Zenith Bank : Pillar 3 Disclosure Report June 2023

Zenith Bank Plc.

Pillar 3 Disclosures

Report

June 2023

Zenith Bank Plc - June 2023 Pillar 3 Disclosure

TABLE OF CONTENT

Glossary of terms	1
1 INTRODUCTION AND EXECUTIVE SUMMARY	4
	1.1	The Bank Overview	4
	1.2	Business Activities	4
	1.3	Zenith Bank's Legal Entities	6
	1.4	Objectives	7
	1.5	Scope of application	7
	1.6	Key prudential metrics	10
	1.7	Minimum capital requirements	11
	1.8	Updates on local regulatory landscape	12
2	RISK MANAGEMENT	13
	2.1	Enterprise risk management (ERM) Framework	13
	2.2	Risk management philosophy/strategy	13
	2.3	Risk management approach	13
	2.4	Risk governance	14
	2.5	Risk appetite	14
	2.6	Stress testing	15
	2.7	Global risk function	16
3 CAPITAL MANAGEMENT AND LEVERAGE	17
	3.1	Capital management approach and policy	17
	3.2	Regulatory capital structure and capital adequacy	17
	3.3	Summary of Capital Adequacy	19
	3.4	Leverage Ratio	20
4	CREDIT RISK	21
	4.1	Credit Risk	21
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Zenith Bank Plc - June 2023 Pillar 3 Disclosure
	4.2	Sources of risk	21
	4.3	General Disclosures	21
	4.4	Measurement of Credit Risk	24
	4.5	Management of Credit Risk	26
	4.6	Risk mitigation	27
	4.7	Capitalization	29
5	MARKET RISK	30
	5.1	Market Risk	30
	5.2	Sources of risk	30
	5.3	Management of market risk	30
	5.4	Measurement of Market Risk	31
	5.5	Risk mitigation	31
	5.6	Capitalization	32
6	OPERATIONAL RISK	33
	6.1	Operational risk	33
	6.2	Sources of risk	33
	6.3	Risk mitigation	33
	6.4	Capitalization	33
7 INTERNAL CAPITAL ADEQUACY AND ASSESMENT PROCESS (ICAAP)	35
	7.1	Material Risk Identification and Assessment	35
	7.2	Credit Concentration Risk	36
	7.3	Interest Rate Risk in the Banking Book	37
	7.4	Strategic Risk	38
	7.5	Liquidity Risk	38
	7.6	Group Risk	40
	7.7	Regulatory Compliance Risk	41
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Zenith Bank Plc - June 2023 Pillar 3 Disclosure
7.8	Fraud Risk	41
7.9	Reputational Risk	42
7.10	Information Technology Risk	42
7.11	Cyber Security Risk	43
7.12	Business Risk	44
7.13	Legal Risk	44
7.14	Ratings Downgrade Risk	45
7.15	Model Risk	46
8	LIQUIDITY RISK	47
8.1	Liquidity risk	47
8.2	Internal Liquidity Adequacy Assessment Process (ILAAP)	47
8.3	Liquidity coverage ratio (LCR)	51
8.4	Net Stable Funding Ratio (NSFR)	52
8.5	Overview of Zenith Bank's Contingency Funding Plan	52
9 EQUITY POSITION: DISCLOSURE FROM THE BANKING BOOKS	54
9.1	Level 3 fair value measurements	54
10	RENUMERATIONS	57
10.1	Remuneration policy	57

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure
LIST OF TABLES
Table 1: Key metrics as at 30 June 2023	10
Table 2: IFRS 9 Static analysis	11
Table 3: Pillar 1 RWAs and capital required	11
Table 4: Regulatory capital disclosure and capital adequacy as at 30th June, 2023	18
Table 5: Risk Weighted Assets and Capital Adequacy Ratio as at 30th June 2023	19
Table 6: Leverage ratio as at 30th June 2023	20
Table 7: Credit risk by exposure class as at 30thJune, 2023	21
Table 8: Credit quality of loans by Industry or counterparty types	22
Table 9: Credit quality of loans per geographical region	23
Table 10: Credit quality of loans by ratings	23
Table 11: Credit quality of loans per residual contractual maturity	24
Table 12: Credit Risk Capital Charge	29
Table 13: Market risk capital charge	32
Table 14 Operational risk capital charge	34
Table 15: Liquidity risk drivers and materiality assessment	48
Table 16: Liquidity Coverage Ratio	51
Table 17 Net Stable Funding Ratio (NSFR)	52
Table 18: Unobservable inputs used for level 3 fair value measurements	55
Table 19: Effect of unobservable inputs on fair value measurements	55
Table 20: Effect of changes in cost of equity and terminal growth rate on OCI	56
Table 21: Directors renumerations	57
Table 22: Director's emoluments	58

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure
LIST OF FIGURES
Figure 1: Overview of Zenith Bank Group	6
Figure 2: Legal entity structure	6
Figure 3: Zenith Bank's Plc. Statement of Financial Position as at 30 June 2023	8
Figure 4: Zenith Bank's Plc. Statement of Comprehensive Income for the six months period ended
30 June 2023	9
Figure 5: Credit rating grade	25

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure

GLOSSARY OF TERMS

Acronym	Meaning
AIRB	Advanced Internal Rating Based Approach
ALCO	Assets and Liabilities Management Committee
ALM	Asset and Liability Management
AML	Anti-Money Laundering
BAU	Business as Usual
BCBS	Basel Committee on Banking Supervision
BCC	Board Credit Committee
BCP	Business Continuity Plan
BOD	Board of Directors
BRMC	Board Risk Management Committee
CAGR	Compound Annual Growth Rate
CAR	Capital Adequacy Ratio
CBN	Central Bank of Nigeria
CCB1	Capital Conservation Buffer
CCB2	Countercyclical Buffer
CET1	Common Equity Tier 1
CFP	Contingency Funding Plan
CRO	Chief Risk Officer
DCF	Discounted Cash Flow
D-SIB	Domestic Systemically Important Bank

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure

Acronym	Meaning
EBA	European Banking Authority
ECL	Expected Credit Loss
ERM	Enterprise-wide Risk Management
EVE	Economic Value of Equity
EXCO	Executive Committee
FC&SP	Financial Control and Strategic Planning
HHI	Herfindahl-Hirschman Index (HHI)
HQLA	High Quality Liquid Assets
ICAAP	Internal Capital Adequacy Assessment Process
IFRS	International Financial Reporting Standard
IIBU	Institutional and Investment Banking
ILAAP	Internal Liquidity Adequacy Assessment Process
IMA	Internal Model Approach
IRRBB	Interest Rate Risk in the Banking Book
LCR	Liquidity Coverage Ratio
LeR	Leverage Ratio
NDIC	Nigeria Deposit Insurance Corporation
NSFR	Net Stable Funding Ratio
OCI	Other Comprehensive Income
RMG	Risk Management Group
RWA	Risk Weighted Assets

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure

Acronym	Meaning
SA	Standardised Approach
VaR	Value at Risk

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Zenith Bank Plc - June 2023 Pillar 3 Disclosure

1 INTRODUCTION AND EXECUTIVE SUMMARY

1. The Bank Overview
   Zenith Bank Plc was incorporated in Nigeria under the Companies and Allied Matters Act as a Private Limited Liability Company on 30 May 1990. It was granted a banking license in June 1990 and commenced operations as a commercial banking institution on 16 June 1990. This was followed by the conversion of the Bank into a Public Limited Liability Company on 20 May 2004 and the listing of its shares on the Nigerian Stock Exchange on 21 October 2004. The Bank's principal activity is the provision of banking and other financial services to corporate and individual customers.
   As at 30 June 2023, the Bank has six subsidiary companies namely, Zenith Bank (Ghana) Limited, Zenith Pensions Custodian Limited, Zenith Bank (UK) Limited, Zenith Bank (Sierra Leone) Limited, Zenith Bank (The Gambia) Limited and Zenith Nominees Limited. During the period under review, the Bank did not open any new branch and no branch was closed. As at 30 June 2023 the Group had 446 branches, 196 cash centers; 2,111 ATM terminals; 289,322 POS terminals and 23,574,275 cards issued to its customers. (31 December 2022: 446 branches, 166 cash centers, 2,108 ATM terminals, 233,024 POS terminals and 21,832,175 cards issued).
   Its businesses and affairs are conducted through local branch networks and subsidiary banks in other countries. All the branches are linked by technologically advanced systems, thereby aiding banking transactions across the country.
2. Business Activities
   Zenith Bank Plc's service offerings cover most aspects of banking and cater to banking needs of public and private sector clients. The Bank's service offerings largely constitute its core business lines including Corporate Banking, Institutional and Investment Banking, Retail Banking and Public Sector Banking.

1.2.1 Corporate Banking

The Bank's corporate banking business line offers a wide range of services to multinationals, large-local conglomerates, and corporate clients. The Bank focuses on cost effective deposits from the retail end of the market to lend to the corporate end with emphasis on emerging business opportunities. The unit is focused on providing superior banking services and customized banking products to the top tier of the market. Within this business line, industry specific desks or sub- units exist to facilitate efficient and effective management of the relationships with the unit's

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