6 2014 annual report brief profile history zambia national commercial bank plc (zanaco) was...
TRANSCRIPT
2014 annual report
Vision
Values
Mission
To be Zambia’s leading, preferred, admired, and innovative bank that should provide to each of our chosen customer segments a fair deal as we also strive to Bank the Unbanked.
To be the number one bank in each of our chosen segments with a special focus on Government, Food and Agriculture and Retail Banking through appropriate technology and distribution channels and with empowered and motivated staff.
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The launch of a NEW DAWN....
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2014 annual report
Contents Page
2014 events in photos
Brief Profile
Financial Highlights
Board of Directors
Executive Directors
Chairman’s Report
Managing Director’s Report
Directors’ Report
Statement of Responsibility for Financial Statements
Auditor’s Report
Statement of Corporate Governance
Corporate Social Responsibility
Financial Statements
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2014 annual report
Events in photos
Zanaco’s GO BIG for Charity - Civic Centre Branch staff handing over assorted items during a donation to Our Lady’s Hospice in Kalingalinga
Director Retail Banking Chibotu Chiyasa explaining Bank operations to judges during the 2014 Trade Fair
As the leading Bank in innovative solutions, Zanaco introduced Loan a cow product to support emergent and small holder farmers to buy Dairy Cows without conventional security
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Brief Profile
History
Zambia National Commercial Bank Plc (Zanaco) was established in1969 to service the financial needs of the Zambian economy and it has since evolved into a leading bank nationwide. In 2007, GRZ sold a 49% stake in the Bank to Rabo Financial lnstitutions Development B.V (RFID), a subsidiary of the Cooperative Centrale Raiffeisen-Boerenleen Bank (Rabobank) of the Netherlands.
Subsequently, RFID sold a 3.41% stake to Lizara Investments Limited (a nominee of the Zambia National Farmers Union (ZNFU), followed by the Bank’s Initial Public Offering in 2008.
The Bank remains majority-owned by Zambians and thus is considered “citizen owned”. The relationship with Rabobank enables Zanaco to benefit from technical assistance and best practices in various areas of banking.
Our Customers
In our quest to meet customer expectations, Zanaco’s strategic focus has been centred around improved service delivery. Guided by our Vision, Mission and Values, we are determined and committed to ensuring that we not only meet the expectations of our over 850,000 customers, but exceed them. We also strive to continually improve our service delivery to our customers who cut across the Retail, Corporate, Government, SME and Agriculture sectors.
Innovation and sustainability for us means doing things better and smarter, driven by the needs of our customers. It means making efficient use of our resources, empowering the customer with financial services and products that help them attain their goals and aspirations. Our People
Our members of staff are our number one resource. We are proud of our 1,391 dedicated, inspired and motivated staff who drive our agenda. Zanaco is the largest employer in the banking sector. The Bank adopted a recruitment model through which we recruit people from diverse backgrounds with a good mix of gender. To ensure we maximise output and get the best out of our employees, we invest in training and ensure we take good care of their well being.
Ownership Structure
The current ownership structure of Zanaco is as follows:
Rabo Financial Institution Development B.V 45.59%
GRZ 25.00%
LuSE Free Float 26%
ZNFU 3.41%
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Financial Highlights
1,110,000
2010 2011 2012 2013 2014
1,000,000
800,000
600,000
400,000
200,000
-
700,000
2010 2011 2012 2013 2014
600,000
500,000
400,000
300,000
200,000
100,000
-
3,200,000
2010 2011 2012 2013 2014
3,000,000
2,500,000
1,500,000
1,000,000
500,000
-
1,200,000
2010 2011 2012 2013 2014
1,000,000
800,000
600,000
400,000
200,000
-
Total Revenue - 1,110,000
Loans and Advances - 3,200,000
Net Interest Revenue - 700,00
Shareholders’ Funds - 1,000,000
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Board of Directors
Mr. Drok was appointed as Chairman of the Board of Zambia National Commercial Bank Plc at the Annual General Meeting held on 5 April, 2013. Mr. Drok’s banking career spans over 28 years. From 2002 to 2006 he served on the ING Bank Retail Board in The Netherlands. In 2006 he was appointed as CEO of ING Bank in Australia, which was the largest foreign bank. He later moved to Poland as Head of Retail at ING Poland up to 2011 when he joined Rabobank. Until December 2014 he was the Chief - International Rural & Retail Banking and a member of the Management Team of Rural & Retail Banking of Rabobank International. He is also board member of Rabobank Aus-tralia and Rabobank New Zealand and up to October 2014 of BGZ Bank in Poland.
Eric D. Drok - Chairman
Ms. Akapelwa is the Founder, Vice Chancellor and Board Chairperson of Victoria Falls University of Technology (VFU). She is South Africa’s CEO Magazine 2013 and 2014 prestigious award winner in Africa’s Most Influential Women in Business and Government. She is the Owner and CEO of La Residence Guest House.
She was the Board Chairperson of the Zambia Information & Communications Technology Authority (ZICTA). She was also a member of the Millennium Challenge Account Zambia Steering Committee and a member of the Technical Committee for the Government of the Republic of Zambia Lands Information Management System. Prior to that, she served the African Development Bank in different capacities and Management for 23 years in both Ivory Coast and Tunisia
Gertrude M. Akapelwa (Non Executive Director)
Mr Robinson is a businessman and farmer. He represents the Zambia National Farmers Union (ZNFU) where he serves as Trustee.
He is also a board member of Musika, Parmalat, Tiger Feeds Ltd and Food Reserve Agency (FRA) where he serves as Board Chairman.
Guy H. Robinson (Non-Executive Director)
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Dr. Simwinga is the Director Investments and Debt Management, Ministry of Finance and is responsible for initiating debt portfolio strategies and structuring issuances for deficit financing and/or re-financing.
His research interests include Macroeconomic Theory and Policy; Monetary Theory; Financial Economics and International Economics.
Ronald M. Simwinga (Non-Executive Director)
Mr Weenig is Chief Executive Officer of FGH Bank, a member of the Rabo Vastgoed Group in the Netherlands. FGH Bank finances commercial real estate and also analyses social and economic developments and assesses their impact on the market for commercial real estate.
Before taking up this role, Mr Weenig was Director Corporate Clients Rabobank Netherlands. He joined Rabobank Netherlands in 2004 where he was Deputy Head of Special Assets Management Rabobank Group until July 2010.
Fred Weenig- (Non Executive Director)
Bruce Dick - Managing Director
Mr Dick was appointed ManagingDirector of Zanaco in January 2014.He had previously served as BoardChairman for the period 2010 till2013. He has over 35 year’sexperience in Retail and WholesaleBanking.
Prior to taking up his role at Zanacohe was responsible for RaboDevelopments retail bankinvestments throughout sub SaharanAfrica and Latin America
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Executive Directors
Lishala SitumbekoDirector Treasury & Investments
(Standing from left)Bruce DickManaging Director
(Seated from left)
Edward Mutale Director Finance
Ignatius Mwanza Director Corporate Banking
Suzyo Ng’andu Bank Secretary
Chimango Chikwanda Director Human Resources
Hamish Chipungu Director Internal Audit
Arjan Poels Director Risk Management
Chibotu ChiyasaDirector Retail Banking
Manlio D’AlessandroDirector Corporate Support
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Zanaco’s Go Big for Charity
We take pride NOT only in living our Mission and Vision of empowering Zambians to be active players in the growth of our economy through financial inclusion but ALSO in the way we conduct our business. Having banked over 850,000 people and still counting and with presence in 90 of the 102 districts, we are committed to conducting our business in a transparent manner by complying with financially approved and recommended standards. It is with pride that we share our accolade of recognition of the following: Best Corporate Governance Award: 2013 Best Sustainability Reporting Award: 2013
To our customers, this is your success too! Let us celebrate together.
46 Years in business and on track...Record 3 times winners - 2010, 2011 & 2013 !
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Message from Chairman
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I am particularly pleased to be able to report on the year 2014 which was especially challenging. What continues to motivate, drive and inspire me more than anything else is the opportunity to contribute to the realisation of Zanaco’s fascinating mission and vision of financially including the bankable unbanked population of Zambia through innovative but affordable products and services. I am confident that I share this passion with our more than 1, 350 employees across our 64 branch and agency network and all business units at Head Office. We all work relentlessly every day to build on our position as one of the leading banks in Zambia that greatly improves the lives of many people through our diverse distribution channels.
Zanaco would not be in the strong position it is today without the loyal, capable and experienced Board, Management and staff members. This is borne from a culture of empowering and developing our people to succeed at every level, and encouraging accountability, innovation and excellence. We are committed to further embed our people culture and enhance capability in our staff. We made significant efforts during the year to ensure that our staff remain our key competitive advantage. I would like to express on behalf of the board and indeed on my own behalf, our admiration for the outstanding contribution made by all staff during a particularly difficult year.
My accolades also go to our customers who remained loyal and supported us throughout the year. Customers are the reason we are in business. Knowing we have support from our customers gives us the impetus to always strive to better our service delivery as can be evidenced by the huge investment we made in the change of the core banking system during the year. All these factors confirm that we are committed to sustained high performance, supported by good governance. We promise to continue to manage our bank, your bank, in a manner which is responsible and consistent with our belief in honesty, transparency and accountability. For us, good governance means managing our business well and engaging effectively with our stakeholders. It is never simply an exercise in compliance, but a key element underpinning the long-term growth of our business. As such, it is of key importance in challenging times, as much as it is in the good times.
Economic operating environmentZambia’s economy has experienced strong growth in recent years, with real Gross Domestic Product (GDP) growth averaging 6.50 percent year after year since 2005. This growth is attributed to the increased copper mining output whose outcome was increased foreign exchange earnings which spurred economic growth. Copper output has increased steadily since 2004, due to higher copper prices and foreign investment despite the short depression in 2008. Zambia has made some strides to improve the cost of doing business having revoked the Statutory Instrument (SI) Number 33 (mandating use of the kwacha for domestic transactions) and SI Number 55 (monitoring foreign exchange transactions).
Despite some volatilities in the first half of 2014, the banking sector performed well, with year to date
growth rates of 9 percent, 11 percent and 15 percent for deposits, total assets, and loans & advances, respectively. The sector has continued to strongly contribute to the country’s economic development through its increased credit extension to productive sectors like agriculture and manufacturing. Lending to households has continued to remain strong at 32 percent of banking loans and advances portfolio. This demonstrates the sector’s contribution towards improving access to credit and financial inclusion for Zambians.
With this favourable operating land scape, we are confident that the empowerment of all our customer segments to be active players in the growth of our economy through banking the bankable unbanked people of Zambia is helping to enrich people’s lives and to develop Zambia, making it a preferred international business hub. Our agenda and mandate to do everything we can to bring banking services closer to the people of Zambia remains a priority.
2014 successesWe continued to pursue our set targets and performed very well in the following:
Being a bank for all, we welcomed to the Zanaco family Retail, Corporate, Government, SME and Agriculture customers. We increased our customer base by 11% in 2014. We recorded remarkable improvement in the service delivery to our customers following the change of the core banking system at the beginning of the year despite the teething challenges faced.
We continue to be the largest employer in the banking sector in Zambia. We recruited personnel from diverse backgrounds with a good mix of gender. We invested heavily in training staff during 2014 in order to improve on their skills and maximise output. We managed to speedily deliberate and conclude on all staff matters with our partners, the Union.
We go beyond the banking industry norms to partner with organisations who share our passion of offering a service to our customers and the general public. These range from utility companies to institutions of higher learning such as Zesco, Multichoice, the Universitiy of Zambia and the Copperbelt University. We welcomed on board three organisations during the year bringing the number of our strategic business partners to over 27.
Our agenda to financially include people in Zambia aligns very well with the nation’s Financial Sector Development Programme (FSDP). According to the last Finscope Survey conducted in 2009, the country has 63.3 percent of people who have remained unbanked. Our robust distribution network is our vehicle in reaching out to as many Zambians as possible. We grew our service touch points during the year to the following:
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Presence in 90 out of the 102 districts in Zambia;64 Branch and Agency footprint represented in all 10
provinces of Zambia;184 ATMs;708 Point Of Sale machines;244 Zanaco Xpress Agents.
We continue to leverage on our state of the art IT platform which enables us to come up with innovative products on the market. Exciting products were launched during 2014 and plans to launch more in 2015 have reached an advanced preparatory stage. Investment in our communities – Our CSR programme is on trackI am proud of our achievements in improving the livelihood of the people in communities in which we operate. The world of Corporate Social Responsibility (CSR) keeps evolving by the day. Zanaco has been refining its CSR activities. For us this is not a mere obligatory public relations task but a purpose driven and principle based way of doing things. Zanaco continues to find innovative business models, revolutionalising processes, products and services to operate in a manner that is sustainably beneficial to the communities we operate in.
Generally, CSR will begin to be judged on strict relevance and how innovative companies are in using products and processes to tackle social environmental problems. I am happy to note our CSR programmes are already making a mark in these aspects. I am proud of how staff exceeded my expectations in ensuring they made meaningful contributions to the well being of people in communities in which we serve throughout our branch network in all the provinces of Zambia. Through the Go Big for Charity initiative, staff contributed their own money which Management matched 100 percent. Various charities benefited from this initiative leaving a memorable positive impression in the lives of the people. This is highly commendable.
This was alongside our making meaningful contributions to the following activities we support in our communities:
Financial Fitness;Raising literacy levels among early grade learners;Promoting green and clean energy;Promoting entrepreneurship among students in
collaboration with the University of Zambia;Improving access to water and sanitation;Supporting quality health care;Staff engagement.
Our future prospects Now let me look to the future. The outlook for 2015 and going beyond looks promising. It should be anticipated that competition will continue to be fierce in the banking industry in Zambia but with focus on our strategy and armed with supportive staff, customers and other strategic partners, we are set to maintain and even better our position in the market.
We are determined more than ever before to consolidate our business and to remain relevant to our customer needs. We will resolutely pursue our strategy of targeted investment within our innovative capability. We will continue to take the lead in innovation and introduce products and services that add value to people’s lives.
Our mission to greatly improve on our customer service delivery remains of paramount importance. I am proud that we are making steady progress in this aspect of our business and yes, we still have a lot of work to do. We want to get to know our customers and engage with them better. This is the only way we will cement our relations and remain relevant to them. We will continue to embrace strategic partnerships with organisations who share our passion of offering a service to our customers.
Board and Management/EmployeesOn behalf of my colleagues on the Board of Directors, I would like to personally thank our employees throughout the Bank for making this success possible. Ultimately it is their dedication and their contributions that are bringing us closer to our goals.
During the year, we continued to work cohesively as a Board, with Management assisting us in providing oversight.
In April 2014, Mr. C.Y. Mulendema retired from the Board after 7 years of service. On behalf of the Board of Directors, I wish to thank him for his contribution to the Bank. In his stead, Dr. R. Simwinga was appointed as a Non-Executive Director, nominated by GRZ.
We achieved a good deal of success in 2014. We have since identified our future opportunities and challenges and are prepared to address them. That is how we will ensure that Zanaco consistently exploits its exciting growth potential.
We count on your continuing support in the pursuit of these objectives. I am confident that Zanaco will continue to demonstrate resilience in whatever operating environment. This will be achieved through our mix of good governance, a clear and consistent corporate strategy and excellent management and staff. Our aim as a business is simply to ensure that this effective combination continues to return enhanced value to our customers, shareholders, staff and other stakeholders.
Eric D. DrokChairman.
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Message from Managing Director
It is my pleasure to report on the Bank’s performance in 2014 and to provide you with an outlook for 2015.
Business Operating EnvironmentThe business environment was mixed in 2014. The first half of the year saw the withdrawal of Statutory Instrument (SI) Num-ber 33 (mandating use of the kwacha for domestic transac-tions) and SI Number 55 (monitoring foreign exchange trans-actions). This was aimed at easing the cost of doing business and streamlining implementation hurdles. Other develop-ments occurred in the area of monetary policy following the rapid depreciation of the Kwacha against major currencies.
The Bank of Zambia also adjusted the Monetary Policy Rate in June 2014 to 12 percent, to reflect the cost of funding and this resulted in an increase in the cost of borrowing on the market.Following the rapid depreciation of the Kwacha, the Monetary Policy Rate was successively adjusted up to 12.5 percent. The lending factor used to arrive at the effective lending rate was also adjusted upwards resulting in a maximum lending rate of 24 percent. Further monetary policy tightening was effected with the Statutory Reserve Ratio being adjusted to 14 percent from 8 percent. The overnight lending window at the Bank of Zambia was further tightened with upward adjustment in the interest rate and frequency of access.
The tightening of monetary policy resulted in constrained liquidity on the interbank market with overnight interest rates reaching as high as 23 percent per annum.
Despite the challenging conditions of the first half of 2014, the banking sector performed well, with year-to-date growth rates of 9 percent, 11 percent and 15 percent for deposits, total assets, and loans & advances. The sector has continued to strongly contribute to the country’s economic development through its increased credit extension to productive sectors like agriculture and manufacturing. Lending to households has continued to remain strong at 32 percent of banking loans and advances portfolio. This demonstrates the sector’s contribution towards improving access to credit and financial inclusion for Zambians.
Our performance Our profit after tax was K143 million in 2014 from K186 million in 2013. Our customer base country wide grew from about 720,000 in 2013 to over 850,000 in 2014. We continued to score highly in the advances portfolio which keeps growing from year to year. We recorded an increase of 5% from K2,987 million in 2013 to K3,139 in 2014. This reaffirms and confirms our position as one of the leading lenders in the market in Zambia.
Our service delivery improvement promise – not without a challengeWith our Business Efficiency Programme (BEP) which saw the ushering in of a new core banking system at the beginning of 2014, it was envisaged that this would end most of our service delivery challenges. However, we encountered a number of difficulties following this change which affected our customers and other stakeholders. Despite all this, we received maximum support from you our customers, regulators and the wider community, who rallied behind
us and continued to give us feedback on how we were progressing. We began to see the fruits of BEP in the third quarter of the year. All systems have tremendously improved since. We have seen remarkable improvements in processes such as card issuance and the loan and payments processing. We are now in the final stage of the project whose activities are mainly centred around cleaning up all teething problems that come with the change of any system.
We also suffered a major setback during the third quarter of the year following a fire occurrence at our Chipata Branch which damaged our building to the extent it was no longer usable. Again, the support we got from our customers and the commitment exhibited by staff in ensuring that there was business continuity (virtually no service breakage following the fire incidence while we prepared an alternative site to operate from), made me and the entire management very proud. This was a testimony that we indeed have loyal customers and highly motivated and committed members of staff.
Getting closer to our customers through marketingAs a way of giving back to our customers, especially after a challenging period regarding our service delivery, we held one promotion that saw customers walk away with fabulous prizes. The Swipe and Win promotion which started in 2014 and continued into 2015, was well received by our customers. In this promotion, customers were rewarded for using their Zanaco Visa debit cards via debit to purchase goods and services. This is a win-win initiative for both the customers and the Bank because we are rewarding our customers with fabulous prizes while entrenching the use of electronic channels to pay for goods and services.
Exploring alternative distribution channelsOur distribution network continues to rank very highly on our ‘to do’ list. We realise and acknowledge that it is only through bringing banking services closer to the people that we are going to achieve our mandate of banking the unbanked in Zambia. In achieving this, we explore all channels possible in ensuring that we offer a service to as many bankable people as possible irrespective of where they are geographically positioned. We adopted the Agent Banking model approved by the Bank of Zambia (BOZ) a few years ago. Through this model, we recruit small businesses mostly in places where we do not have presence, to conduct basic banking business of deposits and withdrawals on our behalf. Trading under the brand name Zanaco Xpress, some of these outlets are in very remote areas of Zambia such as Chilubi Island and Shang’ombo. We grew the number of Zanaco Xpress Agents to 244 from 130 in 2013.
Investing in our communities– Going Big For Charity!Investing in communities where we serve continues to be at the top of our agenda. We continue to not only align our Corporate Social Responsibility (CSR) programmes with our vision and mission of banking the unbanked but to go beyond this agenda in ensuring we improve the livelihoods of the people in communities where we operate. Our Financial Literacy Programme aimed at educating people about the importance of managing money well today for a better tomorrow has grown from strength to strength following its
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inception in 2008. We have reached more than 35,000 people from 22,275 reached in 2013 and 10,500 in 2012. These include SMEs, farmers, youth, children and members of staff.
We continue to work with other organisations who share our passion of helping disadvantaged communities such as the Ministry of Education, Science, Vocational Training and Early Education in raising literacy levels among early grade learners. We supported more than 110 primary schools in Muchinga province with the Reading Tools in a Box project. Having expanded our CSR programmes to include Health, Water and Sanitation support, we have reached over 6,000 citizens helping them with sanitation facilities. We also contribute to the preservation of Zambia’s local culture through support to traditional ceremonies in all the ten provinces of Zambia.
Alongside these activities, we did something special in 2014 dubbed “Go Big For Charity”. Through this initiative, staff raised a total of K112,690 which Management matched kwacha-for-kwacha doubling the amount to K225,380. This was then donated throughout the country to various charities identified and chosen by members of staff. The project was well received by various recipients and a documentary was produced and shared with the general public on ZNBC TV1.
Innovation, our pride! Towards helping small businesses growWe continue to be market leaders in innovation in the banking industry. We launched the Loan a Cow Product, a facility that allows smallholder farmers to get a loan for the purpose of purchasing dairy animals. What makes this product unique is that the animals purchased are used as security while the milk they produce generates cash flow for loan repayment, totally eliminating conventional collateral requirements which normally prove to be a challenge for many small holder businesses when accessing financing from banks or indeed other lending institutions.
We also launched another exciting product called the ‘Buy-A-Trailer’ Loan Scheme in partnership with Agro Fuel Investment Engineering Limited (AFIL) to help local transporters purchase trailers. Under the scheme, Zanaco will provide the transporter with 70 percent funding while the transporter will make a 30 percent contribution.
Innovation in top gear – tailor made, innovative but affordable products for allWe have a number of exciting products lined up to be launched in the near future. These range from tailor made products for women, savings accounts for minors aimed at securing lives for our young to Tractor Lease Financing.
We continue to work hard and it shows We performed extremely well at both the Zambia International Trade Fair (ZITF) and the Zambia Agriculture and Commercial Show (ACSZ) held in Ndola and Lusaka respectively. We exhibited our products and services and emerged winners in both shows. We won the Best Exhibit-Financial Institutions at the Trade Fair. We won three prizes at the Lusaka Show namely, Best Exhibit-Financial Institutions, Best Theme Interpretation Overall, and 2nd Best Exhibit Overall. Such achievements
make us proud because it shows that our efforts in supporting both personal and corporate citizens in rural and urban Zambia are recognised by other business organisations and bodies.
The future is ours to make, 2015 will be just as successful!With our robust strategy put in place, coupled with motivated and committed staff, our wide distribution network, state of the art IT platform and support from our customers and partners, we are well placed to make 2015 just as successful and even better than 2014.
We continue our journey with a lot of confidence and remain steadfast in ensuring we empower as many Zambians as possible to be active players in the growth of the Zambian economy through financially including them and bringing banking services closer to them.
Going forward, we will continue to endeavour to stabilise our systems with the ultimate objective to improve our customer service delivery, mobilise deposits, develop a strong connection with our customers and work towards financial and operational efficiency. We will also focus on keeping our spend in check, grow our customer base and keep investing in communities in which we serve. We will also continue to invest in our human resource and aim to continuously attract and develop the best talents, encouraging diversity and creating an enabling environment for our staff to soar to great heights.
With your support, my one year with Zanaco has been fulfilling and I am confident that together, we will make 2015 an even better year for our customers and all stakeholders. The year ahead will bring its own challenges but I’m sure by working together, remaining focused on our priorities and putting our customers first, we can realise our ambitions. These will certainly continue to be my priorities and I am convinced I can count on the rest of management and staff at Zanaco to do the same.
We have a lot of work to do ahead and it is important for us to use our time wisely and move forward as decisively and swiftly as we can in 2015.
Bruce Dick.Managing Director
The Directors present their report together with the audited financial statements for the year ended 31 December 2014. Principal activities The principal activity of the Bank is the provision of commercial banking and related services to the general public. Share capital There were no changes to the authorised and issued share capital during the year. Results and dividend The net profit for the year amounted to K142,926,000 (2013: K186,314,000). The Bank paid dividends during the year amounting to K43,313,000 in respect of the 2013 profit. The Board has recommended a final dividend of K43,313,000 for the year ended 31 December 2014. Directors The directors who held office during the year and to the date of this report were: Mr E D Drok ChairmanMr C Y Mulendema Vice Chairman - Retired 4 April 2014Dr R Simwinga Non-Executive Director - Appointed 4 April 2014Ms G M Akapelwa Non-Executive DirectorMr G H Robinson Non-Executive DirectorMr F Weenig Non-Executive DirectorMr B Dick Managing Director Number of employees and remuneration The total remuneration of employees during the year amounted to K306,133,000 (2013: K264,730,000) and the average number of employees for each month of the year was as follows:
Month Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14Total Headcount 1377 1358 1374 1377 1392 1396 1417 1397 1385 1382 1385 1391
We continue to focus on developing and motivating our staff who are the engine behind the Bank’s continuing success.
In comparison to our competitors and the industry as a whole, our turnover remains low, though we still continue to focus on Corporate Banking and Internal Audit that have been worst hit by resignations. A review of structures is currently underway to enable the Bank better respond to the current and projected demands of the labour market
We are happy to report that the Pension Conversion process continues to make steady and good progress with the number of employees on the Defined Contribution Scheme improving.
Performance Management continues to remain a challenge. We plan to retrain all employees in 2015 on Goal Setting and Assessing performance so that Managers correctly assess the performance of their respective teams, going forward.
The Realignment of HR Policies and Procedures continues to ensure that the people practices support high levels of workforce engagement and employee relations and are aligned with the Bank’s strategic goals. Gifts and donations During the year the Bank made donations of K2,408,000 (2013: K3,356,000) to charitable organisations and events. Property, plant and equipment The Bank purchased property and equipment amounting to K23,487,000 (2013:K107,004,000) during the year. In the opinion of the directors, the recoverable amount of property, plant and equipment is not less than the carrying value.
Research and development During the year the Bank did not incur any research and development costs (2013:Nil). However, the Bank incurred K2,521,000 (2013:K7,319,0000) on development of various products.
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Directors’ Report
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Related party transactions Related party transactions are disclosed in Note 34 to the financial statements. Directors’ emoluments and interestsDirectors’ emoluments and interests are disclosed in Note 34 to the financial statements. Prohibited borrowings or lendingsThere were no prohibited borrowings or lendings as defined under Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as amended). Risk management and control The Bank through its normal operations is exposed to a number of risks, the most significant of which are credit, market, operational and liquidity risks. The Bank’s risk management objectives, policies and strategies are disclosed in Note 5 to the financial statements. Compliance function The Bank has a compliance function whose responsibility is to monitor compliance with regulatory requirements and the various internal control processes and procedures. Commission of inquiry The Commission of Inquiry appointed by the Government of the Republic of Zambia (GRZ) to review the privatisation of the Bank in 2007 completed its hearings and receiving of submissions on 9th February 2012. In line with the Bank’s highest standard of corporate governance practice, management and the Board fully cooperated with the Commission of inquiry.
As at the reporting date, the announcement of the findings and recommendations of the Commission of Inquiry had not been made public.
Know your customer (kyc) and anti-money laundering (aml) policies The Bank has adopted know your customer (“KYC”) and anti-money laundering (“AML”) policies and complies with current legislation in these areas. Auditors The Bank’s Auditors, Messrs Deloitte & Touche, indicated their willingness to continue in office. A resolution proposing their reappointment and authorising the Directors to fix their remuneration will be put to the Annual General Meeting. By order of the Board.
Mrs. S. Ng’andu Secretary Date: 19 February 2015
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IntroductionCorporate Governance is described as the relationship and rules which govern the relationship between Management and Shareholders and other Stakeholders.
Corporate Governance fosters the democratic values of fairness, accountability, responsibility and transparency.
In this segment of the Report, we outline the corporate governance framework and outline the developments in enhancing best practice within the organization.
The Bank fully maintains a high level of compliance and disclosure as required by our Regulators under the Banking Act, Companies Act and Securities Act. In addition, the Bank has adopted the LuSE Corporate Governance Guidelines and the BOZ Guidelines on Corporate Governance.
Board PerformanceThe role of the Board is to provide leadership and direction to the Bank’s management. It is collectively responsible and accountable to the stakeholders for the long term success of the Bank, and it ensures that it is appropriately managed.
The Board therefore reviews the performances of management and the operating and financial performance of the Bank as a whole. The Board also ensures that adequate resources are available to meet the objectives of the Bank.
Good board dynamics are maintained and all Board members are fully engaged in the decision making processes relating to key matters including approval of the company’s operating and capital expenditure budget, Short and Medium Term Strategic Plans. To this end, the Board participated in the review of the Medium Term Plan which was revised in June, 2014.
The Board also delegates certain types of decisions to Executive Management. In 2014, the Board approved a formal Delegation of Authority Policy, with a view to consolidate all the various authorities which Management was vested with.
In order to maintain the independence of the Board, there are matters specifically reserved for its decision. Furhermore, there is a clear distinction between the role of the Chairman and that of the Chief Executive Officer.
The Board makes key decisions to ensure that it retains proper direction and control of the Bank. The Directors bring in experience and expertise from their own fields of business to ensure that the debate on matters of strategy, policy and performance is robust, informed and constructive.
The Board structure is such that no one individual or group dominates the decision making process and power is not vested in any one individual.
There are established procedures in existence for planning and capital expenditure, making of investments, information, reporting systems and for monitoring the Bank’s business and performance.
Newly appointed Directors are not only scrutinised and subjected to a fit and proper test by the Bank of Zambia, but are also subjected to a final approval by shareholders at the Annual General Meeting. The Company’s Articles of Association provide that, on a rotation basis, one third of the Directors resign every year and, if eligible, they can then offer themselves up for re-election.
In line with accepted best practice, all Directors are subjected to re-election at regular intervals. Board Members are also exposed to continuous learning through various initiatives.
The Chairman and Managing Director, in consultation with the Bank Secretary, agree on the agenda for Board meetings, but all Board Members are entitled to raise other matters. The Chairman ensures that all Board Members are properly briefed on all issues arising from the Board meetings. It is the responsibility of the Executive Management to ensure that the Board is supplied with information in a timely manner and of quality appropriate enough to enable it to carry out its fiduciary duties.
The Board, which comprises five Non-Executive Directors and the Managing Director, are confident that they have the knowledge, talent and experience to lead a listed Bank. The Non-Executive Directors are independent of Management and exercise their independent judgment with their in-depth knowledge and experience. Please refer to the Directors’ Report for a list of the Directors who held office in the year under review.
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To ensure transparency, the activities of the Board are documented and planned. Although the Board has ultimate responsibility for the success of the Bank, this is managed on a delegated basis. The Board appoints the Chief Executive Officer and monitors his or her performance in leading the Bank and providing operational and performance management in delivering the strategy.
The Chairman, with assistance from the Chief Executive Officer and Company Secretary, is responsible for ensuring that Directors are supplied with information in a timely manner to enable them to ensure that there is active dialogue and engagement.
The Chief Executive Officer provides a regular report to the Board that includes information on operational matters, the operating environment, strategic development, corporate social responsibility, human resources and stakeholder relations.
The Board promotes good behavior and ensures that it demonstrates clear values and high ethical standards, mindful of the overriding duty for each director to act in good faith and promote the success of the company.
The Board has a planned programme for each financial year to ensure that all necessary matters are covered and to allow for sufficient debate and challenge.
The Board continues to guard against the risk of complacency by encouraging openness and appropriate levels of challenge. While the Board engages with Management both formally and informally, it strives to ensure that it remains sufficiently detached to maintain its independence.
The Bank has put in place a formal induction process for new Board members while the different backgrounds and experience of each director are also taken into account.
In an effort to ensure continuous improvement which is best practice, the Board undertook training on the role of the Audit Committee to ensure that new developments in the role of this Committee are explained.
During the year under review the Board approved the following Policies:
Delegation of Authority;Insurance Policy;Information Security Policy.
Equitable Treatment of Minority ShareholdersThe corporate governance framework of the Bank ensures that equitable treatment of shareholders, including minority shareholders, is achieved. This is done by:
Ensuring that the Board adopts a shareholders’ perspective when making decisions and ensuring minority interests are protected;Improving communications and interactions between minority shareholders, Board Members and Management;Appointment of Directors is subjected to the final approval of all shareholders, including minority shareholders, at the Annual
General Meeting;Ensuring the minority shareholders are duly accorded with their three basic rights as follows:
The right to seek information;The right to voice an opinion;The right to seek redress.
Management TeamOur Executive Management team provided leadership and direction for the organisation. Respective members of the Executive Team participated in various industry initiatives such as those initiated by the Bankers Association of Zambia (BAZ) and its Committees, the Zambia Chambers of Commerce and Industry and the Zambia Federation of Employers. In addition, the Management team participated in various industry initiatives which were driven by the regulators such as the implementation of the Basel II framework
The Board also has overall responsibility for succession planning for the Executive Management team. In an effort to identify staff who have demonstrated potential, the Board engaged with staff at every opportunity available. In addition, the Board periodically discussed the Peoples Balance sheet which is a tool for developing and managing talent within the Bank.
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Risk ManagementThe Board continued to manage both risks and controls in the organisation. The Board has approved governance structures and internal controls which are both prudent and effective. The Board has processes in place to ensure that it receives the right information in the right form and at the right time to enable it to effectively discharge its duties.
The board continued to maintain rigor in reviewing the strategy for the future of the Bank. For the Board, a key requirement is that the Bank has robust processes to identify, evaluate and manage risk so that Directors have visibility of the major risks. The Bank has developed a system of internal controls that encompasses the policies, processes, tasks and behaviours that seek to facilitate the effective and efficient operation of the Bank.
The Internal Audit team independently reviews the risk identification procedures and control processes implemented by Management.
It provides objective assurance of the operation and validity of the systems of internal control through a programme of cyclical reviews, making recommendations for business and control improvements as required.
The Bank also developed policies and procedures to drive consistency and clarity on how risks are managed and subsequently reported.
The Board accepts final responsibility for the risk management and internal control systems of the Bank. It is the responsibility of Management to ensure that adequate internal financial and operational control systems are developed and maintained on an on-going basis in order to provide reasonable assurance regarding:
Effectiveness and efficiency of operations;Safeguarding of the Bank’s assets (including information);Compliance with applicable laws, regulations and supervisory requirements;Reliability of accounting records;Business sustainability under normal as well as adverse conditions;Responsible behaviour towards all stakeholders.
The efficiency of internal control systems is dependent on their compliance with prescribed measures. There is always a risk of staff non-compliance with such measures. Consequently, even a strict and efficient internal control system can provide no more reasonable measures of assurance in respect of the above mentioned objective.
Internal auditors monitor the operations of the internal controls and report to Management and the Audit Committee on their findings and recommendations. All critical Information Technology (IT ) services are run from a new state of the art Tier 3 Data Centre.
The procedures are tested periodically and the Board is of the opinion that they meet the acceptable criteria.
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The table below summarises key principle risks that the Bank faces
RISK COMPONENTS DEFINITION
Credit risk The risk of loss due to the non-performance of a counterparty in respect of any financial or other obligation. Credit risk also includes concentration risk. Market risk - Interest The sensitivity of a bank’s financial position and earnings to unexpected, adverse movements in interest rates.rate risk in banking book
Market risk – Foreign Foreign exchange risk is the risk of losses occurring on its foreign currency denominated assets orExchange risk liabilities from movements in the foreign exchange rates.
Liquidity/Funding risk Funding/liquidity risk is the risk that a bank will not be able to meet current and future cash flow and collateral requirements (expected and unexpected) without negatively affecting its reputation, daily operations and/or financial position.
Operational risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes fraud and criminal activity (internal and external), project risk, legal risk, business continuity, information and IT risk, process and human resources risk. Strategic, business and reputational risks are excluded from the definition.
Regulatory Risk The risk of statutory or regulatory sanction and material financial loss or reputational damage as a result of failure to comply with any applicable laws, regulations or supervisory requirements.
Strategic risk Strategic risk is the risk to current or prospective earnings arising from inappropriate business decisions or the improper implementation of such decisions.
Business risk Business risk is the risk to earnings and capital from potential changes in the business environment, client behaviour and technological progress. Business risk is often associated with volume and margin risk and relates to the Bank’s ability to generate sufficient levels of revenue to offset its costs.
Reputational risk Reputational risk is the risk of reputational damage due to compliance failures, pending litigations, under performance or negative media coverage.
Environmental, social Risks focus on the environmental, social and governance issues which impact the Bank’s ability to successfully and governance and sustainably implement business strategy.(ESG) risks. Risk Governance The Board has ultimate leadership authority and responsibility for identifying and controlling all risks that affect Zanaco.
The responsibility for managing and monitoring risks has been delegated to other independent bodies such as the Risk Committee and the Credit Committee.
The Board:
provides overall strategic direction and oversight; ensures implementation of appropriate internal risk management, financial, compliance and audit controls and frameworks; approves credit and investment policies, budgets and business plans; and monitors and reviews Zanaco performance against strategy.
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Responsibilities of the board committes
Risk CommitteeThe Risk Committee (“RC”) has overall responsibility for the development of Zanaco’s risk strategy and implementation of risk principles, frameworks, policies and limits.
The RC reviews and recommends risk management strategy and risk appetite to the Board and is the approval body for risk policies. The RC is also responsible for reviewing the control framework for the management of risks that the bank is exposed to and defining the risk management roles and responsibilities across the bank.
Audit CommitteeAt Zanaco, the Audit Committee reviews Financial Reporting processes, system of internal controls and through the internal audit division of the Bank undertakes audits throughout Zanaco and its branches to ensure that risks are being identified and appropriately managed, as well as assessing the adherence to internal control processes and procedures. It also reviews the compliance function within the Bank.
Credit CommitteeThe Credit committee is responsible for approving all credit exposures exceeding the authority of the management credit committee.
Risk governance framework Effective risk management also requires multiple points of control or safeguards that should be consistently applied at various levels throughout the Bank.
Business Units within Zanaco are accountable for executing specific aspects of the bank’s activities. Authority is delegated to the head of each Business Unit by the Chief Executive Officer (CEO). The head of each functional unit delegates responsibility to individual staff for carrying out specific tasks in accordance with delegated authorities and with the procedural disciplines of the Bank.
The bank’s profit is directly derived from how successfully the bank manages and prices for risk. Risk management is therefore at the core of banking and risk awareness must be embedded in the whole organisation. Risk governance is designed according to the three ‘lines of defence’ as per best banking practise.
There are three lines of defence which are explicitly recognized in the bank:
The first line is the ‘business’, meaning both commercial, customer facing staff as well as staff in back offices and operational departments. All departments are directly responsible to identify and manage all risks that will or can materialise in the course of doing business. This includes the monitoring of risk management in each policy and procedure and making sure procedures are designed to include checks and balances through internal control activities and the separation of duties as much as possible;
The second line of defence are the various departments in the risk directorate. These departments play a supporting and controlling role for the benefit of the first line of defence, ensuring necessary risk activities are executed with the necessary detail and quality; and
The third line of defence is the internal audit function. The audit department works independently, objectively and reports to the Board Audit Committee.
Risk CultureA strong risk culture is critical to Zanaco’s success and underpins both the business strategy and risk appetite of the bank.
Zanaco’s culture is to actively take risks that are adequately rewarded and that support its objectives and vision. Shareholder value is added by creating profits measured after charging for the cost of risk or by activities that are of strategic importance and related to a wider shareholder value growth opportunity.
Risk Appetite and Financial Resource Management The bank’s risk appetite and resource management process frames its decision making and is integrated with strategic objectives.
The financial resource management process sets minimum targets for these resources.
Risk appetiteThe Bank’s risk appetite is defined as the amount of risk that the Bank is willing to seek or accept in pursuit of its long term objectives. The Bank has chosen to express its risk appetite for different categories of risk, each with their own characteristics and tolerance levels.
Inherent to the banking business, risk is present in the lending and financing activities of the Bank where credit is extended in the form of loans. In addition to credit risk, Zanaco is exposed to operational risk and other balance sheet risks (interest rate, foreign exchange, liquidity risk and others).
The Bank has established an active risk culture within the organisation where the correct risk information is utilised across the bank for decision making. The Bank has developed and embraced a Risk Appetite Statement which is positioned in assisting it in achieving the strategic targets of the strategic plan.
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Zanaco has a prudent risk taking culture but acknowledges that some risks need to be taken to achieve strategic goals.
Zanaco has defined risk tolerance parameters to safeguard its robust financial position. In quarterly meetings, portfolio variables are compared with these risk tolerance variables. The levels of internal risk tolerance are generally stricter than the Central Bank of Zambia requirements. The Risk Appetite Statement within Zanaco is developed, with reference to key metrics and limits applied throughout the Bank and is aligned to the strategy and objectives of the bank.
The Risk Appetite Statement is set by the Risk Committee, and ultimately, approved by the Board.
The Bank differentiates between tolerance levels for balance sheet, credit and operational risk:
Balance sheet risks comprise of interest rate risk, liquidity risk, market risk and other risks, and also encompass management of the regulatory ratios;
Credit risk captures the potential loss from a borrower, obligor, or counterparty which fails to honour their contracted debt obligations in a timely manner; and
Operational risk is the risk resulting in a direct or indirect loss caused by human error, inadequate internal process and systems or by external calamities.
Tolerance levels are monitored by various management committees and reviewed by the board’s risk committee.
The board assumes responsibility for ensuring that risks are adequately managed and controlled through the board risk committee.
Risk appetite measures and stress and scenario results are included in risk and management reports across the businesses and at board level and are continually refined.
Stress testingZanaco’s stress testing objective is to ensure that the bank can meet its capital and liquidity requirements in a forward looking manner, including severe but plausible economic stresses specific to Zanaco’s portfolios and risk profile. The results of the entity-wide stress tests assist the Bank in ascertaining whether it has sufficient capital and liquidity in periods of stress. Both stress scenarios and sensitivity analysis are considered during stress testing, with regard to credit, market, operational and liquidity risks. The bank calculates a capital buffer based on the stress testing results, holding this capital buffer as part of its capital base to ensure that capital remains above the minimum regulatory ratio should the stresses materialise. Mitigation actions are included to provide a realistic view of the impact on the Bank’s earnings and capital under the stress scenario.
The Bank’s objective is to offer value by undertaking to deliver sustainable earnings within a desired risk profile. Stress testing is embedded in the risk management of the Bank and is a key focus area in the strategic planning processes. It is an integral part of the Bank’s internal capital adequacy assessment process (ICAAP) and is used to assess and manage the adequacy of capital.
Through stress testing and scenario analysis, the Bank is able to assess the performance of its portfolios under potentially adverse economic conditions. It focusses on the key macroeconomic variables that impact the balance sheet and income statement.
The business plan for the next three years is included in the budget and forecasting process. Scenario planning is then used to assess whether the desired profile can be delivered and whether the business stays within the constraints it has set itself. The scenarios are based on changing macroeconomic variables, plausible event risks and regulatory and competitive changes.
Stress testing is employed in the:
Strategic planning and budgeting process;Capital planning and management process including the setting of a capital buffer for the Bank;Communication with internal and external stakeholders;Assessment of the impact of changes in the macroecomic factors on the Bank’s performance.
During 2014 the Bank performed stress tests on scenarios defined by the Bank’s internal stress testing policy and portfolio specific tests were also conducted.
Financial resources managementThe strategy, risk and financial resource management processes influence the capital and funding plans of the Bank. The capital position provides a buffer over and above the minimum regulatory limit against adverse business performance under extremely severe economic conditions.
The financial, treasury, capital and risk information both actual and budgeted, is used as the basis for risk, capital and financial analysis and stress testing.
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Internal capital adequacy assessment process (ICAAP)ICAAP outlines the process to ensure the Bank achieves its capital management objectives. In order to achieve these objectives the Bank needs to:
ensure that at least the minimum amount of regulatory capital is held at all times for the Bank of Zambia to allow the Bank to conduct business;
hold sufficient capital that will instill confidence in the Bank’s ongoing solvency and status as a creditworthy counterparty for all stakeholders;
allocate capital to businesses based on an understanding of the risk and reward drivers of the income streams and to ensure that appropriate returns are earned on capital deployed;
ensure that the buffer over the minimum regulatory capital requirement is sufficient to cater for income and capital volatility which may manifest through business disruption or regulatory intervention
ensure that Zanaco’s capital adequacy ratios and other limits remain within approved thresholds during different economic and business cycles.
The optimal level and composition of capital is determined after taking into account the Bank’s organic growth plans as well as targeted capital ratios, future business plans, appropriate buffers in excess of minimum requirements, proposed regulatory changes and risk appetite.
Additionally, this requires that the Bank develops and maintains a capital plan that incorporates, among others, the following:
anticipated capital utilisation;planned issuance of capital instruments;stress tests and scenario analysis;appropriation of profits and dividend payments;desired level of capital, inclusive of a buffer;expansion and strategic initiatives; andgeneral contingency plan for dealing with divergences and unexpected events.
ICAAP is an integral tool in meeting the above capital management objectives and is key to the Bank’s risk and capital management processes. ICAAP allows and facilitates:
the link between business strategy, introduced risk and capital required to support the strategy;the establishment of frameworks, policies and procedures for the effective management of material risks;the embedding of a responsible risk culture at all levels in the organisation;the effective allocation and management of capital in the organisation;the development of recognised stress tests to provide useful information which serve as early warnings/triggers, so that contingency
plans can be implemented; andthe determination of the capital management strategy and how the Bank will manage its capital including during periods of stress.
Capital ManagementCapital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial positions, are:
to comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended);to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders;to maintain a strong capital base to support the development of its business;to allocate capital to businesses using risk-based capital allocation, to support the Bank’s strategic objectives, including optimising
returns on shareholder and regulatory capital; andmaintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory
expectations.
Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed by the Basel Committee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.
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Capital Target SettingCapital target setting is key to ensuring that sufficient capital resources are available to meet Zanaco’s regulatory requirements while supporting Zanaco’s ability to meet its strategic objectives and attain its desired balance sheet growth. Zanaco’s capital target setting is linked to the results of its stress testing.
The capital targets are defined taking into account the impact of stress testing on Zanaco’s Capital Adequacy Ratios (CAR). The capital targets are based on the BoZ requirements for minimum Basel II capital adequacy at both the Tier 1 and Total capital levels. These targets are reviewed and potentially revised based on changes in Zanaco’s capital position, portfolio structure, capital plans and risk appetite. The capital targets are also guided by regulatory developments.
Financial ReportingThe Directors accept final responsibility for the preparation of the annual financial statements which fairly present:
The financial position of the Bank as at the end of the year under review;The financial results of operations as well as the cash flows for that period.
The responsibility for compiling the annual financial statements was delegated to Management. The external auditors report on whether the annual financial statements are fairly presented.
The Directors are satisfied that during the year under review:
Adequate accounting records were maintained;An effective system of internal control and risk management monitored by Management was maintained;Appropriate accounting policies supported by reasonable and prudent judgements and estimates were used consistently;The financial statements were compiled in accordance with International Financial Reporting Standards approved by the Zambia Institute
of Chartered Accountants (ZICA), the Banking and Financial Services Act, the Zambian Companies Act, the Securities Act and the Stock Exchange Listing Rules.
Board engagementThe Board continued to meet on a quarterly basis the attendance by the Directors during the year was as follows: Director’s Name 2014 February June September December
Mr E D Drok - NED a a a a
Mr C Y Mulendema - NED a n/e n/e n/eMs G M Akapelwa - NED a a a a
Mr G Robinson - NED a a a a
Mr F Weenig - NED a a a a
Dr R Simwinga - NED n/e n/e - a
Mr B Dick - ED n/e a a a
NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attendDr R. Simwinga was appointed in June 2014 to replace Mr C Y Mulendema whose tenure came to an end in April 2014.
Directors’ CompensationThe disclosure of Directors’ fees and remunerations is made in Note 34 of the financial statements. The Directors do not have any shares in the Bank and are not entitled to share options. Directors’ fees and any amendments are approved by shareholders at the Annual General Meeting. Board Evaluation The Board every year carry out a self assessment of its performance during the year through the engagement of an external third party which covers the following:
Performance against its objectives at the beginning of the year;Effectiveness with respect to the Bank’s strategic direction;Responsiveness to shareholders and stakeholders’ concerns;Maintenance and implementation of the Board’s governance principles;Access to and review of information from Management and the quality of such information;Review of the composition and diversity of the skills and exposure of the Board;Continuous professional development for Board members.
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Statement of corporate governance Board CommitteesIn order to enable it to discharge its executive functions, the Board has established four principal standing Committees, each governed by written terms of reference defining the frequency of meetings, power and duties, and reporting obligations. These Committees continuously evaluate the progress made towards meeting the Bank’s overall objectives, in addition to ensuring the efficient and effective management of the entire Bank’s core functions. A Non-Executive Director chairs each of the four Committees. The said committees are Audit, Risk, Credit and Human Resources and Compensation.
(a) Audit CommitteeThe Audit Committee is chaired by a Non-Executive Director and consists of two other Non-Executive Directors. The Committee meets at least four times per year to evaluate, amongst other things, accounting practices, the internal control systems and the auditing and financial reporting. Its tasks include evaluating critical risk areas identified with the help of Management, as well as reporting on these to the Board.
The Committee operates under a formal charter approved by the Board and the Committee Members have unlimited access to all information. Certain members of Management are invited to attend and give feedback at Committee meetings. The Audit Committee also recommends to the Board the remuneration of the external auditors. The Committee also holds separate meetings with the Director of Internal Audit and the external auditors when required, in order to ensure that matters are considered without undue influence.
The attendance by the Directors during the year was as follows:
Director’s Name 2014 February June September December
F Weenig - NED a a a a
Mr C Y Mulendema - NED a - - -Ms G M Akapelwa - NED a a a a
Mr E D Drok - NED a a a a
Dr R Simwinga - NED n/e n/e - a
Mr B Dick - ED n/e a a a
NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attendDr R. Simwinga was yet to be eligible to attend.Dr R. Simwinga was appointed in June 2014 to replace Mr C Y Mulendema whose tenure came to an end in April 2014.
(b) Risk CommitteeThe Risk Committee is chaired by a Non-Executive Director and consists of two Non-Executive Directors and one Executive Director, who is also the Chief Executive Officer of the Bank. Certain members of the Executive Management Committee attend by invitation. On a quarterly basis, the Committee reviews the various risks within the Bank against set risk apetites. It also reviews matters relating to provisions and allowances for impairment.
The attendance by the Directors during the year was as follows:
Director’s Name 2014 February June September December
Mr F Weenig - NED a a a a Mr C Y Mulendema - NED a n/e n/e n/eDr R Simwinga - NED n/e n/e - aMr. B Dick - ED n/e a a a NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attendDr R. Simwinga was not eligible to attend.Dr R. Simwinga was appointed in June 2014 to replace Mr C Y Mulendema whose tenure came to an end in April 2014.
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(c) Credit CommitteeThe Credit Committee is chaired by a Non-Executive Director and consists of two other Non-Executive Directors and one Executive Director, who is also the Chief Executive Officer of the Bank. Certain members of the Executive Management Committee attend by invitation.
The Credit Committee approves credits with values beyond the mandate of Management.
The attendance by the Directors during the year was as follows: Director’s Name 2014 February June September December
Ms G M Akapelwa - NED a a a a
Mr G Robinson - NED a a a a
Mr E D Drok - NED a a a a
Mr B. Dick - ED n/e a a a
NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attend
(d) Human Resources and Compensation Committee
The Committee provides oversight over the remuneration and compensation for Senior Management and key personnel in the Bank, so as to retain and motivate staff to perform at the level of quality required.
Currently, the Bank participates annually in local market surveys and those focusing on the rest of Africa in order to ensure market related salaries are paid and that market related trends are also followed when changes are made to employee benefits. The remuneration of all managerial staff in the Bank is also linked to their individual performance.
The attendance by the Directors during the year was as follows: Director’s Name 2014 February June September December
Ms G M Akapelwa - NED a a a a
Mr G Robinson - NED a a a - Mr C Y Mulendema - NED a n/e n/e n/e Mr E D Drok - NED a a a a
Dr R Simwinga - NED n/e n/e - a
Mr B Dick - ED n/e a a a
NED - Non-Executive DirectorED - Executive Director n/e - Not eligible to attendDr R. Simwinga was not eligible to attend.Dr R. Simwinga was appointed in June 2014 to replace Mr C Y Mulendema whose tenure came to an end in April 2014.
Bank SecretaryThe Board appoints the Bank Secretary and all Board Members have access to the services of the Bank Secretary. Where necessary, the Board may seek independent professional advice on some matters.
The Bank Secretary ensures the following:
Annual calendar for Board meetings is circulated to all Board Members after approval;Adequate information is provided to all the Members prior to commencement of the Board and sub-committee meetings;Culture of Good Corporate Governance is promoted;Liaison with Securities and Exchange Commission (SEC), the Lusaka Stock Exchange (LuSE) and Patents and Companies
Registration Agency (PACRA).;Statutory registers are maintained;Key liaison for investors and contact point for shareholders;Board is updated on relevant statutory amendments and developments.
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Code of ConductThe purpose of the Code of Conduct is to regulate the required standards of corporate behaviour by which the Bank is judged in all its dealings and operations. Therefore, the Code of Conduct stipulates the standards by which individuals within the Bank are judged. The key topics covered under the code are:
Integrity;Skill, Care and Diligence; Relations with Regulators; Staff Interest and Gifts; Customer Due Diligence / Know Your Customer;Conduct of Business / Customer Relationships; Conduct of Business / Communication with Customers; Conduct of Business / Conflict of Interest and Duty;Duty to Supervise.
Members of staff as well as agents are being subjected to continued training on the contents of the Code of Conduct to enable them to understand and appreciate these important guidelines, which control their conduct in their daily activities as Bank employees.
In tandem with the Code of Conduct, we gave further guidelines to members of staff on the requirements of seeking prior authorisation and reporting of gifts and hospitality they give or receive in connection with their employment to the Bank as long as such gifts are reasonable and proportionate in a specific situation. This was done to promote transparency and to avoid the risk of conflict of interest arising from Gifts, which could potentially lead to suggestions of impropriety by the Bank or its employees.In 2012, we introduced a formal procedure requesting Board Members and Management to fill out a Declaration of Interest Form on an annual basis. Directors have a continuing duty to update any changes in these interests at each Board meeting. External AuditThe external auditors are responsible for reporting on whether the financial statements are fairly presented in accordance with International Financial Reporting Standards and in the manner required by the Zambian Companies Act and the Banking and Financial Services Act.
Consultation occurs between external and internal auditors to effect an efficient audit process. The external auditors consider all the reports issued by the Internal Audit Department and which are duly supplied to them by the Bank.
Internal AuditInternal audit is an independent, objective assurance and consulting activity designed to add value to the Bank as well as to improve its operations. It helps the Bank accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving risk management, control and governance processes.
The internal audit function encompasses the examination and evaluation of the adequacy, effectiveness and efficiency of Governance, risk management and control processes.
The Internal Audit Division (IAD) evaluates and makes appropriate recommendations for improving the governance process in promoting appropriate ethical values in the bank as well as ensuring effective bank performance management and accountability.
The IAD evaluates the effectiveness and adequacy of the Risk Management Framework of the Bank and contributes to the improvement of risk management processes.
Internal audit plans are prepared using a risk assessment model that ensures audit resources are directed towards high risk areas of the Bank. The plan is developed in consultation with Management and approved by the Audit Committee to ensure independence of the audit function. The Director Internal Audit functionally reports to the Audit Committee and administratively to the Managing Director.
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The internal audit function is governed by the Internal Audit Charter which defines its purpose, authority and responsibility. The Internal Audit Charter is reviewed and updated to meet best international practices at least once a year.
The IAD assists the bank in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement. The control processes are expected to ensure, among other things, that:
Financial and operational information is reliable and possesses integrity;Operations are performed efficiently and achieve established objectives;Assets are safeguarded; andActions and decisions of the bank are in compliance with laws, regulations and contracts.
Compliance FunctionThe Bank has set up an independent Compliance Function, guided by the Compliance Charter, which defines the fundamental principles, roles and responsibilities of the Compliance Functions within the Bank, as well as its relationship with Executive Management, the Board of Directors and the business and operational functions.
The Charter is updated from time to time to reflect the legal and regulatory evolution which shall be communicated to all staff. The Board of Directors is responsible for formally approving the compliance policy set by the Executive Management. The efficiency and implementation of the policy will be evaluated on a quarterly basis by means of a status report provided by the compliance function to the Board. The Compliance Function also independently reports to the Board Audit Committee on material compliance issues in the Bank through the Compliance Quarterly Report to enable the Board to appreciate the level of compliance risk and to solicit for their timely guidance.The objectives of the Independent Compliance Function are to:
identify and evaluate the compliance risks within the Bank;organise, co-ordinate and structure compliance related controls;control and monitor all measures taken to mitigate compliance risks;report to the Executive Management and the Board of Directors as appropriate;act as the compliance advisor within the Bank.
The Compliance Function and Compliance Monitoring programme are subject to an independent review by both an internal and external audit for the appropriateness of the policies and their implementations.
Anti-Money Laundering PolicyThe Bank has in place the Anti-Money Laundering (AML) and Watch List Management (WLM) solutions. The two interrelated systems once fully implemented will improve the detection and reporting of suspicious activities through automated screening of transactions and names of customers in line with the Bank of Zambia Anti-Money Laundering Directives, the Financial Intelligence Centre Act and the Bank’s Anti-Money Laundering Policy. Furthermore, the Bank conducts several compliance training programmes where members of staff are trained on the identification and reporting of suspicious activities as well as the obligations that go with the above regulatory requirements.
WhistleblowingThe Whistle Blowing Policy still remained a vital corporate governance tool. It is intended to make it easier for members of staff to report irregularities in good faith without needing to fear that those actions may have adverse consequences for them. The Whistle Blowing Policy is a key element in demonstrating the Bank’s commitment to the highest possible standards of transparency, integrity, probity and accountability in its operations with all stakeholders and is in line with the provisions of the Public Interest Disclosure (Protection of Whistleblowers) Act. Protecting the integrity and reputation of the Bank requires the active support of all members of staff who, in most cases, are the first to notice and who are required to report incidents of suspected fraud, corruption, collusion and coercion and other serious infringements of the rules and policies in force at the Bank.
To enhance whistleblowing reporting, the Board appointed a Trusted Person, who is an outsider, during the Year 2013 and this appointment together with the contact details were communicated to staff by Management. Under the act, all Bank staff were advised to report serious concerns of possible malpractice and wrong doing concerning employees of the Bank under the Whistleblowing Policy, by opting to identify themselves or anonymously, to the Trusted Person. The Trusted Person will be the entry point for all reports of malpractice under
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Statement of corporate governancethe Whistleblowing Policy for on-ward submission to the Trusted Committee for consideration and resolution. Further, the Bank issued a communique to all members of staff reminding them of the existence of the Whistleblowing Policy and the Trusted Person as well as their duties to report cases of malpractice they may come across.
Gender and DiversityThis continued to be a focus area for the Bank in 2014.The ZANACO women’s forum embarked on Mentorship training with a view to fostering the number of women who are ready to take up leadership challenges. To celebrate International Women’s Day in March, the Zanaco Women’s Forum organised an event where a discussion on Gender Based Violence and Intestate Act were discussed.
Environmental and Social Management PolicyCompliance with Legislation on Environmental and Social aspects of business are increasingly becoming focal measurement points for Good Governance. Our approach as a Bank has been to develop and implement innovative monitoring and screening processes that adhere to both our internal guidelines and the Zambian Environmental Laws. Alongside the environmental laws, the Bank has developed an Environmental & Social Policy that is in full compliance with local environmental laws. In order to operationalise this policy, the Bank has also enhanced its environmental assessment screening process which is an integral part of loan origination and appraisal processes. Broadly, the process is categorized in three parts:
Category A – Projects with potential significant adverse social or environmental impacts;Category B – Projects with potential limited adverse social or environmental impacts;Category C – Projects with minimal or no significant social or environmental impacts.
As a good corporate citizen, Zanaco intends to actively work towards the realisation of sustainable development. Through our business activities and services, the Bank will support environmental conservation efforts within its operational scope as well as those in the service supply chain in order to contribute to the realisation of sustainable development in Zambia.
The Bank is committed to raising staff awareness on environmental issues and sustainable development and encourages staff observance of the following at the workplace:
Preventing of pollution by reducing, reusing and recycling materials and goods purchased; Encourage energy saving, reduce water consumption, and promote good housekeeping practices;Improve and maintain the quality of the working environment within the Bank and all our branches/affiliates (internal air quality, water
quality, waste management, paper use, energy use, etc).
Basel IIThe implementation of the International convergence of Capital Measurement and Capital Standards also known as Basel II has started in earnest following the issuance by Bank of Zambia of draft regulations for Credit risk, Operational risk and Market risk under Pillar 1.
Zanaco has structures and resources in place which will ensure full implementation and compliance of the Basel II requirements in line with guidelines issued by the Central Bank.
During the year 2014 Zanaco developed its Internal Capital Adequacy Assessment Process (ICAAP) document and pillar III disclosures which have since been submitted to the Bank of Zambia for review. The bank continued with the parallelrunning to assesss the impact of the application of Basel ll. The bank has enough capital to absorb the additional capital allocation.
Stakeholder EngagementFollowing the challenges some customers faced with the upgrade of the core banking platform, a visit was facilitated for the Managing Director to Mazabuka where he visited farmers in the company of one of the Board members to explain the system challenges the bank was experiencing and thanked the farmers for their support during the period.
Zanaco also hosted a customer cocktail in December as part of the Bank’s strategy to engage customers and also get feedback on service delivery on the various products and services which they access. Two investor fora to discuss the full year and interim half year results were held in April and September respectively, to discuss ways of how we can work better.
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2014 annual report
Staff participated in the Bank of Zambia Golden Jubilee inter-bank sports tournament and Zanaco was well represented with teams made in all the eight sports disciplines planned for the competition. All banks participated in the event which provided interaction opportunities between staff and Bank of Zambia senior staff and management.
Zambia National Farmers Union (ZNFU) congress was held in October and as part of our support, Zanaco provided resources towards the main Congress and on the sidelines sponsored the Farmers gala. Zanaco staff interacted with farmers drawn from various parts of the country.As part of the Bank’s support towards the Golden Jubilee celebrations, Zanaco partnered with UNICEF and Zamtel to sponsor about 2,000 children throughout Zambia to paint a 1.5km long painting depicting Zambia’s history in the various areas of the economy including the independence struggle. The painting was presented to First Republican President, Dr. Kenneth Kaunda by the three organisations. Zanaco also partnered with the Zambia@50 Secretariat to support the Golden Jubilee National Essay Writing competition in August to ensure that history is recorded for future generations. The Bank was the first private sector organisation to sponsor a Golden Jubilee activity with the Zambia@50 secretariat.
To reaffirm its commitment towards gender equality, Zanaco co-sponsored the African Women Economic Summit with the Bank of Zambia in July. The Bank was on hand to provide banking services to the delegates and financial literacy tips.
Members of staff also had an opportunity to meet Board members in December as a form of fostering interaction.
Employee WellnessZanaco values the total well being of its staff and seeks opportunities through which its employees can pursue healthy life styles in their communities.
Some of the activities which were lined up in 2014 included, Presentation by Ambassador Sheila Siwela on Capturing Opportunities, Prevention of Cancer by Doctor Msiska, Presentation by Asunta Simoloka on Indigenous Foods and their benefits, Medical checkups by Vision Care (Blood pressure, weight, Diabetes checking, Corneal scar screening, cataract screening), Health Talk Presentation by Umoyo in conjunction with Metropolitan on Food and healthy living.
The Bank continues to bench mark its occupational health, safety and welfare policies and procedures to ensure continued safeguarding of employees.
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2014 annual report
(a) IntroductionIt is Zanaco’s core Corporate Social Responsibility (CSR) to take into account its economic, social and environmental impact and its obligation to employees and the local community. Zanaco strives to promote sustainable development of the communities in which the Bank operates not just for the present but for future generations as well.
Zanaco’s CSR engagements in 2014 included:Financial Fitness activities for various target groupsStrategic partnerships with Read to Succeed and CHAZGo Big for Charity drive Support to traditional ceremoniesInternal environmental management
(b) CSR Activities
1. Financial Fitness
Corporate Social Responsibility
(i) Financial Fitness for children and youthsZanaco continues supporting financial education for children and youth in and out of schools through branches and strategic partners across the country. During the year, the Bank donated a supply of 900 soccer balls and sets of financial education supplementary school materials to benefit 400 schools countrywide.
The items were symbolically presented to the Ministry of Education, Science, Vocational Training and Early Education during a soccer fun donation event held at Sunset Stadium. The event was officiated by Dr Patrick Kanza- Permanent Secretary Ministry of Education, Science, Vocational Training and Early Education. It is estimated that 12,000 pupils across the country will be reached through this donation. Zanaco has to date provided financial education to children and youth in schools and through other avenues reaching about 31,000.
(ii) Financial Fitness training for farmersFinancial Fitness trainings for farmers were conducted in 20 districts across the country where 671 small scale farmers were trained. The pre training evaluation done indicated that about 90% of the participants lacked basic record keeping and entrepreneurial skills before the training. The trainings conducted covered topics on financial planning; money mind set; net worth calculation; saving; investment; credit awareness and business simulation.
The objective of the training was to enable farmers understand what entrepreneurial thinking and acting means , challenges and opportunities of micro enterprises and how to react to them, under-stand basic accounting and controlling principles, apply simple financial tools and understand the interface between financial institutions and clients and realise implications thereof. The training further emphasised the need for personal financial management and separation of business and personal finances. The trainings were participatory and learner centred where participants were involved in a business simulation of running businesses in groups.
The post training evaluation revealed that almost all participants had acquired the skills on how to write financial plans, calculate net worth and generate business financial statements.
(iii) Participation in the Financial Literacy weekZambia celebrated the Financial Literacy week from 13th to 18th March 2014. This year’s focus was on promoting saving for children, youth and adults under the theme: ‘A Better Life Through Saving’. As part of the Bank’s celebrations the following activities were conducted: A total of 21 Zanaco branches participated in the financial literacy week activities.
10 Branches visited 14 schools and members of staff participated in offering financial fitness lessons to pupils on the importance of saving and the role banks play. Some of the branches further offered sensitisation talks to teachers on the importance of saving and various savings products offered by the bank. One of the branches (Kabwe) was able to open 19 SEBA accounts after the sessions.
8 branches hosted pupils from various schools and facilitated a branch tour educating pupils on how banks operate and products/ services being offered. Talks on the importance of saving were also offered. One of the branches had an opportunity to host a segment of deaf pupils.
3 branches participated in the Provincial Financial Literacy Week exhibitions spearheaded by BOZ, PIA and SEC. The Bank also participated in the Lusaka Exhibition for Financial Institutions organised by BOZ,
PIA and SEC.
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2014 annual report
(iv) Consumer education through radioFinancial and consumer education programmes were aired on Radio 1 in all 7 major local languages as a continuation of the 13 series. The programmes aired during the reporting period focused on credit awareness, understanding net worth and money mind set. Financial Fitness continued being provided to the public on the Zanaco on the Move Radio programme.
(v) Evaluation of the Financial Fitness programmeAn external evaluation of the Financial Fitness programme was conducted and revealed that there was very high and positive appreciation by participants of the financial fitness programme. Most participants started to save more after the training. The Financial Fitness training was also mentioned to have contributed to growth of business/farm enterprises and the growth of assets/posessions among beneficiaries.
All participants in the evaluation shared knowledge with other people in their direct environment on financial matters. Some of them further organised more formalised training events in their communities to share their learning points.
Partcipants in the evaluation indicated that the repayment of loans (formal or informal) was easier for most of them after the training. Farmers and entrepreneurs mentioned that it became easier for them to apply for a loan after the training.
All participants responded positively to the statement that the training influenced education and healthcare of their family positively.
2. Strategic partnerships
(i) Reading Tools in Box roll out to schools Following the partnership with Read To Succeed Project a USAID funded project and the Ministry of Education, Science, Vocational Training and Early Education in 2014, targeting schools in Muchinga Province, a follow up partnership was entered for the year 2015. The partnership support aims to provide Financial Fitness and reading materials to 135 schools in Luapula, Western and North Western Province for use in schools starting in the 2015 academic calendar.
Zanaco’s contribution in Muchinga province has been considered as an important and critically needed input to the promotion of literacy skills among young learners. It was timely and relevant. The provincial government has recognized Zanaco as a close partner. 122 boxes sponsored through the financial contribution from ZANACO and delivered to 122 schools in Muchinga Province has resulted in a total of 1,604 teachers benefiting who in turn supported a total of 53,422 pupils.
(ii) CHAZ DonationA donation of K40,000.00 was made to CHAZ for the renovation of the Nyanje Hospital Maternity Waiting Home in Sinda District of Eastern Prov-ince. The donation will help improve health facility deliveries and better pregnancy outcomes.
This donation was made in response to the situation of maternal and child health in Zambia which is among the worst in Africa. The donation will enable the hospital improve the conditions of the facility in view of achieving better outcomes of pregnancies, especially that the facility is serving one of the rural areas with high maternal and neonatal mortalities. The CHAZ Executive Director – Mrs Karen Sichinga received the donation from the Zanaco Managing Director on behalf of her organisation.
3. Support to traditional ceremoniesAs a way of contributing to strengthening the cultural heritage of the nation, Zanaco made donations to Likumbi Lyamize of the Luvale people of Zambezi District, Kunda Malaila of the Kunda people of Mabwe District and the Ncwala traditional ceremony. Zanaco believes that traditional ceremonies provide valuable insight of traditional culture that has been passed on from generation to gen-eration. The Bank endeavours to provide in kind support that can help meet the needs of the community over the years including outside traditional ceremonies.
4. Water and sanitation supportOne of the strategic CSR areas is support to health with a major focus on water and sanitation. During the year, three communities received support and these are Kaboloko Village in Kasempa, Lion School for the Blind in Ndola and Misisi Compound in Lusaka.
Kaboloko Village is located in Kasempa, Njenga Ward. The village has 250 people who do not have access to clean water.
5. Internal environmental managementThe Zanaco workplace environmental campaign was initiated. The focus for the year was on paper recycling under the campaign dubbed “Paper Loves Recycling. Love Nature. Save paper.”
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2014 annual report
Corporate Social Responsibility6. Go Big for Charity Drive
A work place charity initiative was introduced and dubbed Go Big for Charity. The theme is based on part of the Bank’s slogan stating that Zana-
co is Big therefore providing an opportunity to show it by making a Big difference in the community. The objective of the Go Big for Charity Drive
is to provide a platform for employees to engage in CSR thereby creating awareness of the extent of social needs and allowing the workplace to
be a ‘good neighbour’ and community partner in areas of operation.
With Zambia having many challenges, 5 key areas of support were identified and these are: Financial education, Environment and Health, Water
and sanitation, Culture preservation and Sport. Zanaco tallied staff donations for the selected charities and matched them 50/50. The response
from members of staff was very positive with a commitment of K112,000.00 from various branches and divisions across the country.
Corporate banking staff handing out presents to residents at Matero Aftercare Centre in Matero - Lusaka
Zanaco’s Go Big for Charity....
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2014 annual report
Lusaka city Market, Findeco and Easy banking centre staff singing the National Anthem before donating items to Kanyama Clinic in Lusaka
Mufulira Branch staff hand over
a gift to a senior citizen at the old
people’s home
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2014 annual report
FinancialsSTATEMENT OF PROFIT OR LOSSfor the year ended 31 December 2014
Notes 2014 2013 K’ 000 K’ 000
Interest incomeInterest expense
Net interest income
Impairment losses on loans and advances
Net interest income after loans impairment charges
Net fee and commission income
Foreign exchange incomeOther operating income
Total income
Operating expensesLoss on disposal of Goverment Securities
Profit before income tax
Income tax expense
Profit for the year
Earnings per share
Basic earnings per share (Kwacha)
779,442 (133,969)
645,473
(48,545)
596,928
291,300
29,065 6,278
35,343
923,571
(605,520) (104,494)
213,557
(70,631)
142,926
0.016
67
17
8
9
1010
11
13
673,552 (120,169)
553,383
(31,136)
522,247
254,490
21,944 7,758
29,702
806,439
(542,175) -
264,264
(77,950)
186,314
0.022
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2014 annual report
Profit for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profitor lossNet (loss) gains on available-for-sale financial assetsNet reclassification adjustment for realised net losseson available-for-sale financial assets
Items that will not be reclassified subsequently to profit or lossSurplus on defined benefit planGain on revaluation of propertyIncome tax relating to items that will not be reclassified
Other comprehensive income for year, net of income tax
Total comprehensive income for the year
Notes
31
16
243131
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEfor the year ended 31 December 2014
2014 K’ 000
142,926
(23,797)
(4,102)
(27,899)
54,706 7,944 (878)
61,772
33,873
176,799
2013 K’ 000
186,314
4,102
(813)
3,289
6,476 -
171
6,647
9,936
196,250
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2014 annual report
ASSETS
Cash and balances with Bank of ZambiaBalances with other banksWithholding tax recoverableCurrent tax recoverableInvestment securities Loans and advances to customersProperty and equipmentOther assets
Total assets
LIABILITIESCustomer depositsDeposits from other banksDeferred tax liabilitiesCurrent tax liabilitiesOther liabilitiesProvisions for liabilities and chargesBorrowings
Total liabilities
EQUITYShare capitalShare premiumStatutory reserveGeneral banking reservesRevaluation reservesRetained earnings
Total equity
Total equity and liabilities
NOTES
1415111116171821
22232011252627
2828293031
2014 K’ 000
1,163,202 399,170
19,530 20,397
1,445,340 3,138,509
274,635 203,020
6,663,803
5,053,720 142
32,440 -
106,087 12,038
458,270
5,662,697
86,625 2,622
86,625 188,479
37,458 599,297
1,001,106
6,663,803
2013 K’ 000
909,543 284,303
30,593 -
2,341,501 2,987,685
303,411 114,919
6,971,955
5,514,878 7,209
34,748 5,996
156,824 11,459
373,221
6,104,335
86,625 2,622
86,625 154,746
58,291 478,711
867,620
6,971,955
The financial statements on pages 40 to 100 were approved for issue by the Board of Directors on 19 February 2015 and signed on its behalf by: Director Director Director Secretary
STATEMENT OF FINANCIAL POSITION as at 31 December 2014
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2014 annual report
STATEMENT OF CHANGES IN EQUITY As at 31 December 2014
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2014 annual report
STATEMENT OF CASH FLOWS
Cash flows from operating activities Profit before income tax 213,557 264,264 Adjustments for: Amortisation of staff loan benefit 21 20,183 12,931 Impairment loss recognised on loans and advances 17 53,068 32,378 Reversal of impairment loss on loans and advances 17 (4,523) (1,242)Reversal of impairment loss on other assets 21 3,627 -Impairment loss recognised on other assets 21 845 (971)Net exchange gains on borrowings 27 44,541 27,799 Revaluation deficit on properties recognised in profit or loss 7,868 - Gain on sale of property (202) 13 Assets written off 18 2,422 98 Depreciation 18 49,809 43,289 Cash flows from operating activities before changes in operating assets and liabilities 391,195 378,559 Changes in operating assets and liabilities: - loans and advances to customers (219,552) (379,660)- statutory deposits (321,921) (178,659)- other assets (37,867) (11,214)- customer deposits (461,159) 1,199,960 - other liabilities (50,158) (40,893)- investment securities 939,978 (357,733) Cash (used in) generated from operations (150,679) 231,801 Withholding tax suffered 11 (20,936) (31,125)Income tax paid 11 (68,211) (53,236)
Net cash generated from (used in) operating activities (239,826) 147,440 Cash flows from investing activities Purchase of property and equipment 18 (23,487) (107,004)Proceeds from sale of property and equipment 311 2,558 Net cash used in investing activities (23,176) (104,446) Cash flows from financing activities Proceeds from borrowings 27 160,250 -Repayment of borrowings 27 (119,742) (148,643)Dividends paid (43,313) (42,013) Net cash used in financing activities (2,805) (190,656) Net increase in cash and cash equivalents 125,388 230,897 Cash and cash equivalents at start of year 870,864 639,967 Cash and cash equivalents at end of year 33 996,252 870,864
NOTES 2014 2013 K’ 000 K’ 000
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2014 annual report
1. GENERAL INFORMATION The Bank is incorporated in Zambia under the Companies Act , 1994 (as amended) as a limited liability Bank, and is domiciled in Zambia. The address of its registered office is: Plot 2118-2121 P.O Box 33611 Cairo Road Lusaka The Bank’s principal activities are the provision of Commercial banking and related services to the general public. 2. Application of new and revised international financial reporting standards (IFRSs)
2.1 Amendments to IFRSs and the new Interpretation that are mandatorily effective for the current year In the current year, the Bank has applied a number of amendments to IFRSs and a new Interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2014. Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities The Bank has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off ’ and ‘simultaneous realisation and settlement’. The amendments have been applied retrospectively. The Bank has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognised in the Bank’s financial statements. IFRIC 21 Levies IFRIC 21 addresses the issue as to when to recognise a liability to pay a levy imposed by a government. The Interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation.
The Interpretation provides guidance on how different levy arrangements should be accounted for, in particular, it clarifies that neither economic compulsion nor the going concern basis of financial statements preparation implies that an entity has a present obligation to pay a levy that will be triggered by operating in a future period. The application of this Interpretation has had no material impact on the disclosures or on the amounts recognised in the Bank’s financial statements.
2.2 New and revised IFRSs in issue but not yet effective The Bank has not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 5 IFRS 15 Revenue from contracts with customers 4 Amendments to IAS 16 and IAS 38 Clarifications of Acceptable Methods of Depreciation and Amortisation 3 Amendments to IAS 16 and IAS 41 3 Amendments to IAS 19 1 Amendments to IFRSs Amendments to IFRSs 1 IFRS 14 Regulatory Deferral Accounts3
Amendments to IAS 27 3
IFRS 10 an IAS 28 3
Amendments to IFRSs 3
1 Effective for annual periods beginning on or after 1 July 2014, with earlier application permitted. 2 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions. Earlier application is permitted. 3 Effective for annual periods beginning on or after 1 January 2016, with earlier application permitted. 4 Effective for annual periods beginning on or after 1 January 2017, with earlier application permitted. 5 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. IFRS 9 Financial Instruments IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by
NOTES TO THE FINANCIAL STATEMENTS
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2014 annual report
introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments. Key requirements of IFRS 9 are described as follows:
All recognised financial assets that are within the scope of IAS 39 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss;
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss;
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised;
The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.
The directors of the Bank anticipate that the application of IFRS 9 in the future may have a material impact on amounts reported in respect of the Bank’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Bank undertakes a detailed review.
IFRS 15 Revenue from Contracts with Customers In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 and the related Interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. The directors of the Bank anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Bank’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Bank performs a detailed review.
Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This
NOTES TO THE FINANCIAL STATEMENTS
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
presumption can only be rebutted in the following two limited circumstances: (a) when the intangible asset is expressed as a measure of revenue; or (b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly correlated. The amendments apply prospectively for annual periods beginning on or after 1 January 2016. Currently, the Bank uses the straight-line method for depreciation and amortisation for its property, plant and equipment, and intangible assets respectively. The directors of the Bank believe that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the directors of the Bank do not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact on the Bank’s financial statements.
The amendments to IAS 19 clarify how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. For contributions that are independent of the number of years of service, the entity may either recognise the contributions as a reduction in the service cost in the period in which the related service is rendered, or to attribute them to the employees’ periods of service using the projected unit credit method; whereas for contributions that are dependent on the number of years of service, the entity is required to attribute them to the employees’ periods of service. The directors of the Bank do not anticipate that the application of these amendments to IAS 19 will have a significant impact on the Bank’s financial statements.
Annual Improvements to IFRSs 2010-2012 Cycle include a number of amendments to various IFRSs, which are summarised below.
The amendments to IFRS 3 clarify that contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognised in profit and loss. The amendments to IFRS 3 are effective for business combinations for which the acquisition date is on or after 1 July 2014.
The amendments to IFRS 8 (i) require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have ‘similar economic characteristics’; and (ii) clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. The amendments to the basis for conclusions of IFRS 13 clarify that the issue of IFRS 13 and consequential amendments to IAS 39 and IFRS 9 did not remove the ability to measure short- term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial. As the amendments do not contain any effective date, they are considered to be immediately effective.
The amendments to IAS 16 and IAS 38 remove perceived inconsistencies in the accounting for accumulated depreciation/amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses.
The amendments to IAS 24 clarify that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. The directors of the Bank do not anticipate that the application of these amendments will have a significant impact on the Bank’s financial statements. The Annual Improvements to IFRSs 2011-2013 Cycle include a number of amendments to various IFRSs, which are summarised below. The amendments to IFRS 3 clarify that the standard does not apply to the accounting for the formation of all types of joint arrangement in the financial statements of the joint arrangement itself. The amendments to IFRS 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32. The amendments to IAS 40 clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both standards may be required. Consequently, an entity acquiring investment property must determine whether:
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
(a) the property meets the definition of investment property in terms of IAS 40; and (b) the transaction meets the definition of a business combination under IFRS 3.
The directors of the Bank do not anticipate that the application of these amendments will have a significant impact on the Bank’s financial statements. 3. Significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 3.1 Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards. 3.2 Basis of preparation The financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below: Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Bank takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below: 3.3 Interest income and expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognised within ‘interest income’ or ‘interest expense’ in profit or loss using the effective interest method. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Bank and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Effective Interest rateThe effective interest method 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. The calculation of the effective interest rate includes all fees 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. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment loss. 3.4 Fees and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan.
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party - such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of business - are recognised on completion of the underlying transaction. 3.5 Translation of foreign currencies (i) Functional and presentation Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in Kwacha (“K”) which is the Bank’s functional currency. (ii) Transaction and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss account. Monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items denominated in foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the year in which they arise. 3.6 Financial assets Financial assets are recognised when the Bank becomes a party to the contractual provisions of the instruments. Financial assets are initially measured at fair value. Transaction costs that are directly attributed to acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to or deducted from the fair value of the financial assets as appropriate, on initial recognition. Transaction costs directly attributed to the acquisition of financial assets at fair value through profit and loss (FVTPL) are recognised immediately in the profit or loss. The Bank classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans, advances and receivables; held-to-maturity financial assets; and available-for-sale assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Management determines the appropriate classification of its financial assets at initial recognition.
(i) Loans, advances and receivables Loans, advances and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. (ii) Held-to maturity Held-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where the Bank sells more than an insignificant amount of held-to-maturity assets, the entire category would have to be reclassified as available- for-sale. Subsequent to initial recognition, held to maturity investments are measured at amortised cost using the effective interest rate method less any impairment. (iii) Available-for-sale (AFS) AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. The Bank also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates (see below), interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Dividends on AFS equity instruments are recognised in profit or loss when the Bank’s right to receive the dividends is established. AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period. 3.7 Impairment of financial assets The Bank assesses at each Reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: (a) significant financial difficulty of the issuer or obligor; (b) a breach of contract, such as a default or delinquency in interest or principal payments; (c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; (d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (e) the disappearance of an active market for that financial asset because of financial difficulties; or (f ) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) adverse changes in the payment status of borrowers in the portfolio; and (ii) ational or local economic conditions that correlate with defaults on the assets in the portfolio.
The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between 3 months and 6 months.
Assets carried at amortised cost The Bank 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. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s 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 recognised in the profit and loss account. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in profit or loss.
3.6 Financial assets (Continued)
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss. Assets carried at fair value 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 considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss account. Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due. 3.8 Derecognition of financial assets The Bank derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the Bank continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Bank retains an option to repurchase part of a transferred asset), the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.
3.9 Property and equipment (i) Recognition and MeasurementsAll property and equipment except buildings is stated at historical cost. Items of property and equipment are subsequently measured at cost less accumulated depreciation and accumulated impairment losses and property is subsequently measured at fair value less accumulated depreciation. Buildings are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent impairment losses. It is the Banks policy to perform revaluations with regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. The revaluation differences are credited to other comprehensive income and accumulated in equity under the heading “revaluation surplus” unless it represents the reversal of a revaluation decrease previously recognized as an expense, in which case it should be recognized as income. A decrease as a result of a revaluation is recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. When a revalued asset is disposed off, any revaluation surplus is transferred directly to retained earnings. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost includes the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as party of that equipment. When parts of an item of property and equipment have different useful lives, they are componentized as separate items of property and equipment.
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Capital work in progress relates to items of property, plant and equipment that are under construction and are yet to be commissioned for use. Work in progress is measured at the cost incurred in relation to the construction up to the reporting date.
The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property and equipment, and is recognized net within other operating income in statement of profit or loss.
(ii) Subsequent costsThe cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Bank and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) DepreciationDepreciation is based on the cost of the asset less its residual value. Components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Capital work in progress is not depreciated. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment.
The estimated useful lives are as follows:
Leasehold buildings 50 years Fixtures, fittings and equipment 5 years Motor vehicles 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
The Bank assesses at each reporting date whether there is any indication that any item of property and equipment is impaired. If any such indication exists, the Bank estimates the recoverable amount of the relevant assets. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are banked at the lowest levels for which there are separately identifiable cash flows (cash-generating units). A reversal of an impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.10 TaxationIncome tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Bank’s liability for current tax is calculated using tax rates that have been enacted by the reporting date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Bank intends to settle its current tax assets and liabilities on a net basis.
3.9 Property and equipment (Continued)
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
3.11 Non-current assets held for saleNon-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated to remaining assets and liabilities. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurements are recognised in profit or loss. 3.12 Employee benefits
Defined contribution The Bank operates a defined benefit scheme for non-fixed term contracted employees. The Bank and all its employees also contribute to the National Pension Scheme, which is a defined contribution scheme. A defined contribution plan is a retirement benefit plan under which the Bank pays fixed contributions into a separate entity.
The Bank’s contributions to the defined contribution schemes are charged to profit or loss in the year in which they fall due. A defined benefit plan is a retirement benefit plan that is not a defined contribution plan. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Bank and employees. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:
Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);Net interest expense or income;Remeasurement.
The Bank presents the first two components of defined benefit costs in profit or loss in the line item employee benefits expense. Curtailment gains and losses are accounted for as past service costs. The retirement benefit obligation recognised in the statement of financial position represents the actual deficit or surplus in the Bank’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs.
The estimated monetary liability for employees’ accrued annual leave entitlement at reporting date is recognised as an expense accrual.
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
3.13 BorrowingsBorrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. 3.14 Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the year in which they are incurred. 3.15 Financial liabilities and equity
Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual agreement. Financial liabilities Financial liabilities are classified as borrowed funds, other payables, other liabilities and amounts due to related parties. Borrowed funds, other payables and other liabilities are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Bank after deducting all of its liabilities. Equity instruments are recorded at proceeds received, net of direct issue costs. Derecognition of financial liabilities The Bank derecognises financial liabilities when, and only when, the Bank’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. 3.16 Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 3.17 Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) are classified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. 3.18 Share capital Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity.
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
3.19 Dividends payable Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are not recognised as a liability until declared.
3.20 Fiduciary activitiesThe Bank commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Bank. 3.21 Acceptances and letters of creditAcceptances and letters of credit are accounted for as off-statement of financial position transactions and disclosed as contingent liabilities. 3.22 ProvisionsProvisions are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. The Bank recognises no provisions for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
3.23 Segment reportingOperating segments are reported in a manner consistent with the internal reporting to the Executive Management Committee. The Executive Management Committee allocates resources to and assesses the performance of the operating segments of an entity. The Executive Management Committee is the Bank’s key management making body.
All transactions between business segments are conducted on an arm’s length basis, with intra-segment revenue and cost being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance.
4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Bank’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimations, that the directors have made in the process of applying the Bank’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. (a) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of the borrower, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. (b) Fair value of financial instruments The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For example to the extent that management used a tightening of 2 basis points in the yield rate, the fair values would be estimated at K523,000,000 as compared to their reported fair values of K575,889,000 at 31 December 2013
(c) Held-to-maturity financial assets The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturing as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such assets to maturity. If the Bank fails to keep these assets to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to classify the entire class as available-for-sale. The assets are currently measured at amortised cost. (d) Discount rate used to determine the carrying amount of the Bank’s defined benefit obligation The Bank’s defined benefit obligation is discounted at a rate set by reference to market yields at the end of the reporting period on high quality government bonds. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the government bonds, quality of the bonds and the identification of outliers which are excluded. (e) Revaluation of property The Bank reviews the fair value of its property at the end of each reporting period. An independent valuation of the Bank’s properties to determine fair value is carried out by independent valuers. Revaluations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.
5. Financial risk management The Bank’s activities expose it to a variety of financial risks which include market risk, currency risk, interest rate risk, credit risk and liquidity risk. Those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the Bank’s business, and the financial risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on its financial performance. Risk management is carried out by the Risk Directorate under policies approved by the Executive Management Committee and Board of Directors. Risk Directorate identifies, evaluates and hedges financial risks in close cooperation with the operating units. In carrying out these functions, Risk Directorate is guided by policies contained in the Credit policy document, Business Lending standards, Environmental and Social policy, Scheme Loans Policy and Premier loans policies.
(a) Credit risk The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss to the Bank by failing to pay amounts in full when due. Credit risk is the most important risk for the Bank’s business: Management therefore carefully manages the exposure to credit risk. Credit exposures arise principally in lending and investment activities. There is also credit risk in off-statement of financial position financial instruments, such as loan commitments and guarantees. Credit risk management and control are centralised in the Risk Directorate which reports regularly to the Board of Directors.
4. Critical accounting judgements and key sources of estimation uncertainty (Continued)
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2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
(i) Credit risk measurement (a) Loans and advances (including commitments and guarantees) The estimation of credit exposure is complex and requires the use of processes and procedures that will limit the likelihood of default on the loans in the Bank’s portfolio. The assessment of credit risk of a portfolio of assets entails analysis of various risk aspects and a decision made on whether the risk is bankable. The risks assessed include business, financial, market, management, security, structural and industry. The Loan Portfolio of the Bank is segregated into seven rating classes: 2 - Loan has no arrears; 3 - Loan has arrears over 1 day but less than 29 days; 4 - Loan has arrears over 30 days but less than 59 days; 5 - Loan has arrears over 60 days but less than 89 days; 50 - Loan has arrears over 90 days but less than 119 days; 51 - Loan has arrears over 120 days but less than 179 days; 52 - Loan has arrears over 180 days. (b) Risk limit and mitigation policies The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review. The exposure to any one borrower including banks is further restricted by sub-limits covering on and off-statement of financial position exposures. For example:
(1) There is a single name credit exposure limit of 25% of the regulatory capital. (2) Clean and secured counterparty limits apply for money market operations conducted by the Treasury Division.
(c) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation.
The principal collateral types for loans and advances are:
Mortgages over residential properties; Charges over business assets such as premises, inventory and accounts receivable; Charges over financial instruments such as debt instruments; and Cash cover; Longer-term finance and lending to corporate entities are generally secured; Certain personal credit facilities are generally unsecured.
(d) Lending limit Credit risk exposure is managed as part of overall lending limits with customers, together with potential exposures from market movements. Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding receipt in cash or securities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.
58
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Rating
2 Standard
3 Satisfactory risk
4 Watch risk
5 Unacceptable
50 Sub-standard
51 Doubtful
52 Loss
Credit exposure
%
69
14
7
0
0
1
9
100
Impairment allowance
%
3
14
2
0
8
15
58
100
Credit
exposure
%
68
21
3
2
1
1
4
100
Impairment
allowance
%
9
3
4
10
7
5
62
100
(e) Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused com-mitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
(i) Impairment and provisioning policies The impairment allowance shown in the statement of financial position at year end is derived from each of the seven internal rating grades. The table below shows the percentage of the Bank’s on-statement of financial position credit related obligations.
2014 2013
5 Financial risk management (Continued)
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
59
(a) Credit risk (Continued) (i) Credit risk measurement (Continued) (e) Credit related commitments: (Continued) The bank holds collateral and other credit enhancements against certain of its credit exposures. The table below sets out the principal types of collateral held against different types of financial assets.
Type of credit exposure Percentage of exposure that is subject to collateral requirements 2014 2013 Type of collateral held Loans and adances to banks Securities borrowing 100 100 Marketable securitiesLoans and adances to retail customers Mortgage lending 12 10 Residential propertyPersonal loans 25 32 NoneOthers 3 3 NoneLoans and advances to corporate customers Corporate Loans 16 13 GuaranteesOthers 44 42 Property and equipment
New loans issued by taking possession of collateral Detail of financial and non-financial assets obtained by the Bank during the year covered by collateral held as security against loans and advances as well calls made on credit enhancements and held at the year end are shown below. 2014 2013 K’000 K’000
Property 525,641 368,225Debt securities 154,385 70,075Other 54,746 26,286
60
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
5. Financial risk management (Continued) (a) Credit risk (Continued) (ii) Impairment and provisioning policies (Continued)
Maximum exposure to credit risk before collateral held
Loans and advances to customers Investment securities: Credit risk exposures relating to off-statement of financial position items: - Acceptances and letters of credit - Guarantee and performance bonds - Undrawn stand-by facilities, credit lines and other commitments to lend
2014K’ 000
3,138,5091,445,340
820,32244,289
127,581
5,576,041
2013K’ 000
2,987,6852,341,501
460,68812,699
332,814
6,135,387
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2014 and 2013, without taking account of any collateral held or other credit enhancements attached. For on-statement of financial position assets, the exposures set out above are based on carrying amounts as reported in the statement of financial position. As shown above, 56% of the total maximum exposure is derived from loans and advances to banks and customers (2013: 49%). Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following:
the Bank exercises stringent controls over the granting of new loans; 69% (2013: 68%) of the loans and advances portfolio are neither past due nor impaired; 73% (2013: 63%) of the loans and advances portfolio are backed by collateral; 100% (2013:100%) of the investments in securities are government securities.
Financial assets that are past due or impaired
Loans and advances are summarised as follows:
Neither past due nor impairedPast due but not impairedIndividually impairedGrossLess: allowance for impairment (Note 17)
Net
No other financial assets are either past due or impaired.
Loans and advances neither past due nor impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Bank:
2014K’ 000
2,256,866 792,478 210,112
3,259,456 (120,947)
3,138,509
2,256,866
2013K’ 000
2,038,189 886,626 135,272
3,060,087 (72,402)
2,987,685
2,038,189
61
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Loans and advances past due but not impaired Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows: 2014 2013 K’ 000 K’ 000
Past due up to 30 days 404,091 397,235 Past due 31–60 days 204,118 379,135 Past due 61–90 days 36,967 21,913Over 90 days 147,302 88,343
Total 792,478 886,626
Fair value of collateral held 1,069,296 1,379,438
Loans and advances individually impaired Of the total gross amount of impaired loans, the following amounts have been individually assessed: Loans Individually assessed impaired loans and advances 2014 2013 K 000 K 000 - Corporate 109,399 65,338 - Retail 100,713 69,934 210,112 135,272 Fair value of collateral held 117,932 106,732 Loans and advances renegotiated
Restructuring activities include extended payment arrangements, approved external management plans, modifications and deferral of payments.
62
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
2014
Loan
s and
adv
ance
s cus
tom
ers
Inve
stm
ent s
ecur
ities
: -
avai
labl
e-fo
r-sal
eCo
rpor
ates
Bon
dsO
ther
ass
ets
At 3
1 D
ecem
ber 2
014
(b)
Con
cent
ratio
n of
risk
In
dust
ry se
ctor
risk
con
cent
ratio
n w
ere
as fo
llow
s for
on-
and
off-s
tate
men
t of fi
nanc
ial p
ositi
on.
Fina
ncia
lsK’
000
7,5
15
1,39
7,05
248
,288
203,
020
1,65
5,87
5
Man
ufac
-tu
ring
K’00
0
309,
994 - -
309,
994
Tran
spor
t &
com
mun
ica
tion
K’00
0
157
,084 - -
157
,084
Oth
er
Indu
stri
esK’
000
754
,397
- -
754,
397
Agri
cultu
reK’
000
933
,044
- -
933,
044
Indi
vidu
als
K’00
0
821
,203 - -
821
,203
Who
lesa
le
and
reta
il tr
ade
K’00
0
155
,272
- -
155
,272
2013
Loan
s and
adv
ance
s cus
tom
ers
Inve
stm
ent s
ecur
ities
: -
held
-to-
mat
urity
- av
aila
ble-
for-s
ale
Oth
er a
sset
s
At 3
1 D
ecem
ber 2
013
Cred
it ri
sk re
latin
g to
on-
stat
emen
t of fi
nanc
ial s
tate
men
t pos
ition
item
s
Fina
ncia
lsK’
000
6,98
4
1,34
5,96
699
5,53
511
4,91
9
2,46
3,40
4
Man
ufac
-tu
ring
K’00
0
311,
729 - - -
311,
729
Tran
spor
t &
com
mun
ica
tion
K’00
0
154
,216 - - -
154,
216
Oth
er
Indu
strie
sK’
000
463,
374 - - -
463,
374
Agric
ultu
reK’
000
980
,428 - - -
980,
428
Who
lesa
le
and
reta
il tr
ade
K’00
0
100
,024 - - -
100,
024
Tota
lK’
000
3,13
8,50
9
1,39
7,05
248
,288
203,
020
4,78
6,86
9
Indi
vidu
als
K’00
0
970
,930 - - -
970,
930
Tota
lK’
000
2,98
7,68
5
1,34
5,96
699
5,53
511
4,91
9
5,44
4,10
5
5. Financial risk management (Continued)
63
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
(c)
Liq
uidi
ty ri
sk
Liqu
idity
risk
is th
e ris
k th
at th
e Ba
nk is
una
ble
to m
eet i
ts p
aym
ent o
blig
atio
ns a
ssoc
iate
d w
ith it
s fina
ncia
l lia
bilit
ies a
s the
y fa
ll du
e an
d to
repl
ace
fund
s whe
n th
ey
are
with
draw
n.
The
Bank
is e
xpos
ed to
dai
ly c
alls
on it
s ava
ilabl
e ca
sh re
sour
ces f
rom
ove
rnig
ht d
epos
its, c
urre
nt a
ccou
nts,
mat
urin
g de
posit
s, an
d ca
lls o
n ca
sh se
ttle
d co
ntin
genc
ies.
The
Bank
doe
s not
mai
ntai
n ca
sh re
sour
ces t
o m
eet a
ll of
thes
e ne
eds a
s exp
erie
nce
show
s tha
t a m
inim
um le
vel o
f rei
nves
tmen
t of m
atur
ing
fund
s ca
n be
pre
dict
ed w
ith a
hig
h le
vel o
f cer
tain
ty. T
he B
ank
of Z
ambi
a re
quire
s tha
t the
Ban
k m
aint
ains
a c
ash
rese
rve
ratio
. In
addi
tion,
the
Boar
d se
ts li
mits
on
the
min
imum
pro
port
ion
of m
atur
ing
fund
s ava
ilabl
e to
mee
t suc
h ca
lls a
nd o
n th
e m
inim
um le
vel o
f int
er-b
ank
and
othe
r bor
row
ing
faci
litie
s tha
t sho
uld
be in
pla
ce to
co
ver w
ithdr
awal
s at u
nexp
ecte
d le
vels
of d
eman
d. T
he T
reas
ury
depa
rtm
ent m
onito
rs li
quid
ity ra
tios o
n a
daily
bas
is.
Th
e ta
ble
belo
w p
rese
nts t
he u
ndisc
ount
ed c
ash
flow
s pay
able
by
the
Bank
und
er fi
nanc
ial l
iabi
litie
s by
the
rem
aini
ng c
ontr
actu
al m
atur
ities
at t
he re
port
ing
date
an
d fro
m fi
nanc
ial a
sset
s by
expe
cted
mat
urity
dat
es.
2013
Acce
ptan
ces a
nd le
tter
s of c
redi
tG
uara
ntee
and
per
form
ance
bon
dsU
ndra
wn
stan
d-by
faci
litie
s, cr
edit
lines
an
d ot
her c
omm
itmen
ts to
lend
31 D
ecem
ber 2
013
Fina
ncia
lsK’
000 -
11,
592 -
11,5
92
2,47
4,99
6
Man
ufac
tur-
ing
K’00
0
2,6
57 -
14,
000
16,6
57
328,
386
Tran
spor
t &
com
mun
ica
tion
K’00
0
151
,135
-
10
151,
145
305,
361
Oth
er
Indu
strie
sK’
000
303
,160
2
5
160,
876
464,
061
927,
435
Agric
ultu
reK’
000 - -
141
,195
141,
195
1,12
1,62
3
Who
lesa
le
and
reta
il tr
ade
K’00
0
3,7
36
1,0
82
16,
733
21,5
51
121,
575
Indi
vidu
als
K’00
0 - - - -
970,
930
Tota
lK’
000
460
,688
1
2,69
9
332
,814
806,
201
6,25
0,30
6
2014
Acce
ptan
ces a
nd le
tter
s of c
redi
tG
uara
ntee
and
per
form
ance
bon
dsU
ndra
wn
stan
d-by
faci
litie
s, cr
edit
lines
and
oth
er c
omm
itmen
ts to
lend
31 D
ecem
ber 2
014
Fina
ncia
lsK’
000 - - - -
1,65
5,87
5
Man
ufac
-tu
ring
K’00
0
2,79
5 -
27,8
01
30,5
96
340,
590
Tran
spor
t &
com
mun
ica
tion
K’00
0
567
,722
-
124
567,
846
724,
930
Oth
er
Indu
stri
esK’
000
228,
398 -
11,0
37
239,
435
993,
832
Agri
cultu
reK’
000 - -
76,1
74
76,1
74
1,00
9,21
8
Who
lesa
le
and
reta
il tr
ade
K’00
0 - -
12,2
80
12,2
80
167,
552
Indi
vidu
als
K’00
0
21,
407
44,
289
165
65,8
61
887,
064
Tota
lK’
000
820,
322
44,2
89
127,
581
992,
192
5,77
9,06
1
Cred
it ri
sk e
xpos
ures
rela
ting
to o
ff-st
atem
ent o
f fina
ncia
l pos
ition
item
s:
64
2014 annual report
NOTES TO THE FINANCIAL STATEMENTSFi
nanc
ial r
isk
man
agem
ent (
Cont
inue
d)
At 3
1 D
ecem
ber 2
014
Liab
ilitie
s Cu
stom
er d
epos
its
Dep
osits
from
oth
er b
anks
O
ther
liab
ilitie
s Bo
rrow
ings
To
tal fi
nanc
ial l
iabi
litie
s A
sset
s Ca
sh a
nd B
alan
ces w
ith B
ank
of Z
ambi
a
Bala
nces
with
oth
er B
anks
Lo
ans a
nd a
dvan
ces t
o cu
stom
ers
Inve
stm
ent i
n se
curit
ies
O
ther
ass
ets
Tota
l ass
ets
Liqu
idity
gap
Wei
ghte
d av
erag
eeff
ectiv
ein
tere
stra
te %
4.50
%
14%
14%
Up
to
1 m
onth
sK’
000
4,36
3,66
714
210
6,08
7 -
4,46
9,89
6
1,16
3,20
239
9,17
066
8,05
111
4,59
920
3,02
0
2,54
8,04
2
(1,9
21,8
54)
1-3
mon
ths
K’00
0
145
,855
- - 4
3,84
6
189
,701
- - 65
,437
31
7,58
5 -
383,
022
193,
321
3-6
mon
ths
K’00
0
144
,496
- - 3
6,05
6
180
,552
- - 70
,796
41
5,82
5 -
486,
621
306,
069
6-12
mon
ths
K’00
0
342
,437
- - 6
3,87
7
406
,314
- - 33
1,10
0 4
82,6
64 -
813,
764
407,
450
1-3
year
sK’
000
57,
265 - -
239,
484
296,
749 - -
533,
327
109,
039 -
642,
366
345,
617
3
-5 y
ears
K’00
0 - - - 71
,223
71,2
23 - - 84
5,39
55,
359 -
850,
754
799,
531
Ove
r 5
year
sK’
000 - - -
3,78
4
3,78
4 - - 62
4,40
326
9 -
624,
672
620,
888
Tota
lK’
000
5,05
3,72
014
210
6,08
745
8,27
0
5,61
8,21
9
1,16
3,20
239
9,17
03,
138,
509
1,44
5,34
020
3,02
0
6,34
9,24
1
731,
022
5 F
inan
cial
risk
man
agem
ent
(Con
tinue
d)
65
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Fina
ncia
l ris
k m
anag
emen
t (Co
ntin
ued)
At 3
1 D
ecem
ber 2
013
Liab
ilitie
s Cu
stom
er d
epos
its
Dep
osits
from
oth
er b
anks
O
ther
liab
ilitie
s Bo
rrow
ings
To
tal fi
nanc
ial l
iabi
litie
s A
sset
s Ca
sh a
nd B
alan
ces w
ith B
ank
of Z
ambi
a
Bala
nces
with
oth
er B
anks
Lo
ans a
nd a
dvan
ces t
o cu
stom
ers
Inve
stm
ent i
n se
curit
ies
O
ther
ass
ets
Tota
l ass
ets
Liqu
idity
gap
Up
to
1 m
onth
sK’
000
5,02
8,19
67,
209
156,
824 -
5,19
2,22
9
909,
543
284,
303
459,
271
361,
728
114,
919
2,12
9,76
4
(3,0
62,4
65)
1-3
mon
ths
K’00
0
130
,459
- - 4
4,61
8
175
,077
- - 1
04,2
65
135
,747
- 2
40,0
12
64,
935
3-6
mon
ths
K’00
0
110
,731
- - 1
3,78
8
124
,519 - -
149,
207
394
,837
-
544
,044
419
,525
6-12
mon
ths
K’00
0
245
,393
- - 5
8,40
5
303
,798
- - 26
8,80
2 3
71,0
06 -
639
,808
336
,010
1-
3ye
ars
K’00
0
99 - -
240,
132
240,
231 - -
441,
152
646,
357 -
1,08
7,50
9
847,
278
3-5
yea
rsK’
000 - - -
13,0
22
13,0
22 - -
1,06
2,56
4 42
4,51
7 -
1,48
7,08
1
1,47
4,05
9
Ove
r 5
year
sK’
000 - - -
3,25
6
3,25
6 - - 50
2,42
4 7,
309 -
509,
733
506,
477
Tota
lK’
000
5,51
4,87
8 7,
209
156,
824
373,
221
6,05
2,13
2
909,
543
284,
303
2,98
7,68
5 2,
341,
501
114,
919
6,63
7,95
1
585,
819
66
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
5. Financial Risk Management (Continued) (c) Liquidity risk maturity analysis The amounts in the table have been compiled as follows: Type of financial instruments Basis on which amounts are compiled Non-derivative financial liabilities and financial assets Undiscounted cash flows, which include estimated interest payments Issued financial guarantee contracts, and unrecognised Earliest possible contractual maturity. For issued financialloan commitments guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. The Bank’s expected cash flows on some financial assets and financial liabilities vary significantly form the contractual cash flows. The principal differences are as follows:
Deman deposits from customers are expected to remain stable or increase; and unrecognised loan commitments are not all expected to be drawn down immediately.
As part of the management of liquidity risk arising from financial liabilities, the Bank holds liquid assets comprising cash and cash equivalents and debt securities which can be readily sold to meet liquidity requirments. In addition, the Bank maintains agreed lines of credit with other banks and holds unencumbered assets eligible for use as collateral with central banks (these amounts are referred to as the ‘Group’s liquidity reserves’). Liquidity reserves The table below sets out the components of the Bank’s liquidity reserves.
Balances with central banksCashTreasury bills
Total liquidity reserves
2014Carrying amount
K’000 173,492 315,297 966,765
1,455,554
2014Fair Value
K’000 173,492 315,297 821,131
1,309,920
2013Carrying amount
K’000 347,803 209,248
1,055,069
1,612,120
2013Fair Value
K’000 347,803 209,248 995,535
1,552,586
Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, net liquid assets includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issues, other borrowings and commitments maturing within the next month. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows: 2014 2013 At 31 December 47.46% 21.37%Average for the period 32.94% 36.32%Maximum for the period 47.46% 51.10%Undrawn stand-by facilities, credit lines and other commitments to lend 15.07% 21.37% (d) Market risk Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Assets and Liabilities Committee (ALCO).
67
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios. 31 December 2014 Market risk measure Assets subject to market risk Carrying amount Non-trading portfolio
Liabilities subject to market risk
Customer depositsBorrowingsOther liabilities
31 December 2013
Assets subject to market risk
Cash Balances with other banksLoans and advances to customersInvestments in securities Other assets
Liabilities subject to market risk
Customer depositsBorrowingsOther liabilities
19,866409,142
3,138,5091,445,340
14,979
5,027,836
5,053,720 458,270
96,066
5,608,056
22,900206,809
2,987,6854,547
5,563,442
5,514,878 373,221 160,461
6,048,560
19,866409,142
3,138,5091,445,340
14,979
5,027,836
5,053,720 458,270
96,066
5,608,056
22,900206,809
2,987,6854,547
5,563,442
5,514,878 373,221 160,461
6,048,560
Cash Balances with other banksLoans and advances to customersInvestments in securities Other assets
The Bank did not have a trading portfolio.
68
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
5 Financial risk management (Continued) (e) Currency risk The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 December 2014. Included in the table are the Bank’s financial instruments, categorised by currency.
At 31 December 2014
AssetsCash and balances with Bank of ZambiaLoans and advances to customersOther financial assets
Total financial assets
LiabilitiesCustomer depositsBorrowingsOther liabilities
Total financial liabilities
Net position
At 31 December 2013
Financial assetsFinancial liabilities
Net position
USDK’000
396,027 600,320
12,761
1,009,108
358,624458,270188,940
1,005,834
3,274
886,776835,385
51,391
GBP K’000
1,197 -
1,157
2,354
1,550 -
584
2,134
220
2,3062,032
274
Euro K’000
31,784 -
1,061
32,845
1,876 -
30,928
32,804
41
32,34732,236
111
TotalK’000
429,008600,320
14,979
1,044,307
362,050458,270220,452
1,040,772
3,535
921,429869,653
51,776
69
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
At 3
1 D
ecem
ber 2
014
Ass
ets
Loan
s and
adv
ance
s to
cust
omer
sIn
vest
men
t in
secu
ritie
s
Tota
l fina
ncia
l ass
ets
Liab
ilitie
sCu
stom
er d
epos
itsBo
rrow
ings
Tota
l fina
ncia
l lia
bilit
ies
Tota
l int
eres
t re-
pric
ing
gap
The
tabl
e ab
ove
sum
mar
ises t
he B
ank’s
exp
osur
e to
inte
rest
rate
risk
s. In
clud
ed in
the
tabl
e ar
e th
e Ba
nk’s
asse
ts a
nd li
abili
ties a
t car
ryin
g am
ount
s, ca
tego
rised
by
the
earli
er
of c
ontr
actu
al re
-pric
ing
or m
atur
ity d
ates
. The
Ban
k do
es n
ot b
ear a
ny in
tere
st ra
te ri
sk o
n off
stat
emen
t of fi
nanc
ial p
ositi
on it
ems.
Th
e m
atch
ing
and
cont
rolle
d m
ismat
chin
g of
the
mat
uriti
es a
nd in
tere
st ra
tes o
f ass
ets a
nd li
abili
ties i
s fun
dam
enta
l to
the
man
agem
ent o
f the
Ban
k. I
t is u
nusu
al fo
r ban
ks
ever
to b
e co
mpl
etel
y m
atch
ed si
nce
busin
ess t
rans
acte
d is
ofte
n of
unc
erta
in te
rms a
nd o
f diff
eren
t typ
es.
An u
nmat
ched
pos
ition
pot
entia
lly e
nhan
ces p
rofit
abili
ty, b
ut
can
also
incr
ease
the
risk
of lo
sses
.
Up
to
1 m
onth
sK’
000
668,
051
114,
599
782,
650
4,36
3,66
7 -
4,36
3,66
7
(3,5
81,0
17)
1-3
mon
ths
K’00
0
65,4
3731
7,58
5
383,
022
145
,855
43
,846
189
,701
193,
321
3-6
mon
ths
K’00
0
70,7
9641
5,82
5
486,
621
144
,496
36
,056
180
,552
306,
069
1-3
year
sK’
000
533,
327
109,
039
642,
366
57,
265
239,
484
296,
749
345,
617
Ove
r 5ye
ars
K’00
0
624,
403
269
624,
672 -
3,78
4
3,78
4
620,
888
6-12
mon
ths
K’00
0
331,
100
482,
664
813,
764
342
,437
63
,877
406
,314
407,
450
3-5
year
s K’
000
845,
395
5,35
9
850,
754 -
71,2
23
71,2
23
779,
531
Tota
lK’
000
3,13
8,50
91,
445,
340
4,58
3,84
9
5,05
3,72
045
8,27
0
5,51
1,99
0
(928
,141
)
(f)
Inte
rest
rate
risk
70
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
At 3
1 D
ecem
ber 2
013
Ass
ets
Bala
nces
with
Ban
k of
Zam
bia
Bala
nces
with
oth
er B
anks
Loan
s and
adv
ance
s to
cust
omer
sIn
vest
men
t in
secu
ritie
s
Tota
l fina
ncia
l ass
ets
Liab
ilitie
sD
epos
its fr
om c
usto
mer
sBo
rrow
ings
Tota
l fina
ncia
l lia
bilit
ies
Inte
rest
re-p
rici
ng g
ap
The
tabl
e ab
ove
sum
mar
ises t
he B
ank’s
exp
osur
e to
inte
rest
rate
risk
s. In
clud
ed in
the
tabl
e ar
e th
e Ba
nk’s
asse
ts a
nd li
abili
ties a
t car
ryin
g am
ount
s, ca
tego
rised
by
the
earli
er
of c
ontr
actu
al re
-pric
ing
or m
atur
ity d
ates
. The
Ban
k do
es n
ot b
ear a
ny in
tere
st ra
te ri
sk o
n off
stat
emen
t of fi
nanc
ial p
ositi
on it
ems.
Th
e m
atch
ing
and
cont
rolle
d m
ismat
chin
g of
the
mat
uriti
es a
nd in
tere
st ra
tes o
f ass
ets a
nd li
abili
ties i
s fun
dam
enta
l to
the
man
agem
ent o
f the
Ban
k. I
t is u
nusu
al fo
r ban
ks
ever
to b
e co
mpl
etel
y m
atch
ed si
nce
busin
ess t
rans
acte
d is
ofte
n of
unc
erta
in te
rms a
nd o
f diff
eren
t typ
es.
An u
nmat
ched
pos
ition
pot
entia
lly e
nhan
ces p
rofit
abili
ty, b
ut
can
also
incr
ease
the
risk
of lo
sses
.
Up
to
1 m
onth
sK’
000
150,
000
132
,543
45
9,27
136
1,72
8
1,10
3,54
2
5,02
8,19
6 -
5,02
8,19
6
(3,9
24,6
54)
1-3
mon
ths
K’00
0 - - 1
04,2
65
135,
747
240,
012
130,
459
44,6
18
175,
077
64,9
35
3-6
mon
ths
K’00
0 - - 14
9,20
739
4,83
7
544,
044
110,
731
13,7
88
124,
519
419,
525
1-
3ye
ars
K’00
0 - - 44
1,15
264
6,35
7
1,08
7,50
9 99
240,
132
240,
231
847,
278
Ove
r 5ye
ars
K’00
0 - -
502,
424
7,30
9
509,
733 -
3,25
6
3,25
6
506,
477
6-12
mon
ths
K’00
0 - - 26
8,80
237
1,00
6
639,
808
245,
393
58,4
05
303,
798
336,
010
1-3
mon
ths
K’00
0 - - 1,
062,
564
424,
517
1,48
7,08
1 - 13
,022
13,0
22
1,47
4,05
9
Tota
lK’
000
150
,000
1
32,5
43
2,98
7,68
52,
341,
501
5,61
1,72
9
5,51
4,87
837
3,22
1
5,88
8,09
9
(276
,370
)
5. F
inan
cial
risk
man
agem
ent (
Cont
inue
d)
(f)
Inte
rest
rate
risk
(Con
tinue
d)
71
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
(g) Fair values of financial assets and liabilities The fair value of held-to-maturity investment securities at 31 December 2014 is estimated at K NIL (2013: K1,345,966,000). The fair values of the Bank’s other financial assets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual re-pricing or maturity dates as set out above. Fair values are based on discounted cash flows using discount rates based upon the yield rates on similar financial assets at the reporting date. Fair value hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuations techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank market assumptions. The two types of inputs have created the following fair value hierarchy: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities
and debt instruments on stock exchanges (for example, Lusaka Stock Exchange); Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices); Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity
investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible. (g) (i) Fair value of the Bank’s financial assets and financial liabilities that are measured at fair value on a recurring basis
Financial assets/financial liabilities
Available for sale financial assets
2014 2013 K’ 000 K’ 000
1,397,052 2,341,501
Fair value hierarchy
-
Valuation technique(s) and key input(s)
Quoted bid prices in an active market
“Significantunobservable
input (s)”
-
There were no transfers between level 1 and 2 in the period.
Fair value as at 31 December
72
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
5. Financial risk management (Continued) (g) Fair values of financial assets and liabilities (Continued) (g) (ii) Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis (but fair value disclosures are required) Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.
Financial assets Loans and receivables: - Loans and advances to customers Fair value of investment – Treasury Bills – Government bonds Fair values of financial assets and liabilities Financial liabilities Financial liabilities held at amortised cost: – Loans from other entities – Customer deposits
Financial assets Loans and receivables: - Loans and advances to customers Fair value of investment - Treasury bills - Government bonds Total Financial liabilities – Customer deposits
Carrying amount
K’000
3,259,456 3,259,456
1,641,931 966,765 675,166
5,511,990 458,270
5,053,720
Level 1K’000
-
- -
-
-
-
Fair valueK’000
3,138,509 3,138,509
1,397,052 821,131 575,921
5,511,990 458,270
5,053,720
Level 1K’000
-
- -
-
-
-
Carrying amount
K’000
3,060,087 3,060,087 2,416,084 1,055,069 1,361,015
5,888,099 373,221
5,514,878
Level 3K’000
3,138,509
821,131 575,921
4,535,561
5,053,720
5,053,720
Fair valueK’000
2,987,685 2,987,685 2,341,501
995,535 1,345,966
5,888,099 373,221
5,514,878
TotalK’000
3,138,509
821,131 575,921
4,535,561
5,055,720
5,053,720
Fair value hierarchy as at 31 December 2014
The fair values of the financial assets and financial liabilities included in the level 2 and level 3 categories above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.
2014 2014 2013 2013
73
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
(g) (iii) Reconciliation of Level 3 fair value measurement
31 December 2014 Opening balance Total gains or losses: – in other comprehensive income Purchases Disposals/settlements Closing balance 31 December 2013 Opening balance Total gains or losses: – in other comprehensive income Purchases Disposals/settlements Closing balance
The total gains for the year included an unrealised loss of K27,899 relating to financial assets that are measured at fair value at the end of each reporting period (2013: a gain of K3,289). Such fair value gains or losses are included in ‘other gains and losses’. All gains and losses included in other comprehensive income relate to unlisted shares held at the end of the reporting period and are reported as changes of ‘Investment revaluation reserve’. (h) Capital management Capital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial positions, are:
to comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended); to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits
or other stakeholders; to maintain a strong capital base to support the development of its business; to allocate capital to businesses using risk-based capital allocation, to support the Bank’s strategic objectives, including optimising
returns on shareholder and regulatory capital; and maintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory expectations.
Treasury bills
K’000
995,535
(6,278) 827,410
(995,536)
821,131
660,738
3,289 996,349
(664,841)
995,535
Government bonds K’000
1,345,966
(21,621) 5,581
(754,005)
575,921
1,283,537
(2,030) 349,696
(285,237)
1,345,966
TotalK’000
2,341,501
(27,899) 832,991
(1,749,541)
1,397,052
1,944,275
1,259 1,346,045 (950,078)
2,341,501
74
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
5. Financial risk management (Continued) (h) Capital management (Continued) Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines devel-oped by the Basel Committee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis. Regulatory capital The Bank manages its capital base to achieve a prudent balance between maintaining capital levels to support business growth, maintaining depositor and creditor confidence, and providing competitive returns to shareholders. The Bank of Zambia requires local banks to: (a) hold the minimum level of regulatory capital of K104 million; (b) maintain a ratio of total regulatory capital to the risk-weighted assets plus risk-weighted off-statement of financial position assets (the Basel ratio’) at or above the required minimum of 10%; (c) maintain primary or tier 1 capital of not less than 5% of total risk weighted assets; and (d) maintain total capital of not less than 10% of risk-weighted assets plus risk-weighted off-statement of financial position items. Regulatory capital adequacy is measured through risk-based ratio:
Tier 1 capital (primary capital): common shareholders’ equity, qualifying preferred shares and minority interests in the equity of subsidiaries that are less than wholly owned;
Tier 2 capital (secondary capital): qualifying preferred shares, 40% of revaluation reserves, subordinated term debt or loan stock with a minimum original term of maturity of over five years (subject to a straight-line amortisation during the last five years leaving no more than 20% of the original amount outstanding in the final year before redemption) and other capital instruments which the Bank of Zambia may allow. The maximum amount of secondary capital is limited to 100% of primary capital. Risk-weighted assets are determined on a granular basis by using risk weights calculated from internally derived risk parameters within the regula-tory requirements. The risk weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of – and reflecting an estimate of the credit risk associated with – each asset and counterparty. A similar treatment is adopted for off-Statement of financial position exposure, with some adjustments to reflect the more contingent nature of the potential losses.
75
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Tier 1 capitalTier 1 + Tier 2 capital Risk-weighted assetsOn-balance sheetOff-balance sheet Total risk-weighted assets Regulatory ratiosTier 1 (Regulatory minimum – 5%)Tier 1 + Tier 2 (Regulatory minimum – 10%) 6. Interest income Arising from:Loans and advancesGovernment and other securitiesCash and short term fundsBanks
7. Interest expense Arising on:Customer depositsDeposits by bank
2014K’ 000
716,020746,214
3,195,064345,763
3,540,828
20%21%
536,092237,634
895,627
779,442
106,56027,409
133,969
2013K’ 000
635,726664,744
3,152,390165,159
3,317,549
19%20%
441,462223,013
4,0715,006
673,552
100,21119,958
120,169
The table below summarises the composition of regulatory capital and the ratios of the Bank as at 31 December:
76
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
8. Net fees and commission income Account maintenance feesATM issuer feesPayflexArrangement and commitment feesLetters of credit commissionsCommission on encashment of salary chequesOther
Fees and commission expenses 9. Other operating income
Gain on disposal of property and equipmentSundry operating income
10. Operating expenses The following items are included within operating expenses: Employee benefits expenseDepreciation of property and equipment (note 18)Loss on disposal of property and equipmentDonationsDirectors’ remuneration - as directors of the BankAuditors’ remunerationOthers
2013 K’000
52,75640,94417,79616,81513,829
4,907111,558
258,605
(4,115) 254,490
-7,758
7,758
264,73043,289
133,356
1,422595
228,770
542,175
2014 K’000
76,47645,77217,92116,270
9,6143,773
121,474
291,300
- 291,300
2026,076
6,278
306,13349,809
-2,408
1,520 903
244,747
605,520
The following items are included within employee benefits expense: Post-employment benefits- Defined contribution plans- Defined benefit plans - Termination benefits - Other employee benefits Total employee benefits expense
Loss on disposal of Government Securities
As a result of the changes to the statutory reserves requirement by the Bank of Zambia in March 2014 and the consequent Bank liquidity position, the Bank liquidated its government securities portfolio. Due to adverse market prices, Bank incurred a loss of K104,494,000 following disposal.
14,701 17,923
32,624
4,290
269,219
273,509
306,133
8,596 16,917
25,513
4,659
234,558
239,217
264,730
77
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
11. Income tax expense 2013 K’000
74,2603,690
77,950
(34,957) 35,489
(31,125)
(30,593)
20,461 74,260
(53,237)(35,488
5,996
264,264
92,492
(25,113) 10,571
77,950
2014 K’000
73,817(3,186)
70,631
(30,593) 31,999
(20,936)
(19,530)
5,996 73,817
(68,211) (31,999)
(20,397)
213,557
74,745
(20,985) 16,871
70,631
Current taxDeferred tax (note 20)
Withholding tax (‘‘WHT’’) recoverable movement in the statement of financial position
At beginning of yearRecoveries offset against tax liability Withholding tax suffered during the year
At end of year
The movement during the year in the tax accounts is as follows:
- Tax payable at beginning of year- Payable in respect of the year- Tax paid during the year- WHT tax recoveries in respect of prior years
Tax payable at end of year
The tax on the Bank’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:
Profit before income tax
Tax calculated at the statutory income tax rate of 35% (2013: 35%)Tax effect of:Bank of Zambia impairmentExpenses not deductible for tax purposes
Income tax expense
78
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
12. Dividends per share The dividend paid in the year 2014 amounted to K43,313,000 in respect of the year ended 31 December 2013 representing K0.005 per share. The board has recommended a dividend amounting to K43,313,000 (K0.005 per share) for the year ended 31 December 2014. Payment of dividends is subject to with holding tax (WHT) at the rate of 15% for resident and non-resident shareholders. However, where there is a double tax treaty, the WHT will be subject to the rates in the treaty. Furthermore the WHT is taxed at zero percent for individuals because the Bank is listed on the Lusaka Stock Exchange.
13. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax attributed to equity holders of the bank by weighted average number of shares issued during the year.
Profit attributable to equity holders
Weighted number of ordinary shares in issue (thousands)
Basic earnings per share
There are no potentially dilutive shares, hence diluted earnings per share is the same as the basic earnings per share.
14. Cash and balances with Bank of Zambia Cash in handBalances with Bank of Zambia
15. Balances with other banks Items in course of collection Placements with other banksCurrent balances with other BanksBalances due from Banks abroad
16. Investment securities Securities available-for-sale-Treasury billsGovernment securities–at fair value- Maturing within 90 days of the date of acquisition- Maturing after 90 days of the date of acquisition
Total securities available-for-sale Securities available-for-sale-BondsGovernment securities–at fair value- Maturing after 90 days of the date of acquisition
Corporate bonds
Total investment securities CurrentNon-current
2013K’000
186,314
8,662 500
0.022
209,248700,295
909,543
57,512132,543190,055
94,248284,303
36,719958,816
995,535
1,345,966
-
2,341,501
1,263,3181,078,183
2,341,501
2014K’000
142,926
8,662,500
0.016
315,297847,905
1,163,202
47,010 -
47,010352,160399,170
108,435712,696
821,131
575,921
48,288
1,445,340
1,330,673114,667
1,445,340
79
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
16. Investment securities (Continued) The movement in investment securities available-for-sale may be summarised as follows:
At 1 January 2013 Additions Disposals (redemption) Gain (loss) from changes in fair value At 31 December 2013 At 1 January 2014 Additions Disposals (redemption) Gain (loss) from changes in fair value At 31 December 2014
Available-for-sale Treasury bills
K’000
660,738 996,349
(664,841) 3,289
995,535
995,535 827,410
(995,536) (6,278)
821,131
Available-for-saleGRZ bonds
K’000
1,283,537 349,696
(285,237)(2,030)
1,345,966
1,345,966 5,581
(754,005)(21,621)
575,921
Total K’000
1,944,275 1,346,045 (950,078)
1,259
2,341,501
2,341,501 832,991
(1,749,541) (27,899)
1,397,052
Commercial loans Personal loans Overdrafts Mortgages Others Gross loans and advances Less: Provision for impairment of loans and advances - Individually assessed - Collectively assessed
Current Non-current
1,281,219928,741817,340179,605
52,551
3,259,456
(114,132)(6,815)
(120,947)
3,138,509
1,135,384 2,003,125
3,138,509
1,303,012989,831566,222148,516
52,506
3,060,087
(67,636)(4,766)
(72,402)
2,987,685
981,545 2,006,140
2,987,685
17 . Loans and advances to customers
2014K’000
2013 K’000
80
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS17. Loans and advances to customers (Continued) Movements in provisions for impairment of loans and advances are as follows:
At 1 January 2013Impairment loss recognised Reversal of impairment lossWrite- offs
At 31 December 2013
Net impairment charge
At 1 January 2014Impairment loss recognised Reversal of impairment lossAt 31 December 2014
Net impairment charge
Personal overdrafts
K’ 000
6,732 5,865 (225)
(2,166)
10,206
5,640
10,206 15,451 (1,153)
24,504
14,298
Commercial overdraft
K’ 000
11,142 793 (30)
(669)
11,236
763
11,236 11,817
(882) 22,171
10,935
Personal loans
K’ 000
18,366 14,238
(546) (2,232)
29,826
13,692
29,826 15,096 (1,689)
43,233
13,407
Commercial loans
K’ 000
10,298 11,482
(441) (205)
21,134
11,041
21,134 10,704
(799) 31,039
9,905
TotalK’ 000
46,538 32,378 (1,242) (5,272)
72,402
31,136
72,402 53,068 (4,523)
120,947
48,545
All impaired loans have been written down to their estimated recoverable amount. The aggregate carrying amount of impaired loans at 31 December 2014 was K210.1 million (2013: K135.2 million).
Cost or valuation
Balance at 1 January 2013AdditionsDisposalsReclassified from held-for-sale Write-offs
Balance at 31 December 2013AdditionsRevaluation decreaseRevaluation increaseDisposalsWrite-offs
Balance at 31 December 2014
Accumulated depreciation and impairment
Balance at 1 January 2013Eliminated on disposal of assetsCharge for yearEliminated on write-offs
Balance at 31 December 2013Charge for yearDisposalsEliminated on revaluationEliminated on write-offs
Balance at 31 December 2014
Carrying amountAt 31 December 2013
At 31 December 2014
18. Property and equipment Building at revalued
amountK’ 000
135,872
9,555 (2,471)
236 -
143,192 5,349
(7,868) 2,499
- (1,605)
141,567
2,802 (49)
2,863 -
5,616 - -
(5,447) (59)
110
137,576
141,457
Motor Vehicles
K’ 000
14,591 2,330
(1,972) - -
14,949 415
- -
(1,674)-
13,690
11,898 (1,823)
1,220 -
11,295 1,037
(1,564)- -
10,768
3,654
2,922
Fixture, fittings and equipment
K’ 000
219,779 48,774
- -
(123)
268,430 71,872
--
- (2,240)
338,062
138,330 -
39,206 (25)
177,511 48,772
- -
(1,364)
224,919
90,919
113,143
Capital work in progress
K’ 000
24,917 46,345
- - -
71,262 (54,149)
- - - -
17,113
- - - -
- - - -- -
71,262
17,113
TotalK’ 000
395,159 107,004
(4,443) 236
(123)
497,833 23,487 (7,868)
2,499(1,674) (3,845)
510,432
153,030 (1,872) 43,289
(25)
194,422 49,809 (1,564)
(5,447 (1,423)
235,797
303,411
274,635
81
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
An independent valuation of the Bank’s buildings was performed by Messer’s Sherwood Greene Consulting to determine the fair value of the building as at 31 December 2014. The valuation conforms to Royal Institute of Chartered Surveyor’s Appraisal and Valuation Manual valuation standards as determined by reference to IAS 16: – Property, Plant and Equipment. Had the Bank buildings (other than bank building classified as held for sale) been measured on historical cost basis, their carrying amount would be as follows:
Cost Accumulated depreciation Carrying amount
19. Capital commitments Authorised and contracted for The commitments will be met from internally generated funds and borrowings.
20 . Deferred tax Deferred tax is calculated using the enacted income tax rate of 35% (2013: 35%). The movement on the deferred tax is as follows: At beginning of year (Charge) credit to profit or loss (note 11) Credit to equity (Note 31) At end of year
2014 K’ 000
50,204 (3,866)
46,338
4,370
(34,748) 3,186 (878)
(32,440)
2013 K’ 000
44,855 (2,391)
42,464
10,315
(31,229) (3,690)
171
(34,748)
In accordance with section 193 of the Companies’ Act (as amended), 1994 the Register of Land and Buildings is available for inspection by members and their duly authorised agents at the Registered Records Office of the Bank.
2014 K’ 000
2013 K’ 000
82
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
20. Deferred tax (Continued)
Year ended 31 December 2013Deferred tax liabilitiesProperty and equipment
Deferred tax assetsOther temporary differences Net deferred tax liability
Year ended 31 December 2014 Deferred tax liabilitiesProperty and equipment Deferred tax assetsOther temporary differences Net deferred tax liability
At beginning
of yearK’ 000
(33,425)
(33,425)
-
(33,425)
(31,229)
(3,519)
(34,748)
Charged(credited)
to profit or lossK’ 000
2,025
2,025
(3,690)
(1,665)
941
2,245
3,186
Creditedto equity
K’ 000
171
171
171
342
(878)
-
(878)
At endof yearK’ 000
(31,229)
(31,229)
(3,519)
(34,748)
(31,166)
(1,274)
(32,440)
2014 K’ 000
55,525 (1,878) 53,647
89,816 1,041
57,909 300 307
203,020
4,660 (3,627)
845
1,878
2013 K’ 000
35,927 (4,660) 31,267
69,315 9,575 3,203 1,252
307
114,919
3,689 -
971
4,660
21. Other assets
Prepayments and other receivablesAllowance for doubtful debts
Staff loans marked to market Visa transactionsDefined benefit asset (note 24)Insurance premiums paid in advanceInvestment in Zambia Electronic Clearing House Limited
Movement in the allowance for doubtful debtsBalance at beginning of yearwrite backsCharge for the year
Balance at end of the year
83
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Zambia Electronic Clearing House Limited The investment in Zambia Electronic Clearing House Limited (“ZECHL”) represents the Bank’s contribution to the set up costs for the establishment of the National Switch to enhance ZECHL functionality, more specifically to support electronic point of sale transactions to help minimise cash based transactions and their attendant costs and risks. The principal activity of ZECHL is the electronic clearing of cheques and direct debits and credits in Zambia for its member banks. The ZECHL is funded by contributions from member banks. As there is no reliable measure of the fair value of this investment, it is carried at cost, and regularly reviewed for impairment at each reporting date.
2014 2013 K’000 K’000
At beginning of year 69,315 50,071 Current year fair value 40,684 32,175 109,999 82,246 Amortisation to profit or loss (20,183) (12,931) 89,816 69,315
Employee loans and advances are offered on concessionary rates. House, Car and personal development loans are enhanced by collateral of landed property and in the case of car loans the, motor vehicle registration certificate is endorsed with the Bank as absolute owner. Where staff loans are issued to members of staff at concessionary rates, fair value is calculated based on market rates. This will result in the long term staff loans benefit as shown above.
The prevailing interest rates on staff loans were as follows: 2014 2013 % % House 8 8Personal loan 12 12Car loan 8 8Personal Development loan 12 12
2014 2013 K ‘000 K ‘000 Interest income earned on staff loans 24,218 20,398
The bank adjusted the interest received on staff loans by the market rate of 20.5%.
Staff loans marked to market
84
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
22. Customer deposits Current and demand deposits Savings accountsFixed deposit accounts
CurrentNon-current
23. Deposits from other banks Items in course of collectionDeposits
2014K’ 000
3,008,710 1,278,616
766,394
5,053,720
4,996,455 57,265
5,053,720
142 -
142
2013K’000
2,987,875 1,730,670
796,333
5,514,878
5,514,779 99
5,514,878
7,205 4
7,209
24. Retirement benefit obligations 24.1 Defined contribution plans Defined contribution plans are a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or con-structive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The bank’s contributions to the defined contribution schemes are charged to profit or loss in the year to which they relate. The Bank has no fur-ther obligation once contributions have been paid. The total expense recognised in profit or loss of K14,707 (2013: K8,596) represents contributions payable to these plans by the Bank at rates speci-fied in the rules of the plans. National Pension Scheme The bank and all its employees contribute to the National Pension Scheme (“NAPSA”), which is a statutory defined contribution plan. Zambia State Insurance Corporation Limited Certain employees of the Bank are also members of a defined retirement contribution plan operated by Zambia State Insurance Corporation Limited. The Bank is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits.
85
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
24. Retirement benefit obligations 24.2 Defined benefit plans The Bank sponsors funded defined benefit plans for qualifying employees. The defined benefit plans are administered by a separate Fund that is legally separated from the Bank. The board of the pension fund is composed of an equal number of representatives from both employers and (former) employees. The board of the pension fund is required by law and by its articles of association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employers. The board of the pension fund is responsible for the investment policy with regard to the assets of the fund.
The scheme typically exposes the Group to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.
The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at 31 December 2014 by Independent Actuarial Consultancy of Johannesburg, South Africa. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Discount rate % Expected rate of salary increase % Average longevity at retirement age for current employees (future pensioners) in years Males Females
2014
1912
2125
2013
1610.8
2125
The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan asset is below this rate, it will create a plan deficit. Currently the plan has a relatively balanced investment in equity securities, debt instruments and real estates. Due to the long-term nature of the plan liabilities, the board of the pension fund considers it appropriate that a reasonable portion of the plan assets should be invested in equity securities and in real estate to leverage the return generated by the fund. A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan’s debt investments.
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.
The risk relating to benefits to be paid to the dependants of plan members (widow and orphan benefits) is re-insured by an external insurance company. No other post-retirement benefits are provided to these employees.
Investment risk
Interest risk
Longevity risk
Salary risk
86
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
24 . Retirement benefit obligations (Continued) 24.2 Defined benefit plans
Amounts recognised in comprehensive income in respect of these defined benefit plans are as follows:
Service cost: Current service cost Past service cost and (gain)/loss from settlements Net interest expense Components of defined benefit costs recognised in profit or loss
Remeasurement on the net defined benefit liability: Actuarial gains arising from changes in financial assumptions Actuarial losses arising from experience adjustments Components of defined benefit income (costs) recognised in other comprehensive income Total
The current service cost and the net interest expense for the year are included in the employee benefits expense in profit or loss. Of the expense for the year, an amount of K17,923 (2013: K16,917) has been included in profit as an expense (Note 10). The amount included in the statement of financial position arising from the entity’s obligation in respect of its defined benefit plans is as follows:
2014 K’ 000
9,770 -
(9,474)
296
39,908 (3,045) 36,863
36,863
2013 K’ 000
11,072 -
(6,201)
4,871
13,812 (14,457)
(645)
(645)
Present value of funded defined benefit obligation Fair value of plan assets Funded status Net assets (liability) arising from defined benefit obligation Reconciled as follows:
At 1 January At 31 December
Movement in defined benefit obligation
31 December 2014
K’ 000
(114,215) 172,124
57,909
57,909
31 December 2013
K’ 000
(135,552) 138,755
3,203
3,203
2014 K’ 000
3,203 57,909
54,706
31 December 2012
K’ 000
(132,609) 129,336
(3,273)
(3,273)
2013 K’ 000
(3,273) 3,203
6,476
87
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Movements in the fair value of the plan assets in the current year were as follows:
Opening fair value of plan assets Remeasurement gain (loss): Return on plan assets (excluding amounts included in net interest expense) Others (funded expenses) Contributions from the employer Contributions from plan participants Benefits paid Closing fair value of plan assets
2014 K’ 000
138,755
23,078(1,101)17,923
8,961(15,492)
172,124
2013 K’ 000
129,336
5,033 (1, 012) 16,917
8,458(19,977)
138,755
Movements in the present value of the defined benefit obligation in the current year were as follows: 2014 2013 K’ 000 K’ 000 Opening defined benefit obligation 135,552 132,609 Current service cost 9,770 2,384 Interest cost 21,248 19,891 Remeasurement (gains) losses: - Actuarial gains arising from changes in financial assumptions (39,908) (13,812)- Actuarial losses arising from experience adjustments 3,045 14,457 Benefits paid (15,492) (19,977) Closing defined benefit obligation 114,215 135,552
88
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
24. Retirement benefit obligations (Continued) 24.2 Defined benefit plans (Continued)
The fair value of the plan assets at the end of the reporting period for each category, are as follows:
Cash and cash equivalents Equity investments categorised by industry type: Consumer industry Manufacturing industry Energy and utilities Financial institutions ICT and telecom Sub total Debt investments categorised by issuers’ credit rating: AAA BBB and lower not rated Subtotal Properties categorised by nature and location: Retail shops Commercial properties Residential properties
Subtotal Total
2014 K’ 000
2,482
16,33613,200
2,767 30,378
156
65,319
4,656 15,014 15,947 35,617
1,84224,047 45,299
71,188
172,124
2013 K’000
2,364
19,036 11,726
2,217 10,179
111
45,633
4,194 14,613 12,268 31,075
1,687 18,879 41,481
62,047
138,755
The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets whereas the fair values of properties and derivatives are not based on quoted market prices in active markets. It is the policy of the fund to use interest rate swaps to hedge its exposure to interest rate risk. This policy has been implemented during the current and prior years. Foreign currency exposures are fully hedged by the use of the forward foreign exchange contracts.
The actual return on plan assets was 5% (2013: 5%). Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
If the discount rate is 100 basis points higher (lower), the defined benefit obligation would decrease by K7,438 (increase by K6,742). If the expected salary growth increases (decreases) by 1%, the defined benefit obligation would increase by K7,218 (decrease by K6,628). If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligation would decrease by K1,091
(increase by K1,053). The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position.
89
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years. Each year an Asset-Liability-Matching study is performed in which the consequences of the strategic investment policies are analysed in terms of risk-and-return profiles. Investment and contribution policies are integrated within this study. Main strategic choices that are formulated in the actuarial and technical policy document of the Fund are:
Asset mix based on 25% equity instruments, 50% debt instruments and 25% investment property. The Bank fund the cost of the entitlements expected to be earned on a yearly basis. Employees pay a fixed 10% percentage of pensionable salary. The residual contribution (including back service payments) is paid by the Bank. The funding requirements are based on the local actuarial measurement framework. In this framework the discount rate is set on a risk free rate. Furthermore, premiums are determined on a current salary base. Additional liabilities stemming from past service due to salary increases (back-service liabilities) are paid immediately to the Fund. The average duration of the benefit obligation at 31 December 2014 is 12.6 years (2013: 13.8 years). This number can be analysed as follows:
active members: 19.2 years (2013 : 19.4 years). The Bank expects to make a contribution of K17,923 (2013: 16,917) to the defined benefit plans during the next financial year.
Reconciliation of funded status Present value of obligations Fair value of plan assets
Deficit Unrecognised losses Prepaid pension cost Asset ceiling restriction
Prepaid pension cost after asset ceiling restriction
2014 K’ 000
(114,215) 172,124
57,909 -
57,909 -
57,909
2013 K’ 000
(135,552) 138,755
3,203 -
3,203 -
3,203
90
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
25. Other liabilities Accrued expensesAdvance loan repaymentStatutory paymentsSundry payablesVisa transactions payableDeferred arrangement feesBills payableIncoming swifts transfers
26. Provisions for liabilities and charges
At 1 January 2013ProvisionPaymentDecrease in defined benefit obligation
At 31 December 2013 At 1 January 2014ProvisionPayment
At 31 December 2014
27. Borrowings Payable to:Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.VInternational Financing CorporationSociete de Promotion et de Participation pour la Cooperation Economique African Development BankDeutsche Investitions-Und Entwicklungsgesellschaft mbh
Retirementbenefits
obligationsK’ 000
3,795 5,081
(2,000)(6,476)
400
4004,680
(4,456)
624
2014 K’000
33,133 -
18,379 28,855
510 5,560 9,580
10,070
106,087
Provision for legal
claims K’ 000
11,559 -
(500) -
11,059
11,059 355
-
11,414
2014K’ 000
80,12596,150
80,12541,620
160,250
458,270
2013 K’ 000
56,704 24,05922,920 20,497 19,405
8,535 3,477 1,227
156,824
Total K’ 000
15,354 5,081
(2,500) (6,476)
11,459
11,459 5,035
(4,456)
12,038
2013K’ 000
110,300110,299
110,30042,322
-
373,221
(i) Retirement benefit obligation represents contributions payable to define contribution plans by the bank at rate specifies in the rules of the plans.
(ii) The Bank is enganged in certain on-going litigation. The Bank has obtained advice from its legal advisors of the legal claims and have accessed the likelihood of a present obligation arising from litigation as probable.
91
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
The movement during the year was as follows: At beginning of yearRepayments during the yearProceeds from borrowingsExchange losses At end of year Repayable as follows:
1 - 12 months1 - 3 years3 - 5 yearsAfter 5 years
The Bank obtained a foreign currency facility of US$50 million from Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V (FMO) and Societe de Promotion et de Participation pour la Cooperation Economique (PROPARCO) in the year ended 31 December 2011.
During the year 2010, 2011 and 2014, the Bank secured further amounts of US$5 million and US$50 million from African Development Bank (ADB) , International Financing corporations (IFC) and Deutsche investitutions-Und Entwicklungsgesellschaft mbh (DEG) respectively. Under the terms of the FMO and PROPARCO loan, the Bank is required to observe inter alia, the following financial covenants: Covenants
Capital adequacy ratio: Minimum 10%Open loan exposure ratio: not to exceed 25%Related party lending ratio: not to exceed 20%Net interest margin: Minimum 2%Cost to income ratio: not exceed 70% after 2010
The only financial covenant to be observed under the terms of the ADB loan is as follow:
Capital adequacy ratio: Minimum 10% The only financial covenant to be observed under the terms of the DEG loan is as follow:
Capital adequacy ratio: Minimum 12%Open loan exposure ratio: not to exceed 25%Related party lending ratio: not to exceed 20%Net interest margin: Minimum 2%Cost to income ratio: not exceed 70% Market Risk 25%Liquidity ratio 300Single group exposure 25%
2014 K’ 000
373,221 (119,742)
160,250 44,541
458,270
143,779239,484
71,2233,784
458,270
2013 K’ 000
494,065 (148,643)
- 27,799
373,221
116,811240,132
13,0223,256
373,221
92
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Under the terms of the IFC loan, the Bank is required to observe inter-alia, the following covenants: Covenants
Capital adequacy ratio: Minimum 12%Equity to asset ratio not less than 5%Economic Group exposure ratio not more than 25%Aggregate large exposure ratio of not more than 400%Related party exposure ratio of not more than 15%Open credit exposure ratio of not more than 25%Fixed assets plus equity investment ratio of not more than 35%Aggregate foreign exchange exposure of not more than 25%Single Currency Foreign Exchange Risk Ratio of not more 10%Interest rate risk ratio of not more than 10%Aggregate interest rate risk ratio of not more than 20%Foreign Currency Maturity Gap of at least (150%)Aggregate negative maturity gap ratio of not less than (300%)Single industry exposure ratio of not more than 30%
The total authorised number of ordinary shares is 10,000 million (2013: 10,000 million) with a par value of 1 Ngwee per share. 8,663 (2013: 8,663) million shares are issued and fully paid. During the year, the Bank maintained its paid up share capital at K86,625,000 in compliance with the Bank of Zambia minimum capital require-ments announced on 30 January 2012.
28. Share capital Balance at 31 December 2013 Balance at 31 December 2014
Number of shares
8,662,500
8,662,500
Ordinary sharesK’ 00086,625
86,625
Share premium
K’ 0002,622
2,622
Below is the shareholding structure:Rabo International Advisory Services (RIAS)Government of ZambiaNational Pension Scheme AuthorityLizara Investments Limited (as nominees for Zambia National Farmers Union)Africa Life Financial Services Limited managed fundsPublic Service Pension FundMukuba Pension Trust FundOther Total
2014%
45.5925.00
8.91
3.413.04
2.762.279.02
100.00
2013%
45.5925.00
8.91
3.413.04
2.762.279.02
100.00
27. Borrowings (Continued)
93
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
The balance in the general banking reserve represents the excess of impairment provisions determined in accordance with the Bank of Zambia prudential regulations over the impairment provisions recognised in accordance with IFRS. Where the IFRS impairment exceeds the Bank of Zambia provisioning, a reversal is done from general banking reserves to revenue reserves.
31. Revaluation reserves Property and equipment
At beginning of yearTransfer of excess depreciationRevaluation surplus on propertyDeferred tax on revaluation (note 20)Deferred tax on excess depreciationTransfer of revaluation after disposal
At end of year Available-for-sale financial assets
At beginning of yearNet loss from changes in fair valueNet gain transferred to profit and loss account
At end of year Total revaluation reserves Property and equipmentAvailable-for-sale-Investment
At end of year
2014 K’ 000
54,189 -
7,944 (878)
- -
61,255
4,102 (4,102)
(23,797)
(23,797)
61,255 (23,797)
37,458
2013 K’ 000
56,451 (2,361)
- 171 826
(898)
54,189
813 (813) 4,102
4,102
54,189 4,102
58,291
29. Statutory reserve
At beginning of yearTransfer from retained earnings
At end of year
The regulatory reserve represents an appropriation from retained earnings to comply with SI No.182 of 1995. 30. General banking reserves At 1 January 2014Transfer from retained earnings
At 31 December 2014
2014K’ 000
86,625-
86,625
154,74633,733
188,479
2013K’ 000
11,55075,075
86,625
109,41645,330
154,746
94
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
Cash and balances with Bank of Zambia (Note 14)Less: Statutory deposits requirement (see below)Government and other securities (Note 16)
Balances with other banks (Note 15)Amounts due to Banking Institutions (Note 23)
2014 K’000
1,163,202 (674,413)
108,435
597,224
399,170 (142)
996,252
2013 K’000
909,543 (352,492)
36,719
593,770
284,303 (7,209)
870,864
32. Off statement of financial position, financial instruments, contingent liabilities and commitments In common with other banks, the Bank conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemni-ties. The majority of these facilities are offset by corresponding obligations of third parties. 2014 2013 K’ 000 K’ 000Contingent liabilities Acceptances and letters of credit 820,322 460,688Guarantees and performance bonds 44,289 12,699 864,611 473,387 Nature of contingent liabilities An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Letters of credit commit the Bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers.
Guarantees are generally written by a bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customer’s default. During the ordinary course of business the Bank is subject to threatened or actual legal proceedings. All such material cases are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Bank incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management’s best estimate of the amount required to settle the obligation at the relevant reporting date. In some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed to properly assess the merits of the case. The Bank has contingent liability amounting to K29,387,000 on 31 December 2014 relating to staff claims and contigent assets of K11,414,000. Other commitments 2014 2013 K’ 000 K’ 000 Undrawn stand-by facilities, credit lines and other commitments to lend 127,581 332,814 Nature of commitments Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The Bank may withdraw from its contractual obligation for the undrawn portion of agreed overdraft limits by giving reasonable notice to the customer.
33. Analysis of cash and cash equivalents as shown in the statement cash flows statement
95
2014 annual report
NOTES TO THE FINANCIAL STATEMENTS
33. Analysis of cash and cash equivalents as shown in the statement cash flows statement For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of ac-quisition including: cash and balances with the Bank of Zambia, Treasury Bills and other eligible bills, and amounts due from other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Zambia. Banks are required to maintain a prescribed minimum cash balance with the Bank of Zambia that is not available to finance the bank’s day-to-day activities. The amount is determined as 8% of the average outstanding customer deposits over a cash reserve cycle period of one week. 34. Related party transactions The Bank’s major shareholder is Rabo International Advisory Services (RIAS) BV a subsidiary of Cooperation Raiffeisen – Boerenleenbank CV (Rabo-bank) incorporated in The Netherlands. There are no other companies which are related to Zambia National Commercial Bank Plc, listed on the Lusaka Stock Exchange. Government of the Republic of Zambia hold a 25% interest in the Bank. In the normal course of business, current accounts are operated and placings of foreign currencies are made with Rabobank at market rates (arms length).
2014 2013 K’000 K’000 (a) Loans to Directors Loans and advances to companies controlled by directors 17,873 11,990 (b) Shareholder’s guarantee During the year, the Government had guaranteed outstanding letters of credit and a loan in respect of two public sector entities all amounting to K 828,802,000.
Provisions on loans given to related parties - - (c) Deposits from directors Deposits from Directors - - (d) Key management personnel compensation
Salaries and other short-term employment benefits 29,577 31,685
(e) Management fees paid to Rabo International Advisory Services (RIAS) 7,875 7,174 Fees are computed on the basis of the Management contract. (f) Directors’ remuneration - as directors of the Bank 1,520 1,422 (g) Shareholder deposits Deposits 1,678,905 1,199,200 Interest expense incurred 31,945 16,912
2014 2013 K’ 000 K’ 000
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2014 annual report
The information provided about each segment is based on the internal reports about segment profit or loss, which are regularly reviewed by Executive Management Committee.
Business segments
Corporate Banking Retail Banking Treasury
Business segments as at 31 December 2014
Net interest incomeNet fee and commission incomeOther operating income
Total income
Business segments as at 31 December 2013
Net interest incomeNet fee and commission incomeOther operating income
Total income
Business segments as at 31 December 2014
Total assets for reportable segments
Total liabilities for reportable segments
Business segments as at 31 December 2013
Total assets for reportable segments
Total liabilities for reportable segments
Management have considered the requirements of IFRS 8: paragraph 21 which requires an entity to disclose reported segment profit or loss, segment assets and segment liabilities. On the basis of the information available to management, it is not practical to disclose profit or loss for each reportable segment.
NOTES TO THE FINANCIAL STATEMENTS35. Segmental reporting Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Executive Management Committee (the chief operating decision-maker), which is responsible for allocating resources to the reportable segments and assesses its performance. All operating segments used by the Bank meet the definition of a reportable segment under IFRS 8. The Bank has two main business segments:
Retail banking:-incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, safe custody, credit and debit cards, consumer loans and mortgages;
Corporate banking:-incorporating direct debit facilities, current accounts, deposits, overdrafts, loans and other credit facilities and foreign currency. Other Bank operations comprise Treasury management, Credit and computer services, none of which constitute a separate reportable segment and business activities. As the Bank segment operations are all financial with a majority of revenues deriving from interest and the Executive Management Committee relies primarily on net interest revenues to assess the performance of the segment, the total interest income for all reportable segments is presented on a net basis.
The Banks management reporting is based on a measure of operating profit comprising net interest income, loan impairment charge, net fee and commission income and other income.
Corporate banking
K’ 000
195,02086,706
-
281,726
96,348 79,255 14,254
189,857
2,586,660
3,686,047
2,131,394
4,220,959
Retail bankingK’ 000
208,933204,594
6,278
419,805
140,594 143,038
-
283,632
2,039,312
1,973,018
1,849,102
1,689,079
TreasuryK’ 000
241,520 -
29,065
270,585
225,008 -
16,070
241,078
2,037,831
3,632
2,991,459
194,297
TotalK’ 000
645,473291,300
35,343
972,116
461,950 222,293
30,324
714,567
6,663,803
5,662,697
6,971,995
6,104,335
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2014 annual report
36. Events after the reporting date There were no material significant events after the reporting date that require disclosure in or adjustment to the financial statements for the year ended 31 December 2014.
NOTES TO THE FINANCIAL STATEMENTS
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2014 annual report
I Primary (tier 1) capital (a) Paid up common shares (b) Eligible preferred shares (c) Contributed surplus (d) Retained earnings (e) General reserves (f ) Statutory reserves (g) Minority interests (common shareholders’ equity) (h) Shareholders’ loan capital (i) Sub-total
Less (j) Goodwill and other intangible assets (k) Investments in unconsolidated subsidiaries and associates (l) Lending of a capital nature to subsidiaries and associates (m) Holding of other bank’s or financial institutions’ capital instruments (n) Assets pledged to secure liabilities Sub-total (A) (items i to m)
Other adjustments Provisions Assets of little or no realisable value - specify details or use separate list if necessary. Other adjustments (prepaid expenses) (o) Sub-total (B) (Sub-total A above + other adjustments) (p) Total primary capital (h - n)
II Secondary (tier 2) (a) Eligible preferred shares (regulations 13 and 17)(b) Eligible subordinated term debt (regulation 17 (b)(c) Eligible loan stock/capital (regulation 17(b)(d) Revaluation reserves (regulation 17 (a) (Max. is 40% of res. ratio)(e) Other (regulation 17)(f ) Total secondary capital III Eligible secondary capital (the maximum amount of secondary capital is limited to 100% of primary capital) IV Eligible total capital (i) (o) (Regulatory capital) V Minimum capital requirement: (10% of total on and off balance sheet risk-weighted assets as established in the first schedule, or K104 million, whichever is the higher) On-balance sheet Off-balance sheet
VI Excess (deficiency) – (IV minus V) Regulatory capital as % risk weighted assets Primary capital as % of risk weighted assets
Computation of regulatory capital ( under the Banking and Financial Services Act 1994, as amended)
2014K’000
86,625-
2,622544,165
-86,625
--
720,037
- 307
719,730
3,710
-
3,710
716,020
- - -
30,194 -
30,194
30,194
746,214
3,195,064345,764
3,540,828
2120
CAPITAL ADEQUACY RATIOS APPENDIX I As at 31 December 2014
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2014 annual report
RISK WEIGHTED ASSETS (CONTINUED) APPENDIX II As at 31 December 2014
Part 1 - Calculation of risk weighted assets
Assets Notes and coins - Zambian notes and coins - Other notes and coins Balances held with the Bank of Zambia - Statutory reserves - Other balances Balances with commercial banks in Zambia - With residual maturity of up to 12 months - With residual maturity of more than 12 months Balances with commercial banks abroad - With residual maturity of up to 12 months - With residual maturity of more than 12 months Assets in transit - From other commercial banks - From branches to reporting bank Investment in debt securities - Treasury bills - Other government securities - private securities - Issued by local government units Bills of exchange Loans and advances - Portion secured by cash or treasury bills - Loans to or guaranteed by the government of Zambia - Loans repayable in instalments and secured by a mortgage on owner-occupied residential property - Loans to or guaranteed by local government units - Loans to parastatals - Other
RiskWeight
%
00
00
20100
20100
5020
020
100
100
050
50100100100
Balance (netof allowance
for losses)
295,43119,866
674,413264,535
361,314-
--
47,010-
795,851562,202
48,288
37,582157,272
859,3259,533
102,7121,875,388
6,110,722
Risk- weighted assets (1
x 2)
- - - - - -
72,263 - - -
23,505 -
- 112,440
48,288
- - -
78,636
429,663 9,533
102,712 1,875,388
2,752,428
100
2014 annual report
Part 1 - Calculation of risk weighted assets
RISK WEIGHTED ASSETS (CONTINUED) APPENDIX II As at 31 December 2014
Balance brought forward Inter-bank advances and loans/advances - Guaranteed by other banks - With a residual maturity of 12 months - With residual maturity of more than 12 months Bank premises Acceptances Other assets Investment in equity of other companies Total risk-weighted assets (on balance sheet) Part 2 - Off balance sheet obligations (Under first schedule - regulations 21 and 24) Letters of credit - Sight import letters of credit - Portion secured by cash/treasury bills - Standby letters of credit - Portion secured by cash/treasury bills - Export letters of credit confirmed Guarantees and Indemnities - Guarantees for loans, trade and securities - Portion secured by cash/treasury bills - Performance bonds - Securities purchased under resale agreement - Other contingent liabilities - Net open position in foreign currencies Total risk-weighted assets (off balance sheet) Total risk-weighted assets (on and off balance sheet)
RiskWeight
%
20100100100100100
200
100--
1000
50100100
Balance (netof allowance
for losses)
6,110,722
- - -
141,457 -
300,872307
6,553,358
304,7280
2,795--
-13,300
523,5333,065
17,1910
864,612
7,417,970
Risk- weighted
assets (1 x 2)
2,752,428 - - -
141,457 -
300,872 307
3,195,065
60,946
2,795 - -
- -
261,767 3,065
17,191 -
345,763
3,540,828
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2014 annual report
Interest incomeInterest expensesNet interest incomeCommission and othersOperating incomeOperating expensesImpairmentProfit before loss from sale of Bonds &before taxLoss on disposal of GRZ bondsProfit before taxTax chargeProfit for the year
2014 K’000
779,442(133,969)645,473
326,643972,116(605,520)
(48,545)
318,051(104,494)213,557
(70,631)142,926
2013 K’000
673,552 (120,169) 553,383 284,192 837,575 (542,175) (31,136)
264,264 -
264,264 (77,950) 186,314
2012 K’000
550,876 (88,926) 461,950
252,617 713,567 (476,044) (243)
238,280 -
238,280 (82,192) 156,088
2011 K’000
453,533 (60,139) 393,394 232,648 626,042 (421,252) (19,852)
184,938
- 184,938 (64,425) 120,513
2010 K’000
368,023 (43,828) 324,195 244,088 568,283 (361,624) (34,364)
172,295 -
172,295 (59,785) 112,510
Cash and balances with Bank of ZambiaBalances with other banksInvestment in securities Loans and advances to customersProperty and equipmentOther assets Total assets LIABILITIESCustomer depositsDeposits from other banksBorrowed fundsOther liabilitiesTotal liabilities EquityShare capitalReserves Total
1,163,202399,170
1,445,3403,138,509
274,635242,947
6,663,803
5,053,720142
458,270150,565
5,662,697
86,625914,481
1,001,106 6,663,803
909,543 284,303 2,341,501 2,987,685 303,411 145,512 6,971,955
5,514,878 7,209 373,221 209,027 6,104,335
86,625 780,995 867,620 6,971,955
470,772 364,860 1,944,275 2,639,161 242,365 150,622 5,812,055
4,314,918 22,347 494,065 267,342 5,098,672
86,625 626,758 713,383 5,812,055
512,896 404,741 1,558,779 1,890,736 229,140 121,329 4,717,621
3,412,319 1,246 511,076 210,309 4,134,950
11,550 571,121 582,671 4,717,621
404,031 122,034 956,252 1,725,504 169,938 142,261 3,520,020
2,591,242 24,278 161,894 266,228 3,043,642
11,550 464,828 476,378 3,520,020
5 YEAR FINANCIAL TRENDS
STATEMENT OF PROFIT OR LOSS
STATEMENT OF FINANCIAL POSITION
RISK WEIGHTED ASSETS (CONTINUED) APPENDIX II As at 31 December 2014
102
2014 annual report
NOTES
103
2014 annual report
NOTES
