Risk Management Policies

Fidelity Bank Plc has a comprehensive risk management framework to identify, assess, and mitigate various risks inherent in its operations. This framework is designed to ensure the bank’s stability, protect stakeholders’ interests, and promote sustainable growth. Below is an overview of the key components of Fidelity Bank’s risk management policies:

1. Governance Structure

Fidelity Bank Plc has established a robust governance structure to ensure effective oversight, strategic direction, and accountability in its operations. This structure is designed to align with best practices and regulatory requirements, fostering transparency and stakeholder confidence. The key components of Fidelity Bank’s governance framework include:

i. Board of Directors

The Board of Directors serves as the principal driver of corporate governance, bearing overall responsibility for the bank’s strategic direction and policy formulation. The Board ensures that management actions align with the bank’s objectives and stakeholders’ interests. It comprises a diverse group of individuals with a broad range of skills and experience, including independent non-executive directors who provide unbiased oversight.

ii. Board Committees

To enhance efficiency and allow for deeper focus on specific areas, the Board has constituted several committees, each with defined responsibilities:

• • Board Risk Management Committee (BRMC): Oversees the bank’s risk management policies, ensuring that all potential risks are identified, assessed, and mitigated appropriately.
  • Board Audit Committee: Monitors the integrity of financial statements, the effectiveness of internal control systems, and the performance of internal and external auditors.
  • Board Finance & General-Purpose Committee: Responsible for oversight of the bank’s financial strategies, budgeting processes, and major capital expenditures.
  • Board Governance & Remuneration Committee: Focuses on corporate governance practices, board nominations, and remuneration policies to attract and retain qualified personnel.

Each committee operates under a charter that outlines its roles, responsibilities, and authority, ensuring clarity and accountability in their functions.

iii. Statutory Audit Committee

This committee comprises representatives from both the Board and shareholders, providing an additional layer of oversight on financial reporting and audit processes. Its composition and functions comply with regulatory requirements, ensuring independent review of the bank’s financial affairs.

iv. General Meetings

General Meetings, including the Annual General Meeting (AGM), serve as platforms for shareholders to engage with the Board and management. These meetings facilitate transparency, allowing shareholders to receive updates on performance, approve financial statements, and make decisions on critical issues such as dividend declarations and board appointments.

v. Management Committees

At the executive level, various management committees are established to oversee day-to-day operations and implement strategic decisions. These committees include:

• • Executive Management Committee: Led by the Managing Director/CEO, this committee ensures the execution of board-approved strategies and policies.
  • Asset and Liability Committee (ALCO): Manages the bank’s balance sheet, focusing on liquidity, interest rate risk, and capital management.
  • Credit Committee: Oversees the bank’s credit policies, approves significant credit exposures, and monitors the quality of the loan portfolio.

These committees ensure that the bank’s operations are conducted efficiently, risks are managed proactively, and strategic objectives are achieved.

vi. Corporate Governance Recognition

Fidelity Bank’s commitment to strong corporate governance has been recognized by the Nigerian Exchange (NGX), which awarded the bank the highest corporate governance rating, CGR+, indicating excellent corporate governance practices.

In summary, Fidelity Bank’s governance structure is comprehensive, incorporating various organs and committees that work collaboratively to ensure effective oversight, strategic alignment, and accountability. This framework not only complies with regulatory standards but also promotes transparency, ethical conduct, and sustainable growth.

2. Credit Risk Management

The Bank has implemented a comprehensive Credit Risk Management framework to identify, assess, and mitigate risks associated with its lending activities. This framework ensures the bank maintains a high-quality loan portfolio while supporting its customers’ financial needs. Key components of this framework include:

i. Risk Assessment and Appraisal

The bank conducts thorough credit appraisals for all loan applications, evaluating borrowers’ creditworthiness, financial health, and repayment capacity. This process involves analyzing financial statements, credit histories, and market conditions to make informed lending decisions. By maintaining stringent credit appraisal processes, Fidelity Bank ensures that loans are granted to customers with a proven ability to repay, thereby minimizing the risk of default.

ii. Portfolio Diversification

To mitigate concentration risk, Fidelity Bank diversifies its loan portfolio across various sectors and industries. This strategy reduces the impact of adverse developments in any single sector on the bank’s overall financial health. By spreading credit exposures, the bank enhances its resilience against sector-specific economic downturns.

iii. Monitoring and Reporting

Regular monitoring of the loan portfolio is conducted to identify early signs of potential default. The bank employs a dedicated team to oversee loan performance, ensuring timely interventions when necessary. Comprehensive reporting systems provide management with up-to-date information on credit exposures and risk levels, facilitating proactive risk management.

iv. Environmental and Social Risk Assessment

Fidelity Bank integrates Environmental and Social (E&S) risk assessments into its credit evaluation process. This approach ensures that financed projects comply with environmental regulations and social standards, aligning with the bank’s commitment to sustainable banking practices. By considering E&S factors, the bank not only promotes responsible lending but also mitigates risks associated with environmental and social liabilities.

v. Adoption of International Standards

The bank aligns its credit risk management practices with international standards, such as those recommended by the Basel Committee on Banking Supervision. This alignment ensures that the bank maintains adequate capital buffers and adheres to global best practices in risk management. By following these guidelines, Fidelity Bank enhances its ability to absorb potential losses arising from credit exposures.

Through these measures, Fidelity Bank maintains a balanced approach to credit risk, supporting its growth objectives while safeguarding its financial stability.

3. Market Risk Management

Fidelity Bank Plc employs a comprehensive Market Risk Management framework to identify, assess, and mitigate risks arising from fluctuations in market variables, such as interest rates, foreign exchange rates, and equity prices. This proactive approach ensures the bank’s financial stability and aligns with its strategic objectives. Key components of this framework include:

i. Risk Identification and Measurement

The bank systematically identifies market risk exposures across its trading and banking book activities. Utilizing quantitative tools and models, it measures potential impacts of market movements on earnings and economic value. This process enables the bank to understand its risk profile comprehensively.

ii. Risk Monitoring and Reporting

Continuous monitoring of market risk exposures is conducted to detect any deviations from established risk thresholds. Regular reports are generated for senior management and the Board, providing insights into the bank’s market risk position and facilitating informed decision-making.

iii. Risk Control and Mitigation

To manage market risks effectively, Fidelity Bank employs various strategies, including:

• • Limit Setting: Establishing risk limits for different portfolios and instruments to control exposure levels.
  • Hedging: Using financial derivatives and other instruments to offset potential losses from adverse market movements.
  • Stress Testing: Conducting scenario analyses to assess the bank’s resilience under extreme market conditions and adjusting strategies accordingly.

iv. Governance and Oversight

The Board of Directors and senior management provide robust oversight of market risk management practices. The bank’s governance framework ensures that market risk policies are aligned with regulatory requirements and industry best practices. Regular audits and reviews are conducted to maintain the effectiveness of the risk management system.

Through these measures, Fidelity Bank maintains a prudent approach to market risk, safeguarding its financial health and supporting sustainable growth.

4. Operational/ IT Risk Management

Fidelity Bank Plc has established a comprehensive framework to manage Operational and Information Technology (IT) risks, ensuring the integrity of its operations and the security of its information systems. This framework encompasses several key components:

i. Risk Identification and Assessment

Fidelity Bank employs systematic processes to identify and assess potential operational and IT risks. This includes evaluating internal processes, systems, and external threats that could disrupt operations or compromise information security.

ii. Control Measures and Mitigation Strategies

To mitigate identified risks, the bank implements robust control measures, such as:

• • Process Standardization: Establishing standardized procedures to minimize errors and enhance efficiency.
  • Access Controls: Implementing strict access controls to protect sensitive information and systems.
  • Regular Audits: Conducting periodic audits to ensure compliance with established policies and identify areas for improvement.

iii. Incident Management and Response

The bank has established protocols for prompt response to operational and IT incidents, aiming to minimize impact and restore normal operations swiftly. This includes incident reporting mechanisms and predefined response strategies.

iv. Continuous Monitoring and Improvement

The Bank continuously monitors its operational processes and IT systems to detect anomalies and potential risks early. This proactive approach allows for timely interventions and ongoing enhancement of risk management practices.

v. Regulatory Compliance

The bank ensures adherence to relevant regulations and standards related to operational and IT risk management. This commitment to compliance not only safeguards the bank’s operations but also reinforces stakeholder confidence.

Through these comprehensive measures, Fidelity Bank Plc effectively manages operational and IT risks, maintaining the reliability of its services and the security of its information assets.

5. Environmental and Social Risk Management

Fidelity Bank Plc has developed a comprehensive Environmental and Social (E&S) Risk Management framework to ensure sustainable banking practices and mitigate potential adverse impacts associated with its financing activities. This framework integrates international standards and aligns with the bank’s commitment to responsible lending.

i. Adoption of the Equator Principles (EPs)

In November 2012, Fidelity Bank adopted the Equator Principles, a globally recognized risk management framework for identifying, assessing, and managing environmental and social risks in project finance. This commitment entails refraining from financing projects where clients cannot comply with the EPs’ stringent environmental and social requirements.

ii. Dedicated Sustainable Banking Department

To effectively implement E&S risk assessments, the bank established a Sustainable Banking Department within its Risk Management Directorate. This team reviews project-related credit applications exceeding the US$10 million threshold set by the Equator Principles, as well as other applications below this threshold, ensuring compliance with both national and international standards, including the Central Bank of Nigeria’s Nigerian Sustainable Banking Principles (NSBP) and the International Finance Corporation’s Performance Standards (IFC PS).

iii. Integration into Credit Analysis

Environmental and social risk assessments are integral to Fidelity Bank’s credit analysis process. Every business-related credit is screened against a set of E&S criteria and classified accordingly. Mitigation measures for identified risks are incorporated into loan preconditions and covenants, ensuring that clients adhere to environmental and social standards throughout the loan tenure.

iv. Monitoring and Reporting

The bank has developed an automated data management system to support effective monitoring and reporting of credits assessed for E&S risks. This system facilitates on-site visits to project sites and the receipt of periodic reports from customers, enabling continuous oversight of compliance with E&S covenants.

v. Capacity Building and Awareness

Fidelity Bank conducts regular training programs to enhance staff competencies in E&S risk management. This includes modules during staff induction programs, Thursday lecture series, and assignments on the E-Learning portal. Additionally, the Sustainable Banking Department circulates quarterly internal communications to promote a robust environmental and social risk management culture among employees.

vi. Recognition and Reporting

Demonstrating its leadership in sustainability, Fidelity Bank became the first Nigerian bank to publish its 2023 Sustainability and Climate Report compliant with the International Sustainability Standards Board (ISSB). This report underscores the bank’s commitment to transparency and adherence to global sustainability reporting standards.

Through these initiatives, Fidelity Bank Plc effectively manages environmental and social risks, aligning its operations with global best practices and contributing to sustainable development.

6. Compliance and Regulatory Risk Management

Fidelity Bank Plc has established a comprehensive Compliance and Regulatory Risk Management framework to ensure adherence to applicable laws, regulations, and standards, thereby safeguarding its operations and reputation. Key components of this framework include:

i. Governance and Oversight

The bank’s compliance function is integrated within its Enterprise Risk Management Framework, providing structured oversight of regulatory compliance. The Board of Directors and senior management are actively involved in monitoring compliance activities, ensuring that the bank’s operations align with legal and regulatory requirements.

ii. Regulatory Reporting

Fidelity Bank emphasizes timely and accurate financial and regulatory reporting. The Regulatory Reporting team is tasked with providing essential reports and ratios to senior management, facilitating prompt decision-making and preventing regulatory infractions and associated sanctions.

iii. Compliance Risk Management Framework

The bank has implemented a Compliance Risk Management Framework as an integral part of its Enterprise Risk Management. This framework outlines processes for identifying, assessing, monitoring, and mitigating compliance risks, ensuring that the bank operates within the bounds of applicable laws and regulations.

Through these measures, Fidelity Bank Plc demonstrates its commitment to robust compliance and regulatory risk management, fostering trust among stakeholders and contributing to the stability of the financial system.