Director's Report
In line with international best practices, FirstBank and its subsidiaries continued in the current year to enhance its corporate governance standards by improving on the level of risk management disclosure in the published financial statements.
The Board of Directors having recognised that an appropriate level of timely disclosure is beneficial to all stakeholders has given its full support to this process to boost the confidence of the market in the Bank and its subsidiaries. Our aim is to continue to enhance the level and quality of disclosures year on year, even as a regulatory framework for risk management disclosure is evolving.
The operating environment in the year just concluded was extremely challenging, and it tested the risk management philosophy and soundness of the Group. The year started on the usual highly competitive note, with the attendant pressure for increase in market share by the industry players. In the year under review, FirstBank Group also reinforced its strategic imperative of growth, service excellence and people/ performance management. Industry events, however, took a different turn, as a special audit of banks was initiated under the leadership of the new Governor of the Central Bank of Nigeria, which resulted in the intervention of the CBN in eight banks. The outcome of this singular exercise jolted the industry and consequently slowed down activities. However, it accentuated the importance of sound risk management practices and caused banks to reassess their priorities.
This development ironically opened up opportunities for the FirstBank Group to further consolidate on its strategic imperatives.
For us at FirstBank, a major consequence of a revamped regulatory framework was an influx of credit applications as access to credit in the industry became restricted. Therefore the Bank took conscious action to tighten its risk acceptance criteria in order to ensure that funds are committed only to viable projects and good-quality risk assets. The industry also experienced a squeeze on foreign currency lines even as the impact of global economic recession remains unabated. Nonetheless, risk asset portfolio growth of 44.8% (including advances under finance levy) was recorded in the nine-month period, a slight drop on the prior year level of 59%, even on a pro-rata basis.
As a means of enhancing the credit process, the Specialised Lending Department kicked off in the current year. Infrastructure/project financing is now subjected to rigorous risk assessment by a team that is well skilled for the function. This structure has helped the Bank carefully select oil and gas and real estate types of projects and monitor timely delivery on the projects. Opportunities in alternative assets are also being pursued across the Group, and requisite risk management competencies will be built in the teams.
The FirstBank Group will continue to focus on maintaining a granular and well-diversified retail portfolio in view of its higher margins and dilution of portfolio concentration. The Group will only take large exposures in low-risk transactions that can be well managed and are backed by tradable instruments.
Even though access to credit at industry level is limited, the Group has continued to support economic growth by granting various facilities to start up companies with good business plans and to foster infrastructure development projects.
The impact of the systemic crisis generated by the collapse of the capital markets and oil and gas downstream sector continued to hit hard on the banking industry in the year under review. CBN took a prudent position on this segment of the industry's loan portfolio, requiring appropriate provisioning and disclosure, and has helped in restoring confidence in the industry. We have fully provided for our capital market exposures in accordance with the Prudential Guidelines and marked our portfolio to market in those subsidiaries engaged in proprietary trading.
The Group did not have any major exposure to the downstream oil sector. Exposures to middle market names and other large exposures to the oil and gas service industry are being kept under close radar for proactive monitoring with the view to ensure good performance. The Group will continue to set prudent concentration limits and monitor adherence.
The naira remained relatively stable and reduced the exchange rate risk in the portfolio. Across the Group, we have identified the market risk sources in the banking and trading books and have ensured they are properly mitigated and monitored. We will also work at completing implementation of the Basle 2 framework and use it to determine economic capital adequacy in line with best practice.
A significant milestone in the socio-political terrain was recorded in the year, as the Federal Government of Nigeria commenced discussion with the Niger Delta militant groups, and granted amnesty to those who have taken advantage of the offer and resettled displaced persons. The negotiation is still in progress and relative peace is being restored in the polity.
The general security situation remains an area of concern, and with a view to minimising operational losses, the FirstBank Group has continued to strengthen control mechanisms for curbing robbery attacks on banks, technology fraud carried out on the electronic banking platform, operational lapses and customer complaints.
Operational risk is managed within acceptable levels through appropriate management focus and resources.
In line with international best practice, we continue to ensure that our policies and operational guidelines are not only geared towards the effective management and control of identifiable legal risks but are also designed to enable the Group and its officers to appreciate legal constraints relating to business activity and structure transactions appropriately.
FirstBank, in furtherance of its Information Security Risk Management integrated approach, has adopted the ISO 27001 standard, which has a fundamental objective to ensure the confidentiality, integrity and availability of its information assets.
The Information Security Forum (ISF) has been set up, bringing management staff together to deliberate on security trends and emerging issues. The ISF is assigned the responsibility of establishing and maintaining organisation-wide information security (policy, standards and procedures) and ensuring staff compliance with these standards.
The FirstBank Group has consistently promoted a strong compliance culture, through submission of regulatory reports and adherence to operative guidelines.
FirstBank has confirmed its commitment to environmental and social responsibility and sustainability and has adopted the Equator Principles (EP). The value in doing this is that it allows all potential levels of impact of a project to be assessed holistically, rather than just the financial risk that a bank would normally consider.
Following this introduction is our enterprise risk management framework, which highlights key risk areas (credit, market and liquidity, operational, legal, information security and compliance). The purpose is to give a clear view of the major risks we believe are faced by the FirstBank Group and the role of the Board and Management in managing these risks. We will continue to aim at maintaining a balance between providing useful information that enhances transparency and our responsibility to protect customer and counterparty information/data.
The disclosures in this report are a demonstration of our commitment to sound corporate governance, which remains a thrust for the FirstBank Group.
Remi Odunlami
Chief Risk Officer
