224,142 - Available for sale financial assets - - Investment securities - debt 7,245,289 - - 7,245,289 - Investment securities - listed 112,134 - - 112,134 - Investment securities - unlisted - - 3,738,383 3,738,383 Assets pledged as collateral 37,820,000 - - 37,820,000 Total assets 46,286,503 - 3,738,383 50,026,886 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 179

Reconciliation of Level 3 Investments N'000 Available for sale financial assets Investment securities equity

2012 2011 2010 GROUP At 1 January 7,651,090 7,887,053 7,779,876 Gain or loss in profit - - 1,084,841 Gain or loss in OCI (959,647) 261,486 1,192,018 Disposals - (497,449) -

At 31 December 6,691,443 7,651,090 7,887,053

BANK At 1 January 7,651,089 3,738,383 4,000,932 Gain or loss in profit - - (1,084,841) Gain or loss in OCI (959,647) 261,485 822,292 Purchases - 3,684,221 - Disposals - (33,000) -

At 31 December 6,691,442 7,651,089 3,738,383

The following table shows the sensitivity of level 3 measurements to reasonably possible alternative assumptions:

Reflected in profit or loss Reflected in equity

Favourable Unfavourable Favourable Unfavourable changes changes changes changes N '000 N '000 N '000 N '000 At 31 December 2012 Available for sale - - 286,446 262,619

For available for sale investments which were fair valued using Discounted cashflow method, the effect of a change in input was assessed using a 5% upward and downward movement in the assumptions made on revenue growth. The effect is not considered to have a significant impact on the fair value reflected in equity as seen in the table above.

The above favourable and unfavourable changes are calculated independently from each other. Correlations and diversification effects are not taken into account. NOTES TO THE FINANCIAL STATEMENTS 180 FOR THE PERIOD ENDED 31 DECEMBER 2012

(c) Fair valuation methods and assumptions

METHODOLOGY KEY ASSUMPTIONS

Other underlisted equity investments relate to Tinapa Resorts Limited and ATM Consortium which have nil carrying amounts. These investments have measured at cost less impairment because there is no available financial operational information hence their fair value cannot be reliably measured. The instruments were fully impaired based on the evidence that there is no estimated future cash flow from these instruments and also because the cost of the investment in the equity instrument may not be recovered. In 2011, some financial instruments whose fair value could not be reliably measured were derecognized. They had nil carrying amounts therefore there were no gains or losses upon derecognition. Management has started putting plans in place to dispose of its equity investments in the near future. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 181

3.7. Capital management

The Group's objectives when managing capital, which is a broader concept than the 'equity' on the face of balance sheets, are:

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

Capital adequacy and the use of regulatory capital are monitored daily by the group's management, employing techniques based on the guidelines developed by the Central Bank of Nigeria (CBN), for supervisory purposes. The required information is filed with the CBN on a monthly basis. Auditors to the Group are also required to render an annual certificate to the Nigerian Deposit Insurance Corporation (NDIC) that includes the computed capital adequacy ratio of the Group.

The CBN requires each bank to: (a) hold the minimum level of the regulatory capital of N25 billion and (b) maintain a ratio of total regulatory capital to the risk- weighted asset at or above the minimum of 15%. In addition, those individual banking subsidiaries or similar financial institutions not incorporated in Nigeria are directly regulated and supervised by their local banking supervisor, which may differ from country to country.

The group's regulatory capital as managed by its Financial Control and Treasury Units is divided into two tiers:

d. Tier 1 capital: share capital, retained earnings and reserves created by appropriations of retained earnings. The book value of goodwill is deducted in arriving at Tier 1 capital; and

e. Tier 2 capital: preference shares, non-controlling interests arising on consolidation, qualifying debt stock, fixed assets revaluation reserves, foreign currency revaluation reserves, general provisions subject to maximum of 1.25% of risk assets and hybrid instruments – convertible bonds.

Investments in unconsolidated subsidiaries and associates are deducted from Tier 1 and Tier 2 capital to arrive at the regulatory capital.

The risk-weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature of – and reflecting an estimate of credit, market and other risks associated with – each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature of the potential losses.

The following table summarises the composition of regulatory capital and the ratios of the Group for the periods ended 1 January 2011, 31 December 2011 and 31 December 2012. During those three periods, the individual entities within the Group and the Group complied with all of the externally imposed capital requirements to which they are subject. NOTES TO THE FINANCIAL STATEMENTS 182 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 1 January 2012 2011 2011 GROUP

Tier 1 capital Share capital 7,237,622 7,237,622 7,237,622 Share premium 89,629,324 89,629,324 89,629,324 Statutory reserves 14,898,751 11,394,523 11,214,864 Contingency reserve - - 354,741 SMEIS reserve 3,966,628 2,812,957 2,812,957 Retained earnings (6,629,221) (24,112,701) (8,387,489)

Total qualifying Tier 1 capital 109,103,104 86,961,725 102,862,019

Tier 2 capital Minority interest 253,278 224,932 455,661 Fair value Reserve (1,292,728) (1,422,736) 1,686,305 Foreign currency translation reserve 792,068 217,094 306,694 General provision 11,810,238 5,687,247 3,432,885 Long Term Debt 19,367,757 - - Derivative Liability 13,248,585 - - Less: Deferred tax and Intangible Assets (9,100,169) (13,182,318) (8,277,101)

Total qualifying Tier 2 capital 35,079,029 (8,475,781) (2,395,556)

Total regulatory capital 144,182,133 78,485,944 100,466,463

Risk-weighted assets: On-balance sheet 696,795,075 483,949,858 401,294,862 Off-balance sheet 135,783,240 98,886,040 124,335,440

Total risk-weighted assets 832,578,315 582,835,899 525,630,303

Risk-weighted Capital Adequacy Ratio (CAR) 17.3% 13.5% 19.1% NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 183

31 December 31 December 1 January 2012 2011 2011 BANK

Tier 1 capital Share capital 7,237,622 7,237,622 7,237,622 Share premium 89,629,324 89,629,324 89,629,324 Statutory reserves 14,650,515 11,189,501 11,189,501 SMEIS reserve 3,966,628 2,812,957 2,812,957 Retained earnings (6,851,491) (25,310,234) (270,693)

Total qualifying Tier 1 capital 108,632,598 85,559,170 110,598,711

Tier 2 capital Fair value Reserve (1,316,183) (1,422,736) 665,652 General provision 10,584,137 4,674,151 3,114,154 Long Term debt 19,367,757 - - Derivative Liability 13,248,585 - - Less: Investment in subsidiary, deferred tax and intangible assets (17,061,759) (21,026,635) (25,759,262)

Total qualifying Tier 2 capital 24,822,537 (17,775,220) (21,979,456)

Total regulatory capital 133,455,775 67,783,950 88,619,255

Risk-weighted assets: On-balance sheet 633,992,112 439,858,449 385,619,894 Off-balance sheet 128,145,775 89,264,985 124,335,440

Total risk-weighted assets 762,137,887 529,123,434 510,013,861

Risk-weighted Capital Adequacy Ratio (CAR) 17.5% 12.8% 17.4%

The decrease in the regulatory capital in 2011 is mainly due to the contribution of the current-period loss arising from significant provisions for loans losses.

The Group strategic risk management focus is to proactively identify, understand, promptly analyse and appropriately manage NOTES TO THE FINANCIAL STATEMENTS 184 FOR THE PERIOD ENDED 31 DECEMBER 2012

strategic risks that could affect the achievement of the group's strategic intent. In the process, the Group:

a) Ensures that exposures reflect strategic goals that are not overly aggressive and are also compatible with developed business strategies.

b) Avoids products, markets and business for which it cannot objectively measure and manage their associated risk; and

c) Strives to maintain a balance between risk/opportunities and revenue consideration with the group's risk appetite. Thus, risk- related issues are considered in all business decisions.

The Board of Directors has the ultimate responsibility for establishing and approving the Group's strategy in an integrated manner that aligns strategies, goals, tactics and resources. The Board members participate in the bank's Annual Strategy Session towards the review of the Strategic Plan. When approved, such plans are cascaded to the various business units/subsidiaries for creating business unit/subsidiary plans and budgets. It is the responsibilities of the Executive Management Committee to assist the board in developing and formulating strategies to meet the group's strategic goals and objectives, and ensuring adequate implementation of the Group's strategic plan as approved by the Board.

The Group Risk Management Committee is responsible for establishing a suitable reporting system which will ensure timely monitoring of strategic risk exposures, and undertaking measures for the elimination of any possible problems pertaining to internal and external factors. The strategic planning group has the primary responsibility for supporting the board and senior management in managing the group's strategic risk and facilitating change in corporate strategic plan that contribute to the group's organizational development and continuous improvement. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 185

4. Critical accounting judgements in applying the Bank's accounting policies

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events.

Accounting policies and directors' judgements for certain items are especially critical for the bank's results and financial situation due to their materiality.

(a) Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgements as to whether there is any observable data indicating an impairment trigger. The trigger may include observable data indicating that the borrower is unable to fulfil the repayment obligations as per contractual terms e.g significant financial difficulty being experienced by the borrower, occurrence of default/delays in interest or principal repayments, restructuring of the credit facilities by giving extraordinary concessions to borrower or national or local economic conditions that correlate with defaults on assets in the Bank. The Bank uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(b) Impairment of available-for-sale equity investments

The Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement relating to the period over which the losses occur. Significant loses occurring in three or more consecutive years is considered significant. In making this judgement, the Bank evaluates among other factors, the volatility in share price. In addition, objective evidence of impairment may be deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

Had all the declines in fair value below cost been considered insignificant or prolonged, the Bank would have recognised an additional N1,98b loss in its 2012 financial statements. NOTES TO THE FINANCIAL STATEMENTS 186 FOR THE PERIOD ENDED 31 DECEMBER 2012

(c) Fair value of financial instruments

Fair values are subject to a control framework that aims to ensure that they are either determined, or validated, by a function independent of the risk taker.To this end, ultimate responsibility for the determination of fair values lies within the Market Risk function, which reports functionally to the CRO. Financial Control establishes the accounting policies and procedures governing valuation, and is responsible for ensuring that these comply with all relevant accounting standards. Fair value activities/processes are carried out by Market Risk Management. The revaluation processes are carried out independent of Treasury or other risk-takers in the front office. The pricing factors used for revaluation are also obtained from a source which is independently verifiable. Market Risk Management revalues all exposures categorized under the trading and available for sale portfolio. The revaluation gain or loss are communicated to management at every ALCO meeting.

The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates.

Changes in assumptions about these factors could affect the reported fair value of financial instruments. For example, to the extent that the directors used a tightening of 100 basis points in the credit spread, the fair values would be estimated at N4.94bn as compared to their reported fair value of N4.97bn at 31 December 2012.

(d) Held-to-maturity investments

In accordance with IAS 39 guidance, the Bank classifies some non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank were to fail to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – the Bank is required to reclassify the entire category as available- for-sale. Accordingly, the investments would be measured at fair value instead of amortised cost. If all held-to-maturity investments were to be so reclassified, the carrying value would decrease by N1.76bn with a corresponding entry in the fair value reserve in shareholders' equity. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 187

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 5. Interest and Similar Income

GROUP Loans to banks 8,487,160 4,914,522 Loans and advances to customers 88,197,538 69,303,566 Investment securities 15,667,257 9,142,374 112,351,955 83,360,462

BANK Loans to banks 8,219,025 4,768,242 Loans and advances 82,899,107 67,300,708 Investment securities 14,393,455 7,819,581 105,511,587 79,888,531

Interest income loans and advances to customers includes interest income on impaired financial assets, recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss amounting to N4.7 billion (Dec 2011: N10.2 billion).

Interest income earned outside Nigeria amounted to Group: N7.0 billion Bank: N41.8 million (Dec 2011 Group: N7.3. billion Bank: N49.1 million).

6. Interest expense

GROUP Deposits from banks 1,205,908 670,525 Deposits from customers 20,533,702 10,877,192 Borrowings 614,228 954,824 Long term debt 676,595 - 23,030,433 12,502,541

BANK Deposits from banks 531,036 120,963 Deposits from customers 18,888,870 9,609,730 Borrowings 614,228 954,824 Long term debt 676,595 - 20,710,729 10,685,517 NOTES TO THE FINANCIAL STATEMENTS 188 FOR THE PERIOD ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 7. Impairment charge for credit losses

GROUP Loans and advances to customers (refer to note 22) Increase in collective impairment 7,991,581 38,355,656 Increase in specific impairment 10,346,793 1,043,639 Amounts written off in the year as uncollectible 219,667 18,117,198 Income received on claims previously written off (1,552,893) (1,414,013) Reversal of impairment - (735,904) Advances under finance leases (refer to note 22.2) Increase in impairment 23,142 42,115 17,028,290 55,408,691

BANK Loans and advances to customers (refer to note 22) Increase in collective impairment 5,886,844 48,859,567 Increase in specific impairment 10,367,515 1,231,705 Amounts written off in the year as uncollectible 219,667 4,177,005 Income received on loans previously written off (1,552,893) (1,414,013) Reversal of impairment - - Advances under finance leases (refer to note 22.2) Increase in impairment 23,142 94,767 14,944,275 52,949,031

The high impairment charge in 2011 was due to the sale of non-performing loans (NPLs) to the Asset Management Company of Nigeria (AMCON) at significant discounts to book values (carrying amounts). As part of the overall clean up strategy by the Central Bank of Nigeria (CBN), a company called AMCON was established to buy up all bad assets (non-performing loans) in the books of banks. The purchases by AMCON was based on the value of underlying collaterals of the loans. Where a loan collateral is not perfected, such a loan will be bought at 5% of the book value or carrying amount. The balance of 95% will be provided for by the Bank. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 189

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 8. Net fee and commission income

GROUP Commission on turnover 4,869,693 3,960,910 Letter of credit commission 2,471,324 1,359,660 Service fees & charges 9,578,146 7,521,231 Collection & agency charges 102,068 74,962 Bonds and guarantees issuance fees 5,354,241 457,613 Funds transfer commission 1,332,151 840,877 Corporate finance fees 276,432 17,313 Others 2,512,659 5,128,979 Fee and commission income 26,496,714 19,361,545

Fee and commission expense (1,311,710) (350,228)

Net fee and commission income 25,185,004 19,011,317

BANK Commission on turnover 4,826,753 3,966,417 Letter of credit commission 2,291,331 1,253,722 Service fees & charges 9,578,146 7,351,069 Collection & agency charges 102,068 74,962 Bonds, guarantees issuance and OD fees 5,354,241 3,771,689 Funds transfer commission 637,663 436,808 Corporate finance fees 480,889 - Others 2,383,463 1,419,897 Fee and commission income 25,654,554 18,274,564

Fee and commission expense (1,311,710) (348,223)

Net fee and commission income 24,342,844 17,926,341

Trust and other fiduciary fees relates to fees earned by the Bank and Group on trust and fiduciary activities where the Bank and Group hold or invest assets on behalf of its customers. Of this , N129.2 million in Dec. 2012 (N107.2 million in Dec. 2011) relates to fees earned from holding Pension Fund Assets. NOTES TO THE FINANCIAL STATEMENTS 190 FOR THE PERIOD ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 9. Net gains from financial instruments held for trading

GROUP Equity securities - 505,778 Debt securities 1,025,151 727,128 1,025,151 1,232,906 BANK Equity securities - 439,591 Debt securities 1,025,151 727,128 1,025,151 1,166,719

10 Net losses on available for sale investment securities

GROUP Fair value movement on disposed AFS investment securities (996,493) - Fair value loss on AFS investment securities - (514,766) (996,493) (514,766) BANK Fair value movement on disposed AFS investment securities 996,312) - Fair value loss on AFS investment securities - (513,539) (996,312) (513,539)

11. Foreign exchange income

GROUP Revaluation gain/loss 2,371,175 1,688,829 Other foreign exchange income 698,308 331,445 3,069,483 2,020,274

BANK Revaluation gain/loss 2,371,175 1,688,829 Other foreign exchange income 403,409 317,857 2,774,584 2,006,686 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 191

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 12. Dividend income

GROUP Dividend income 281,253 508,704

BANK Dividend income 281,253 51,462

Dividend income represents income earned from holding unquoted securities.

13. Other income

GROUP Recoveries 630,760 81,146 Others 245,682 587,760 876,442 668,906 BANK Recoveries 455,347 81,146 Others 103,357 35,835 558,704 116,981 14. Employee benefit expenses

GROUP Wages and salaries 19,951,324 15,194,715 Pension costs: - Defined contribution plans 762,163 236,024 Productivity expense 3,442,548 696,958 Other benefits costs 1,807,165 602,945 25,963,200 16,730,642 BANK Wages and salaries 18,544,500 14,165,618 Pension costs: - Defined contribution plans 428,671 232,175 Productivity expense 3,427,035 692,218 Other benefits costs 1,813,224 2,603,086 24,213,430 17,693,097 NOTES TO THE FINANCIAL STATEMENTS 192 FOR THE PERIOD ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 15. Other operating expenses

GROUP Financial charges 2,159,805 1,147,279 Operation write-off 386,643 2,801,060 Outsourcing expenses 3,108,787 1,071,097 Product promotion 42,895 1,156,618 AMCON Resolution Fund 4,749,203 1,645,208 NDIC Premium 2,966,604 2,005,662 Donations and subscriptions 270,574 739,450 Net restructuring expense (note 15b) - 305,330 General and administrative expenses (note 15a) 20,332,183 24,674,638 Others 8,568,050 4,195,149

Total 42,584,744 39,741,491

BANK Financial charges 2,157,077 1,035,668 Operation write-off 386,643 2,801,060 Outsourcing expenses 3,102,842 1,071,097 Product promotion 42,895 884,383 AMCON Resolution Fund 4,749,203 1,645,208 NDIC Premium 2,966,604 2,005,662 Donations and subscriptions 270,574 739,450 Net restructuring expense (note 15b) - 305,330 General and administrative expenses (note 15a) 17,402,536 20,239,395 Others 8,470,760 4,138,481

Total 39,549,134 34,865,734 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 193

(Amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 15a. General and administrative expenses

GROUP Business travels 2,709,789 777,897 Communication 383,412 410,265 Computer/network maintenance 835,139 1,667,845 Contractor compensation 1,683,047 4,017,038 Marketing & business communication 2,271,629 1,863,318 Repairs & maintenance 1,458,511 1,228,090 Security 1,065,354 3,213,172 Transport 986,436 747,259 Power 1,348,463 1,310,178 Rent on property under lease 960,898 1,151,119 Depreciation 4,513,960 4,684,571 Amortisation 426,212 431,376 Others 1,689,333 3,172,510 20,332,183 24,674,638

Operating lease rentals:

The Group usually pays lease rentals in advance and amortizes the cost over the tenor of the lease. The unexpired portion of the prepaid lease rentals are reported in the statement of Financial Position as other assets - prepayments. At 31 December 2012 N1.3 billion (December 2011 N2.0 billion) was unamortized lease rentals

31 December 31 December 1 January 2012 2011 2011

Within one year 334,157 138,485 114,672 Between two and five years 573,310 1,306,925 1,809,479 More than five years 2,274,905 2,452,968 2,247,299 3,182,372 3,898,378 4,171,450 NOTES TO THE FINANCIAL STATEMENTS 194 FOR THE PERIOD ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 2012 2011 BANK Business travels 840,822 777,897 Communication 381,821 410,265 Computer/network maintenance 834,872 1,667,845 Contractor compensation 1,671,449 4,017,038 Marketing & business communication 2,266,077 2,063,318 Repairs & maintenance 1,455,742 1,228,090 Security 1,061,811 951,497 Transport 984,195 747,259 Power 1,343,207 1,310,178 Rent on property under lease 952,098 1,151,119 Depreciation 4,032,358 4,093,627 Amortisation 357,622 325,044 Others 1,220,462 1,496,218 17,402,536 20,239,395 Operating lease rentals:

The Bank usually pays lease rentals in advance and amortizes the cost over the tenor of the lease. The unexpired portion of the prepaid lease rentals are reported in the statement of Financial Position as other assets - prepayments. At 31 December 2012 N1.3 billion (December 2011 N2.0 billion) was unamortized lease rentals

31 December 31 December 1 January 2012 2011 2011

Within one year 215,467 55,886 99,865 Between two and five years 459,032 1,210,608 1,786,039 More than five years 613,041 740,202 820,243 1,287,540 2,006,696 2,706,147 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 195

15b. Net restructuring expense

This represents the net restructuring expense from the absorption of the operations of non banking subsidiaries. In year 2011, Diamond Mortgage Limited (DML) and Diamond Capital Markets Limited (DCL)were wound up during the period and their operations were transferred to the Bank. DML DCL Total 31 Dec 2011 31 Dec 2011 31 Dec 2011 GROUP AND BANK Redundancy payments (155,000) (132,330) (287,330) Consultancy - (43,000) (43,000) Proceeds from license sold - 25,000 25,000 Total (155,000) (150,330) (305,330)

16. Taxation 31 December 31 December 2012 2011 GROUP Corporate tax 744,904 693,904 Education tax 530,134 4,832 Capital gains tax 532 - Over provision in prior years - (40,514) Current income tax - current period 1,275,570 658,222

Origination and reversal of temporary deferred tax differences 4,097,888 (4,682,166) Income tax expense 5,373,458 (4,023,944)

The movement in the current income tax liability is as follows: At start of the period 1,346,904 1,995,250 Tax paid (649,934) (1,106,844) Liabilities on Subsidiaries Disposed - (199,724) Income tax charge 1,275,570 658,222 At 31 December 1,972,540 1,346,904

Current 1,972,008 1,346,904 Non-current 532 - 1,972,540 1,346,904 NOTES TO THE FINANCIAL STATEMENTS 196 FOR THE PERIOD ENDED 31 DECEMBER 2012

16. Taxation (cont’d) 31 December 31 December 2012 2011 Reconciliation of effective tax rate Profit before income tax 27,481,541 (17,964,929) Tax calculated using the domestic corporation tax rate of 30% (2011: 30%, 2010: 30%) 8,244,462 (5,389,479) Capital gains tax 532 - Education tax levy 530,134 - Minimum tax 684,786 552,662 Prior year provision 952,880 6,893,090 Disallowed permanent differences 598,549 108,903 Exempted permanent differences (5,637,887) (6,148,606) Over provision in prior year - (40,514) Total income tax expense in income statement 5,373,456 (4,023,944)

BANK Corporate tax 684,786 552,662 Education tax 525,113 - Capital gains tax 532 - Current income tax - current period 1,210,431 552,662

Origination and reversal of temporary deferred tax differences 4,081,107 (4,816,617) Income tax expense 5,291,538 (4,263,955)

The movement in the current income tax liability is as follows: 31 December 31 December 1 January 2012 2011 2011 At start of the period 1,249,616 1,649,557 3,360,544 Tax paid (581,167) (952,603) (2,727,611) Liabilities on Subsidiaries Disposed - - - Income tax charge 1,210,431 552,662 1,016,624 At 31 December 1,878,880 1,249,616 1,649,557

Current 1,878,348 1,249,616 1,649,557 Non-current 532 - - 1,878,880 1,249,616 1,649,557 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 197

16. Taxation (cont’d) 31 December 31 December 2012 2011 Reconciliation of effective tax rate Profit before income tax 28,364,965 (27,132,209) Tax calculated using the domestic corporation tax rate of 30% (2011: 30%, 2010: 30%) 8,509,490 (8,122,105) Capital gains tax 532 - Education tax levy 525,113 - Minimum tax 684,786 552,662 Prior year provision 1,070,664 9,355,847 Disallowed permanent differences 219,974 - Exempted permanent differences (5,719,021) (6,050,359) Total income tax expense in income statement 5,291,538 (4,263,955)

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to interpretation. It establishes provisions where appropriate on the basis of the amounts expected to be paid to the tax authorities.

17. Discontinued Operations

GROUP

17a. (Loss)/ profit from discontinued operations

In line with the Central Bank of Nigeria's directive on disposal of non banking subsidiaries in year 2011, the Bank disposed its equity investment in its non banking subsidiaries: ADIC Insurance Limited (ADIC), Diamond Registrars Limited (DRL) and Diamond Securities Limited (DSL).

ADIC DRL DSL Total 31 Dec 2011 31 Dec 2011 31 Dec 2011 31 Dec 2011 GROUP Revenues 311,338 118,226 24,689 454,253 Expenses (434,950) (31,432) (41,752) (508,134) (Loss)/ profit before tax of discontinued operations (123,612) 86,794 (17,063) (53,881) Tax (57,053) - - (57,053) (Loss)/ profit from discontinued operations after tax (180,665) 86,794 (17,063) (110,934) NOTES TO THE FINANCIAL STATEMENTS 198 FOR THE PERIOD ENDED 31 DECEMBER 2012

17b. Gain/ (loss) on the disposal of non banking subsidiaries investment

ADIC DRL DSL Total 31 Dec 2011 31 Dec 2011 31 Dec 2011 31 Dec 2011 GROUP Proceeds on disposal 6,750,000 90,000 110,000 6,950,000 Incidental expenses (162,780) (1,000) (23,000) (186,780) Net proceeds on disposal 6,587,220 89,000 87,000 6,763,220

Group's share of net assets as at date of disposal (6,138,156) (28,933) (267,999) (6,435,088) Gain/(loss) on disposal 449,064 60,067 (180,999) 328,132 Profit from discontinued operations 217,198

The aggregate book values of the net assets for the three subsidiaries disposed at the respective dates of disposal were as follows: ADIC DRL DSL Total Jun 2011 Jun 2011 Jun 2011 Jun 2011

Cash 106,234 - - 106,234 Due from banks - 1,992,243 247,594 2,239,837 Dealing securities - - 69,463 69,463 Loans and advances - - 11,455 11,455 Long term investment 6,542,422 - 2,080 6,544,502 Deferred tax asset 335,405 3,393 1,059,199 1,397,997 Other assets 698,411 148,049 499,550 1,346,010 Property plant and equipment 746,872 11,886 3,654 762,412 Premium receivable 175,649 - - 175,649 Deferred acquisition cost 125,802 - - 125,802 Statutory deposit 500,000 - - 500,000 Total assets 9,230,795 2,155,571 1,892,995 13,279,361

Due to customers - - 547,274 547,274 Current income tax 182,857 7,043 9,824 199,724 Other liabilities 400,839 2,118,529 1,067,286 3,586,654 Retirement benefits - 1,066 612 1,678 Deposit administered funds 3,066 - - 3,066 Outstanding claims 12,099 - - 12,099 Insurance funds 2,247,996 - - 2,247,996 Total liabilities 2,846,857 2,126,638 1,624,996 6,598,491

Net asset 6,383,938 28,933 267,999 6,680,870 Group's share of net assets 6,138,156 28,933 267,999 6,435,088 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 199

ADIC DRL DSL Total Jun 2011 Jun 2011 Jun 2011 Jun 2011

Analysis of proceeds on sale of non banking subsidiaries

Cash consideration received 6,750,000 90,000 110,000 6,950,000 Cash paid to sell (162,780) (1,000) (23,000) (186,780) Net proceeds on disposal (Bank) 6,587,220 89,000 87,000 6,763,220 Cash & cash equivalent disposed (106,234) (1,992,243) (247,594) (2,346,071)

Net sales proceeds on disposal (Group) 6,480,986 (1,903,243) (160,594) 4,417,149

BANK

Loss on disposal of subsidiaries Proceeds on disposal 6,750,000 90,000 110,000 6,950,000 Incidental expenses (162,780) (1,000) (23,000) (186,780) Net proceeds on disposal 6,587,220 89,000 87,000 6,763,220 Cost of investments (6,307,959) (50,000) (3,378,000) (9,735,959)

Profit/(loss) on disposal 279,261 39,000 (3,291,000) (2,972,739)

Write down/losses on restructuring of subsidiaries DML DCL Total

Total loss on absorption (2,432,236) (6,177,036) (8,609,272) Loss on disposal and absorption of Subsidiaries (11,582,011)

Cashflows attributable to discontinued operations

Net cash flow from Operating activities 213,978 (429,885) (480,781) (696,688) Net cash flow from Investing activities 255,969 (2,522) 1,281 254,728 Net cash flow from Financing activities 1,000,000 - 418,478 1,418,478 Net cashflow inflow/outflow 1,469,947 (432,407) (61,022) 976,518 NOTES TO THE FINANCIAL STATEMENTS 200 FOR THE PERIOD ENDED 31 DECEMBER 2012

18. Earnings per share

a. Basic

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the Company and held as treasury shares.

31 December 31 December 2012 2011 GROUP

Profit attributable to equity holders of the Company 22,141,378 (13,137,498) From continuing operations 22,141,378 (13,361,652) From discontinued operations - 224,154 Weighted average number of ordinary shares in issue (in million) 14,475,243 14,475,243 Basic earnings per share (expressed in Kobo per share) 152.96 (90.76) From continuing operations 152.96 (92.31) From discontinued operations - 1.55

BANK

Profit for the period 23,073,427 (22,868,254) Weighted average number of ordinary shares in issue (in million) 14,475,243 14,475,243 Basic earnings per share (expressed in Kobo per share) 159.40 (157.98)

The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the number of basic weighted average number of shares excluding treasury shares. The effect of the conversion of the convertible borrowings to shares has been assessed and it has been determined that it has a non-dilutive effect.

NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 201

19. Cash and balances with central banks 31 December 31 December 01 January 2012 2011 2011 GROUP Cash 16,380,761 11,878,439 9,433,800 Balances with central banks other than mandatory reserve deposits 42,463,968 11,525,939 14,795,632 Included in cash and cash equivalents 58,844,729 23,404,378 24,229,432 Mandatory reserve deposits with central banks 73,351,332 32,379,701 3,376,768 132,196,061 55,784,079 27,606,200

BANK Cash 13,671,268 10,490,884 6,528,485 Balances with central banks other than mandatory reserve deposits 39,435,175 11,525,939 7,965,876 Included in cash and cash equivalents 53,106,443 22,016,823 14,494,361 Mandatory reserve deposits with central banks 70,118,147 32,379,701 3,376,768 123,224,590 54,396,524 17,871,129

Mandatory reserve deposits are not available for use in the Group and Bank's day-to-day operations. The Group had restricted cash balances of N73 billion with the Central Banks as at 31 December 2012 (December 2011: N32 billion).

20. Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months' maturity from the date of acquisition, including cash in hand, deposits held at call with other banks and other short-term highly liquid investments with original maturities less than three months. For the purpose of the statement of cash flows, cash and cash equivalents include:

31 December 31 December 01 January 2012 2011 2011 GROUP Cash and balances with central banks (Note 19) 58,844,729 23,404,378 24,229,432 Loans to banks (Note 21) 139,803,281 90,648,011 72,155,340 Treasury bills and eligible bills ( with original maturity of 3 months or less) 29,500,000 - 2,000,000 228,148,010 114,052,389 98,384,772 NOTES TO THE FINANCIAL STATEMENTS 202 FOR THE PERIOD ENDED 31 DECEMBER 2012

(All amounts in thousands of Nigeria Naira unless otherwise stated) 31 December 31 December 01 January 2012 2011 2011 20. Cash and cash equivalents (cont’d)

BANK Cash and balances with central banks (Note 19) 53,106,443 22,016,823 14,494,361 Loans to banks (Note 21) 113,384,200 72,098,846 61,620,185 Treasury bills and eligible bills ( with original maturity of 3 months or less) 29,500,000 - 2,000,000 195,990,643 94,115,669 78,114,546

21. Loans to banks

GROUP Current balances with banks within Nigeria - - 18,647 Currrent balances with banks outside Nigeria 103,242,076 57,816,233 24,441,867 Placements with banks and discount houses 36,561,205 32,831,778 47,694,826 Carrying amount 139,803,281 90,648,011 72,155,340 Current 139,803,281 90,648,011 72,155,340 Non-current - - - 139,803,281 90,648,011 72,155,340 BANK Current balances with banks within Nigeria - - - Current balances with banks outside Nigeria 84,095,155 46,934,918 19,377,289 Placements with banks and discount houses 29,289,045 25,163,928 42,242,896 Carrying amount 113,384,200 72,098,846 61,620,185

Balances with banks outside Nigeria include Group: N17.1 billion Bank: N15.2 billion (Dec 2011 Group: N15 billion Bank: N12.7 billion) which represents the naira value of foreign currency bank balance held on behalf of customers in respect of Letters of Credit transactions. The corresponding liability is included in other liabilities (see note 39). The amount is not available for the day-to-day operations of the Group.

Included in placements with banks and discount houses are placements with banks within Nigeria, N2 billion (Dec 2011: N7.5b). Current 113,384,200 72,098,846 61,620,185 Non-current - - - 113,384,200 72,098,846 61,620,185 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 203

22. Loans and advances to customers Gross Specific Collective Total Carrying amount impairment impairment impairment amount GROUP

31 December 2012 Overdrafts 108,493,823 5,591,817 3,065,730 8,657,547 99,836,276 Term loans 484,273,967 7,887,048 8,605,988 16,493,036 467,780,931 Staff loans 4,910,944 226,585 18,548 245,133 4,665,811 Commercial papers ('CP') 1,390,894 - - - 1,390,894 599,069,628 13,705,450 11,690,266 25,395,716 573,673,912

Advances under finance lease (Note 22.2) 11,650,676 4,457 119,972 124,429 11,526,247 610,720,304 13,709,907 11,810,238 25,520,146 585,200,158

31 December 2011 Overdrafts 96,733,343 20,728,067 1,522,296 22,250,363 74,482,979 Term loans 311,286,384 6,354,678 4,028,705 10,383,383 300,903,001 Staff loans 3,950,898 2,270 14,176 16,446 3,934,452 Commercial papers ('CP') 1,288,493 - 15,462 15,462 1,273,031 413,259,119 27,085,015 5,580,639 32,665,654 380,593,465

Advances under finance lease (Note 22.2) 9,315,543 1,665,914 106,608 1,772,522 7,543,021 422,574,662 28,750,929 5,687,247 34,438,176 388,136,486

1 January 2011 Overdrafts 76,730,091 24,230,291 848,384 25,078,675 51,651,416 Term loans 260,140,846 12,540,702 2,510,744 15,051,446 245,089,400 Staff loans 5,850,733 - 12,675 12,675 5,838,058 Commercial papers ('CP') 393,511 - - - 393,511 343,115,181 36,770,993 3,371,803 40,142,796 302,972,385

Advances under finance lease (Note 22.2) 4,951,205 650,051 61,082 711,133 4,240,072 348,066,386 37,421,044 3,432,885 40,853,929 307,212,457

Cash collateral against advances is N1.56 billion (31 December 2011: N2.63 billion) NOTES TO THE FINANCIAL STATEMENTS 204 FOR THE PERIOD ENDED 31 DECEMBER 2012

22. Loans and advances to customers (cont’d) 31 December 31 December 01 January 2012 2011 2011

Current 312,218,355 210,669,171 170,245,966 Non-current 272,981,803 177,467,315 136,966,491 585,200,158 388,136,486 307,212,457

Gross Specific Collective Total Carrying amount impairment impairment impairment amount BANK

31 December 2012 Overdrafts 96,311,023 5,331,000 2,144,710 7,475.710 88,835,313 Term loans 434,752,491 7,625,168 8,304,318 15,929,486 418,823,005 Staff loans 4,615,759 226,586 18,548 245,134 4,370,624 535,679,273 13,182,754 10,467,576 23,650,330 512,028,942 Advances under finance lease (Note 22.2) 11,466,683 4,457 116,561 121,018 11,345,665 547,145,956 13,187,211 10,584,137 23,771,348 523,374,608

31 December 2011 Overdrafts 91,244,100 21,524,400 750,443 17,994,473 73,249,627 Term loans 273,257,657 5,504,131 3,805,926 13,580,420 259,677,237 Staff loans 3,950,898 2,270 14,176 23,451 3,927,447 368,452,655 27,030,801 4,567,543 31,598,344 336,854,311

Advances under finance lease (Note 22.2) 9,315,541 1,665,914 106,608 1,772,522 7,543,019 377,768,196 28,696,715 4,674,151 33,370,866 344,397,331

1 January 2011 Overdrafts 76,725,903 24,230,291 665,568 24,895,859 51,830,044 Term loans 251,297,990 11,690,154 2,374,829 14,064,984 237,233,006 Staff loans 5,850,733 - 12,675 12,675 5,838,058 Commercial papers ('CP') 393,511 - - - 393,511 334,268,137 35,920,445 3,053,072 38,973,517 295,294,620

Advances under finance lease (Note 22.2) 4,951,205 650,051 61,082 711,133 4,240,072 339,219,342 36,570,496 3,114,154 39,684,650 299,534,692

Cash collateral against advances is N784 million (31 December 2011: N1.52 billion) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 205

31 December 31 December 01 January 2012 2011 2011

Current 243,701,468 185,852,962 162,568,201 Non-current 279,673,140 158,544,369 136,966,491 523,374,608 344,397,331 299,534,692

22.1. Reconciliation of impairment allowance on loans and advances to customers:

GROUP Advances finance Overdrafts Term loans CP lease Staff loans Total Balance at 1 January 2012 Specific impairment 20,728,067 6,354,678 - 1,665,914 2,270 28,750,929 Collective impairment 1,522,296 4,028,705 15,462 106,608 14,176 5,687,247 22,250,363 10,383,383 15,462 1,772,522 16,446 34,438,176 Additional provision Specific impairment 4,680,633 1,532,370 - (1,661,457) 224,316 4,775,861 Collective impairment 1,543,434 4,577,283 (15,462) 13,364 4,372 6,122,991 Provision no longer required (114,819) (114,819) Amounts written off (19,702,064) - - (19,702,064) Specific impairment 5,591,817 7,887,048 - 4,457 226,585 13,709,907 Collective impairment 3,065,730 8,605,988 0 119,972 18,548 11,810,238 Balance at 31 December 2012 8,657,547 16,493,036 0 124,428 245,133 25,520,145

Balance at 1 January 2011 Specific impairment 24,230,291 12,540,702 650,051 - 37,421,044 Collective impairment 848,384 2,510,744 - 61,082 12,675 3,432,885 25,078,675 15,051,446 - 711,133 12,675 40,853,929 Additional provision Specific impairment 37,243,071 10,007 - 1,015,863 2,270 38,271,210 Collective impairment 673,913 1,517,960 15,462 45,526 1,501 2,254,362 Loans written off during the year as uncollectible (40,009,390) (6,196,031) - - - (46,205,421) Amounts recovered during the year (735,904) - - - (735,904) Specific impairment 20,728,067 6,354,678 - 1,665,914 2,270 28,750,929 Collective impairment 1,522,296 4,028,705 15,462 106,608 `14,176 5,687,247 Balance at 31 December 2011 22,250,363 10,383,383 15,462 1,772,522 16,446 34,438,176 NOTES TO THE FINANCIAL STATEMENTS 206 FOR THE PERIOD ENDED 31 DECEMBER 2012

22.1. (cont’d) Advances finance Overdrafts Term loans CP lease Staff loans Total BANK

Balance at 1 January 2012 Specific impairment 21,524,400 5,504,130 - 1,665,914 2,270 28,696,714 Collective impairment 750,443 3,802,924 - 106,608 14,176 4,674,151 22,274,843 9,307,054 - 1,772,522 16,446 33,370,865 Additional provision Specific impairment 2,220,951 2,121,038 - (1,661,457) 224,316 2,904,848 Collective impairment 1,394,267 4,501,394 - 9,953 4,372 5,909,986 Provision no longer required (114,819) - - - - (114,819) Amounts written off (18,299,532) - - - - (18,299,532) Specific impairment 5,331,000 7,625,168 - 4457 226,585 13,187,211 Collective impairment 2,144,710 8,304,318 - 116,561 18,548 10,584,137

Balance at 31 December 2012 7,475,710 15,929,486 - 121,018 245,134 23,771,348

Balance at 1 January 2011 Specific impairment 24,230,291 11,690,154 - 650,051 - 36,570,496 Collective impairment 665,568 2,374,829 - 61,082 12,675 3,114,154 24,895,859 14,064,984 - 711,133 12,675 39,684,650 Additional provision Specific impairment 35,477,776 10,007 - 1,015,863 2,270 36,505,915 Collective impairment 84,875 1,428,095 - 45,526 1,501 1,559,997 Loans written off during the year as uncollectible (37,447,762) (6,196,031) - - - (43,643,794) Amounts recovered during the year (735,904) - - - - (735,904) Specific impairment 21,524,400 5,504,130 - 1,665,914 2,270 28,696,714 Collective impairment 750,443 3,802,924 - 106,608 14,176 4,674,151

Balance at 31 December 2011 22,274,843 9,307,054 - 1,772,522 16,446 33,370,865 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 207

31 December 31 December 01 January 2012 2011 2011 22.2. Advances under finance lease may be analysed as follows:

GROUP Gross investment -No later than 1 year 9,554,636 3,431,919 2,828,762 -Later than 1 year and no later than 5 years 4,065,407 7,418,964 2,788,668 13,620,043 10,850,883 5,617,430 Unearned future finance income on finance leases (1,969,367) (1,535,340) (666,225) Net investment 11,650,676 9,315,543 4,951,205 Less provision (124,429) (1,769,111) (711,133) 11,526,247 7,546,432 4,240,072

BANK Gross investment -No later than 1 year 9,340,749 3,431,919 2,828,762 -Later than 1 year and no later than 5 years 3,974,400 7,418,962 2,788,668 13,315,149 10,850,881 5,617,430 Unearned future finance income on finance leases (1,848,465) (1,535,340) (666,225) Net investment 11,466,684 9,315,541 4,951,205 Less provision (121,018) (1,772,522) (711,133) 11,345,665 7,543,019 4,240,072 22.3. The net investment may be analysed as follows:

GROUP - No later than 1 year 8,796,722 2,314,312 2,288,825 - Later than 1 year and no later than 5 years 2,853,954 7,001,229 2,662,380 - Later than 5 years - - - 11,650,676 9,315,541 4,951,205 BANK - No later than 1 year 8,612,729 2,314,312 2,288,825 - Later than 1 year and no later than 5 years 2,853,954 7,001,229 2,662,380 - Later than 5 years - - - 11,466,683 9,315,541 4,951,205 NOTES TO THE FINANCIAL STATEMENTS 208 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 01 January 2012 2011 201122.4. Nature of security in respect of loans and advances:

GROUP Secured against real estate 375,370,862 226,411,748 221,944,849 Secured by shares of quoted companies 1,059,597 1,572,694 5,875,036 Otherwise secured 232,032,803 165,388,358 101,381,188 Unsecured 2,257,042 29,201,862 18,865,313 601,720,304 422,574,662 348,066,386

The Group is not permitted to sell or repledge the collateral in the absence of default by the owner of the collateral.

BANK Secured against real estate 361,114,663 226,267,081 221,348,071 Secured by shares of quoted companies 1,059,597 1,572,694 5,875,036 Otherwise secured 182,714,654 149,913,974 109,995,269 Unsecured 2,257,042 14,447 2,000,966 547,145,956 377,768,196 339,219,342 GROUP AND BANK During the period, the Group obtained assets by realising the following collateral held as security:

Nature of assets and carrying amount: Real estate 54,000 190,132 131,355 Shares - - 1,085,316 Debentures 287,208 105,319 198,536 341,208 295,451 1,415,207

Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 209

31 December 31 December 01 January 2012 2011 2011 23. Financial assets held for trading

GROUP Government bonds 2,183,513 1,257,075 1,121,410 Treasury bills 87,927,723 6,784,543 - Total debt securities 90,111,236 8,041,618 1,121,410 Listed equity securities - - 224,142 Total equity securities - - 224,142 Total assets held for trading 90,111,236 8,041,618 1,345,552

Current 87,927,723 6,784,543 - Non Current 2,183,513 1,257,075 1,345,552 90,111,236 8,041,618 1,345,552

BANK Government bonds 2,183,513 1,257,075 1,109,079 Treasury bills 87,927,723 6,784,543 - Total debt securities 90,111,236 8,041,618 1,109,079 Listed equity securities - - - Total equity securities - - - Total assets held for trading 90,111,236 8,041,618 1,109,079

Current 87,927,723 6,784,543 - Non Current 2,183,513 1,257,075 1,109,079 90,111,236 8,041,618 1,109,079 NOTES TO THE FINANCIAL STATEMENTS 210 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 01 January 2012 2011 2011 24. Investment Securities

24.1. GROUP

Available for sale investments Debt securities – at fair value: – Treasury bills and government bonds 2,427,634 77,017,078 7,705,615 Equity securities – at fair value: – Listed 5,584,464 5,561,212 5,559,629 - Unlisted 7,806,800 7,856,975 9,680,898 Equity securities – at cost: – Unlisted 984,055 1,142,841 1,142,841 Fair value movement/ allowance for impairment (6,201,344) (5,587,375) (4,197,624) 8,173,975 8,973,653 12,185,744 Total securities available for sale 10,601,609 85,990,731 19,891,359

Held to maturity investments Debt securities – at amortised cost: – Listed 65,762,681 61,712,761 56,977,064

Total investment securities 76,364,290 147,703,492 76,868,423

Current 14,617,928 75,836,209 32,102,987 Non-current 61,746,362 71,867,283 44,765,436 76,364,290 147,703,492 76,868,423 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 211

31 December 31 December 01 January 2012 2011 201 24.2. BANK

Debt securities – at fair value: – Treasury bills and government bonds 2,427,634 67,811,749 7,245,289 Equity securities – at fair value: – Listed 5,520,167 5,520,167 1,280,073 - Unlisted 7,806,800 7,856,975 2,916,090 Equity securities – at cost: – Unlisted 984,055 1,142,841 1,084,841 Fair value movement/ allowance for impairment (6,183,595) (5,569,422) (1,430,487) 8,127,427 8,950,561 3,850,517

Total securities available for sale 10,555,061 76,762,310 11,095,806

Held to maturity investments Debt securities – at amortised cost: – Listed 64,751,769 52,253,105 43,978,424

Total investment securities 75,306,830 129,015,415 55,074,230

Current 5,771,227 63,980,699 23,863,637 Non-current 69,535,603 65,034,716 31,210,593 75,306,830 129,015,415 55,074,230

All debt securities have fixed coupons. Listed debt securities available for sale at fair value of N0.5billion (December 2011: N2.2 billion ) were pledged. These have been reclassified as assets pledged as collateral on the face of the consolidated statement of financial position. NOTES TO THE FINANCIAL STATEMENTS 212 FOR THE PERIOD ENDED 31 DECEMBER 2012

24.3. The reconciliation of the allowance account for losses on securities classified as available for sale is as follows:

Specific allowance for impairment GROUP

Available for sale- unlisted equity securities

Balance at 1 January 2011 4,197,624 Write back on disposed investment (3,231) Fair value movement for the period 876,632 Increase in impairment allowance 516,350 At 31 December 2011 5,587,375

Balance at 1 January 2012 5,587,375 Write back of impairment (137,059) Fair value movement for the period 960,192 At 31 December 2012 6,201,344

BANK

Available for sale- unlisted equity securities

Balance at 1 January 2011 1,482,862 Fair value movement/impairment losses from subsidiaries absorbed 1,373,145 Increase in impairment allowance 513,539 Fair value movement for the period 2,199,876 At 31 December 2011 5,569,422

Balance at 1 January 2012 5,569,422 Write back of impairment (137,059) Fair value movement for the period 960,192 Provision no longer required (208,960) At 31 December 2012 6,183,595 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 213

25. Asset pledged as collateral

Treasury bills and bonds are pledged to the Nigerian Inter Bank Settlement System Company (NIBSS) and Federal Inland Revenue Service (FIRS) in respect of the Bank's ongoing participation in the Nigerian settlement system and as an agent in respect of tax collection for FIRS respectively. Treasury bills and bonds are also pledged as collateral to other financial institutions on amounts borrowed.

The nature and carrying amounts of the assets pledged as collaterals are as follows:

31 December 31 December 01 January 2012 2011 2011 GROUP Investments - Bonds 43,520,516 21,420,000 16,670,000 Investments - Treasury Bills 35,782,015 13,520,000 21,150,000 79,302,531 34,940,000 37,820,000

Current 35,850,500 15,020,000 23,400,000 Non-current 43,452,031 19,920,000 14,420,000 79,302,531 34,940,000 37,820,000

The related liability for assets pledged as collateral include:

Bank of Industry (BOI) 11,211,465 19,337,400 15,510,000 African Export Import Bank (AFREXIM) 3,933,250 - - Deposit from Banks - 16,513,895 - Central Bank 17,832,993 - - 32,977,708 35,851,295 15,510,000

The Assets pledged as collateral were pledged to third parties under secured borrowing with the related liability disclosed above. In addition, there were assets pledged as collateral for security deposit for clearing house and payment agencies of N51.9bn (2011:N16 bn) for which there is no related liability. NOTES TO THE FINANCIAL STATEMENTS 214 FOR THE PERIOD ENDED 31 DECEMBER 2012

25. Asset pledged as collateral (cont’d) 31 December 31 December 01 January 2012 2011 2011 BANK Investments - Bonds 31,161,591 21,420,000 16,670,000 Investments - Treasury Bills 26,277,305 13,520,000 21,150,000 57,438,896 34,940,000 37,820,000

Current 35,688,697 15,020,000 23,400,000 Non-current 21,750,199 19,920,000 14,420,000 57,438,896 34,940,000 37,820,000

The related liability for assets pledged as collateral include: Bank of Industry (BOI) 11,211,465 19,337,400 15,510,000 African Export Import Bank (AFREXIM) 3,933,250 - - Deposit from Banks - 16,513,895 - 15,144,715 35,851,295 15,510,000

The Assets pledged as collateral were pledged to third parties under secured borrowing with the related liability disclosed above. In addition, there were assets pledged as collateral for security deposit for clearing house and payment agencies of N42.3bn (2011:N16 bn) for which there is no related liability. The Bank cannot trade on these pledged assets during the period that such assets are committed as pledged. 31 December 31 December 01 January 2012 2011 2011 26. Insurance receivables

GROUP Due from Contract Holders - - 105,373 Due from Agents and Stock Brokers - - 742,271 Reinsurance Assets - - 518,083 - - 1,365,727 Provision for Doubtful Receivables - - (660,068) - - 705,659 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 215

31 December 31 December 01 January 2012 2011 2011 27. Other assets

GROUP Prepayments 8,475,445 6,206,531 11,882,873 Accounts receivable 6,576,257 5,995,262 14,153,230 Others 102,060 172,600 146,404 15,153,762 12,374,393 26,182,507 Less specific allowances for impairment (1,360,657) (1,710,948) (9,533,065) 13,793,105 10,663,445 16,649,442 Reconciliation of impairment account At start of period 1,710,948 9,533,065 9,050,029 Increase in impairment - 1,084,164 3,691,746 Amount reclassified to Investments - (1,167,938) Amounts written off (350,291) (8,906,281) (2,040,772) At end of period 1,360,657 1,710,948 9,533,065

Current 11,328,153 9,539,357 12,140,161 Non-current 2,464,952 1,124,087 4,509,281 13,793,105 10,663,444 16,649,442 BANK Prepayments 6,334,923 3,841,604 6,907,388 Accounts receivable 5,163,883 4,217,338 9,736,908 Others 102,060 172,600 146,404 11,600,866 8,231,542 16,790,700 Less specific allowances for impairment (1,360,657) (1,702,245) (8,126,335) 10,240,209 6,529,297 8,664,365 Reconciliation of impairment account At start of period 1,702,245 8,126,335 8,484,880 Increase in impairment - 1,051,735 2,819,792 Amount reclassified to Investments - - (1,167,938) Amounts written off (341,588) (7,475,825) (2,010,399) At end of period 1,360,657 1,702,245 8,126,335

Current 7,861,239 5,860,742 6,123,454 Non-current 2,378,970 668,555 2,540,911 10,240,209 6,529,297 8,664,365 NOTES TO THE FINANCIAL STATEMENTS 216 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 01 January 2012 2011 2011 28. Investment in Subsidiaries

Diamond Bank du Benin (S.A) 5,865,622 5,865,622 3,135,020 Diamond Pension Fund Custodian Ltd (DPFC) 2,000,000 2,000,000 2,000,000 Diamond Mortgages Limited (DML) - - 1,000,000 Adic Insurance Limited (ADIC) - - 6,307,960 Diamond Capital and Financial Markets Limited (DCL) - - 5,000,000 7,865,622 7,865,622 17,442,980

The subsidiary companies comprise the following: Ownership interest (%) 31 December 31 December 1 January 2012 2011 2011

Diamond Bank du Benin (S.A) 97.07 97.07 95.38 Diamond Pension Fund Custodian Ltd (DPFC) 100.00 100.00 100.00 Diamond Securities Limited (DSL) - - 100.00 Diamond Mortgages Limited (DML) - - 100.00 Adic Insurance Limited (ADIC) - - 96.15 Diamond Capital and Financial Markets Limited (DCL) - - 100.00 Diamond Registrars Limited (DRL) - - 100.00

All subsidiaries are incorporated in Nigeria with the exception of Diamond Bank du Benin S.A which is incorporated in the Republic of Benin. Diamond Bank du Benin has 100% holding in Diamond Bank Togo, Diamond Bank Senegal, and Diamond Bank Cote d'Ivoire. The transactions and financial performance of these subsidiaries are consolidated with the results of Diamond Bank du Benin, and then consolidated with the bank.

The bank divested its interest in the non-banking subsidiaries with effect from July 31, 2011 following a directive by the CBN to the effect that the universal banking model has been discontinued. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 217

31 December 31 December 01 January 2012 2011 2011 29. Investment in associates

GROUP Balance at beginning of period 3,184,549 3,502,339 3,502,339 Disposals - (312,594) - Share of profit before tax (1,431) (1,499) - Share of tax (868) (3,697) - (Impairment)/Write-back of excess loss of Associates - (26,661) - Acquisitions - 26,661 - Dividends paid - - -

At end of period 3,182,250 3,184,549 3,502,339

The group's gross investment in associates is shown below. % Holding

Flavours Foods Limited 40.0% 50,000 50,000 50,000 PCI Resins Limited 7.6% 52,500 52,500 52,500 PCI Paints Limited 33.0% 35,000 35,000 35,000 Savannah Chum Chum & Fries Limited 41.3% 45,000 45,000 45,000 Pek Industries Limited 34.0% 34,000 34,000 34,000 Credit Ref. Company Nigeria Limited 7.6% 96,661 96,661 70,000 APL Electric Limited 25.0% 426,587 426,587 426,587 Health Partners Limited 17.8% 114,777 112,753 107,464 ALVAC Company Limited 29.0% - - 312,595 Geometrics - Power Aba Limited 25.0% 2,491,413 2,491,413 2,491,413 Landmark Limited 11.2% 149,473 153,796 164,280 3,495,411 3,497,710 3,788,839 Cummulative impairment (313,161) (313,161) (286,500) 3,182,250 3,184,549 3,502,339 NOTES TO THE FINANCIAL STATEMENTS 218 FOR THE PERIOD ENDED 31 DECEMBER 2012

29. Investment in associates (cont’d)

% Holding 31 December 31 December 01 January 2012 2011 2011 BANK The Bank's gross investment in associates is shown below. Flavours Foods Limited 40.0% 50,000 50,000 50,000 PCI Resins Limited 7.6% 52,500 52,500 52,500 PCI Paints Limited 33.0% 35,000 35,000 35,000 Savannah Chum Chum & Fries Limited 41.3% 45,000 45,000 45,000 Pek Industries Limited 34.0% 34,000 34,000 34,000 Credit Ref. Company Nigeria Limited 7.6% 96,661 96,661 70,000 APL Electric Limited 25.0% 426,587 426,587 - Health Partners Limited 17.8% 60,000 60,000 - ALVAC Company Limited 29.0% - - - Geometrics - Power Aba Limited 25.0% 2,491,413 2,491,413 - Landmark Limited 11.2% 227,140 227,140 - 3,518,301 3,518,301 286,500 Cummulative impairment (313,161) (313,161) (286,500) 3,205,140 3,205,140 -

Summarised financial information of the Group's associate accounted for using equity method are as follows:

Total Total Assets Liabilities Revenues Profit

December 2012 612,334 178,987 762,352 (28,137) December 2011 13,533,295 4,658,501 599,666 (62,997) January 2011 11,260,624 4,631,218 421,025 (28,888)

There were no published price quotations for any associate. There are no significant restrictions on the ability of the associates to transfer funds to the group in the form of cash dividends, or repayments of loans or advances.

The Bank exercises significant influence in PCI Resins Limited, Health Partners Limited, Landmark Limited and Credit Ref. Company Nigeria Limited even though its shareholding is less than 20%. This is based on representation of at least one director on the board of the companies and significant participation in the companies' operating and financial policies. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 219

31 December 31 December 01 January 2012 2011 2011 30. Investment property

GROUP At beginning of the period 3,833,335 3,755,064 3,474,612 Additions arising from: - Additional expenditure 300,036 309,402 427,452 Disposals during the year - (231,131) (147,000) Fair value loss on investment property (63,031) - -

At the end of the period 4,070,340 3,833,335 3,755,064

BANK At beginning of the period 3,686,335 - - Additions arising from: - Additional expenditure 300,036 36,325 - - Transfer from subsidiary - 3,650,010 -

Fair value loss on investment property (76,031) - - Disposals during the year - - -

At the end of the period 3,910,340 3,686,335 -

This represents the Bank and Group's investment in landed property held for the purpose of capital appreciation. Investment property of N436.5 million (2011: N436.5 million) represents land acquired for the purpose of subsequent disposal.

Investment property located in Owerri was valued by Chris Ogbonna and Partners, while the Investment Property located at Lagos and Abuja were valued by Jide Taiwo & Co both external accredited valuers. The Investment Property in Port Harcourt is under construction and management has assessed that the cost incurred to date is a reflection of the value of the property. The property being constructed is to be leased for income generation purposes. There is no rental income from investment property during the year and no restrictions on the realiseability of the property. The method of valuation used is the market approach where the valuer’s opinion of market value was derived from analysis of recent evidence of market transactions on comparable properties within the neighbourhood. NOTES TO THE FINANCIAL STATEMENTS 220 FOR THE PERIOD ENDED 31 DECEMBER 2012

31. Property, plant and equipment

Furniture, Work In Land Leasehold Building Motor Office Computer fittings & Progress Improvement vehicles equipment equipment equipment Total

GROUP

Cost At 1 January 2012 9,191,682 7,614,711 5,148,338 15,102,959 4,356,402 11,388,072 4,241,690 1,868,861 58,912,715 Additions 5,306,099 331,713 218,505 1,216,779 1,571,326 1,813,587 261,612 144,321 10,863,944 Reclassifications 0 - - - - 7,515 (6,702) (11,496) (10,683) Write off (1,698) (2,486) (4,305) (8,490) Disposals - (4,400) (95,842) - (809,688) (1,280,381) (636,115) (253,041) (3,079,467) Exchange difference (972,181) 23,731 3,201 (21,976) 4,490 12,391 119,173 (55,825) (886,996) At 31 December 2012 13,525,601 7,965,755 5,272,504 16,295,277 5,118,225 11,941,185 3,979,658 1,692,820 65,791,023

Accumulated depreciation At 1 January 2012 - - 2,686,896 1,904,277 2,555,143 7,801,001 3,089,134 1,211,806 19,248,257 Charge for the year - - 443,695 832,557 849,055 1,554,325 585,778 248,281 4,513,690 Reclassifications - - - - - 7,515 (6,620) (11,139) (10,244) Write off - - (690) (472) (89) - - - (1,251) Disposals - - (95,378) - (733,863) (1,236,210) (629,782) (238,447) (2,933,681) Exchange differences - - 3,744 (43,598) 2,862 15,199 63,104 (47,391) (6,081) At 31 December 2012 - - 3,038,266 2,692,763 2,673,108 8,141,829 3,101,614 1,163,109 20,810,690

Net book amount At 31 December 2012 13,525,601 7,965,755 2,234,237 13,602,513 2,445,117 3,799,356 878,044 529,710 44,980,333

Cost At 1 January 2011 8,401,949 6,517,668 3,380,776 13,599,113 4,873,192 11,723,122 4,015,960 1,628,266 54,140,046 Additions 3,883,287 1,097,043 787,928 222,664 1,339,639 858,559 1,088,549 324,203 9,601,872 Reclassifications (2,299,127) - 195,282 1,777,761 23,480 259,432 4,707 38,465 - Write off (652,186) (652,186) Disposals - - (2,373) - (1,627,588) (283,512) (160,640) (130,468) (2,204,581) Exchange difference (142,241) - 872,253 3,885 (100,626) (1,099,445) (467,332) 68,036 (865,470) On disposal of subsidiaries - - (85,528) (500,463) (151,695) (70,084) (239,554) (59,641) (1,106,965) At 31 December 2011 9,191,682 7,614,711 5,148,338 15,102,959 4,356,402 11,388,072 4,241,690 1,868,861 58,912,716 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 221

31. Property, plant and equipment (cont’d) Furniture, Work In Land Leasehold Building Motor Office Computer fittings & Progress Improvement vehicles equipment equipment equipment Total

Accumulated depreciation At 1 January 2011 - - 2,050,838 1,348,994 2,849,955 6,820,527 3,119,521 996,025 17,185,860 Charge for the year - - 498,598 558,772 1,134,987 1,655,969 517,005 319,240 4,684,571 Disposals - - (1,937) - (1,279,354) (270,076) (163,375) (103,352) (1,818,094) Exchange differences - - 198,964 (107) (30,213) (361,899) (310,125) 43,843 (459,537) On disposal of subsidiaries - - (59,567) (3,382) (120,232) (43,520) (73,892) (43,950) (344,543) At 31 December 2011 - - 2,686,896 1,904,277 2,555,143 7,801,001 3,089,134 1,211,806 19,248,257

Net book amount at 31 December 2011 9,191,682 7,614,711 2,461,442 13,198,682 1,801,259 3,587,071 1,152,556 657,055 39,664,459

Cost At 1 January 2010 12,080,396 6,260,430 3,063,705 9,628,948 5,048,093 10,871,796 3,114,686 1,315,344 51,383,398 Additions 1,412,535 257,238 122,388 334,256 571,498 587,280 869,257 176,496 4,330,948 Reclassifications (5,079,295) - 194,701 3,636,406 23,295 398,932 53,581 228,729 (543,651) Disposals - - (18) - (756,321) (128,336) (10,712) (47,829) (943,216) Exchange difference (11,687) - - (497) (13,373) (6,550) (10,852) (44,474) (87,433) At 1 January 2011 8,401,949 6,517,668 3,380,776 13,599,113 4,873,192 11,723,122 4,015,960 1,628,266 54,140,046

Accumulated depreciation At 1 January 2010 - - 1,636,822 1,567,270 2,427,357 5,273,637 2,366,430 771,255 14,042,771 Reclassifications - - (11,570) (589,687) (75,180) 58,945 250,799 (-73,546 ) (440,239) Exchange differences - - - - (11,494) (5,507) (10,208) 19,866) (47,075) Charge for the year - - 428,945 371,411 1,018,886 1,619,230 523,364 348,005 4,309,841 Disposals - - (3,359) - (509,614) (125,778) (10,864) (29,823) (679,438) At 1 January 2011 - - 2,050,838 1,348,994 2,849,955 6,820,527 3,119,521 996,025 17,185,860

Net book amount at 1 January 2011 8,401,949 6,517,668 1,329,938 12,250,119 2,023,237 4,902,595 896,439 632,241 36,954,186

Net book amount At 31 December 2011 9,191,682 7,614,711 2,461,442 13,198,682 1,801,259 3,587,071 1,152,556 657,055 39,664,459

Net book amount At 31 December 2012 13,525,601 7,965,755 2,234,237 13,602,513 2,445,117 3,799,356 878,044 529,710 44,980,333 NOTES TO THE FINANCIAL STATEMENTS 222 FOR THE PERIOD ENDED 31 DECEMBER 2012

31. Property, plant and equipment (cont’d) Furniture, Work In Land Leasehold Building Motor Office Computer fittings & Progress Improvement vehicles equipment equipment equipment Total BANK

Cost At 1 January 2012 7,655,891 7,622,995 3,700,412 14,906,341 3,838,674 11,186,654 3,615,396 1,520,708 54,047,071 Additions 5,148,702 331,713 32,012 561,959 1,513,621 1,799,407 251,417 135,754 9,774,585 Reclassifications - - - - - 7,515 (6,620) (8,639) (7,744) Write off 1,698) (2,486) (4,305) - - - (8,490) Disposals - (4,400) (95,158) - (740,192) (1,274,512) (626,931) (249,614) (2,990,807) At 31 December 2012 12,804,593 7,950,308 3,635,568 15,465,814 4,607,798 11,719,064 3,233,262 1,398,209 60,814,615

Accumulated depreciation At 1 January 2012 - - 2,222,910 1,901,458 2,216,967 7,699,431 2,678,878 1,050,609 17,770,253 Charge for the year - - 278,431 629,599 883,468 1,590,376 440,172 210,310 4,032,356 Reclassifications - - - - - 7,515 (6,620) (8,639) (7,744) Write off (690) (472) (89) - - - (1,251) Disposals - - (94,882) - (670,883) (1,233,563) (622,340) (236,780) (2,858,448) At 31 December 2012 - - 2,405,769 2,530,585 2,429,463 8,063,759 2,490,090 1,015,500 18,935,166

Net book amount at 31 December 2012 12,804,593 7,950,308 1,229,799 12,935,229 2,178,335 3,655,305 743,172 382,709 41,879,449

Cost At 1 January 2011 8,276,714 6,525,953 3,138,098 13,090,365 4,314,805 10,444,633 2,881,408 1,427,278 50,099,254 Additions 2,230,793 1,097,043 367,032 38,215 1,118,324 769,637 892,861 175,475 6,689,380 Reclassifications (2,299,127) - 195,282 1,777,761 23,480 259,432 4,707 38,465 - Write off (552,489) ------(552,489) Disposals - - - - (1,617,935) (287,048) (163,580) (120,510) (2,189,073) At 31 December 2011 7,655,891 7,622,995 3,700,412 14,906,341 3,838,674 11,186,654 3,615,396 1,520,708 54,047,072

Accumulated depreciation At 1 January 2011 - - 1,870,644 1,345,614 2,498,494 6,359,128 2,483,266 896,560 15,453,706 Charge for the year - - 52,266 555,844 971,950 1,606,837 358,987 247,743 4,093,627 Disposals - - - - (1,253,477) (266,534) (163,375) (93,694) (1,777,080) At 31 December 2011 - - 2,222,910 1,901,458 2,216,967 7,699,431 2,678,878 1,050,609 17,770,253

Net book amount at 31 December 2011 7,655,891 7,622,995 1,477,502 13,004,883 1,621,707 3,487,223 936,518 470,099 36,276,819 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 223

31. Property, plant and equipment (cont’d) Furniture, Work In Land Leasehold Building Motor Office Computer fittings & Progress Improvement vehicles equipment equipment equipment Total

Cost At 1 January 2010 11,598,367 6,525,952 2,819,088 8,894,863 4,363,987 9,546,716 2,627,196 1,171,705 47,547,874 Additions 1,424,814 - 124,315 559,172 674,751 625,585 259,536 160,538 3,828,711 Reclassifications (4,746,467) - 194,695 3,636,330 10,959 393,973 2,785 121,883 (385,842) Disposals - - - - (734,892) (121,641) (8,109) (26,848) (891,490) At 1 January 2011 8,276,714 6,525,953 3,138,098 13,090,365 4,314,805 10,444,633 2,881,408 1,427,278 50,099,25

Accumulated depreciation At 1 January 2010 - - 1,488,644 1,530,283 2,070,886 4,897,820 2,114,527 708,081 12,810,241 Reclassifications - - (799,353) - 3,570 (6,975) - 780 (809,118) Charge for the year - - 382,000 614,684 874,833 1,570,326 376,847 208,231 4,026,921 Disposals - - - - (443,655) (102,043) (8,108) (20,532) (574,338) At 1 January 2011 - - 1,870,644 1,345,614 2,498,494 6,359,128 2,483,266 896,560 15,453,706

Net book amount at 1 January 2011 8,276,714 6,525,953 1,267,454 11,744,751 1,816,311 4,085,505 398,142 530,718 34,645,547

Net book amount at 31 December 2011 7,655,891 7,622,995 1,477,502 13,004,883 1,621,707 3,487,223 936,518 470,099 36,276,819

Net book amount at 31 December 2012 12,804,593 7,950,308 1,229,799 12,935,229 2,178,335 3,655,305 743,172 382,709 41,879,450

The reclassification above relates to the movement of items of Property, Plant and equipment from work in progress to asset classes and other assets, computer equipment to intangible assets. The amounts reclassified are as seen in the movement schedule above. The reclassification is in line with the accounting policy. NOTES TO THE FINANCIAL STATEMENTS 224 FOR THE PERIOD ENDED 31 DECEMBER 2012

32. Intangible assets Computer Software GROUP

Year ended 31 December 2012 Opening net book value 819,076 Additions 485,438 Exchange differences (43,487) Reclassification - Amortisation charge (426,212) Closing net book amount 834,815

Year ended 31 December 2011 Opening net book value 596,025 Additions 555,752 Exchange differences 171,296 Disposals (72,621) Amortisation charge (431,376) Closing net book amount 819,076

At 1 January 2011 Opening net book value 226,764 Additions 337,434 Disposals -40,219 Reclassification 273,828 Exchange difference 2,243 Amortisation charge -204,025 Closing net book amount 596,025

BANK

Year ended 31 December 2012 Opening net book value 624,139 Additions 473,853 Amortisation charge (357,622) Closing net book amount 740,370 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 225

32. Intangible assets (cont’d) Computer Software BANK

Year ended 31 December 2011 Opening net book value 596,024 Additions 353,159 Amortisation charge (325,044) Closing net book amount 624,139

At 1 January 2011 Opening net book value 211,645 Additions 337,434 Reclassification 239,439 Amortisation charge (192,493) Closing net book amount 596,025

33. Deferred tax

GROUP 31 December 31 December 01 January 2012 2011 2011

Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 30% (2011: 30%, 2010: 30%).

Deferred income tax assets and liabilities are attributable to the following items:

Deferred tax assets Allowance for loan losses 3,175,241 3,556,571 2,835,718 Tax losses carried forward 1,991,212 4,581,919 3,693,066 Depreciation of Property, Plant & Equipment 1,939,101 4,646,671 1,715,164 Other temporary difference 372,809 84,730 17,592 Derivative liability 1,691,774 - - 9,170,137 12,869,891 8,261,540 Deferred tax liabilities Unrealized Exchange Gain 904,783 506,649 580,464 904,783 506,649 580,464 Deferred tax (net) assets 8,265,354 12,363,242 7,681,076 NOTES TO THE FINANCIAL STATEMENTS 226 FOR THE PERIOD ENDED 31 DECEMBER 2012

33. Deferred tax (cont’d) December December 2012 2011 GROUP Amount recognised in income statement Movements in temporary differences during the year: Allowance for loan losses (381,330) 720,853 Tax losses carried forward (2,590,707) 888,853 Non current assets (2,707,570) 2,931,507 Derivative liability 1,691,774 - Unrealized exchange gain (398,134) 73,815 Other temporary difference 288,079 67,138 (4,097,888) 4,682,166

Temporary difference relating to the Group's Investment in Subsidiaries is N3.7 billion (2011: N1.5 billion). As the Group exercises control over the Subsidiaries, it has the power to control the timing of the reversals of the temporary difference arising from its investments in them. The group has determined that the subsidiaries' profits and reserves will not be distributed in the foreseeable future and that the subsidiaries will not be disposed of. Hence, the deferred tax arising from the temporary differences above will not be recognised.

Temporary difference relating to the Group's Investment in Associates is N22.9 million (2011: N20.6 million). The group does not exercise control over the Investment in Associates and so, it does not control the timing of the reversal of the temporary differences. However, the deferred tax arising has not been recognised as it is considered immaterial.

31 December 31 December 01 January BANK 2012 2011 2011

Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 30% (2011: 30%, 2010: 30%).

Deferred income tax assets and liabilities are attributable to the following items:

Deferred tax assets Allowance for loan losses 3,175,241 3,712,799 3,307,776 Tax losses carried forward 1,991,212 4,759,881 3,424,954 Depreciation of Property, Plant & Equipment 2,407,106 4,486,113 1,550,399 Investment property 22,809 84,730 17,592 Derivative liability 1,691,774 - - Equity securities at fair value - - - 9,288,142 13,043,523 8,300,721 Deferred tax liabilities Unrealized Exchange Gain 832,375 506,649 426,032 Depreciation of property, plant and equipment - - 154,432 832,375 506,649 580,464

Deferred tax (net) assets 8,455,767 12,536,874 7,720,257 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 227

33. Deferred tax (cont’d) December December 2012 2011 BANK Amount recognised in income statement Movements in temporary differences during the year: Allowance for loan losses (537,558) 405,023 Tax losses carried forward (2,768,669) 1,334,927 Non current assets (2,079,007) 3,090,146 Derivative liability 1,691,774 - Unrealized exchange gain (325,726) (80,617) Other temporary difference (61,921) 67,138 (4,081,107) 4,816,617

Deferred tax has not been computed in items in the comprehensive income as gains and losses in Treasury bills, government bonds and equity investments are exempted from tax.

34. Asset held for sale 31 December 31 December 01 January 2012 2011 2011

GROUP AND BANK Sun born yacht hotel - 450,000 - Total - 450,000 -

The non current asset disclosed as held for sale is a mobile hotel "the sun born yacht" purchased in February 2008 by the Group's former subsidiary, Diamond Capital Limited. Assets of Diamond Capital were transferred to the Bank in 2011 on sale of the subsidiary. This asset was sold on 29 December 2012 for N885 million.

35. Deposits from banks

GROUP

Items in the course of collection 7,207,067 4,468,893 14,158,684 Interbank takings 24,000,231 16,513,895 1,188,532 31,207,298 20,982,788 15,347,216

Current 31,207,298 20,982,788 15,347,216 Non-current - - - 31,207,298 20,982,788 15,347,216

NOTES TO THE FINANCIAL STATEMENTS 228 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 01 January 2012 2011 2011 35. Deposits from banks (cont’d)

BANK

Items in the course of collection 6,077,279 3,939,956 2,916,163 Interbank takings within Nigeria 2,096,007 - 1,187,935 8,173,286 3,939,956 4,104,098 Current 8,173,286 3,939,956 4,104,098 Non-current - - - 8,173,286 3,939,956 4,104,098

Deposits from banks only include financial instruments classified as liabilities at amortised cost.

36. Deposits from customers

GROUP Current 534,855,289 344,596,517 203,868,743 Savings 153,755,865 125,002,987 97,692,352 Term 221,623,290 133,403,725 111,431,659 910,234,444 603,003,229 412,992,754

Current 870,948,649 573,062,033 393,472,010 Non-current 39,285,795 29,941,196 19,520,744 910,234,444 603,003,229 412,992,754 BANK Current 492,548,344 314,819,403 189,508,392 Savings 144,587,642 117,935,071 91,564,270 Term 185,954,801 112,406,671 98,271,357 823,090,787 545,161,145 379,344,019

Current 819,473,481 536,217,003 372,983,577 Non-current 3,617,306 8,944,142 6,360,442 823,090,787 545,161,145 379,344,019 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 229

31 December 31 December 01 January 2012 2011 2011 37. Derivative Liability

GROUP AND BANK Opening balance 7,609,338 - - Fair value loss 5,639,247 - - Closing balance 13,248,585 - -

This relates to the portion of the convertible borrowing granted to the bank by International Finance Corporation. See further details in note 42.

38. Other Liabilities

GROUP Customers deposit for letters of credit 17,343,021 15,055,283 13,649,471 Accounts payable 2,346,906 2,574,753 4,491,410 Accruals 7,643,288 6,319,775 2,924,715 Other payables 14,761,881 6,038,554 5,625,896 42,095,096 29,988,365 26,691,492 Current 42,095,096 29,988,365 26,691,492 Non current - - - 42,095,096 29,988,365 26,691,492 BANK Customers deposit for letters of credit 15,181,972 12,747,735 11,570,467 Accounts payable 1,683,687 1,604,087 875,985 Accruals 7,110,446 5,549,590 1,347,415 Other payables 10,963,130 4,777,372 3,888,807 34,939,235 24,678,784 17,682,674 Current 34,939,235 24,678,784 17,682,674 Non current - - - 34,939,235 24,678,784 17,682,674 39. Retirement benefit obligations

GROUP Defined contribution scheme 99,574 51,607 12,286 Gratuity scheme - - 17,080 99,574 51,607 29,366 BANK Defined contribution scheme 99,574 20,141 4,868 Gratuity scheme - - 17,080 99,574 20,141 21,948 NOTES TO THE FINANCIAL STATEMENTS 230 FOR THE PERIOD ENDED 31 DECEMBER 2012

a. Defined contribution scheme

The group and its employees make a joint contribution of 15% basic salary, housing and transport allowance to each employee's retirement savings account maintained with their nominated pension fund administrators.

Total contributions to the scheme for the period were as follows: 31 December 31 December 1 January 2012 2011 2011 GROUP At start of the period 51,607 12,286 8,192 Charge / contributions for the period 331,788 524,220 460,789 Contributions remitted (283,821) (484,899) (456,695) At end of the period 99,574 51,607 12,286

BANK Total contributions to the scheme for the period were as follows: At start of the period 20,141 `4,868 1,627 Charge / contributions for the period 428,671 494,050 436,135 Contributions remitted (349,238) (478,777) (432,894) At end of the period 99,574 20,141 4,868

b. Gratuity scheme

The group had a non-contributory defined gratuity scheme whereby on separation, staff who have spent a minimum number of periods are paid a sum based on their qualifying emoluments and the number of periods spent in service of the bank. With effect from October 2008, this scheme has been discontinued and payment to staff vested over a three-year period. The bank has discontinued its gratuity scheme and all outstanding entitlements have vested and fully paid as at date.

GROUP AND BANK 31 December 31 December 1 January 2012 2011 2011

Balance at start of period - 17,080 185,670 Charged to profit or loss - - 1,170,200 Payments - -17,080 -1,338,790

At end of period - - 17,080 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 231

31 December 31 December 1 January 2012 2011 2011 40. Provisions

GROUP

AMCON resolution fund 1,056,378 - - Total 1,056,378 - -

Current 1,056,378 - - Non Current - - - 1,056,378 - - Movement in provision

Opening balance as at 1 January 2012 - - - Additional provisions 1,056,378

Closing balance as at 31 December 2012 1,056,378 - -

BANK

AMCON resolution fund 1,056,378 - - Total 1,056,378 - -

Current 1,056,378 - - Non Current - - - 1,056,378 - - Movement in provision Opening balance as at 1 January 2012 - Additional provisions 1,056,378

Closing balance as at 31 December 2012 1,056,378

This provision for AMCON resolution fund represents 0.1% of the total assets of the Bank as at 31 December 2012. This provision was made in response to a recent AMCON guideline that the usual accrual would increase from the required 0.3% of total assets. Payments are expected to be made by July 2013 and there are no expected re-inbursements. NOTES TO THE FINANCIAL STATEMENTS 232 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 1 January 2012 2011 2011

41. Provision on Insurance Contracts

GROUP Life Insurance Contracts - - 1,073,947 Non-Life Insurance Contracts - - 1,145,631 - - 2,219,578

42. Borrowings

GROUP Borrowings comprise: Foreign financial Institutions 10,010,596 12,805,484 12,907,261 Local financial institutions 39,955,764 42,072,399 15,358,167 49,966,360 54,877,883 28,265,428 Current 4,903,587 12,842,977 26,481,282 Non-current 45,062,773 42,034,906 1,784,146 49,966,360 54,877,883 28,265,428 BANK Borrowings comprise: Foreign financial Institutions 10,010,596 12,805,484 12,907,261 Local financial institutions 39,955,764 42,072,399 15,124,570 49,966,360 54,877,883 28,031,831 Current 4,903,587 12,842,977 26,247,685 Non-current 45,062,773 42,034,906 1,784,146 49,966,360 54,877,883 28,031,831

Institutions Amount Tenor (Years) Interest

Local Financial Institutions

Bank of Industry (CBN Intervention Fund) 37,234,128 Varying for differing customers 1% payable to BOI CBN Commercial Agricultural Credit Scheme 2,709,050 1 - 7 Zero interest rate Enhanced Financial Innovation and Access Grant (EFINA) 12,586 Varying for differing customers Varying interest 39,955,764 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 233

42. Borrowings (cont’d)

Institutions Amount Tenor (Years) Interest

Foreign Financial Institutions International Finance Corporation 1,145,774 7 2.75% plus Libor African Export-Import Bank 3,978,672 5 5% plus Libor Standard Chartered Bank 4,886,150 1 3.12% 10,010,596 Total 49,966,360

The Bank has not had any defaults of principal, interest or other breaches with respect to their liabilities during the period (2011: nil).

Borrowings from foreign financial institutions represent onlending facilities granted by multi-lateral and correspondence financial institutions to finance various trade and other transactions. Facilities are priced at LIBOR + a margin ranging from 2% to 5%. The foreign borrowing are disbursed by IFC, AFREXIM and FMO

Borrowings from local financial institutions are disbursements from banks within Nigeria of N39.96bn guaranteed by Diamond Bank Plc for specific customers. These facilities include the BOI intervention funds.

43. Long term debt

GROUP AND BANK 31 December 31 December 01 January 2012 2011 2011

African Export-Import Bank 15,620,190 - - International Finance Corporation 3,747,567 - - 19,367,757 - - Current - - - Non-current 19,367,757 - - 19,367,757 - -

Company Tenor (yrs) Interest Rate African Export-Import Bank 7 5.75% + LIBOR International Finance Corporation 7 5% + LIBOR NOTES TO THE FINANCIAL STATEMENTS 234 FOR THE PERIOD ENDED 31 DECEMBER 2012

The borrowing from International Finance Corporation relates to the liability component of the convertible loan agreement stated at its amortized cost. The loan ($69.97m) was obtained on 19 July 2012 at an interest rate of 5% plus 6M Libor for a duration of 7 years. The loan has a conversion option whereby the each of the IFC entities have the right to convert all or a portion of the outstanding principal amount into the equivalent number of shares of the borrower. This option may be exercised 3 years from the agreement date or in the event of a change in control or sale of a substantial part of the borrower's assets or business. The derivative liability which is the other component of the convertible loan is as shown in note 36.

31 December 31 December 01 January 2012 2011 2011 44. Share capital

BANK

Authorised 20 billion ordinary shares of 50k each 10,000,000 10,000,000 10,000,000

Issued and fully paid 14.5 billion ordinary shares of 50k each 7,237,622 7,237,622 7,237,622

45. Share premium and reserves

The nature and purpose of the reserves in equity are as follows:

Share premium: Premiums from the issue of shares are reported in share premium.

Retained earnings: Retained earnings comprise the undistributed profits from previous years, which have not been reclassified to the other reserves noted below.

Statutory reserve: Undistributable earnings required to be kept by the nations central bank in accordance with BOFIA Section 16(1). Appropriation of 15% of Profit After Tax is made.

SSI reserve: 5% of Profit After Tax is appropriated from retained earnings by regulation for investment in small scale industries.

Fair value reserve: The fair value reserve shows the effects from the fair value measurement of equity instruments elected to be presented in other comprehensive income on initial recognition after deduction of deferred taxes. No gains or losses are recognised in the consolidated income statement.

Foreign currency translation reserve: Records exchange movements on the Group's net investment in foreign subsidiaries. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 235

31 December 31 December 2012 2011 46. Reconciliation of profit before tax to cash generated from operations

GROUP

Profit/(loss) before tax including discontinued operations 27,481,545 (17,906,403) Adjustments for: – Depreciation 4,513,960 4,684,571 – Amortisation 433,956 431,376 – Foreign exchange losses / (gains) on operating activities 3,069,473 (2,020,274) – Net gains/(losses) from financial assets classified as held for trading 1,025,151 1,232,906 – Impairment on loans and advances 23,984,749 33,542,081 – Net interest income (60,065,697) (45,243,763) - Fair value loss on derivative 5,639,247 - – Gain from disposal of subsidiaries - (226,478) - Gratuity Charge and contribution to staff pension scheme 331,788 507,140 - Remittance to pension fund administrators (283,821) (484,899) – Change in provision in other assets - 7,822,117 – Share of loss/(profit) from associates 2,298 5,196 – Dividend income (281,253) (508,704) - Loans Written Off 137,042 4,177,005

Increase/(decrease) in operating assets: – Cash and balances with the Central Bank (restricted cash) (40,971,631) (29,002,933) – Loans and advances to customers (213,834,656) (123,835,225) – Financial assets held for trading (56,664,242) (5,908,698) - Pledged Assets (44,362,531) 2,880,000 – Other assets (3,129,660) (1,183,934) – Insurance Receivable - 705,659

Increase/(decrease) in operating liabilities: - Deposit from Banks 10,211,822 5,632,387 - Deposit from Customers 305,896,922 190,884,350 - Provisions 1,056,378 - – Other liabilities 12,106,731 3,296,873 - Provision for Insurance Contract - (2,219,578)

Cash generated from operations (23,702,429) 27,260,773 NOTES TO THE FINANCIAL STATEMENTS 236 FOR THE PERIOD ENDED 31 DECEMBER 2012

31 December 31 December 2012 2011 46. Reconciliation of profit before tax to cash generated from operations (cont’d)

BANK

Profit/(loss) before tax including discontinued operations 28,364,966 (27,073,682) Adjustments for: - Depreciation 4,233,178 4,093,627 – Amortisation 357,622 325,044 – Profit from disposal of property and equipment (37,204) - – Foreign exchange losses / (gains) on operating activities - (2,006,686) – Net gains/(losses) from financial assets classified as held for trading (1,025,151) 1,166,719 – Impairment on loans and advances (20,787,324) 33,595,403 – Net interest income (57,578,778) (43,030,892) - Fair value loss on derivative 5,639,247 - - Gratuity Charge and contribution to staff pension scheme 508,104 494,050 - Remittance to pension fund administrators (428,671) (495,857) – Change in provision in other assets 350,291 6,424,090 – Dividend income (281,253) (51,462) - Loans Written Off (219,667) 44,562,440

Increase/(decrease) in operating assets: – Cash and balances with the Central Bank (restricted cash) (37,738,446) (29,002,933) – Loans and advances to customers (150,724,672) (126,649,332) – Financial assets held for trading (51,544,467) (6,092,571) - Pledged Assets (22,498,896) 2,880,000 – Other assets (4,061,203) (3,152,582)

Increase/(decrease) in operating liabilities: - Deposit from Banks 4,233,330 (164,142) - Deposit from Customers 276,711,138 165,450,924 - Provisions 1,056,378 (890,605) – Other liabilities 10,260,451 7,886,715

Cash generated from operations (15,211,028) 28,268,268 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 237

47. Contingent liabilities and commitments

47.1. Capital commitments

At the balance sheet date, the bank had capital commitments amounting to N2.4 billion (Dec. 2011: N323 million) in respect of authorised and contracted capital projects.

47.2. Litigation

The Group is a party to numerous legal actions arising out of its normal business operations.

The Directors believe that, based on currently available information and advice of counsel, none of the outcomes that result from such proceedings will have a material adverse effect on the financial position of the Group, either individually or in the aggregate. Consequently, no provision has been made in these financial statements.

47.3. Credit related commitments

In the normal course of business, the Bank is party to financial instruments with off-balance sheet risk. The instruments are used to meet the credit and other financial requirements of customers. The contractual amounts of the off-balance sheet financial instruments are:

31 December 31 December 1 January 2012 2011 2011 GROUP

Performance bonds and guarantees 93,680,697 83,498,661 129,809177 Unconfirmed and unfunded Letters of Credit 100,003,702 55,649,058 25,615,321 193,684,399 139,147,719 155,424,498

BANK

Performance bonds and guarantees 87,909,182 74,721,025 129,809,177 Unconfirmed and unfunded Letters of Credit 96,271,802 55,649,058 25,615,321 184,180,984 130,370,083 155,424,498 NOTES TO THE FINANCIAL STATEMENTS 238 FOR THE PERIOD ENDED 31 DECEMBER 2012

48. Related party transactions

The Group's key management personnel, and persons connected with them, are also considered to be related parties. The definition of key management includes the close members of family of key personnel and any entity over which key management exercise control. The key management personnel have been identified as the executive and non-executive directors of the Group. Close members of family are those family members who may be expected to influence, or be influenced by that individual in their dealings with Group. A number of banking transactions are entered into with related parties in the normal course of business. These include loans and deposits.

The volumes of related-party transactions, outstanding balances at the year-end, and relating expense and income for the year are as follows:

48.1. Loans and advances to related parties

The bank granted various credit facilities to other companies which have common directors with the bank and those that are members of the Group. The rates and terms agreed are comparable to other facilities being held in the bank's portfolio. Details of these are described below: Directors and other key management personnel (and close family members) Subsidiaries Associates Total

Year ended December 2012 Loans and advances to customers Loans outstanding at 1 January` 26,250,852 - 34,525 26,285,377 Loans issued during the year 9,335,895 1,974,584 6,631 `11,317,110 Loan repayments during the year (1,144,591) - (1,144,591) Loans outstanding at 31 December 34,442,156 1,974,584 41,156 36,457,896 Interest income earned 299,051 - - 299,051 Bad or doubtful debts due from related parties expense 2,243,331 - - 2,243,331

The loans issued to directors and other key management personnel (and close family members) as at 31 December 2012 of N34.4bn (December 2011: N26.2bn) are repayable in various cycles ranging from monthly to annually over the tenor, and have average interest rates of 15.9% (December 2011: 17.3%). The loans advanced to the directors during the year are collateralised by a combination of lien on shares of quoted companies, fixed and floating debentures, legal mortgages and cash. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 239

The loan to subsidiaries relates to a foreign currency term loan facility of EUR9.45M granted to Diamond Bank du Benin during the period. It is a non-collateralised loan advanced at an interest rate of 5%. This loan has been eliminated on consolidation and does not form part of the reported Group loans and advances balance.

48.2. Deposits from related parties

Directors and other key management personnel (and close family members) Subsidiaries Associates Total

Year ended 31 December 2012 Deposits at 1 January 2,670,619 782,163 - 3,452,782 Deposits received during the year 3,176,080 2778124 - 5,954,204 Deposits repaid during the year (2,636,093) `(745,554) - (3,381,647) Deposits at 31 December 2012 3,210,606 2,814,733 - 6,025,339 Interest expenses on deposits 9,747 58,083 - 67,830

There are no special considerations for the related party deposits. Deposits from related parties are taken at arms length. The average rate on deposit from directors and other key management personnel which are majorly demand deposit was approximately 6.04% while average rate on deposit from subsidiaries majorly term deposits was approximately 13%.

48.3. Other transactions with related parties

Directors and other key management personnel (and close family members) Subsidiaries Associates Total

BANK Year ended 31 December 2012 Fee and commission income 162,104 268,564 - 430,668 NOTES TO THE FINANCIAL STATEMENTS 240 FOR THE PERIOD ENDED 31 DECEMBER 2012

48.4 Details of loans to related parties NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 241

49. Key management personnel compensation 31 December 31 December 2012 2011 GROUP Remuneration paid to the Bank's directors was: Fees and sitting allowances 114,300 123,800 Executive compensation 113,975 119,836 Pension cost 10,442 9,389 Other director expenses 74,508 34,404 313,225 287,429 Fees and other emoluments disclosed above include amounts paid to: Chairman 16,300 17,600 Highest paid director 24,952 23,526

The number of directors who received fees and other emoluments (excluding pension contributions and certain benefit) in the following ranges was:

Number 31 December 31 December 2012 2011 Below N1,600,000 1 - N3,400,001 and above 16 16 17 16 50. Employees

The average number of persons employed during the period was as follows:

Group Bank 31 December 31 December 31 December 31 December 2012 2011 2012 2011 Executive directors 6 6 6 6 Management 144 201 137 180 Non-management 3,174 2,578 2,769 2,500 3,324 2,785 2,912 2,686

See note 11.1 for compensation for the above staff NOTES TO THE FINANCIAL STATEMENTS 242 FOR THE PERIOD ENDED 31 DECEMBER 2012

The number of employees of the Group, other than directors, who received emoluments in the following ranges (excluding pension contributions and certain benefits) were:

Group Bank 31 December 31 December 31 December 31 December 2012 2011 2012 2011

N300,000 - N2,000,000 260 218 - 4 N2,000,001 - N2,800,000 75 314 14 308 N2,800,001 - N3,500,000 ` 592 390 573 6 N3,500,001 - N4,000,000 16 32 - 9 N4,000,001 - N5,500,000 1,210 851 1,195 1,259 N5,500,001 - N6,500,000 10 405 - 691 N6,500,000 - N7,800,000 440 258 433 4 N7,800,001 - N9,000,000 304 120 297 125 N9,000,001 and above 411 191 394 202 3,318 2,779 2,906 2,620

51. Compliance with banking regulation

During the year, the Bank contravened the following provisions:

(i) The CBN regulation on the scope of Banking Activities and Ancillary matters no. 3 2010. As a result of this, a fine of N2 million was imposed on the Bank by the Central Bank of Nigeria (CBN) for failure to comply with the regulation which required the Bank to dispose of its non-banking subsidiaries and their related investments.

(ii) Section 15 (iv) of the Commercial Agriculture Credit Scheme (CACS) – a fine of N764,829 was imposed on the Bank by the Central Bank of Nigeria (CBN) for delayed repatriation of funds beyond the 14 days windows allowed for participating banks. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 243

31 December 31 December 01 January 2012 2011 2011 52. Statement of Prudential Adjustments

GROUP Total Impairment based on IFRS 33,395,306 42,049,659 54,871,118 Total Provisions based on Prudential Guidelines 29,041,058 31,116,029 47,327,101 Difference 4,354,248 10,933,630 7,544,017

BANK Total Impairment based on IFRS 31,628,761 40,955,690 49,527,972 Total Provisions based on Prudential Guidelines 28,063,369 28,923,171 37,324,568 Difference 3,565,392 12,032,519 12,203,404

As the impairment based on IFRS was higher than the provisions based on prudential guidelines for all the years, no Credit risk reserve is required.

53. Events after statement of financial position date

The Bank received final approval of the Financial Services Authority (FSA) on 4 March 2013 to operate a subsidiary – Diamond Bank (UK) Plc, in the United Kingdom. NOTES TO THE FINANCIAL STATEMENTS 244 FOR THE PERIOD ENDED 31 DECEMBER 2012

54. Explanation of transition to IFRSs

As stated in note 2.1 on significant accounting policies, these are the Bank and Group's first consolidated financial statements prepared in accordance with IFRS1 - First Time Adoption of IFRS.

As the Bank and Group publish comparative information for the year in its financial statements, the date of transition to IFRS, is effectively, 1 January 2011, which represents the start of the earliest period of comparative information presented. The opening balance sheet as at 1 January 2011 and comparative information have been restated accordingly. The accounting policies as set out in note 2 have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by the Bank and Group entities.

An explanation of how the transition from Nigerian GAAP to IFRSs has affected the Bank and Group's financial position, financial performance and cash flows is set out in the accompanying notes and tables.

GROUP

Reconciliation of Equity as at: 1 Jan. 2011 31 Dec. 2011

Shareholders' equity under NGAAP 107,084,863 93,332,827

(a) Employee Benefit - staff Loans (a) I Amortization of prepaid payroll cost over the life of the loan (423,179) (458,675) ii Increase in interest income due to application of market interest rate on staff loans 508,266 540,964

(b) Loan Loss Provision (b) I Additional specific impairment on loans based on PV of discounted recovery cash flows under incurred loss model (13,900,610) (16,708,553) ii Additional Collective impairment based on PD and LGD of segmented loans (3,432,885) (999,877) iii Recognition of Interest in Suspense in interest Income 9,071,765 5,323,455

(c) Deferred Tax (c) i Deferred tax impact arising from the impact IFRS adjustments relating to specific and collective impairment as well as additional interest income recognized in income statement. 4,101,176 4,011,485

(d) Fair Value of Financial Instruments (d) I Fair Value Loss on Held for Trading Instruments under IAS 39 (2,183,587) 4,282,601 ii Recognizing Equty Gains/(Losses) of Associates 236,404 153,604 iii Fair Value gains/ Loss on Equity Instruments (Available for Sale) under IAS 39 1,515,147 (2,781,914) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 245

Reconciliation of Equity as at: 1 Jan. 2011 31 Dec. 2011

(e) Application of Amortized cost and EIR on Loans and HTM Investments (e) i Fees that are considered as integral part of the loans such as processing, management and monitoring fees which are usually taken upfront and recognized in income statement at the inception of the loan under NGAAP, have been deferred and recognized over the life of the loans. 1,933,966 (1,770,333) ii Interest accrual on a corporate Bond which has been designated as HTM 4,819

(f) Restatement of Landed Property (f) Reversal of Accumulated depreciation wrongly charged on Landed Property 799,354 1,050,611

Total IFRS Adjustment (1,774,184) (7,351,813)

Shareholders' equity under IFRS 105,310,679 85,981,014

Reconciliation of Statement of Financial Position as at 1 January 2011

Note Nigerian GAAP Adjustments IFRS Assets Cash and balances with central banks 27,606,200 - 27,606,200 Treasury Bills a,a 51,302,987 (51,302,987) - Loans to banks a,b 66,815,068 5,340,272 72,155,340 Loans and advances to customers a,c 307,135,161 77,296 307,212,457 Advances under finance leases a,d 5,071,279 (5,071,279) - Investment securities a,e 73,491,632 (73,491,632) - Financial assets held for trading a,f - 1,345,552 1,345,552 Investment securities a,g - - -Available-for-sale investments a,h - 19,891,359 19,891,359 -Held to maturity investments a,i - 56,977,064 56,977,064 Pledged Assets a,j - 37,820,000 37,820,000 Investments in associates accounted for using the equity method a,k - 3,502,339 3,502,339 Insurance receivables a,l 187,577 518,082 705,659 Investment property a,m 3,755,064 - 3,755,064 Property, plant and equipment a,n 36,750,856 203,330 36,954,186 Intangible Assets a,o - 596,025 596,025 Deferred tax a,p 4,176,678 3,504,398 7,681,076 Other assets a,q 17,922,171 (1,272,729) 16,649,442 Assets Classified as Held for sale a,r - - - 594,214,673 (1,362,910) 592,851,763 NOTES TO THE FINANCIAL STATEMENTS 246 FOR THE PERIOD ENDED 31 DECEMBER 2012

Reconciliation of Statement of Financial Position as at 1 January 2011 (cont’d)

Note Nigerian GAAP Adjustments IFRS

Liabilities Deposits from banks a,s 15,347,216 - 15,347,216 Deposits from customers a,t 412,031,918 960,836 412,992,754 Financial liabilities held for trading - - - Borrowings a,u 28,281,011 (15,583) `28,265,428 Provision for Insurance Contracts a,w 1,688,982 530,596 2,219,578 Retirement benefit obligations a,x 26,125 3,241 29,366 Provision - - 0 Current income tax liability a,y 1,995,250 - 1,995,250 Dividend Payable b,a 86,263 (86,263) - Other liabilities b,b 27,673,045 (981,553) 26,691,492

Total liabilities 487,129,810 411,274 487,541,084

Share capital 7,237,622 - 7,237,622 Share premium 89,629,324 - 89,629,324 Retained earnings b,c (5,098,158) (3,289,331) (8,387,489) Other reserves Statutory reserve b,d 11,214,864 - 11,214,864 SSI Reserve b,e 2,812,957 - 2,812,957 Contingency Reserve b,f 354,741 - 354,741 Fair value reserve b,g - 1,686,305 1,686,305 Revaluation reserve b,h 171,158 (171,158) - Foreign currency translation reserve b,i 306,694 - 306,694

Total equity 106,629,202 (1,774,184) 104,855,018

Non Controlling Interest 455,661 - 455,661

Total equity and liabilities 594,214,673 (1,362,910) 592,851,763 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 247

Reconciliation of Statement of Comprehensive Income For the year ended 31 December 2011 IFRS Note NGAAP Adjustments IFRS

Interest and similar income c,a 67,935,924 15,424,538 83,360,462 Dividend Income - 508,704 508,704 67,935,924 15,933,242 83,869,166 Interest and similar expense c,b (12,285,666) (216,875) (12,502,541) Net interest income 55,650,258 15,716,367 71,366,625

Provision for losses (44,148,499) 44,148,499 - Impairment charge for losses - (55,408,691) (55,408,691) Net interest income after impairment charge for credit losses 11,501,759 4,456,175 15,957,934

Net fee and commission income c,c 24,097,756 (5,086,439) 19,011,317 Net gains/(losses) on investment securities - (514,766) (514,766) Net gains/(losses) from financial assets classified as held for trading c,d - 1,232,906 1,232,906 Foreign exchange income 2,020,274 - 2,020,274 Other income c,e 1,676,007 (871,272) 804,735 Other operating expenses c,f (55,579,613) (892,520) (56,472,133) Operating profit (16,283,817) (1,675,915) (17,959,732)

Share of profit / (loss) of associates c,g - (5,196) (5,196) Exceptional item 22,802 (22,802) - Profit before tax (16,261,015) (1,703,913) (17,964,928)

Income tax expense 5,006,914 (982,970) 4,023,944 Profit/(Loss) from continuing Operation (11,254,101) (2,686,883) (13,940,984) Profit/(Loss) from discontinued Operation c,h - 217,198 217,198

Profit for the year c,h (11,254,101) (2,469,685) (13,723,786)

Profit attributable to: Owners of the parent (11,214,508) (2,515,598) (13,730,106) Non-controlling interests (39,593) 45,912 6,319

Total Comprehensive Income for the period (11,254,101) (2,469,685) (13,723,786) Other comprehensive income: Foreign currency translation differences c,i - (77,008) (77,008) Unrealised net gains arising during the period c,j - (3,107,942) (3,107,942)

Other comprehensive income for the period, net of tax - (3,184,950) (3,184,950)

Total Comprehensive Income for the period (11,254,101) (5,654,635) (16,908,736) NOTES TO THE FINANCIAL STATEMENTS 248 FOR THE PERIOD ENDED 31 DECEMBER 2012

Reconciliation of Statement of Financial Position as at 31 December 2011

Note Nigerian GAAP Adjustments IFRS (b) Assets Cash and balances with central banks 55,784,079 - 55,784,079 Treasury Bills a,a 94,588,452 (94,588,452) - Loans to banks a,b 90,629,825 18,186 90,648,011 Loans and advances to customers a,c 387,979,228 157,258 388,136,486 Advances under finance leases a,d 9,381,908 (9,381,908) - Investment securities a,e 103,170,397 (103,170,397) - Financial assets held for trading a,f - 8,041,618 8,041,618 Investment securities a,g - - - -Available-for-sale investments a,h - 85,990,731 85,990,731 -Held to maturity investments a,i - 61,712,761 61,712,761 Pledged Assets a,j - 34,940,000 34,940,000 Investments in associates a,k - 3,184,549 3,184,549 Investment property a,m 3,833,335 - 3,833,335 Property, plant and equipment a,n 38,613,848 1,050,611 39,664,459 Intangible Assets a,o 819,076 - 819,076 Deferred tax a,p 8,351,757 4,011,485 12,363,242 Other assets a,q 10,048,097 615,348 10,663,445 Assets Classified as Held for sale a,r - 450,000 450,000 803,200,002 (6,968,210) 796,231,792 Liabilities Deposits from banks a,s 20,982,788 - 20,982,788 Deposits from customers a,t 601,695,732 1,307,497 603,003,229 Borrowings a,u 54,840,757 37,126 54,877,883 Retirement benefit obligations a,w 33,093 18,514 51,607 Provision - - - Current income tax liability a,x 1,346,904 - 1,346,904 Dividend Payable a,z 94,145 (94,145) - Other liabilities b,a 30,873,756 (885,391) 29,988,365 Total liabilities b,b 709,867,175 383,601 710,250,776

Share capital 7,237,622 - 7,237,622 Share premium 89,629,324 - 89,629,324 Retained earnings (18,137,713) (5,974,988) (24,112,701) Other reserves: Statutory reserve b,c 11,394,523 - 11,394,523 SSI Reserve 2,812,957 - 2,812,957 Fair value reserve b,d - 1,422,736 (1,422,736) Foreign currency translation reserve b,g 217,094 - 217,094 Total equity b,h 93,153,807 (7,397,724) 85,756,084 Non Controlling Interest b,i 179,020 45,912 224,932

Total equity and liabilities 803,200,002 (6,968,210) 796,231,793 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 249

BANK

Reconciliation of Equity as at: 1 Jan. 2011 31 Dec. 2011

Shareholders' equity under NGAAP 116,881,159 92,522,024

IFRS Adjustments

(a) Employee Benefit - staff Loans (a) i Amortization of prepaid payroll cost over the life of the loan (423,179) (457,901) ii Increase in interest income due to application of Effective Interest Rate on staff loans 508,266 540,048

(b) Loan Loss Provision (b) i Additional specific impairment on loans based on PV of discounted recovery cash flows under incurred loss model (16,821,408) (18,409,927) ii Additional Collective impairment based on PD and LGD of segmented loans (3,114,154) (1,293,507) iii Recognition of Interest in Suspense in interest Income 9,071,765 5,323,455

(c) Deferred Tax (c) i Deferred tax on Income statement impact of the Employee Benefits and Loan loss provisions calculated above 3,553,052 4,199,447

(d) Fair Value of Financial Instruments (d) i Fair Value Loss on Held for Trading Instruments under IAS 39 (930,462) 4,282,601 ii Recognizing Equty Gains/(Losses) of Associates (286,500) (55,996)

iii Fair Value Loss on Equity Instruments (Available for Sale) under IAS 39 665,652 (2,804,784)

(e) Application of Amortized cost and EIR on Loans and HTM Investments (e) i Fees that are considered as integral part of the loans such as processing, management and monitoring fees which are usually taken upfront and recognized in income statement at the inception of the loan under NGAAP, have been deferred and recognized over the life of the loans. 1,360,817 (759,638) ii Interest accrual on a corporate Bond which has been designated as HTM

(f) Restatement of Landed Property (f) Reversal of Accumulated depreciation wrongly charged on Landed Property 799,355 1,050,611

Total IFRS Adjustment (5,616,797) (8,385,589)

Shareholders' equity under IFRS 111,264,362 84,136,435 NOTES TO THE FINANCIAL STATEMENTS 250 FOR THE PERIOD ENDED 31 DECEMBER 2012

Reconciliation of Statement of Financial Position as at 1 January 2011

Note Nigerian GAAP Adjustments IFRS Assets Cash and balances with central banks 17,764,318 106,811 17,871,129 Treasury Bills a,a 43,063,637 (43,063,637) - Loans to banks a,b 61,609,150 11,035 61,620,185 Loans and advances to customers a,c 307,828,170 (8,293,478) 299,534,692 Advances under finance leases a,d 5,071,279 (5,071,279) - Investment securities a,e 49,528,513 (49,528,513) - Investment in subsidiaries 17,442,980 17,442,980 Financial assets held for trading a,f - 1,109,080 1,109,080 Investment securities a,g (49,528,513) -Available-for-sale investments a,h 11,095,806 11,095,806 -Held to maturity investments a,i 43,978,424 43,978,424 Pledged Assets a,j 37,820,000 37,820,000 Property, plant and equipment a,n 33,846,192 799,355 34,645,547 Intangible Assets a,o 596,025 - 596,025 Deferred tax a,p 2,684,966 5,035,291 7,720,257 Other assets a,q 8,386,866 277,499 8,664,365 Assets Classified as Held for sale a,r - 547,822,096 (5,723,606) 542,098,490 Liabilities Deposits from banks a,s 4,104,098 - 4,104,098 Deposits from customers a,t 378,733,006 611,013 379,344,019 Borrowings a,u 28,281,011 (249,180) 28,031,831 Retirement benefit obligations a,x 18,707 3,241 21,948 Provision - - Current income tax liability a,y 1,649,557 - 1,649,557 Dividend Payable b,a 86,263 (86,263) - Other liabilities b,b 18,068,295 (385,621) 17,682,674

Total liabilities 430,940,937 (106,810) 430,834,127

Share capital 7,237,622 - 7,237,622 Share premium 89,629,324 - 89,629,324 Retained earnings b,c 6,011,755 (6,282,448) (270,693) Other reserves: Statutory reserve b,d 11,189,501 - 11,189,501 SSI Reserve b,e 2,812,957 - 2,812,957 Fair value reserve b,g - 665,652 665,652

Total equity 116,881,159 (5,616,796) 111,264,363

Total equity and liabilities 547,822,096 (5,723,606) 542,098,490 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 251

Reconciliation of Statement of Comprehensive Income For the year ended 31 December 2011

IFRS Note NGAAP Adjustments IFRS

Interest and similar income c,a 63,537,024 16,351,507 79,888,531 Dividend Income - 51,462 51,462 63,537,024 16,402,969 79,939,993 Interest and similar expense c,b (10,468,642) (216,875) (10,685,517) Net interest income 53,068,382 16,186,094 69,254,476

Provision for losses (43,336,291) 43,336,291 - Impairment charge for credit losses - (52,949,031) (52,949,031)

Net interest income after impairment charge for credit losses 9,732,091 6,573,354 16,305,445

Net fee and commission income c,c 22,744,229 (4,817,888) 17,926,341 Net gains/(losses) on available for sale investment securities - (513,539) (513,539) Net gains/(losses) from financial assets classified as held for trading c,d (42,457) 1,209,176 1,166,719 Foreign exchange income 2,006,686 - 2,006,686 Other income c,e 500,868 (383,887) 116,981 Loss on disposal and absorption of Subsidiaries - (11,582,011) -11,582,011 Other operating expenses c,f (50,351,723) (2,207,108) (52,558,831)

Operating profit (15,410,306) (11,721,903) (27,132,209)

Exceptional item (11,887,341) 11,887,341 - Profit before tax (27,297,647) 165,438 (27,132,209)

Income tax expense 5,109,799 (845,844) 4,263,955

Profit for the year c,h (22,187,848) (680,406) (22,868,254)

Total Comprehensive Income for the period (22,187,848) (680,406) (22,868,254)

Other comprehensive income: Unrealised net gains arising during the period c,j - (3,107,943) (3,107,943)

Other comprehensive income for the period, net of tax - (3,107,943) (3,107,943)

Total Comprehensive Income for the period (22,187,848) (3,788,349) (25,976,197) NOTES TO THE FINANCIAL STATEMENTS 252 FOR THE PERIOD ENDED 31 DECEMBER 2012

Reconciliation of Statement of Financial Position as at 31 December 2011

Note Nigerian GAAP Adjustments IFRS (b) Assets Cash and balances with central banks 54,396,524 - 54,396,524 Treasury Bills a,a 85,383,123 (85,383,123) - Loans to banks a,b 72,080,660 18,186 72,098,846 Loans and advances to customers a,c 346,569,970 (2,172,639) 344,397,331 Advances under finance leases a,d 9,381,908 (9,381,908) - Investment securities a,e 93,875,005 (93,875,005) - Investment in subsidiaries 7,865,622 - 7,865,622 Financial assets held for trading a,f - 8,041,618 8,041,618 Investment securities a,g - - -Available-for-sale investments a,h - 76,762,309 76,762,309 -Held to maturity investments a,i - 52,253,105 52,253,105 Pledged Assets a,j - 34,940,000 34,940,000 Investments in associates a,k - 3,205,140 3,205,140 Investment property a,m 3,686,335 - 3,686,335 Property, plant and equipment a,n 35,226,207 1,050,612 36,276,819 Intangible Assets a,o 624,139 - 624,139 Deferred tax a,p 8,347,427 4,189,447 12,536,874 Other assets a,q 5,022,408 1,506,889 6,529,297 Assets Classified as Held for sale a,r - 450,000 450,000 722,459,328 (8,395,369) 714,063,959 Liabilities Deposits from banks a,s 3,939,956 - 3,939,956 Deposits from customers a,t 544,282,581 878,564 545,161,145 Borrowings a,u 54,840,757 37,126 54,877,883 Retirement benefit obligations a,w 1,626 18,515 20,141 Provision - - - Current income tax liability a,x 1,249,616 - 1,249,616 Dividend Payable a,z 94,146 (94,146) - Other liabilities b,a 25,528,623 (849,839) 24,678,784

Total liabilities b,b 629,937,305 (9,780) 629,927,525 Share capital 7,237,622 - 7,237,622 Share premium 89,629,324 - 89,629,324 Retained earnings (18,347,381) (6,962,853) (25,310,234) Other reserves Statutory reserve b,c 11,189,501 - 11,189,501 SSI Reserve 2,812,957 - 2,812,957 Fair value reserve b,d - (1,422,736) (1,422,736) Total equity b,h 92,522,023 (8,385,589) 84,136,434

Total equity and liabilities 722,459,328 (8,395,369) 714,063,959 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 253

Significant changes to Statement of Cashflow

The significant changes made to the Cashflow for the year ended 31 Dec 2011 is as below:

u Cash and cash equivalents: treasury bills with original maturities of 90 days or less were included in this balance under IFRS, however under NGAAP, all treasury bills irrespective of the maturities were included.

u Interest Paid and Interest Received: These two items have been reflected on the face of the Statement of cashflows inline with IFRS. This was not required under NGAAP.

Notes to the reconciliation of equity

a. Employees were granted loans at a below market interest rate. Under IFRS, the difference between the rate granted and a market related rate is an employee benefit, which must be deferred and recognised as an emloyee expense over the period of the loan. For the year ended 31 December 2011 N458.6m (1 January 2011 N423.2m) was adjusted in equity. As at 31 December 2011, additional interest income amounting to N541.0m (1 January 2011, N508.3m) has been adjusted in retained earnings based on the market rate of interest.

b Loan Loss Provision- Specific Impairment

Under NGAAP, provision on loans is determined using the prudential guidelines which prescribes the percentage to be written down as soon as loan is designated as impaired, depending on whether the status of impairment is doubtfu, substandard or lost. Under IFRS, a loan is assessed for impairment if there is objective evidence that an impairment has occurred since initial recognition. The group assesses for impairment all loans that are due or impaired for 90 days or more. Estimated revised cash flows from the loans including the collateral realization and timing are determined and discounted to present value. Application of IFRS to specific impairment calculation depleted Retained Earnings by N16,708.6m as at 31 December 2012 (1 January 2011 N13,900.6m).

Collective Impairment Under NGAAP, general provision was calculated as 1% of all performing loans. Under IFRS, the reporting entity is required to perform a collective impairment evaluation on all its insignificant loans as well as on its significant but non-impaired loans. The reporting entity determines by available history the Probability of Defaults (PD) and Loss Giving Default (LGD) by sectors and applies these ratios on the performing loans at each reporting date. The application of collective impairment procedures on the groups performing loans gave rise to a negative adjustment of approximately N999.9m as on 31, December 2011 (1 January 2011, N3,435.9m). NOTES TO THE FINANCIAL STATEMENTS 254 FOR THE PERIOD ENDED 31 DECEMBER 2012

Recognition of Interest on impaired loans Under NGAAP, interest is accrued on Non-performing loans and advances at a default or contractual rate, but such interest is usually suspended and included as part of specific provision on the loans. Under IFRS, interest is accrued and recognized on impaired loans using effective interest rate. The recognition of Interest on imapired loans was a positive adjustment in retained earnings at 31 December 2011 of N5,323.5m, (1 January 2011, N9,071.8m)

c. Deferred Tax

The implications of application of IFRS to loan losses provisioning and employee benefits increased Retained earnings by N4,011.5m as on 31 December 2011 (1 Janaury 2011, N4,011.5m). Nominal tax rate of 30% was used in calculating the deferred tax adjustments which also increased the balance sheet carrying amount of deterred tax assets by same amounts.

d. Fair Value of Financial Instruments

Under Nigerian GAAP, investment securities are either classified as short term or long term investments. Short-term investments are investments that management intends to hold for less than one year. These investments are measured at the lower of cost or net realisable value subsequent to initial recognition. Long term investments are investments other than short term investments and are carried at cost less impairment. Under IAS 39, investments are classified as Fair Value through profit or loss (Held for Trading), Fair Value through Other Comprehensive Income (Available for Sale), Held to Maturity (at Amortized Cost) and Loans and Receivables (at Amortized Cost). The application of fair value changes and its impact on the income statement or other comprehensive income resulted in an increase in equity of N1,654.3m at 31 December 2011 (1 January 2011, a write-down of N432.0m). Recognition of the groups share of comprehensive income of an Associate (Health Partners Limited) also was adjusted in Retained Earnings as at 31 December 2011 amounted to N153.6 (1 January 2011, N236.4m).

e Application of Effective Interest Rate

Under NGAAP, loan fees are taken upfront and recognized as income immediately. Under IFRS, credit fees that are considered an integral part of the loan are deferred and recognized over the life of the loan through the application of effective interest rate. Effective interest rate is the rate that exactly discounts all estimated future cash payment/receipts through the instruments expected life to the net carrying amount of the financial instrument. In addition, some investments have been reclassified to loans and receivables in the opening balance sheet. The application of effective interest rate on these instruments resulted in increase in retained earnings. At 31 Decemember 2011, Retained earnings was written down by N1,770.3m (1 January 2011 increase of N1,934.0m) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 255

f. Restatement of Landed Property

The correction of accounting error relating to the wrong inclusion of landed property owned by the bank as part of depreciable asset of the bank gave rise to a write-back of N1,050.6m to equity in 2011 (1 January 2011,N799.3m).

Notes to the reconciliation of Statement of Financial Position

a,a Under NGAAP, treasury bills (including the portion pledged to third parties), are reported as separate line from investments. Under IFRS, Treasury bills forms part of investment securities and must be properly classified in line with IAS 39. The treasury bill line has been reclassified to Investment securities and to assets pledged as collaterals. As at 31 December 2011, treasury bills reclassified to Investment securities was N94.6bn (1 January 2011, N51.3bn).

a,b As at 1 January 2011, included in Investment Securities is a placement with other banks of N5.3bn. This has been reclassified to Loans to banks under IFRS.

a,c Loan and Advances to Customers includes Loans and advances, Advances under Finance Leases and other facilities. Other Facilities include foreign currency denominated loans and advances. The difference of N1.0bn at 31 December 2011 (1 January 2011, N0.5bn) between the NGAAP and IFRS balances for loans to customers is a result of the reclassifications, the impact of additional impairment losses, and write-downs in respect of staff loans in order to reflect the correct amortized cost based on market rate. IFRS requires financial assets carried at amortised cost to be measured using the effective interest rate (EIR) method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument, or where appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

a,d Advances under finance lease are reported separately in the balance sheet under Nigerian GAAP. Given the size of this portfolio, management has reclassified the total balance of N9.4bn as at 31 December 2011 (1 January 2011, N5.1 bn) from Advances under finance lease to Loans and Advances to Customers. In addition, the sum of N12.9 billion reported under Nigerian GAAP as other facilities, which are foriegn currency denominated term loans have been classified to Loans and Advances to Customers.

a,e IAS 39 has four clearly defined categories of financial assets, namely (1) Financial assets ‘at fair value through profit or loss’ [measured at fair value with fair value gain or loss recognised in profit or loss] (2) Held-to-maturity investments [measured at amortised cost] (3) Loans and receivables [measured at amortised cost]; and (4) Available-for-sale financial assets [measured at fair value with fair value gain or loss recognised in other comprehensive income]. Furthermore there are two defined categories of financial liabilities, namely: (1) Financial liabilities 'at fair value through profit or loss' and (2) Other liabilities (measured at amortised cost). The application of IFRS classification and measurement increased investment NOTES TO THE FINANCIAL STATEMENTS 256 FOR THE PERIOD ENDED 31 DECEMBER 2012

securities by N7.4bn as at 1 January 2011. The increase came from reclassification of N51.3bn from Treasury bills, and reclassifications from Investment securities to loan and advances to banks, Pledged Assets and fair value changes.

a,n Under NGAAP for period beginning before 1 January 2011, Intangible assets were usually reported as part of property plant and equipment. The application of IFRS on 1 January 2011 required that these be separated. The sum of N0.6bn has been reclassified to Intangible asset. The balance represents the net book value of computer softwares being used in the group. There were no patents, trademarks or any other form of intangibles as of this date.

a,p The implications of application of IFRS to loan losses provisioning and employee benefits increased Retained earnings by N4.0bn as on 31 December 2011 (1 January 2011, N4.1bn). Nominal tax rate of 30% was used in calculating the deferred tax adjustments which also increased the balance sheet carrying amount of deterred tax assets by same amounts.

a,q The change in other assets on application of IFRS is accounted for by the reclassification of accrued interest receivable to the underlying assets in line with IAS 39 definition of amortized cost of financial instruments, as well as the recognition of additional staff benefit arising from restating staff loans carrying amount using the market rate. The recognized embeded prepaid staff benefits are carried in other asset, and amortized over the remaining expected life of the loans.

a,t Under NGAAP, deposits are stated at exclusive of all accrued interest payable. Under IFRS, amortized cost of financial laibility should include interest accrued on the basis of EIR that have not been settled by the customer. In order to apply IAS 39 to the financial liabilities at amortized cost, at 31 December 2011 the sum of N1.3bn (1 January 2011, N0.9bn) was reclassified from other liabilities to deposit from customers.

a,u Borrowings were restated to include accrued interest in order to present the amortized cost of the financial liability measured at amortized cost

b,a Dividend payable has been reclassified to other liabilities. Management believes that the amount is immaterial to remain a separate line item.

b,b Other liabilities where affected by the reclassification to deposit from customers and borrowings, as well as the reclassification from dividend payable

Notes to the reconciliation of Statement of Comprehensive Income

ca. The application of effective interest rate to loans and advances resulted in reclassification from fee income to interest income. In addition, additional interest raised on staff loans on application of market rate, as well as recognition of interest on impaired loans in line with IFRS gave rise to an increase in interest income. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 257

c,b, 1 Impairment charges increased due to the application of the incurred loss model and the collective impairment on performing loans.

c,c Net fees and commission was adjusted to recognise fees that are integral part of the the loan in interest income. IFRS requires that interest income on loans are accrued using Effective Interest Rate. Effective interest rate is the rate that exactly discounts the contractual cashflows to zero. In other to comply with this requirement, credit fees are considered as an integral part of the loans, and in line with IAS 18, they formed part of the EIR. Therefore, credit fees recognised under NGAAP as fees, were reclassified to interest income.

c,d & c,e Under NGAAP, changes in market prices of short term investments were recognised as part of trading income or losses in the income statement. Under IFRS, financial instruments classified as held for trading , and those classified as available for sale are treated differently. Fair Value gains and losses on held for trading investments are recognized under net gains and losses on Financial Instruments. Adjustments were passed to reclassify mark-to-market losses on available for sale bonds to other comprehensive income.

c,f Operating expense adjustments relate to amortization of staff benefits imbeded in staff loans granted at concessionary rates. The prepaid staff benefits are usually held as other assets in the statement of financial position, but amortized systematically to income as part of personnel expenses.

c,h The exceptional item adjustment consist of gain on disposal ( (N328.1M) of non banking subsidiaries ADIC insurance Limited (ADIC), Diamond Registrars Limited (DRL) and Diamond Securities Limited (DSL) and net restructuring expenses ( (N305.3M) incurred on the absorption of the operations of other non banking subsidiaries Diamond Mortgage Limited (DML) and Diamond Capital Marktets Limited (DCL). The gain on disposal of the subsidiaries have been disclosed as profit from discontinued operations in line with IFRS while the restructuring expense is reclassed to other opearting expense.

c,i Under NGAAP, foreign currency translation difference is not shown on the face of the income statement. The difference arising from the translation of income statement items using average rate, balance sheet items using closing rate and share capital using historical rates is reflected in equity as translation difference. Under IFRS, the movement between the opening and closing translation difference is shown as a component of other comprehensive income.

c,j Under IFRS, the fair value changes of available for sale financial instruments are recognized in other comprehensive income and transferred to fair value reserve in the equity section of the statement of financial position. NOTES TO THE FINANCIAL STATEMENTS 258 FOR THE PERIOD ENDED 31 DECEMBER 2012

55. Segment Reporting

Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reports provided to the Group's Executive Committee (the chief operating decision maker), which is responsible for allocating resources to the operating segments and assesses its performance.

The group has four main reportable segments on a worldwide basis.

The Group’s business is organized along the following business segments:

u Retail Banking – This covers all banking activities relating to individuals (consumer banking) and MSME banking. Small businesses with monthly turnover of not more than N40 million (or N480 million per annum) are also reported as Retail Banking.

u Corporate banking – incorporating all banking activities relating to Multinationals; other large/well-structured companies in Oil & Gas, Power & Infrastructures, Maritime & Transportation, Telecom/General Services, Manufacturing/Trade and Construction, having monthly business turnover of greater than N1.2 billion; Financial Institutions; Federal Government ministries and agencies; Embassies and Foreign Missions; and Subsidiary activities in Mortgage and Pension Custody.

u Business Banking - These are all banking activities relating to medium scale enterprises with monthly business turnover of more than N40 million and up to N1 billion. It covers banking activities relating to the following entities: Tertiary Institution, government accounts and large local companies. It includes companies that are not multinationals, and are not audited by any of the top six international audit firms.

u Treasury - The treasury department of the Group is responsible for the profitable management of the group's liquidity ensuring a balance between liquidity and profitability.

Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is assessed based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the consolidated financial statements. Income taxes are managed at individual company basis and are not allocated to operating segments.

Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income or expense between the business segments. Internal charges and transfer pricing adjustments have been reflected in the performance of each business segment. Revenue sharing agreements are used to allocate external customer revenues to business segments on a reasonable basis.

No revenue from transaction with a single external customer or a group of connected economic entities or counterparty amounted to 10% or more of the group's total revenue in 2011 and for the period ended 30 June 2012. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 259

GROUP

At 31 December 2012 Treasury Business Retail Corporate Total Banking Businesses Banking

Interest income derived from external customers 26,505,169 32,636,591 17,859,675 28,295,435 105,296,870

Interest income derived from other segments 445,340 20,382,876 25,461,719 2,130,181 48,420,116 Total interest income 26,950,510 53,019,467 43,321,394 30,425,615 153,716,986 Interest paid to external customers (7,782,878) (13,750,145) (9,619,469) (5,486,198) (36,638,690) Interest paid to other segments (18,432,549) (10,354,458) (1,233,367) (11,930,931) (41,951,305) Total interest expenses (26,215,427) (24,104,602) (10,852,836) (17,417,129) (78,589,994) Other income 4,233,076 11,554,809 18,090,132 8,524,103 42,402,120 Operating income 4,968,159 40,469,673 50,558,690 21,532,589 117,529,111 Impairment charges for credit losses - (7,605,208) (4,242,457) (1,191,706) (13,039,371) Operating expenses (697,691) (28,205,561) (19,181,906) (6,641,165) (54,726,323) Operating profit before tax 4,270,468 4,658,903 27,134,327 13,699,718 49,763,416

Profit for the period 49,763,416

Segment assets - Loans to Customers - 242,836,637 70,114,328 273,176,187 586,127,149 - Loans to banks/Investments in TBs & Bonds 306,912,123 - - - 306,912,123

Total Assets 306,912,123 242,836,637 70,114,328 273,176,187 893,039,273 Segment Liabilities- Deposit from Customers 2,155 466,015,013 305,265,508 147,795,392 919,078,159 Takings and Treasury bills sold - others 43,772,024 - - - 43,772,024

Total Liabilities 43,774,179 466,015,103 305,265,508 147,795,392 962,850,183

Other Segment Information Depreciation 75,349 1,497,843 1,534,337 599,435 3,706,964 Amortization - - - - - NOTES TO THE FINANCIAL STATEMENTS 260 FOR THE PERIOD ENDED 31 DECEMBER 2012

At 31 December 2011 Treasury Business Retail Corporate Total Banking Businesses Banking

Interest income derived from 24,794,820 28,638,212 20,768,805 18,528,908 92,730,744 external customers Interest income derived from other segments 753 10,937,897 14,667,569 1,084,827 26,691,045 Total interest income 24,795,573 39,576,109 35,436,373 19,613,734 119,421,789

Interest paid to external customers (8,129,567) (4,750,623) (5,547,212) (1,987,831) (20,415,233) Interest paid to other segments (11,484,782) (9,893,045) (572,308) (7,719,984) (29,670,119) Total interest expenses (19,614,349) (14,643,667) (6,119,520) (9,707,815) (50,085,351)

Other income 1,808,126 9,180,676 13,477,198 5,136,163 29,602,163 Operating income 6,989,350 34,113,118 42,794,051 15,042,082 98,938,601 Impairment charges for credit losses - (33,367,716) (6,259,940) (2,175,928) (41,803,584) Operating expenses (544,140) (17,178,084) (13,482,258) (1,733,217) (32,937,699) Operating profit before tax 6,445,210 (16,432,682) 23,051,853 11,132,936 24,197,318

Profit for the period 24,197,318

Segment assets - Loans to Customers - 188,265,074 65,835,315 141,851,610 395,951,999 - Loans to banks/Investments in Tbs &Bonds 341,894,048 341,894,048

Total Assets 341,894,048 188,265,074 65,835,315 141,851,610 737,846,047

Segment Liabilities - Deposit from Customers - 317,155,017 229,649,128 54,891,587 601,695,732 Takings and Treasury bills sold - others 216,850,507 - - - 216,850,507

Total Liabilities 216,850,507 252,055,163 294,748,982 54,891,587 818,546,239

Other Segment Information Depreciation - 1,671,911 2,299,435 56,454 4,027,799 Amortization - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 261

At 1 January 2011 Treasury Business Retail Corporate Others Group Banking Businesses Banking Segments

Loans to Customers - 157,349,817 40,969,285 113,802,009 85,329 312,206,440 - Loans to banks/Investments 183,461,397 - - - - 183,461,397 in TBs & Bonds Total Assets 183,461,397 157,349,817 40,969,285 113,802,009 85,329 495,667,837

Deposit from Customers - 178,439,403 180,817,152 52,775,363 - 412,031,918 Takings and Treasury bills 77,069,394 77,069,394 sold - others Total Liabilities 77,069,394 178,439,403 180,817,152 52,775,363 - 489,101,312

Segment result of operations by Geography

The Group’s three business segments operate in two main geographical areas.

Nigeria is the home country of the parent bank, which is also the main operating company. The areas of operation include all the primary business segments. Revenue from external customers is based on the country in which the customer is located. Assets are shown by the geographical location of the assets.

At 31 December 2012 Nigeria West Total Africa

Interest revenue derived from external customers 99,320,986 5,975,884 105,296,870 Interest revenue derived from other segments 48,420,116 - 48,420,116 Total interest revenue 147,741,102 5,975,884 153,716,986

Interest paid to external customers (33,898,717) (2,739,972) (36,638,689) Interest paid to other segments 41,951,305 - (41,951,305) Total interest expenses (75,850,023) (2,739,972) (78,589,994)

Other income 38,396,528 4,005,592 42,402,120 Operating income 110,287,607 7,241,505 117,529,112 Impairment charges for credit losses (12,376,249) (663,123) (13,039,372) Operating expenses (48,715,715) (6,010,608) (54,726,323)

Operating profit before tax 49,195,643 567,774 49,763,416

Profit for the period 49,763,416 NOTES TO THE FINANCIAL STATEMENTS 262 FOR THE PERIOD ENDED 31 DECEMBER 2012

Segment result of operations by Geography (con’d) Nigeria West Total At 31 December 2012 Africa

Segment assets 790,112,902 102,926,371 893,039,273 Unallocated Assets - - - Total Assets 790,112,902 102,926,371 893,039,273

Segment Liabilities 841,912,323 120,937,861 962,850,183 Unallocated Liabilities - - - Total Liabilities 841,912,323 120,937,861 962,850,183

Other Segment Information Depreciation 2,703,144 1,003,819 3,706,964 Amortization - - -

At 31 December 2011

Interest income derived from external customers 88,028,083 4,702,661 92,730,744 Interest income derived from other segments 26,691,045 26,691,045 Total interest income 114,719,128 4,702,661 119,421,789

Interest paid to External Customers (18,367,680) (2,047,552) (20,415,233) Interest paid to other Segments (29,670,119) - (29,670,119) Total Interest Expenses (48,037,799) (2,047,552) (50,085,351)

Other Income 28,297,778 1,304,385 29,602,163 Operating Income 94,979,107 3,959,494 98,938,601 Impairment charges for credit losses (41,737,317) (66,267) (41,803,584) Operating Expenses (27,809,131) (5,128,568) (32,937,699) Operating profit before tax 25,432,660 (1,235,342) 24,197,318 - - - Profit for the period - - 24,197,318

Segment assets 680,337,750 58,917,434 - Unallocated Assets - - - Total Assets 680,337,750 58,917,434 -

Segment Liabilities 756,439,212 62,107,027 - Unallocated Liabilities - - - Total Liabilities 756,439,212 62,107,027 -

Other Segment Information Depreciation 3,710,117 1,225,710.00 4,935,827 Amortization - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 263

At 1 January 2011 Nigeria West Total Africa

Segment assets 536,076,885 58,718,250 594,795,135 Unallocated Assets - - - Total Assets 536,076,885 58,718,250 594,795,135

Segment Liabilities 433,640,834 54,069,440 487,710,274 Unallocated Liabilities - - - Total Liabilities 433,640,834 54,069,440 487,710,274

BANK

At 31 December 2012 Treasury Business Retail Corporate Total Banking Businesses Banking

Interest income derived from external customers 26,505,169 32,636,591 15,125,920 24,707,664 98,975,344 Interest income derived from other segments 445,340 20,382,876 25,461,719 2,130,181 48,420,116 Total interest income 26,950,510 53,019,467 40,587,639 26,837,845 147,395,460

Interest paid to external customers (7,782,878) (13,750,145) (8,366,029) (3,999,666) (33,898,717) Interest paid to other segments (18,432,549) (10,354,458) (1,233,367) (11,930,931) (41,951,305) Total interest expenses (26,215,427) (24,104,602) (9,599,396) (15,930,597) (75,850,023)

Other income 4,233,076 11,554,809 16,257,716 6,223,123 38,268,723 Operating income 4,968,159 40,469,673 47,245,959 17,130,370 109,814,161 Impairment charges for credit losses - (7,605,208) (3,939,102) (831,939) (12,376,249) Operating expenses (697,691) (28,205,561) (16,432,266) (3,159,396) (48,494,914)

Operating profit before tax 4,270,468 4,658,903 26,874,591 13,139,035 48,942,998

Profit for the period 48,942,998

Segment assets - Loans to Customers 212,500,582 70,114,328 238,869,972 521,484,881 - Loans to banks/Investments in TBs & Bonds 264,611,774 264,611,774 Total Assets 264,611,774 212,500,582 70,114,328 238,869,972 786,096,655

Segment Liabilities - Deposit from Customers 2,155 414,799,541 305,265,508 87,055,693 807,122,897 Takings and Treasury bills sold - others 34,789,425 34,789,425 Total Liabilities 34,791,580 414,799,541 305,265,508 87,055,693 841,912,323

Other Segment Information Depreciation 75,349 1,497,843 1,075,125 42,301 2,690,618 Amortization - - - - - NOTES TO THE FINANCIAL STATEMENTS 264 FOR THE PERIOD ENDED 31 DECEMBER 2012

At 31 December 2011 Treasury Business Retail Corporate Total Banking Businesses Banking

Interest income derived from external customers 24,794,820 24,411,551 12,999,650 15,613,637 77,819,658 Interest income derived from other segments 753 10,937,897 14,667,569 1,084,827 26,691,046 Total interest income 24,795,573 35,349,448 27,667,218 16,698,464 104,510,703

Interest paid to external customers (8,129,567) (5,854,928) (4,798,149) (2,449,912) (21,232,556) Interest paid to other segments (11,484,782) (9,893,045) (572,308) (7,719,984) (29,670,119) Total interest expenses (19,614,349) (15,747,973) (5,370,457) (10,169,896) (50,902,675)

Other income 1,808,126 9,145,098 11,821,735 3,104,344 25,879,304 Operating income 6,989,350 28,746,573 34,118,496 9,632,912 79,487,331 Impairment charges for credit losses - (33,367,716) (6,259,940) (2,175,928) (41,803,584) Operating expenses (544,140) (25,508,526) (13,267,684) (1,025,877) (40,346,226)

Operating profit before tax 6,445,210 (30,129,668) 14,590,873 6,431,106 (2,662,479)

Profit for the period (2,662,479

Segment assets - Loans to Customers - 154,991,373 65,835,315 144,382,468 365,209,156 - Loans to banks/Investments in TBs & Bonds 341,894,048 - - - 341,894,048 Total Assets 341,894,048 154,991,373 65,835,315 144,382,468 707,103,203

Segment Liabilities - Deposit from Customers - 245,016,861 229,649,128 53,659,018 528,325,008 Takings and Treasury bills sold - others 216,850,507 - - - 216,850,507 Total Liabilities 216,850,507 245,016,861 229,649,128 53,659,018 745,175,515

Other Segment Information Depreciation 42,538 1,671,911 1,073,725 41,571 2,829,744 Amortization - - - - -

At 1 January 2011

Loans to Customers - 153,635,978 15,049,652 110,968,769 279,654,400 - Loans to banks/Investments in TBs & Bonds 183,461,397 - - - 183,461,397 Total Assets 183,461,397 153,635,978 15,049,652 110,968,769 463,115,797

Deposit from Customers - 175,484,829 140,448,590 51,901,517 367,834,936 Takings and Treasury bills sold - others 77,069,394 - - - 77,069,394 Total Liabilities 77,069,394 175,484,829 140,448,590 51,901,517 444,904,330 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 265

Segment result of operations by Geography

The Bank’s four business segments operate in two main geographical areas.

Nigeria is the home country of the parent bank, which is also the main operating company. The areas of operation include all the primary business segments.

Revenue from external customers is based on the country in which the customer is located. Assets are shown by the geographical location of the assets.

At 31 December 2012 Lagos West North South Total

Interest income derived from external customers 73,822,336 2,547,992 8,352,104 14,252,912 98,975,344 Interest income derived from other segments 14,464,349 1,100,868 17,180,788 15,674,111 48,420,116 Total interest income 88,286,685 3,648,860 25,532,892 29,927,023 147,395,460

Interest paid to external customers (19,771,601) (806,816) (6,131,030) (7,189,270) (33,898,717) Interest paid to other segments (40,454,757) (170,327) (310,481) (1,015,740) (41,951,305) Total interest expenses (60,226,358) (977,143) (6,441,511) (8,205,010) (75,850,023)

Other income 21,101,713 1,473,049 6,875,002 8,818,959 38,268,723

Operating income 49,162,040 5,121,909 32,407,895 38,745,981 125,437,825 Impairment charges for credit losses (7,259,366) (471,105) (3,065,692) (1,580,086) (12,376,249) Operating expenses (18,370,695) (2,363,428) (13,451,760) (14,309,031) (48,494,914) Operating profit before tax 23,531,979 2,287,376 15,890,443 22,856,864 64,566,662 Income tax expense -

Profit for the period 64,566,662

Segment assets 622,565,387 15,006,197 46,425,831 97,605,745 781,603,161 Unallocated Assets - - -

Total Assets 622,565,387 15,006,197 46,425,831 97,605,745 781,603,161

Segment Liabilities 311,694,339 26,527,519 292,191,267 211,499,198 841,912,323 Unallocated Liabilities - - - - -

Total Liabilities 311,694,339 26,527,519 292,191,267 211,499,198 841,912,323

Other Segment Information Depreciation 849,423 179,194 799,881 862,119.76 2,690,618 Amortization - - - - -

NOTES TO THE FINANCIAL STATEMENTS 266 FOR THE PERIOD ENDED 31 DECEMBER 2012

At 31 December 2011 Lagos West North South Total

Interest income derived from external customers 58,034,870 1,813,649 7,737,024 10,234,116 77,819,659 Interest income derived from other segments 10,153,258 565,804 8,611,185 7,360,799 26,691,046 Total interest income 68,188,128 2,379,453 16,348,209 17,594,915 104,510,705

Interest paid to External Customers (15,960,448) (367,784) (2,554,326) (2,350,001) (21,232,559) Interest paid to other Segments (27,475,233) (14,066) (1,466,089) (714,731) (29,670,119) Total Interest Expenses (43,435,681) (381,850) (4,020,415) (3,064,732) (50,902,678)

Other Income 12,618,184 1,065,344 5,246,455 6,949,321 25,879,304

Operating Income 37,370,631 3,062,947 17,574,248 21,479,504 79,487,331 Impairment charges for credit losses (30,522,936) (1,034,084) (4,411,401) (5,835,163) (41,803,584) Operating Expenses (13,495,277) (1,882,576) (12,202,489) (12,765,884) (40,346,226)

Operating profit before tax (6,647,581) 1,180,370 5,371,759 8,713,620 (2,662,480) Income tax expense

Profit for the period (6,647,502) 146,287 960,358 2,878,457 (2,662,479)

Segment assets 584,976,707 146,287 960,358 2,878,457 707,103,203 Unallocated Assets - - - - - Total Assets 584,976,707 11,091,741 44,122,821 66,911,934 707,103,203

Segment Liabilities 401,505,858 16,254,908 161,482,935 165,931,814 745,175,515 Unallocated Liabilities - - - - - Total Liabilities 401,505,858 16,254,908 161,482,935 165,931,814 745,175,515

Other Segment Information Depreciation - Amortization - - - - -

At 1 January 2011

Segment assets 385,268,960 6,051,860 37,119,978 34,674,999 463,115,797 Unallocated Assets 57,940,560 - - - 57,940,560 Total Assets 443,209,520 6,051,860 37,119,978 34,674,999 521,056,357

Segment Liabilities 237,355,676 11,771,063 106,783,911 88,993,680 444,904,329 Unallocated Liabilities 12,055,865 - - - 12,055,865 Total Liabilities 249,411,541 11,771,063 106,783,911 88,993,680 456,960,194 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 267

Reconciliation of segment results of operations to consolidated results of operations

GROUP Total Differences Total management consolidated reporting At 31 December 2012 (N' 000)

Interest income from external customers 153,716,986 (41,365,031) 112,351,955 Interest expense (78,589,994) 55,559,561 (23,030,433) Impairment charge for credit losses (13,039,372) (3,988,918) (17,028,290) Other Operating Income 42,402,120 (19,688,719) 22,713,401 Net gains/(losses) from financial assets held for trading - 1,025,151 1,025,151 Operating Expenses (54,726,323) (13,821,621) (68,547,944)

Operating profit 49,763,417 (22,279,573) 27,483,840 Taxation - (5,373,457) (5,373,457)

At 31 December 2011 (N' 000)

Interest income from external customers 119,421,789 (36,061,327) 83,360,460 Interest expense (50,085,351) 37,582,810 (12,502,541) Impairment charge for credit losses (41,803,584) (13,605,107) (55,408,691) Other Operating Income 29,602,163 (7,771,899) 21,830,264 Net gains/(losses) from financial assets held for trading - 1,232,906 1,232,906 Gains on disposal of discontinued operations - - - Operating Expenses (32,937,699) (23,534,434) (56,472,133)

Operating profit 24,197,318 (42,157,054) (17,959,733)

Taxation - 4,023,944 4,023,944 NOTES TO THE FINANCIAL STATEMENTS 268 FOR THE PERIOD ENDED 31 DECEMBER 2012

BANK Total Differences Total management consolidated reporting

At 31 December 2012 (N' 000)

Interest income from external customers 147,395,460 (41,883,873) 105,511,587 Interest expense (75,850,023) 55,139,294 (20,710,729) Impairment charge for credit losses (12,376,249) (2,568,026) (14,944,275) Other Operating Income 38,268,723 (17,022,928) 21,245,795 Net gains/(losses) from financial assets held for trading - 1,025,151 1,025,151 Operating Expenses (48,494,914) (15,267,650) (63,762,564)

Operating profit 48,942,997 (20,578,031) 28,364,966

Taxation - (5,291,538) (5,291,538)

At 31 December 2011 (N' 000)

Interest income from external customers 104,510,703 (24,622,172) 79,888,531 Interest expense (50,902,675) 40,217,158 (10,685,517) Impairment charge for credit losses (41,803,584) (11,145,447) (52,949,031) Other Operating Income 25,879,304 (17,873,386) 8,005,918 Net gains/(losses) from financial assets held for trading - 1,166,719 1,166,719 Operating Expenses (40,346,226) (12,212,604) (52,558,830)

Operating profit (2,662,478) (24,469,731) (27,132,209)

Taxation 4,263,955 4,263,955 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 269

Reconciliation of segment Assets and Liabilities to consolidated statement of Financial Position

GROUP

31 Dec. 2012 31 Dec. 2011 1 Jan. 2011

Segment assets (N'000) 887,136,642 739,255,184 495,667,837 Total Consolidated Assets (N'000) 1,178,103,755 796,231,792 592,851,763 Difference (290,967,113) (56,976,608) (97,183,926)

Segment Liabilities (N'000) 962,850,183 818,546,239 489,101,312 Total Consolidated Liabilities (N'000) 1,069,248,032 710,250,776 487,541,084 Difference (106,397,849) 108,295,463 1,560,228

BANK

Segment assets (N'000) 781,603,161 707,103,203 463,115,797 Total Consolidated Assets (N'000) 1,059,137,257 714,063,959 542,098,490 Difference (277,534,096) (6,960,756) (78,982,693)

Segment Liabilities (N'000) 841,912,323 745,175,515 444,904,330 Total Consolidated Liabilities (N'000) 951,820,842 629,927,525 430,834,127 Difference (109,000,000) 115,247,990 14,070,203

The Group's management reporting is based on Nigerian GAAP which differs from IFRS in treatment and in presentation. Therefore, these differences are as a result of the Group's conversion to IFRS. Please see below for an explanation of all material differences. NOTES TO THE FINANCIAL STATEMENTS 270 FOR THE PERIOD ENDED 31 DECEMBER 2012

PROFIT AND LOSS

Interest Income

Under Nigerian GAAP, interest on loans is recognized using the contractual rate on the outstanding balance of the loan. When a loan is classified as impaired, interest is usually accrued, but suspended. Under IFRS, interest is calculated on the amortized cost of the loans using effective interest rate method. Effective interest rate is the rate that exactly discounts the expected future cash flows of a loan to its carrying amount. When a loan is impaired, the carrying amount is reduced to the recoverable amount which is the future cash flow discounted at the original effective interest rate of the instrument. Interest is recognized on the loan by unwinding the discount. Interest on impaired loans is recognized using the original effective interest rate.

Reconciliation of Interest Income: (N'000)

GROUP Note 31 Dec 2012 31 Dec 2011

Total Interest income earned by Reportable Segment 153,716,986 119,421,789

Consolidation & Adjustments - Due to differences in accounting policies 7,055,085 (9,370,282) - Due to Consolidation (48,420,116) (26,691,045)

Total Consolidated Revenue 112,351,955 83,360,462

BANK

Total Interest income earned by Reportable Segment 147,395,460 104,510,703

Consolidation & Adjustments - Due to differences in accounting policies 6,536,243 2,068,878 - Due to Consolidation (48,420,116) (26,691,046)

Total Consolidated Revenue 105,511,587 79,888,531 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 271

Interest Expense

Under Nigerian GAAP, on lending fees relating to borrowings from foreign financial institutions are usually paid in advance, warehoused in a receivable account and amortized to operating expenses on a straight line bases over the tenor of the borrowing. Under IFRS, the amortized position of the upfront fees have been reclassified to interest expense since the liabilities are amortized cost financial liabilities and measured and to apply the effective interest rate method.

Reconciliation of Interest Expense (N'000)

GROUP Note 31 Dec 2012 31 Dec 2011

Total Interest expense incurred by Reportable Segments 78,589,994 51,585,351

Consolidation & Adjustments - Due to differences in accounting policies 170,000 216,875 - Due to Consolidation (55,729,561) (39,299,685)

Total Consolidated Revenue 23,030,433 12,502,541

BANK

Reconciliation of Interest Expense (N'000)

Total Interest expense incurred by Reportable Segments 75,850,023 50,902,675

Consolidation & Adjustments - Due to differences in accounting policies 170,000 216,875 - Due to Consolidation (96,730,752) (61,805,066)

Total Consolidated Revenue (20,710,729) (10,685,517) NOTES TO THE FINANCIAL STATEMENTS 272 FOR THE PERIOD ENDED 31 DECEMBER 2012

Impairment charge for credit losses

Under Nigerian GAAP, impairment on loans and advances is determined using the Central Bank of Nigeria’s Prudential Guidelines based on each customer’s account and the number of days’ interest/principal outstanding. IFRS requires the use of an incurred loss model where the loss event must have an effect on the estimated future cash flows of the financial asset.

Reconciliation of Interest Impairment Charges (N'000)

GROUP

Note 31 Dec 2012 31 Dec 2011

Total impairment charges reported by Reportable Segments 13,039,372 41,803,584

Consolidation & Adjustments - Due to differences in accounting policies (3,703,816) 11,260,192 - Due to unallocated impairment charges Revenue 7,692,734 2,344,915

Total Consolidated Revenue 17,028,290 55,408,691

BANK

Total impairment charges reported by Reportable Segments 12,376,249 41,803,584

Consolidation & Adjustments - Due to differences in accounting policies (4,887,282) 9,612,740 - Due to unallocated impairment charges (22,433,242) 1,532,707

Total Consolidated Revenue (14,944,275) 52,949,031 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 273

Fees and commission income

Under Nigeian GAAP, credit related fee income should be deferred and amortized over the life of the related credit in proportion to the outstanding credit risk. IFRS requires that credit related fees form part of the effective interest rate calculation of the related credit facility. Credited related fees reported under Nigerian GAAP as fees have been reclaasified to Interest income.

Net gains/(losses) from financial assets held for trading Financial assets held for trading is not a financial instrument category under Nigerian GAAP and there is no authoritative guidance available. Under IFRS, A financial asset is held for trading if acquired principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. A portion of the income reported as trading income or profit on sale of investments relate to Held for Trading Financial Instruments, which have been reclassified under IFRS as Net gains/(losses) from financial assets held for trading.

Operating expenses Under Nigerian GAAP, staff loans are usually granted at a concessionary rate, without recognizing the embeded staff benefit and amortizing it over the tenor of the loan. Under IFRS, such benefits are determined and amortized to staff expense over the life of the loan. In some cases where impairment charges for unrecoverable portion of "other assets" have been included in provision for losses, these were reclassified to operating expenses in IFRS.

Reconciliation of operating expenses (N'000) Note 31 Dec 2012 31 Dec 2011

GROUP

Total Operating expenses incurred by Reportable Segments 54,726,323 32,937,699

Consolidation & Adjustments - Due to differences in accounting policies 313,127 892,520 - Due to unallocated impairment charges 13,508,494 22,641,914

Total Consolidated Revenue 68,547,944 56,472,133

BANK

Total Operating expenses incurred by Reportable Segments 48,494,914 40,346,226

Consolidation & Adjustments 1,381,494 979,217 - Due to differences in accounting policies - Due to unallocated impairment charges 13,886,156 11,233,387

Total Consolidated Revenue 63,762,564 52,558,830 NOTES TO THE FINANCIAL STATEMENTS 274 FOR THE PERIOD ENDED 31 DECEMBER 2012

Income tax expense

Under Nigerian GAAP, deferred tax is the expense or benefit that is attributable to the timing differences between accounting and taxable profits (Income Statement approach). Under IFRS, deferred tax is provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts (Balance Sheet approach)

STATEMENT OF FINANCIAL POSITION

Assets

Short-term investments are measured at lower of cost and market value and long-term at cost or at a revalued amount under Nigerian GAAP. Under IFRS, all financial instruments are measured initially at fair value. Subsequently, all financial instruments remiain measured at fair value except for loans and receivables, held-to-maturity assets and unquoted equity instruments whose fair values cannot be measured reliably. The application of fair value measurement and changes in accounting policy relating to impairment of loans account for the difference between segment assets and the consolidated statement of financial position.

Liabilities

Under IFRS, financial laibilities at amortized cost (deposits from customers, deposit from banks and borrowings) have been restated to meet the definition of amortized cost, by adjusting the carrying amounts to include unamortized upfront fees and transaction costs. In addition, accrued interest payable has been reclassified to the underlying financial liability. The deferred income tax liability is calculated using the Nigerian GAAP carrying amounts of assets and liabilities. The deferred tax liability in these IFRS financial statements is calculated using the IFRS carrying amounts of assets and liabilities. CONSOLIDATED FINANCIAL STATEMENTS VALUE ADDED STATEMENT 275

GROUP

Dec 2012 Dec 2011 N'000 % N'000 %

Gross earnings 138,848,669 102,722,007 Interest expense (23,030,433) (12,502,541) 115,818,236 90,219,466 Administrative overheads and bought in costs (340,405,033) (30,711,917)

Value added 75,413,203 100 59,507,549 100

Distribution of value added

To employees and directors: Salaries and benefits 25,963,200 34 16,730,642 28

To government: Government as taxes 5,373,457 7 (4,023,944) (7)

The future: For replacement of fixed assets (depreciation) 4,513,960 6 4,684,571 8 For replacement of intangible assets (amortisation) 426,212 1 431,376 1 Asset replacement (provision for credit losses) 17,028,290 23 55,408,691 93 Expansion (transfers to reserves and non-controlling interest) 22,108,084 29 (13,723,787) (23)

75,413,203 100 59,507,549 100

These statements shows the distribution of the wealth created by the Group during the period. CONSOLIDATED FINANCIAL STATEMENTS 276 VALUE ADDED STATEMENT

BANK Dec 2012 Dec 2011 N'000 % N'000 %

Gross earnings 131,166,141 98,163,095 Interest expense (20,710,729) (10,685,517) 110,455,412 87,477,578 Administrative overheads and bought in costs (38,542,762) (39,548,988)

Value added 71,912,650 100 47,928,590 100

To employees and directors: Salaries and benefits 24,213,430 34 17,693,097 37

To government: Government as taxes 5,291,538 7 (4,263,955) -9

The future: For replacement of fixed assets (depreciation) 4,032,358 6 4,093,627 9 For replacement of intangible assets (amortisation) 357,622 - 325,044 1 Asset replacement (provision for credit losses) 14,944,275 21 52,949,031 110 Expansion (transfers to reserves) 23,073,427 32 (22,868,254) (48)

71,912,650 100 47,928,590 100

These statements shows the distribution of the wealth created by the Company during the period. CONSOLIDATED FINANCIAL STATEMENTS FIVE YEAR FINANCIAL SUMMARY 277

GROUP IFRS NGAAP 31 December 31 December 1 January 31 December 30 April 2012 2011 2011 2009 2009 ASSETS

Cash and balances with central banks 132,196,061 55,784,079 27,606,200 70,428,505 54,766,850 Treasury bills and other eligible bills - - - 9,090,252 11,502,437 Loans to banks 139,803,281 90,648,011 72,155,340 101,663,746 137,638,292 Loans and advances to customers 585,200,158 388,136,486 307,212,457 322,820,515 308,815,972 Advances under finance leases - - - 6,962,870 6,150,488 Financial assets held for trading 90,111,236 8,041,618 1,345,552 - - Investment securities - - - 68,415,479 66,457,805 Investment securities -Available-for-sale investments 10,601,609 85,990,731 19,891,359 - - -Held to maturity investments 65,762,681 61,712,761 56,977,064 - - Asset pledged as collateral 79,302,531 34,940,000 37,820,000 - - Insurance receivable - - 705,659 265,730 819,142 Other assets 13,793,105 10,663,445 16,649,442 21,848,223 54,704,932 Investments in associates 3,182,250 3,184,549 3,502,339 - - Investment property 4,070,340 3,833,335 3,755,064 3,474,612 2,650,587 Property, plant and equipment 44,980,333 39,664,459 36,954,186 37,567,390 34,155,878 Intangible assets 834,815 819,076 596,025 - - Deferred tax 8,265,354 12,363,242 7,681,076 5,896,151 890,107

1,178,103,754 795,781,792 592,851,763 648,433,473 678,552,490 Asset classified as held for sale - 450,000 - - -

Total assets 1,178,103,754 796,231,792 592,851,763 648,433,473 678,552,490

LIABILITIES

Deposits from banks 31,207,298 20,982,788 15,347,216 14,659,352 8,557,718 Deposits from customers 910,234,444 603,003,229 412,992,754 482,056,310 466,889,851 Borrowings 49,966,360 54,877,883 28,265,428 19,050,996 23,708,110 Provision for insurance contracts - - 2,219,578 1,238,238 902,947 Liability on insurance contract - - - 39,085 87,809 Retirement benefit obligations 99,574 51,607 29,366 193,862 827,473 Provision 1,056,378 - - - - Dividend payable - - - 177,635 163,563 Other liabilities 42,095,096 29,988,365 26,691,492 21,271,403 59,150,901 Current income tax liability 1,972,540 1,346,904 1,995,250 3,653,521 3,826,585 Derivative liability 13,248,585 - - - - Long term debt 19,367,757 - - - -

Total liabilities 1,069,248,032 710,250,776 487,541,084 542,340,402 564,114,957 CONSOLIDATED FINANCIAL STATEMENTS 278 FIVE YEAR FINANCIAL SUMMARY

GROUP IFRS NGAAP 31 December 31 December 1 January 31 December 30 April 2012 2011 2011 2009 2009

EQUITY

Share capital 7,237,622 7,237,622 7,237,622 7,237,622 7,237,622 Share premium 89,629,324 89,629,324 89,629,324 89,629,324 89,629,324 Retained earnings (6,629,221) (24,112,701) (8,387,489) (4,949,700) 4,565,446 Other reserves Statutory reserve 14,898,751 11,394,523 11,214,864 10,224,848 10,224,848 Small scale industries (SSI) reserve 3,966,628 2,812,957 2,812,957 2,486,834 2,486,834 Fair value reserve (1,292,728) (1,422,736) 1,686,305 170,059 - Contingency reserve - - 354,741 176,802 106,437 Foreign currency translation reserve (FCTR) 792,068 217,094 306,694 671,194 (246,993)

108,602,444 85,756,084 104,855,018 105,646,983 114,003,518 Non - controlling interest 253,278 224,932 455,661 446,088 434,015

Total equity 108,855,723 85,981,017 105,310,679 106,093,071 114,437,533

Total equity and liabilities 1,178,103,754 796,231,792 592,851,763 648,433,473 678,552,490

Net operating income 113,057,775 93,915,895 74,199,886 42,457,850 71,874,237 Operating expenses (68,547,944) (56,472,133) (46,564,543) (30,087,301) (41,349,177) Provision for losses (17,028,290) (55,408,691) (22,862,480) (24,744,703) (24,623,109)

Loss)/profit before tax 27,481,541 (17,964,928) 4,772,863 (12,374,154) 5,901,951 Taxation (5,373,457) 4,023,944 (3,444,208) 4,199,741 (730,195) (Loss)/profit after tax 22,108,084 (13,940,985) 1,328,655 (8,174,413) 5,171,756 Profit from discontinued operations - 217,198 - - - (Loss)/profit for the period 22,108,084 (13,723,787) 1,328,655 (8,174,413) 5,171,756

- Non controlling interest (33,294) 6,319 (40,241) 32,402 (27,637) - Equity holders of the parent 22,141,378 (13,730,106) 1,368,896 (8,206,815) 5,199,393 Other comprehensive income for the period (229,690) (3,184,950) - - -

Total comprehensive income for the period 21,878,394 (16,908,737) 1,328,655 (8,174,413) 5,171,756 CONSOLIDATED FINANCIAL STATEMENTS FIVE YEAR FINANCIAL SUMMARY 279

BANK IFRS NGAAP 31 December 31 December 1 January 31 December 30 April 2012 2011 2011 2009 2009 ASSETS

Cash and balances with central banks 123,224,590 54,396,524 17,871,129 62,470,986 50,223,343 Treasury bills and other eligible bills - - - 6,414,452 9,087,437 Loans to banks 113,384,200 72,098,846 61,620,185 96,202,493 130,568,284 Loans and advances to customers 523,374,608 344,397,331 299,534,692 316,871,365 312,736,983 Advances under finance leases - - - 6,962,870 6,150,488 Financial assets held for trading 90,111,236 8,041,618 1,109,079 - - Investment securities - - - 41,819,256 40,302,632 Investment securities -Available-for-sale investments 10,555,061 76,762,309 11,095,806 - - -Held to maturity investments 64,751,769 52,253,105 43,978,424 - - Asset pledged as collateral 57,438,896 34,940,000 37,820,000 - - Other assets 10,240,209 6,529,297 8,664,365 15,294,128 50,012,610 Investment in Subsidiaries 7,865,622 7,865,622 17,442,980 16,442,980 16,442,980 Investments in associates 3,205,140 3,205,140 - - - Investment property 3,910,340 3,686,335 - - - Property, plant and equipment 41,879,449 36,276,819 34,645,547 34,949,278 32,026,944 Intangible assets 740,370 624,139 596,025 - - Deferred tax 8,455,767 12,536,874 7,720,257 4,613,903 -

1,059,137,257 713,613,959 542,098,489 602,041,711 647,551,701 Asset classified as held for sale - 450,000 - - -

Total assets 1,059,137,257 714,063,959 542,098,489 602,041,711 647,551,701

LIABILITIES

Deposits from banks 8,173,286 3,939,956 4,104,098 3,970,670 3,446,876 Deposits from customers 823,090,787 545,161,145 379,344,019 449,020,259 444,815,118 Borrowings 49,966,360 54,877,883 28,031,831 19,050,996 23,708,109 Retirement benefit obligations 99,574 20,141 21,948 187,296 815,186 Provision 1,056,378 - - - - Dividend payable - - - 177,635 163,563 Other liabilities 34,939,235 24,678,784 17,682,674 15,915,607 54,558,873 Current income tax liability 1,878,880 1,249,616 1,649,557 3,360,544 3,331,891 Deferred tax - - - - 167,165 Derivative liability 13,248,585 - - - - Long term debt 19,367,757 - - - - Total liabilities 951,820,842 629,927,525 430,834,127 491,683,007 531,006,781 CONSOLIDATED FINANCIAL STATEMENTS 280 FIVE YEAR FINANCIAL SUMMARY

BANK IFRS NGAAP 31 December 31 December 1 January 31 December 30 April 2012 2011 2011 2009 2009

EQUITY

Share capital 7,237,622 7,237,622 7,237,622 7,237,622 7,237,622 Share premium 89,629,324 89,629,324 89,629,324 89,629,324 89,629,324 Retained earnings (6,851,491)) (25,310,234) (270,693) 793,791 6,980,007 Other reserves Statutory reserve 14,650,515 11,189,501 11,189,501 10,211,133 10,211,133 Small scale industries (SSI) reserve 3,966,628 2,812,957 2,812,957 2,486,834 2,486,834 Fair value reserve (1,316,183) (1,422,736) 665,652 - -

Total equity 107,316,415 84,136,434 111,264,363 110,358,704 116,544,920

Total equity and liabilities 1,059,137,257 714,063,959 542,098,490 602,041,711 647,551,701 OUR BRANCH LOCATIONS 281

LOCATIONS CODE TELEPHONE NUMBERS

Abia u 2, Eziukwu Road. 001 082-221209; 871644, 225302; 440021 u Umuahia, 10, Library Avenue 039 088/224345, 486790 u 74, Asa Road 078 082-225358; 082-225496 u Ariaria Mkt Mini, Faulks Road, Aba 001 082-871602 u Osisioma, Umuakpara Osisioma, Ngwa Local Government 001 082502138 u Ngwa Rd Mini, 20, Ngwa Road Aba. 078 082- 233 176; 233 178 u Umuahia Mini, 2 Owerri Rd, Umuahia 039 082-441247 u Ogor Hill, Ikot Ekpene Road Aba 039 08-38979093; 08037717250 Abuja (FCT) u Ahmadu Bello Way , Plot 1486 077 3146480-2; 3146483 DL u Dei-Dei, Building Material Market 014 09-6700796/6712522 u N417, UAC Building, Plot 273, Central Business Area 013 09-6282976, 6282970 u Plot 792, Mohammed Buhari Way, Central Business District 061 09-2344200 – 3; 09-7805208 u Nyanya, Opposite Nyanya Shopping Complex 065 09-6700115; 09-7818022; 2909230; 2909231 u Wuse 2, Plot 21, Adetokunboh Ademola Crescent, 041 09-4134248 D/l; 4134250-51 Cadastral Zone 8. u NASS, National Assembly Complex 013 09-7804046 u Savannah Suite Hotel 013 09-2341204 u Gudu Market, Shop R 144, Block 6, Gudu Market After Apo 077 09-6702726 u Federal Secretariat, Phase 3, Federal Ministry of Education, 061 09- 6281218,6281219, 8701672 Ground Floor, Ahmadu Bello Way, Central Business District u Kubwa, Plot 27, Cadastral Zone 0705, Gado Nasco Road, 106 09- 780 7128; 780 7131; 780 7134 Kubwa (Phase IV) u Zone 4, Plot 2097, Herbert Macaulay Way, Zone 4, Abuja 111 09-5236956 - 9 u Area 1, 1st Floor, Area 1 Shopping Complex, Abuja 077 097808309 u Mararaba, New Karu, Keffi Road, Near Royal Dreams Hotel,Abuja 123 097820492; 098701559 u Gwagwalada, Plot 52 Park Lane FCT Abuja 138 07098203480, 09-07831099 u Gwarinpa, 1st Avenue Gwarinpa, Abuja 150 09-8703441, 09- 8703437 u Maitama, 21, Gana Street, FCT Abuja. 165 098 704755, 08191353868 u Zone 5 Abuja, Michael Okpara Street 166 u Garki II Abuja,Plot 283, LadokeAkintola BLVD 168 098 766698 u Plot 283, LADOKE AKINTOLA BLVD, GARKI II, ABUJA

Adamawa u Yola, 10, Galadima Aminu Way 049 075-627960; 627836 u Mubi, Ahmadu Bello Way, Wuro Bulude 'B' 097 075-882907; 882908; 882909 u Akwa Ibom u 74, Abak Rd, Uyo 048 085-204667 , 201210,200913 u Eket, No. 6/8 Grace Rd, Eket 112 085-480161; 480140 u Ikot Ekpene, Essienton Rd, Off Aba-Ikot Ekpene Rd 134 082-441245; 082-441246 u Banking Layout, Udo Idoma Avenue, Uyo 146 07-023044030, 087480203 OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 282

LOCATIONS CODE TELEPHONE NUMBERS

Anambra u Awka, 208, Azikiwe Street 067 048-553350 048-553292 u Old Nkwo Mkt Road 071 046-662860,300320 u 1/3, Edo-Ezemewi Street 033 046-497378 u 46, Iweka Road 059 046-218046, 218900, 046- 662866 , 218700 u Ogbaru Enamel Ware Mkt 066 046-812007; 812008;313806 u 63A, New Market 006 046-410407; 410189, 046-410189 u 1, Sokoto Road, Main Market 053 046-413291; Dl: 046-662864 u 36, Port Harcourt Road, Bridgehead 019 046-216411, 211098; 216971 u NAU, Nnamdi Azikiwe University, Awka 067 046 -322589, 322587 u Awka, Enugu/Onitsha Expressway, Awka 116 046-325007 u Ogidi, Plot No. 37, Block 23, Phase 1, Nkwelle Ogidi 122 046-665794; 665793 u Nkpor, 1, Demude Street, By Nkpor Spare Parts Junction 125 046-665791; 66592 u Obosi, 8 City Biscuit Rd, Ugwuagba 162 046 845956 u 67 Ret Shp - Nnamdi Azikiwe University 046 -322589,322587

Bauchi u Bauchi, Along Abdulkadir Ahmed Road, Commercial Area 045 077-543846,077-543774

Bayelsa u Yenegoa, Plot A6B Central Buz District 082 089 504313

Benue u 7, New Bridge Road, Makurdi 034 044-534164; 044-534161 u North Bank, N0.1, Udei Street, North Bank, Makurdi 034 0703 406 3120 ; 0703 406 3119

Borno u Maiduguri, NSITF Building, 20, Shehu Laminu Way 020 076-236460; 236428 u UNIMAID, University of Maiduguri 020 076-940502 u Maiduguri, 7 Baga Road, 020 076-342231/ 342130/ 342136

Cross River u Calabar, 7, Mary Slessor Street 032 087-237482 / 237484 u Ikom, 6 Okim Osabor, Ikom; Cross Rivers State. 147 08023333701,08051265829 u Ogoja, Hospital Rd., Cross River State 149 08021070229 Delta u Asaba, 252, Nnebisi Road 038 046-870580, 662868, 056-280010 u Warri, 84, Warri-Sapele Road, Effurun 005 053-254301-3; 255271 (WRPC) Uvwie u Warri Refinery, Warri Refinery And Petroleum Company 005 07029547005 u Plot 49, Olodi Oki, Okumagba Avenue, Warri 151 053-817100 u Agbor, No. 181 Old Lagos-Asaba Rd Boji Boji Owa 164 OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 283

LOCATIONS CODE TELEPHONE NUMBERS Ebonyi u Abakaliki, 2d, Ogoja Road 035 043-220843, 043-220597 u EBSU, Ebonyi State University, Abakiliki 035 043 - 220069 u Edo u Benin, 6, Akpakpava Street 036 052-258503; 052-258713 u Sapele Road, 81, Sapele Road, Benin City 108 052-253750; 253783; 259068; 255 742 u Ugbowo, No. 170, Ugbowo - Lagos Road, Benin, Edo State 109 052-602143 u Mission Road, No. 109, Mission Road, Benin 115 052-876691, 052-880593

Ekiti u Ado-Ekiti, 146, Secretariat Road 094 030-207058, 030-251872 u Ikpoba Hill, No. 123, Benin-Agbor Rd, Benin

Enugu u 22, Okpara Avenue 052 042-250979; 252193 u Plot 40, Garden Avenue 018 042-259625 D/l; 042-259624-6 S/b u Nsukka, No. 69B, Enugu / Oba Road, Nsukka 113 042- 771903, 771919, 771935, 771982 u UNN, University of Nigeria, Nsukka 113 042-770707; 771818 u 9th Mile Corner, Plot 87, Ifueke/Okwe Uwani, Ngwo, Udi, Enugu 145 042-290571-2 u 100 Agbani Rd, Enugu State 139 042-290498, 042-290499

Gombe u Gombe, No 31, Biu Road 092 072-222464;221515

Imo u Plot 6, Waast Avenue, Ikenegbu Layout 017 083-232789; 233568 u 89, Douglas Rd, Owerri 090 083-232309, 083-232232 u Orlu, Orlu International Market, Imo 103 083-300012; 520643; 520533; 520084 u Orlu Road, Amakohia, Owerri, Imo State 114 083—233136,232231 u Wetheral Road, No. 4 MCC Road, Owerri 126 083-234848,234909, 082-507201 u Imo State Secretariat, Port Harcourt Road, Owerri 090 083-483136 u FUTO Mini, Federal University Of Technology, Ihiagwa, Owerri 017 083-801255 u Building Materials Market, Naze, Owerri 090 u Mbaise Branch, Ahiara Junction 157 u 157, Okigwe Rd Branch, Owerri 152

Jigawa u Dutse, Plot C1 Sanni Abacha Way, Dutse 104 (Fax/Dl:07034045314), 07034045313/5

Kaduna u 1, Kachia Rd 012 062-236939,236867 (dl),236862 u 23, Ahmadu Bello Way 064 062-213 971-5 u Kafanchan, Along Kagoro Rd 133 08054338867;0706418887 u Aji, Command And Staff College 096 0703 4060759, 08051455144 OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 284

LOCATIONS CODE TELEPHONE NUMBERS

u Zaria, F13, Kaduna Road 127 069-330522; 330606; 331671; 875685 u Kaduna Refinery, KRPC, Kaduna 012 07029060882 u 60 Sokoto Rd. Samaru, Zaria 127 069-875749, 069-890524 u Plot AR 19/AR 20, Benin St, Kaduna Main Market, Kaduna Kano u 5b, Bank Rd 058 064-645356; 644091 u 36/38, M/Mohmammed Way 007 064-642482,640200; 064-963220 u Dawanau Mini, Dawanau Market, Along Kano- Katsina Rd 058 0703 406 3118 u Bayero University Road, C31, Kofa Wuka Duya, Kano 007 064-946190 u 2 France Rd., Sabon Gari 148 064-925572, 064-0896152

Katsina u Katsina, 6, Nagode Road 044 065-430292; 230294; 431421; 431422

Kebbi u Birnin Kebbi, No. Nw614, Sultan Abubakar Road, Birnin Kebbi 105 068 – 321 224; 07064864848

Kogi u Lokoja, Government House Junction, Murtala Mohammed Way 089 058-223041-3 u Obajana, (B2, Bank Area, Obajana Cement Factory) 100 07034050900

Kwara u Ilorin, 199, Ibrahim Taiwo Rd 042 031-743043 Sb 031- 749456

Lagos u Dobbil Plaza Avenue, Alaba International Market 068 01 – 8541095 ; 4710226 u Old Garage, Alaba International Market 024 01 8791360; 01 4809694 u 16 Creek Road 069 01-8126490 u Sagittarius Block, Eleganza Plaza, Wharf Road 010 01-5978606; 5804605; 5804608 u 30, Apapa – Oshodi Expressway, Coconut B/stop 083 01-7614536 / 7614537 u Balogun Business Association (BBA 1), Atiku Abubakar Plaza, 040 01-3455550; 3455551; 3455549; 01-8712345 Trade Fair Complex, Badagry Expressway u Balogun Business Association, (BBA 2), Bank Plaza, Trade Fair 074 01-8963944; 01-8966753; Complex, Badagry Expressway u Coker, Km 19, Lagos/ Badagry Expressway, Coker Bus Stop Orile 031 01-7743231; 8129081 u Ebute Metta, 1, Market Street, Oyingbo, Opp. Bhojsons Limited 050 01-5821253; 01- 7411423 u 10, Opebi Road, Ikeja 027 01-2711814; 2798074; 2712772; 4602020 u 60, Opebi Road, Ikeja 057 D/l:01-2798266 ,2703520,8122089 u 34, Ladipo Oluwole Street, Off Adeniyi Jones 011 01-4976904 D/l; 4976902, 8977759 u 80, Awolowo Road, Ikoyi 054 01-2696334-8; 2693706; 8753893 u Isolo, 25, Asa-afariogun Street, Ajao Estate 004 01-2719735/ 8522337; 7769866 u Balogun, 136, Balogun Street, Lagos Island 021 01-2643027-30; 26430978; 2642926,40 u Broad Street, 121, Broad Street, Lagos Island 056 01-2669543; 2667735 4710053 u Idumota, 118, Nnamdi Azikiwe Street, Lagos Island 002 01-2641826; 2641005-6; 2660858 OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 285

LOCATIONS CODE TELEPHONE NUMBERS

u Marina, 23a, ,mamman Kontagora House, Marina 008 01-2646639/2600225-9/2646732 u Oke Arin, 1, Oke Arin Street 085 01-8713017; 7614560 u Matori, 129, Ladipo Street, Matori 029 01- 2710167-9 u Ogba, 36, Ijaiye Road 080 01-4920049; 4920369; 7618687; 8752003 u Surulere, 31 Bode Thomas Str. 051 01-2793661; 8736761; 8736819 u Trade Fair Comlpex, 1, Hall 2 Aspamda Plaza, Trade Fair 028 01-7919230; 8935887; 7919706 Complex, Badagry Expressway u Trade Fair Complex 2, Aspamda Office Block 2, Trade Fair 076 01-3455528; 3455545, 8190799. Complex, Badagry Expressway u Plot 730, Adeola Hopewell Street 026 01-2626094-8; 4618732-5; 4618275; u Plot 64, Adeola Odeku Street 025 01-2601902-6 Dl:4627245 4618736 u 238, Herbert Macaulay Street, Yaba 087 01-8776148, 7647139 u Head Office, Plot 1261, Adeola Hopewell Street 016 01-2701500,2620740-80 u Tejuosho Retail, No. 6, Ojuelegba Road, Opp. Tejuosho Market 050 01-4063110; 2793331-2 u The Palms Retail Shop 41, The Palms Shopping Complex, 026 01-2714506 - 8 Victoria Island u Okota Retail, No. 116/118, Ago Palace Way, Okota 004 01-7618690 u Ikota Retail Shop, C96 -101, Ikota Shopping Complex, VGC 095 01-4613328; 4613349; 4613350 u Satellite Town Mini, Block 11, Plot 4, Old Ojo Road, Satellite Town 028 01 - 8161972 u Festac Mini, Plot 1609, E Close, 4th Avenue, Festac Town 107 01-5990415, 8919192 u Ikorodu, 83, Lagos Road 088 7642703; 7642746 ; 7324689 u Lekki, Plot 10, Block 117, Lekki Penisula 095 01-2793492; Dl: 01-2793490 u Mushin, No, 281, Agege Motor Road, Olorunsogo, Mushin 099 01-7450244 u Mafoloku, No, 77/79, Old Ewu Road, Mafoloku 099 01-7450248 u Daleko, Shops 661-670, Bank Rd, Daleko Mkt, Mushin 099 7450246 u Aluminium Village, No. 17, Ogeretedo Street, Aluminium Village, 011 01-7450245 Dopemu u Bariga, Plot 103 & 105, St. Finbarrs Road, Akoka 087 01-7450151 u Enu Owa, No. 71, Enu Owa Street, Lagos Island 102 01-2665319 u Ketu, Plot 608, Lagos - Ikorodu Road, Ketu Mile 12 088 01-7450154 u Festac, House 20, 2nd Avenue Festac Town 107 01-5590414-7 Dl-01-5590417 u Coker Mini, Agric Market, Coker-orile 031 N/A u Ogunlana Drive, 33 Ogunlana Drive, Surulere 051 01-7450153 u Iyana Ipaja, No. 166, Abeokuta Expressway, Iyana Ipaja 110 01-7450152 u Kirikiri, Karimu Street, Kirikiri Town, Apapa 083 01-7450155 u Ojuwoye Market, (190, Agege Motor Road, Ojuwoye) 099 01- 740 2240 u Nahco Shed, (Nigeria Avaition Handling Compnay, Ikeja) 027 01-7403161 u Seme Border, (Seme Border, Badagry, Lagos State) 118 07029738956 u Isheri Road, ( Plot 47, George Crescent, Ogba) 080 01- 870 1066 u Lawanson (58, Lawanson Road) 119 01-7402235 u King George V (11, King Georg V Road, Onikan) 120 01-2806077 u Jankara Market (no. 7 Idumagbo Road, Lagos Island) 002 01-7403160 u Iyana Ipaja (55/57 New Ipaja Road, Alimosho) 110 01-7349819 OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 286

LOCATIONS CODE TELEPHONE NUMBERS u Liverpool, (21, Liverpool, Apapa) 129 01-8736207 u Roro Port (Roro Port, Tin Can Island, Apapa) 010 01-8133498 u Alausa (Plot J, Asitabi Cole Street, Central Business District, 130 01-4482020; 4482021 Agidingbi) u College Road, 71, College Road, Ogba 080 017369076 u Amuwo Odofin, Plot Nos 21, 22 & 23 Opposite Abc Transport 124 01 7403093 Terminal u Jibowu, 32, Ikorodu Road, Jibowu 128 018929539, 019504876 u Maza Maza, 37, Old Ojo Rd, Ojo 135 01-7412166 u Gbagada/ifako, 20, Diya Street, Ifako, Gbagada 087 01-736-9077 u 51, Mushin Rd, Isolo 143 01-7360224 u Ilupeju, 26A & B Ilupeju Byepass, Ilupeju 140 017360852 u 11 Burma Rd, Apapa 144 017360854 u Oregun Branch, Plot E Ziatech Rd, Oregun 154 01-7359513; 01-8104818 u Iddo Market Mini, Iddo Ultra modern Market 050 01-7387489 u Ajah Branch, Lekki-epe Expressway, Opp. Oluwole Baker St 153 07-8540101 u 79/80 Awolowo Way, Ikeja 158 Nassarawa u Akwanga, Plot 1, Opposite Akwanga Police Division, Off Keffi Rd 062 047-52184 – 5 u Keffi, Plot 27, Abubakar Burga Road 073 047-620526; 620525 u 20/21 Doma Road, Lafia 060 047-221421; 047-220081 u 2, Jos Road, Lafia 075 047-220720; 047-221319 u Nassarawa State University, Keffi 073 0703 405 4060 Niger u Minna, 118, Paiko Road 043 066-223061/224297;224709 u Suleja, Opposite IBB Main Market, Along Minna Road 079 07035999408

Ogun u Abeokuta, UACN Complex, Ibara 030 039-240741; 039-2441190; 241389, 771264 u 35, Ibadan Rd, Ijebu Ode u Otta, Abeokuta Exp Km 38, Abeokuta Expressway, Sango Otta 081 (039) 721826,721828721829, DL 01-7638831 u Agbara, Plot C2/9A, Ilaro Road, Beside PHCN, Agbara Industrial 117 01-7389273 Estate, Agbara, Ogun State u Ajilete (Ajilete International Market, Yewa, Ajilete) 121 01-4533278 u Sagamu, 145, Akarigbo Street, Sagamu 137 01-7369302 u Idi Roko, Opposite Mayowa Bus-stop, Idiroko Road 131 01-4536868 Ondo u Akure, 82, Oyemekun Street 046 034-216148,02-2006172 Osun u Osogbo, 73, Gbongan-Ibadan Road, Olosan Bus-stop, Adjacent 093 035-207946; 035-207945 The Redeemed Christian Church of God OUR BRANCH LOCATIONS 2012 | ANNUAL REPORT & ACCOUNTS 287

LOCATIONS CODE TELEPHONE NUMBERS

Oyo u 11, Lebanon Street, Ibadan 022 02-2414506 D/l 02-2413063; 027522294 u 53, Iwo Rd, Ibadan 084 02- 8100123; 02- 8100130; 02-7525538 u Bodija, UI, Secretariat Road, Near Pastoral Insitute, Bodija, Ibadan 022 02-8731063 Ring Road, Moshood Abiola Way

Plateau u Old Jos Road, Bukuru 072 073-281721 – 2 u 34, Ahmadu Bello Way 055 073-457143 073-456275 u 13, Commercial Area 015 073/460798(Dl); 460997; 461311 u 1, Club Road 070 073-452331 – 3 u Katako Market, No. 68 & 70, Mallam Kure Street, Laranto 015 073-612 992 u University of Jos, Jos 055 073-613991

Rivers u Aba Road, 145, Aba Road, PH 086 084-232285; 794352; 232270; 794351 u 222 Ikwerre Road, PH 009 084-237920(Sb); 231062, 796844(Dls) u 48, Ikwerre Road, PH 063 Dl: 084-754296; 231641; Fax: 231647 u Bonny Island, PH 023 084-270728; 270730; 270729;556926 u FOT Onne, Federal Ocean Terminal (FOT), FOT Onne, ITT Base 037 084784675 u Trans Amadi, Plot 71, Elekahia Industrial Estate Road, PH 003 084-239685;461069,239689 u 1, Odual Rd, PH 003 084768340 u PPMC, Eleme Refinery, PH 037 084-797680 u 13, Old Aba Road, PH 086 084,236612; 799131 u 316, Aba Road, PH 003 084-740076 u Oyigbo, No. 11, Location Road, Obigbo, PH 136 084-894862

Sokoto u Sokoto, No.541, Along Gusau Rd 047 08082521075; 08036465013

Taraba u 194 Jalingo, Hamman Ruwa Way, Jalingo 098 079-224162;079-224174 Yobe u Damaturu, 596A, Njiwaji Layout, Opposite Central Mosque, 091 074-521738 Dl, 074-521739 Maiduguri Rd u Potiskum, Plot 1140 &1141, Idris Muhammad Way 159

Zamfara u Gusau, 160, Sani Abacha Way, Gusau 101 08136100800 PROXY FORM

RESOLUTIONS FOR AGAINST ABSTAIN I/We* 1. That the Audited Financial Statements for the period ended December 31, 2012, and the reports of the Directors, Auditors and Audit Committee thereon be and are hereby approved. being a member/members of DIAMOND BANK PLC hereby appoint** 2. i. That having offered themselves up for re-election, and being eligible, Mr. Chris Ogbechie, Mr. Ian Greenstreet and Ms. Ngozi Edozien be and are hereby re-elected as Directors of Diamond Bank Plc.

ii. That the appointment of Mrs. Ifueko Marina Omoigui Okauru as an Independent Director, be and is hereby ratified. of iii. That the appointment of Mr. Allan Christopher Michael Low as a Non-executive Director be and is hereby ratified.

iv. That the re-election of HRM Igwe Nnaemeka Alfred Ugochukwu Achebe, who is over 70 years of age as Director be and is hereby or failing him/her the Chairman of the meeting as my/our approved. Proxy to act and vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on 3. That the appointment of Messrs KPMG as the new Auditors of the Company be and is hereby ratified. 30th April 2013 and at any adjournment thereof. 4. That the Directors be and are hereby authorised to fix the remuneration of the Auditors.

5. That the appointment of the members of the Audit Committee be and is hereby approved. Dated this day of 2013 6. That the authorized share capital of the Company be and is hereby increased from N10,000,000,000 (Ten Billion Naira) to N15,000,000,000 (Fifteen Billion Naira) by the creation of additional 10,000,000,000 ordinary shares of 50 Kobo each, ranking pari passu in Signature all respects with the existing ordinary shares of the Company”

7. That the Memorandum and Articles of Association of the Company be and is hereby amended as follows: by deleting clause 7(a) of the Memorandum and substituting it with:

“The share capital of the Company is N15,000,000,000 (Fifteen Billion Naira) divided into 30,000,000,000 (Thirty Billion) ordinary shares of 50 Kobo each”

8. That subject to the approval of regulatory authorities, the Directors be and are hereby authorized to raise additional capital of up to $750,000,000 (Seven Hundred and Fifty Million United States Dollars) or its Naira equivalent through the issuance of any form of debt and/or equity and/or any other instrument which may be appropriate to meet the Bank's capital requirements, to be undertaken by way of a rights issue and/or an Offer for Subscription with or without a preferential allotment, either locally or internationally and upon such terms and conditions as the Directors may deem fit in the interest of the Bank for the purposes of enhancing the Bank's working capital and financing business development initiatives

9. That subject to the approval of the regulatory authorities, the Directors be and are hereby authorized that in the event of over subscription, excess monies arising from the Offer be absorbed to the extent required by the Bank

10. That the remuneration of the Directors in the sum of N124,000,000.00 be and is hereby approved

11. That Clause 104 of the Articles of Association be amended by deleting and substituting it with:

“The Directors shall provide for the safe keeping of the seal, which shall be used by the authority of the Directors or of a Committee of the Directors authorised by the Directors in that behalf and every instrument to which the seal shall be affixed shall be signed by a Director and shall be counter-signed by the Secretary, or by a second Director or signed by two other persons appointed by the Directors from time to time for the purpose” Note: Please sign this form and return it to the Company 12. That Clause 85 of the Articles of Association be amended by deleting and substituting it with: Secretary not later than 48 hours before the time fixed for the meeting. If executed by a Corporation, this form “However, a Director shall abstain from discussions and voting on any matter in which the Director has or may have conflict of interest” should be sealed under its common seal or under the hand Please indicate with ”X” in the appropriate space above how you wish your votes to be cast on the Resolutions set above. Unless otherwise of some officer or an attorney duly authorized in writing. instructed the proxy will vote or abstain from voting at his discretion.

*Shareholder's name to be inserted in BLOCK CAPITALS in the blank space marked. In the case of joint shareholders, anyone of such may complete this form, but the names of all joint holders may be inserted. **In keeping with the normal practice, the Chairman of the Meeting has been entered on the form to ensure that someone will be at the Meeting to act as your proxy, but you may insert the name and address of any person, whether a member of the Company or not, who will attend the meeting and vote on your behalf. Note: Any instrument appointing a proxy to vote at a meeting must be duly stamped in accordance with the provisions of the Stamp Duties Act.

DIAMOND BANK PLC 22ND ANNUAL GENERAL MEETING PLEASE ADMIT THE SHAREHOLDER NAMED ON THIS FORM OR HIS DULY APPOINTED PROXY TO THE ANNUAL GENERAL MEETING TO BE HELD ON 30TH APRIL 2013 AT THE CIVIC CENTER,OZUMBA MBADIWE ROAD, VICTORIA ISLAND, LAGOS, AT 10.00A.M PROMPT.

Name of Shareholder

Signature of Shareholder Signature of Person Attending PLEASE AFFIX STAMP HERE E-DIVIDEND MANDATE

Please take this as authority to credit my under-mentioned account(s) with any dividend payment(s) due on my shareholdings, which are stated below from the date hereof:

Names (in full) Shareholder Account Number(s)

Contact address City State

Bank Name and Branch Bank Account Number

Mobile phone number E-mail address

Shareholders Signature Date

Bank Authorised signatory Bank stamp /seal Bank Authorised Signatory Name & Sign. Page Number Name & Sign. Page Number

Completed forms and a copy of your valid identification material should be returned to CENTURION REGISTRARS LIMITED, 59, Ogunlana Drive, Surulere, Lagos. For further information call us on 01-2710574 or email [email protected].

To implement this for your holdings in other companies we manage, kindly tick as appropriate

C&Leasing Plc Linkage Assurance Plc Vital Products Plc Nigeria Wire Industries Plc

For Administrative Use Only:

Date received

Action taken Date

Action taken Date

Centurion Registrars Limited | 59 Ogunlana Drive | Surulere | Lagos | Nigeria Tel: 01-2710574, 8446896 e-mail:[email protected] CORPORATE INFORMATION 2012 | ANNUAL REPORT & ACCOUNTS 290 Registered Offices

PGD’s Place, HEAD OFFICE Plot 4, Block V, BIS Way, Oniru Estate, Victoria Island, Lagos

Tel: 234 1 270 1500, 234 1 262 0740 - 9 Fax: 234-1-261 9728 Website: www.diamondbank.com Email: [email protected], [email protected]

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Rue 308 du Reverend Pere Colineau-Ganhi DIAMOND BANK BENIN 01 BP 955 Cotonou, BENIN

Tel: +229 21 31 97 97, +22 21 31 98 98 Fax: +229 31 21 42

41, rue Carnot Dakar, Senegal DIAMOND BANK SENEGAL Tel: +221 33 829 69 00 Fax: +221 33 821 56 92

3519, Boulevard du 13 Javier DIAMOND BANK TOGO Tel: +228 253 1000, +228 253 1001, +228 253 1002

Angle Avenue Terrasson de Fougeres st rue Courgas, DIAMOND BANK COTE D’IVOIRE Immeuble Ivotel -Abidjan, Plateau 01 BP 11920 Abidjan 01

Tel: +225 20 30 95 96 Fax: +225 20 30 94 49

36 - 38, Leadenhall Street, DIAMOND BANK UK London, EC3A 1AT UK

Diamond Bank PLC PGD's Place, Plot 4, Block V, BIS Way, Oniru, Estate Victoria Island, Lagos t: 234-01-2701500, 234-1-2620740 - 9, f: 234-1-2619728 e: [email protected] www.diamondbank.com