FirstBank’s capital management approach is driven by its strategy and organisational requirements, taking into account the regulatory and commercial environment in which it operates. It is the Bank’s policy to maintain a strong capital base to support the development of its business and to meet regulatory capital requirements at all times.
Through its corporate governance processes, the Bank maintains discipline over its investment decisions and where it allocates its capital, seeking to ensure that returns on investment are appropriate after taking account of capital costs.
The Bank’s strategy is to allocate capital to businesses based on their economic profit generation and, within this process, regulatory and economic capital requirements and the cost of capital are key factors.
FirstBank’s capital is divided into two tiers:
- Tier 1 capital comprises core equity tier 1 capital comprising ordinary shares, statutory reserves, share premium and general reserves. The book values of goodwill, intangible assets, unpublished losses and under provisions are deducted in arriving at core equity tier 1 capital.
- Tier 2 capital comprises qualifying subordinated loan capital, preference shares, general provisions, debenture stock, minority and other interests in tier 2 capital and unrealised gains arising from the fair valuation of equity instruments held as available-for-sale. Tier 2 capital also includes reserves arising from the revaluation of properties and foreign reserves.
The Central Bank of Nigeria prescribed a minimum limit of 10% of total qualifying capital/total risk weighted assets as measure of capital adequacy of banks in Nigeria. Total qualifying capital consists of tier 1 and 2 capital less investments in unconsolidated subsidiaries and associates. The total risk weighted assets reflects only credit and counterparty risk.
The Group achieved capital adequacy ratio of 20.35% at the end of the year; an improvement from 15.80% recorded for the period ended December 2009. Though the regulatory requirement is 10%, FirstBank has a minimum internal target of 16%. Current position is closely monitored and reported fortnightly to the Assets and Liabilities Management Committee.
In June 2006, the Basel Committee on Banking Supervision published International convergence of Capital Measurement and Capital Standards, known as Basel II. Basel II is structured around three ‘pillars’: minimum capital requirements, supervisory review process and market discipline. Though there has been no regulatory requirement for banks in Nigeria to comply, FirstBank has embarked on a Basel II compliance project. The successful conclusion will allow the Bank’s capital measurement to reflect market and operational risk exposures on the assets of the Bank.
The Bank’s initiative is in tandem with regulatory actions which embraced the framework and accordingly set up a committee called the CBN/NDIC Committee on the new accord to oversee the adoption of the capital accord. The road map for implementation has been issued in a memorandum to the Bankers’ committee on the implementation of the new capital accord in Nigeria.