Annual Report & Financial Statements 31st December 2011 · 2012-08-06 · Annual Report & Financial Statements 31st December 2011 3 † Dividends are accounted for in the year in

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Annual Report & Financial Statements 31st December 2011

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Financial Highlights

UNION BANK UK plcAnnual Report & Financial Statements31st December 2011

3

† Dividends are accounted for in the year in which they were declared.

# Including subordinated debt of $15.0m which was converted to Tier 1 Capital in 2010.

Financial statements are prepared under IFRS with the exception of year 2007/8 which wasprepared under UK GAAP

Thousands of US dollars(unless otherwise stated)

2011 2010 2009 2008/9 2007/8

Reporting period (months) 12 12 9 12 12Reporting period ended 31st December 31st December 31st December 31st March 31st March

Operating Income 14,858 11,577 6,866 12,565 13,222Profit before tax 5,374 3,030 94 3,087 3,696Profit after tax 3,943 2,158 32 2,218 2,554

Dividends declared † - - 1,107 1,278 1,013

Shareholders’ Funds # 72,131 68,349 66,191 67,266 66,419Total Assets 932,836 714,018 1,005,040 1,155,690 1,160,813

Capital / Risk Weighted Assets 21% 27% 24% 23% 22%Return on Equity 7.7% 5.0% 0.2% 6.0% 7.2%Cost Income Ratio 64% 74% 99% 75% 73%

Dollar / sterling exchange rateYear end $1.55 $1.55 $1.62 $1.43 $1.99Average $1.61 $1.54 $1.61 $1.70 $2.02

2009 2010 2011 2009 2010 2011

120%

80%

40%

0%

10%

7.5%

5.0%

2.5%

0.0%

Cost : Income Ratio Return on Equity

Union Bank serves you better



2011 witnessed Arab and Greek turmoil – both reminders thatwinds of change are blowing across the globe withunfortunate consequences for many innocent people.

Meanwhile the growth of economic activity continues to shifttowards Asia, whilst increasing attention is focussed on Africaas a hot spot of investment and growth.

I am delighted to report that Union Bank UK plc (UBUK) delivered record results in 2011, buildingon the success of 2010 to generate financial and efficiency ratios at the upper end ofexpectations for international banks based in London. The results were particularly pleasing giventhe sustained low level of interest rates, and serve to reinforce the strategy of geographic andproduct diversification being followed by the Bank.

As noted in my statement last year, our parent bank in Nigeria was greatly impacted by the fall-out from the 2008 financial crisis. Happily, I can report that UBN Plc was fully recapitalised inDecember 2011 and is one of the latest beneficiaries of the growing list of institutions benefitingfrom foreign direct investment in Africa. This development is expected to have a markedly positiveimpact on UBUK’s market standing and enhance its ability to serve a growing client base. As a UKcapitalised and regulated bank, UBUK is required to demonstrate that it can stand alone forcapital and liquidity purposes and our internal assessments – now including the results ofRecovery and Resolution planning - indicate this to be the case across a variety of stress events.

The pace of regulatory change in the UK remains brisk and UBUK has continued to fulfilrequirements in a manner proportionate to its business model with the aim of maximising thebenefits of being located in the world’s pre-eminent banking centre. During the year themanagement team was strengthened further with the appointment of new associate directors ofboth Treasury and Risk. In the process we have enhanced the ethnic and gender diversity of whatis an increasingly confident and effective management team brought together to execute a moreambitious strategy for UBUK as the international flagship of the UBN Financial Group. The signsare good: a reinvigorated and financially sound parent with the resources to generate transactionsthat UBUK is well placed to support from London; and the fact that markets served by UBUK andits wider investor group are primed for significant growth.

I take this opportunity to thank our customers for their faithfulness to the Bank. I also thank myfellow directors and the Bank’s management and staff for working together to deliver significantlystronger results in 2011. I have no doubt that given the continuing dedication and teamworkfrom our people as well as the steadfast support of our existing loyal and prospective customers,UBUK can achieve even stronger results in the years ahead.

Funke OsiboduChairman

Chairman’s Statement


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Please NoteThe financial statements information containedherein conforms to IFRS for the display offinancial data.

ContentsDirectors, Advisers and Principal Officers 06

Directors’ Report 08

Directors’ Responsibilities and Corporate Governance 14

Independent Auditor’s Report 16

Statement of Comprehensive Income 17

Statement of Financial Position 18

Statements of Changes in Equity 19

Statement of Cash Flows 20

Notes to the Financial Statements 21

Contact Details 51

Disclosures of information recommendedunder Basel II, Pillar 3 may be found on ourwebsite, www.unionbankuk.com

Union Bank UK plc

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Directors, Advisers and Principal Officers


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Olufunke I Osibodu

Non-executive Chairman andGroup Managing Director/Chief Executive of Union Bankof Nigeria Plc

Kaonen A Ali

Managing Director/ChiefExecutive

D Rollo Greenfield

Executive Director/ChiefOperating Officer

Philip C Ikeazor

Non-executive and Executive Director ofUnion Bank of Nigeria Plc

Marc X M G Biglia

Independent non-executive andChairman of the Credit &General Purposes Committee

Asuerinme A Ighodalo

Independent non-executive and Chairman of theEstablishment & Remuneration Committee

Neil R Forsyth

Independent non-executive and Chairman of the Audit Committee

David W Keene

Secretary

Directors and Secretary

Registered Office: 14-18 Copthall Avenue, London EC2R 7BN



Advisors

Solicitors: Hogan Lovells International LLP Atlantic House, London EC1A 2FG

Auditors: KPMG Audit Plc 15 Canada Square, London E14 5GL

Principal Officers

Management Kaonen A Ali Managing Director/Chief Executive

Committee D Rollo Greenfield Executive Director/Chief Operating Officer

Tijjani Baba Director, Institutional & Commercial Banking

John H Denison Associate Director, Correspondent Banking and Corporate Lending

Farhood Hieydary Associate Director, Treasury

Stuart Hulme Associate Director, Retail Banking

David W Keene Associate Director, Finance and IT

Janet A Ntuk Associate Director, Corporate Resources

Christopher C Nwabuoku Associate Director, Internal Audit

John R Robin Associate Director, Compliance

Dora Tomé Associate Director, Risk Management

Martin Uzus Associate Director, Structured Trade Finance


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Directors, Advisers and Principal OfficersContinued




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Principal ActivitiesUnion Bank UK plc (UBUK or the Bank) wasincorporated in England and Wales on 10thFebruary 2003 as a wholly owned subsidiaryof the Union Bank of Nigeria Plc (UBN).

The Bank is authorised by the UK FinancialServices Authority (FSA), pursuant to Part IV ofthe Financial Services and Markets Act 2000(FSMA 2000), to carry on regulated financialservices activities, including deposit-taking and

dealing in investments as principal. Thebusiness of the Bank includes the provision ofretail and commercial banking, treasury andtrade finance services.

The Bank, with the assistance of UBN, hasestablished and maintains the managementstructure, policies, systems and proceduresnecessary to enable full compliance with therules and regulations of the FSA.

Going Concern Basis of AccountingThe financial statements are prepared on agoing concern basis.

In keeping with the guidance issued by theFinancial Reporting Council in October 2009,the Board has considered formally whether itis appropriate to prepare the financialstatements on a going concern basis and hasconcluded that the Bank has sufficientresources to continue in business for theforeseeable future. In making this assessment,the Board has considered a wide range ofinformation relating to present and futureconditions, including that set out under theheadings ‘Business Review’, ‘Financial RiskManagement’ and ‘Developments in FinancialRegulation’ below.

The assessment has regard to the economicclimate in the major markets in which theBank participates, the financial position ofUBN, current and prospective regulatorydevelopments and their likely impact on theBank’s capital and liquidity requirements, andthe Bank’s approach to the management ofkey risks, as well as current budgets andfinancial forecasts for profitability, capital andliquidity requirements.

DirectorsThe directors of the Bank at the date of this report and those who served during the year ended31st December 2011, are as follows:

During the year, the Bank provided qualifying third party indemnity provision on behalf of the directors.

Directors’ Report

The directors have pleasure in presenting their report together with theaudited financial statements for the year ended 31st December 2011.

Mrs OI Osibodu - Chairman Dr KA Ali - Managing Director/Chief ExecutiveMr MXMG Biglia - Non-executive Mr NR Forsyth - Non-executiveMr DR Greenfield - Executive Director/Chief Operating Officer –

appointed 11th February 2011Mr AA Ighodalo - Non-executive Mr PC Ikeazor - Non-executive



Financial ResultsThe Bank’s financial statements are preparedunder International Financial ReportingStandards (IFRSs) as endorsed by the EuropeanUnion (EU). The functional currency of theBank for financial reporting purposes is the USdollar (US$), being the currency in which themajority of its assets, liabilities, capital andrevenues are denominated.

The financial statements for the year ended31st December 2011 are shown on pages 17to 50. The profit for the year after taxationamounted to US$3,943,000 (year ended 31stDecember 2010 – US$2,158,000).

No dividend was paid in respect of the yearended 31st December 2010 (paid in respect ofthe year ended 31st December 2009 - US$nil),leaving a retained profit for the year ofUS$3,943,000 (year ended 31st December2010 - US$2,158,000).

The directors propose the payment of a finaldividend for the year of US$945,000 (yearended 31st December 2010 – US$nil).

Business ReviewThe Bank had another successful year in 2011recording pre-tax earnings of US$5.374m, arecord for the business. The results reflectfurther diversification of the business bothgeographically and by product which is inalignment with a strategy designed to enableUBUK to thrive without undue reliance onbusiness secured from the parent company.

Banking fees and treasury results werestrongly positive giving rise to operatingincome 26% higher than 2010 and benefitedfrom a more active treasury operation andhigher volumes and values of trade financetransactions. The Bank also took advantage ofmarket turbulence in the final quarter toachieve margin earnings on short-term bankplacings which were higher than planned,more than compensating for stubbornly low

prevailing market interest rates. With costsmaintained within budget for the year andmodest impairment charges relating to thewrite-off of charges that had been accrued onaccounts now classified as dormant, theBank’s pre-tax earnings were ahead by almost80% year on year.

The key indicators of the Bank’s performancemonitored by the Board are those relating toprofitability as measured by the pre-tax returnon equity (ROE) and return on risk weightedassets (RRWA).

The return on assets is also monitored, but isbelieved to be a less relevant performanceyardstick as the Bank is regularly thebeneficiary of large wholesale depositsrelating to the Nigerian oil sector. Thesedeposits are recycled into short-term interbankplacings on terms that are broadly profit- andliquidity-neutral for the Bank. The ebb andflow of these deposits can give rise tosignificant swings in the Bank’s footings andwere the principal reason for the rise in totalassets from US$714m to US$933m in the yearunder review.

In the 12 months to 31st December 2011, theBank’s returns on equity and risk weightedassets were 7.7% (2010: 5.0%) and 1.61%(2010: 1.23%) respectively.

The key indicator of efficiency monitored bythe Board is the cost/income ratio whichimproved from 73.8% to 63.9% in 2011. Thedirectors expect this ratio to move closer to50% by 2013.

The Bank’s continued profitability is reflectedin the improved financial position shown inthe statement of financial position on page18, with shareholders’ funds increasing toUS$72.1m (31st December 2010 -US$68.3m).

Directors’ ReportContinued


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Future ProspectsOverall, performance remains closely linked todevelopments in Nigeria, including thefinancial strength and performance of theparent bank, and elsewhere in West Africawhere traditional correspondent banking andtrade-related lending is expected to providethe mainstay of earnings. Business isincreasingly being sought and undertaken inother sub-Saharan African markets either inasset-backed transactions or co-financing withestablished international banks andmultilateral development agencies.

In the UK, the Bank continues to serve a retailclient base sourced from the large number ofNigerian nationals resident in the UK andincreasingly via the efforts of theRepresentative Office maintained in Lagos.

In order to compete effectively for thisbusiness whilst benefiting from the liquidityenhancing benefits of retail deposits, anumber of relevant products and deliverychannels are being developed for roll out in2012, including online savings (subject toregulatory approval) and telephone banking,and branded personal and corporate cardsofferings.

The Bank’s Treasury function has beenstrengthened to ensure effective balance sheetmanagement and maximise profitopportunities from a greater flow of retaildeposits. The new Treasurer assumed office inMarch 2011.

Notwithstanding these initiatives to increasefurther the resilience of UBUK as a robuststand-alone business, the parent bank remainsone of Nigeria’s most important financialservices companies. The wider Union BankGroup provides invaluable market intelligenceand access to clients of increasing significanceas Nigeria benefits from sustained high oilprices and relative regional political stability.

The parent bank was recapitalised inSeptember 2011 by a consortium of local andinternational investors and a new Board wasappointed in March 2012. UBN’s capital ratio

was 19% following recapitalisation comparedwith a local minimum regulatory requirementof 10% ensuring that the bank has theresources to capitalise on a buoyant domesticmarket in which it is one of the principalbanking participants. These developments areexpected to bring ancillary benefit to the Bankas the only international subsidiary of the UBNFinancial Group.

Financial Risk ManagementThe principal risks associated with the businessof the Bank are credit risk, liquidity risk,market rate risk and operational risk.

The Bank has established a comprehensive riskmanagement framework to manage theserisks, guided by the Basel Committee’sprinciples for sound risk management andcompliance with Basel II and FSA prudentialregulations, including those in respect ofliquidity risk. The Board establishes the riskgovernance structure and sets the overall riskappetite and tolerance for both risks to thecapital and the liquidity position of the Bank,together with key risk management policies,including limits relating to credit, market andliquidity risks. The framework provides forindependent oversight of business units, riskidentification, assessment and measurement,as well as stress testing of key risks andvarious other risk mitigation and monitoringtechniques.

Financial and other risks are assessed anddocumented as part of the Bank's InternalCapital Adequacy Assessment Process (ICAAP)whereby 'treated risk' after mitigation isconsidered and internal capital allocatedaccordingly. The assessment of risks andallocation of capital recognises the Bank'scommitment to the Nigerian and Africanmarkets. These include political, infrastructureand concentration risks, including dependenceon industry sectors such as oil and gas. Theserisks are significantly mitigated by virtue of thespecialised knowledge and experience of theBank and UBN, which permits the taking ofinformed decisions as to risk assumption and mitigation.



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The Bank has a clearly defined risk appetiteincluding policies for the identification of keyrisks and also has in place Credit Grading andKey Risk Indicator tools.

As required by the UK regulatory authorities,the Bank prepared its first Individual LiquidityAdequacy Assessment (ILAA) as at 30th June2010, but is yet to receive FSA comments.The new framework is designed to assesswhether the Bank is able to survive liquiditystresses of varying magnitude and duration,including the provision to build up a liquidityasset buffer (LAB) of UK Government orsimilar quality securities to be used in aliquidity stress event.

The results of this first ILAA, which has beenreviewed and approved by the Board and theBank’s Internal Auditor, indicated that as at30th June 2010, there was a positive overallnet cumulative gap within the three-monthstress period and that the LAB requirementwas US$25m which sum will be built up by31st December 2014.

It is a requirement that the ILAA is updatedannually or more often if there is a materialchange in the nature of the Bank’s business.The next planned ILAA update will reflect theBank’s business model and financial positionas at 31st December 2011.

Further information concerning the Bank’spolicies for managing risks associated withfinancial assets and liabilities is set out in note31 to the financial statements.

The Bank has completed modules 1 to 4under the Recovery and Resolution planningframework introduced in the UK inanticipation of wider EU legislation in thisarea. The process (often referred to aspreparing a “living will”), includes identifyingevents and triggers thereto which would forcethe Bank to need to recover from an actual orimminent failure of all or part of its businessand agreeing, in consultation with the twinpeaks regulatory authorities, the criticaleconomic functions undertaken by the Bankfor which a Resolution Pack will be put in

place to be used by those authorities or theirappointed agents. Following an initialsubmission of interbank data in March 2012,Modules 1 to 4 of the plan have beenconsidered by the Board.

Developments in Financial RegulationThe Bank continues to monitor developmentsin relation to Basel III. In addition to traditionalcapital requirements, banks will also berequired to build up a Capital ConservationBuffer of 2.5% of RWA between 1st January2016 and 1st January 2019 and aCountercyclical Capital Buffer of between 0 to2.5% of RWA, although a degree ofuncertainty remains over the specificimplementation measures and types of capitalinstrument (other than common equity) whichmay count towards these requirements. Inresponse to Basel III and CRD IV, the EuropeanBanking Authority (EBA), is introducingstandardised European reporting requirementsto establish a central repository for Europeanbanking data. The aim is to reduce the impacton firms from multiple different reportingrequirements, to enable improved riskidentification and management for cross-border institutions and to facilitate peerreviews and easy data sharing betweenNational Supervisory Authorities. Theimplementation date for reporting is 1stJanuary 2013 and the Bank has alreadyinvested in new software to facilitate theproduction of the new data requirements.

In the UK, the FSA has specifically focused onliquidity as well as progressing theimplementation in the UK of changes to theregulation of financial institutions throughamendments to the Capital RequirementsDirective (CRD), including restrictions onexposures to other financial institutions to25% of capital resources subject to certainreliefs for smaller banks.

Significant changes to financial servicesregulation in the UK are underway as part ofthe UK government’s plans to transferprudential regulation for banks, includingUBUK, insurers and major investment firmsfrom the Financial Services Authority (FSA) to



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12

a subsidiary of the Bank of England to beknown as The Prudential Regulation Authority(PRA), whilst consumer protection and marketregulation will be transferred to the FinancialConduct Authority (FCA) in 2013. As aprelude to this move, from 2nd April 2012 theFSA has been reorganised internally to formseparate conduct and prudential businessunits known as CPU and PBU respectively witheach unit acting in an independent but co-ordinated manner. The practical impact for the Bank is that in future it will be subjectto scrutiny by two independent groups of supervisors.

The results of the Bank’s initial ILAA andongoing work on Recovery and Resolutionplanning have been discussed in the FinancialRisk Management section above.

Information ManagementThe Bank seeks to ensure that expenditure onIT and Communications remains appropriateto meet all regulatory and business needs. Inthe year under review work was undertakento improve both the speed and resilience ofUBUK’s network infrastructure. During thecoming year, there are plans to upgrade theBank’s core FLEXCUBE banking system and tocomplete virtualisation of both servers anddesktops. In addition, new applications eitherhave or will be installed to support the Bank’sextension of retail banking services to includedebit cards and mobile banking, subject tomaterial outsourcing notification requirementsas appropriate. Any such IT infrastructure willalso be replicated at the Bank’s DisasterRecovery site.

The Bank recognises the importance ofsafeguarding client data and has developedpolicies and physical and logical accesscontrols which, coupled with staff awarenesstraining, are designed to protect against data loss.

Employee MattersThe Bank recognises that its performance isdependent on the quality of its work forceand the investment it makes in training anddevelopment. It is the Bank's policy that itsstaff should have the opportunity to developto their full potential, promote its business in amanner consistent with the highest standardsand recognise its environmental and otherresponsibilities as a corporate citizen. Staffcompetencies, training and development areplanned consistently with corporateobjectives, including the management of risks, and staff are appraised and rewardedaccordingly.

Property and Equipment, IntangibleAssets and Capital CommitmentsChanges in property and equipment andintangible assets are set out in notes 22 and23 to the financial statements.

The directors have authorised capitalexpenditure relating to refurbishment of theBank’s premises and enhancements toinformation technology systems of up toUS$0.68m as set out in note 32. At 31stDecember 2011, amounts so authorised butnot yet expended amounted to US$0.47m.

Political and Charitable ContributionsThe Bank made no political contributions.Charitable donations during the yearamounted to US$10,005 (year ended 31stDecember 2010 - US$1,458).

Payments to CreditorsIt is the Bank’s policy to settle all of its tradecreditors in accordance with the relevantcontractual terms. At 31st December 2011,the amount owed to trade creditors,expressed as a proportion of the amountinvoiced by suppliers during the year thenended, was 12 days (31st December 2010 -16 days).





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Directors’ RepresentationThe directors who held office at the date ofapproval of this Directors’ Report confirm that,so far as they are each aware, there is norelevant audit information of which the Bank’sauditor is unaware; and each of the directorshas taken all the steps that they ought to havetaken as a director to make themselves awareof any relevant audit information and toestablish that the Bank’s auditor is aware ofthat information.

AuditorsKPMG Audit Plc has indicated its willingnessto continue in office and a resolutionconcerning their re-appointment will beproposed at the forthcoming Annual GeneralMeeting.

By order of the Board

DW KeeneCompany Secretary

14 - 18 Copthall AvenueLondon EC2R 7BN

20th April 2012



The directors are responsible for preparing the Directors' Report and the financialstatements in accordance with applicable lawand regulations.

Company law requires the directors to prepare financial statements for each financialyear. Under that law they have elected toprepare the financial statements in accordancewith IFRSs as adopted by the EU andapplicable law.

Under company law the directors must notapprove the financial statements unless theyare satisfied that they give a true and fair viewof the state of affairs of the company and ofthe profit or loss of the company for thatperiod. In preparing these financialstatements, the directors are required to:

• select suitable accounting policies and thenapply them consistently;

• make judgements and estimates that arereasonable and prudent;

• state whether they have been prepared inaccordance with IFRSs as adopted by theEU; and

• prepare the financial statements on thegoing concern basis unless it isinappropriate to presume that thecompany will continue in business.

The directors are responsible for keepingadequate accounting records that aresufficient to show and explain the company'stransactions and disclose with reasonableaccuracy at any time the financial position ofthe company and enable them to ensure thatthe financial statements comply with theCompanies Act 2006. They have generalresponsibility for taking such steps as arereasonably open to them to safeguard the

assets of the company and to prevent anddetect fraud and other irregularities.The directors are responsible for themaintenance and integrity of the corporateand financial information included on thecompany's website. Legislation in the UKgoverning the preparation and disseminationof financial statements may differ fromlegislation in other jurisdictions.

Corporate GovernanceThe Board of directors of the Bank comprisestwo executive directors, non-executivedirectors appointed by UBN, one of whom isthe chairman of the Board, and independentnon-executive directors. The Board meets atleast quarterly and has defined responsibilitiesfor the overall direction, supervision andcontrol of the Bank, including assessment ofthe Bank’s competitive position, approval ofstrategic and financial plans and review ofperformance and financial status. It reviewsand approves significant changes in the Bank’s structure and organisation andestablishes the risk framework, overall riskappetite and key policies in relation to credit,large exposures, impairment, liquidity andoperational risk. The Board also approves andmonitors the Bank’s policies, procedures andprocesses in connection with the fight againstfinancial crime.

The Board has three standing committees: the Credit & General Purposes Committee(C&GPC), the Establishment & RemunerationCommittee (E&RC) and the Audit Committee.Each of these standing committees is chairedby an independent non-executive director, haswritten terms of reference and, with theexception of the Audit Committee, definedlimits of authority. The C&GPC meets as oftenas required but at least quarterly, the AuditCommittee and the E&RC meets quarterly.


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Statement of Directors' Responsibilities in respect of the Directors' Reportand the Financial Statements

Directors’ Responsibilities andCorporate Governance




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The primary functions of the C&GPC are toconsider credit proposals in excess of the limitsof authority of the executive Assets &Liabilities and Credit Committees of the Bank,to review financial plans and actualperformance against plan, to consider, andcheck the progress of, major IT initiatives andto monitor compliance with the Bank’s credit,large exposure, impairment, liquidity andmarket risk policies and financial regulationsgenerally.

The Audit Committee comprises solely non-executive directors and is chaired by afinancially qualified individual. Meetings areattended by the Bank’s Associate Directorsfrom Internal Audit and Compliance, byexecutive directors when requested and by theindependent external auditors. The primaryfunctions of the Audit Committee are to assistthe Board in fulfilling its oversightresponsibilities by monitoring and assessingthe integrity of financial statements, thequalifications, independence and performanceof external auditors, compliance with legaland regulatory requirements and the

adequacy of systems of internal accountingand financial controls. Its assessment of theinternal control environment is made byreviewing and approving the plans of InternalAudit and considering and questioningmanagement on operational audit reports.The Audit Committee also approves theappointment of, and fees paid to, the externalauditors for all audit and non-audit work. It isalso responsible for the recruitment or removalof the heads of Internal Audit and Complianceand for appraisal of the performance of thosefunctions.

The E&RC has responsibility for consideringmatters related to human resource policy,including compensation arrangements. Inparticular, it reviews and recommends to theBoard both overall compensation pools andthe remuneration of executive directors andcertain other members of senior management.It has responsibility also for certain mattersrelating to the infrastructure of the Bank,including premises, the working environmentof staff and insurance arrangements.

Directors’ Responsibilities andCorporate GovernanceContinued




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We have audited the financial statements ofUnion Bank UK plc for the year ended 31stDecember 2011 set out on pages 17 to 50.The financial reporting framework that hasbeen applied in their preparation is applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by the EU.

This report is made solely to the company'smembers, as a body, in accordance withChapter 3 of Part 16 of the Companies Act2006. Our audit work has been undertaken sothat we might state to the company'smembers those matters we are required tostate to them in an auditor's report and for noother purpose. To the fullest extent permittedby law, we do not accept or assumeresponsibility to anyone other than thecompany and the company's members, as abody, for our audit work, for this report, or forthe opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors'Responsibilities Statement set out on page 14, the directors are responsible for thepreparation of the financial statements andfor being satisfied that they give a true andfair view. Our responsibility is to audit, andexpress an opinion on, the financialstatements in accordance with applicable lawand International Standards on Auditing (UKand Ireland). Those standards require us tocomply with the Auditing Practices Board's(APB's) Ethical Standards for Auditors.

Scope of the audit of the financialstatementsA description of the scope of an audit offinancial statements is provided on the APB'swebsite atwww.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statementsIn our opinion, the financial statements:• give a true and fair view of the state of thecompany's affairs as at 31st December2011 and of its profit for the year thenended;

• have been properly prepared in accordancewith IFRSs as adopted by the EU; and

• have been prepared in accordance with therequirements of the Companies Act 2006.

Opinion on other matters prescribed bythe Companies Act 2006In our opinion, the information given in theDirectors' Report for the financial year forwhich the financial statements are prepared isconsistent with the financial statements.

Matters on which we are required toreport by exceptionWe have nothing to report in respect of thefollowing matters where the Companies Act2006 requires us to report to you if, in ouropinion:• adequate accounting records have notbeen kept, or returns adequate for ouraudit have not been received frombranches not visited by us; or

• the financial statements are not inagreement with the accounting recordsand returns; or

• certain disclosures of directors'remuneration specified by law are notmade; or

• we have not received all the informationand explanations we require for our audit.

Paul Furneaux Senior Statutory Auditorfor and on behalf of KPMG Audit Plc,Statutory AuditorChartered Accountants15 Canada SquareCanary WharfLondon E14 5GLEngland

23rd April 2012

Independent Auditor’s Report

Independent Auditor’s Report to the Members of Union Bank UK plc



Statement of Comprehensive IncomeFor the year ended 31st December 2011


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Year Ended Year Ended31 December 2011 31 December 2010

Note US$'000 US$’000

Interest income 6 10,888 8,552Interest expense 7 (1,690) (2,797)

Net interest income 9,198 5,755

Fees and commissions income 8 4,851 3,919Dealing and exchange profit 9 874 1,946Other operating expense 10 (65) (43)

Operating income 14,858 11,577

Administrative expenses 11 (9,003) (7,868)Depreciation and amortisation 22/23 (459) (679)Net impairment loss on financial assets 19 (22) -

Profit on ordinary activities before tax 5,374 3,030

Tax on profit on ordinary activities 15 (1,431) (872)

Profit on ordinary activities after tax 3,943 2,158

Other comprehensive income, net of income tax (161) -

Total comprehensive income for the year 3,782 2,158

The result for the year is derived entirely from continuing activities.There were no recognised gains and losses other than those set out above.

The notes on pages 21 to 50 form part of these financial statements

Company Registration Number 4661188




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Statement of Financial PositionAs at 31st December 2011

2011 2010Note US$'000 US$’000

Assets

Cash at bank and in hand 16 5,139 7,766Loans and advances to banks 17 796,508 506,501Loans and advances to customers 18 58,599 58,089Financial assets held-to-maturity 20 53,043 139,649Financial assets available-for-sale 21 17,563 -Property and equipment 22 258 286Intangible assets 23 694 853Other assets 379 363Prepayments 437 340Deferred tax assets 15 216 171

Total Assets 932,836 714,018

Liabilities

Deposits by banks 24 315,062 420,563Customer accounts 25 541,661 221,520Other liabilities 26 3,431 2,658Accruals and deferred income 27 551 928

Total Liabilities 860,705 645,669

Equity

Called up share capital 28 60,090 60,090Available-for-sale reserves (161) -Retained earnings 12,202 8,259Equity shareholders’ funds 72,131 68,349

Total Liabilities and Equity 932,836 714,018

These financial statements were approved by the Board of Directors and authorised for issue on 20th April 2012.

Signed on behalf of the Board of Directors:

Dr KA AliManaging Director / Chief Executive

The notes on pages 21 to 50 form part of these financial statements




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Statement of Changes in Equity

Share Available-for Retained TotalCapital -Sale Reserves Earnings EquityUS$'000 US$'000 US$'000 US$'000

Balance as at 1st January 2010 45,090 - 6,101 51,191

Shares issued during the year 15,000 - - 15,000

Total comprehensive income for the year - - 2,158 2,158

Balance attributable to equity shareholders as at 31st December 2010 60,090 - 8,259 68,349

Change in fair value of assets classified as available-for-sale - (219) - (219)

Tax recognised on fair value loss on assets classified as available-for-sale - 58 - 58

Profit for the year - - 3,943 3,943

Balance attributable to equity shareholders as at 31st December 2011 60,090 (161) 12,202 72,131




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Statement of Cash Flows

2011 2010Note US$'000 US$’000

Profit before tax 5,374 3,030

Adjustments for:

Depreciation and amortisation 459 679

Impairment of financial assets 22 -

Net gain on disposal of property and equipment - (5)

5,855 3,704

Change in loans and advances to banks (290,007) 233,802Change in loans and advances to customers (532) (22,235)Change in financial assets held-to-maturity 84,606 85,459Change in financial assets available-for-sale (17,782) -Change in other assets (16) (35)Change in prepayments (97) 74Change in deposits by banks (105,501) (286,179)Change in customer accounts 320,141 (7,503)Change in other liabilities 382 769Change in accruals and deferred income (377) (702)Income tax paid (1,027) (531)

Net cash flow from operating activities (10,210) 2,919

Acquisition of tangible and intangible assets (272) (199)Proceeds from the sale of tangible assets - 11

Net cash flow from investing activities (272) (188)

Repayment of subordinated debt - (15,000)Issue of ordinary shares - 15,000

Net cash flow from financing activities - -

Net (decrease)/increase in cash and equivalents (4,627) 6,435Cash and cash equivalents at 1st January 9,766 3,331

Cash and cash equivalents at 31st December 16 5,139 9,766




21

1. Reporting entity

Union Bank UK plc (the Bank) is acompany incorporated in the UnitedKingdom under the Companies Act 2006.The address of the Company’s registeredoffice is given on page 6.

Information concerning the principalactivities and operations of the Bank andits regulatory status is set out in theDirectors’ Report and in the notes to thefinancial statements.

2. Basis of presentation

(a) Statement of compliance

The financial statements of the Bank have been prepared in accordance withInternational Financial ReportingStandards (IFRSs) as issued by theInternational Accounting Standards Board(IASB) and as endorsed by the EuropeanUnion (EU). EU-endorsed IFRSs may differfrom IFRSs as issued by the IASB if, at thispoint in time, new or amended IFRSs havenot been endorsed by the EU.

The following standards have beenapplied by the Bank from 1st January2011:

• IAS 24 (revised Nov. 2009)

• Improvements to IFRSs 2010 (May 2010)

• Amendments to IFRIC (Nov. 2009)Prepayments of a Minimum FundingRequirement

At 31st December 2011, the followingstandards and interpretations which havenot been applied to these financialstatements were in issue but not yeteffective:

• Amendments to IAS 32 (Dec. 2011)Offsetting Financial Assets andFinancial Liabilities

• Amendment to IFRS 7 (Dec. 2011)Disclosures: Offsetting Financial Assetsand Financial Liabilities

• IFRS 13 Fair Value Measurement

• IFRS 12 Disclosure of Interests in OtherEntities

• IFRS 11 Joint Arrangements

• IFRS 10 Consolidated FinancialStatements

• IFRS 9 Financial Instruments

• Amendment to IAS 1 (June 2011)Presentation of Items of OtherComprehensive Income

• IAS 19 (revised June 2011) EmployeeBenefits

• Amendments to IAS 12 (Dec. 2010)Deferred Tax: Recovery of UnderlyingAssets

• Amendments to IFRS 7 (Oct. 2010)Disclosures – Transfers of FinancialAssets

The above standards would have had no impact on the reported results of the Bank.

IFRSs comprise accounting standardsissued by the IASB and its predecessorbody and interpretations issued by theInternational Financial ReportingInterpretations Committee (IFRIC) and itspredecessor body.

(b) Going concern basis of accounting

The financial statements have beenprepared on a going concern basis as thedirectors continue to be of the opinionthat the Bank has sufficient resources tocontinue in business for the foreseeablefuture.

In forming this opinion, the directors havehad due regard to the guidance issued bythe Financial Reporting Council in October2009 entitled ‘Going Concern andLiquidity Risk: Guidance for Directors ofUK Companies 2009’. The assessmentenabling the directors to form this opinionhas included a wide range of informationrelating to present and future conditions,as well as obtaining satisfaction as to theBank’s own current and prospective capitaladequacy and liquidity and the policies inplace to manage and control the risksinherent in the markets in which the Bank operates.

Notes to the Financial Statements



(c) Basis of measurement

The financial statements have beenprepared on the historical cost basis,except for the revaluation of certainfinancial instruments as required underIFRSs.

(d) Functional and presentation currency

The directors are of the opinion that thefunctional currency of the Bank is the USdollar (US$), being the currency in whichthe majority of the assets, liabilities andrevenues are denominated. Therefore,these financial statements are expressed inUS$ and all financial information ispresented in US$, rounded to the nearestthousand.

(e) Use of estimates and judgement

The preparation of financial information inaccordance with IFRS requires the use ofcertain accounting estimates. It alsorequires management to exercisejudgement in the process of applying theaccounting policies.

In this regard, management believes thatthe critical accounting policies wherejudgement is necessarily applied are thosewhich relate to loan impairment.

Further information about keyassumptions concerning the future, andother key sources of estimationuncertainty, are set out in these notes tothe financial statements.

(f) Comparative information

These financial statements include twelvemonths of comparative information forthe statement of comprehensive income,statement of financial position, statementof changes in equity, statement of cashflows and related notes on the financialstatements.

3. Summary of significant accounting policies

(a) Interest income and expense

Interest income on financial assets that areclassified as loans and receivables, held-to-maturity or available-for-sale and interestexpense on financial liabilities arerecognised in the statement ofcomprehensive income using the effectiveinterest rate method. The effective interestrate is the rate that exactly discounts theestimated future cash receipts andpayments through the expected life of thefinancial asset or liability (or, whereappropriate, a shorter period) to thecarrying amount of the financial asset orliability.

The calculation of the effective interestrate includes all fees, transaction costs,and discounts or premiums that are anintegral part of the effective interest rate.Transaction costs are incremental coststhat are directly attributable to theacquisition, issue or disposal of a financialasset or liability.

Interest on impaired financial assets iscalculated by applying the originaleffective interest rate of the financial assetto the carrying amount as reduced by anyallowance for impairment.

Interest income and expense presented inthe statement of comprehensive incomeinclude interest on financial assets andliabilities held at amortised cost on aneffective interest rate basis.

(b) Fees and commission

Fees and commission are accounted fordepending on the services to which theincome relates as follows:

- income earned on the execution of asignificant act is recognised in ‘feesand commission income’ when the actis completed (for example, a feearising from arranging a loan facility);

Notes to the Financial StatementsContinued


22



- income earned from the provision ofservices is recognised in ‘fees andcommission income’ as the servicesare provided (for example, chargesmade for servicing customer accountsand the provision of trade financeservices ); and

- income which forms an integral partof the effective interest rate (forexample, certain loan commitmentfees) of a financial instrument isrecognised as an adjustment to theeffective interest rate and recorded in‘Interest income’.

(c) Foreign currency

A foreign currency transaction is recordedin the functional currency by applying tothe foreign currency amount the spotexchange rate between the functionalcurrency and the foreign currency at thedate of the transaction.

At the end of each reporting period,foreign currency monetary items aretranslated using the closing rate, andresulting gains and losses on translationare included in the statement ofcomprehensive income.

Exchange profits on foreign exchangetransactions with customers are recordedas income during the period.

(d) Financial instruments

Recognition

The Bank recognises financial assets andfinancial liabilities in its statement offinancial position when it becomes a partyto the contractual provisions of theinstrument.

Management classifies financial assets andliabilities into the following categories atthe time of initial recognition:

- ‘loans and receivables’

- ‘financial assets held-to-maturity’

- ‘financial assets available-for-sale’

- ‘other financial liabilities’

Initial measurement

When a financial asset or financial liabilityis recognised initially, the Bank measures itat its fair value plus (in the case of afinancial asset or financial liability not atfair value through the statement ofcomprehensive income) transaction coststhat are directly attributable to theacquisition or issue of the financial assetor financial liability.

Subsequent measurement

Financial assets classified as loans andreceivables or as financial assets held tomaturity are subsequently measured atamortised cost. Financial assets availablefor sale are measured at fair value.

Measurement bases

(i) Amortised cost measurement

The amortised cost of a financial assetor liability is the amount at which thefinancial asset or liability is measuredat initial recognition, less principalrepayments to date, plus or minus thecumulative amortisation using theeffective interest rate method of anydifference between the initial amountrecognised and the maturity amount,less any reduction for impairment.

(ii) Fair value measurement

The determination of fair values offinancial assets and financial liabilitiesquoted in an active market is based onobserved bid and offer prices forassets and liabilities respectively. For allother financial instruments, fair valueis determined by using valuationtechniques. Valuation techniquesinclude comparison to similarinstruments for which marketobservable prices exist, discountingfuture cash flows, option pricing andother valuation models and methodswidely used by market participants. Asthe Bank does not presently use morecomplex financial instruments, all theinputs to these valuation models andtechniques are market-observable.



23



Where the fair value cannot be reliablydetermined for an investment in anequity instrument, the instrument ismeasured at cost.

(e) Loans and receivables

Loans and receivables are non-derivativefinancial assets with fixed or determinablepayments that are not quoted in an activemarket and which are not classified uponinitial recognition as available-for-sale or atfair value through the statement ofcomprehensive income.

Loans and receivables are recognisedinitially at fair value, including directlyattributable transaction costs, and aresubsequently measured at amortised cost,using the effective interest rate method,less any impairment losses.

Loans and advances to banks andcustomers are classified as loans andreceivables.

(f) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturitythat the Bank has the positive intentionand ability to hold to maturity and whichare not classified or designated uponinitial recognition as at fair value throughthe statement of comprehensive income.

Held-to-maturity investments arerecognised initially at fair value, includingdirectly attributable transaction costs, andsubsequently measured at amortised cost,using the effective interest rate method,less any impairment losses.

UBUK holds treasury bills, certificates ofdeposit, and bonds for non-tradingpurposes which are classified as held-to-maturity.

(g) Available-for-sale investments

Available-for-sale investments are thoseintended to be held for an indefiniteperiod of time, which may be sold inresponse to needs for liquidity or changesin interest rates, exchange rates or equity prices.

Available-for-sale financial assets arerecognised on settlement date and aresubsequently carried at fair value. Gainsand losses arising from changes in the fairvalue of available-for-sale financial assetsare generally recognised directly in equityuntil the financial assets are derecognisedor impaired at which time the cumulativegain or loss previously recognised in equityis recognised in profit and loss.

(h) Capital instruments and other financial liabilities

The Bank classifies financial instrumentsthat it issues as an equity instrument orfinancial liability in accordance with thesubstance of the contractual terms of theinstrument. An instrument is classified asequity if it evidences a residual interest inthe assets of the Bank after deduction ofliabilities. An instrument is classified as aliability if it represents a contractualobligation to deliver cash, or anotherfinancial asset or to exchange financialassets or financial liabilities on potentiallyunfavourable terms.

Other financial liabilities, not classified asfair value through profit and loss, areinitially recognised at fair value, includingdirectly attributable transaction costs andare subsequently measured at amortisedcost, using the effective interest ratemethod.

Deposits, customer accounts andsubordinated liabilities are classified asother liabilities.

(i) Offsetting financial assets andfinancial liabilities

Financial assets and financial liabilities areoffset and the net amount reported in thestatement of financial position when thereis a legally enforceable right to offset therecognised amounts and there is anintention to settle on a net basis, or realisethe asset and settle the liabilitysimultaneously.



24



(j) Impairment of financial assets

The Bank assesses whether there isobjective evidence that a financial asset ora group of financial assets, not carried atfair value through the statement ofcomprehensive income, is impaired.Financial assets or portfolios of financialassets are impaired when objectiveevidence demonstrates that a loss eventhas occurred after the initial recognition ofthe asset, and that the loss event has anadverse impact on the amount and/ortiming of future cash flows from the assetthat can be estimated reliably.

The Bank considers evidence ofimpairment at both a specific asset andcollective level. All individually significantfinancial assets are assessed for specificimpairment. Assets that are notindividually significant are then collectivelyassessed for impairment by groupingtogether financial assets (carried atamortised cost) with similar credit riskcharacteristics, taking into account assettype, industry, geographic location,collateral type, past-due status, historicalloss experience and other relevant factors.

Losses expected from future events, nomatter how likely, are not recognised.

Impairment losses on assets carried atamortised cost are measured as thedifference between the carrying amountof the financial assets and the presentvalue of estimated cash flows discountedat the assets’ original effective interestrate. Losses are recognised in thestatement of comprehensive income andreflected in an allowance account againstloans and advances or against the carryingvalue of held-to-maturity investments asappropriate.

When a subsequent event causes theamount of impairment loss to decrease,the impairment loss is reversed throughthe statement of comprehensive income.

(k) Property and equipment

Recognition and measurement

Items of property and equipment aremeasured at cost less accumulateddepreciation and impairment losses. Costincludes expenditures that are directlyattributable to the acquisition of the asset.

When parts of an item of property orequipment have different useful lives, theyare accounted for as separate items (majorcomponents) of property and equipment.

Subsequent costs

The cost of replacing part of an item ofproperty or equipment is recognised in thecarrying amount of the item if it isprobable that the future economicbenefits embodied within the part willflow to the Bank and its cost can bemeasured reliably. The costs of the day-to-day servicing of property and equipmentare recognised in the statement ofcomprehensive income as incurred.

Depreciation

Depreciation is recognised in thestatement of comprehensive income on astraight-line basis over the estimateduseful lives of each part of an item ofproperty and equipment. Leased assets aredepreciated over the shorter of the leaseterm and their useful lives.

The estimated useful lives for the currentand comparative periods are as follows:



25

Leasehold improvements - 5 years or remaining life of lease, whichever is the shorter

Office equipment and furniture - 5 years

Computer hardware - 3-5 years

Motor vehicles - 4 years

Depreciation methods, useful lives and residual values are reassessed at the reporting date.



(l) Intangible Assets - Software

Software acquired by the Bank is stated at cost less accumulated amortisation andaccumulated impairment losses.

Amortisation is recognised in thestatement of comprehensive income on astraight-line basis over the estimateduseful life of the software, from the date that it is available for use. Theestimated useful life of software is threeto five years.

(m)Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets, including any deferred taxassets, are reviewed at each reporting dateto determine whether there is anyindication of impairment. If any suchindication exists then the asset’srecoverable amount is estimated.

An impairment loss is recognised if thecarrying amount of an asset exceeds itsrecoverable amount. Impairment lossesare recognised in the statement ofcomprehensive income.

The recoverable amount of an asset is thegreater of its value in use and its fair valueless costs to sell. In assessing value in use,the estimated future cash flows arediscounted to their present value using apre-tax discount rate that reflects currentmarket assessments of the time value ofmoney and the risks specific to the asset.

Impairment losses recognised in priorperiods are assessed at each reportingdate for any indications that the loss hasdecreased or no longer exists. Animpairment loss is reversed if there hasbeen a change in the estimates used todetermine the recoverable amount. Animpairment loss is reversed only to theextent that the asset’s carrying amountdoes not exceed the carrying amount thatwould have been determined, net ofdepreciation or amortisation, if noimpairment loss had been recognised.

(n) Leases

A lease is classified as a finance lease if ittransfers substantially all the risks andrewards incidental to ownership. A lease isclassified as an operating lease if it doesnot transfer substantially all the risks andrewards incidental to ownership.

Lease payments made (operating andfinance leases)

Payments made under operating leasesare recognised in the statement ofcomprehensive income on a straight-linebasis over the term of the lease. Leaseincentives received are recognised as anintegral part of the total lease expense,over the term of the lease.

Finance lease - lessor

When the Bank is the lessor in a leaseagreement that transfers substantially allof the risks and rewards incidental toownership of an asset to the lessee, thearrangement is presented within loans andadvances.

(o) Provisions

Provisions are recognised when it isprobable that an outflow of economicbenefits will be required to settle a currentlegal or constructive obligation as a resultof past events, and a reliable estimate canbe made of the amount of the obligation.

(p) Income tax

Income tax comprises current tax anddeferred tax. Income tax is recognised inthe statement of comprehensive incomeexcept to the extent that it relates to itemsrecognised directly in equity, in which caseit is recognised in equity.

Current tax is the tax expected to bepayable on the taxable profit for the year,calculated using tax rates enacted orsubstantively enacted by the reportingdate, and any adjustment to tax payable inrespect of previous years. Current taxassets and liabilities are offset when theBank intends to settle on a net basis andthe legal right to offset exists.



26



Deferred tax is recognised on temporarydifferences between the carrying amountsof assets and liabilities in the statement offinancial position and the amountsattributed to such assets and liabilities fortax purposes. Deferred tax liabilities aregenerally recognised for all taxabletemporary differences and deferred taxassets are recognised to the extent that itis probable that future taxable profits willbe available against which deductibletemporary differences can be utilised.

Deferred tax is calculated using the taxrates expected to apply in the periods inwhich the assets will be realised or theliabilities settled, based on tax rates andlaws enacted, or substantively enacted, bythe reporting date. Deferred tax assetsand liabilities are offset when a legal rightto offset exists in the entity.

(q) Cash and cash equivalents

For the purpose of the statement of cashflows, cash and cash equivalents aredeemed to comprise cash in hand, cash atother banks repayable on demand andtreasury bills maturing within threemonths.

Cash and cash equivalents are carried atamortised cost in the statement offinancial position.

(r) Pension costs

The Bank operates a defined contributionpension scheme and the amount chargedto the statement of comprehensiveincome in respect of pension costs andother post-retirement benefits is thecontribution payable in the year.Differences between contributions payablein the year and contributions actually paidare shown as accruals or prepayments inthe statement of financial position.

(s) Sale and repurchase agreements

When the Bank sells a financial asset andsimultaneously enters into a “repo” or“stock lending” agreement to repurchasethe asset (or a similar asset) at a fixed priceon a future date, the arrangement isaccounted for as a deposit, and theunderlying asset continues to berecognised in the Bank’s financialstatements.

4. Segmental reporting

Segmental analysis of income has notbeen prepared as, in the opinion of thedirectors, all of the Bank’s income derivesfrom one main activity, commercialbanking, which is carried out in the UnitedKingdom.



27





28

2011

US$’000 Designated at Held-to- Loans and Other Note fair value maturity receivables liabilities Total

Cash at bank and in hand 16 - - 5,139 - 5,139Loans and advances to banks 17 - - 796,508 - 796,508Loans and advances to customers 18 - - 58,599 - 58,599Financial assets held-to-maturity 20 - 53,043 - - 53,043Financial assets available-for-sale 21 17,563 - - - 17,563Deposits by banks 24 - - - 315,062 315,062Customer accounts 25 - - - 541,661 541,661Other liabilities 26 - - - 3,431 3,431

2010

US$’000 Designated at Held-to- Loans and Other Note fair value maturity receivables liabilities Total

Cash at bank and in hand 16 - - 7,766 - 7,766Loans and advances to banks 17 - - 506,501 - 506,501Loans and advances to customers 18 - - 58,089 - 58,089Financial assets held-to-maturity 20 - 139,649 - - 139,649Financial assets available-for-sale 21 - - - - -Deposits by banks 24 - - - 420,563 420,563Customer accounts 25 - - - 221,520 221,520Other liabilities 26 - - - 2,658 2,658

6. Interest income 2011 2010US$’000 US$’000

Interest income on securities held-to-maturity 1,134 860Interest income on securities available-for sale 657 -Interest income on loans and advances (‘classified as loans and receivables’) 9,097 7,692

10,888 8,552

5. Financial assets and liabilities

The table below sets out the Bank’sclassification of each class of financialasset and liability:





29

7. Interest expense 2011 2010US$’000 US$’000

Interest expense to banks (1,048) (2,072)Interest expense on subordinated loan due in 2016 - (58)Interest expense on customer accounts (642) (667)

(1,690) (2,797)

8. Fees and commissions income 2011 2010US$’000 US$’000

Letters of credit 3,729 2,844Funds transfer 469 444Others 653 631

4,851 3,919

9. Dealing and exchange profit

Dealing and exchange profit relates to foreign exchange income derived from customerfacilitation, including transactions on behalf of the UBN, and the revaluation of assets andliabilities denominated in currencies other than the US Dollar.

10. Other operating expense 2011 2010US$’000 US$’000

Other operating charges and brokerage (65) (43)

(65) (43)

11. Administrative expenses 2011 2010US$’000 US$’000

Wages and salaries, including directors (5,347) (4,121)Social security costs (574) (433)Pension costs (356) (247)Other staff costs (464) (545)

Total staff costs (6,741) (5,346)Other recurring administrative expenses (2,262) (2,522)

(9,003) (7,868)





30

11. Administrative expenses (continued)

Other staff costs include non-recurring items amounting to US$nil relating to restructuring(year ended 31st December 2010 - US$46,000).

2011 2010Average number of employees, including executive directors: No. No.

Banking 23 21Operations 20 19Administration 5 5

48 45

12. Pension costs

The Bank makes contributions to the personal pension funds of employees under GroupPersonal Pension arrangements. During the year to 31st December 2011, the Bank madecontributions totalling US$356,000 (2010 - US$247,000).

Contributions accrued at the reporting date amounted to US$11,000 (2010 - US$11,000).There were no outstanding pre-paid contributions at the reporting date.

13. Directors’ emoluments 2011 2010US$’000 US$’000

Executive directors’ emoluments (549) (466)Non-executive directors’ fees (308) (138)

(857) (604)

The emoluments of the highest paid director, excluding pension contributions, wereUS$281,924 (2010 - US$248,575). Pension contributions were made during the yearamounting to US$22,343 (2010 - US$4,971). No benefits in kind were paid during the year(2010 - US$nil).

Retirement benefits are accruing to one director under Group Personal Pension arrangements(see Note 12) and another director under the Union Bank of Nigeria Plc Staff Pension Fund, adefined benefit scheme.





31

14. Profit on ordinary activities before taxation 2011 2010US$’000 US$’000

Operating profit is stated after charging:Amounts receivable by the Auditor and its associates in respect of:Audit of the financial statements (144) (126)Other services pursuant to legislation (11) (6)Other services relating to taxation (40) (134)All other services - (6)

Rental of premises held under an operating lease (232) (233)Other operating lease and similar rentals (198) (174)

15. Taxation

Tax on profit on ordinary activities in the statement of comprehensive income:

(a) Analysis of tax charge on ordinary activities 2011 2010US$’000 US$’000

Current tax:

United Kingdom corporation tax based on the profit for the year (1,501) (959)

Exchange differences 25 (7)

Total current tax (1,476) (966)

Deferred tax:

Timing differences, origination and reversal 71 98Prior year deferred tax adjustment (26) (4)Total deferred tax 45 94

Tax expense on profit on ordinary activities (1,431) (872)




32


15. Taxation (continued)

(b) Reconciliation of the total tax charge

The tax assessed for the year is higher (2010 - higher) than that resulting from applying thestandard rate of corporation tax in the UK. The differences are explained below:

2011 2010US$’000 US$’000

Profit on ordinary activities before tax 5,374 3,030

Tax at 26.5% (2010 - 28%) thereon (1,424) (848)

Effects of:

Expenses not deductible for tax purposes (8) (9)Exchange differences 25 (7)Difference on standard tax rate 2 (4)Adjustments in respect of prior year (26) (4)

Tax expense (1,431) (872)

The UK corporation tax rate reduced from 28% to 26% effective from 1st April 2011 and a further change to 25% effective from 1st April 2012 was substantively enacted during the period.

(c) Analysis of deferred tax asset

The following is an analysis of the major deferred tax assets and liabilities recognised by the Bank:

2011 2010US$’000 US$’000

Depreciation in excess of capital allowances 136 123Short term timing differences 80 48

216 171

(d) Factors that may affect future tax charges

It was originally announced that the UK corporate income tax would reduce from 26% to25% with effect from 1 April 2012 with further reductions of 1% in each year until thestandard rate will be 23% in 2014. In the 2012 budget on 21 March 2012 the UKgovernment announced that the rate of corporate income tax would drop from 26% to 24%with effect from 1 April 2012 with further reductions of 1% in each year until the standardrate is 22% in 2014. Further changes in the rate have not been substantively enacted at thebalance sheet date and therefore these have not been reflected in the financial statements.

16. Cash at bank and in hand 2011 2010US$’000 US$’000

Cash 289 396Short term placements with other banks 4,850 7,370

5,139 7,766



17. Loans and advances to banks

Gross Impairment Gross Impairmentamount allowance Total amount allowance Total

Bank overdrafts 5,729 - 5,729 7,654 - 7,654Bank loans 790,779 - 790,779 498,847 - 498,847

796,508 - 796,508 506,501 - 506,501

Performing Impaired Total Performing Impaired Total

Repayable on demand or at short notice 31,848 - 31,848 39,683 - 39,683

Remaining maturity:- 3 months or less excl. above 761,679 - 761,679 458,959 - 458,959- 1 year or less but over 3 months 2,981 - 2,981 7,859 - 7,859

Less: allowances for impairment (note 19) - - - - - -

796,508 - 796,508 506,501 - 506,501

Amounts repayable on demand or at short notice include monies pledged to banks in respectof trade finance transactions of US$26,101,000 (31st December 2010 - US$27,125,000).



33

Loans and advances to banks are categorised as ‘loans and receivables’ in accordance with IAS 39.

The fair value of the cash collateral held in respect of the loans and advances to banks at 31stDecember 2011 is US$48,720,000 (31st December 2010 - US$27,369,000). This collateralcan be used in the event of default by the borrower.

Out of the total collateral, US$2,699,000 (31st December 2010 – US$1,656,000) is for loansand advances to banks that are past due, but not impaired.

The following table shows the remaining maturity of the loans and advances to banks:

2011US$’000

2010US$’000

2011US$’000

2010US$’000





34

18. Loans and advances to customers

Gross Impairment Gross Impairmentamount allowance Total amount allowance Total

Commercial loans & advances 8,634 (539) 8,095 37,645 (535) 37,110Personal loans & advances 5,457 (21) 5,436 7,488 (11) 7,477Syndicated loans 45,068 - 45,068 13,502 - 13,502

59,159 (560) 58,599 58,635 (546) 58,089

Performing Impaired Total Performing Impaired Total

Repayable on demand or at short notice 7,794 343 8,137 8,579 333 8,912

Remaining maturity:- 3 months or less excl. above 32,313 - 32,313 22,654 - 22,654- 1 year or less but over 3 months 11,614 - 11,614 20,831 - 20,831- 5 years or less but over 1 year 7,095 - 7,095 6,238 - 6,238

Less: Allowances for impairment (note 19) (217) (343) (560) (217) (329) (546)

58,599 - 58,599 58,085 4 58,089

2011US$’000

2010US$’000

2011US$’000

2010US$’000

Loans and advances to customers are categorised as ‘loans and receivables’ in accordancewith IAS 39.

The fair value of the collateral held in respect of the loans and advances to customers isUS$13,754,000 as at 31st December 2011 (31st December 2010 - US$34,417,000). Thiscollateral can be used in the event of default by the borrower.

Out of the total collateral, US$7,000 is for impaired loans and advances to customers (31stDecember 2010 - US$42,000) and US$861,000 (31st December 2010 – US$nil) is for loansand advances to customers that are past due, but not impaired.

The following table shows the remaining maturity of the loans and advances to customers:





35

19. Net impairment loss for financial assets

2011 2010US$’000 US$’000

At beginning of the year (546) (565)Charge to statement of comprehensive income (22) -Exchange differences 8 19

At the end of the year (560) (546)

Loans and advances to banks - -Loans and advances to customers (560) (546)

(560) (546)

During the year, the Bank has had no defaults on loans and advances to customers (31st December 2010 - US$nil).

The carrying amount of the loans and advances to customers in default at the end of thereporting period is US$nil (31st December 2010 - US$nil).

20. Financial assets held-to-maturity2011 2010

US$’000 US$’000Financial assets held-to-maturity at amortised cost

Treasury bills 7,496 2,000Certificates of deposit 30,012 134,108Bank bonds 15,535 3,541

53,043 139,649

Maturity- 3 months or less 39,358 136,108- 1 year or less but over 3 months 7,496 -- 5 years or less but over 1 year 6,189 3,541

21. Financial assets available-for-sale2011 2010

US$’000 US$’000Financial assets available-for-sale at fair value

Government bonds 7,546 -Bank bonds 10,017 -

17,563 -

Maturity- 5 years or less but over 1 year 10,017 -- Over 5 years 7,546 -

The Bank measures fair values using the fair value hierarchy that reflects the significance ofinputs used in making the measurements. The financial assets of the Bank fall within thecategory of Level 1 where valuation is based upon quoted prices in an active market for thesame or identical instrument.





36

22. Property and equipment

2011

Office Equipment

and FurnitureLeasehold & Computer Motor

US$’000 Improvements Hardware Vehicles Total

Cost:At beginning of the year 639 545 99 1,283Additions - 139 - 139

At end of the year 639 684 99 1,422

Depreciation:At beginning of the year (511) (418) (68) (997)Charge for the year (92) (55) (20) (167)

At end of the year (603) (473) (88) (1,164)

Net book value at 31st December 2011 36 211 11 258

2010

Office Equipment

and FurnitureLeasehold & Computer Motor

US$’000 Improvements Hardware Vehicles Total

Cost:At beginning of the year 631 517 108 1,256Additions 8 29 21 58Disposals - (1) (30) (31)

At end of the year 639 545 99 1,283

Depreciation:At beginning of the year (380) (328) (60) (768)Charge for the year (131) (90) (32) (253)Disposals - - 24 24

At end of the year (511) (418) (68) (997)

Net book value at 31st December 2010 128 127 31 286





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23. Intangible assets 2011 2010Software SoftwareUS$’000 US$’000

Cost:At beginning of the year 2,837 2,696Additions 133 141

At end of the year 2,970 2,837

Amortisation:At beginning of the year (1,984) (1,558)Charge for the year (292) (426)

At end of the year (2,276) (1,984)

Net book value at 31st December 2011 / 31st December 2010 694 853

24. Deposits by banks 2011 2010US$’000 US$’000

Repayable on demand 109,790 108,976

Remaining maturity:- 3 months or less excluding above 205,272 310,426- 1 year or less but over 3 months - 1,161

315,062 420,563

Deposits by banks include amounts totalling US$82,720,000 (31st December 2010 –US$65,287,000) charged to the Bank to secure actual and contingent liabilities in respect ofletters of credit.

25. Customer accounts 2011 2010US$’000 US$’000

Repayable on demand 505,733 189,710

Remaining maturity:- 3 months or less excluding above 18,707 24,553- 1 year or less but over 3 months 17,152 7,166- 5 years or less but over 1 year 69 91

541,661 221,520

Customer accounts include amounts totalling US$618,000 (31st December 2010 –US$25,858,000) charged to the Bank to secure actual and contingent liabilities in respect ofletters of credit.





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26. Other liabilities 2011 2010US$’000 US$’000

Taxation and social security 1,152 730Accounts payable 1,900 1,561Customers’ unclaimed balances 379 367

3,431 2,658

27. Accruals and deferred income 2011 2010US$’000 US$’000

Other accruals 348 672Deferred income 203 256

551 928

28. Called up share capital

2011 2010Allotted, called up and fully paid US$’000 US$’000

50,000 deferred shares of £1 each 90 9060,000,000 ordinary shares of US$1 each 60,000 60,000

60,090 60,090

Reconciliation of allocated and fully paid shares US$’000 US$’000

As at 1st January 60,090 45,09015,000,000 ordinary shares of US$1 each issued during the year - 15,000

As at 31st December 60,090 60,090

On 30th June 2010, US$15,000,000 ordinary shares of US$1 each were issued on conversion of the US$15,000,000 subordinated loan to share capital.

The deferred shares carry no voting rights or entitlement to dividend and limited rights in a winding up.

29. Related party transactions

During the year, the Bank undertook commercial arm’s length transactions with UBN and itssubsidiaries (the UBN Group) in the normal course of business. These include loans anddeposits and foreign currency transactions. Loans and advances to banks are cash secured toa maximum of US$28m (year ended 31st December 2010 - US$28m). Balances and relatedincome and expense included in these financial statements in respect of the UBN Group areas follows:





39

Highest Highestbalance during Closing balance during Closing

US$’000 year balance year balance

Holding company

AssetsCash at bank and in hand 59 30 102 13Loans and advances to banks 39,000 22,188 31,383 24,867

LiabilitiesDeposits by banks 539,044 105,752 802,795 88,055Accruals and deferred income - - 30 -Subordinated liabilities - - 15,000 -

IncomeFrom holding company 933 463

ExpenseTo holding company 300 941

Fellow subsidiaries

LiabilitiesDeposits by banks 248 40 4,806 76Customer accounts 281 280 279 265

IncomeFrom fellow subsidiaries 5 5

2011 2010

The disclosure of the year-end balance and highest balance during the year is considered themost meaningful information to represent transactions during the year.

Mortgage advances to two (31st December 2010 – two) former directors of the parent banktotalling US$146,871 (31st December 2010 – US$281,391) were outstanding at the end ofthe year. These individuals ceased to be directors of the parent bank during 2009.

There were no other related party transactions or balances requiring disclosure.

30. Contingent liabilities and commitments 2011 2010US$’000 US$’000

Letters of credit 89,565 79,514Guarantees given to third parties 1,877 1,342





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31. Financial risk management

(a) Risk management

The Bank holds and issues financialinstruments for the purposes of:

- earning interest margins, fees andcommission;

- financing its operations; and

- managing the interest rate andcurrency risks inherent in itsoperations.

The Bank does not actively trade infinancial instruments and, therefore, doesnot have a trading book. Its operations arefinanced from a mixture of shareholders’funds and deposits. Deposits are raisedprimarily in US dollars and to a lesserextent sterling and euros at both fixed andvariable rates and lending is similarlydistributed. Longer term lending is partlyfinanced by shareholders’ funds but isotherwise generally matched to depositsboth in terms of maturity and re-pricing.

The Bank’s functional currency is the USdollar. It does not actively speculate inforeign currencies and the majority of itsforeign exchange transactions are carriedout in the spot market for customerfacilitation purposes. Forward foreignexchange transactions are undertaken forthe purposes of hedging the US$ value ofthe Bank's estimated £sterling expenses.

Presently, it is not the Bank’s policy to dealin derivative financial instruments such asinterest rate and currency swaps and over-the-counter options.

The main risks arising from the Bank’sfinancial instruments are credit risk,liquidity risk, interest rate risk and foreigncurrency risk. Management hasdeveloped policies for managing each ofthese risks, which are reviewed andapproved by the Board on an annual basis.Significant features of these policies aresummarised below.

(b) Credit risk

Credit risk is the risk that a customer orcounterparty is unable or unwilling tomeet a commitment that it has enteredinto with the Bank and arises mainly fromlending and trade finance activities. Tomitigate this risk, the Bank has adoptedpolicies that minimise significantunsecured credit exposures other than tofinancial institutions and to avoidconcentrations of unsecured credit risk tocounterparty groups, industry sectors andcountries, which do not carry investmentgrade credit ratings. All credit exposuresare subject to continuous assessment bythe Assets & Liabilities Committee and theCredit & General Purposes Committee ofthe Board. It is the policy of the Bank tomake adequate impairment allowanceswhere real or probable problems in assetrecovery are identified and to makeadequate collective impairmentallowances for those as yet unidentifiedcredit problems that are inherent in anyportfolio of banking assets. Details ofimpairment allowances are summarised inNotes 17 to 19.

(i) Age analysis of past due but notimpaired assets

Impairment assessment takes into accountknown recoveries after the reporting datein respect of assets past due at that dateas well as collateral held in the form ofcash and property and chattel mortgages.The table below shows the age analysis ofpast due but not impaired assets togetherwith collateral held.





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The above sector and geographicalanalyses only include cash at bank and inhand, loans and advances to banks and tocustomers, financial assets held-to-maturity and financial assets available-for-sale.

The Bank had no direct exposure to thecountries impacted by crises in theEuropean zone and in particular there wasno exposure to Greece, Portugal or Spain,nor were any of the Bank’s exposuressubject to credit events arising from theconsequence of the Eurozone crisis.

The Bank extends credit facilities to qualityrated and unrated counterparties. Allrated counterparties must have a Fitch (orequivalent) rating of no less than B. Alarge percentage (77%) (31st December2010 – 82%) of the Bank’s total financialassets represent treasury assets with highquality financial institutions, the majorityof which had ratings of A to AAA.

As at 31st December 2011, the Bank’smaximum exposure to credit wasUS$1,064m (31st December 2010 –US$821m), of which US$343,000 (31stDecember 2010 – US$333,000) wasdeemed to be impaired or doubtful.These amounts include all financial assetsand undrawn irrevocable loan and tradecommitments.

Total trade related exposure wasUS$91.4m (31st December 2010 –US$80.9m) against which the Bank heldcash collateral of US$34.6m (31stDecember 2010 – US$19.2m). Inaddition, the Bank had collateral ofUS$48.7m (31st December 2010 –US$37.5m) in respect of other creditexposures.

Gross Grossamount Collateral Net amount Collateral Net

Within 3 months 3,560 3,560 - 3,656 1,656 2,0006 months or less but over 3 months - - - - - -

3,560 3,560 - 3,656 1,656 2,000

(ii) Credit exposure by sector 2011 2010US$’000 US$’000

Banks 872,253 653,916Corporate 53,163 50,613Individuals 5,436 7,476

930,852 712,005

(iii) Credit exposure by location 2011 2010US$’000 US$’000

Europe 634,983 445,901Africa 128,877 106,325Others (mainly Canada, Japan and Australia) 166,992 159,779

930,852 712,005

2011US$’000

2010US$’000



Less than 3 3 - 6 6 - 12 1 - 5 OverMonths Months Months Years 5 Years Total

Liabilities

Deposits by banks 419,402 1,161 - - - 420,563Customer accounts 214,263 6,772 394 91 - 221,520Other liabilities 2,658 - - - - 2,658Off balance sheet – undrawn loan commitments 27,788 - - - - 27,788

Total liabilities 664,111 7,933 394 91 - 672,529



42

Less than 3 3 - 6 6 - 12 1 - 5 OverMonths Months Months Years 5 Years Total

Liabilities

Deposits by banks 315,062 - - - - 315,062Customer accounts 524,440 6,631 10,521 69 - 541,661Other liabilities 3,431 - - - - 3,431Off balance sheet – undrawn loan commitments 7,918 - - - - 7,918

Total liabilities 850,851 6,631 10,521 69 - 868,072

US$’000 Time Band

2011

US$’000 Time Band

2010

(c) Liquidity risk

Liquidity risk is the risk that the Bank is notable to meet its commitments tocustomers and counterparties as they falldue as a result of mismatch in cash flowsarising from liabilities and assets. Tomitigate this risk, the liquidity structure ofassets, liabilities and commitments ismanaged so that resultant cash flows areappropriately balanced, within approvedlimits and mismatch parameters set by theFSA, to ensure that all obligations can be

met when due. Generally, it is the policyof the Bank to match the currency andmaturity of all liabilities and assets as faras practicable and to maintain a store ofliquidity in the form of readily realisabledebt securities, including prime bankcertificates of deposit. Also, wherepossible, the Bank enters into depositnetting agreements with those banks withwhich it makes placements in order toretain access to funds at short notice.

An analysis of the Bank’s liabilities and commitments by maturity is as follows:





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(d) Interest rate risk

Interest rate risk is the risk of loss arisingfrom differences in the re-pricing dates ofliabilities and assets. The Bank’s policy is tolimit re-pricing risk by setting re-pricinggap limits and by regularly reviewing its re-pricing risk by reference to assumedadverse movements in interest rates toensure that the risk of loss remains withinacceptable limits. Therefore, the Bank’streasury and lending functions seek toprice assets at floating rates or at fixedrates for fixed periods at appropriate roll-over dates that allow for matching withcustomer and market liabilities.

The table below summarises the Bank’sassets and liabilities by re-pricing timeband and demonstrates the extent towhich these are matched, save in respectof equity shareholders’ funds, which arepresently invested short term.

(i) Interest rate gap analysis

Assets and liabilities are analysed in timebands according to the earlier of theperiod to the next interest rate re-pricingand maturity date as follows:

Non-Less than 3 3 - 6 6 - 12 1 - 5 Over interest

Months Months Months Years 5 Years bearing Total

Total assets 892,841 6,970 3,532 20,241 7,268 1,984 932,836Total liabilities and capital (838,736) (6,715) (10,135) (1,137) (-) (76,113) (932,836)Interest rate sensitivity gap 54,105 255 (6,603) 19,104 7,268 (74,129) -

Cumulative gap 54,105 54,360 47,757 66,861 74,129

US$’000 Time Band

2011

Non-Less than 3 3 - 6 6 - 12 1 - 5 Over interest

Months Months Months Years 5 Years bearing Total

Total assets 683,437 11,914 12,868 3,786 - 2,013 714,018Total liabilities and capital (633,665) (7,933) (394) (91) (-) (71,935) (714,018)Interest rate sensitivity gap 49,772 3,981 12,474 3,695 - (69,922) -

Cumulative gap 49,772 53,753 66,227 69,922 69,922

US$’000 Time Band

2010





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(ii) Interest rate sensitivity analysis

Interest rate sensitivity analysis has beenperformed on the net cash flow interestrate risk exposures as at the reportingdates. A range of possible upward/downward movements in Libor/Euribor of100bps has been assumed for the

different currencies. If all other variablesare held constant, the tables belowpresent the likely impact on the Bank’sstatement of comprehensive income:

US dollar £ Sterling Euro Other Total

Total Financial assets 866,763 50,211 11,455 2,423 930,852Less: fixed rate assets (275,337) (234) (380) (8) (275,959)

Total Variable rate assets 591,426 49,977 11,075 2,415 654,893

Total Financial liabilities 794,085 48,826 11,436 2,376 856,723Less: fixed rate liabilities (184,753) (22,712) (3,541) (-) (211,006)

Total Variable rate liabilities 609,332 26,114 7,895 2,376 645,717

Net cash flow interest Rate Risk exposure (17,906) 23,863 3,180 39 9,176

Possible movement in Libor/Euribor (bps) 100 100 100 100

Possible impact of increase in Libor/Euribor on profit/loss before tax (179) 239 32 - 92

Tax charge-26.5% 47 (63) (8) - (24)

Possible impact of increase in Libor/Euriboron profit/loss after tax (132) 176 24 - 68

Possible impact of decrease in Libor/Euribor on profit/loss before tax 179 (239) (32) - (92)

Tax charge-26.5% (47) 63 8 - 24

Possible impact of decrease in Libor/Euriboron profit/loss after tax 132 (176) (24) - (68)

US$’000 Currencies

2011





45


Total Financial assets 635,457 54,903 20,788 857 712,005Less: fixed rate assets (304,993) (-) (-) (-) (304,993)

Total Variable rate assets 330,464 54,903 20,788 857 407,012

Total Financial liabilities 566,796 53,703 20,805 779 642,083Less: fixed rate liabilities (324,554) (18,734) (2,852) - (346,140)

Total Variable rate liabilities 242,242 34,969 17,953 779 295,943

Net cash flow interest Rate Risk exposure 88,222 19,934 2,835 78 111,069

Possible movement in Libor/Euribor (bps) 100 100 100 100

Possible impact of increase in Libor/Euriboron profit/loss before tax 882 199 28 1 1,110

Tax charge-28% (247) (56) (8) (-) (311)

Possible impact of increase in Libor/Euriboron profit/loss after tax 635 143 20 1 799

Possible impact of decrease in Libor/Euribor on profit/loss before tax (882) (199) (28) (1) (1,110)

Tax charge-28% 247 56 8 - 311

Possible impact of decrease in Libor/Euriboron profit/loss after tax (635) (143) (20) (1) (799)


2010

(e) Currency risk

Limited foreign exchange exposure arisesfrom the facilitation of customer ordersand from profits and losses in currenciesother than the functional currency. TheBank does not actively speculate in foreigncurrencies and does not deal in forwardforeign exchange, foreign exchangeoptions, futures or options thereon exceptto the limited extent necessary to hedgecash flows arising from its own and itscustomers’ activities. Foreign exchange

exposures are subject to limits as topositions in individual currencies and as tothe ‘overall net open position’.

Details of the Bank’s assets and liabilitiesby currency of denomination aresummarised in US dollars in table (i) belowso as to demonstrate the extent to whichforeign currency exposures are matched.





46

(ii) Foreign currency sensitivity analysis

Foreign currency sensitivity analysis hasbeen performed on the foreign currencyexposures inherent in the Bank’s financialassets and financial liabilities at thereporting dates. The sensitivity analysisprovides an indication of the impact onthe Bank’s statement of comprehensiveincome of reasonably possible changes inthe currency exposures embedded withinthe functional currency environment inwhich the Bank operates. Reasonablypossible changes are based on an analysisof historical currency volatility, togetherwith any relevant assumptions regardingnear-term future volatility.

The Bank believes that for each foreigncurrency net exposure it is reasonable toassume a 5% appreciation/depreciationagainst the Bank’s functional currency. Ifall other variables are held constant, thetables below present the impacts on theBank’s statement of comprehensiveincome if these currency movements hadoccurred.

(i) Net currency position analysis

Assets and liabilities, expressed in US$ butanalysed according to the currency inwhich they were denominated, aftertaking into account the accounting policyfor foreign currencies as set out in Note3(c), were as follows:


Total assets 867,054 51,895 11,464 2,423 932,836Total liabilities and capital (867,361) (51,650) (11,448) (2,377) (932,836)Unsettled spot foreign exchange - - - - -

Currency position (307) 245 16 46 -


2011


Total assets 637,177 55,173 20,808 860 714,018Total liabilities and capital (636,948) (55,473) (20,818) (779) (714,018)Unsettled spot foreign exchange (166) 167 (1) - -

Currency position 63 (133) (11) 81 -


2010





47

2011

US$’000 Currencies (FC)

£ Sterling Euro Other

Net foreign currency exposures 245 16 46

Impact of 5% increase in FC:USD rate (12) (1) (2)Impact of 5% decrease in FC:USD rate 12 1 2

2010

US$’000 Currencies (FC)

£ Sterling Euro Other

Net foreign currency exposures (133) (11) 81

Impact of 5% increase in FC:USD rate (7) (1) (4)Impact of 5% decrease in FC:USD rate 7 1 4





48

(f) Capital adequacy

The Bank is subject to minimum capitalrequirements imposed by the FSA, followingguidelines developed by the BaselCommittee on Banking Supervision andimplemented in the UK via European UnionDirectives. The revised framework, knownas Basel II, became effective on 1st January2008 and includes a more risk-sensitivemethodology for the calculation of capitalrequirements for Credit Risk as well as acapital requirement for Operational Risk.

Minimum capital requirements under theFSA’s rules are calculated by summing thecapital requirements for Credit Risk,Operational Risk, Market Risk andCounterparty Credit Risk. For the purposesof computing these requirements the Bankhas elected to adopt the StandardisedApproach to Credit Risk and the BasicIndicator Approach to Operational Risk.Market Risk is determined using thestandard Position Risk Requirement (PRR)rules and Counterparty Credit Risk (CCR) iscalculated using the CCR mark to marketmethod. The Market Risk and CounterpartyCredit Risk components of the capitalrequirement are small because the Bank hasno trading book.

The minimum capital requirement for CreditRisk under Pillar 1 of Basel II is calculated bymultiplying risk weighted assets by 8%, theinternationally agreed minimum ratio. Riskweighted assets are determined by applyingrisk weights, which vary according to thecredit rating of the obligor, to the Bank’sassets, including off balance sheetengagements that are subject also to givencredit risk conversion factors. Under Pillar 2of Basel II, the Bank undertakes anassessment (the ICAAP process) of theamount of capital that is required to supportits activities using the Pillar 1 plus approach.

This assessment has identified a number ofrisks that either do not attract capital underPillar 1 or where the Pillar 1 requirementdoes not fully capture the risks faced by theBank. Additional capital is set aside underPillar 2 for these risks, which includeexposure concentrations and interest raterisk in the non-trading book. The Bank’stotal capital requirement is then the sum ofthe amounts calculated under Pillar 1 andPillar 2. Furthermore, the Bank is subject toIndividual Capital Guidance (ICG) providedby the FSA whereby the Pillar 2 requirementis computed by applying a formula to thePillar 1 requirement. This results in a Pillar 2requirement that is somewhat higher thanthat determined through the ICAAP process.

The Bank calculates its capital adequacy on adaily basis by comparing the total capitalrequirement in accordance with the ICG tocapital available to meet this requirement(Regulatory Capital). A capital buffer is alsoincorporated, which is based on a level oftolerance to unexpected losses that isconsidered and agreed by the Board as partof the ICAAP process. At 31st December2011 and throughout the year, the Bankmaintained Regulatory Capital in excess ofthe total capital requirement calculated inaccordance with the ICG.

The following table is an analysis of thoseitems which comprise the Regulatory Capital base for the purposes of reporting tothe FSA.





49

2011 2010US$’000 US$’000

Statement of financial position:Share Capital 60,090 60,090 Profit & Loss Reserve 12,202 8,259

Total Tier 1 Capital 72,292 68,349

Upper Tier 2 Capital - Collective impairment allowance 217 217Available-for-Sale Reserve (161) -

Total Tier 2 Capital 56 217

Total Regulatory Capital 72,236 68,566

The Regulatory Capital shown above differs from that reported to the FSA because retainedprofits cannot be included until such time as the Financial Statements for the relevant periodhave been audited and approved.

(g) Lending commitments 2011 2010US$’000 US$’000

Undrawn formal standby facilities, credit lines and other commitments to lend:

Contract amount 7,918 27,788Credit equivalent amount 3,959 13,883Risk weighted amount 3,959 13,883

Under the Basel agreement, credit equivalent amounts, obtained by applying creditconversion factors, are risk weighted according to counterparty.

32. Capital commitments

The directors have authorised capital expenditure relating to refurbishment of the Bank’spremises and enhancements to information technology systems of up to US$0.68m. At 31stDecember 2011, amounts so authorised but not yet expended amounted to US$0.47m.

33. Dividends

No dividend payment was made during the year ended 31st December 2011 in respect of theyear ended 31st December 2010 (made during the year ended 31st December 2010 inrespect of the nine month period ended 31st December 2009 - nil).

The directors propose a final dividend in respect of year ended 31st December 2011 ofUS$945,000 (in respect of year ended 31st December 2010 - nil).





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35. Ultimate parent company and controlling party

The Bank is a directly wholly-owned subsidiary of its parent and ultimate holding undertaking,Union Bank of Nigeria Plc, a company incorporated in Nigeria and listed on the Nigerian StockExchange. The smallest and largest group in which the Bank is consolidated is Union Bank ofNigeria Plc.

Copies of the Group financial statements of Union Bank of Nigeria Plc can be obtained from:

Corporate Affairs Department Union Bank of Nigeria PlcStallion Plaza36 MarinaLagos Nigeria

36. Subsequent events

There are no material adjusting or non-adjusting events after the accounting date.

34. Fair values of financial instruments

Set out below is a year-end comparison of fair and book values of all the Bank’s financialinstruments by type. Market values are used to determine fair values. In the absence of readilyascertainable market values, directors’ estimation is used to determine fair values.

Book Fair Book FairValue Value Value Value

US$’000 US$’000 US$’000 US$’000

AssetsCash at bank and in hand 5,139 5,139 7,766 7,766Loans and advances to banks 796,508 796,508 506,501 506,501Loans and advances to customers 58,599 58,599 58,089 58,089Financial assets held-to-maturity 53,043 51,823 139,649 139,537Financial assets available-for-sale 17,563 17,563 - -

LiabilitiesDeposits by banks 315,062 315,062 420,563 420,563Customer accounts 541,661 541,661 221,520 221,520Other liabilities 3,431 3,431 2,658 2,658

2011 2010



Group Contact Information


51

Companies Business Contact

Union Bank of Nigeria Plc Retail, commercial and investment banking Stallion Plaza, 36 Marina, Lagos, NigeriaTel: +234 (0) 1 263 0361/263 1430(+234 (0) 1 266 3594 – International Banking)

Union Homes Savings Mortgage lending 153 Ikorodu Road, Onipanu, P.M.B. 041 & Loans Limited Shomolu, Lagos, Nigeria

Tel: +234 (0) 1 740 0840

Union Capital Investment and financial advisory services Plot 97, Ahmadu Bello WayMarkets Limited Victoria Island, Lagos, Nigeria

Tel: +234 (0) 1 266 7313

Union Assurance Life and general insurance Stallion Plaza (13th Floor)Company Limited 36 Marina, Lagos, Nigeria

Tel: +234 (0) 1 264 0277

Union Registrars Limited Share registration 2 Burma Road, Apapa, Lagos, NigeriaTel: +234 (0) 1 279 3161

Union Trustees Limited Trust and custody services 2 Davies Street, PZ BuildingP.M.B 2027 Marina, Lagos, NigeriaTel: +234 (0) 1 270 5307

UBN Property Company Ltd Property development and management 3rd Floor, Stallion Plaza, 36 Marina Lagos, NigeriaTel: +234 (0) 1 903 2180/1

HFC Bank (Ghana) Limited Retail and commercial banking and 35 Sixth Avenue, North Ridge mortgage lending P.O. Box CT4603

Cantonments, Accra, Ghana, Tel: +233 21 242 090-4

Banque Internationale Retail and commercial banking BP 03-2098, Carrefour Desdu Benin 3 Avenue Giran, Cotonou, Benin

Tel: +212 (0) 2 222 4142

Consolidated Discount Ltd Bill and acceptances 38/39 Marina, Lagos, Nigeria. Tel: +234 (0) 1 270 2640-2

Unique Venture Capital Venture capital 5th Floor, 40 Marina, Lagos, Nigeria Management Tel: +234 (0) 1 891 2071

Union Bank of Nigeria Plc Representation 8th Floor, 13 Fredman Drive, SandtonSouth African Johannesburg 2199, Republic of South AfricaRepresentative Office Tel: +27 11 883 3313




52

Union Bank UK plc14 - 18 Copthall AvenueLondon EC2R 7BNTelephone: +44 (0)20 7920 6100Dealers: +44 (0)20 7638 9826-8Facsimile: +44 (0)20 7638 7642Swift Code: UBNIGB2LWebsite: www.unionbankuk.comEmail: [email protected]

Nigeria Representative Office:2nd Floor, 1668 B, Oyin-jolayemi Street,Victoria Island, Lagos, Nigeria.Telephone: +234 (0)1 2799347

+234 (0)9 4611640

Contact Details

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Union Bank serves you better

Union Bank UK plc

14 - 18 Copthall AvenueLondon EC2R 7BN

Telephone: +44 (0)20 7920 6100Dealers: +44 (0)20 7638 9826-8Facsimile: +44 (0)20 7638 7642Swift Code: UBNIGB2LWebsite: www.unionbankuk.comEmail: [email protected]

Representative Office:2nd Floor, 1668 BOyin-jolayemi StreetVictoria IslandLagos, Nigeria

A member of the Union Bank of Nigeria Plc Financial Group

Authorised and Regulated by theFinancial Services Authority

Company Registration No. 4661188


Documents

Annual Report & Financial Statements 31st December 2011 · 2012-08-06 · Annual Report & Financial Statements 31st December 2011 3 † Dividends are accounted for in the year in