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PwC Nigeria's FS Webinar

COVID-19 and the Financial Services Industry

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Presentation starts:

9:00am

Conversations with Business Leaders

Accounting, Financial reporting and Tax

Kenneth Erikume

Partner, Tax Reporting & Strategy PwC Nigeria

The Moderator

Welcome

Opening Remark Andrew S. Nevin

Partner and Chief Economist & West Africa Financial Services Leader

Subject Matter Expert Bolanle Adekoya

Partner and Capital Market Accounting and Consulting Services Leader, PwC Nigeria

1

COVID-19 and its impact on Financial reporting

PwC 6 Date Internal

Expected Areas of Impact for the FS Industry:

01

IFRS 9- Impact of financial assets

02

Valuation of other assets

03

Impairment of non-financial assets IAS 36

05

Other considerations

04

Interim reporting under IAS 34 and other disclosure considerations

COVID-19 and its impact on Financial reporting

IFRS 9 – Impairment of Financial Assets

Estimating Significant Increase Credit Risk (SICR)/ Staging Measuring Expected Credit Loss (ECL) Use of Forward looking information and

Macroeconomic

factors Collateral values pledged on loans Expected Cash flows from loan portfolio bearing in mind declining profitability& liquidity Effects of Government relief – Moratorium, forbearance, reduced interest rates Impairment of low risk asset classes and receivables Other financial instruments valuation – Fair values affected by changes in interest rates Hedging - including instruments designated for hedging

Valuation of Other assets

Fall in share prices hence entity’s market capitalization Change in counter party credit risk Investment property valuations Additional disclosures on assumptions Current changes in market realities affect valuation inputs – cash flows, market inputs Disclosure of sensitivities around assumptions and fair value hierarchy Availability and fluctuation in data would affect Collateral values and assets on books

Impairment of non-financial assets IAS 36 ( Value in use vs Fair value)

• Measuring Expected Credit Loss Models (ECL)
• Measuring Expected Credit Loss Models (ECL)

Must carry out impairments – Triggers exist Downward turn in market – affects carrying value Quality of earnings and cashflows Goodwill and

• ther

intangible assets Effects on budgets and forecasts Assumptions used

Interim reporting under IAS 34 and other disclosure considerations

• Measuring Expected Credit Loss Models (ECL)
• Measuring Expected Credit Loss Models (ECL)

Current changes in market realities affect valuation inputs – cash flows, market inputs Tax impact including deferred tax – is it a discrete event for effective tax calculation? Use of estimates and judgements, especially for valuations and impairments Effect on any recent future transactions like Business combinations Possible breach of loan covenants as a result of ratios being breached temporarily Significant disclosures (IAS 34 paragraph 15B)

▪ Around segment information ▪ Risk management – credit risk, liquidity risk, capital management, financial risk, Market risk (Forex, Price, Interest) ▪ Events after balance sheet date ▪ Additional regulator requirements ▪ Going Concern

PwC 11 Date Internal

Leases ▪ Modifications ▪ Impairment of right of use assets ▪ Cashflows Employee benefits ▪ Curtailments ▪ Planned assets ▪ Sensitivity analysis Extensive disclosures required ▪ Including from other stakeholders Share based payments ▪ Valuation ▪ Effect on dilution ▪ Warrants Provisions, contingent liabilities and contingent assets ▪ Restructuring provisions, if required ▪ Outstanding contingent considerations and liabilities Government relief programmes ▪ Financial services vs Customers ▪ IAS 20

Other considerations:

Other considerations

COVID-19 and its impact on Financial reporting

PwC 12 Date Internal

Key considerations for the FS Industry

What should you do next?

▪ Do thorough assessment of impact ▪ Recalibrate ECL models using macroeconomic realities, possible scenarios (look ahead) and probation periods ▪ Carry out valuation exercises both for financial and non financial assets ▪ Update assumptions in business use cases, budgets and forecasts ▪ Look at opportunities for hedging and capital management strategies ▪ Stress-test the balance sheet of entities ▪ Prepare adequate disclosures to tell the story including sensitivities of assumptions used ▪ Incorporate interim reporting considerations

PwC

Thank you

Subject Matter Expert Sam Abu

Partner and Financial Services Assurance Leader, PwC Nigeria

2

Subject Matter Expert

3

Taiwo Oyedele

Fiscal Policy Partner and West Africa Tax Leader

COVID-19: Fiscal Policy Responses and Tax Measures

Navigating a path never travelled

April 2020

PwC 17 Date Presentation Title

3

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17 NNPC Retail Limited Lubricants Business Plan February 2020

Content

Overview and context: Economic impact of COVID-19 Key challenges for businesses Fiscal policy responses and tax measures Recommendations and closing thoughts

Overview and context: Economic impact of COVID-19

PwC

Nigeria’s pre-existing economic challenges amplified by the COVID-19 pandemic

19 April 2020

PwC Analysis

COVID-19 and the Nigerian Economy

Fragile economy, low GDP growth and rising poverty Low revenue, rising debts and budget deficits (FG & states) High unemployment rate, unequal access to limited

• pportunities

Insecurity: Boko Haram, kidnapping, ritual killing, internet scams, robbery etc Rising poverty – Nigeria became the poverty capital of the world Worsening infrastructural challenges – power, transportation etc Low ranking on competitiveness and ease of doing business Low investment in human capital development increasing vulnerability

PwC Analysis

Key challenges for businesses

PwC

The challenges facing businesses are multidimensional

21 April 2020

PwC COVID-19 Survey: Top challenges facing businesses

In a recent survey by PwC Nigeria on the most pressing needs for businesses (with

• ver 500 Business Owners and

C-suite Executives), a number

• f issues were highlighted by

respondents.

Below are the top 3:

1. Liquidity (availability of cash to pay bills) 2. Safety of personnel 3. Infrastructure to work from home

Liquidity Infrastructure to work remotely Cost reduction Sales and distribution Working capital management Safety of personnel

Business

Fiscal policy responses and tax measures

PwC

Nigeria’s fiscal policy responses

23 April 2020

COVID-19 Crisis Intervention Fund

• Establishment of a N500

billion COVID-19 Crisis Intervention Fund

• To upgrade healthcare

facilities

• Fund Special Public Works

Programme to generate employment

• Adequate framework will be

put in place for the collection, management and reporting of donations into the Fund

• COVID-19 Donor Accounts to

be opened with Zenith Bank, Access Bank, Guaranty Trust Bank, UBA and First Bank

• To form part of the existing

TSA arrangement

Subnational support

• Draw down on World Bank facility

(US$82m) and additional financing from the REDISSE (US$100m) project to meet COVID-19 emergency needs by States/FCT.

• FG’s N102.5b in resources to be

available for direct interventions in the healthcare sector. Already disbursed N6.5b to NCDC and N10b to Lagos state

• US$150m to be withdrawn from

the NSIA Stabilization Fund to support the June 2020 FAAC disbursement

• Debt and interest moratorium for

States on FG and CBN-funded loans to create fiscal space

1 2

PwC

Nigeria’s fiscal policy responses

24 April 2020 COVID-19 Nigeria's Fiscal Policy Responses

Budget revision and funding

• Benchmark oil price revised to

US$30/b from $57/b and production to 1.7mbpd from 2.18mbpd.

• Concessional funding from WB,

ADB, IDB and IMF’s COVID-19 Rapid Credit Facility

• No intention to negotiate or enter

into a formal programme with the IMF

• Downward adjustment of non-oil

revenue projections, customs receipts and proceeds of privatisation exercises

• Budget Office to revise 2020-2022

MTEF / FSP

• Amended Appropriation Act will

provide for COVID-19 Crisis Intervention Fund

Tax reliefs and allowances

• 2019 Finance Act already

grants tax exemptions to small businesses, while the tax rate for medium-sized companies has been reduced from 30% to 20%

• VAT exemption for expanded

list of basic food items plus medical and pharmaceutical products

• Ministerial Orders for charitable

donations to fight COVID-19 to be tax deductible

• Release and (where necessary)

enhance the hazard allowances

• f federal health sector workers
• Affected States are enjoined to

take similar measures.

3 4

PwC

… and better coordination of policy responses and measures to be lead by the Economic Sustainability Committee

25 April 2020 COVID-19 Nigeria's Fiscal Policy Responses

Economic Sustainability Committee Central Bank

• f Nigeria

MFBNP Petroleum Resources Ministry of Health Industry, Trade & investment

United

PwC

Tax and other measures

26 April 2020 COVID-19 Nigeria's Fiscal Policy Responses

Tax Authorities National Assembly Others FIRS

• Online filing of returns,

correspondences and communications

• Visits and physical meetings
• Tax audits
• Concessions on filing deadline

LIRS

• Extension of filing deadline for PIT

returns by 2 months from 31 March to 31 May 2020

• Applicable to all individuals including

employees and self employed persons FCT-IRS

• Extension of deadline for the filing of

personal income tax returns by 3 months from 31st of March to 30th of June 2020 NASS First Bill (Passed by HoR) - Economic Stimulus Bill Objectives - provide temporary relief to companies & individuals, protect employments, eliminate fiscal bottleneck on the importation of medical items & cater to the general wellbeing of Nigerians.

• Job protection – 50% income tax

rebate on total PAYE. Oil companies not eligible

• Deferral of mortgage payment
• Import duty waiver

Second Bill Proposed

• To provide for free electricity to

Nigerians for 2 months Immigration

• Travel restriction
• Visa on arrival suspended

NITDA Data Protection Compliance annual filing deadline extended from 15 March to 15 May 2020. NCC No correlation between 5G Technology and COVID-19 SEC Fresh applications suspended All returns to be filed electronically 60-day extension for public companies and capital market operators to file their 2019 annual reports and Q1 2020 reports.

PwC

Other economic policy responses by government

27

Creation of ₦50 billion targeted credit facility through NIRSAL Microfinance Bank for households and MSMEs. Establishment of a N500bn COVID-19 Crisis Intervention Fund which will be channeled to upgrade healthcare facilities at national and state-level, as well as provide intervention for states. The President approved the employment of 774,000 Nigerians to ameliorate the suffering caused by COVID-19 in the

• country. The individuals will be engaged in Special Public Works Programme aimed at cushioning the effects of

economic downtown. Each of the 774 local government area in the country will be allotted 1,000 slots. Three-month repayment moratorium for all TraderMoni, MarketMoni and FarmerMoni loans with immediate effect. Similar moratorium to be given to all Federal Government-funded loans issued by the Bank of Industry, Bank of Agriculture and the Nigerian Export Import Bank CBN forbearance to DMBs for temporary restructuring of loan terms for businesses / households affected by COVID-19 Conditional cash transfers for the next two months to be paid immediately to the most vulnerable and foods for persons at internally displaced camps. Reduced petrol pump price from NGN145 per litre to NGN123.50 per litre on April 1, 2020 and suspension of the proposed increase of electricity tariffs by the electricity distribution companies (Discos). Reduction of interest rates on CBN loans from 9% to 5%; and exchange rate near-convergence Provision of ₦100 billion to support the health sector, ₦2 trillion to the manufacturing sector, and ₦1.5 trillion to impacted industries in the real sector.

Opportunities and closing thoughts

PwC

Business continuity strategy and tax considerations

29 April 2020 COVID-19 Nigeria's Fiscal Policy Responses

Business disruption

Re-prioritize agenda for tax department Develop workforce & remote work solutions Tax treatment of debt and impairments Develop restructuring plans Review cross-border arrangements for increased PE risk Review intra-group services expenses and expense allocation

Cash tax savings

Reduce taxable income Obtain and accelerate available credits and deductions (e.g. COVID- 19 donations, exchange losses, input VAT on cards) Collaborate with treasury to manage liquidity Manage investments – safe and tax efficient

Cross- border & inter-state

Re-evaluate supply chains and business strategies Manage revenue and profitability mix per branch Holistic modeling of the tax impacts of economic disruption Document potential branch losses Meet regulatory

• bligations in

jurisdictions

Global mobility

New business travel protocols Changes to corporate- level (or branch level) cost projections Manage immigration challenges Prepare for mass movement when crisis lessens Tax issues from redundancy

Others

Meet regulatory

• bligations

Take advantage of concessions granted by various tax authorities Advocate for deduction

• f IFRS 9 impairments

Develop a dashboard of key tax issues Evaluate cash retention vs dividend policy – keeping Section 19 schedule

PwC

Opportunities for business continuity and post COVID-19 competitiveness

30

Optimized production

• utput

Identify alternative suppliers Agile COVID-19 impact mitigation Governmental support Realize immediate price reductions Competitive advantage Elimination

• f waste

Improved customer satisfaction Improved cash flow

PwC

COVID-19 strategic response by business leaders

31 April 2020

Don’t just worry, take steps to address the challenges you face and capitalize on the opportunities presented: Workforce - Protect yourself, your staff and plan how to stay safe, sane and productive Operations – Consider options to maintain business continuity and protect your supply chain Communication – Stay informed and provide clarity to your stakeholders. DO NOT PANIC. Insights – Look for insights and assess opportunities in the market, don’t just complain. Brand - Balance customer and staff care with commercial priorities and be mindful of the impact on the organisation.

PwC April 2020 COVID-19 Nigeria's Fiscal Policy Responses 32

The Chinese use two brush strokes to write the word “crisis”. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognize the opportunity. ” John F. Kennedy

PwC

Tax247 Mobile App

33 April 2020

PwC Alerts

Access to PwC’s thought leadership publications on Tax, transfer pricing and

• ther information.

Legislations

Access to over 50 tax legislation

Tax treaty

Access relevant tax treaties between Nigeria and other countries

Case-laws

Access to decided tax cases on the go

News

Access to real time Local and International tax and business news

Circulars

Access to FIRS and LIRS related circulars

▪ COVID-19 Resources ▪ PIT Calculator ▪ Events/Calendar ▪ Global Search ▪ Bookmark ▪ Highlight ▪ Smart cross reference

Other Features:

PwC

Thank you

All

Questions Answers &

The Survey Adedoyin Amosun

Operations & Financial Services Advisory, Associate Director PwC Nigeria

COVID-19 Implications-FS CFOs, Finance and Tax Managers survey

April 2020

PwC 38 April 2020

The 107 respondents were drawn across the FS Industry

PwC

About a third of respondents in the Finance/Tax function believe the impact of the pandemic would last for 6 to 12 months. This is followed by those who envisage it will last for over a year (28%).

39 April 2020

PwC

Finance/Tax respondents opine that the pandemic would negatively impact revenue and or profit

40 April 2020 Internal

Decreased revenue and/or profits We do not expect any impact to revenue and/or profits It is difficult to assess at this point Increased revenue and/or profits

PwC

Global recession (91%), Market volatility (58%) & Effect on workforce (41%) are the top 3 concerns for respondents

41 April 2020

Accounting concerns and disclosures Not having enough information to make good decisions The effects on workforce/reduction in productivity Lack of a comprehensive/tested company emergency preparedness plan Others

PwC 42 April 2020

44% of the respondents estimate that recovery will take 1-3 months, while about 32% are even more optimistic of getting back to usual in less than a month

PwC

The impact on reporting disclosures is difficult to assess at this time for about half

• f the respondents

43 April 2020

PwC

Thank you

Kenneth Erikume

Partner, Tax Reporting & Strategy PwC Nigeria

The Moderator

Closing

PwC

Thank you

This webinar has ended