Zenith Bank : Pillar 3 Disclosure Report December 2022

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

9

1.7

Minimum capital requirements

11

1.8

Updates on local regulatory landscape

12

2

RISK MANAGEMENT

14

2.1

Enterprise risk management (ERM) Framework

14

2.2

Risk management philosophy/strategy

14

2.3

Risk management approach

14

2.4

Risk governance

15

2.5

Risk appetite

16

2.6

Stress testing

16

2.7

Global risk function

17

3 CAPITAL MANAGEMENT AND LEVERAGE

18

3.1

Capital management approach and policy

18

3.2

Regulatory capital structure and capital adequacy

18

3.3

Summary of Capital Adequacy

21

3.4

Leverage

21

4

CREDIT RISK

23

4.1

Credit risk

23

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Zenith Bank Plc - December 2022 Pillar 3 Disclosure

4.2

Sources of risk

23

4.3

General Disclosures

23

4.4

Measurement of Credit Risk

26

4.5

Management of Credit Risk

27

4.6

Risk mitigation

28

4.7

Capitalization

31

5

MARKET RISK

32

5.1

Market Risk

32

5.2

Sources of risk

32

5.3

Management of market risk

32

5.4

Measurement of market risk

33

5.5

Risk mitigation

34

5.6

Capitalization

34

6

OPERATIONAL RISK

35

6.1

Operational risk

35

6.2

Sources of risk

35

6.3

Risk mitigation

35

6.4

Capitalization

35

7 INTERNAL CAPITAL ADEQUACY AND ASSESMENT PROCESS (ICAAP)

37

7.1

Material Risk Identification and Assessment

37

7.2

Credit Concentration Risk

39

7.3

Interest Rate Risk in the Banking Book

40

7.4

Strategic Risk

41

7.5

Liquidity Risk

43

7.6

Group Risk

44

7.7

Regulatory Compliance Risk

45

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Zenith Bank Plc - December 2022 Pillar 3 Disclosure

7.8

Fraud Risk

46

7.9

Reputational Risk

47

7.10

Information Technology Risk

48

7.11

Cyber Security Risk

49

7.12

Business Risk

50

7.13

Legal Risk

51

7.14

Ratings Downgrade Risk

52

7.15

Model Risk

53

7.16

Environmental and Social (E&S) Risk

54

8 LIQUIDITY RISK

56

8.1

Liquidity risk

56

8.2

Internal Liquidity Adequacy Assessment Process (ILAAP)

56

8.3

Liquidity coverage ratio (LCR)

60

8.4

Net Stable Funding Ratio (NSFR)

61

8.5

Overview of Zenith Bank's Contingency Funding Plan

62

9 EQUITY POSITION: DISCLOSURE FROM THE BANKING BOOKS

64

9.1

Level 3 fair value measurements

64

10

RENUMERATIONS

67

10.1

Remuneration policy

67

Zenith Bank Plc - December 2022 Pillar 3 Disclosure

LIST OF TABLES

Table 1: Key metrics as at 31 December 2021

9

Table 2: IFRS 9 Static analysis

10

Table 3: Pillar 1 risk measurement approaches

11

Table 4: Pillar 1 RWAs and capital required

12

Table 5: Regulatory capital disclosure and capital adequacy as at 31st December, 2021

19

Table 6: Risk Weighted Assets as at 31st December, 2022

21

Table 7: Leverage ratio as at 31st December, 2021

22

Table 8: Credit risk by exposure class as at 31 December 2021

23

Table 9: Credit quality of loans by Industry or counterparty types

24

Table 10: Credit quality of loans per geographical region

25

Table 11: Credit quality of loans by ratings

25

Table 12: Credit quality of loans per residual contractual maturity

26

Table 13: Credit Risk Capital Charge

31

Table 14: Market risk capital charge

34

Table 15 Operational risk capital charge

36

Table 17: Risk Assessment Findings

38

Table 16: Liquidity risk drivers and materiality assessment

57

Table 17: Liquidity Coverage Ratio

61

Table 18 Net Stable Funding Ratio (NSFR)

61

Table 19: Unobservable inputs used for level 3 fair value measurements

65

Table 20: Effect of unobservable inputs on fair value measurements

65

Table 21: Effect of changes in cost of equity and terminal growth rate on other comprehensive

income

67

Table 22: Directors emoluments

68

Table 23: Directors emoluments

68

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