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Chairman's Statement

A relentless focus on our customers enabled the business to deliver the excellent result in 2012. We are evolving bigger, better and faster products with most of our service delivery engendered by rare innovations.

Letter to Shareholders

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THE GLOBAL ECONOMY

Global economic growth remained largely uneven and subdued in most economies in 2012. Latest data from the International Monetary Fund (IMF) indicate that global output was weaker than previously forecast due to continued contraction in the Euro Zone and Japan as well as the less than anticipated growth in Brazil and India. These developments among others adversely affected private sector confidence, worsened the unemployment situation and further tightened financing conditions in both the periphery and core economies.

In the Euro Area, economic and financial conditions remained severely weak. Although the European Central Bank (ECB) attempted, through its intervention scheme, to halt the downward trend in economic activities in the zone, the effort did not record much success. Overall, global output was estimated to have expanded by 3.2 per cent in 2012 against the earlier projection of 3.3 per cent made in the October 2012 IMF World Economic Outlook. Emerging European economies, which had previously shown signs of strong rebound from the credit crisis were hit hard by slow export growth and a halt to real Gross Domestic Product (GDP) growth. Thus, although the decisions of the ECB considerably reduced the probability of a Euro zone-wide financial crisis, the condition of country-level financial systems remained difficult all through the year under review.

THE NIGERIAN ECONOMY

The National Bureau of Statistics (NBS) has put Nigeria’s real Gross Domestic Product (GDP) growth rate at 6.58 per cent in 2012, which is lower than the 7.43 per cent recorded in 2011. The non-oil sector remained the major driver of growth, recording 8.23 per cent increase in contrast to the oil sector, which contracted by 0.17 per cent during the period under review. The relatively robust growth projections despite the slowing global economy reflected the somewhat favourable performance of wholesale and retail trade; the services sectors; outcome of banking sector reforms; and initiatives by government to stimulate the real economy. Despite the developments in the international oil market where the US is now the second largest oil producer, the growth projection remained promising, anchored mainly on the slight improvement in power supply.

But while the economy in GDP terms was doing relatively well, inflation remained a major challenge all through the year under review. Indeed, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) in its communique Number 87, observed that, on the average, inflationary pressure was elevated in 2012. The year-on-year average headline inflation rate in 2012 stood at 12.24 per cent, while the average core and food inflation year-on-year, stood at 13.87 and 11.32 per cent, respectively. The major drivers of headline inflation in 2012 included food and non-alcoholic beverages, housing, water, electricity and transport.

In the financial markets, broad money supply (M2) grew by 13.72 per cent in December, 2012 over the level at end-December 2011. Aggregate domestic credit (net) grew by 1.98 per cent in December 2012, which was substantially below the benchmark of 52.17 per cent for the whole year. Credit to Government contracted between September and December 2012; occasioned by the sustenance of government as a net creditor to the banking system, reflecting more prudent fiscal measures, including the introduction of the Treasury Single Account.

Interest rates in all segments of the money market moderated in the last few months of 2012, reflecting in increased liquidity in the banking sector. This was attributable to the release of statutory revenue to sub-national governments, absence of repo transaction during the review period, repayments of matured CBN Bills and banks’ desire to maintain optimum liquidity position on their balance sheets at the end of their common financial year.

On the other hand, the country’s external reserves experienced a boost, hitting a robust multi-year high of US$44.18 billion at end-2012, an increase of about 34 per cent from US$32.90 billion as at the end of 2011. Within the last quarter 2012 alone, the reserves level rose from US$42.167 billion in October to the new higher level at the close of the year- a value enough to cover about one full year of imports. This phenomenal increase in the level of foreign reserves was driven mainly by proceeds from crude oil and gas exports and crude-oil related taxes. Also, there was reduced funding of the wholesale Dutch Auction System (WDAS) owing to the huge inflow of foreign portfolio investments. All these manifested in Naira appreciation at the official foreign exchange market during 2012; with the local currency gaining almost 100kobo to close the year at ₦155.77/US$1.

The rally in the Nigerian capital market, especially during the second half of 2012 was substantial as all equities market indicators trended upwards in the review period. Market data show that the All-Share Index (ASI) increased by 35.45 per cent from 20,730.63 points to 28,078.80 points between December 30, 2011 and December 31, 2012. Market Capitalization (MC) also increased, by 37.38 per cent, from ₦6.53 trillion to ₦8.97 trillion during the same period. This cheery performance was driven by a number of factors including the commencement of ‘Market Making’ in September 2012, return of institutional investors to the market, the inclusion of Nigerian Government bonds in the JP Morgan Government Bond Index-Emerging Markets (GBI-EM) as well as renewed appetite for equities by local investors.

The total value of equities traded on the NSE in 2012 stood at ₦658.22 billion (US$4.23 billion), representing an increase of ₦23.30 billion or 3.67 per cent over the ₦634.92 billion (US$4.18 billion) recorded at the end of 2011. Also, average daily value of equities stood at ₦2.65 billion in 2012, representing an increase of 2.71per cent over the ₦2.58 billion recorded in the preceding year.

In its regulatory role, the CBN put in place a number of initiatives to achieve a balanced growth and development of the economy all through 2012. Some of these initiatives include: the Nigerian Sustainable Banking Principles (NSBP); Financial Inclusion Strategy; the Intervention Funds, etc. The Sustainability principles entail managing environmental and social risk in business decisions, safeguarding human rights, promoting women’s economic empowerment, improving governance, transparency and accountability. It also involves managing the bank’s own environmental and social footprint, supporting capacity building in the financial sector and promoting collaborative partnerships to accelerate sector progress, among others.

In pursuit of all these, the NSBP and sector-specific guidelines (agric, oil & gas, power) have been developed and adopted for implementation, while a sustainability committee was set up in the CBN to provide oversight for the industry’s implementation. Similarly, the CBN and the Bankers’ Committee launched in October 2012, the national financial inclusion strategy aimed at reducing the number of adults excluded from access to financial services from about 46 per cent in 2010 to about 20 per cent in 2020. In order to achieve this target, the strategy focuses on increasing access to/take up of credit, payment, savings and products etc. and channels (ATMs, POS’, retail agents, DMB branch networks, etc).

The CBN and the deposit money banks pursued vigorously the first major policy in 2012: the Cashless Lagos. The initiative, aimed at moving away from cash-based economy to electronic payments system, saw a massive promotion of the various e-payment channels such as the Automated Teller Machines (ATMs), Point of Sales (PoS) terminals, mobile banking technology and internet banking, among others. The licensing of seven mobile money operators by the CBN in September provided a boost to the programme. The initiative is already being extended to other parts of the country.

FINANCIAL RESULTS

Owing to a number of domestic and external factors, 2012 without any doubt was a very challenging one for operators in the banking industry. However, in line with its track record, Zenith Bank, whether in company terms or Group consideration, was able to exploit the opportunities within the environment. This translated into an excellent performance that attests to the durability and resilience of the Brand. These results, once again, speak eloquently about the exceptional financial health of our Bank and the Group. For the Bank, total deposits was ₦1.80 trillion for the year ended December 31, 2012, representing a 14 per cent increase over the previous year’s figure of ₦1.58 trillion. Profit-After-Tax similarly rose by 132 per cent, from ₦41.30 billion in 2011 to ₦95.80 billion in 2012. During the same period, total assets of the Bank grew by 12 per cent: ₦2.17 trillion to ₦2.44 trillion; while shareholders’ fund rose by 18 per cent, from ₦372.02 billion to ₦438 billion. Gross earnings similarly grew by 30 per cent from ₦214.98billion in year 2011 to ₦279.04 billion in 2012.

As a Group, the performance indices were no less impressive. The Group Profit-Before-Tax grew by 51 per cent, from ₦67.44 billion in year 2011 to ₦102.10 billion in 2012. Profit-After-Tax thus jumped by a whopping 107 per cent during the period, from ₦48.70 billion in 2011 to ₦100.68 billion. The Group total assets similarly rose by 12 per cent, from ₦2.33trillion in 2011 to ₦2.60 trillion in 2012, while total deposits grew by 17 per cent during the same period, from ₦1.66 trillion to ₦1.93trillion. Group shareholders’ fund grew by 17 per cent, from ₦394.27 billion in 2011 to ₦462.96 billion; gross earnings similarly grew by 26 per cent, from ₦243.95 billion in 2011 to ₦307.08 billion in 2012.

DIVIDEND

Zenith Bank remains committed to delivering superior returns to our shareholders; and this, we once again demonstrate by ensuring that a good chunk of our profit is set aside for you, our valued investors. The Board is therefore pleased to recommend a dividend pay-out of ₦50.23 billion; that is, 160 kobo per 50 kobo share.

BOARD OF DIRECTORS

I want to seize this opportunity to express my gratitude and deepest appreciation to you, my colleagues on the Board, for your support and cooperation during the period under review. We have indeed carried on as a team; and I wish to put it on record that you made it easy for the Bank to remain stable and focused.

May I also put on record that during the period under review, some changes took place on the Board. Mr. Apollos Ikpobe retired as an Executive Director with effect from August 31, 2012. The Board at its meeting of October 9, 2012, approved the appointments of Chief (Mrs.) Chinyere Asika as an Independent Non-Executive Director, and Ms. Adaora Umeoji as an Executive Director. The appointments were approved by the Central Bank of Nigeria on December 20, 2012. I hereby formally welcome these distinguished ladies on Board.

THE FUTURE

May I recall that with your kind approval, Zenith Bank commenced the process of listing on the London Stock Exchange (LSE) during the period under review. I am proud to say that the process was successfully completed;The Global Depositary Receipts (GDRs) listing is the largest of any Nigerian bank on the LSE to date and is expected to help our bank gain access to a wide range of major institutional investors and significantly raise our international profile. During the period under review also, Zenith Bank set up a Representative Office in China to effectively tap into the huge business potential in that part of the globe.

Distinguished shareholders, I am delighted to say that even in the face of a very challenging operating environment, Zenith Bank has maintained its culture of outstanding performance and industry leadership. As a bank, we are monitoring developments both in the local and global economy, and adapting our strategies as appropriate.

A relentless focus on our customers enabled the business to deliver the excellent result in 2012. We are evolving bigger, better and faster products with most of our service delivery engendered by rare innovations. We continue to drive dominance of our offerings in the core areas with an eye on the future.

Our growth, over the years, has been organically and intrinsically linked with the growth of our people who are a veritable source of competitive advantage. Your Bank has always prided itself for attracting and developing the best talents, encouraging diversity and providing the best environment for a performance-driven organisational culture. We are very conscious of the demands and obligations inherent in our environment; and this is why we have entrenched global best practices in every area of our operations. We also ensure that all these are anchored on good corporate governance, strict risk management and responsible corporate citizenship.

Our bank enters the new financial year with confidence, and remains committed to its primary goal and to driving shareholder value. The bank’s overall strategy shall continue to positively impact its current size and status, and our investments in the required areas will continue to ensure effective and efficient delivery of our avowed goals.

Ladies and Gentlemen, on behalf of the Board, I thank you most sincerely for your unqualified support and continued trust and confidence. The future though challenging, remains very bright indeed for us all. Thank you.

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