NMRC 2017 Annual Report by Rotimi Soboyejo

Annual Report & Accounts 2017

Charting the Course towards Home ownership

Mission To remove barriers to home ownership, provide liquidity, affordability, accessibility and stability to the housing market in Nigeria.

Vision To be the dominant housing partner in Nigeria

NMRC 2017 Annual Report and Accounts

Reports

Contents

NMRC Business Implementation Phases

Ownership Structure

Corporate Information

Notice of Annual General Meeting

Results at a Glance

Chairman’s Statement

CEO’s Statement

Board of Directors

Directors’ Report

Corporate Governance report

Risk Management

Independent Board Appraisal Report

Statement of Directors’ Responsibilities in Relation to the Financial Statements

Report of the Audit Committee

Financial Statements 52

Independent Auditor’s Report

Statement of Financial Position

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

Other National Disclosure 104

Value Added Statement

105

Statement of Profit or loss other comprehensive income

107

Proxy Form

NMRC 2017 Annual Report and Accounts

NMRC BUSINESS IMPLEMENTATION PHASES

(YEAR 1) Preparatory activities to commence operations Recruitment and office organisation Commence marketing Establish Uniform Underwriting Standards Undertake technical activities for risk management

Phase 1

(YEAR 2 – 3)

Phase 2

Refinance mortgages with recourse only (mortgages that comply

with set standards) Issue corporate bonds with FGN Guarantee Continue working on setting mortgage standards

(YEAR 4 – 5) Purchase/refinance only mortgages that comply with set standards Issue corporate bonds without guarantee Continue working on setting standards for mortgage lending and spearheading legal reforms

Phase 3

(YEAR 5 ONWARDS)

Phase 4

Purchase mortgage loans without recourse Securitise mortgages from its portfolio and/or on behalf of its

client mortgage originators Continue purchase with recourse scheme Continue developmental activities

Reports

NMRC 2017 Annual Report and Accounts

OWNERSHIP STRUCTURE

NMRC has = N=11.59 Billion Tier 1 Capital which is above the minimum capital requirement of N5 Billion as stipulated by the CBN. NMRC has 8,500,000,000 Units of Authorised Shares. NMRC has 27 investors with the Ministry of Finance Incorporated (MoFI) and the Nigerian Sovereign Investment Authority (NSIA) holding 15.68% and 20.91% respectively. Five (5) Commercial Banks (CBs) and twenty (20) Primary Mortgage Banks (PMBs) represent 11.11% and 52.30% respectively of the paid-up shares of NMRC. The mix of investor groups is chosen to ensure the success of NMRC, as each group brings a unique value to the institution. NMRC will from time to time raise additional Tier 1 capital to meet regulatory requirement for expanding business scale.

NMRC has drawn a total of US$120 Million being the first and second tranches from the IDA Facility following compliance with the effectiveness conditions of the World Bank and successful completion of the review of the legacy loans.

Reports

The Companyâ&#x20AC;&#x2122;s Tier 2 Capital includes a Subordinated Loan of US $ 120 Million which is a World Bank International Development Agency Loan to the Federal Republic of Nigeria for funding of the Housing Finance Programme. The role of the IDA loan is two fold: (i) To strengthen the balance sheet and (ii) To ensure sustainability of the model as it will provide confidence in the credit standing of NMRC as a bond issuing entity The facility is available to NMRC in six instalments upon attaining certain disbursement tied milestones as specified by the World Bank and subject to terms set out in the Subordinated Loan Agreement with CBN.

NMRC 2017 Annual Report and Accounts

CORPORATE INFORMATION

Directors Charles C. Okeahalam, PhD

Chairman

Charles Inyangete, PhD*

Chief Executive Officer

Kehinde Ogundimu**

Executive Director

Chika Akporji, PhD

Executive Director

Fatima Wali-Abdurrahman

Independent Non-Executive Director

Anino Emuwa, DBA

Independent Non-Executive Director

Charles Adeyemi Candide-Johnson (SAN, FCI. Arb)

Independent Non-Executive Director

Herbert Wigwe

Non-Executive Director

Razack Adeyemi Adeola

Non-Executive Director

Uche Orji

Non-Executive Director

Adeniyi Akinlusi

Non-Executive Director

Olufemi Johnson, DBA

Non-Executive Director

Bakari Wadinga, PhD

Non-Executive Director

Corporate Office

Company Secretary

18 Mississippi Street Maitama, Abuja.

Musa Bello, ACIS Company secretary 18 Mississippi Street Maitama Abuja

Registration Number RC1123944

Auditors KPMG Professional Services KPMG Tower Bishop Aboyade Cole Street Victoria Island Lagos www.kpmg.com/ng

Bankers Access Bank Plc Ecobank Nigeria Limited Fidelity Bank Plc First Bank of Nigeria Plc Guaranty Trust Bank Heritage Bank Stanbic IBTC Standard Chartered Bank Sterling Bank Plc Imperial Homes Mortgage Bank Trustbond Mortgage Bank Homebase Mortgage Bank Infinity Trust Mortgage Bank

* Retired as Chief Executive Officer, effective 23 March 2018 ** Appointed as acting Chief Executive Officer, effective 23 March 2018 Reports

NMRC 2017 Annual Report and Accounts

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 4th Annual General Meeting of Nigeria Mortgage Refinance Company (NMRC) Plc. will hold at the Abora Hall, Eko Hotel and Suites, Adetokunbo Ademola Street, Victoria Island, Lagos on Tuesday, July 31st, 2018 at 11.00 a.m to transact the following: ORDINARY BUSINESS 1. To lay before the Company in General Meeting, the Audited Consolidated Financial Statements for the period ended December 31st, 2017 and the Reports of the Auditors, the Directors and the Statutory Audit Committee thereon. 2. To re-appoint KPMG Professional Services as Auditors to the Company from the end of the Annual General Meeting until the end of the next Annual General Meeting. 3. To authorize the Directors to fix the renumeration of the Auditors. 4. To elect/re-elect members of the Statutory Audit Committee.

SPECIAL BUSINESS To consider and if thought fit pass the following resolutions as ordinary resolutions; 5.

To fix the remuneration of Directors.

6. To amend the Shareholders Resolution “That following the recommendation of the Directors, the sum of N1, 328,402,669 out of the total of N1,345,472,000 in retained earnings as at 31st December, 2016 be and is hereby capitalized as 212,544,427 ordinary shares by way of bonus shares in the ratio of 1 new share for every 9 shares held by members whose names appear in the register Reports

of members as at close of business of July 20, 2017 registered in such member’s names on that date, subject to the approval of the appropriate regulatory authorities, the shares so allotted being treated for all purposes as capital and not as income, ranking pari passu with the existing shares” passed at the 3rd Annual General Meeting of the Company on August 2nd, 2017, on the allotment of bonus shares as follows: “That the sum of N212,544,427 (Two Hundred and Twelve Million, Five Hundred and Forty Four Thousand, Four Hundred and Twenty Seven Naira) out of N1,343,472,000.00 (One Billion, Three Hundred and Forty Three Million, Four Hundred and Seventy Two Thousand Naira) standing to the credit of the Company’s Retained Earnings Account as at 31st December, 2016 be and is hereby capitalized into ordinary shares of 212,544,427 (Two Hundred and Twelve Million, Five Hundred and Forty Four Thousand, Four Hundred and Twenty Seven Shares each and appropriated to the members whose names appear in the Register of Members at the close of business on July 20, 2017 in the proportion of one (1) new share for every nine (9) shares registered in the such member’s name on that date, subject to the approval of the appropriate regulatory authorities the shares so allotted being treated for all purposes as capital and not as income, ranking pari passu with the existing shares of the Company.” 7. “That the Board of Directors be and is hereby authorized to deal with or settle, as they deem fit, any fractional shares which would result from the allotments described in Resolution 6 above.” 8. “ That the Board of Directors be and is hereby authorized to increase the size of the Company’s Medium Term Note Programme from NGN140,000,000,000.00 (One Hundred and Forty Billion Naira) to NGN 440,000,000,000.00 (Four Hundred and Forty Billion Naira ) through the issuance of non-convertible loans, notes, bonds and or any other

NMRC 2017 Annual Report and Accounts Notice of Annual General Meeting (continued)

instruments whether by way of a public offering, private placement, book building process, reverse call enquiry or any other method or combination of methods, in such tranches, series or proportions and at such dates, coupon or interest rates within such maturity periods and upon such terms and conditions as may be determined by the Board of Directors subject to obtaining the requisite approvals of the relevant regulatory authorities.” 9. “That the Board be and is hereby authorized to appoint such professional advisers and undertake such other acts as may be necessary or incidental to, and or required for, effecting the objectives as set out in Resolution 8 above.” Dated this 2nd Day of July 2018

Office and deposited at the office of the Registrars, Meristem Registrars Limited, 213 Herbert Macaulay Road, Yaba, Lagos, not later than 48 hours prior to the time of the meeting. 3. VOTING

On a show of hands, every member present in person or proxy shall have one vote and, on a poll, every member shall have one vote for every share of which it is the holder. 4.

BY THE ORDER OF THE BOARD

MUSA BELLO Company Secretary FRC/2013/ICSAN/00000003526 18 Mississipi Street Maitama Abuja.

NOTES 1. ELECTRONIC INFORMATION

Relevant documents in connection with the meeting are available to all shareholders from the date of this notice on the Company’s website www.nmrc.com.ng.

2. PROXY

A member entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy form is attached to the Notice and is valid for the purpose of the meeting. All instruments of proxy should be duly stamped at the Stamp Duties

RIGHT TO ASK QUESTIONS

Members have a right to ask questions on their observations or concerns arising from the Annual Reports and Financial Statements 2017, not only at the meeting, but also in writing prior to the meeting, provided that such questions in writing are submitted no later than July 26, 2018. AUDIT COMMITTEE

The Audit Committee consists of 3 Shareholders and 3 Directors representatives respectively; In accordance with section 359(5) of the Companies and Allied Matters Act, 2004 (CAMA), any shareholder may nominate a shareholder for appointment to the Audit Committee. Such nomination should be in writing and should reach the Company Secretary at least 21 (twenty-one) days before the Annual General Meeting. The Central Bank of Nigeria and the Securities and Exchange Commission in their respective Codes of Corporate Governance require that members of the Audit Committee have basic financial literacy and at least one member be knowledgeable in internal control processes, accounting or financial management. Consequently, a detailed resume of candidates should be submitted with each nomination. 6. RIGHTS OF SECURITIES HOLDERS TO ASK QUESTIONS

Securities holders have a right to ask questions not only at the meeting, but also in writing prior to the meeting, and such questions should be addressed to the Company Secretary and submitted to the registered office of the Company at least a week before the meeting.

NMRC 2017 Annual Report and Accounts

RESULTS AT A GLANCE

31 December 2017

In thousands of Naira

31 December 2016

GROSS EARNINGS/INCOME

6,160,781

5,176,774

NET INTEREST INCOME

3,976,481

3,022,867

PROFIT BEFORE TAX

1,945,960

1,289,437

TOTAL LIABILITIES

30,807,574

32,163,491

REFINANCING

8,225,029

8,104,246

TOTAL ASSETS

42,540,618

40,788,613

SHAREHOLDERS' FUNDS

11,733,044

8,625,122

GROSS EARNINGS/INCOME In thousands of Naira

NET INTEREST INCOME In thousands of Naira

2017

6,160,781

5,176,774

3,976,481

2016

PROFIT BEFORE TA X In thousands of Naira

3,022,867

TOTAL LIABILITIES In thousands of Naira

REFINANCING In thousands of Naira

2017

2017 1,945,960

1,289,437

30,807,574

2016

32,163,491

TOTAL ASSETS In thousands of Naira

8,225,029

2016

40,788,613

8,104,246

SHAREHOLDERS' FUNDS In thousands of Naira

2017 42,540,618

2016

2017 11,733,044

2016

8,625,122

2016

Charles C. Okeahalam, PhD Chairman

For the full year, Net Interest Income increased by 31% from N3.022 billion in 2016 to N3.976 billion in 2017. Profit before income tax increased by 58% from N1.289 billion in 2016 to N1.926 billion in 2017. Earnings per share increased to N1.04 in 2017 from N0.72 in 2016.

NMRC 2017 Annual Report and Accounts

CHAIRMAN'S STATEMENT of volatility. Global stocks never fell into the red and investors shook off the prospects of higher interest rates.

Esteemed shareholders, members of the Board of Directors, ladies and gentlemen, welcome to our 4th Annual General Meeting. In line with the dictates of my office, I will give an overview of the macroeconomic environment, highlight some of our major achievements in 2017 and conclude with our outlook for 2018. NMRC had a successful year in 2017. We grew our balance sheet, grew revenue and deepened relationships with our customers as we added new members (FBN Mortgages, Brent Mortgage Bank, Gateway Savings & Loans, Omoluabi Mortgage Bank Plc, Lagos Building and Investment Co. Ltd and Delta Mortgage Bank) and refinanced the loan portfolios of member-Banks. We enhanced our service offerings, maintained our risk profile, and improved the rate of execution on our strategic priorities.

GLOBAL AND NIGERIAN ECONOMY Global economic momentum, which began picking up in the second half of 2016, solidified throughout 2017. Central Banks started shifting away from extraordinarily accommodative monetary policies to tighter or normal monetary policies. Financial Markets will be best remembered in 2017 for their lack

Equities enjoyed their best annual performance since the post-crisis recovery, as accelerating economic growth across the world helped power major markets to double digit growth. The global economy expanded at a strongerthan-expected pace in 2017 reflecting growth in both developed and emerging market economies. The economic recovery in the United States continued for the ninth consecutive year with steady improvements in the labour market. China grew robustly due to the combination of past policy changes and global economy recovery. Euro area economies strengthened as inflation remained subdued. Japan had a robust growth on the back of its strong exports. Some of the larger emerging market economies, like Argentina, Brazil, and Russia, exited their recession in 2017. The Nigerian economy exited recession in the second quarter of 2017, rebounded strongly thereafter recording a 1.9% growth in GDP in the fourth quarter, year-on-year. External reserves reached a 3-year high; inflation was on steady decline and oil prices advanced to levels not seen since mid-2015. The improvement in the economy had a knock-on effect on the domestic equity market which posted a strong performance in 2017 by delivering a return of 42%, the third highest in the World in 2017.

NMRC FINANCIAL PERFORMANCE REVIEW For the full year, Net Interest Income increased by 31% from N3.022 billion in 2016 to N3.976 billion in 2017. Profit before income tax increased by 58% from N1.289 billion in 2016 to N1.926 billion in 2017. Earnings per share increased to N1.04 in 2017 from N0.72 in 2016. Total Assets as at December 31, 2017 stood at N42.54 billion an increase of N1.75 billion over 2016 balance of N40.79 billion.

NMRC 2017 Annual Report and Accounts

Chairman’s Statement (continued)

GOVERNANCE AND CHANGES IN BOARD/ MANAGEMENT COMPOSITION Good corporate governance is at the core of our belief, the Board believes that a company that is well-governed and well-managed is more likely to sustainably enhance long-term shareholders’ value. Against this backdrop, the members of the Board, Management and staff attended various training programmes during the year on governance, risk management amongst others. During the year, our former Managing Director/ Chief Executive Officer, Professor Charles Inyangete retired from the Company having attained the age of sixty years in line with the company’s policy. We thank Prof. Inyangete for his contributions to NMRC.

THE ROAD AHEAD On the back of the gains in 2017, and continuing improvements in key macro-economic indicators, we are optimistic about 2018. We are not unmindful of the fact that electioneering activities will be in full swing in the second half

of 2018 for the 2019 elections. Accordingly, we believe that 2018 will be a year of two halves. The economy will expand in the first half of the year on higher oil prices, increased oil production and improving household consumption, while the second half of the year will be fraught with uncertainty surrounding the 2019 elections and its attendant risk to economic growth. We believe that our company is well positioned to adapt and benefit from the improvements in the economy in 2018 and beyond.

ACKNOWLEDGEMENT Finally, I would like to take this opportunity to appreciate my fellow Board members; the management and staff of Nigeria Mortgage Refinance Company Plc for their hard work and dedication: our shareholders and customers for their unflinching support; our regulators and other stakeholders for their assistance and guidance.

Charles C. Okeahalam, PhD Chairman

Negotiation of USD$250 Million World Bank International Development Agency (IDA) Loan

Constitution of NMRCâ&#x20AC;&#x2122;s Board

Incorporation of NMRC

CBN issues Regulatory Framework for NMRC

H2 2013

H1 2013

Published Final Draft Uniform Underwriting Standards

1st Tranche of IDA Tier 2 capital loan disbursed

Official launch of NMRC & appointment of Interim CEO

2014

Successfully issued a 15 years N8billion Bond

Received 2nd tranche of World bank Loan

Obtained Final License from CBN

Executed the FGN Guarantee Agreement

2015

EVOLUTION OF NMRC

Designed a fully customized, internet-based Mortgage Market System (MMS)

2016

Signed MOUs with several states on the Model Mortgage and Foreclosure Law. Passed into law by Kaduna state in 2017

2017

Kehinde Ogundimu Acting Chief Executive Officer

Despite the weak improvements in the macro-economic environment, our company was profitable and thrived in 2017. Net Interest Income increased to N3.97bn from N3.02bn in 2016, representing a 31.4% growth, while Profit before tax increased to N1.9bn from N1.2bn in 2016, a growth of 58.3%. The Balance Sheet increased to N42.54bn from N40.79bn in 2016. Cost-to-Income ratio, Capital Adequacy ratio and other regulatory and performance metrices were significantly better in 2017 than in 2016.

NMRC 2017 Annual Report and Accounts

CEO’S STATEMENT before tax increased to N1.9bn from N1.2bn in 2016, a growth of 58.3%. The Balance Sheet increased to N42.54bn from N40.79bn in 2016. Cost-to-Income ratio, Capital Adequacy ratio and other regulatory and performance metrices were significantly better in 2017 than in 2016. Global Credit Rating Company, a rating agency, affirmed our Investment grade rating as an Issuer with a positive outlook.

MARKET DEVELOPMENT Distinguished shareholders, the Board of Directors, ladies and gentlemen, I am delighted to welcome you tothe 4th Annual General Meeting of our companyand to present the institution’s scorecard for 2017. 2017 IN RETROSPECT The contraction of our nation’s gross domestic product that started in 2016 continued into early 2017 until higher levels of energy production, supported by rising prices, resulted in a recovery in the second quarter of 2017. The economy moved out of recession by the end of June, after five consecutive quarters of negative growth triggered largely by lower global energy prices and a reduction in oil output. One of the factors that contributed to the improved economic performance was the upturn in oil production. Output from Nigeria’s fields averaged 2.03m barrels per day (bpd) in the July-September period, up 420,000 bpd year on year (y-o-y) and 150,000 bpd higher than production in April-June, according to the National Bureau of Statistics. Growth in the construction sector, was up 5.67 percentage points year-on-year of which the mortgage sector contributed a miniscule portion. It is under this difficult but improving macroeconomic conditions that our company operated in 2017.

PERFORMANCE REVIEW Despite the weak improvements in the macroeconomic environment, our company was profitable and thrived in 2017. Net Interest Income increased to N3.97bn from N3.02bn in 2016, representing a 31.4% growth, while Profit

In collaboration with the Central Bank of Nigeria, Mortgage Bankers Association of Nigeria and other stakeholders, we developed and deployed the Uniform Underwriting Standards for the self-employed or informal sector. With this development, a large segment of the nation’s workforce that have hitherto been excluded from housing finance will be brought into the housing finance system. We collaborated with the Central Bank of Nigeriato host a 3-day workshop for Judicial Officers from across the country on foreclosure and related matters. The workshop provided opportunities for housing sector operators to interact with judicial officers on the need for a clear and streamlined foreclosure process that will attract investments into the housing sector. To address the dearth of short-term funds for mortgage originations by our member-Banks, we partnered with other stakeholders to setup the Mortgage Warehouse Funding Limited (MWFL) a special purpose entity that will provide affordable funds to member-Banks for the origination of mortgages that will eventually be refinanced by NMRC. Our path to becoming the leading source of housing finance in Nigeria is anchored on the following pillars: Enhanced

customer experience by understanding the needs of our customers and developing innovative and customized products to meet those needs

Information-based

analytics leveraging big data to deliver high quality product and services that will reduce transaction cycle and costs while keeping a lid on operating costs.

Robust

Risk Management–maintaining high asset quality through better corporate governance and disciplined enterprise risk management.

NMRC 2017 Annual Report and Accounts

CEO’s Statement (continued)

Deepening

the debt capital markets– in collaboration with other stakeholders, we will work to develop a deep and broad investor base (supply of capital) and increase issuer participation (demand of capital) that will support price discovery and resource allocation.

AWARDS & RECOGNITION NMRC received the 2017 Nigerian Debt Capital Markets Award organised by the FMDQ OTC Securities Exchange. Your company won the award in the regulatory and compliance category as the most compliant issuer on the FMDQ platform. NMRC was also named one of the “Top 25 Most Innovative Companies in Nigeria” by Businessday Media, publishers of the Business Day newspaper, NMRC was adjudged the ‘’Most Innovative Mortgage Institution,’’ for its transformative Mortgage Market System (MMS), cited by the Business Day publishers as ‘’a revolutionary innovation, the first ever mortgage management technology infrastructure proffering an end-to-end solution for the housing finance market in Nigeria’’.

LOOKING FORWARD Even though the nation’s economic recovery remains tepid, we are optimistic that it will heat up on the back of pro-growth policies and structural changes being implemented by the government. The passage of the 2018 Budget and its implementation will boost government spending and put the economy on a firmer footing in 2018 and beyond. As an organization, we will remain nimble and will opportunistically engage in value-adding activities for the benefit of our shareholders.

ACKNOWLEDGEMENT On behalf of the Board and Management, I would like to thank the staff for their hard work and commitment and indeed all stakeholders for their support as we strive to make NMRC the leading source of finance for mortgage lenders in Nigeria.

Kehinde Ogundimu Acting Chief Executive Officer

XX NMRC

C R M N t u o b A tc s a F

is a wholesale financial institution that refinances mortgage portfolios of Mortgage and Commercial Banks

XX NMRC

is increasing the mortgage lending capabilities of financial institutions through the provision of long term funds

XX NMRC

is increasing the maturity structure and reducing the interest rates of mortgage loans

XX NMRC

is spearheading and advocating changes that will create a positive environment for mortgage lending and increase home ownership

BusinessDayâ&#x20AC;&#x2122;s Most Innovative Mortgage Institution in Nigeria

NMRC 2017 Annual Report and Accounts

MEET OUR BOARD OF DIRECTORS Charles O ke a h a l a m, P h D Chairman

Kehinde O g u n d i m u Ag. Managing Director/CEO

Chika P. A k p o r j i, P h D ED/Policy, Strategy & Partnerships

Charles Okeahalam co-founded AGH Capital

Mr. Kehinde Ogundimu holds a Bachelor of

Dr. Chika Akporji is an accomplished

in 2002. AGH Capital is an investment holding

Engineering (B.Eng Honors) degree in Electrical

development finance professional with a strong

company with holdings in the private equity,

Engineering from the University of Ibadan and

track record of managing complex national

mining, marine and property sectors. Charles

obtained an MBA from the University of Lagos,

programmes to significant development impact.

Okeahalam has strategic and operational

Nigeria. He is a seasoned professional with

Her most recent success is coordinating the oper-

experience in capital markets, fund management

over 20 yearsâ&#x20AC;&#x2122; work experience in financial

ationalization of the Nigeria Mortgage Refinance

and infrastructure finance and has served as

services (secondary mortgage and diversified

Company (NMRC), set up to grow the primary

an advisor to a number of central banks and

banking), energy and public accounting. He

and secondary mortgage markets in Nigeria and

governments in sub-Saharan Africa. He has

started his career at PricewaterhouseCoopers

unlock the multiplier effects of increased home

also served as a director of several companies

and subsequently worked in various capacities

ownership on the Nigerian economy.

including ABSA, Sun International, South African

at Texaco Overseas (now Chevron Nig. Ltd) in

Airways and the Bond Exchange and as chairman

Nigeria and in the Washington DC region at

of Societe Generale Bank Nigeria (SGBN)/

Pepco Energy Services, Freddie Mac, Fannie Mae

Heritage Bank from 2010 to 2012.

and finally at Capital One Bank, where he was

He is a leading economist and was a professor of banking and finance at the University of the

the Head of Debt, Derivatives and Securitization before joining NMRC.

Prior to her current position at the NMRC she had served as Senior Advisor to the former Nigerian Minister of Finance and Coordinating Minister of the Economy, and former World Bank Group Managing Director, Dr. Ngozi Okonjo-Iweala. Before her return to Nigeria Dr. Akporji had a

Witwatersrand in Johannesburg, South Africa.

Mr. Ogundimu is a fellow of the Institute of

successful 13-year career at the World Bank

He earned a Ph. D in Econometrics, from the

Chartered Accountants of Nigeria (FCA), a

headquarters in Washington DC, where she

University of London in 1991 and in 2010, a

member of the American Institute of Certified

worked on city development strategies (CDS) and

D.Sc in Financial Economics from the University

Public Accountants (CPA), a Chartered Financial

slum upgrading (SU) programmes of several cities

of Exeter for contributions to the study of banking

Analyst (CFA) Charterholder.

under the Cities Alliance programme;

He has attended several executive management

With several publications to her credit Dr. Akporji

programs in leading educational institutions

holds a first degree in English and Modern Arabic

including Harvard Business School and Gordon

Studies from University College, Dublin, Ireland,

Institute of Business Science, University of Pretoria,

and a doctorate in Comparative Literature from

South Africa.

the University of Nigeria, Nsukka, Nigeria. She

and finance in Africa. He is a Houblon-Norman Senior Fellow of the Bank of England.

has also attended several professional training courses and has received certifications from institutions such as the World Bank Institute, Harvard University and the School of Oriental and African Studies, London.

Reports

NMRC 2017 Annual Report and Accounts Board of Directors (continued)

Herbert W i g we Non Executive Director

Adeniyi A . A k i n l us i

Fatima Wali-Abdurrahman Non Executive Director

Non Executive Director

Mr. Wigwe started his professional career with

Mrs. Fatima Wali-Abdurrahman is a professional

Mr Akinlusi holds a B.Sc (Accounting) from

Coopers and Lybrand Associate, an international

architect with over 30 years’ post-qualification

University of Ilorin and a Masters of Business

firm of chartered accountants. He spent over 10

experience. She obtained her B.A in Architecture

Administration (MBA) from University of Lagos. He

years at Guaranty Trust Bank where he managed

& Urban Studies from the University of Minnesota,

is a multiple award winning banker with extensive

portfolios cutting across financial institutions, local

USA in 1983. In 1987, she obtained her M.Sc

experience in banking, corporate turnaround and

corporates and multinationals. He left Guaranty

(Architecture) from the University College, London.

transformation. After over 20 years of diversified

Trust Bank as an Executive Director to co-lead the

She currently serves as the Chief Executive Officer

banking experience in Corporate, Retail, Branch,

transformation of Access Bank Plc in March 2002

of Filmo Group of Companies, a position she has

Regional, Oil and Gas, Public Sector and

as Deputy Managing Director. He was appointed

held since 1994.

Mortgage banking, he retired from Intercontinental

Group Managing Director/CEO effective 1 January 2014.

In her capacity as the CEO of Filmo Group, she

Bank (now Access Bank) as a General Manager.

oversees the Group’s Property Development,

He is a Fellow (FCA) of the Institute of Chartered

He is an alumnus of Harvard Business School’s

Real Estate and Facilities Management interests.

Accountants’ of Nigeria (ICAN), Fellow (FCTI)

Executive Management Programme. He holds

Through its subsidiaries, the Group has

of the Chartered Institute of Taxation of Nigeria

a Masters degree in Banking and International

successfully designed and constructed residential

(CITN), Fellow (FICA) of the Institute of Credit

Finance from the University College of North

houses, hotels and commercial buildings across

Administration (ICA), Fellow (FIAPM) of the

Wales, a Masters degree in Financial Economics

Nigeria, and especially in Lagos and Abuja.

Association of Investment Advisers and Portfolio

from the University of London and a Bachelor of Science degree in Accounting from University of Nigeria, Nsukka. He is also a Fellow of the Institute of Chartered Accountants of Nigeria and a recepient of an honorary Doctorate Degree from the University of Port Harcourt. He is the Chairman of The Access Bank (UK) Ltd.

Mrs.Fatima Wali-Abdurrahman has served as Board member of various companies across the financial services, manufacturing and oil & gas industries in Nigeria. She has also served as a member of the Governing Council of the Lagos State University, and a Trustee of the Child Life Line, a Non-Governmental Organisation. She has also served as member, panellist and chairperson of a number of committees, panels,

Chartered Institute of Bankers of Nigeria (H.C.I.B). He is also an Alumnus of Harvard Business School (HBS) Boston, U.S.A., the International Institute for Management Development (IMD), Lausanne, Switzerland, and Lagos Business School(LBS), Lagos. Mr Akinlusi is presently, the Managing Director/ Chief Executive of TrustBond Mortgage Bank Plc.

task forces and working groups in Nigeria and

He is currently the president of Mortgage Banking

beyond. Some of these include: The Insurance

Association of Nigeria (MBAN)

Sector Reform Committee of the Bureau of Public Enterprises (Member); the Presidential Committee on Flood Relief and Rehabilitation (Member); and Harvard Business School, Africa Business Conference on Real Estate (Panelist) to mention a few.

Reports

Managers and Honorary Senior Member of the

NMRC 2017 Annual Report and Accounts

Board of Directors (continued)

Charles A .C . J o h ns o n (S A N, F C I. A r b) Non Executive Director

Uche O r j i

Femi J o h ns o n, D B A

Non Executive Director

Mr. Charles Adeyemi Candide-Johnson (SAN,

Mr Uche Orji is the Managing Director & Chief

Dr. Femi Johnson is a Fellow (FCA) of the Institute

FCI ARB) is Senior Partner at Strachan Partners, a

Executive Officer of the Nigeria Sovereign

of Chartered Accountants of Nigeria (ICAN),

leading commercial law firm with offices in Lagos

Investment Authority (NSIA). He brings a wealth of

a Fellow (FCTI) of the Chartered Institute of

and Abuja, Nigeria and substantial practice

global experience in the financial services sector

Taxation of Nigeria (CITN), a Fellow (FICA) of

across the nation. He was called to the Nigerian

in his role as pioneer Managing Director & Chief

the Institute of Credit Administration, a Honorary

Bar in July, 1984 and in the same year received

Executive Officer of the NSIA.

Senior Chartered Banker (HCIB) of the Chartered

his LLM Degree from the University of London. He was conferred with the rank of a Senior Advocate of Nigeria in September 2003.

He joined the NSIA as CEO on October 2nd 2012, from Switzerlandâ&#x20AC;&#x2122;s largest bank, UBS Securities, where he was Managing Director in

Between 1984 and 1990, he was Counsel in the

the New York branch of its Equities division. Prior

leading chambers of Job B. Majiyagbe SAN, in

to his experience at UBS Securities, Uche Orji had

Kano, Nigeria. In 1990, he moved to Lagos to

spent 6 years at JP Morgan Securities in London,

establish the firmâ&#x20AC;&#x2122;s practice, and in 1994, led the

from 2001-2006, rising from the post of Vice

founding of Strachan Partners.

President to Managing Director within the Equities

Mr. Candide-Johnson has authored several scholarly papers and leading textbooks on arbitration in Nigeria. He has acted either as counsel or as arbitrator in several domestic and international commercial arbitrations in the maritime, petroleum and construction industries. He has also made presentations on arbitration in Nigeria in several international fora. He brings to NMRC significant experience in Corporate governance practices.

division. Prior to JP Morgan, Uche Orji was at Goldman Sachs Asset Management, London from 1998-2001, as Analyst/Portfolio Manager.

Institute of Bankers of Nigeria (CIBN) and also an Associate of the New York State Society of Certified Public Accountants, (NYSSCPA). He is a graduate of the Harvard Business School Advanced Management Program, and he holds a DBA (Doctor of Business Administration) degree from the Cranfield University, United Kingdom in Economics and Finance. He also holds an MBA degree from the Lagos Business School, and had previously obtained an MBA from the University of Ado-Ekiti.

Uche Orji studied Chemical Engineering at the

Prior to becoming the CEO of Homebase

University of Port Harcourt, Nigeria, graduating in

Mortgage Bank, Dr. Femi Johnson started his

1990, and also obtained an MBA from Harvard

banking career in 1992 at Guaranty Trust Bank

Business School in 1998. Prior to his Harvard

Plc., and then worked in Diamond Bank Limited,

MBA program, Uche Orji worked at Diamond

as well as First Atlantic Bank Plc. before joining

Bank Plc., Lagos Nigeria and Arthur Andersen

Guardian Express Bank Plc. in 2001 as the

& Co.

Group Head, Telecoms and Technology. He was

Mr. Orji was a regular commentator for all major publications and also provided strategic advice to the management of companies such as Intel Electronics, Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Texas Instruments. He also advised several

the pioneer Chief Executive Officer of Guardian Express Mortgage Limited in April 2004, and was appointed Deputy Managing Director/Chief Operating Officer of Spring Mortgage Limited in September 2006, following the merger of banks that birthed Spring Bank Plc.

global portfolio management firms and Sovereign Wealth Funds in his role as global coordinator in the Equities Division. He has co-authored more than 200 research pieces in the Semiconductor sector and broader technology investment sectors.

Reports

NMRC 2017 Annual Report and Accounts Board of Directors (continued)

Anino E m u wa, D BA

Razack Adeyemi Ad e o l a

DR. BAKARI WA D I N GA

Non Executive Director

Dr. Anino Emuwa is an international management

Mr. Yemi Adeola is presently the Managing

Dr. Bakari Wadinga is the Director of Revenue

consultant with expertise in small business finance

Director/Chief Executive of Sterling Bank Plc. His

and investment in the Office of the Accountant

and entrepreneurship. With over 20 years’

banking career started at Citibank Nigeria Ltd,

General of the Federation (OAGF). He represents

experience in business consulting, commercial

where he worked between August 1988 and June

the Federal Ministry of Finance on the Board

banking, and research in Africa and Europe,

2003 in various capacities including chief Legal

of NMRC. He holds a PhD, M.Sc. and a BSc

Anino Emuwa currently serves as a member of

Counsel and Executive Director, Commercial

in Economics and an MBA. He has over 30

the Institute of Directors, UK and the Women

Banking, Public Sector and Infrastructure. He later

years working experience in the Accounting and

Professional Network Group, France.

moved on to Trust Bank of Africa Ltd, where he

Finance functions.

Her Corporate Banking experience includes membership of Banks’ Credit Committees and branch management in Nigeria. This is complemented by diverse experience gained from running consultancy business in several countries across Africa and Europe. Dr. Anino holds a B.Sc.

served as Deputy Managing Director between June 2003 and December 2005. Following the concluded merger of Trust Bank with four other banks, he became Executive Director, Corporate

Accountants of Nigeria (ICAN) and Chartered Institute of Taxation of Nigeria (CITN).

and Commercial Banking of Sterling Bank Plc in

Dr. Wadinga started his professional career in

January 2006.

1985 as an auditor with the firm of Peat Marwick,

Honours degree in Monetary Economics of the

Prior to his foray into Banking and Finance, he

London School of Economics & Political Science,

had worked as a Consultant in Pricewaterhouse

an MBA from Cranfield School of Management

Coopers, Lecturer- Lagos State University (Law

and a doctorate degree in Business Administration

Faculty) and also had a stint of Law practice.

from Nottingham Business School, UK..

He is a member of the Institute of Chartered

Yemi Adeola holds a Bachelor of Law (LLB)

Ani and Ogunde & Co. (now KPMG). Between 2000 and 2005, he served as Chief Accountant with the Ministry of Defence Headquarters Abuja. He worked as the Head of Planning, Reporting and Statistics Department (Federal Inland Revenue Service, Headquarters Abuja) between 2005

Anino Emuwa serves as Director of several small

degree from the University of Ife and Master of

and 2010. In 2010, he was appointed Deputy

businesses and speaks both English and French

Law (LLM) degree (with specialization in law

Director, Finance and Accounts at the National

fluently.

of secured credit transactions and international

Planning Commission.

economic law) from the University of Lagos, Nigeria. He is an alumnus of Harvard Business School, Stanford Business School, Saïd Business School, Oxford University and Wharton School, University of Pennsylvania. He is a John F. Kennedy Scholar.

He served as the Head, finance and Accounts with the Bureau of Public Service Reforms Abuja between 2011 and 2014. He was subsequently elevated to the position of Director of Accounts between October 2015 and June 2016, before his present appointment as Director of Revenue and Investment in the office of the Accountant General of the Federation (OAGF). Dr. Wadinga has published various articles in the field of Economics, Accounting and Finance.

Reports

NMRC 2017 Annual Report and Accounts

DIRECTORS’ REPORT for the year ended 31 December 2017

(A) L EGAL FORM AND PRINCIPAL ACTIVITY

The Directors have pleasure in presenting the report on the affairs of Nigeria Mortgage Refinance Company Plc (“the Company”) together with the financial statements and auditor’s report for the year ended 31 December 2017.

Nigeria Mortgage Refinance Company Plc (“the Company”) was incorporated on 24 June 2013 as a public liability company and commenced operations on 1 March 2015. The Company is registered with the Securities and Exchange Commission (SEC) and regulated by the Central Bank of Nigeria (CBN) as a mortgage refinance company. The principal activity of the Company is to provide long term funds to eligible mortgage lenders through refinancing of mortgage loans originated by primary mortgage institutions by issuing long term bonds in the capital market and/or securitising purchased mortgage loans.

(B) OPERATING RESULTS The highlights of the Company’s operating results for the year under review are as follows:

31 December 2017

31 December 2016

Gross earnings

6,160,781

5,176,774

Profit before income tax

1,945,960

1,289,437

(19,058)

(12,767)

1,926,902

1,276,670

287,178

(428,350)

2,214,080

848,320

104 k

72 k

In thousands of Naira

Income tax expense Profit after taxation Other comprehensive income for the year, net of income tax Total comprehensive income for the year Earnings per share (Basic and diluted) - kobo

Reports

NMRC 2017 Annual Report and Accounts Directors’ Report (continued)

31 December 2016

No. of % No. of Shares held holdings Shares held

% holdings

Charles C. Okeahalam, PhD

Chairman

Charles Inyangete, PhD*

Chief Executive Officer

Kehinde Ogundimu**

Executive Director

Chika Akporji, PhD

Executive Director

Fatima Wali-Abdurrahman

Independent Non-Executive Director

Anino Emuwa, DBA

Independent Non-Executive Director

Charles Adeyemi Candide- Independent Non-Executive Director Johnson (SAN, FCI. Arb)

Herbert Wigwe

Non-Executive Director

Razack Adeyemi Adeola

Non-Executive Director

Uche Orji

Non-Executive Director

Adeniyi Akinlusi

Non-Executive Director

Femi Johnson, DBA

Non-Executive Director

Bakari Wadinga, PhD

Non-Executive Director

*Retired as Chief Executive Officer, effective 23 March 2018 **Appointed as acting Chief Executive Officer, effective 23 March 2018

(D) DIRECTORS’ INTEREST IN CONTRACTS None of the directors has notified the Company for the purpose of section 277 of the Companies and Allied Matters Act of Nigeria, of any interest in contracts during the year.

Reports

Net Interest Income increased by

Profit Before Tax increased by

31%

58%

NMRC 2017 Annual Report and Accounts Directorsâ&#x20AC;&#x2122; Report (continued)

(E) ANALYSIS OF SHAREHOLDING The shareholding pattern of the Company as at the reporting dates are as stated below: 31 December 2017 Shareholders

31 December 2016

Number of Percentage of holdings holdings (%)

Nigerian Sovereign Investment Authority

400,000,000

20.91

400,000,000

22.70

Ministry of Finance Incorporated

300,000,000

15.68

300,000,000

17.02

FHA Homes Limited

125,000,000

6.53

125,000,000

7.09

Homebase Mortgage Bank Limited

250,000,000

13.07

250,000,000

14.18

TrustBond Mortgage Bank Plc

150,000,000

7.84

150,000,000

8.51

Sterling Bank Plc

75,000,000

3.92

75,000,000

4.26

Abbey Mortgage Bank Plc

50,000,000

2.61

50,000,000

2.84

Access Bank Plc

50,000,000

2.61

50,000,000

2.84

Imperial Homes Bank Limited

66,000,000

3.45

50,000,000

2.84

Resort Savings & Loans Plc

25,000,000

1.31

25,000,000

1.42

Heritage Bank Limited

37,500,000

1.96

37,500,000

2.13

Haggai Mortgage Bank Limited

25,000,000

1.31

25,000,000

1.42

Infinity Trust Mortgage Bank Plc

57,000,000

2.98

25,000,000

1.42

Jubilee Life Mortgage Bank Limited

25,000,000

1.31

25,000,000

1.42

MayFresh Mortgage Bank Limited

25,000,000

1.31

25,000,000

1.42

New Prudential Mortgage Bank Limited

25,000,000

1.31

25,000,000

1.42

Nigeria Police Mortgage Bank Plc

25,000,000

1.31

25,000,000

1.42

Platinum Mortgage Bank Limited

25,000,000

1.31

25,000,000

1.42

Refuge Home Savings & Loans Limited

25,000,000

1.31

25,000,000

1.42

Stanbic IBTC Investment

25,000,000

1.31

25,000,000

1.42

SunTrust Bank Nigeria Limited

25,000,000

1.31

25,000,000

1.42

FBN Mortgages

22,400,000

1.17

Brent Mortgage Bank

16,000,000

0.84

Gateway Savings & Loans

16,000,000

0.84

Omoluabi Mortgage Bank Plc

16,000,000

0.84

Lagos Building & Investment Co. Ltd

16,000,000

0.84

Delta Mortgage Bank

16,000,000

0.84

1,912,900,000

100

1,762,500,000

100

Reports

NMRC 2017 Annual Report and Accounts Directorsâ&#x20AC;&#x2122; Report (continued)

31 December 2017 Range 1,000,000- 50,000,000

Number of % of Shareholders Shareholders

Number of % of Holdings Shareholdings

489,900,000

50,000,001-100,000,000

198,000,000

100,000,001-500,000,000

1,225,000,000

100

1,912,900,000

100

TOTAL

31 December 2016 Range

Number of Shareholders

% of Shareholders

Number of Holdings

% of Shareholding

462,500,000

50,000,001-100,000,000

75,000,000

100,000,001-500,000,000

1,225,000,000

100

1,762,500,000

100

1,000,000- 50,000,000

TOTAL

(F) PROPERTY AND EQUIPMENT

(H) HUMAN RESOURCES

The information relating to property and equipment is given in Note 10 to the financial statements. In the opinion of the directors, the net realisable value of the property and equipment is not less than the value shown in the financial statements.

The Company commenced operations on 1 March 2015 and had 30 employees at the end of the year (2016: 28 employees). The Company operates a non discriminatory policy on recruitment. Applications by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Company continues and that appropriate training is provided. It is the policy of the Company that the training, career development and promotion of disabled persons should as far as possible, be identical with those of other employees.

(G) CORPORATE SOCIAL RESPONSIBILITY (CSR) During the year, the Company commenced the CSR project. The 1st phase of the project involved the training of 45 internally displaced persons at the Games Village IDP Camp in various vocations including plumbing, masonry, electrical installation and block making. The empowerment program was carried out in partnership with the Industrial Training Fund (ITF). At the end of the program, beneficiaries were presented with starter kits for the different vocations. Relief materials were also donated to the displaced persons in the camp. The total cost of the program was N7,227,000 (31 December 2016: N2,568,670).

Reports

The Company had no disabled person in its employment as at 31 December 2017 (31 December 2016: nil)

NMRC 2017 Annual Report and Accounts Directorsâ&#x20AC;&#x2122; Report (continued)

December 2017 Number

% of Total staff

% of Total new hire

Female new hire

0.00%

Male new hire

10.00%

100%

Total new hire

10.00%

100.00%

Female as at December 2017

40.0%

Male as at December 2017

60.0%

Total Staff

100.0%

Description

December 2016 Number

% of Total staff

% of Total new hire

Female new hire

10.71%

33.33%

Male new hire

21.43%

66.67%

Total new hire

32.14%

100.00%

Female as at December 2016

42.9%

Male as at December 2016

57.1%

Total Staff

100%

Description

(I) EVENTS AFTER THE REPORTING DATE The company is in the process of issuing additional debt securities under the N140 billion medium term note issuance programme approved by the Securities and Exchange Commission. There are no further events that require disclosure or recognition in the financial statements of the company.

(J) AUDITORS Messrs. KPMG Professional Services, having satisfied the relevant corporate governance rules on their tenure in office have indicated their willingness to continue in office as auditors to the Company. In accordance with section 357 (2) of the Companies and Allied Matters Act, Cap C.20, therefore, the auditors will be re-appointed at the next annual general meeting of the Company without any resolution being passed.

BY ORDER OF THE BOARD,

MUSA BELLO Company Secretary FRC/2013/ICSAN/00000003526 18 Mississippi Street Maitama Abuja. 12 April 2018

Reports

NMRC 2017 Annual Report and Accounts

CORPORATE GOVERNANCE REPORT

COMPLIANCE WITH INTERNATIONAL BEST PRACTICES IN CORPORATE GOVERNANCE

CORPORATE GOVERNANCE REPORT The Nigeria Mortgage Refinance Company Plc (NMRC) is committed to the best Corporate Governance Practices. The Company believes this is critical to the creation and delivery of long-term sustainable value in a manner consistent with its obligations as a responsible corporate organization.

Reports

NMRC ensures that sound Corporate Governance practices are embedded in all areas of its operations. In this regard, the Company emphasizes strict adherence to the Central Bank of Nigeria (CBN) Corporate Governance Code as revised in 2014, the SEC Code of Corporate Governance 2011, the provisions of the Banks and Other Financial Institutions Act (BOFIA) 1991 as amended and other International Best Practices and Standards on Corporate Governance. The Companyâ&#x20AC;&#x2122;s operations are also guided by the CBN Regulatory and Supervisory Framework for the establishment of a Mortgage Refinance Company.

NMRC GOVERNANCE STRUCTURE The Board of Directors provides oversight of the Internal Control and Risk Management policies and practices of NMRC. The Board is supported in its oversight function by the various Board Committees. The Committeesâ&#x20AC;&#x2122; roles and responsibilities are set out in their respective charters. The Charters are reviewed and updated periodically to ensure its contents remain relevant in contemporary industry operations. The Charters also define the roles, responsibilities, scope of authority, composition and procedures for reporting to the Board.

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

BOARD OF DIRECTORS

AUDIT COMMITTEE CREDIT AND INVESTMENT COMMITTEE FINANCE & GENERAL PURPOSE COMMITTEE RISK MANAGEMENT COMMITTEE GOVERNANCE AND NOMINATION COMMITTEE

REMUNERATION COMMITTEE

COMPANY SECRETARY

FINANCE

MD/CEO

POLICY & STRATEGY

RISK MANAGEMENT

HEAD, INTERNAL AUDIT

HUMAN RESOURCES

ICT

LEGAL

Organization Structure

THE OFFICE OF THE MANAGING DIRECTOR/CEO The Managing Director/Chief Executive Officer of NMRC is responsible for providing strategic leadership and oversight to the NMRC management team in the development of strategic, tactical and operational plans. He works with the Board of Directors to formulate corporate investment policies and strategies; and is responsible for implementing long-term strategic goals, plans and policies. The MD / CEO’s responsibilities include: The

overall day-to-day management of the Company.

The

development and communication of corporate strategic objectives and implementation guidelines.

Developing

strategic operating plans that reflect the long term objectives and priorities established by the Board.

Ensuring

that the operating objectives and standards of performance are not only understood but also owned by the management and other employees.

Ensuring

that the Company meets the highest levels of Corporate Governance and Corporate responsibility through implementation of appropriate risk control mechanisms, policies and effective compliance mechanisms.

Communicating

the Company’s objectives, strategies, policies and directions to Senior Management and all other staff.

Ensuring

full adherence to Risk Management Framework and creating a culture of financial risk awareness throughout the Company.

Creating

a transparent and timely financial reporting and management information system to help manage the business.

Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

Communicating

THE BOARD OF DIRECTORS

Ensuring

The Board of the Nigeria Mortgage Refinance Company Plc is committed to effective corporate governance practices and is ultimately accountable to the shareholders for creating and delivering value through the promotion of home ownership via affordable mortgage loans and provision of long term financing to Mortgage Lending Institutions.

Recruiting,

The Board determines and formulates the policies and strategies of the Company and oversees the strategic plan towards achieving the long-term goals of the NMRC. It supervises the overall performance of the Company through:

with external parties by representing the Company to customers, Government, the public and other external sources, including investors. that the Company’s operations are conducted in accordance with the rules of all regulatory bodies (Central Bank of Nigeria, Securities and Exchange commission, etc.), as well as any other rules and regulations applicable to the Company. developing and building a team of highly professional and effective staff by building and nurturing mutual trust, respect and cooperation among staff.

INTERNAL MANAGEMENT STRUCTURE

The

review of quarterly and year-end financial statements;

Identification and management of The Managing Director/ Chief Executive investment risks; Officer, Professor Charles Inyangete, leads the Management Team of the NMRC. He is Monitoring the performance of the Company against agreed targets. supported by a competent management team of Executive Directors, one Associate Director, One Senior Vice President, seven Assistant Vice Presidents, the Human Resources Manager/ Head of Administration, and other supporting staff. The Company’s Board is currently comprised of a Non-Executive Chairman, three (3) Executive Directors, three (3) Independent Non-Executive Directors, and six (6) Non-Executive Directors as listed below:-

Charles C. Okeahalam, PhD

Chairman

Charles Inyangete, PhD*

Chief Executive Officer

Kehinde Ogundimu**

Executive Director

Chika Akporji, PhD

Executive Director

Fatima Wali-Abdurrahman

Independent Non-Executive Director

Anino Emuwa, DBA

Independent Non-Executive Director

Charles Adeyemi Candide-Johnson (SAN, FCI. Arb) Independent Non-Executive Director Herbert Wigwe

Non-Executive Director

Razack Adeyemi Adeola

Non-Executive Director

Uche Orji

Non-Executive Director

Adeniyi Akinlusi

Non-Executive Director

Femi Johnson, DBA

Non-Executive Director

Bakari Wadinga, PhD

Non-Executive Director

* Retired as Chief Executive Officer, effective 23 March 2018 ** Appointed as acting Chief Executive Officer, effective 23 March 2018

Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

The Board meets every quarter but may hold extra-ordinary sessions to address urgent matters requiring the attention of the Board.

BOARD COMMITTEES The board carries out its oversight functions using its various Board Committees. This makes for efficiency and allows for a deeper attention to specific matters of the Board. The Board is made up of members who are professionals and business men with vast experience and credible track records. They all have requisite integrity, skills and experience to bring independent judgment to bear on Board deliberations and discussions. The Corporate Governance principles of the Company rest on the Board of Directors to ensure due compliance with and alignment with acceptable Corporate Governance standards. In demonstrating its commitment to the observance of the various Codes of Corporate Governance, the Company has four Independent Directors. These independent Directors are neither Shareholders of the Company nor representatives of Shareholders. To enhance Corporate Governance, Board sub-committees are constituted to help the Board properly assess management reports, proposals and oversight functions and make recommendations to the main Board. Separation of the positions of Chairman and Managing Director The positions of the Managing Director/ CEO and that of the Chairman of the Board are occupied by different persons and the Managing Director/CEO is responsible for implementation of the Company’s business strategy and the day -to-day management of the business. The Chairman is not involved in the day-to day operations of the Company and is not a member of any sub-committee of the Board.

PROCEEDINGS AND FREQUENCY OF MEETINGS The Board meets at least once in every quarter or as frequently as the Board’s attention may be required on any situation which may arise.

Sufficient notices with clear agenda/report are usually given prior to convening such meetings. All Directors have access to the Company Secretary which can only be appointed or removed by the Board and is also responsible to the Board.

NON-EXECUTIVE DIRECTORS The Non-Executive Board members possess strong knowledge of the Company’s business and usually contribute actively to Board’s meetings.

REPORTING AND CONTROL The Board is responsible for and ensures proper financial reporting as well as establishment of strong internal control procedures. There is a Statutory Audit Committee, A Board Audit Committee and a Head of Internal Audit.

ACCOUNTABILITY AND AUDIT Financial Reporting

The Board has presented a balanced assessment of the Company’s position and prospects. The Board is mindful of its responsibilities and is satisfied that in the preparation of its financial report it has met with its obligation under the Code of Corporate Governance. The Directors make themselves accountable to shareholders through regular publication of the Company’s financial performance and annual reports. The Board has ensured that the Company’s reporting procedure is conveyed on the most recent infrastructure to ensure accuracy. This procedure involves the monitoring of performance throughout the financial year in addition to monthly reporting of key performance indicators. KPMG Professional Services acted as external auditors to the Company during the 2017 financial year. Internal Control

The Company has consistently improved its internal control system to ensure effective management of risks. The Directors review the effectiveness of the system of internal control through regular reports and reviews at Board and Audit Committee Meetings.

Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

SHAREHOLDERS The Company ensures the existence of adequate interaction among the shareholders, the Management and the Board of the Company. The Company’s General Meetings provide shareholders the platform to contribute to the administration of the Company. The Annual General Meetings (AGMs) are held in accessible locations and are open to shareholders or their proxies. The AGMs are conducted in a manner that facilitates shareholders participation in accordance with relevant regulatory and statutory requirements. The Company encourages shareholders to attend these meetings whilst ensuring that notices of meetings and other information required by shareholders to make informed decisions are dispatched in a timely manner. The office of the Company Secretary additionally affords shareholders channels of communication to the Board and the Management of the Company. It is the responsibility of the shareholders to approve the appointment of Directors and to grant other approvals that are required by law or the Articles of Association of the Company. The Shareholders through its representatives on the Statutory Audit Committee in line with section 359 of the CAMA and the SEC Code, assume responsibility for the integrity of the Company’s audited accounts. Its role includes ensuring that the audit and risk management policies of the Company adhere to the appropriate legal standards. The Committee among other functions provides oversight to the activities of the Company’s Internal and External Audit.

STATUTORY AUDIT COMMITTEE The Company has a Statutory Audit Committee set up in accordance with the provisions of the Companies and Allied Matters Act. It comprises of a mixture of Non-Executive Directors and ordinary shareholders elected at the Annual General Meeting. It evaluates, annually, the independence and performance of external auditors, receives the interim and final audit presentation from the external auditors and reviews with management and the external auditors, the annual audited financial statements before its submission to the Board.

Reports

During the year, the Committee approved the audit plan and scope of the external auditors’ work for the financial year and reviewed the audited financial results before presentation to the Board. The Committee also received reports from management on the accounting system and internal controls framework of the Company. . The Committee is comprised of three (3) NonExecutive Directors and three (3) shareholder representatives: S/N

COMMITTEE MEMBERS

*Mr. Banjo Obaleye (Chairman)

*Mr. Ifie Sekibo

*Mr. Ben Akaneme

**Dr. Bakari Wadinga

**Mr. Adeniyi Akinlusi

**Dr. (Mrs) Anino Emuwa * Shareholder representative ** Non – Executive Director

The responsibilities of the Committee include:

a. Ensuring that the accounting and reporting policies of the Company are in accordance with legal requirements and agreed ethical practices; b. Reviewing the scope and planning of audit requirements; c. Reviewing findings of management in conjunction with the external auditors; d. Viewing the effectiveness of the Company’s system of accounting and internal control; e. Making recommendations to the Board regarding the appointment, removal and remuneration of the external auditors of the company; and f. Authorizing the internal auditor to carry out investigations into any activities of the Company which may be of interest or concern to the Committee.

BOARD COMMITTEES The Board carries out its oversight functions through its standing committees. The purpose, composition, structure, functions and scope of

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

authority for each committee are as determined by its terms of reference. The Board, in line with governance best practices has delegated some of its statutory powers to its committees which have been constituted in consideration of the skills and competencies of each member and mandated to carry out such role/ functions assigned by the Board, in a manner that enables the Board to focus on more strategic business and operational matters. The committees render regular reports at the Board meetings and make recommendations to the Board who makes the final decisions on all matters relating to the Company’s affairs. In line with best practice, the Chairman of the Board is not a member of any of the Board committees. In addition to the Statutory Audit Committee, the Board has six (6) standing committees namely: Board

Audit Committee

Board

Credit &Investment Committee

Board

Finance and General-Purpose Committee

B oard

Governance and Nominations Committee

Board

Risk Management Committee

Board

Remuneration Committee

BOARD AUDIT COMMITTEE The members of the Board Audit Committee for the period under review are:

c. Reviewing the effectiveness of the Company’s Accounting Systems, Compliance with Reporting Standards and Internal Control; d. Submission of recommendations to the Board in relation to the appointment, removal and remuneration of the external auditors of the company; e. Monitoring the integrity of the company’s internal controls over financial reporting; f. M onitoring the qualifications, independence and performance of the company’s external auditor and internal auditing function; g. Review of annual audited financial statements and half yearly unaudited statements with management and external auditors; h. Review of a summary of the Whistle blowing reports submitted by the Head of Internal Audit; and i.

Any other duty as assigned by the Board.

BOARD CREDIT & INVESTMENT COMMITTEE The members of the Board Credit & Investment Committee during the period under review are: S/N

COMMITTEE MEMBERS

S/N

COMMITTEE MEMBERS

Mr. Uche Orji (Chairman)

Dr. (Mrs) Anino Emuwa (Chairman)

Dr. Bakari Wadinga

Mr. Yemi Candide-Johnson

Mr. Adeniyi Akinlusi

Dr. Bakari Wadinga

Dr. Femi Johnson

The committee is tasked with the following responsibilities: a. Reviewing the financial reporting process, the internal control system and management of financial risks, audit process and the process for monitoring the company’s compliance with statutory and regulatory guidelines; b. Reviewing the scope and planning of audit requirements;

The Committee is tasked with the following responsibilities; a. Reviewing the credit and investment policies for the Company b. Evaluating the Company’s refinance performance bi-annually c. Reviewing applications for loans and make decisions upon such applications within the authority delegated to the committee d. Periodically reviewing management’s strategies and activities for managing credit risk Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

e. Overseeing management’s administrationof the Company’s credit portfolio f. Reviewing applicable stress testing periodically g. Monitoring the performance and quality of the Company’s credit portfolio h. Monitoring and ensuring adherence to and compliance with limits set out in Company policy statements i. Reviewing and monitoring the effectiveness and application of credit risk management policies,standards and procedures

BOARD FINANCE AND GENERAL-PURPOSE COMMITTEE The members of the Finance and GeneralPurpose Committee during the period under review are S/N

COMMITTEE MEMBERS

Mr. Yemi Adeola (Chairman)

Mr. Herbert Wigwe

Dr. Femi Johnson

Mr. Adeniyi Akinlusi

a. Reviewing the Business Plan, Proposed Annual Budget and subsequent recommendations to the Board for approval b. Authorizing acceptable accounting and disbursement procedures for all NMRC funds c. Reviewing the integrity of the Financial Reporting System d. Ensuring that an appropriate internal control framework is established and maintained over the financial reporting process e. Reviewing significant corporate finance, solvency and tax compliance f. Annually review the Company’s financial projections. The annual reviews are preceded by quarterly performance reviews by Executive Management. The Reports

reviews would entail quarterly review of capital and operating budgets and actual performances; and g. Submitting recommendations to the Board on NMRC capital structure including but not limited to, allotment of new capital, debt limits and any changes to the existing capital structure

BOARD GOVERNANCE AND NOMINATIONS COMMITTEE The members of the Governance and Nominations Committee during the period under review are: S/N

COMMITTEE MEMBERS

Mrs. Fatima Wali- Abdurrahman (Chairman)

Dr. Anino Emuwa

Mr. Adeyemi Adeola

Mr. Uche Orji

This Committee is tasked with the following responsibilities: a. Considering and recommending any proposed amendments to the Company’s Memorandum and Articles of Association, any standing procedures of the Board and the terms of reference of the NMRC’s Board Committees. The Committee will also review and recommend amendments to the Corporate Governance Code of NMRC; b. Periodically reviewing the orientation processes for newly appointed members of the Board. The Committee also ensures Directors’ continuing education programs; c. Reviewing all legislative, regulatory and corporate organizational practices that might affect the NMRC’s operations, and making recommendations to the Board; and d. Making recommendations to the Board on corporate governance guidelines for NMRC (The Corporate Governance Code). The Committee is also mandated to review the Corporate Governance Code annually and evaluate companywide compliance.

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

BOARD RISK MANAGEMENT COMMITTEE

BOARD REMUNERATION COMMITTEE

The members of the Risk Management Committee during the period under review are:

The members of the Remuneration Committee during the period under review:

S/N

COMMITTEE MEMBERS

S/N

COMMITTEE MEMBERS

Mr. Herbert Wigwe (Chairman)

Mrs. Fatima Wali-Abdurrahman

Mr. Yemi Candide-Johnson (Chairman)

Dr. Femi Johnson

Mrs. Fatima Wali-Abdurrahman

The responsibilities of the Committee include: a. Reviewing and recommending for Board approval, the company’s Enterprise Risk Management framework. This framework must be consistent with the vision, mission, and corporate strategy of NMRC; b. Reviewing and making recommendations for the approval of the Board, the NMRC’s risk philosophy, risk appetite, and overall risk management principles; c. Reviewing and recommending for Board approval, policies and procedures for identifying, measuring and controlling risk; d. Reviewing risk reports on a regular and timely basis; e. Monitoring the company’s adherence to the requirements of the regulatory risk-based supervision and subsequent migration to Basel II compliance; f. Conducting quarterly reviews of the company’s risk management, risk profile, and risk mitigation policies. The reviews will assist in the development and assessment of satisfactory Risk-Return Limits for the company’s investments; and

The responsibilities of the committee include: a. Determining the policy for the remuneration (including benefits, pension arrangements and termination payments) of the chairman of the Board, the chief executive officer, the executive directors and the senior management of the Company; b. M ak ing re co mm e n d atio ns on compensation structure for executive directors; c. Setting and reviewing the remuneration policy and levels for employees of the Company; d. Reviewing the ongoing relevance of the Company’s remuneration policy; e. Approving the design of, and determine targets for any performance related schemes for executive Directors; and f. Overseeing any major changes in employee benefits structures throughout the Company.

g. Reviewing and recommending solutions to the Company’s identified inherent and residual risks.

Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

BOARD AND BOARD COMMITTEE MEETINGS Provided below are details of Board and Board Committee meetings held in 2017 showing the frequency of the meetings and attendance of members.

BOARD MEETINGS S/N Name of Director

15/02/2017 24/03/2017 20/04/2017 22/6/2017

02/8/2017

15/11/2017

Dr. Charles Okeahalam



Prof. Charles Inyangete



Mr. Adeyemi Adeola



—



—

Mr. Adeniyi Akinlusi



Dr. Anino Emuwa



Dr. Femi Johnson



Mrs. Fatima Wali Abdurrahman



Mr. Adeyemi Candide - Johnson SAN



—



—

Mr. Uche Orji

—



—



Dr. Chika Akporji



Dr. Bakari Wadinga

—



Mr. Kehinde Ogundimu



Mr. Herbert Wigwe

—



LEGEND TICKS  = Present — = Absent with Apology

BOARD COMMITTEE MEETINGS BOARD AUDIT COMMITTEE

S/N Names

Role

Dr. Anino Emuwa

Chairman



Mr. Adeyemi Candide Johnson SAN

Member

Dr. Bakari Wadinga

4 5

Reports

13/02/2017 19/04/2017

28/7/2017

13/11/2017



—

Member

—



Mr. Adeniyi Akinlusi

Member



Dr. Femi Johnson

Member



NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

CREDIT AND INVESTMENT S/N Names

Role

9/02//2017 20/7/2017

23/11/2017

Mr. Uche Orji

Chairman



Mr. Adeyemi Candide - Johnson SAN

Member

—



Dr. Bakari Wadinga

Member



BOARD REMUNERATION S/N Names

Role

9/02//2017 20/7/2017

23/11/2017

Mr. Adeyemi Candide - Johnson SAN

Chairman



Mrs. Fatima Wali - Abdurrahman

Member

—



Mr. Adeniyi Akinlusi

Member



STATUTORY AUDIT COMMITTEE S/N Names

Role

18/4/2017

23/11/2017

Mr. Banjo Obaleye

Shareholder rep Chairman



Dr. Anino Emuwa

Member



Mr. Ifie Sekibo

Shareholder rep member)

—

Mr. Adeniyi Akinlusi

Chairman



Mr. Ben Akaneme

Shareholder rep (member)



Dr. Bakari Wadinga

Non-Executive Director (member)



GOVERNANCE AND NOMINATIONS S/N Names

Role

08/02/2017

19/04/2017

Mrs. Fatima Wali - Abdurrahman

26/07/2017 20/11/2017

Chairman



Dr. Anino Emuwa

Member

—



—

Mr. Adeyemi Adeola

Member



—



Mr. Uche Orji

Member

—



Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

RISK MANAGEMENT S/N Names

Role

10/02/2017 19/04/2017

13/11/2017

Mr. Herbert Wigwe

Chairman



—

Mrs. Fatima Wali - Abdurrahman

Member

—



Dr. Femi Johnson

Member



FINANCE AND GENERAL PURPOSE S/N Names

Role

Mr. Adeyemi Adeola

8/02/2017

13/11/2017

—



Member



Member



Chairman

Mr. Herbert Wigwe

Member

Dr. Femi Johnson

Mr. Adeniyi Akinlusi

CODE OF BUSINESS ETHICS The Company has in place a Code of Business Ethics for its employees. This Code aims at promoting among employees a culture consistent with the Company’s core values and establishes acceptable standards of ethical behaviour for staff. Employees of the Company are required to act in accordance with all applicable laws and regulations as the Company will not condone employees who violate the law or ethical standards whether specifically provided for in the Code or otherwise. All employees undertake to abide by the provisions of this Code and new employees are required to read and agree to the terms of the code during the course of their employment. The Internal Audit is responsible for full compliance with the provisions of this Code.

WHISTLE BLOWING POLICY The Company in observance of sound Corporate Governance principles and in adherence with the SEC Code has an established Whistle Blowing Policy. This Policy provides a confidential avenue for reporting cases of fraud and other forms of misconduct which are inimical to the Company’s ethos. The Company has a dedicated phone number and an e-mail address through which complaints/ reports can be received. The email address is whistleblower@nmrc.com.ng. The policy is also hoisted in the Company’s website www.nmrc.com.ng Some of the policies established during the Year: Reports

19/04/2017 27/7/2017 



CORPORATE COMMUNICATIONS POLICY The policy defines parameters for both internal and external communications functions within NMRC. It prescribes appropriate channels and media for such communications and recommends Key Performance Metrics for monitoring and evaluating behavioral change or impact of activities in target stakeholder’s groups. The strategic goal of the policy is to institute robust internal and external communications processes that will promote NMRC’s refinancing activities and results to target stakeholder groups, through the deployment of effective information, communications and technology (ICT) tools, to effect behavioral change in the groups, drive housing policy reform, increase shareholders’ value and ultimately grow mortgage market contribution to Nigeria’s GDP. The policy also aims to enhance the visibility, credibility and profile of NMRC and its operations along the housing value chain, in the process communicating a clear, consistent, results driven brand for NMRC. The governance structure and guidelines for corporate communications in NMRC are also clearly spelt out in the policy.

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

CONFLICT OF INTEREST POLICY The Conflict of Interest Policy has been established in line with the commitment of the Nigeria Mortgage Refinance Company’s (hereinafter referred to as the Company) commitment to upholding international best practices in corporate governance and compliance with relevant laws, regulations and standards. The policy is also in compliance with the requirements of Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) Codes of Corporate Governance. The policy serves to guide the actions of the Board, individual Directors and employees in conflict of interest situations. The policy highlights examples of conflict of interest situations and procedures to be followed by Directors and employees, when they are faced with such situations.

CUSTOMER RISK RATING FRAMEWORK The framework was established to provide guidance for the classification of NMRC customers (member Banks) in accordance with the perceived Money laundering /terrorism financing risk that they pose to the company. This involves assessment of customers’ risks and assigning risk class to them. The overall objective of risk-rating NMRC customers is to determine the level of due diligence that should be performed on them to safeguard the Company from financial loss or reputational damage arising from the money laundering activities of our customers’ customers and or inadequate Anti-money laundering policies and procedures. The framework establishes a standardized approach for rating the customers of the NMRC and ensures that appropriate level of customer due diligence (CDD) and enhanced due diligence (EDD) are applied to customers in accordance with their risk rating.

TENURE OF DIRECTORS To ensure continuity, the tenure of the NonExecutive Directors (including Independent Non -Executive Directors) is a fixed term of four (4) years renewable twice i.e. a

maximum of 12 years. This is in accordance with section 4.1 of the CBN Regulatory and Supervisory Framework for the Operations of a Mortgage Refinance Company. The tenure of the Chairman is a fixed term of three (3) years renewable for a further term of three (3) years; altogether a maximum of 6 years following which the Chairman shall exit the Board.

THE COMPANY SECRETARY AND ITS ROLE The Company Secretary is a point of reference and support for all Directors of the Company; and regularly consults with the Directors to ensure that they receive prompt information. The Company Secretary ensures adequate dissemination of information among Board members and between the Board and the Management of the Company. In furtherance of Board and Committee meetings, the Company Secretary undertakes the preparation of the necessary papers and other documents requisite for the success in deliberations. The Company Secretary is responsible for the induction of new Directors and the provision of ongoing training for the Non-Executive Directors. The Company Secretary is a source through which the shareholders of the Company access information on the Company. The Company Secretary ensures that the Company complies with the relevant regulatory laws including the CBN Regulatory and Supervisory Framework for the Operations of a Mortgage Refinance Company, the Central Bank of Nigeria Code of Corporate Governance, the Securities and Exchange Commission (SEC) Code of Corporate Governance, the Companies and Allied Matters Act and the Nigeria Stock Exchange Rules and Regulations. The Company Secretary also assists the Board with the implementation of the NMRC Code of Corporate Governance, organizes Board meetings and ensures that the minutes of the Board clearly capture the discussions and decisions of the Board. It is also the responsibility of the Company Secretary to ensure that all regulations and policies of the Company including the Memorandum and Articles of Association are complied with. The procedure for the appointment and removal of the Company Secretary is a matter for the Board. Reports

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

CERTIFICATION Pursuant To Section 60(2) of the Investment and Securities Act, 2007 For the year ended 31st December 2017 We the undersigned hereby certify the following with regards to audited accounts for the year ended 31st December 2017 that:

Charles C. Okeahalam, Phd Chairman FRC/2018/CIANG/00000017771 12 April 2018

We have reviewed the report and to the best of our knowledge, the report does not contain: a)

Any untrue statement of a material fact or

b) Any omission of material fact, which would make the statement, misleading considering the circumstance under which such statement was made To the best of our knowledge, the financial statements and other financial information included in the report present in all material respects the financial condition and results of operations of the company as of, and for the periods presented in the report.

Reports

Femi Johnson* Director FRC/2013/MULTI/00000005071 12 April 2018

NMRC 2017 Annual Report and Accounts

STRATEGIC PARTNERSHIPS & ENGAGEMENTS

NMRC PARTNERS LAGOS STATE GOVERNMENT ON THE DELIVERY OF 20,000 HOMES During the period under review NMRC signed a tripartite agreement with Lagos State Government, and a consortium of six major developers to build and deliver 20,000 housing units by 2020, against which mortgages can be created for refinancing. The MoU was in line with the Lagos Affordable Public Housing (L.A.P.H.) initiative, under which houses will be delivered through joint venture initiatives, with NMRC responsible for refinancing mortgages to be originated by its member banks for prospective off-takers. The tripartite agreement is designed to address both supply and demand side gaps in the state, as it will catalyse a revolving pool of funds for mortgage origination to assist developers and provide them with access to the construction finance needed to scale up housing delivery.

It will also strengthen efforts at effective repositioning of housing provision institutions in the state, including the successful implementation of the Rent-to-Own scheme which has driven the growth of the sector and enabled many Lagosians realize their dreams of affordable home ownership. The partnership with the state government was further cemented with the state government becoming an NMRC shareholder, via the investment by the State’s mortgage bank, Lagos Building Investment Corporation (LBIC) in NMRC, thereby qualifying it for mortgage refinancing.

NMRC PARTNERS KADUNA STATE ON GROWTH OF MORTGAGE MARKET, HOME OWNERSHIP In March 2017 NMRC signed a Memorandum of Understanding (MoU) with the Kaduna State government to support the latter’s determined and structured efforts to facilitate affordable home ownership for its citizens. Among other terms, the Agreement encompasses the government’s planned Millennium City Project aimed at providing affordable housing for citizens, as well as a commitment to support the provision of single digit mortgages through the creation of a sinking fund for citizens and public servants in Kaduna State in collaboration with NMRC and Sterling Bank. The partnership, apart from enabling affordable housing provision, also presents a tremendous opportunity for the state government to meet critical and strategic initiatives in job creation and poverty alleviation of its citizens: state would also speed up the adoption and passage of the draft Kaduna Mortgages Foreclosure Bill based on NMRC’s Model Mortgage and Foreclosure Law to incentivize the expected investment in the housing sector.

NMRC 2017 Annual Report and Accounts Corporate Governance Report (continued)

KADUNA STATE BECOMES FIRST IN NIGERIA TO PASS NMRC’S MODEL MORTGAGE AND FORECLOSURE LAW In June 2017 the Kaduna state government made good on its promise to NMRC by passing into law a Kaduna Mortgages and Foreclosure Bill, adapted from the draft Mortgage and Foreclosure Law, thus making it first in Nigeria to do so. The law sought to establish the Kaduna State Mortgage and Foreclosure Authority, to, among other provisions allow for permanent interests from the mortgage banks so that those who cannot purchase are able to do so,” including enabling non- governmental workers participate in purchasing houses allocated to government workers

In addition to facilitating mortgage access and investment in housing in the state passage into law signals the state government’s commitment to enhancing the ease of doing business ranking, as a precondition to attracting greater investment. including from the Development finance institutions like the World Bank, which Board recently approved a US$350 million facility for the state government.

SENSITIZING JUDICIAL OFFICERS ON THE MODEL MORTGAGE AND FORECLOSURE LAW (MMFL) During the period under review NMRC furthered its advocacy on the MMFL when it partnered with the National Housing Finance Programme (NHFP) and FSS2020 in 2017, in organising a sensitization workshop for Judges. The workshop with the theme “Mortgage Disputes in Nigeria: The Need for Expeditious Resolution of cases”, aimed at advocating for the dedication of judges to disputes arising from mortgages and to institute reforms targeting the expeditious resolution of mortgage and commercial disputes in Nigeria. The workshop also sought to obtain judges’ buy-in to the Federal Government’s economic objectives under the critical housing component

of the FSS 2020, particularly on the speedy dispensation of mortgage disputes through the designation of reserved courts for this purpose.

NMRC PARTNERS OPIC ON AFFORDABLE HOUSING DELIVERY NMRC signed a landmark partnership agreement with Ogun State Property Investment Corporation (OPIC) and three of its member banks - Imperial Homes, TrustBond and Homebase mortgage banks - to boost OPIC’s affordable housing project. The Agreement is to provide liquidity and empower the three primary mortgage banks to give conforming mortgage loans to prequalified off-takers to be refinanced by NMRC after due seasoning period. Each of the three primary mortgage banks has committed N1.5billion to the project. The Nigeria Mortgage Refinance Company plc (NMRC) was also party to the drive for the commencement of construction work for the first phase of an affordable housing scheme being promoted by the Ogun State Property Investment Company (OPIC), tagged “Makun City”.

NMRC PARTNERS WITH USBASED ECHOSTONE LLC TO HELP SCALE UP AFFORDABLE HOUSING DELIVERY IN NIGERIA The EchoStone Housing System is an innovative and more efficient approach to housing design and construction, which has been in practice in several industrialised and emerging economies around the world. The Memorandum of Understanding signed with EchoStone LLC is geared towards leveraging the speed construction technology and technical expertise of the US-based company towards scaling up affordable housing delivery in the country. The engagement with NMRC is predicated on EchoStone’s proposed model to deliver 750,000 housing units within a 10-year period across key states in the federation. This will be kickstarted with its planned development of 2,400 units in the Ikorodu axis of Lagos, in partnership with Ibile holdings and Lagos State Government.

NMRC 2017 Annual Report and Accounts

RISK MANAGEMENT REPORT

The Nigeria Mortgage Refinance Company (NMRC) continues to adopt an integrated approach to the management of risks across its business and operations. NMRC aligns with International best practise in managing risk on an Enterprise-wide basis. The company is conservative and practical in the application of risk management, which form the foundation of its business model and choice of activities. During the year, NMRC affirmed its philosophy of business innovation and technology-driven mortgage refinancing by successfully developing the Mortgage Market System (MMS) to drive mortgage finance activities from creation of housing supply to mortgage refinancing levels. MMS provides a standard operating platform for creating and managing the company’s refinanced mortgage portfolios from the stage of origination of the mortgages by the Primary Mortgage Institutions (PMBs) to the point of refinancing by NMRC until the loans are fully repaid. The Company also encouraged its member banks to adopt sustainable financing through ensuring compliance with Environmental and Social Risk Management Principles of CBN and IFC/World Bank.

The Risk Management function in NMRC continues to be proactive, effective, and relevant. The company has in place a comprehensive and robust Enterprise Risk Management framework and Risk Policies which were revised and approved by the Board of Directors during the year. This was aimed at ensuring that the company’s risk policies are up-to-date and responsive to emerging developments in its operating and global risk environments. The company continues to monitor risk exposures through regular extensive reviews of portfolio and refinanced banks performances vis-àvis macroeconomic outcomes and forecast. NMRC has developed an internal bespoke scoring and monitoring model to drive this. The Company also reviews profiles of new borrowers and their potential portfolios on a comparative risk-adjusted basis. The risk reviews are comprehensive and usually cover historical, present, forecast and stress test of the macro-economy both internationally and country based, obligors, and underlying portfolios. Key risk management initiatives that came to fruition during the year included the following: Development

and deployment the Mortgage Market System (MMS) for mortgage underwriting and management within NMRC and its member institutions including Developers.

Implementation

of International Reporting Standards (IFRS) 9 models for measurement of impairments.

Development

of in-house macroeconomic models to interpolate current and forecast macro-economic trends and their impact on the Company’s risk exposures.

Enhancement

of the Company’s Environmental and Social Risk policy to provide checklist that ensures member Primary Mortgage Banks comply with Environmental and Social Risk dictates while doing their businesses.

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

NMRC’s Risk Management Framework

ify t n Ide

e sur ea

Repor t

Risk Management Framework

n it o r

Enterprise Risk Management forms part of NMRC’s culture and it is embedded in the company’s business processes and practices. The Board approved a revised version of the framework during the financial year. The comprehensive and robust framework details the responsibilities and accountabilities of the Board of Directors (“the Board”), Board Risk Management Committee, Board Credit and Investment Committee, Board Audit Committee, Management Credit Committee, Management Risk Committee, Asset and Liability Management Committee, Chief Executive Officer, Risk Management Department, Internal Audit Department and NMRC employees in the day-to-day management of risk in the company. NMRC’s enterprise risk management framework articulates the Risk Management philosophy and Risk Acceptance Criteria (RAC) of NMRC

which are aligned with the Company’s business strategy of responsible and sustainable finance and profitability. As part of its risk management philosophy, NMRC in collaboration with other stakeholders in the industry developed the Uniform Underwriting Standards for diverse economic sectors which will serve as industry standard for granting mortgage loans to borrowers that will qualify for NMRC’s refinancing facility. This is with a view to promoting efficiency and instituting controls/ mitigants in mortgage financing risks and also servings as a market development tool that will lead to more affordable home ownership in Nigeria.

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

The Uniform Underwriting Standards (UUS) helps NMRC and other stakeholders to: I. Establish mortgage lending standards and procedures within the Nigerian mortgage market, thereby facilitating improved access to housing finance; and II. Develop and institutionalize criteria for acceptable mortgage loans, including payment performance, financial terms, legal contract terms, mortgage loan product design, mortgage loan underwriting criteria, and the contents of mortgage loan documents. Lending standards promote efficiency and mitigate the legal and operational risks inherent in mortgage lending by ensuring quality collateral, adequate property title, proper registration, enforcement of legal mortgages, and maintenance of efficient collection processes. Such standards balance the requirements of responsible finance with lenders’ needs to enforce loan contracts. NMRC’s goal is to act as a catalytic and focused advocate to address the issues of standardization and effective risk management. NMRC has also put in place adequate internal control systems to manage its business and operations. NMRC’s risk management framework has been designed to drive the achievement of the company’s strategic objectives: I. To encourage financial institutions to increase mortgage lending by providing them with long term funding; II. To increase the maturity structure of mortgage loans and assist to reduce mortgage default rates; III. To increase the efficiency of mortgage lending by taking a lead role in proposing changes to the enabling environment for mortgage lending through standardization of mortgage lending practices of financial institutions; and, IV. To introduce a new class of high quality long-term assets to the pension funds and other investors. NMRC’s risk management framework provides for three lines of defence in managing risks within the company:

I. Business units/departments are the first line of defence, and have the primary responsibility of identifying, mitigating and managing risks within their scope of operation. They also ensure that their day-to-day activities are carried out within established risk policies, procedures and limits. II. An independent Risk Management Department plays the role of second line of defence by providing specialized resources to anticipate and manage risks. These include the assessment of risk exposures and the coordination of risk management on an enterprise-wide basis. Risk Management Department is also responsible for ensuring that risk policies are implemented effectively. III. The Internal Audit Department is the third line of defence and is responsible for independently overseeing the adequacy and effectiveness of risk management processes, system of internal controls and compliance with risk policies.

NMRC’S RISK GOVERNANCE STRUCTURE The Board is primarily and ultimately responsible for setting the overall strategic direction for NMRC. The Board provides oversight to ensure that Management has appropriate risk management system and practices established to manage risks associated with the company’s operations and activities. The Board achieves this through: a) setting the overall tone of the company’s risk appetite and ensuring that this is well enshrined in its corporate culture; b) approving firm-wide standards for different types of risk including e.g. credit risk, market risk and operational risk; c) identifying, understanding and assessing the types of risk inherent in the NMRC’s business activities or major new products or services to be launched; laying down the risk management strategies; d) approving a risk management framework consistent with NMRC’s business strategies and risk appetite; determining that the risk management framework is properly implemented and maintained;

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

e) reviewing the risk management framework periodically to determine their adequacy in comparison to the prevailing business conditions; f) determining that there are clear reporting lines and responsibilities for the risk management function; g) approving the allocation of resources to business units or divisions in accordance with NMRC’s risk appetite; h) maintaining continued awareness of any changes in the company’s risk profile; and

Enhance

credit ratings, external and regulatory evaluations of the company

Institute

a risk culture that empowers and encourages staff at all levels to be risk sensitive and risk managers

Protect

against expected and unexpected losses in the company

Reduce

earnings volatilities

Maximise

shareholders value and stakeholders’ protection.

i) approving the provision of adequate resources (e.g. financial, technical expertise and systems technology) for risk management purposes. The Board Risk Management Committee assists the Board by ensuring that there is effective oversight and development of strategies, policies and infrastructure to manage the Company’s risks. The Board Risk Management Committee is supported by management committees in addressing any key risks identified. The Management Credit Committee, Management Risk Committee, and Asset and Liability Management Committee which are constituted by senior management of NMRC and chaired by its CEO, undertake the oversight function for capital allocation and prescription of overall risk limits, aligning them to the risk appetite set by the Board. Management is also responsible for the implementation of policies laid down by the Board and ensuring there are adequate and effective operational procedures, internal controls and systems to support these policies.

THE RISK MANAGEMENT DEPARTMENT The Risk Management Department is responsible for identifying, measuring, analysing, controlling, monitoring and reporting of risk exposures and coordinating the management of risks on an enterprise-wide basis. Risk management function typically carries out the following key functions: Identify,

manage and report existing and emerging risks to the Management and Board of Directors

ENTERPRISE

RISK MANAGEMENT

Everyone is a Risk Manager

SCOPE OF RISKS NMRC adopts an integral risk management model where all aspects of risk management are considered and managed. Risks managed by NMRC include: Credit

Risk

Market

and liquidity Risk

Operational Legal

Risk

Compliance Business Capital

Risk

Strategic

Risk

Reputational

Risk

Environmental

& Social Risk

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

Risk Management Credit Risk

Market & Liquidity Risk

Operational Risk

Strategic Risk

Legal Risk

Compliance Risk

CREDIT RISK MANAGEMENT Credit risk is defined as the potential for financial loss resulting from the failure of a borrower or counterparty to fulfil its financial or contractual obligations. Credit risk within the NMRC arises from its mortgage refinancing (Purchase with Recourse (PWR)) business, investments and treasury activities. The primary objective of credit risk management is to proactively manage risk and credit limits to ensure that all exposures to credit risks are kept within parameters approved by the Board to mitigate and withstand any potential losses. Investment activities are guided by internal credit policies and guidelines that are approved by the Board.

MARKET & LIQUIDITY RISK MANAGEMENT Market risk is defined as potential loss arising from movements of market prices and rates. Liquidity risk arises when the NMRC does not have sufficient funds to meet its financial obligations when they fall due. NMRC manages market and liquidity risks by imposing threshold limits which are approved by management within the parameters approved by the Board based on a risk-return relationship. It also adheres to a strict match-funding policy where all asset purchases are funded by bonds of closely matched size, duration, and are self-sufficient in terms of cash flow. A forward-looking liquidity mechanism is in place to promote efficient and effective cash flow management while avoiding excessive concentrations of funding. NMRC plans its cash flow and monitors closely every business transaction to ensure that available funds are sufficient to meet its business requirements at all times. Reserve liquidity, which comprises marketable debt securities, are also set aside to meet any unexpected shortfall in cash flow or adverse economic conditions in the financial market.

Capital Risk

Reputational Risk

Environmental & Social Risk

OPERATIONAL RISK MANAGEMENT Operational risk is the potential loss resulting from inadequate or failed internal processes, people and systems, or from external events. Each business/department undertakes self-assessment of its own risk and control environment to identify, assess and manage its operational risks. NMRC has established comprehensive internal controls, systems and procedures that are subject to regular review by both internal and external auditors. Business Continuity Plans are in place to minimize unexpected disruption and reduce time to restore operations.

STRATEGIC RISK MANAGEMENT Strategic risk is the risk of not achieving the Company’s corporate strategy and goals, which may be caused by internal factors such as deficiency in performance planning, execution and monitoring, and external factors such as market environment. Strategic risk management is addressed by the Board’s involvement in the setting of the Company strategic goals. The Board is regularly updated on matters affecting corporate strategy implementation and corporate transactions.

REPUTATIONAL RISK MANAGEMENT NMRC’s reputation and image as perceived by clients, investors, regulators and the general public is of utmost importance to the continued growth and success of the company’s business and operations. Invariably, reputational risk is dependent on the nature/ model of business, selection of clients and counterparties and reliability and effectiveness of business processes. Stringent screening of potential clients and design of business in accordance

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

with high standards and regulatory compliance are incorporated to safeguard the company’s business reputation and image.

COMPLIANCE RISK MANAGEMENT Compliance risk is the risk to earnings, capital or reputation occurring from violation of or nonconformity with laws, regulations, prescribed practices or ethical standards and may result in fines, penalties, payment of damages and voiding of contracts. The Board has an oversight function of the compliance risk framework for the NMRC. In managing Compliance Risk, NMRC engages PMBs directly, constantly monitoring their obligations in fulfilling their due diligence activities. These include ensuring that the PMBs: i. Have adequate compliance policies and procedures ii.

Have designated Compliance Departments

iii. Have a Chief Compliance Officer in accordance with regulatory specifications iv. Render compliance regulatory returns and reports in strict accordance with specifications by to the regulatory bodies

ANTI-MONEY LAUNDERING/ COMBATING FINANCING OF TERRORISM (AML/CFT) NMRC is committed to cooperate with the Government and the Agencies coordinating the implementation of Anti Money Laundering law and combating financing of terrorism with a view to preventing the company from being used for such activities. The NMRC’s Policies and Procedure are established to ensure compliance with the applicable laws of the country. NMRC supports its staff to achieve the highest standard of compliance integrity. The employees of NMRC undergo periodic trainings to help them to be fully aware of both NMRC’s commitment to preventing Money Laundering and Terrorism Financing and their own responsibilities and obligations in achieving this goal.

INFORMATION SECURITY AND IT RISK MANAGEMENT Information security is the process by which NMRC protects and secures systems, media and facilities that process and maintain information vital to its business operations. Information security risk. NMRC has put in place an adequate assessment system that identifies the value and sensitivity of information and system components as well as the exposure from threats and vulnerabilities. All computerized confidential information stored on computers, laptops or the centralized NMRC server and to which access is obtained via communications facilities are protected using the latest firewall software. Periodic evaluations of the adequacy of the controls are carried out to ensure up to date protection.

LEGAL RISK MANAGEMENT Legal risk is the risk of real or threatened litigation against NMRC. Legal risks can represent significant costs to NMRC, disrupt the operation of NMRC and reduce the earnings and capital of NMRC. Legal risk may arise from unenforceable contracts; law suits; adverse judgments; and loss of corporate focus. NMRC has established a legal risk policy to address any potential legal risks within the Company.

WHISTLE BLOWING STRUCTURES The Whistle Blowing Policy provides for dedicated phone lines as well as email addresses for the communication of any act that violates sound ethics and the corporate governance code of the company. The Policy also provides protection for the whistle blower and incentives for whistle blowers who report issues that are found to be true and could negatively impact on the company’s operations where not promptly reported.

INTERNAL CONTROL SYSTEMS NMRC internal control system encompasses the following key processes:

NMRC 2017 Annual Report and Accounts Risk Management Report (continued)

Authority and Responsibility

An organisational structure, job descriptions and Key Results Areas (KRA), which clearly define lines of responsibility and accountability aligned to business and operational requirements. a) Clearly defined lines of responsibility and delegation of authority to the Committees of the Board, Management and staff. b) Management has also set up key Management Committees to ensure effective management and supervision of the areas under the respective Committeesâ&#x20AC;&#x2122; purview. Planning, Monitoring and Reporting

a) An Annual Business Plan and Budget is developed, presented and approved by the Board before implementation. In addition, actual performances are reviewed against the targeted results on a monthly basis allowing timely responses and corrective actions to be taken to mitigate risks. The result of such performance review is reported to the Board on a quarterly basis. Where necessary, Business Plan and Budget are revised mid-year, taking into account any changes in business conditions. b) Regular reporting to the Board and the Board Committees. Reports on the financial position, status of loans and debts purchased, bonds and notes issued are provided to the Board at least once a quarter. Where necessary, other issues such as legal, accounting and other relevant matters will also be reported to the Board

c) Regular and comprehensive information are provided to Management covering financial and operational reports at least on a monthly basis. Policies and Procedures

Clear, formalized and documented internal policies and procedures manuals are in place to ensure compliance with internal controls and relevant laws and regulations. Regular reviews are performed to ensure that documentation remains current and relevant. Independent Review by Internal Audit Department

a) The Internal Audit Department provides assurance to the Board by conducting an independent review on the adequacy, effectiveness and integrity of the system of internal controls. It adopts a risk-based approach in accordance with the annual audit plan approved by the Committee. The results of audits are presented to the Board Audit Committee, which meets six times b) The audit plan and audit reports are also submitted to the Board and the respective Board committee to inform of any weaknesses in the internal controls system. Business Continuity Planning

A Business Continuity Plan (BCP), including a Disaster Recovery Plan is in place to ensure continuity of business operations.

Ernst & Young UBA House 10th Floor, 57 Marina Lagos, Nigeria

Tel: +234 1 844 9962 Fax: +234 1 844 9963 www.ey.com

INDEPENDENT BOARD APPRAISAL REPORT

REPORT OF EXTERNAL CONSULTANTS ON THE BOARD PERFORMANCE APPRAISAL OF NIGERIA MORTGAGE REFINANCE COMPANY (NMRC). We have performed the procedures agreed with Nigeria Mortgage Refinance Company (NMRC) with regards to the appraisal of the Board of NMRC for the year ended 31 December 2017 in accordance with the guidelines of Section 2.8 of the Central Bank of Nigeria (CBN) Revised Code of Corporate Governance (CCG) 2014. The Central Bank of Nigeria (CBN) Revised Code of Corporate Governance (CCG) 2014 mandates an annual appraisal of the Board and individual directors with specific focus on the Board structure and composition, responsibilities, processes and relationships. Subsection 2.8.2 requires each board to “identify and adopt in the light of the company’s future strategy, critical success factors or key strategic objectives” while subsection 2.8.3 requires that such appraisal should be conducted by an independent consultant. The field work was performed between 4th June and 29th of June, 2018. The evaluation is limited in nature, and as such may not necessarily disclose all significant matters about the company or reveal irregularities, if any, in the underlying information. Our approach included the review of NMRC’s Corporate Governance framework, code of conduct and relevant policies and procedures. We obtained written representation through online questionnaires administered to the Board members as well as one on one interviews with some of the directors. Based on our procedures, we identified areas for improvement on the operations of the Board during the year ended December 31, 2017. The outcome of the review, identified areas for improvement and our recommendations have been put together in a comprehensive report to the Board.

For Ernst & Young

Bunmi Akinde Partner Advisory Services FRC/2012/lCAN/00000000187 July 12th, 2018

NMRC 2017 Annual Report and Accounts

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE FINANCIAL STATEMENTS for the year ended 31 December 2017

The Directors further accept responsibility for maintaining adequate accounting records as required by the Companies and Allied Matters Act of Nigeria and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error. The Directors have made assessment of the Company’s ability to continue as a going concern and have no reason to believe that the Company will not remain a going concern in the year ahead.

The directors accept responsibility for the preparation of the annual financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied Matters Act, Cap C.20, the Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act of Nigeria (“BOFIA”), the Mortgage Refinance Company (MRC) Regulatory Framework, 2013, and relevant Central Bank of Nigeria (“CBN”) guidelines and circulars.

SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:

Charles C. Okeahalam, Phd Chairman FRC/2018/CIANG/00000017771 12 April 2018

Femi Johnson* Director FRC/2013/MULTI/00000005071 12 April 2018

NMRC 2017 Annual Report and Accounts

REPORT OF THE AUDIT COMMITTEE for the year ended 31 December 2017

have exercised our statutory functions under section 359(6) of the Companies and Allied Matters Act of Nigeria and acknowledge the co-operation of management and staff in the conduct of these responsibilities.

TO THE MEMBERS OF NIGERIA MORTGAGE REFINANCE COMPANY PLC: In accordance with the provisions of Section 359(6) of the Companies and Allied Matters Act, Cap C.20, the members of the Audit Committee of Nigeria Mortgage Refinance Company Plc hereby report on the financial statements for the year ended 31 December 2017 as follows:

are of the opinion that the accounting and reporting policies of the Company are in agreement with legal requirements and agreed ethical practices and that the scope and planning of both the external and internal audits for the year ended 31 December 2017 were satisfactory and reinforce the Company’s internal control systems.

have deliberated on the findings of the external auditors who have confirmed that necessary cooperation was received from management in the course of their year end audit and we are satisfied with management’s responses thereon and with the effectiveness of the Company’s system of accounting and internal control.

Mr. Banjo Obaleye Chairman, Audit committee FRC/2014/ICAN/00000008786 12 April 2018

Members of the Audit Committee are: 1

Banjo Obaleye

Shareholder

Chairman

Anino Emuwa, DBA

Non-executive Director

Member

Adeniyi Akinlusi

Non-executive Director

Member

Bakari Wadinga, PhD

Non-executive Director

Member

Ben Akaneme

Shareholder

Member

Ifie Sekibo

Shareholder

Member

KPMG Professional Service KPMG Tower Bishop Aboyade Cole Street Victoria Island PMB 40014, Falomo Lagos

Telephone 234 (1) 271 8955 234 (1) 271 8599 Internet www.kpmg.com/ng

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF NIGERIA MORTGAGE REFINANCE COMPANY PLC Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Nigeria Mortgage Refinance Company Plc (‘the Company’), which comprise the statement of financial position as at 31 December 2017, and the statement of profit or loss and other comprehensive income. statement of changes in equity, and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 60 to 103. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (lFRSs) and in the manner required by the Companies and Allied Matters Act, CapC.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council of Nigeria Act, 2011, the Bank sand other Financial Institutions Act. CapB3, the Mortgage Refinance Company regulatory and supervisory framework, 2013, and relevant Central Bank of Nigeria (CBN) Guidelines and Circulars. Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (lSAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (lESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Nigeria and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters

Key audit matters are those matters that, in our professional judgment. were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and informing our opinion thereon, and we do not provide a separate opinion on these matters.

Financial Statements

Independent Auditor’s Report (continued)

Collective impairment of loans and advances

Loans and advances are disbursed through mortgage banks based on the credit rating, therefore risk of specific impairment is not significant. However, collective impairment is recognised on the port folio based on portfolio risk. The assessment of collective impairment for loans and advances requires judgment from management based on their experience and knowledge of the mortgage and housing market. For the collective allowance, judgment is required to determine the relevant input variables per loan, such as probability of default and value of collateral for the calculations of the collective impairment.

Our procedures included amongst others the following:

We evaluated and tested the key controls over the process involved in the determination and recognition of impairment on loans and advances. The key controls tested covered processes such as the identification of risk factors and the credit risk rating of the loans, monitoring of the performance of loans and the loan process Involving management review and approval.

We assessed the allowance for specific impairment by reviewing credit files for the identification of impairment triggers by management. The loss event identified by management were then benchmarked against the characteristics of the loans and the minimum requirements contained in the relevant accounting standard.

For

collective impairment, we challenged management’s assumptions regarding probability of default, collateral information and other variables used for the calculation of the collective allowance by assessing them against our understanding of the credit risks in the loan portfolio and recomputed the collective impairment allowance.

The Company’s accounting policy on credit impairment and risks are shown in notes 3.1 c and 8.

and related disclosures on credit impairments

Other lnformation

The Directors are responsible for the other information, which comprises the Corporate Information, Directors’ report, Corporate governance report, Statement of Directors’ responsibilities, Report of the Audit Committee and Other national disclosures, but does not include the financial statements and our audit report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements. our responsibility is to read the other information and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Financial Statements

Independent Auditor’s Report (continued)

Responsibilities of the Directors for the Financial Statements

The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council of Nigeria Act, 2011, the Banks and other Financial Institutions Act, Cap B3, the Mortgage Refinance Company regulatory and supervisory framework, 2013, and relevant Central Bank of Nigeria (CBN) Guidelines and Circulars, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance’ is a high level of assurance. but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify

and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or override of internal control.

Obtain

an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Evaluate

the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

Conclude

on the appropriateness of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate

the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Financial Statements

Independent Auditorâ&#x20AC;&#x2122;s Report (continued)

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matter in our auditorsâ&#x20AC;&#x2122; report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements

Compliance with the requirements of Schedule 6 of the Companies and Allied Matters Act. Cap C.20, Laws of the Federation of Nigeria, 2004 In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of those books and the Companyâ&#x20AC;&#x2122;s statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the books of account. Compliance with Section 27 (2) of the Banks and Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria 2004 The Company did not pay any penalty in respect of contravention of the Banks and other Financial Institutions Act, Cap 83, during the year ended 31 December 2017.

Signed: Kabir O. Okunlola, FCA FRC/2012/ICAN/00000000428 For: KPMG Professional Services Chartered Accountants 12 April 2018 Lagos, Nigeria

Financial Statements

NMRC 2017 Annual Report and Accounts

STATEMENT OF FINANCIAL POSITION as at 31 December 2017 In thousands of Naira

Notes

31 December 2017

31 December 2016

Assets Cash and cash equivalents

1,920,782

1,259,120

Placements with banks

1,443,069

Mortgage refinance loans

8,225,029

8,104,246

- Available-for-sale

15,188,948

12,442,697

- Held to maturity

16,572,789

16,949,233

Property and equipment

335,784

246,567

Intangible assets

27,379

36,136

Other assets

269,907

307,545

42,540,618

40,788,613

Investment securities

Total assets Liabilities Debt securities issued

13(a)

7,402,781

7,542,865

Borrowings

13(b)

22,816,413

24,268,660

Current tax liabilities

21(b)

18,931

12,767

569,449

339,199

30,807,574

32,163,491

Other liabilities

Total liabilities Capital and reserves Share capital

15(a)(ii)

1,912,900

1,762,500

Share premium

15(a)(iii)

5,925,232

5,181,790

Retained earnings

15(b)

2,650,750

1,343,472

Statutory reserves

15(c)

1,105,830

527,759

Statutory credit risk reserve

15(b)

41,553

Available for sale reserve

15(d)

96,779

(190,399)

Total equity

11,733,044

8,625,122

Total liabilities and equities

42,540,618

40,788,613

The audited financial statements were approved by the Board of Directors on 12 April 2018 and signed on its behalf by:

Charles C. Okeahalam Chairman FRC/2018/CIANG/00000017771

Femi Johnson* Director FRC/2013/MULTI/00000005071

Kehinde Ogundimu Chief Financial Officer FRC/2015/ICAN/00000011195

*A waiver was obtained from the Financial Reporting Council of Nigeria on 11 April 2018 for Dr. Femi Johnson to sign the annual report and financial statements, in lieu of the retired Chief Executive Officer. The notes on pages 60 to 103 are an integral part of these financial statements. Financial Statements

NMRC 2017 Annual Report and Accounts

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2017

31 December 2017

31 December 2016

6,149,675

5,176,768

(2,173,194)

(2,153,901)

3,976,481

3,022,867

11,105

3,987,586

3,022,873

40,172

(38,467)

In thousands of Naira

Note

Interest income Interest expense Net interest income Other income

Total income Write back/(impairment) of loans and advances

8(a)

Personnel expenses

(898,610)

(882,562)

Depreciation & amortization

10,11

(132,297)

(92,558)

Other operating expenses

(1,050,891)

(719,849)

1,945,960

1,289,437

(19,058)

(12,767)

1,926,902

1,276,670

287,178

(428,350)

287,178

(428,350)

2,214,080

848,320

Equity holders of the Company

1,926,902

1,276,670

Profit for the year

1,926,902

1,276,670

Equity holders of the Company

2,214,080

848,320

Total comprehensive profit for the year

2,214,080

848,320

104 k

72 k

Profit before income tax Income tax expense

21(a)

Profit for the year Items that are or may be reclassified to profit or loss - Changes in fair values of available-for-sale financial assets

15(d)

Other comprehensive income, net of income tax Total comprehensive profit for the year Profit attributable to:

Total comprehensive profit attributable to:

Earnings per share (Basic and diluted)- kobo

The notes on pages 60 to 103 are an integral part of these financial statements.

Financial Statements

NMRC 2017 Annual Report and Accounts

STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2017

Share capital

Share premium

Statutory Credit Risk Reserve

Retained earnings/ (loss)

Statutory reserves

Fair value reserves

Total

1,762,500

5,181,790

1,343,472

527,759

(190,399)

8,625,122

Profit for the year

1,926,902

Statutory credit risk reserve

41,553

(41,553)

Transfer to statutory reserve

(578,071)

578,071

Other comprehensive income for the year

287,178

Total comprehensive income

41,553

1,307,278

578,071

287,178

2,214,081

893,842

In thousands of Naira Balance at 1 January 2017

Transactions with owners of the Company recognised directly in equity: Shares issued during the year

150,400

743,442

1,912,900

5,925,232

41,553

Share capital

Share premium

Statutory Credit Risk Reserve

Retained earnings/ (loss)

Statutory reserves

Fair value reserves

Total

1,762,500

5,181,790

449,803

144,758

237,951

7,776,802

Profit for the year

1,276,670

Transfer to statutory reserve

(383,001)

383,001

Other comprehensive income for the year

(428,350)

Total comprehensive income

893,669

383,001

(428,350)

848,320

1,762,500

5,181,790

1,343,472

527,759

(190,399)

8,625,122

Balance at 31 December 2017

In thousands of Naira Balance at 1 January 2016

2,650,750 1,105,830

96,779 11,733,045

Transactions with owners of the Company recognised directly in equity: Shares issued during the year Balance at 31 December 2016

The accompanying notes as included on pages 60 to 103 form an integral part of these financial statements

Financial Statements

NMRC 2017 Annual Report and Accounts

STATEMENT OF CASH FLOWS for the year ended 31 December 2017

In thousands of Naira

Note

31 December 2017

31 December 2016

1,926,902

1,276,670

Cash flows from operating activities Profit for the year Adjustments for: Interest income

(6,149,675)

(5,176,768)

Interest expense

2,173,194

2,153,901

Depreciation and amortization

10,11

132,297

92,558

Profit or loss on disposal of Property and Equipment

27(g)

(3,806)

960

Collective impairment on mortgage refinance loans

8(a)

(40,172)

38,467

Income tax expense

21(a)

19,058

12,767

(1,942,202)

(1,601,445)

Changes in: Mortgage refinance loans

27(a)

(68,457)

(6,204,838)

Placements with banks

27(b)

1,443,069

12,491,176

Other assets

27(c)

37,638

(172,263)

Other liabilities

27(d)

230,250

125,672

(299,702)

4,638,302

Interest received

27(e)

5,714,792

4,874,881

Tax paid

21(b)

(12,894)

(4,825)

5,402,196

9,508,358

(2,082,629)

(14,069,907)

Net cash flows from operating activities Cash flows from investing activities Net (purchase)/sale of financial investment

9(b)

Acquisition of property and equipment

(213,925)

(179,496)

Acquisition of intangible assets

(5,691)

(2,125)

Proceeds from disposal of property and equipment

27(g)

10,665

178

(2,291,580)

(14,251,350)

Net cash flows used in investing activities Cash flows from financing activities Interest paid on debt securities issued

27(f)

(1,137,604)

(1,202,896)

Interest paid on borrowings

27(f)

(2,011,796)

Repayment of debt security issued

27(b)

(193,396)

(163,949)

Proceeds from issue of share capital Net cash flows from financing activities

893,842

(2,448,954)

(1,366,845)

661,662

(6,109,837)

Cash and cash equivalents, beginning of year

1,259,120

7,368,957

Cash and cash equivalents, end of year

1,920,782

1,259,120

Net increase in cash and cash equivalents

The notes on pages 60 to 103 are an integral part of these financial statements. Financial Statements

NMRC 2017 Annual Report and Accounts

NOTES TO THE FINANCIAL STATEMENT for the year ended 31 December 2017

1 REPORTING ENTITY Nigeria Mortgage Refinance Company Plc (“the Company”) is a public liability company incorporated in Nigeria on 24 June, 2013 under the Companies and Allied Matters Act (CAMA). The address of the Company’s corporate office is 18 Missisippi Street, Maitama, Abuja. The Company is primarily involved in provision of long term funds to eligible mortgage lenders by issuing long term bonds in the Nigerian financial market and refinancing, securitising or purchasing mortgage loans. 2 BASIS OF PREPARATION (a)

Statement of compliance

The financial statements have been prepared on a going concern basis as management expects to continue to carry out operations in the foreseable future. The financial statements have also been prepared in accordance with International Financial Reporting Standards Standards (IFRSs) and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council of Nigeria Act, 2011, the Banks and other Financial Institutions Act, Cap B3, the Mortgage Refinance Company Regulatory and Supervisory Framework, 2013, and relevant Central Bank of Nigeria (CBN) Guidelines and Circulars.

The financial statements were authorised for issue by the Board of Directors on 12 April, 2018. (b) These financial statements are prepared on the historical cost basis except for:- available-for-sale financial assets measured at fair value (c) Functional and presentation currency

The financial statements are presented in Naira, which is the Company’s functional currency. Except where indicated, financial information presented in Naira has been rounded to the nearest thousand. (d) Use of estimates and judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation, uncertainties and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 4(e).

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied in preparing these financial statements, which materially affect the measurement of profit/loss and the financial position.

3.1 Non-derivative Financial Instruments

(a) Initial recognition

(i) Classification The Company classifies its financial assets as loans and receivables held to maturity or available for sale and financial liabilities as other financial liabilities. (ii) Recognition All financial instruments are initially recognized at fair value, which includes directly attributable transaction costs.

(b) Subsequent measurement

Subsequent to initial measurement, financial instruments are measured either at fair value (with changes directly recorded in equity) or amortised cost, depending on their classification:

(i) Loans and receivables

Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include Cash and cash equivalents, Mortgage Refinance loans, Staff loans and other receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Transaction costs that are integral to the effective rate are capitalised to the value of the loan and receivable and amortised through interest income as part of the effective

Financial Statements

interest rate. The Companyâ&#x20AC;&#x2122;s other assets are included in the loans and receivable category.

(ii) Cash and cash equivalents

(iii) A vailable-for-sale financial assets

Cash and cash equivalents comprise cash balances, fixed placements and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Companyâ&#x20AC;&#x2122;s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Cash and cash equivalents are recorded in accordance with the accounting principles of loans and receivables.

Available-for-sale financial assets are non-derivative financial assets that are designated as availablefor-sale and that are not classified in the previous category. The Companyâ&#x20AC;&#x2122;s investments in bonds and treasury bills are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented within equity in the available for sale reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transfered to profit or loss.

(iv) H eld-to-maturity financial assets

Held-to-maturity investments are nonderivative financial assets with fixed determinable payments and fixed maturities that the Company has the positive intent and ability to hold to maturity, and which were not designated as fair value through profit or loss or as available for sale. Subsequent to initial recognition, heldto-maturity investments are carried at

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

amortised cost, using the effective interest method less any impairment losses. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all heldto-maturity investments as availablefor-sale with difference between amortised cost and fair value being accounted for in other comprehensive income and would prevent the Company from classifying investment securities as held-to-maturity for the current and the following two years. However, sales and reclassifications in any of the following circumstances would not trigger a reclassification: sales

or reclassifications of financial assets that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value;

sales

or reclassifications after the Company has collected substantially all of the asset’s original principal; and

sales

or reclassifications attributable to non-recurring isolated events beyond the Company’s control that could not have been reasonably anticipated.

(v) Other financial liabilities

(c)

Impairment of financial assets

Other financial liabilities are measured at amortised cost subsequent to initial recognition. The Company’s borrowings and debt securities and other liabilities are included in this category.

The following factors are considered in assessing objective evidence of impairment: evidence

of default of contractual payment terms;

there is an observable data indicating that there is a measurable decrease in the estimated future cash flows of a financial asset, although the decrease cannot yet be identified with specific individual financial assets.

Financial assets measured at amortized cost

For financial assets measured at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of profit or loss. If the financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under contract. Available-for-sale financial assets

The Company assesses at each reporting date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a ‘loss event’), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

Available-for-sale financial assets are impaired if there is objective evidence of impairment, resulting from one or more loss events that occurred after initial recognition but before the reporting date, that have an impact on the future cash flows of the asset. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is an objective evidence of impairment resulting in the recognition of an impairment loss. In this respect, a decline of 20% or more Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

is regarded as significant, or a period of 9 months or longer is considered to be prolonged. If any such quantitative evidence exists for available-for-sale financial assets, the asset is considered for impairment, taking qualitative evidence into account. Impairment losses on available for sale financial asset are recognized by reclassfying the losses accumulated in the fair value reserves to profit or loss. The amount reclassified is the difference between the acquisition cost (net of principal repayment and amortization) and the current fair value less any impairment loss previously recognized in statement of profit or loss. If the fair value of an impaired available for sale debt security subsequently increases and the increase can be related objectively to an event occuring after the impairment loss was recognized, then the impairment loss shall be reversed either directly through profit or loss or by adjusting the allowance account. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. The amount of the reversal shall be recognized in profit or loss and through other comprehensive income for equity instruments classified as available for sale. For equity securities, impairment are not reversed and subsequent changes in fair values are recorded in other comprehensive income (d)

Offsetting financial instruments

Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to set off the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRSs or for gains and losses arising from a group of similar transactions.

Financial Statements

(e) Derecognition

(i) Financial assets The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or has assumed an obligation to pay those cash flows to one or more recipients, subject to certain criteria. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. (ii) Financial liabilities The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

3.2 Property and equipment (a) Recognition and measurement

Property and equipment are stated at cost of acquisition less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. If significant parts of a property and equipment have different useful lives, then they are accounted for as separate items (major components) of propert y and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Any gain or loss on disposal of an item of property and equipment is recognised within other income in profit or loss. Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure will flow to the the Company. Ongoing repairs and maintenance are expensed as incurred.

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(b) Depreciation

Depreciation is charged on a straight line basis, at the following annual rates that are designated to write off the cost of the assets over the expected useful lives of the assets concerned.

Class of Assets

Rate

Office equipment

25%

Furniture and fittings

25%

Computer equipment

25%

Motor vehicle

25%

Leasehold improvement

25%

An item of property and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (Calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

3.3 Intangible assets Software

Software acquired by the Company is measured at cost less accumulated amortisation and accumulated impairment losses. Expenditure on internally developed software is recognised as an asset when the Company is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment. Subsequent expenditure on software assets is capitalised only when it increases the

future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available for use. The estimated useful life of software is four years. Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Upon disposal of any item of software or when no future economic benefits are expected to flow from its use, such items are derecognized from the books. Gains and losses on disposal of intangible assets are determined by comparing proceeds with their carrying amounts and are recognized in profit or loss in the year of de-recognition.

3.4 Interest income and expense

Interest income and expense are recognised in profit or loss using the effective interest method. The â&#x20AC;&#x2DC;effective interest methodâ&#x20AC;&#x2122; is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Where the estimated cash flows on financial assets are subsequently revised, other than impairment losses, the carrying amount of the financial assets is adjusted to reflect actual and revised estimated cash flows. Interest income and expense

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

presented in profit or loss include: - interest on financial assets and financial liabilities measured at amor tised cost calculated on an effective interest rate basis. - interest on available-for-sale investment securities calculated on an effective interest basis.

3.5 Other liabilities

The Company recognises and measures other liabilities at amortized cost.

3.6 Share capital

Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments.

3.7 Earnings per share

The Company presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share (EPS) is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

3.8 Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets other than deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or cash generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax

Financial Statements

discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.9 Changes in accounting policies

There has been no changes in the accounting policies of the Company during the year ended 31 December 2017.

3.10 E mployee benefits/Personnel expenses

(a) Short-term benefits

Short-term employee benefit obligations include wages, salaries and other benefits which the Company has a present obligation to pay, as a result of employees’ services provided up to the reporting date. Short term obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short term bonus or profit sharing plans if the Company has a present legal or constructive obligation to pay the amount as a result of past servce provided by the employee, and the obligation can be estimated reliably.

(b) Post employment benefits

The Company operates a defined contributory pension scheme in line with the provisions of the Pension Reform Act 2014, with contributions based on the sum of employees’ basic salary, housing and transport allowances in the ratio of 8% by the employee and 10% by the employer.

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

The contributions of 10% by the Company is recognised in the profit or loss in the period to which they relate, while Employees’ contributions are funded through payroll deductions. 3.11 Employee benefits/Personnel expenses

All expenses are either accounted for on an accrual basis, or paid for as incurred.

3.12 N ew standards and interpretations not yet adopted

The following new or revised standards and amendments which may have potential impact on the Company are not yet effective for the year ended 31 December 2017 and have not been applied in preparing these financial statements. Apart from IFRS 9, the Company expects that the potential impact from other standards will be minimal.

Pronouncement

Title

Effective Date

IFRS 9: Financial Instruments.

IFRS 9 Financial Instruments

Annual periods beginning on or after 1 January 2018.

Background IFRS 9 Financial Instruments (IFRS 9) will replace the existing standard dealing with the accounting treatment for financial instruments IAS 39 Financial Instruments: Recognition and Measurement (IAS 39) from 1 January 2018. IFRS 9 consists of the following key areas which represent changes from that of IAS 39: Revised

requirements for the classification and measurement of financial assets and consequential changes in the classification and measurement of financial liabilities, mainly relating to the recognition of changes in fair value due to changes in own credit risk on fair value designated financial liabilities in OCI as opposed to the income statement.

expected credit loss (ECL) impairment model.

Revised

requirements and simplifications for hedge accounting.

IFRS 9 is required to be adopted retrospectively from 1 January 2018, with the exception of IFRS 9’s hedge accounting requirements where the standard permits an entity to choose as its accounting policy to continue to apply with IAS 39 hedge accounting requirements instead of the requirements in Chapter 6 of IFRS 9.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Pronouncement

Title

IFRS 9: Financial Instruments - IFRS 9 requirements Contd The following is a summary of IFRS 9’s key requirements:

Classification of financial assets and liabilities IFRS 9 requires all financial assets to be classified and measured on the basis of the entity’s business model for managing the financial assets and its contractual cash flow characteristics. The accounting for financial assets differs in various other areas to existing requirements such as embedded derivatives and the recognition of fair value adjustments in OCI. All changes in the fair value of financial liabilities that are designated at fair value through profit or loss due to changes in own credit risk will be required to be recognised in OCI with no subsequent recognition in the income statement. Expected credit loss (ECL) impairment model IFRS 9’s ECL impairment model’s requirements will represent the most material IFRS 9 impact. The IASB developed the IFRS 9 ECL impairment model with the objective of transitioning from an incurred loss approach to an expected loss model which will require entities to recognise impairment losses in advance of an exposure having objective evidence of impairment. The ECL model will apply to financial assets measured at either amortised cost or at fair value through OCI, as well as loan commitments when there is present commitment to extend credit (unless these are measured at fair value through profit or loss).

Financial Statements

Effective Date

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Pronouncement

Title

Effective Date

IFRS 9: Financial Instruments - With the exception of purchased or Contd originated credit impaired financial assets, expected credit losses are required to be measured through a loss allowance at an amount equal to either 12-month expected credit losses or full lifetime expected credit losses. A loss allowance for full lifetime expected credit losses is recognised for a financial asset where the credit risk of that financial asset increased significantly since initial recognition (unless the financial asset is exposed to a low level of credit risk) as well as for certain contract assets and trade receivables or where the exposure is classified as in default. For all other financial instruments, expected credit losses are measured at an amount equal to 12-month expected credit losses. The companyâ&#x20AC;&#x2122;s final transition impact was, at the time of the preparation of these financial statements, being determined. However, total expected credit loss from the implementation of the standard has been estimated to amount to N119,652,400 as at 1 January 2018. The estimated impact may change as a result of changes in the Companyâ&#x20AC;&#x2122;s size and nature of its assets and liabilities as well as changes in the risk rating and expected loss input variables (including forward looking macroeconomic factors) of its assets.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Pronouncement

Title

Effective Date

IFRS 15 Revenue from contracts with customers (effective for periods beginning on or after 1 January 2018)

The standard establishes a comprehensive Effective for periods beginning on or framework for determining when to recognise after 1 January 2018 revenue and how much revenue to recognise. The core principle of the framework is that a company should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Upon its effective date, it replaces all existing revenue requirements in the following standards; IAS

11 Construction contracts;

IAS

18 Revenue;

IFRIC

13 Customer Loyalty Programmes;

IFRIC

15 Agreements for the Construction of Real Estate;

IFRIC

18 Transfers of Assets from Customers;

SIC

31 Revenue – Barter Transactions Involving Advertising Services

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted under IFRS. Based on an initial assessment, management does not foresee a significant impact coming from this new standard.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Pronouncement

Title

Effective Date

IFRS 16 Leases (effective for IFRS 16 eliminates the current dual accounting Effective for periods beginning on or periods beginning on or after 1 model for lessees, which distinguishes after 1 January 2019 January 2019) between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting.

Lessor accounting remains similar to current practice â&#x20AC;&#x201C; i.e. lessors continue to classify leases as finance and operating leases. For lessees, the lease becomes an on-balance sheet liability that attracts interest, together with a new asset on the other side of the balance sheet. In other words, lessees will appear to become more asset-rich but also more heavily indebted

There are also changes in accounting over the life of the lease. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals

The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted under IFRS. Based on an initial assessment, management does not foresee a significant impact coming from this new standard.

4 FINANCIAL RISK MANAGEMENT

(a) Credit risk

Credit risk is defined as the potential for financial loss resulting from the failure of a borrower or counterparty to fulfil its financial or contractual obligations. Credit risk within the NMRC arises from Purchase with Recourse (PWR) business, investments and treasury/trading activities. The primary objective of credit risk management is to proactively manage risk and credit limits to ensure that all exposures to credit risks are kept

within parameters approved by the Board to mitigate and withstand any potential losses. Investment activities are guided by internal credit policies and guidelines that are approved by the Board. Specific procedures for managing credit risks are determined at business levels based on risk environment and business goals. The Companyâ&#x20AC;&#x2122;s major exposure to credit risk emanates from its cash and cash equivalents, placements with banks, mortgage refinance loans, collateral on mortgage refinance loans, investment securities and other receivables. Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(i)

Exposure to credit risk In thousands of Naira

Note

31 December 2017

31 December 2016

Cash and cash equivalents

1,920,782

1,259,120

Placements with banks

1,443,069

Mortgage refinance loans

8,265,770

8,104,246

Investment securities

31,761,737

29,391,930

60,700

56,036

31 December 2017

31 December 2016

Total loan exposure (gross)

8,265,770

8,104,246

Secured against real estate

19,356,709

18,714,644

Other assets (excluding prepayments) Collateral In thousands of Naira

Unsecured loan The cash and cash equivalents are held with the major banks in Nigeria. The mortgage refinance loans are with the participating banks and the investmentsecurities are from the Federal Government of Nigeria. (ii) Management of credit risk The Board has delegated responsibility for the oversight of credit risk to its Board Credit Committee. The Board Credit Committee is responsible for managing the Company’s credit risk, including the following: Formulating

credit policies in consultation with the Company’s credit and risk department, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

Establishing

the authorisation structure for the approval of refinance loans. Authorisation limits are allocated to the Management Credit Committee, the Board Credit Committee or the full Board of Directors, as appropriate.

Reviewing

and assessing all credit exposures in excess of designated limits (as prescribed by the Mortgage Refinance Company

Financial Statements

Regulatory framework), and limiting concentrations of exposure to counterparties. (iii) Credit risk on mortgage refinance loans The Company is exposed to credit risk on it mortgage refinance loans. To mitigate the credit risk the Company enters into contractual arrangements with the participating mortgage banks, which typically contain the following structure: Under

the arrangement, the participating mortgage bank is required to make agreed periodic minimum payments to the Company. These minimum payments need to be paid from proceeds that the participating mortgage banks receive on the refinanced portfolio from their clients and consist of the agreed interest between the Company and the participating mortgage banks and the (early) repayments the participating mortgage banks receive from their clients.

the proceeds from the clients of the participating mortgage bank on the refinanced portfolio are not sufficient to pay the agreed minimum payments, due to default or any other reason, the participating mortgage bank are required to pay the shortfall from their other available assets.

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued) In

case the participating mortgage banks cannot or do not pay the agreed minimum payments, the Company is allowed to obtain the amounts due by, amongst others, executing the collateral as held by trustees or seize in another manner (cash) assets of the relevant participating mortgage bank.

its financial assets, particularly investments in Federal Government bonds and treasury bills. Liquidity risk arises when the NMRC does not have sufficient funds to meet its financial obligations when they fall due. The Company manages market and liquidity risks by imposing threshold limits which are approved by management within the parameters approved by the Board based on a risk-return relationship. It also adheres to a strict match-funding policy where all asset purchases are funded by bonds of closely matched size and duration, and are self-sufficient in terms of cash flow. A forward looking liquidity mechanism is in place to promote efficient and effective cash flow management while avoiding excessive concentrations of funding in any one financial institution. Most of the Company’s funds are tied up in investment securities issued by the Federal Government of Nigeria and money market placements with commercial banks, however the Company monitors every business transaction relating to its investments to ensure that available funds are sufficient to meet its business requirements at all times. Reserve liquidity, which comprises marketable debt securities, are also set aside to meet any unexpected shortfall in cash flow or adverse economic conditions in the financial market.

The credit and risk department monitors the Company’s loan portfolio and ensures that participating mortgage banks comply with the requirements of the Refinancing Agreement and other supplementary contracts. (iv) Collateral held and other credit enhancements Collateral on all refinanced loans are held in trust. Participating mortgage banks have to ensure that the refinanced loan portfolio contains only performing loans backed by sufficient collateral. In the event that a default occurs, the Company retains the right to take ownership of the underlying collateral, or re-assign part or all of the loan facility to another mortgage bank. The quality of collateral held is continuously reviewed by the Company’s trustees. (b)

Currency risk

The Company is minimally exposed to the financial risk related to the fluctuation of foreign exchange rates. This is so because all transactions are based in Naira. A significant change in the exchange rates between the Naira (functional and presentation currency) relative to the US dollar would have an insignificant effect on the Company’s financial position. The Company does not enter into any forward exchange contracts to manage the currency risk fluctuations. (c)

Market and liquidity risk

Market risk is defined as potential loss arising from movements of market prices and rates. NMRC’s market risk exposure is limited to interest rate risk on

Interest rate risk

Interest rate risk arises from the possibility of a change in the value of assets and liabilities in response to changes in market intrest rates. Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has no financial instruments linked to variable interests, the risk that the Company will realise a loss as a result of any change in the fair value of financial assets or liabilities is thus immaterial. The Company has not entered into any derivative financial instrument to manage this risk.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Interest rate profile

t the end of the reporting period, the interest rate profile of the Companyâ&#x20AC;&#x2122;s interest bearing A financial instruments as reported to the Management of the Company are as follows: Note

31 December 2017

31 December 2016

Cash and cash equivalents

1,920,782

1,259,120

Placements with banks

1,443,069

Mortgage refinance loans

8,225,029

8,104,246

Investment securities

31,761,737

29,391,930

41,907,548

40,198,365

In thousands of Naira Financial assets

Financial liabilities Debt securities issued

14(a)

7,402,781

7,542,865

Borrowings

14(b)

22,816,413

24,268,660

30,219,194

31,811,525

Fair value sensitivity analysis for fixed rate instruments

The table below shows the impact on the Companyâ&#x20AC;&#x2122;s profit before tax if interest rates on financial instruments had increased or decreased by 100 basis points, with all other variables held constant. This is equal to the impact on equity as there is no tax applicable given the situation that the Company is in a taxable loss position. 31 December 2017

31 December 2016

Increase in interest rate by 100 basis points (+1%)

116,884

83,868

Decrease in interest rate by 100 basis point (-1%)

(116,884)

(83,868)

In thousands of Naira

Fair value sensitivity analysis for available-for-sale financial assets

The table below shows the impact on the Companyâ&#x20AC;&#x2122;s other comprehensive income if interest rates on available-for-sale securities had increased or decreased by 100 basis points, with all other variables held constant. 31 December 2017

31 December 2016

Increase in interest rate by 100 basis points (+1%)

151,889

124,427

Decrease in interest rate by 100 basis point (-1%)

(151,889)

(124,427)

In thousands of Naira

Financial Statements

7 8 9 12

Placements with banks

Mortgage refinance loans

Investments securities

Other assets (excluding prepayments)

Cumulative liquidity gap

Gap -assets/(liabilities)

Total financial liabilities

14(b)

Borrowings

Other liabilities (excluding statutory remittances)

14(a)

Debt securities

Non-derivative liabilities

Total financial assets

Note

Cash and cash equivalents

Non-derivative assets

In thousands of Naira

31 December 2017

11,187,863

30,780,385

561,191

22,816,413

7,402,781

41,968,248

60,700

31,761,737

8,225,029

1,920,782

Carrying amount

6,238,611

63,352,254

561,191

45,844,460

16,946,603

69,590,865

60,700

48,842,587

18,766,796

1,920,782

Gross nominal inflow/(outflow)

9,095,383

896,560

561,191

335,369

9,991,943

60,700

7,637,472

372,989

1,920,782

Less than 3 months

The contractual maturity profiles of financial instruments at the reporting periods were as follows:

11,670,049

2,574,666

813,561

478,191

335,369

3,388,227

3,014,342

373,884

6 months

13,879,996

2,209,947

1,156,856

486,117

670,739

3,366,803

2,619,034

747,768

12 months

27,579,948

13,699,952

9,225,785

3,859,874

5,365,911

22,925,737

16,943,589

5,982,148

5 years

6,238,611

(21,341,337)

51,259,492

41,020,278

10,239,214

29,918,155

18,628,148

11,290,007

More than 5 years

74 NMRC 2017 Annual Report and Accounts

Notes to the Financial Statement (continued)

Financial Statements

7 8 9 12

Placements with banks

Mortgage refinance loans

Investments securities

Other assets (excluding prepayments)

Cumulative liquidity gap

Gap -assets/(liabilities)

Total risk liabilities

13 (b)

Borrowings

Other liabilities (excluding statutory remittances)

13 (a)

Debt securities

Non-derivative liabilities

Total risk asset

Note

Cash and cash equivalents

Non-derivative assets

In thousands of Naira

31 December 2016

(21,253,306)

32,115,777

304,252

24,268,660

7,542,865

10,862,471

56,036

8,104,246

1,443,069

1,259,120

Carrying amount

6,058,333

66,853,111

304,252

48,260,778

18,288,081

72,911,444

56,036

48,711,645

20,291,579

2,593,064

1,259,120

Gross nominal inflow/(outflow)

6,763,804

2,091,632

304,252

1,452,010

335,369

8,855,436

56,036

4,871,418

352,068

2,316,794

1,259,120

Less than 3 months

10,505,959

3,742,155

813,561

478,191

335,369

4,555,715

3,927,378

352,068

276,269

6 months

13,408,784

2,902,825

1,156,856

486,117

670,739

4,059,681

3,355,545

704,136

12 months

25,993,444

12,584,661

9,225,785

3,859,874

5,365,911

21,810,446

16,177,361

5,633,085

5 years

6,058,333

(19,935,112)

53,565,278

41,984,586

11,580,692

33,630,166

20,379,942

13,250,224

More than 5 years

NMRC 2017 Annual Report and Accounts 75

Notes to the Financial Statement (continued)

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued) (d)

Capital management

The Nigeria Mortgage Refinance Company Plc is required to hold a minimum capital of N5 billion as determined by its regulator. The Mortgage Refinance Company is directly supervised by the Central Bank of Nigeria (CBN). Central Bank of Nigeria sets and monitors capital requirements for the Company. In implementing current capital requirements, Central Bank of Nigeria requires the Mortgage Refinance Company to maintain a ratio of 10% of total capital to total riskweighted assets. The Nigeria Mortgage Refinance Company’s regulatory capital includes:

(i) Tier 1 capital, which includes paidup share capital, share premium reserves, retained earnings, other reserves, published current earnings after deduction of goodwill, intangible assets and identified gains/losses or as otherwise defined by the Central Bank of Nigeria for licensed financial institutions.

(ii) Tier 2 capital, which includes other comprehensive income items. Tier 2 capital as defined by the Central Bank of Nigeria also includes subordinated debts and hybrid capital instruments.

The Nigeria Mortgage refinance Company shall maintain at all times a minimum ratio of qualifying capital to the value of its risk-weighted assets of not less than 10%. Risk weighted assets are derived based on a two level pre-defined risk weights for different asset classes, specifically: 0%

for cash and near cash equivalents

100%

for all on-balance sheet exposures

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

T he table below shows the break-down of the Companyâ&#x20AC;&#x2122;s regulatory capital for the year ended 31 December 2017. The capital adequacy ratio has been computed in line with Basel II rule. Capital Adequacy Computation In thousands of Naira

31 December 2017

31 December 2016

Share capital

1,912,900

1,762,500

Share premium

5,925,232

5,181,790

Retained earnings

2,650,750

1,343,472

Statutory reserves

1,105,830

527,759

11,594,712

8,815,522

(27,379)

(36,136)

11,567,333

8,779,386

7,402,781

7,542,865

Other Comprehensive Income

96,779

(190,399)

Total qualifying Tier 2 capital

7,499,561

7,352,466

3,817,220

2,897,197

15,384,553

11,676,583

9,209,347

10,643,107

Risk-weighted amount for operational risk

717,776

469,875

Risk-weighted amount for Market risk

104,307

10,031,430

11,112,982

153%

105%

Tier 1 Capital

Total qualifying Tier 1 capital Less: Intangible assets Adjusted total qualifying Tier 1 capital Tier 2 Capital Subordinated term debt

Adjusted total qualifying Tier 2 capital (limited to 33.33% of total Tier 1 capital) Total Regulatory Capital Risk weighted assets Risk-weighted amount for credit risk

Total weighted risk assets Capital Adequacy Ratio (CAR)

The Companyâ&#x20AC;&#x2122;s capital adequacy ratio was 153% as at 31 December 2017 (31 December 2016: 105%) which was above CBN capital adequacy requirements of 10%.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

4(e) Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Management discusses with the Audit Committee the development, selection and disclosure of the Company’s critical accounting policies and their application and assumptions made relating to major estimation uncertainties. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year and about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is disclosed below. These disclosures supplement the commentary on financial risk management. Key sources of estimation uncertainty

(i) Allowances for credit losses Assets accounted for at amortised cost are evaluated for impairment on a basis described in the accounting policy (3.1(c) ) The specific counterparty component of the total allowances for impairment applies to assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about a counterparty’s financial situation and then assesses each impaired asset on its merits.

Collectively assessed impairment allowances cover credit losses inherent in portfolios of assets with similar economic characteristics when there is objective evidence to suggest that they contain impaired assets, but the individual impaired items cannot yet be identified. In assessing the need for collective asset loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way interest losses are modeled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances are made. (ii) Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of techniques as described in the accounting policy on fair value. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. (iii) Valuation of financial instruments The Company’s accounting policy on fair value measurements is discussed under note 3. The Company measures fair values using the following fair value hierarchy that reflects the nature and process used in making the measurements:

L evel 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques based on significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrumentâ&#x20AC;&#x2122;s valuation.This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instrument being valued and the similar instrument. (iv) Determination of impairment of property and equipment Management is required to make judgments concerning the cause, timing and amount of impairment. In the identification of impairment indicators, management considers the impact of changes in current competitive conditions, cost of capital, availability of funding, technological obsolescence, discontinuance of services and other circumstances that could indicate that impairment exists. The Company applies the impairment assessment to its separate

Financial Statements

cash generating units. This requires management to make significant judgments and estimates concerning the existence of impairment indicators, separate cash generating units, remaining useful lives of assets, projected cash flows and net realizable values. Managementâ&#x20AC;&#x2122;s judgment is also required when assessing whether a previously recognised impairment loss should be reversed. (v) Income Taxes Significant estimates are required in determining the provision for income taxes. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Income taxes also include the judgement on whether to recognise deferred tax assets. This is based on the assessment of if and when future taxable profits will be realized to utilise the tax losses carried forward. (vi) Depreciation and carrying value of property and equipment The estimation of the useful lives of assets is based on managementâ&#x20AC;&#x2122;s judgement. Any material adjustment to the estimated useful lives of items of property and equipment will have an impact on the carrying value of these items.

8 9

Mortgage refinance loans

Investment securities

14(b)

Borrowings

Other liabilities (excluding statutory deductions)*

14(a)

Debt securities issued

Placements with banks

Other assets (excluding prepayments)

Notes

Cash and cash equivalents

In thousands of Naira

31 December 2017

10,206,511

16,572,789 -

60,700

8,225,029

1,920,782

Loans and receivables

16,572,789

Held to Maturity

15,188,948

Available-forsale

Carried at cost

(a) The table below sets out the Company's classification of financial assets and liabilities, and their fair values:

FINANCIAL ASSETS AND LIABILITIES

30,780,385

561,191

22,816,413

7,402,781

Financial Liabilites at amortized cost

30,780,385

561,191

22,816,413

7,402,781

41,968,248

60,700

31,761,737

8,225,029

1,920,782

Carrying amount

31,321,922

561,191

22,816,413

7,944,318

40,744,979

60,700

30,538,468

8,225,029

1,920,782

Fair value

80 NMRC 2017 Annual Report and Accounts

Notes to the Financial Statement (continued)

Financial Statements

10,862,471

16,949,233 -

56,036

8,104,246

1,443,069

1,259,120

Loans and receivables

16,949,233

Held to Maturity

12,442,697

Available-forsale

Carried at cost

32,115,777

304,252

24,268,660

7,542,865

Financial Liabilites at amortized cost

32,115,777

304,252

24,268,660

7,542,865

40,254,401

56,036

29,391,930

8,104,246

1,443,069

1,259,120

Carrying amount

31,598,765

304,252

23,874,237

7,420,276

37,748,224

56,036

27,017,465

7,972,533

1,443,069

1,259,120

Fair value

*Statutary deduction comprise Value Added Tax payable, withholding tax payable and payroll charges including NHF, PAYE, ITF deductions and pension payables

14(b)

Borrowings

Other liabilities (excluding statutory deductions)*

14(a)

Debt securities issued

Investment securities

Other assets (excluding prepayments)

Mortgage refinance loans 10

Placements with banks

Investment in equity instrument

Notes

Cash and cash equivalents

In thousands of Naira

31 December 2016

NMRC 2017 Annual Report and Accounts 81

Notes to the Financial Statement (continued)

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(b) Financial instruments measured at fair value - Fair value hierarchy 31 December 2017 In thousands of Naira Available-for-sale securities

Level 1

Level 2

Level 3

Total carrying value

15,188,948

Level 1

Level 2

Level 3

Total carrying value

12,442,697

31 December 2016 In thousands of Naira Available-for-sale securities

(c)

Financial instruments not measured at fair value - Fair value hierarchy 31 December 2017

Level 1

Level 2

Level 3

Total carrying value

8,225,029

7,402,781

22,816,413

7,402,781

22,816,413

30,219,194

Level 1

Level 2

Level 3

Total carrying value

8,104,246

7,542,865

24,268,660

7,542,865

24,268,660

31,811,525

31 December 2017

31 December 2016

106,251

158,360

Money market placements

1,814,530

1,100,760

Cash and cash equivalents

1,920,782

1,259,120

In thousands of Naira Mortgage refinance loans

Debt securities issued Borrowings

31 December 2016 In thousands of Naira Mortgage refinance loans

Debt securities issued Borrowings

CASH AND CASH EQUIVALENTS In thousands of Naira Balances with banks

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

PLACEMENTS WITH BANKS In thousands of Naira

31 December 2017

31 December 2016

Placements with banks

1,378,645

Interest receivable on placements with banks

64,424

1,443,069

Current

1,443,069

Non-current

1,443,069

31 December 2017

31 December 2016

8,265,770

8,185,160

(40,741)

(80,914)

8,225,029

8,104,246

8,225,029

8,104,246

8,225,029

8,104,246

31 December 2017

31 December 2016

80,914

42,447

(40,172)

38,467

40,742

80,914

MORTGAGE REFINANCE LOANS In thousands of Naira Loans and advances Specific allowances for impairment Collective allowances for impairment (see note (a) below) Loans and advances at amortized cost Current Non-current

(a) Collective allowances for impairment In thousands of Naira Balance, beginning of year (Write back)/Impairment during the year Balance, end of year

(b) Nature of security in respect of mortgage refinance loans In thousands of Naira Secured against real estate Unsecured Balance, end of year

Financial Statements

31 December 2017

31 December 2016

8,265,770

8,185,160

8,265,770

8,185,160

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

9 (a)

INVESTMENT SECURITIES Analysis of investments 31 December 2017

31 December 2016

Federal Government of Nigeria Bonds

5,777,929

7,145,878

Treasury bills

9,401,019

5,296,819

10,000

15,188,948

12,442,697

15,756,067

15,786,169

816,723

1,163,064

16,572,789

16,949,233

31,761,737

29,391,930

In thousands of Naira Available-for-sale investment securities:

Unquoted equity instrument (see note (i) below)

Held-to-maturity investment securities: Federal Government of Nigeria Bonds Treasury bills

(i)

During the year, the Company purchased equity interests in Mortgage Warehouse Funding Limited. The number of shares bought was 2million shares at a unit cost of N5/share. At initial recognition, the investment is recognized at fair value of the consideration transfered and subsequently measured at cost. Current In thousands of Naira Available-for-sale securities Held-to-maturity investment securities

31 December 2017

31 December 2016

9,401,019

7,799,428

816,723

1,163,064

10,217,741

8,962,492

31 December 2017

31 December 2016

5,787,929

4,643,268

15,756,067

15,786,170

21,543,996

20,429,438

31,761,737

29,391,930

Non-current In thousands of Naira Available-for-sale securities Held-to-maturity investment securities

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(b)

Movement in investment securities The movement in investment securities for the Company may be summarised as follows:

At 1 January, 2017 Net Purchase/(Sale) of investment Gains from changes in fair value recognised in other comprehensive income (see note 15(d))

Financial Statements

Available for sale instruments

Held to maturity instruments

12,442,697

16,949,233

2,459,072

(376,444)

287,178

15,188,948

16,572,789

Disposals

Reclassifications

120,002

85,654

Additions

At 31 December 2016

34,348

206,566

At 1 January 2016

At 31 December 2017

(4,190)

Disposals

Reclassifications

90,754

120,002

Equipment

Additions

At 1 January 2017

Cost

In thousands of Naira

Computer

PROPERTY AND EQUIPMENT

17,712

9,810

7,902

19,236

(1,899)

3,423

17,712

Equipment

Office

51,950

14,982

19,556

17,412

86,232

(17,412)

51,693

51,950

Improvements

Leasehold

51,430

(1,836)

26,531

26,735

81,378

(12,501)

42,449

51,430

and Fittings

Furniture

136,125

32,745

103,380

145,820

9,695

136,125

Vehicle

Motor

5,200

21,110

15,910

5,200

Machinery

Plant and

(14,982)

14,982

Progress

Work in

382,419

(1,836)

179,496

204,759

560,342

(36,002)

213,925

382,419

Total

86 NMRC 2017 Annual Report and Accounts

Notes to the Financial Statement (continued)

Financial Statements

(3,200)

66,683

10,947

17,529

Disposals

At 31 December 2017

At 1 January 2016

Charge for the year

31,713

28,265

50,905

23,165

(698)

11,682

12,181

30,473

(9,773)

17,081

23,165

and Fittings

Furniture

79,960

55,774

56,165

34,422

21,743

90,046

33,881

56,165

Vehicle

Motor

3,911

15,651

1,289

5,459

4,170

1,289

Machinery

Plant and

Progress

Work in

There were no capitalized borrowing costs related to the acquisition of property and equipment during the year (31 December 2016:Nil)

11,192

63,919

20,237

11,604

8,633

22,313

(14,430)

16,506

20,237

Improvements

Leasehold

(ii)

91,526

At 31 December 2016

9,652

6,520

4,034

2,486

9,584

(1,740)

4,804

6,520

Equipment

Office

The Company had no capital commitments and no assets pledged as security for borrowings as at 31 December 2017 (31 December 2016: Nil)

Financial Statements

(i)

139,883

28,476

At 31 December 2017

Net book value

At 31 December 2016

41,407

Charge for the year

Disposals

28,476

Equipment

Computer

At 1 January 2017

In thousands of Naira

Depreciation

246,567

335,784

135,852

(698)

80,560

55,990

224,558

(29,143)

117,849

135,852

Total

NMRC 2017 Annual Report and Accounts 87

Notes to the Financial Statement (continued)

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

INTANGIBLE ASSETS In thousands of naira

Computer Software

Cost At 1 January 2017

49,301

Additions

5,691

Write-offs

At 31 December 2017

54,992

At 1 January 2016

64,344

Additions

2,125

Write-offs

(17,168)

At 31 December 2016

49,301

Amortization At 1 January 2017

13,165

Charge for the year

14,448

Write-offs

At 31 December 2017

27,613

At 1 January 2016

3,403

Charge for the year

11,998

Write-offs

(2,236)

At 31 December 2016

13,165

Net book value At 31 December 2017

27,379

At 31 December 2016

36,135

(i)

The Company had no commitments relating to the acquisition of intangible assets as at 31 December 2017 (31 December 2016: Nil)

(ii)

There were no capitalized borrowing costs related to the acquisition of intangible assets during the year (31 December 2016: Nil)

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

OTHER ASSETS 31 December 2017

31 December 2016

153,000

202,000

Prepaid staff benefits

40,782

30,385

Other prepaid expenses

15,424

19,124

Staff loans and advances

12,737

4,255

Other receivables

47,963

51,781

269,907

307,545

269,907

307,545

269,907

307,545

In thousands of Naira Prepaid rent

Current Non-current

DEBT SECURITIES ISSUED 31 December 2017

31 December 2016

7,402,781

7,542,865

7,402,781

7,542,865

Current

1,341,478

1,397,373

Non-current

6,061,303

6,145,492

7,402,781

7,542,865

In thousands of Naira Fixed rate debt security issued at amortized cost (see note (i) below)

(i)

Debt securities issued represents N8,000,000,000 14.9% Series 1 Fixed Rate Bonds issued on 29 July, 2015 with a maturity date of 29 July, 2030. The issue which is under the Company's N140 billion Medium Term Note Programme was guaranteed by the Federal Government of Nigeria with interest and principal repayable on a quarterly basis. Principal and interest repayments commenced on 15 September, 2015.

(ii)

The debt securities issued by the Company are backed by the unconditional guarantee of the Federal Government of Nigeria. According to the agreement between both parties, an annual fee of 10% of the Company's profit after tax is payable to the Federal government of Nigeria in relation to this guarantee to support the development of the Nigerian housing market, expectedly in the form of a Housing Market Development Fund. This Housing Market Development Fund is not yet established and the exact manner how to support the development of the Nigerian housing market is still open to further agreement in writing between the Company and the Federal Ministry of Finance. The payable amount as at the end of the financial year amounted to N364million (2016: N176million).

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

BORROWINGS In thousands of Naira Borrowings from FGN (see note (i) below)

Current Non-current

(i)

31 December 2017

31 December 2016

22,816,413

24,268,660

22,816,413

24,268,660

126,813

1,579,060

22,689,600

22,816,413

24,268,660

Borrowings from FGN represents an International Development Agency (IDA) facility granted to the Federal Republic of Nigeria for the funding of the Housing Finance Programme. This was received by Nigeria Mortgage Refinance Company Plc through the Central Bank of Nigeria (CBN) in two tranches, the first one received on 27 June 2014 and the second on 3 July 2015. The purpose of the loan is to establish a mortgage liquidity facility. The loan is tenured 40 years (maturity on 13 May, 2053) from the date of commencement at an interest rate of 0.75% per annum plus the forex hedge rate of 3.5% for the duration of the loan. There is a ten year moratorium on principal, while Interest shall accrue daily and is payable on the loan semi-annually in arrears on each payment date during the tenor of the loan (May 13 and November 13). The Company recognizes the loan at amortized cost. During the year, the Company did not receive any additional disbursements from the Central Bank of Nigeria.

OTHER LIABILITIES 31 December 2017

31 December 2016

Accrued professional fees

8,260

8,850

Withholding tax payable

3,074

369,072

176,382

10,805

1,686

1,736

NHF payable

260

2,912

PAYE payable

3,124

7,492

114

1,814

124,698

88,246

59,160

37,888

569,449

339,199

569,449

339,199

569,449

339,199

In thousands of Naira

Payable to Federal Government of Nigeria for Housing Market Development Fund (b) Due to AUHF Pension contribution payable

ITF payable Performance bonus payable to employees Other account payable (see note (a) below)

Current Non- Current

(a)

Other account payable warehouses payables to vendors in respect of administrative services rendered to the Company.

(b)

See note 13a (ii) for further explanation on this liability

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

CAPITAL AND RESERVES

(a)

Share capital and share premium In thousands of Naira (i)

31 December 2016

8,500,000

1,762,500

150,400

1,912,900

1,762,500

Authorised: 8,500,000,000 ordinary shares of N1.00 each

(ii)

31 December 2017

Issued and fully paid: Balance at beginning of the year (1,762,500,000 ordinary shares of N1.00 each) Issued during the year (150,400,000 ordinary shares of N1.00 each)

The Company issued additional shares of 150,400,000 at N6.25k per share (N1 nominal value) out of the 289,400,400 Series 1 ordinary shares planned for issue. The Securities and Exchange Commission (SEC) communicated its approval of the allotment of shares under the scheme on 26 May 2017. (iii)

Share premium Share Premium is the excess paid by shareholders over the nominal value of their shares. Share premium arising during the year is reported net of share issue cost of N46,158,000.00. 31 December 2017

31 December 2016

5,181,790

743,442

5,925,232

5,181,790

7,838,132

6,944,290

31 December 2017

31 December 2016

Balance, beginning of year

1,343,472

449,803

Transfer from statement of comprehensive income

1,926,902

1,276,670

(578,071)

(383,001)

(41,553)

2,650,750

1,343,472

In thousands of Naira Balance at beginning of the year Arising from new issue during the year

Share capital and share premium (b)

Retained earnings In thousands of Naira

Transfer to statutory reserve Transfer to statutory credit risk reserve Balance, end of year

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(c)

Statutory reserve 31 December 2017

31 December 2016

Balance, beginning of year

527,759

144,758

Transfer from retained earnings (see note (i) below)

578,071

383,001

1,105,830

527,759

In thousands of Naira

Balance, end of year (i)

(d)

In line with the Central Bank's regulatory framework for mortgage refinance companies, the Company is required to maintain a reserve fund and transfer a minimum of 30% of its net profits into the reserve account (where the reserve fund is less than the paid up share capital) or a minimum of 15% of its net profits (where the reserve fund is equal to or more than the paid up share capital). Available for sale reserves 31 December 2017

31 December 2016

(190,399)

237,951

Fair value gain/(loss) for the year (see note (i) below)

287,178

(428,350)

Balance, end of year

96,779

(190,399)

In thousands of Naira Balance, beginning of year

(i)

Fair value reserves represent the difference between the amortized cost of the Company's available-forsale financial assets and the market value of those assets. The difference is recognized in the statement of other comprehensive income and transferred to profit or loss upon derecognition of the financial asset.

INTEREST INCOME 31 December 2017

31 December 2016

199,374

463,043

530,691

Mortgage refinance loans

1,286,177

734,925

Treasury bills

1,930,775

551,239

Federal government of Nigeria bonds

2,733,350

2,896,870

6,149,675

5,176,768

31 December 2017

31 December 2016

964,061

964,773

1,191,228

1,163,762

17,906

25,366

2,173,194

2,153,901

In thousands of Naira Cash and cash equivalents Placements with banks

INTEREST EXPENSE In thousands of Naira Interest expense on borrowings Interest expense on debt securities issued Amortization of bond issue cost

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

OTHER INCOME In thousands of Naira

31 December 2017

31 December 2016

Gain on asset disposal

4,506

Fee income Other income

11,105

31 December 2017

31 December 2016

Salaries and allowances

875,859

863,654

Defined contribution plan

20,431

17,721

2,320

1,187

898,610

882,562

PERSONNEL EXPENSES In thousands of Naira

Group Life Assurance

(a)

The average number of persons employed during the year by category were as follows: 31 December 2017

31 December 2016

Management

Non-management

In thousands of Naira Executive

(b)

6,600

The table below shows the number of employees (excluding non-executive directors), whose earnings during the year fell within the ranges shown below:31 December 2017

31 December 2016

N2,000,001 - N3,000,000

N3,000,001 - N4,000,000

N4,000,001 - N5,000,000

N5,000,001 - N6,000,000

N6,000,001 - N7,000,000

N7,000,001 - N8,000,000

N8,000,001 - N9,000,000

N9,000,001 - N10,000,000

In thousands of Naira N300,001 - N2,000,000

N10,000,001 and above

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

OTHER OPERATING EXPENSES 31 December 2017

31 December 2016

12,522

27,883

268

5,301

3,032

2,765

43,117

26,786

699

960

Audit fee

18,750

15,000

Custody fees

17,001

10,462

Rent

60,944

49,982

2,001

5,457

Utility and electricity

18,732

14,234

33,514

20,377

Insurance

24,554

18,706

IT cost

66,394

26,297

116,825

48,134

11,599

5,903

388

7,258

30,082

23,272

9,831

27,769

36,120

40,198

5,790

4,150

Annual general meeting expenses

14,221

12,103

Business and Product development expenses

40,193

78,049

7,227

2,569

Directors fees

40,500

Flight & transportation cost

88,783

92,477

7,176

3,834

Conferences

46,811

22,256

Other board expenses

70,127

Sponsorship

31,000

192,690

127,667

1,050,891

719,849

In thousands of Naira Service charge/Legal fees ITF Levy National Housing Fund General admin expenses Net loss on disposal of property and equipment

Bank charges

Professional fees (see note (a) below) Stationery and printing Recruitment expense Entertainment Subscription expenses Directors expenses Board meeting expenses

Donations

Hotel accommodation expenses

Contribution to Federal Government of Nigeria for Housing Market Development Fund (b)

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(a)

The Company paid professional fees during the year as follows:31 December 2017

31 December 2016

Financial consultancy services

18,300

2,000

Human resources consultancy services

17,500

3,722

1,850

150

10,000

16,696

Tax consultancy services

3,058

9,865

Reporting accountant services - Sukuk issue

3,500

274

Bond rating services

16,500

2,850

Project management, compliance and market advisory services

31,550

Other advisory services

14,567

12,577

116,825

48,134

In thousands of Naira

31 December 2017

31 December 2016

Companies income tax

Tertiary education tax

Information technology tax

19,058

12,767

Total income tax expense

19,058

12,767

In thousands of Naira

IT consultancy services Legal fees

Secretarial services

(b)

See note 14a (ii) for further explanation on this liability

TAXATION (a)

Income tax expense

(i)

Recognised in profit or loss

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(ii)

Reconciliation of effective tax rate In thousands of Naira

31 December 2017

Profit before tax Adjustment for information technology tax Tax using domestic corporation tax rate Non-deductible expenses Tax exempt income Information technology tax Unrecognised deductible temporary differences Other permanent differences

(b)

31 December 31 December 31 December 2017 2016 2016 1,945,960

1,289,437

(19,058)

(12,767)

1,926,902

1,276,670

30%

578,071

30%

383,001

139,731

8,041

-244%

(4,708,855)

-86%

(1,094,018)

19,058

12,767

303%

5,846,026

55%

702,976

-98%

(1,893,089)

-1%

(19,058)

12,767

Current tax liabilities Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 31 December 2017

31 December 2016

Balance, beginning of year

12,767

4,825

Charge for the year

19,058

12,767

(12,894)

(4,825)

18,931

12,767

In thousands of Naira

Tax paid Balance, year end (c)

Unrecognised deferred tax asset Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The deferred tax assets of Nigeria Mortgage Refinance Company which relates primarily to timing difference in the recognition of depreciation and capital allowances on property and equipment, unrelieved tax losses and collective impairment on loans were not recognized in these financial statements. This is due to the uncertainty about the availability of future taxable profits against which deferred tax assets can be utilized. The unrecognized deferred tax asset during the year is attributable to the following: 31 December 2017

31 December 2016

(42,025)

53,481

Unrelieved tax losses

1,783,611

927,241

Collective impairment

12,222

12,309

1,753,808

993,031

In thousands of Naira Property and equipment

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

The movement in the unrecognized deferred tax asset during the year was as follows: 31 December 2017

31 December 2016

Balance, beginning of the year

993,031

290,055

Credit for the year

760,777

702,976

1,753,808

993,031

In thousands of Naira

Balance, end of the year

EARNINGS PER SHARE (BASIC AND DILUTED) (a)

Basic earnings per share Basic earnings per share is calculated by dividing the earnings attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. 31 December 2017 Weighted average number of ordinary shares In thousands of units of shares

Shares Outstanding

Period Covered

Weighted shares

Number of Shares at the beginning of the year

15(a)

1,762,500

0.42

734,375

Number of Shares at the end of the year

15(a)

1,912,900

0.58

1,115,858

Weighted average number of ordinary shares

1,850,233

Profit attributable to equity holders

1,926,902

Earnings per share (kobo)

104

31 December 2016 Weighted average number of ordinary shares In thousands of units of shares Number of Shares throughout the year

Period Covered

Weighted shares

1,762,500

1.00

1,762,500

Weighted average number of ordinary shares

1,762,500

Profit attributable to equity holders

1,276,670

Earnings per share (kobo) (b)

15(a)

Shares Outstanding

The Company does not have any dilutive potential ordinary shares. Therefore, basic earnings per share and diluted earnings per share are the same for the Company.

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

CONTRAVENTION OF LAWS AND REGULATIONS The Company did not pay any penalties in respect of contraventions of the provisions Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act of Nigeria and relevant Central Bank of Nigeria circulars during the year ended 31 December 2017 (31 December 2016: Nil)

CONTINGENT LIABILITIES There were no litigations or claims against the Company as at the year end (2016: Nil). There were also no contingent liabilities not disclosed in these financial statements as at year end.

RELATED PARTY TRANSACTIONS (a)(i)

Key management personnel compensation Compensation of the Company's key management personnel comprises: 31 December 2017

31 December 2016

184,508

175,982

6,670

6,213

191,178

182,195

31 December 2017

31 December 2016

Fees

40,500

44,550

Sitting and other allowances

36,120

26,698

76,620

71,248

In thousands of Naira Short-term employee benefits Post-employment benefits: Contributions to defined contribution plans

(a)(ii)

Directors' emoluments The remuneration paid to directors (excluding executive directors) were as follows: In thousands of Naira

The number of directors who received fees and other emoluments (excluding pension contributions and reimbursable expenses) in the following ranges was: In thousands of Naira N1,000,000 and above (a)(iii)

31 December 2017

31 December 2016

31 December 2017

31 December 2016

10,900

7,950

152,998

Chairman and Highest paid director In thousands of Naira Chairman Highest paid director

Financial Statements

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(b)

Transactions with shareholders During the year ended 31 December 2017, the following transactions occured between the Company and some of its shareholders.

(i)

Money market placements In thousands of Naira

31 December 2017

31 December 2016

89,464

120,545

790,000

542,603

1,757

4,375

650,000

560,738

50,000

1,182,248

260,821

1,731,221

2,671,330

Access Bank Plc - Current accounts - Money market placements Sterling Bank Plc - Current accounts - Money market placements Imperial Homes - Money market placements Homebase Mortgage Bank - Money market placements Trustbond Mortgage Bank - Money market placements Infinity Trust Mortgage Bank - Money market placements Stanbic IBTC Bank - Money market placements Heritage Bank Plc - Money market placements

Financial Statements

100

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(ii)

Mortgage refinance loans 31 December 2017

31 December 2016

1,595,956

1,704,934

TrustBond Mortgage Bank Plc

826,245

778,440

Suntrust Bank Nigeria Limited

1,321,028

1,350,299

Homebase Mortgage Bank Limited

1,107,885

731,214

Stanbic IBTC Bank Plc

1,675,959

1,841,885

Sterling Bank Plc

1,624,140

1,654,718

Abbey Mortgage Bank Plc

14,740

21,970

Infinity Trust Mortgage Bank Plc

99,816

101,700

8,265,770

8,185,160

31 December 2017

31 December 2016

54,632

144,364

101,215

147,339

1,104

158,480

2,503

159,753

2,681

2,755

629

2,681

168,200

609,936

In thousands of Naira Imperial Homes Mortgage Bank Limited

(iii)

Interest income In thousands of Naira Access Bank Plc - Interest income on money market placements Sterling Bank Plc - Interest income on money market placements Stanbic IBTC Bank - Interest income on money market placements Heritage Bank Limited - Interest income on money market placements Homebase Mortgage Bank - Interest income on money market placements Imperial Homes Mortgage Bank - Interest income on money market placements Infinity Trust Mortgage Bank - Interest income on money market placements Trustbond Mortgage Bank - Interest income on money market placements

Financial Statements

101

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

STATEMENT OF PRUDENTIAL ADJUSTMENTS (i) Loans and advances to customers In thousands of Naira

31 December 2017

31 December 2016

Specific impairment allowance on mortgage refinance loans

8 (a)

Collective impairment allowance on mortgage refinance loans

8 (b)

40,742

80,914

Total impairment allowance on mortgage refinance loans (a)

40,742

80,914

Total impairment based on prudential guidelines (b)

82,295

80,913

Difference (c) = a - b

(41,552)

STATEMENT OF CASHFLOW WORKINGS (a) Changes in Mortgage refinance loans 31 December 2017

31 December 2016

8,159,823

8,091,366

(8,091,366)

(1,886,528)

Gross movement in Mortgage refinance loans

68,457

6,204,838

Amount recognized in cash flow

68,457

6,204,838

31 December 2017

31 December 2016

In thousands of Naira Gross Mortgage refinance loans at the end of the year Gross Mortgage refinance loans at the beginning of the year

(b) Net change in placements with banks In thousands of Naira Placements at the beginning of the year

1,443,069

14,157,595

Placements at the end of year

1,443,069

15,600,664

(3,109,488)

1,443,069

12,491,176

31 December 2017

31 December 2016

Net liquidation of investments during the year Amount recognized in cash flow (c) Changes in other assets In thousands of Naira Balance at the end of the year

269,907

307,545

Balance at the beginning of the year

(307,545)

(135,282)

(37,638)

172,263

31 December 2017

31 December 2016

Net cash received on other assets (d) Changes in other liabilities In thousands of Naira Balance at the end of the year

569,449

339,199

Balance at the beginning of the year

(339,199)

(213,527)

230,250

125,672

Net cash paid on other liabilities Financial Statements

102

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(e) Interest received 31 December 2017

31 December 2016

1,453,864

1,151,977

6,149,675

5,176,768

7,603,539

6,328,745

(1,078,343)

(1,453,864)

6,525,196

4,874,881

31 December 2017

31 December 2016

9,108

88,033

- Borrowings

1,331,106

465,125

Interest expense in current year

2,155,289

2,153,901

3,495,503

2,707,059

- Debt securities

(44,515)

(9,108)

- Borrowings

(126,813)

(1,331,106)

Amount paid

3,324,175

1,366,845

(193,396)

(163,949)

(193,396)

(163,949)

- Debt securities

(1,137,604)

(1,202,896)

- Borrowings

(1,993,174)

Total interest paid

(3,130,779)

(1,202,896)

Amount paid

(3,324,175)

(1,366,845)

In thousands of Naira Total Interest receivable in prior year Interest income in current year

Total Interest receivable in current year Interest received

(f) Repayment of borrowings and debt securities In thousands of Naira Total payable in prior year - Debt securities

Total payable in current year

Principal repaid - Debt securities - Borrowings Total principal repaid Interest paid

Financial Statements

103

NMRC 2017 Annual Report and Accounts Notes to the Financial Statement (continued)

(g) Profit on disposal of property and equipment In thousands of Naira

31 December 2016

Cost

36,002

1,836

Accumulated depreciation

(29,143)

(698)

6,859

1,138

10,665

178

3,806

(960)

NBV Sales proceed Profit/(loss) on disposal

31 December 2017

EVENTS AFTER THE REPORTING DATE The Company is in the process of issuing additional debt securities under the N140 billion medium term note issuance programme approved by the Securities and Exchange Commission. There are no further events that require disclosure or recognition in the financial statements of the Company.

Financial Statements

104

NMRC 2017 Annual Report and Accounts

VALUE ADDED STATEMENT for the year ended 31 December 2017

In thousands of Naira Gross earnings Loan loss expenses/diminution in risk assets Bought-in materials and services - Local Value added

31 December 2017

31 December 2016

6,160,781

5,176,774

40,172

(38,467)

(1,050,891)

(719,849)

5,150,062

100

4,418,458

(100)

964,061

964,773

1,209,134

1,189,128

898,610

882,562

19,058

12,767

132,297

92,558

Profit for the year

1,926,902

1,276,670

Value added

5,150,062

100

4,418,458

100

Applied to pay: To providers of finance Interest expense on borrowings Interest expense on debt securities issued To employees Personnel expenses To the Government Taxation Retained in the business: Depreciation and amortisation

Other National Disclosure

105

NMRC 2017 Annual Report and Accounts

FINANCIAL SUMMARY Statement of financial position In thousands of Naira

31 December 2017

31 December 2016

31 December 2015

31 December 2014

1,920,782

1,259,120

7,368,957

10,502,375

1,443,069

14,157,595

8,225,029

8,104,246

1,865,848

Assets Cash and cash equivalents Placements with banks Mortgage refinance loans Investment securities

-Available-for-sale

15,188,948

12,442,697

15,322,023

-Held to maturity

16,572,789

16,949,233

335,784

246,567

148,769

72,144

27,379

36,136

60,941

Other assets

269,907

307,545

135,282

50,369

Total assets

42,540,618

40,788,613

39,059,415

10,624,888

7,402,781

7,542,865

7,760,373

22,816,413

24,268,660

23,303,888

3,509,403

18,931

12,767

4,825

Other liabilities

569,449

339,199

213,527

59,159

Total liabilities

30,807,574

32,163,491

31,282,613

3,568,562

Net assets/(liabilities)

11,733,044

8,625,122

7,776,802

7,056,326

7,838,132

6,944,290

Retained earnings

2,650,750

1,343,472

449,803

112,036

Statutory reserves

1,105,830

527,759

144,758

Statutary credit risk reserve

41,553

Available for sale reserve

96,779

(190,399)

237,951

Total equity

11,733,044

8,625,122

7,776,802

7,056,326

Total liabilities and equities

42,540,618

40,788,613

39,059,415

10,624,888

Property and equipment Intangible assets

Liabilities Debt securities issued Borrowings Current tax liabilities

Capital and reserves Share capital and share premium

Other National Disclosure

106

NMRC 2017 Annual Report and Accounts Financial Summary (continued)

Statement of Profit or loss and other comprehensive income 31 December 2017

31 December 2016

31 December 2015

31 December 2014

Interest income

6,149,675

5,176,768

3,132,729

685,541

Interest expense

(2,173,194)

(2,153,901)

(1,104,822)

(117,256)

Net interest income

3,976,481

3,022,867

2,027,907

568,285

11,105

772

47,377

3,987,586

3,022,873

2,028,679

615,662

40,172

(38,467)

(42,447)

Personnel expenses

(898,610)

(882,562)

(618,223)

(21,415)

Depreciation & amortization

(132,297)

(92,558)

(47,774)

(17,874)

Other operating expenses

(1,050,891)

(719,849)

(832,885)

(416,224)

Profit before income tax

1,945,960

1,289,437

487,350

160,149

(19,058)

(12,767)

(4,825)

1,926,902

1,276,670

482,525

160,149

- Changes in fair values of available-for-sale financial assets

287,178

(428,350)

237,951

Other comprehensive income, net of income tax

287,178

(428,350)

237,951

2,214,080

848,320

720,476

160,149

Equity holders of the Company

1,926,902

1,276,670

482,525

160,149

Profit for the year

1,926,902

1,276,670

482,525

160,149

Equity holders of the Company

2,214,080

848,320

720,476

160,149

Total comprehensive profit for the year

2,214,080

848,320

720,476

160,149

104 k

72k

27 k

55 k

In thousands of Naira

Other income Total income Impairment of loans and advances

Income tax expense Profit for the year Items that are or may be reclassified to profit or loss

Total comprehensive profit for the year Profit attributable to:

Total comprehensive profit attributable to:

Earnings per share (Basic and diluted)- kobo

Other National Disclosure

107

NMRC 2017 Annual Report and Accounts

PROXY FORM The 4th Annual General Meeting of Nigeria Mortgage Refinance Company (NMRC) PLC. will be held at the Abora Hall, Eko Hotel and Suites, Adetokunbo Ademola, Street, Victoria Island, Lagos Tuesday, 31st July 2018 at 11a.m I/We, …………………………………………. of ……………………………………..being a member/members of Nigeria Mortgage Refinance Company Plc hereby appoint ………………………………………………………………………………… …………………….. of …………………………………………………………………, or failing him, the Chairman as my/our proxy to act and vote on behalf of me/us at the Annual General Meeting to be held on 31st July 2018 at 11a.m at the Abora hall, Eko Hotel and Suites, Adetokunbo Ademola , Victoria Island, Lagos or at any adjournment thereof.

Dated this ………….. day of ………………………… 2018. Signature of Shareholder ……………………………….. Name of Shareholder …………………………………..

S/N

Resolutions Ordinary Business: 1. T o lay before the Company in General Meeting the Audited Consolidated Financial Statements for the period ended December 31st, 2017 and the Reports of the Auditors, the Directors and the Statutory Audit Committee thereon. 2. T o re-appoint KPMG Professional Services as Auditors to the Company from the end of the Annual General Meeting until the end of the next Annual General Meeting. 3. To authorize the Directors to fix the remuneration of the Auditors. 4. To elect/re-elect members of the Statutory Audit Committee. Special Business: To consider and if thought fit pass the following resolutions as ordinary resolutions: 1. “To fix the renumeration of Directors” 2. T o amend the Shareholders Resolution “That following the recommendation of the Directors, the sum of N1,328,402,669 out of the total of N1,345,472,000 in retained earnings as at 31st December, 2016 be and is hereby capitalized as 212,544,427 ordinary shares by way of bonus shares in the ratio of 1 new share for every 9 shares held by members whose names appear in the register of members as at close of business of July 20, 2017, registered in such member’s names on that date, subject to the approval of the appropriate regulatory authorities, the shares so allotted being treated for all purposes as capital and not as income, ranking paripassu with the existing shares”. Passed at the 3rd Annual General Meeting of the Company on August 2nd, 2017, on the allotment of bonus shares as follows:

For

Against

108

NMRC 2017 Annual Report and Accounts

Proxy Form (continued)

“That the sum of N212,544,427 (Two Hundred and Twelve Million, Five Hundred and Forty-Four Thousand, Four Hundred and Twenty-Seven Naira) out of N1,343,472,000.00 (One Billion, Three Hundred and Forty-Three Million, Four Hundred and Seventy-Two Thousand Naira) standing to the credit of the Company’s Retained Earnings Account as at 31st December 2016 be and is hereby capitalized into ordinary shares of 212,544,427 (Two Hundred and Twelve Million, Five Hundred and Forty-Four Thousand, Four Hundred and Twenty-Seven) shares each and appropriated to the members whose names appear in the Register of Members at the close of business on July 20,2017 in the proportion of one (1) new share for every nine (9) shares registered in the such member’s name on that date subject to the approval of the appropriate regulatory authorities the shares so allotted being treated for all purposes as capital and not as income, ranking paripassu with the existing shares of the Company.” 3. T hat the Directors be and is hereby authorized to deal with or settle, as they deem fit, any fractional shares which would result from the allotments described in Resolution 2 above. 4. “ That the Board of Directors be and is hereby authorized to increase the size of the Company’s Medium Term Note Programme from NGN140,000.000,000.00 (One Hundred and Forty Billion Naira) to NGN440,000,000,000.00 (Four Hundred and Forty Billion Naira) through the issuance of non-convertible loans, notes, bonds and any other instruments whether by way of a public offering, private placement book building process, reverse call enquiry or any other method or combination of methods, in such tranches, series or proportions and at such dates, coupon or interest rates within such maturity periods and upon such terms and conditions as may be determined by the Board of Directors subject to obtaining the requisite approvals of the relevant regulatory authorities.” 5. “ That the Board be and is hereby authorized to appoint such professional advisers and undertake such other acts as may be necessary or incidental to or required for effecting the objectives as set out in Resolution 4 above”.

NOTES: To be valid, this proxy form must be filled, signed and lodged (together with any power of attorney or other authority under which it is signed) at the office of the Company Secretary not later than 48 hours before the time of holding the meeting. In the case of a corporation, this proxy form should be completed either by affixing the common seal or by the signature of a duly authorized officer.

ADMISSION CARD 4th Annual General Meeting of Nigeria Mortgage Refinance Company (NMRC) PLC to be held at the Abora Hall, Eko Hotel and Suites, Adetokunbo Ademola Street, Victoria Island, Lagos on Tuesday, July 31st 2018 at 11a.m

Name of Shareholder (in BLOCK LETTERS)…………………………………

Abuja Address: 18 Mississippi Street, Maitama, Abuja.

Lagos Address: 17, Sanusi Fafunwa Street, Victoria Island, Lagos.

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