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BANK OF CHINA ZAMBIA LIMITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2015


FINANCIAL STATEMENTS

for the year ended 31 December 2015

CONTENTS PAGE

Report of the directors 1 - 2

Independent auditor’s report 3 – 4

Statement of profit or loss and other comprehensive income 5

Statement of changes in equity 6

Statement of financial position 7

Statement of cash flows 8

Notes to the financial statements 9 – 42

Computation of capital position Appendix I - III

1


REPORT OF THE DIRECTORS


The Directors have pleasure of presenting their Annual Report together with the audited

financial statements for the year ended 31 December 2015.

Directors - Mr Nie Lin - Chairperson

- Mr Zhou Jian Jun - Managing Director and Executive

Director

- Mr Luo Nan

- Mr Chita Chibesakunda

- Mr Song Guolin

Bank Secretary - Mr Liu Xiao Fei

Auditors - Ernst & Young

Principal activity

The principal activity of the company continues to be commercial banking in its widest

aspect and the promotion of banking related services.

Review of business

As at 31 December 2015 the bank had total deposits of K3,299 million and advances of

K406 million as against the corresponding figures of K2,506 million and K339 million

respectively for the previous year.

The bank maintained sufficient liquidity in the year. Investments in Treasury Bills were K549

million at 31 December 2015, as against K545 million for the year ended 31 December 2014.

Profit before tax

The bank earned a profit before tax of K107.9 million for the year ended 31 December 2015

compared to a profit of K84.7 million for the year ended 31 December 2014.

Dividends

The Board is recommending a dividend of K34.75 million for the year ended 31 December

2015 (2014: K27.08 million).

The bank has authorised, issued and fully paid up share capital of K460,580,000 comprising

9,490,000 (2014: 9,490,000) ordinary shares of K48.53 each.

Auditors

Ernst & Young, the bank’s auditors retire at the forthcoming Annual General Meeting. As

they have indicated their willingness to continue in office, a resolution for their re-

appointment will be submitted to the Annual General Meeting.

2


REPORT OF THE DIRECTORS


Responsibility of directors in respect of preparation of financial statements

The Bank’s directors are responsible for the preparation and fair presentation of the

financial statements of Bank of China Zambia Limited, comprising the statement of

financial position as at 31 December 2015 and statements of profit or loss and other

comprehensive income, statement of changes in equity and statement of cash flows for the

year then ended, and the notes to the financial statements, which include a summary of

significant accounting policies and other explanatory notes, in accordance with the

International Financial Reporting Standards, the Banking and Financial Services Act,1994

(as amended) and the Companies Act, 1994.

The directors’ responsibility includes: designing, implementing and monitoring internal

controls relevant to the preparation and fair presentation of these financial statements that

are free from material misstatement, whether due to fraud or error, selecting and applying

appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances.

The directors’ responsibility also includes maintaining adequate accounting records and an

effective system of risk management.

The directors have made an assessment of the Bank’s ability to continue as a going concern

and have no reason to believe the business will not be a going concern in the year ahead.

Approval of the financial statements

The financial statements of the Bank as indicated above, were approved by the directors on

……………………… and are signed on its behalf by:

-------------------------------- -------------------------------

Director Director

--------------------------------

Director

3

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF


Report on the financial statements

We have audited the financial statements of Bank of China Zambia Limited as set out on

pages 5 to 42, which comprise the statement of financial position as at 31 December 2015

and the statement of profit or loss and other comprehensive income, statement of changes in

equity and statement of cash flows for the year then ended and the notes, comprising a

summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the financial statements

The company’s directors are responsible for the preparation and fair presentation of these

financial statements in accordance with International Financial Reporting Standards and the

requirements of the Companies Act, 1994 and the Banking and Financial Services Act, 1994

(as amended) and for such internal control as the directors determine is necessary to enable

the preparation of financial statements that are free from material misstatement, whether due

to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance about whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s

judgement, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the

entity’s preparation and fair presentation of the financial statements in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating

the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the financial

statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

4

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial

position of Bank of China Zambia Limited as at 31 December 2015 and its financial

performance and cash flows for the year then ended in accordance with International

Financial Reporting Standards and the requirements of the Companies Act, 1994 and the

Banking and Financial Services Act, 1994 (as amended).

Other reports required by the Companies Act

As part of our audit of the financial statements for the year ended 31 December 2015, we

have read the directors’ report for the purpose of identifying whether there are material

inconsistencies between these reports and the audited financial statements. These reports are

the responsibility of the respective preparers. Based on reading these reports we have not

identified material inconsistencies between these reports and the audited financial statements.

However, we have not audited these reports and accordingly do not express an opinion on

these reports.

In accordance with Section 173 (3) of the Companies Act, 1994, we report that, in our

opinion, the required accounting records, other records and registers have been properly kept

in accordance with the Act.

Other reports required by the Banking and Financial Services Act, 1994 (as amended)

Section 64(2) of the Banking and Financial Services Act, 1994 (as amended), we report that

in our opinion:

We have obtained all information and explanations which to the best of our knowledge

and belief were necessary for the purposes of our audit;

We are not aware of any transaction that has been within the powers of the Bank or which

was contrary to the Act;

The Bank has complied with the provisions of this Act and the regulations, guidelines and

prescriptions under this Act; and

There is no non-performing or restructured loan owing to the Bank whose principal

amounts exceeds 5% of the regulatory capital of the Bank.

Ernst & Young

Chartered Accountants

Henry C Nondo 2016

Partner Lusaka

Practicing Certificate Number: AUD/F000136

5

BANK OF CHINA (ZAMBIA) LIMTED

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


Note 2015 2014

K'000 K'000

Interest income

Loans and advances

15,169 13,471

Government securities

123,305 86,921

Deposits with banks

11,514 9,719

Total interest income

149,989 110,111

Interest expenses

On deposits

(2,657) (3,947)

On Foreign currency loans

(3,192) (2,612)

Net interest income 144,140 103,552

Add:

Net-interest income 22,028 39,827

Operating income

166,168 143,379

Less:

Operating expenses 26 (74,237) (61,595)

Profit before net exchange gains

91,931 81,783

Net exchange gains 25 16,000 2,937

Profit before tax 4 107,930 84,720

Income tax expense 5 (38,419) (30,553)

Profit for the year

69,511 54,167

Other comprehensive income

Net other comprehensive income - -

Total comprehensive income

69,511 54,167

The notes on pages 9 to 42 form part of these financial statements.

6

BANK OF CHINA (ZAMBIA) LIMTED

STATEMENT OF CHANGES IN EQUITY


(Note 17)

Share Statutory Revenue

capital reserves reserves Total

K'000 K'000 K'000 K'000

Balance at 1 January 2013 460,580 37,356 74,967 572,803

Dividends for 2012 - - (13,405) (13,405)

Dividends for 2013 (18,276) (18,276)

Total comprehensive

income/profit for the year

-

-

54,167

54,167

Transfer to statutory reserves - 27,083 (27,083) -

Balance at 31 December

2014 460,580 64,339 70,370 595,289

Balance at 1 January 2015 460,580 64,339 70,370 595,289

Dividends for 2014 - - (27,083) (27,083)

Total comprehensive

income/profit for the year - - 69,511 69,511

Transfer to statutory reserves - 34,755 (34,755) -

Balance at 31 December

2015 460,580 99,094 78,043 637,717


7


STATEMENT OF FINANCIAL POSITION

as at 31 December 2015

Note 2015 2014

K'000 K'000

Assets

Cash on hand 6 50,243 15,750

Balances with central bank 7 891,801 770,852

Cash and short term funds at non-group banks 8 1,204,437 774,875

Treasury bills 9 548,798 545,211

Cash and short term funds-group banks 10 295,565 217,198

Loans and advances-group banks 11 1,184,760 508,800

Loans and advances-customers 12 406,371 338,578

Other assets 13 84,468 55,789

Investments 14 404 235

Property, plant and equipment 15 8,578 7,977

4,675,425 3,235,265

Equity

Share capital 16 460,580 460,580

Statutory reserves 17 99,094 64,339

Revenue reserves 17 78,043 70,370

637,717 595,289

Liabilities

Due to other banks 18 615,452 51,536

Demand and savings deposits 19 3,151,830 2,439,335

Time deposits 20 147,332 66,606

Income tax payable 5 3,119 8,525

Other liabilities 21 119,343 73,424

Deferred income tax 5 632 550

4,037,708 2,639,976

4,675,425 3,235,265

These financial statements were approved by the board of directors on……………………......

and signed on its behalf by:

------------------------------- -------------------------------- ------------------------------------

Mr Nie Lin Mr Liu Xiao Fei Mr Zhou Jian Jun

Chairperson Bank Secretary General Manager


8


STATEMENT OF CASH FLOWS


Note 2015 2014

K'000 K'000

Cash flows from operating activities

Profit before tax 107,930 84,720

Increase in statutory deposits 7 (371,661) (207,367)

Depreciation 15 1,778 1,846

Increase in other assets (28,679) (18,602)

Increase/(decrease) in other liabilities 45,919 (3,841)

Increase in customer deposits 793,221 190,414

Increase in loans and advances to customers (67,794) (79,417)

Increase in balances due to other banks 563,916 23,393

Tax paid (43,743) (29,871)

Net cash flows from operating activities 1,000,887 (38,725)

Cash flows from investing activities

Movement in investments (169) (32)

Movement in treasury bills (3,587) (11,167)

Purchase of plant and equipment (2,378) (580)

Net cash flows used in investing activities (6,134) (11,779)

Cash flows from financing activities

Dividend paid (27,083) (31,681)

Movement in cash and cash equivalents

Net cash flow 967,670 (82,185)

Cash and cash equivalents at beginning of year 1,883,680 1,965,865

Cash and cash equivalents at end of year 23 2,851,350 1,883,680


9


NOTES TO THE FINANCIAL STATEMENTS


1. Principal Activity

The bank is engaged in the business of commercial banking in its widest aspect and

the provision of related financial services.

2. Significant Accounting Policies

State of compliance

The financial statements have been prepared in accordance with the International

Financial Reporting Standards (IFRS) adopted by the International Accounting

Standards Board (IASB) and comply with the Banking and Financial Services Act of

1994 (as amended) and the Companies’ Act 1994.

2.1 Basis of Financial Statements Preparation

The financial statements have been prepared on the historical cost 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.

The financial statements are presented in Zambian Kwacha (“Kwacha”), which is the

Bank’s functional currency and rounded to the nearest million’000.

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

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2. Significant Accounting Policies

The principal accounting policies are set out below:

2.2 Revenue recognition – interest and similar income expense

Interest income is recognized as it accrues taking account of the principal outstanding

and the rate applicable. Interest income and expense include the amortization of any

discount or premium or other differences between the initial carry amount of an

interest bearing instrument and its amount at maturity on an effective interest rate

basis. Loans and other facilities are recognized when a binding obligation has been

entered into. Commitment, facility and loan fees are recognized according to the

nature of service provided. Fee and commission income in respect of loans and

advances is amortised over the period of the expected life of the facility.

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 a fair value through profit or loss,

are recognised within interest income or interest expense in profit or loss using

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 rate

The 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.

11




2. Significant Accounting Policies (Continued)

2.2 Revenue recognition – interest and similar income expense (Continued)

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.

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.

2.3 Significant accounting judgments, estimates and assumptions

In the process of applying the bank’s accounting policies, management has exercised

judgment and estimates in the amounts recognised in the financial statements. The

most significant uses of judgment and estimates are as follows:

Going concern

The bank’s management has made an assessment of the bank’s ability to continue as a

going concern and is satisfied that the bank has the resources to continue in business

for the foreseeable future. Furthermore, management is not aware of any material

uncertainties that may cast significant doubt upon the bank’s ability to continue as a

going concern. Therefore, the financial statements continue to be prepared on the

going concern basis.

12





2.3 Significant accounting judgments, estimates and assumptions (Continued)

Impairment losses on loans and advances

The bank reviews individually its significant loans and advances at each reporting

date to assess whether an impairment loss should be recorded in the statement of

comprehensive income. In particular, management judgment is required in the

estimation of the amount and timing of future cash flows when determining the

impairment loss. These estimates are based on assumptions about a number of factors

and actual results may differ, resulting in future changes to the allowance. Loans and

advances are assessed individually to determine whether provision should be made.

The assessment takes account of data from the loan portfolio (such as levels of

arrears, credit utilization, loan to collateral ratios, etc.), and judgments to the effect of

concentrations of risks and economic data. The impairment loss on loans and

advances is disclosed in more detail in Note 11.

Foreign currencies

Transactions in foreign currencies are translated at the foreign exchange rate ruling at

the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies, which are stated at

historical cost, are translated at the foreign exchange rate ruling at that date. Foreign

exchange differences arising on transaction are recognised in profit or loss None

monetary assets that in terms of historical cost in a foreign currency are translated

using the spot exchange rates as at the date of recognition.

Non-monetary assets and liabilities denominated in foreign currencies are translated

using the spot exchange rates measured at the date when the fair value was

determined .

13





2.3 Significant accounting judgments, estimates and assumptions (Continued)

Held to maturity investments

The bank follows guidance of IAS 39 on classifying investments as held to maturity.

This classification requires significant judgment. In making this judgement, the bank

evaluates its intention and ability to hold such investments to maturity. If the bank

fails to keep these investments to maturity other than for the specific circumstances

defined in IAS 39, it will be required to reclassify the entire class as available for sale.

The investments would therefore be measured at fair value and not amortised cost.

Financial guarantees

In the ordinary course of business, the bank gives financial guarantees, consisting of

letters of credit, guarantees and acceptances. Financial guarantees are initially

recognized in the financial statements (within ‘Other liabilities’) at fair value, being

the premium received. Subsequent to initial recognition, the bank’s liability under

each guarantee is measured at the higher of the amount initially recognized less, when

appropriate, cumulative amortization recognized in profit or loss, and the best

estimate of expenditure required to settle any financial obligation arising as a result of

the guarantee. Any increase in the liability relating to financial guarantees is recorded

in the statement of profit and loss and other comprehensive income in ‘Operating

expense’. The premium received is recognized in profit or loss in ‘Net fees and

commission income’ on a straight line basis over the life of the guarantee.

14





2.4 Financial Instruments

2.4.1 Initial recognition and subsequent measurement.

i) Date of recognition

All financial assets and liabilities are initially recognised on the trade date, i.e., the

date that the bank becomes a party to the contractual provisions of the instrument.

ii) Classification

The classification of financial instruments at initial recognition depends on the

purpose and the management’s intention for which the financial instruments were

acquired and their characteristics.

When applicable the Bank classifies financial assets at fair value through profit and

loss; loans and receivables held to maturity assets; and available- for- sale assets

iii) Initial measurement of financial instruments

All financial instruments are measured initially at their fair value plus transaction

costs, except in the case of financial assets and financial liabilities recorded at fair

value through profit or loss.

iv) Held–to–maturity financial investments

Held-to-maturity assets (Government bonds and Treasury Bills) are financial assets

with fixed or determinable payments and fixed maturity that the bank has the intent

and ability to hold to maturity. After initial measurement held–to–maturity financial

investments are subsequently measured at amortised cost, less impairment. Amortised

cost is calculated by taking into account any discount or premium on acquisition and

fees that are an integral part of the effective interest rate (EIR). The amortisation is

included in ‘Interest income’ in the statement of profit or loss and other

comprehensive income. The losses arising from impairment of such investments are

recognised in the statement of comprehensive income line ‘Operating expenses’. If

the bank were to sell or reclassify more than an insignificant amount of held–to–

maturity investments before maturity (other than in certain specific circumstances),

the entire category would be tainted and would have to be reclassified as available–

for–sale.

v) Loans and Borrowings

Amounts due from banks and loans and advances are created by the bank providing

money to a debtor other than those created with the intention of short term profit

making. They comprise loans and advances to banks and customers.

After initial measurement, amounts ‘Due from banks’ and ‘Loans and advances to

customers’ are subsequently measured at amortised cost using the EIR, less allowance

15




2. Significant accounting policies (continued)

2.4 Financial Instruments (continued)

2.4.1 Initial recognition and subsequent measurement (Continued)

v) Loans and Borrowings continued

for impairment. Amortised cost is calculated by taking into account any discount or

premium on acquisition and fees and costs that are an integral part of the EIR. The

amortisation is included in ‘Interest and similar income’ in the statement of

comprehensive income. The losses arising from impairment are recognised in the

statement of profit and loss and other comprehensive income in ‘Operating expenses’.

2.4.2 Derecognition of financial assets and financial liabilities

(i) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of

similar financial assets) is derecognised when:

The rights to receive cash flows from the asset have expired.

The bank has transferred its rights to receive cash flows from the asset or has

assumed an obligation to pay the received cash flows in full without material

delay to a third party; and either:

the bank has transferred substantially all the risks and rewards of the asset, or

the bank has neither transferred nor retained substantially all the risks and rewards

of the asset, but has transferred control of the asset.

When the bank has transferred its rights to receive cash flows from an asset or has

entered into a pass–through arrangement, and has neither transferred nor retained

substantially all the risks and rewards of the asset nor transferred control of the asset,

the asset is recognised to the extent of the bank’s continuing involvement in the asset.

In that case, the bank also recognises an associated liability. The transferred asset and

the associated liability are measured on a basis that reflects the rights and obligations

that the bank has retained. Continuing involvement that takes the form of a guarantee

over the transferred asset is measured at the lower of the original carrying amount of

the asset and the maximum amount of consideration that the bank could be required to

repay.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is

discharged or cancelled or expires. Where an existing financial liability is replaced by

another from the same lender on substantially different terms, or the terms of an

existing liability are substantially modified, such an exchange or modification is

treated as a derecognition of the original liability and the recognition of a new

liability. The difference between the carrying value of the original financial liability

and the consideration paid is recognised in profit or loss.

16





2.4 Financial Instruments (continued)

2.4.3 Offsetting of financial assets and financial liabilities

Financial Assets and liabilities are offset and the net amount reported in the statement

of financial position if, and only if, there is currently enforceable legal right to offset

the recognized amounts and there is an intention to settle on a net basis, or to realise

the asset and settle the liability simultaneously.

2.4.4 Government Debt Securities held-to-maturity

Debt investments that the bank has the intent and ability to hold maturity are

classified as held-to-maturity assets. Government debt securities (government bonds

and treasury bills) held-to-maturity, are stated at amortized cost less any amounts

written off to reflect permanent diminution in value. Any accrued interest included

under accrued income.

2.4.5 Equity Investments

Equity investments are carried out at fair value or cost. Where carried at cost,

investments are stated at cost less impairment or other amounts written off to

recognize other than temporary decline in the value of the investment.

2.5 Impairment of financial assets

The bank assesses at each reporting date whether there is any objective evidence that

a financial asset or a group of financial assets is impaired. A financial asset or a group

of financial assets is deemed to be impaired if, and only if, there is objective evidence

of impairment as a result of one or more events that has occurred after the initial

recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has

an impact on the estimated future cash flows of the financial asset or the group of

financial assets that can be reliably estimated. Evidence of impairment may include

indications that the borrower or a group of borrowers is experiencing significant

financial difficulty, the probability that they will enter bankruptcy or other financial

reorganization, default or delinquency in interest or principal payments and where

observable data indicates that there is a measurable decrease in the estimated future

cash flows, such as changes in arrears or economic conditions that correlate with

defaults

i) Financial assets carried at amortised cost

For financial assets carried at cost (such as amounts due from banks, loans and

advances to customers as well as held–to–maturity investments), the bank assesses

individually whether objective evidence of impairment exists for financial assets that

are individually significant. If there is objective evidence that an impairment loss has

been incurred, the carrying amount of the asset is reduced through the use of an

allowance account and the amount of the loss is recognised in profit or loss. Interest

income continues to be accrued on the reduced carrying amount and is accrued using

the rate of interest used to discount the future cash flows for the purpose of measuring

the impairment loss. The interest income is recorded as part of ‘Interest income’.

17





2.5 Impairment of financial assets (continued)

i) Financial assets carried at amortised cost (continued)

Loans together with the associated allowance are written off when there is no realistic

prospect of future recovery and all collateral has been realised or has been transferred

to the bank. If, in a subsequent year, the amount of the estimated impairment loss

increases or decreases because of an event occurring after the impairment was

recognised, the previously recognised impairment loss is increased or reduced by

adjusting the allowance account. If a future write–off is later recovered, the recovery

is credited to the ’Operating expenses’.

Subsequent recoveries are also applied in terms of Banking and Financial Services

Act. Under the Banking and Financial Services Act, interest on loans and advances is

accrued to income until such time as reasonable doubt exists about its collectability.

Thereafter and until all or part of the loan is written off, interest continues to accrue

on the customers’ accounts, but is not included in income. Such interest suspended is

deducted from loans and advances.

The carrying amount of the bank’s other assets are reviewed at each statement of

financial position date to determine whether there is any indication of impairment. If

any such exists, the asset’s recoverable amount is estimated. An impairment loss is

recognized in profit and loss whenever the carrying of an asset exceeds its

recoverable amount.

2.6 Retirement Benefits

The bank contributes to the statutory scheme in Zambia namely National Pension

Scheme Authority (NAPSA) which is a defined contribution plan where the bank pays

an amount equal to the employees’ contributions. Employees’ contribution is 5% of

their gross earnings or maximum of K796.20 per month during the year 2015.

Contributions to NAPSA are recognized in profit or loss.

18





2.7 Property, Plant and Equipment

Items of property, plant and equipment are stated at the lower of historical cost and

recoverable amount less accumulated depreciation.

Expenditure on repairs and maintenance of property and equipment made to restore or

maintain future economic benefits expected from the asset is recognized as an

expense when incurred.

Property, plant and equipment are depreciated using the straight line method to write

the gross book value of the various assets over the period of their expected useful

lives at the following annual rates:

Buildings 3.23%

Motor vehicles 20%

Furniture and fittings 20%

Computers 20%

Capital work in progress

Capital work in progress (CWIP) costs are costs incurred in respect of various assets

in the course of construction or set up. Such CWIP costs are accumulated into CWIP

account and carried forward, without amortisation, until such time as the projects are

certified complete and brought into operational use. The CWIP costs are capitalised

to property or equipment and are amortised in accordance with the above policies.

2.8 Tax

The tax charge is determined in accordance with the provisions of the Income Tax

Act, 1966 (as amended) and is based on the adjusted profit for the year. Tax on the

profit or loss for the year comprises current taxation and the change in deferred tax

provision.

Deferred tax is calculated under the statement of financial position liability method,

whereby the taxable effect of temporary differences between the tax base of assets

and liabilities and their carrying values for financial reporting purposes is recognised

in the statement of profit or loss and other comprehensive income for the period.

A deferred tax asset is recognised only where it is probable that the tax benefits will

be realised.

19





2.9 Dividends

Dividends are recognised as a liability in the period in which they are approved by the

shareholders.

2.10 Fiduciary activities

The bank acts in a fiduciary capacity that results in the holding of assets on behalf of

individuals and other institutions. These assets are excluded from these financial

statements as they are not assets of the bank.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and balances with the Bank of

Zambia, placements with local banks, bank balances held and balances due to group

companies and non-group companies.

2.12 New and amended Standards and Interpretations

2.12.1 New standards and interpretations not yet effective in 2015

IFRS 15 - Revenue from Contracts with Customers – effective 1 January 2018

IFRS 15 Revenue from Contracts with Customers replaces IAS 11 Construction

Contracts, IAS 18 Revenue and related interpretations. IFRS 15 specifies the

accounting treatment for all revenue arising from contracts with customers. It applies to

all entities that enter into contracts to provide goods or services to their customers,

unless the contracts are in the scope of other IFRSs, such as IAS 17 Leases. The

standard also provides a model for the measurement and recognition of gains and losses

on the sale of certain non-financial assets, such as property or equipment. Extensive

disclosures will be required, including disaggregation of total revenue; information

about performance obligations; changes in contract asset and liability account balances

between periods and key judgements and estimates

IFRS 14 - Regulatory Deferral Accounts – effective 1 January 2016

The International Accounting Standards Board (IASB) issued IFRS 14 Regulatory

Deferral Accounts to ease the adoption of International Financial Reporting Standards

(IFRS) for rate-regulated entities. The standard allows an entity to continue applying

most of its existing accounting policies for regulatory deferral account balances upon

adoption of IFRS. This interim standard provides first-time adopters of IFRS with relief

from derecognising rate regulated assets and liabilities until a comprehensive project on

accounting for such assets and liabilities is completed by the IASB

20





2.12 New and amended Standards and Interpretations (Continued)

2.12.1 New standards and interpretations not yet effective in 2015 (Continued)

IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and

Amortisation – effective 1 January 2016

The IASB issued amendments to IAS 16 Property, Plant and Equipment and IAS 38

Intangible Assets prohibiting the use of revenue-based depreciation methods for fixed

assets and limiting the use of revenue-based amortisation methods for intangible assets.

The amendments are effective prospectively there is no impact on the operations of the

Bank.

A number of new standards, amendments to standards and interpretations are

mandatory for the year ended 31 December 2015. None of the standards that became

effective in the current year had a material impact on the Company’s financial results.

Standards issued but not yet effective up to the date of issuance of the financial

statements are listed below.

This listing is of standards and interpretations issued, which the Company reasonably

expects to be applicable at a future date. The Company intends to adopt those

standards when they become effective.

IFRS 9 Financial Instruments – classification and measurement

On 24 July 2014, the International Accounting Standards Board (IASB) issued the final

version of IFRS 9-Financial Instruments bringing together the classification and

measurement, impairment and hedge accounting phases of the IASB’s project to replace

IAS 39 Financial Instruments: Recognition and Measurement and all previous versions

of IFRS 9. The classification and measurement requirements address specific application

issues arising in IFRS 9 (2009) that were raised by preparers, mainly from the financial

services industry. The expected credit loss model addresses concerns expressed

following the financial crisis that entities recorded losses too late under IAS 39.

IFRS 9 stipulates that financial assets are measured at amortised cost, fair value through

profit or loss, or fair value through other comprehensive income, based on both the

entity’s business model for managing the financial assets and the financial asset’s

contractual cash flow characteristics.

Apart from the ‘own credit risk’ requirements, classification and measurement of

financial liabilities is unchanged from existing requirements. IFRS 9 is applicable for

annual periods beginning on or after 1 January 2018. The Company is still assessing the

impact of the standard.

21





2.12 New and amended Standards and Interpretations (Continued)

2.12.1 New standards and interpretations not yet effective in 2015 (Continued)

IFRS 15- Revenue from Contracts with Customers

The IASB and FASB have issued their joint revenue recognition standard, IFRS 15

Revenue from Contracts with Customers, which replaces all existing IFRS and US

GAAP revenue requirements. The core principle of IFRS 15 is that revenue is

recognised 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. IFRS 15 establishes a five-step model that will

apply to revenue earned from a contract with a customer (with limited exceptions),

regardless of the type of revenue transaction or the industry. The standard’s

requirements will also apply to the recognition and measurement of gains and losses on

the sale of some non-financial assets that are not an output of the entity’s ordinary

activities (e.g., sales of property, plant and equipment or intangibles). Extensive

disclosures will be required, including disaggregation of total revenue; information

about performance obligations; changes in contract asset and liability account balances

between periods and key judgments and estimates.

The standard is for effective for annual periods beginning on or after 1 January 2017

and the Company is still assessing the impact of the standard.

IAS 16 and IAS 38 clarification of Acceptable Methods of Depreciation and

Amortisation

The IASB issued amendments to IAS 16 Property, Plant and Equipment and IAS 38

Intangible Assets prohibiting the use of revenue-based depreciation methods for fixed

assets and limiting the use of revenue-based amortisation methods for intangible assets.

The amendments are effective prospectively. The amendment becomes effective for

annual periods beginning on or after1 January 2016 and is not affected to have an

effect on the Company as the Company does not use revenue methods to depreciate its

assets.

22




3. Holding company

The holding company of Bank of China Zambia Limited is Bank of China Limited, a

company incorporated in China.

3.1 Currency of the financial statements

These financial statements are presented in Zambian Kwacha.

2015 2014

4. Profit before tax K’000 K'000

Profit before tax is stated after charging

Auditors remuneration 231 125

Depreciation and amortization 2,923 2,992

Directors fees 109 61

5. Tax

Income tax charge:

Based on results for the year 38,337 30,647

Deferred tax 82 (94)

38,419 30,553

Tax reconciliation

Tax on accounting profit @ 35% 37,775 29,652

Non-deductible expenses 644 901

38,419 30,553

Income tax payable

Payable in respect of current year 38,337 30,647

Payable in respect of previous year 8,525 7,749

46,862 38,396

Less: Tax paid (29,525) (19,749)

Withholding tax on treasury bills (14,218) (10,122)

At end of year 3,119 8,525

Deferred tax

At 1 January 550 644

Movement during the year 82 (94)

632 550

23

6.




Cash on hand

2015 2014

K’000 K’000

Cash domestic currency 34,532 5,593

Foreign currency on hand 15,711 10,157

50,243 15,750

7. Balances with Central Bank

Statutory deposit account(Note 28) 775,456 403,795

Current account 116,345 367,057

891,801 770,852

8. Cash and short term funds at non-group banks

Deposits held with commercial banks:

-Within Zambia 18,285 6,922

-Abroad 1,186,152 767,953

1,204,437 774,875

9. Treasury bills held to maturity

Within less than three months 239,555 218,915

Between three months and one year 309,243 326,296

548,798 545,211

10. Cash and short term funds-group banks

Bank of China-Guangdong CNY 496 304

Bank of China-Hongkong USD 14,486 13,154

Bank of China-Frankfurt EUR 9,476 2,774

Bank of China-New York USD 89,607 123,516

Bank of China-Johannesburg USD 10,600 5,335

Bank of China-Johannesburg ZAR 274 71

Bank of China-London USD 32,729 20,422

Bank of China-London CNY 1,889 1,166

Bank of China-Head Office USD 72,113 16,768

Bank of China-Shanghai CNY 4,705 5,568

Bank of China-Hongkong CNY 59,193 28,121

295,565 217,198

24




2015 2014

11. Loans and Advances-group banks K’000 K’000

Bank of China-London 1,184,760 508,800

12. Loan and advances-Customers

Obligations from staff - 314

Obligations from corporate customers 410,476 341,684

Gross advances-Customers 410,476 341,998

Repayable:

- Less than three months - 37,663

- Three months to one year 153,658 115,894

- One to five years 164,714 128,306

- Over five years 92,104 60,134

Gross advances(as above) 410,476 341,998

Allowance for losses on loans and advances (4,105) 3,420

406,371 338,578

Allowances for losses on loans and advances

Balance at 1 January 3,420 1956

Impairment losses recognised:

-Provision for the year 685 1,464

At 31 December 4,105 3,420

13. Other assets

Accrued income receivable 80,831 51,721

Prepayments 3,637 4,068

84,468 55,789

14. Investments

Investment in Zambia Electronic Clearing House 404 235

25




15. Property, plant and equipment

Motor Furniture Computer

Buildings Vehicles &fittings Equipment Total

Cost K'000 K'000 K'000 K'000 K'000

At 1 January 2014 5,614 3,841 2,861 1,563 13,879

Additions - - 125 455 580

At 31 December 2014 5,614 3,841 2,986 2,018 14,459

Additions - - 1,904 474 2,378

At 31 December 2015 5,614 3,841 4,890 2,492 16,837

Depreciation

At 1 January 2014 922 1,750 1,343 619 4,640

Charge for the year 182 768 570 327 1,846

At 31 December 2014 1,104 2,518 1,913 946 6,481

Charge for the year 182 601 599 396 1,778

At 31 December 2015 1,286 3,119 2,512 1,342 8,259

Net Book Value

At 31 December 2015 4,328 722 2,378 1,150 8,578

At 31 December 2014 4,510 1,323 1,073 1,072 7,977

2015 2014

16. Share capital K’000 K'000

Authorised, issued and fully paid

9,490,000 ordinary shares of K48.53 each 460,580 460,580

26




17. Reserves Revenue Statutory

reserves reserves Total

K'000 K'000 K'000

At 1 January 2015 70,370 64,339 134,709

Profit for the year 69,511 - 69,511

Transfer to statutory reserves (34,755) 34,755 -

2014 Dividend paid (27,083) - (27,083)

At 31 December 2015 78,043 99,094 177,137

The statutory reserve is established in accordance with Chapter (IV) Section 69 of the

Banking and Financial Services Act, 1994 (as amended). This regulation stipulates that a

bank shall set aside 50% of the net profit, before declaring any dividend and after due

provision has been made for tax, until such a reserve equals the paid up share capital.

18. Due to other Banks 2015 2014

K’000 K’000

Bank of China London

615,452

51,536

19. Demand and savings deposits

Current deposit accounts 3,002,958 2,325,936

Savings deposit accounts 148,872 113,399

3,151,830 2,439,335

20. Time deposits

Kwacha deposits 875 5,195

Foreign deposits 146,457 61,411

147,332 66,606

27




21. Other liabilities 2015 2014

K’000 K’000

Inward remit 13,458 555

Bills payable 1,304 1,178

Margin deposits 85,788 61,874

Items in transit - 32

Interest payable 360 334

Other payables 18,433 9,450

119,343 73,424

Included in Other payables is Service center IT fees, and

Bank of Zambia Supervisory fees.

22. Contra accounts

In common with other banks, the bank conducts

business involving Letters of Credit and

Guarantees.

Letters of credit 53,529 23,347

Letter of guarantee 2,118,156 1,157,059

2,171,685 1,180,406

23 Analysis of the balances in cash Movement

as shown in the statement of 2015 2014 in the year

financial position K'000 K'000 K'000

Cash on hand 50,243 15,750 34,493

Balance with Central Bank (note 7) 116,345 367,057 (250,712)

Cash and short term funds at non-group

banks

1,204,437

774,875

429,562

Cash and short term funds-group banks 295,565 217,198 78,367

Loans & advances-group banks 1,184,760 508,800 675,960

2,851,350 1,883,680 967,670

24. Capital commitments

There were no capital commitments as at 31 December 2015 and 2014.

28




25. Gains less losses from dealing in foreign

currencies

2015 2014

K'000 K'000

Exchange losses(gains) (16,000) (2,937)

26. Operating expenses

Auditors' remuneration-Audit fee 231 125

Depreciation 1,777 1,846

Directors' fees 109 61

Other operating expenses 24,559 21,320

Staff expenses 47,569 37,096

74,237 61,595

27. Staff expenses

NAPSA contributions 123 127

Salaries and allowances 44,324 31,825

Other staff costs 3,122 5,145

47,569 37,096

The average number of employees during the year

ended 31 December 2015 was 56 (2014 – 54)

29




28. Statutory deposits with Bank of Zambia 2015 2014

K'000 K'000

Local currency:Current Accounts and Time

Deposits

33,504

58,504

Foreign currency: Current accounts and time

deposits

741,951

345,291

775,456 403,795

The statutory deposits held with Bank of

Zambia, as a minimum reserve requirement, are

not available for the bank’s daily business. The

reserve represents a percentage of the bank’s

local currency and foreign currency liabilities to

the public as required by the Banking and

Financial Services Act. The percentage at 31

December 2015 was 18% (2014:14%).

29. Cash and short term fund with non- group

banks

Standard Chartered Bank-London 498,344 385,741

Standard Chartered Bank-Lusaka 18,285 6,922

Citibank-New York 119,414 382,021

ICBC – New York 19,894 191

ICBC - Cambodia 548,500 -

1,204,437 774,875

30. Customer deposits

Current accounts and time deposits

Repayable:

- On demand 3,125,375 2,423,820

- Three months or less 136,537 73,147

- Between Three months and one year 37,249 8,974

3,299,162 2,505,941

31. Related party transactions

The bank has a related party relationship with its parent bank, related banks in Bank

of China, directors and senior management.

Directors and senior management 2015 2014

Remuneration K’000 K’000

Salaries 44,324 31,825

Directors fees 109 61

44,433 31,886

30




32. Fair value information

The carrying amounts of financial assets and liabilities are representative of the bank’s

position at 31 December 2015 and are in the opinion of the directors not significantly

different from their respective fair values due to generally short periods to maturity

dates.

Fair value hierarchy

IFRS 13 – Fair Value Measurement specifies a hierarchy of valuation techniques

based on whether the inputs to those valuation 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 assets or liability, either directly or indirectly (that is, as prices)

or indirectly (that is, derived from prices);

Level 3 – inputs for the asset or liability that are not 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.

The following summarises the major methods and assumptions used in estimating fair

values.

Loans and advances

Fair values for loans and advances to customers are calculated based on the discounted

expected future principal and interest cash flows taking into account changes in credit

status of loanees since the loans were made and any indication of impairment.

Bank and customer deposits

For demand and fixed term deposits fair value is taken to be the amount payable on

demand at the statement of financial position date. The value of long term

relationships with depositors is not taken into account in estimating fair values.

31




33. Risk management

The most important types of financial risk to which the bank is exposed are credit risk,

liquidity risk and market risk. Market risk includes currency risk and interest rate risk.

There is a comprehensive risk management reporting structure to the bank’s group

management responsible for risk. The group has a co-ordinated approach to all aspects

or risk.

Liquidity risk

Liquidity risk arises in the general funding of the bank’s activities and in the

management of the resulting positions. It includes both the risk of being unable to

fund assets at appropriate maturities and rates and the risk of being unable to liquidate

an asset at a reasonable price and within an appropriate time frame.

The responsibility for asset and liability management policies lies with the Asset and

Liability Committee (ALCO) whose members include the bank’s Executive Directors

and selected senior management staff. ALCO oversees the management of the bank’s

capital, the size and composition of the bank’s statement of financial position and

liquidity. Policies are within guidelines set by the Group.

Liquidity management is directed towards ensuring that all the bank’s operations can

meet their funding needs, whether this is to replace existing funding as it matures, or is

withdrawn, or to satisfy the demands of customers for additional borrowings.

The concentration of funding requirements at any one date or from any one source is

managed continuously. A substantial proportion of the bank’s deposit base is made up

of current accounts and other short term customer deposits.

Market risk

Market risk arises from open positions in interest rate, currency and equity products,

all of which are exposed to general and specific market movements.

All businesses in the bank operate within market risk management policies that are set

by the Group. Limits have been set to control the bank’s exposure to movements in

prices and volatilities arising from trading, lending, deposit taking and invest

decisions.

Value at risk (VAR)

The bank measures the risk of losses arising as a result of potential adverse movements

in interest and exchange rates daily. The limits based on historical utilisation are

recommended by the local ALCO and approved by Risk management on an annual

basis.

32




33. Risk management (continued)

In addition to the close supervision of trading activities by senior management, there

are limits on the size of positions and concentrations of instruments as well as stress

testing of certain product groups and currencies. The bank regularly stress tests its

main portfolios to identify any exposure to low probability events that may not be

highlighted by other measures.

Interest risk exposure

The bank’s operations are subject to the risk of interest rate fluctuations to the extent

that interest earning assets (including investments) and interest-bearing liabilities

mature or reprise at different times or in differing amounts. In the case of floating rate

assets and liabilities the bank is also exposed to basis risk, which is the difference in

reprising characteristics of the various floating rate indices.

33




34. Risk management (Continued)

34.1 Liquidity risk

As at 31 December 2015 Up to 1-3 3-6 6-12 1-3 Up to

1 Month Months Months Months Years 3 years Total

ASSETS K'million K'million K'million K'million K'million K'million K'million

Cash on hand 50 - - - - - 50

Balances with Central Bank 892 - - - - - 892

Balances with domestic institutions 18 - - - - - 18

Balances with foreign institutions 933 1,733 - - - - 2,666

Investments in securities 83 157 203 106 - - 549

Loans and advances

- 40 114 41 216 410

Other assets - 80 - - - 9 89

Total assets 1,977 1,970 243 220 41 225 4,675

Liabilities and shareholders’ funds

Deposits 3,152 147 - - - - 3,299

Bills of exchange 1

- - - - 1

Other liabilities 733 - - 9 - - 742

Shareholders’ funds - - - - 633 - 633

-

Total liabilities &shareholders' funds 3,886 147 - 9 633 - 4,675

Net liquidity Gap (1,909) (1,823) 243 211 (592) 225 -

Cumulative liquidity Gap (1,909) (87) 156 367 (225) - -

34




34. Risk management (Continued) 34.1 Liquidity risk (Continued)

As at 31 December 2014 Up to 1-3 3-6 6-12 1-3 Up to

1 Month Months Months Months Years 3 years Total

ASSETS K' million K' million K' million K' million K' million K' million K' million

Cash on hand 16 - - - - - 16

Balances with Central Bank 771 - - - - - 771

Balances with domestic institutions 7 - - - - - 7

Balances with foreign institutions 985 509 - - - - 1,494

Investments in securities 61 158 128 199 - - 545

Loans and advances 37 - 25 91 35 153 342

Other assets - 52 - - - 8 60

Total assets 1,877 719 152 290 35 161 3,235


Deposits 2,424 73 9 - - - 2,506

Bills of exchange 1

- - - - 1

Other liabilities 125 - - 10 - - 135

Shareholders’ funds - - - - 593 - 593

-

Total liabilities &shareholders' funds 2,550 73 9 10 593 - 3,235

Net liquidity Gap (672) 646 143 279 (558) 161 -

Cumulative liquidity Gap (672) (27) 117 396 (161) - -

35





34.2 Interest rate risk

As at 31 December 2015 Zero Rate Floating

Rate 0-3 3-6 6-9 9-12 Over 12

Instrument Instrument Months Months Months Months Months Total

ASSETS K'million K'million K'million K'million K'million K'million K'million K'million

Cash on Hand 50 - - - - - - 50

Balances with Central Bank 892 - - - - - - 892

Balances with domestic

institutions 19 - - - - - - 19

Balances with foreign institutions 933

1,733 - - - - 2666 Investments in Securities - - 240 203 73 33 - 549

Loans and Advances - - - 40 - 114 257 410

Other Assets 89 - - - - - - 89

-

Total assets 1,983 - 1,973 243 73 147 257 4,675


Deposits 3,152 - 147 - - -

3,299

Bills of Exchange 1 - - - - - - 1

Other Liabilities 127 - 615 - - - - 742

Shareholders’ Funds 633 - - - - - - 633

Total liabilities and shareholders'

funds 3,913 - 763 - - - - 4,675

Asset Liability Gap (1,930) - 1,210 243 73 147 257 -

Cumulative Gap (1,930) - (720) (477) (403) (257) - -

36





34.2 Interest rate risk (Continued)

As at 31 December 2014

Zero Rate

Floating

Rate 0-3 3-6 6-9 9-12 Over 12

Instrument Instrument Months Months Months Months Months Total

ASSETS K'million K'million K'million K'million K'million K'million K'million K'million

Cash on Hand 16 - - - - - - 16 Balances with Central Bank 771 - - - - - - 771

Balances with domestic

institutions 7 - - - - - - 7

Balances with foreign institutions 985

509 - - - - 1,494 Investments in Securities - - 219 128 98 100 - 545

Loans and Advances - - 38 25 - 91 188 342

Other Assets 60 - - - - - - 60

-

Total assets 1,839 - 765 152 98 191 188 3,235


Deposits 2,424 - 73 9 - -

2,506

Bills of Exchange 1 - - - - - - 1

Other Liabilities 84 - 51 - - - - 135

Shareholders’ Funds 593 - - - - - - 593

Total liabilities and shareholders'

funds 3,102 - 125 9 - - - 3,235

Asset Liability Gap (1,262) - 641 143 98 191 188 -

Cumulative Gap (1,262) (1,262) (622) (478) (380) (188) - -

37





34.3 Financial Assets and Liabilities

Between

one

Between

three

Less than

one and three

months

and

Between one

and

Total month months one year five years

Financial assets K'000 K'000 K'000 K'000 K'000

Cash and balances at Bank of Zambia 942,044 942,044 - - -

Cash and short term funds - group banks 1,480,325 295,565 1,184,760 - -

Cash and short term funds at non-group banks 1,204,437 655,937 548,500 - -

Held to maturity 548,798 82,977 156,578 309,243 -

Loans and advances 410,476 - - 153,658 256,818

Property and equipment 8,578 - - - 8,578

Investments 404 - - - 404

Prepayments, accrued income and other receivable 80,364 - 80,364 - -

4,675,425 1,976,522 1,970,202 462,902 265,799

Financial liabilities

Amounts payable to other banks or financial institutions 615,453 615,453 - - -

Customer accounts 3,299,162 3,150,830 147,322 - -

Tax payable 5,907 - - 5,907 -

Deferred tax 550 - - - 550

Accruals and other payables 119,343 23,711 85,788 9,844 -

Share capital 460,580 - - - 460,580

Statutory reserves 97,742 - - - 97,742

Revenue reserves 76,689 76,689 - - -

4,675,425 3,867,863 233,120 15,750 558,873

38




34. Risk management (Continued) 34.3 Financial Assets and Liabilities as at 31 December 2014

Total

Less than

one month

Between one

and three

months

Between

three months

and one year

Between one and

five years

Financial assets K'000 K'000 K'000 K'000 K'000

Cash and balances at Bank of Zambia 786,602 786,602 - - -

Cash and short term funds - group banks 725,998 217,198 508,800 - -

Cash and short term funds at non-group banks 774,875 774,875 - - -

Held to maturity 545,211 61,266 157,650 326,295 -

Loans and advances 341,998 37,349 314 115,894 188,440

Property and equipment 7,977 - - - 7,97

Investments 235 - - - 235

Prepayments, accrued income and other

receivable 52,369 - 52,369 - -

3,235,265 1,877,291 719,133 442,190 196,652

Financial liabilities

Amounts payable to other banks or financial

institutions 51,536 51,536 - - -

Customer accounts 2,505,941 2,423,820 73,147 8,974 -

Tax payable 8,525 - - 8,525 -

Deferred tax 550 - - - 550

Accruals and other payables 73,424 6,965 61,874 4,585 -

Share capital 460,580 - - - 460,580

Statutory reserves 64,339 - - - 64,339

Revenue reserves 70,369 70,369 - - -

3,235,265 2,552690 135,021 22,084 525,470

39





The effective interest rates for principal financial assets and liabilities averaged as follows:

2015 2014

ZMK USD ZMK USD

% % % %

Treasury bills held to maturity 20.84 13.74

Originated loans 4.05 3.87

Originated advances

Staff mortgages and other loans 11.36 10.07

Placements with other banks 0.20 0.08

Customer deposits 0.04 0.07 0.67 0.03

Currency risk

The bank is exposed to currency risk through transactions in foreign currencies. The bank’s

transactional exposures give rise to foreign currency gains and losses that are recognised in the

statement of comprehensive income. These exposures comprise the monetary assets and monetary

liabilities of the bank, as follows:

31 December 2014 USD ZAR Euro Others Total

Monetary

K'000

Assets 2,069,467 71 2,774 153,003 2,225,315

Liabilities 2,068,973 191 2,687 152,982 2,224,832

Net position 495 (120) 87 21 483

31 December 2015

Monetary

Assets 3,616,756 274 9,476 223,112 3,849,618

Liabilities 3,618,847 568 9,565 222,655 3,851,634

Net position (2,091) (294) (89) 457 (2,017)

In respect of monetary assets and liabilities in foreign currencies that are not economically

hedged, the bank ensures that its net exposure is kept to an acceptable level by buying and

selling foreign currencies at spot rates when considered appropriate.

40





Credit risk

The bank is subject to credit risk through its trading lending, and investing activities and

in cases where it acts as an intermediary on behalf of customers or other third parties or

issues guarantees.

Policies and procedures for managing credit risk are determined by the bank’s Credit

Policy Committee. The committee defines the procedures and limits for accepting credit

risk.

Credit risk associated with trading and investing activities is managed through the

bank’s market risk management process.

The bank’s primary exposure to credit risk arises through its loans and advances. The

amount of credit exposure in this regard is represented by the carrying amounts of the

assets on the statement of financial position.

Concentrations of credit risk (whether on or off statement of financial position) that

arise from financial instruments exist for groups of counterparties when they have

similar economic characteristics that would cause their ability to meet contractual

obligations to be similarly affected by changes in economic or other conditions.

Total on statement of financial position economic sector credit risk concentrations are

presented in the table below:

Credit risk

2015 2015 2014 2014

K'000 % K'000 %

Mining and quarrying 152,122 37 116,230 34

Manufacturing - - - -

Restaurants and hotel - - - -

Others 254,250 63 222,348 66

406,371 100 338,578 100

The amounts reflected in the tables represent the maximum accounting loss that would be

recognised at the statement of financial position date if counterparties failed completely to

perform as contracted and any collateral or security proved to be of no value. The

amounts, therefore, greatly exceed expected losses, which are included in the allowance

for losses on loans and advances.

The bank’s policy is to require suitable collateral to be provided by certain customers

prior to the disbursement of approved loans. Collateral for loans, guarantees, and letters

of credit is usually in the form of cash, inventory, property, etc.

41





Operational risk management

Operational risks are also managed within a policy framework set by the directors.

The policy sets minimum standards and requires the bank to identify and address potential

and actual operational risks on a continuing basis. The senior management team, receive

regular updates on all critical operational risk issues. The implementation of operational risk

policy is subject to regular audit and underpins corporate governance.

36. Dividends proposed

2015 2014

Proposed for approval at the Annual General Meeting K’000 K’000

Dividends 34,755 27,083

37. 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 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.

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.

42




37. Capital management (Continued)

The Bank of Zambia requires banks to:

a) Hold the minimum level of regulatory capital of K520 million at a foreign

bank;

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 or not less than 10% or 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 or over five years (subject to 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 from

internally derived risk parameters within the regulatory 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.

38. Events after the reporting period

The directors are not aware of any other matter or circumstance since the financial

year end and the date of this report, not otherwise dealt with in the financial

statements, which significantly affects the financial position of the bank and the

results of its operation

BANK OF CHINA ZAMBIA LIMITED Appendix I

COMPUTATION OF CAPITAL POSITION


K ‘million

Primary(tier 1) capital 2015

(a) Paid-up common shares 461

(b) Amount received pending allotment of shares

(c) Eligible preferred shares

(d) Contributed surplus

(e) Retained earnings 78

(f) General reserves

(g) Statutory reserves 99

(h) Minority interest(common shareholders’ equity)

(i) Subordinated loan capital

(j) Sub total 638

Less

(k) Goodwill and other intangible assets

(l) Investments in unconsolidated subsidiaries and associates

(m) Lending of a capital nature of subsidiaries and associates

(n) Holding of other banks' or financial institutions' capital instruments

(o) Assets pledged to secure liabilities

Sub total(A)(items in a to o) 638

other adjustments

Provisions (note 1 appendix Ⅱ)

Other assets

(p) Sub total(b)

(q) Total primary capital(j-p) 638

BANK OF CHINA ZAMBIA LIMITED Appendix II

COMPUTATION OF CAPITAL POSITION


K ‘million

Ⅱ Secondary(tier 2) capital

(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) (Maximum is 40%)

(e) Other (regulation 17(c))

Sub total

Ⅲ Eligible secondary capital

(The maximum amount of secondary capital is limited to 100% of

primary capital)

Ⅳ Eligible total capital(I(q) +Ⅲ)

(Regulatory capital) 638

Ⅴ Minimum total capital requirement

10% of total on and off statement of financial position risk-weighted

assets (as established in appendix III, K657 million) or K520 million

whichever is higher 520

Ⅵ Excess(I +Ⅲ-Ⅴ) 118

Ⅶ Total regulatory capital Ratios 638

Tier 1 capital ÷ WRA=65.37 %( Minimum requirement 5%)

Total eligible capital ÷ WAR=65.37 %( Minimum requirement 10%)

RISK WEIGHTED CAPITAL RATIO Appendix III

AS PER STATUTORY INSTRUMENT NO.184 OF 1995


K'million

Amount(net

of

allowances

for losses)

Risk

factor

Weight

total

part 1-calculation of risk-weighted

assets

Assets

Notes and coins:

(a) Zambian notes &coins 35 0.00 -

(b) Other notes &coins 16 0.00 -

Balances held with Bank of

Zambia

(a) Statutory reserves 775 0.00 -

(b) Other balances 116 0.00 -

Balances held with commercial

banks in Zambia:

(a) With residual maturity of up to 12

months 18 0.20 4

(b) With residual maturity of more

than 12 months - 1.00 -

Balances held abroad:


months 2,666 0.20 533



Assets in transit

(a) From other commercial banks - 0.50 -

(b) From branches of reporting bank - 0.20 -




K'million

Amount(net

of

allowances

for losses)

Risk

factor

Weight

total

Investment in Debt Securities:

(a) Treasury bills 549 0.00 0.00

(b) Other government securities-

bonds - 0.20 -

(c) Issued by local government units - 1.00 -

(d) Private securities - 1.00 -

Bills of exchange:

(a) Portion secured by cash treasury

bills - 0.00 -

(b) Other - 1.00 -

Loans & Advances:

(a) Portion secured by cash or

treasury bills - 0.00 -

(b) Loans to or guaranteed by GRZ 123 0.50 61

(c)

Loans repayment in instalments

&secured by a mortgage on

owner of occupied residential

property

- 0.50

-

(d) Loans to or guaranteed by local

government units 1.00 -

(e) Loans to parastatals - 1.00 -

(f) All other loans(net or provisions) 283 1.00 283




K'million

Amount(net

of

allowances

for losses)

Risk

factor

Weight

total

Part 1-calculation of risk-weighted

assets

Inter-bank advances &loans

/advances guaranteed

by other banks


months - 0.20 -



Bank premises(NBV) 4 1.00 4

Acceptances 1.00 -

Other assets 89 1.00 89

Investment in equity of other

companies - 1.00 -

Total risk-weighted assets(on

statement of financial position) 4,676

976




K'million

Amount(net

of

allowances

for losses)

Risk

factor

Weight

total

Part 2-Off statement of financial

position obligations

Letter of credit:

Sight import letters of credit - 0.20 -

Portion secured by Cash/Treasury

Bills 54 - -

Standby letters of credit - 1.00 -

Export letters of credit confirmed - 0.20 -

Guarantees &indemnities

Guarantees of loans trade &

securities - 1.00 -

Portion secured by Cash/Treasury

bills 2,118 - -

Performance bonds - 0.50 -

Securities purchased under resale

agreement - 1.00 -

Other contingent liabilities-bid

bonds - 1.00 -

Net open position in foreign

currencies* - 1.00 -

Sub total-risk weighted

assets(off statement of financial

position)

2,172

-

Total risk weighted assets(on and

off statement of financial position) 6,847

976

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