Statement of Significant Accounting Policies

for the year ended March 31, 2009

The following represent the statement of significant accounting policies adopted by the Group in the preparation of its financial statements:

1. Basis of Accounting

The financial statements are prepared under the historical cost convention modified to include the revaluation of certain land and buildings.

 

2. Basis of Consolidation

i) Subsidiaries

The Group financial statements incorporate the financial statements of the Bank and eight of its wholly-owned subsidiaries namely: FBN Bank (UK) Limited, FBN Capital Limited, First Trustees Nigeria Limited, First Registrars Nigeria Limited, FBN Mortgages Limited, FBN Insurance Brokers Nigeria Limited, First Pension Custodian Limited and First Funds Limited all made up to 31 March. Control exists when the Bank has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

In line with the Statement of Accounting Standards (SAS) 27, the operating result of First Funds Limited is being consolidated during the year for the first time.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

ii) Investments in associated company

Investments in associated company are carried on the balance sheet on equity basis in line with SAS 28. Profit and losses are eliminated to the extent of the Group's interest in the associated company.

iii) Foreign operations

The assets and liabilities of foreign entities are converted to naira at the ruling exchange rates at the reporting date except for share capital and pre-acquisition reserve, which are translated at their historical rates. Income and expenses are translated to naira using average rates. Difference arising from this is taken to exchange difference reserve.

 

3. Cash and Balances with Central Bank

Cash and balances with Central Bank comprise cash balances on hand, balances with the Central Bank of Nigeria and other banks and financial institutions (local and foreign). The balance is stated less provision for doubtful balances.

 

4. Treasury Bills

Holdings in treasury bills are stated at face value as it is the Bank’s policy to hold these to maturity.

 

5. Marketable Securities

Marketable securities held by the Bank and Group are valued at the lower of cost and market value, determined on an item-by-item basis. Unrealised losses are charged to the profit and loss account.

All gains and losses from sale of marketable securities are reported in the profit and loss account.

 

6. Trading Securities

Trading securities comprise government bonds and other securities.

1. Trading securities held for fixed redemption date are stated at cost.
2. Dealing securities are stated at market value.
3. Premiums and discounts arising on purchase are amortised on the yield to redemption.

 

7. Investments

Investments are classified as short- or long-term investments.

i) Short-term investments

Debt and equity securities held for a period not exceeding one year are classified as short-term investments.

ii) Long-term investments

Investments intended to be held for over a period exceeding one year, which are either held to maturity or available for sale in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as long-term investments.

iii) Valuation

1. Quoted investments other than dated securities are stated:
   • – At the lower of cost and market value for short-term investments;
   • – At cost for long-term investments. Provision is made for permanent diminution in the value of the investments.
2. Unquoted investments are held as long term and stated at cost less provision for diminution in values.
3. Dated securities are stated at cost.
4. Investments in subsidiaries are stated at cost.

 

8. Investment Properties

Investment properties which are held for capital appreciation and subsequent disposal, are measured initially at their cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. They are stated at cost or net realisable value.

 

9. Bad and Doubtful Accounts

Loans and advances are stated after the deduction of provisions against debts considered doubtful of recovery. Loans are classified as performing and non-performing and are considered non-performing when principal and or interest repayment obligations are in arrears for over three months. Specific provisions are made on non-performing accounts as follows:

Interest and/or principal outstanding for	Classification	Provision
More than 90 days but less than 180 days	Sub-standard	10%
180 days but less than 360 days	Doubtful	50%
360 days and over	Lost	100%

A general provision of 1% is made on all performing balances in line with the Prudential Guidelines of the Central Bank of Nigeria.

 

10. Interest

Interest on advances is accrued to profit until such a time as reasonable doubt exists about its collectability. Interest accruing on non-performing accounts is treated as interest in suspense and not taken to the credit of profit and loss account until the debt is recovered.

 

11. Advances Under Finance Lease

Advances to customers under finance leases are stated net of unearned income. Lease finance is recognised in a manner, which provides a constant yield on the outstanding net investment over the lease period.

Provisions are determined from a specific assessment of each customer's account and relate to those advances considered doubtful in line with the Central Bank of Nigeria Prudential Guidelines for Licensed Banks. A general provision of 1% is made on advances which have not been specifically provided for.

Income arising there from is allocated to each year on the basis of the annual finance charges that are equivalent to the implicit interest rate agreed on the facility.

 

12. Fixed Assets

Fixed assets are stated at cost or valuation less accumulated depreciation.

 

13. Depreciation

Depreciation is provided to write off the cost of fixed assets over their estimated useful lives on a straight line basis at the following annual rates:

• Freehold buildings – 2% from date of use
• Leasehold buildings – 2% for leases of 50 years and above over expected life in case of leases under 50 years
• Motor vehicles – 25%
• Computer equipment – 33⅓%
• Furniture & fittings – 20%
• Plants & Machinery – 20%

 

14. Foreign Currencies

Transactions in foreign currencies are translated to naira at the rate of exchange ruling at the date of the transactions.

Foreign currency balances are converted to naira at the rate of exchange ruling at the balance sheet date and the resultant profit or loss on conversion is taken to profit and loss account in respect of Bank-owned funds and the rest charged/credited to third parties.

 

15. Taxation

i) Income tax

Income tax is provided on taxable profit at the current statutory rate.

ii) Deferred taxation

Deferred taxation, which arises from timing differences in the recognition of items for accounting and tax purposes, is calculated using the liability method. Deferred income tax assets and liabilities are measured at the rates that are expected to apply to the year when the asset is realised or the liability settled, based on the tax rates and tax laws that have been enacted at the balance sheet date.

 

16. Borrowings

Borrowings are recorded at the proceeds received, plus direct issue costs. The capitalised direct issuing costs are amortised over the tenor of the underlying instrument.

 

17. Dividends

Dividends to shareholders are recognised as liabilities only when declared and agreed by the shareholders at the Annual General Meeting.

 

18. Retirement benefits

Arrangements for retirement benefits for members of staff are based on the provisions of the Nigeria Pension Reform Act 2004, which is contributory. The matching contributions of 8.5% and 16.5% for staff and Bank respectively are based on current salaries and eligible allowances and are charged to the profit and loss account. Membership of the scheme is open to members upon confirmation of employment with the Bank.

 

19. Off Balance Sheet Engagements

Transactions that are not currently recognised as assets or liabilities in the balance sheet but which nonetheless give rise to credit risks, contingencies and commitments are reported off balance sheet. Such transactions include letters of credit, bonds, guarantees, indemnities, acceptances, trade related contingencies such as documentary credit, etc.

Outstanding and unexpired commitments at year end in respect of these transactions are shown by way of note to the financial statements.

Income on off balance sheet engagements is in form of commission, which is recognised as and when transactions are executed.

 

20. Earnings per Share

The Group and the Bank present basic earnings per share (EPS) for ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of shares outstanding during the year.

 

21. Income Recognition

i) Interest income and interest expense

Interest is accrued on daily balances on all assets and liabilities to which interest is applicable.

ii) Fees, commissions and other income

Fees and commissions, where material, are amortised over the life of the related service. Otherwise fees, commissions and other income are recognised as earned upon completion of the related service.

iii) Lease finance income

This is recognised on a basis that provides a constant yield on the outstanding principal over the lease term.

iv) Dividend

This is recognised on actual basis and credited to the profit and loss account.

v) Custody fee income

This is recognised on accrual basis when the service is rendered and is net of taxes.

vi) Financial advisory

This is recognised over the period for which the service is provided.

 

22. Provision

Provision is recognised when the Bank has a present obligation whether legal or constructive as a result of a past event for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in accordance with the Statement of Accounting Standard (SAS) 23.

 

23. Managed Funds

Managed funds represent funds invested by some subsidiaries on behalf of customers.

 

24. Segment Reporting

A segment is a distinguishable component of the Bank and Group that is engaged in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risk and rewards that are different from those of other segments.

Segment information is presented in respect of the Bank's and Group's business and geographical segments. The business segments are determined by management based on the Bank's internal reporting structure.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.