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2015Standard Bank Group

Risk and capital management report and annual financial statements

Risk governance 2

Summary 6Capital management 12

Risk appetite and stress testing 22Credit risk 25

Compliance risk 59Country risk 61

Funding and liquidity risk 64Market risk 75

Insurance risk 91Operational risk 97

Business risk 101Reputational risk 102

Restatements 103Annexure A – regulatory and legislative

developments impacting the group 104Annexure B – risk and capital management

reporting frameworks 116Annexure C – composition of capital 125

Annexure D – reconciliation of IFRS audited statement of financial position and regulatory capital and reserves 129

Annexure E – main features disclosure template 130

Directors’ responsibility for financial reporting 138Group secretary’s certification 139

Report of the group audit committee 140Directors’ report 142

Independent auditors’ report 145Statement of financial position 146

Income statement 147Statement of other comprehensive income 148

Statement of cash flows 149Statement of changes in equity 150

Accounting policy elections 154Key management assumptions 157

Notes to the annual financial statements 165Standard Bank Group Limited – company annual financial statements 237

Annexure A – subsidiaries, consolidated and unconsolidated structured entities 246Annexure B – associates and joint ventures 262

Annexure C – group share incentive schemes 267Annexure D – detailed accounting policies 272

Annexure E – emoluments and share incentives of directors and prescribed officers 320Annexure F – six year review 332

Annexure G – third-party funds under management 340

Financial and other definitions 341Acronyms and abbreviations 344

Contact details ibc

RISK AND CAPITAL MANAGEMENT REPORT

ANNUAL FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Contents

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We produce a full suite of reporting publications to cater for the diverse needs of our broad stakeholder base. The following reports and sources of information, which support our annual integrated report, are tailored to meet our readers' specific information requirements.

Our reports

Frameworks applied

• International <IR> Framework of the International Integrated Reporting Council

• Companies Act• JSE Listings Requirements• King Code• Banks Act

As our primary report, our annual integrated report provides a holistic assessment of the group’s ability to create value over time. This report includes information extracted from the full corporate governance and remuneration reports.

www.standardbank.com/reporting

ANNUAL INTEGRATED REPORT

Assurance

While the annual integrated report is not audited, it contains certain information extracted from the group’s report to society, and the audited consolidated annual financial statements, on which an unmodified opinion has been expressed.

AIR

Frameworks applied

• Companies Act• JSE Listings

Requirements

• King Code• Banks Act

Provides shareholders with the notice of the annual general meeting together with proxy forms and the group’s full governance and remuneration reports.


GOVERNANCE AND REMUNERATION REPORT

Assurance

Certain information in the governance and remuneration report has been extracted from the audited annual financial statements.

GR

Frameworks applied

• Various regulations relating to financial services, including Basel III

• International Financial Reporting Standards ( IFRS)• South African Companies Act 71 of 2008 (Companies Act)• Johannesburg Stock Exchange (JSE) Listings Requirements• King Report on Corporate Governance ( King Code)• South African Banks Act 94 of 1990 ( Banks Act)

Provides a detailed discussion of the management of strategic risks related to the group’s banking and insurance operations and sets out the full audited annual financial statements for the group, including the report of the group audit committee.


RISK AND CAPITAL MANAGEMENT REPORT AND ANNUAL FINANCIAL STATEMENTS (this report)

Assurance

Selected information in the risk and capital management report forms part of the audited annual financial statements.

KPMG Inc. and PricewaterhouseCoopers Inc. have audited selected information in the risk and capital management report and have audited the annual financial statements for the year ended 31 December 2015, and expressed an unmodified opinion.

RCMAFS

Denotes text in the risk and capital management report that forms part of the group’s audited financial statements.

Indicates that additional information is available online at www.standardbank.com/reporting.

These icons refer readers to information elsewhere in this report, or in other reports that form part of the group’s suite of reporting publications.

2 Standard Bank Group Risk and capital management report and annual financial statements 2015

financial controls, IT and risk, and ensures that relevant finance and risk input is considered in the determination of levels of compensation.

A total of four meetings of the GRCMC were held during 2015, all of which were attended by the group’s external auditors. One special meeting was held to approve the interim risk and capital management report.

GRAttendance of each member at meetings of the GRCMC can be found in the governance and remuneration report.

The GRCMC considered the group’s current and future risk profile relative to the group’s risk appetite. The committee reported to the board following each meeting on its consideration of the group’s risk profile and any concerns it may have had. It also considered the group’s exposure to country, single name obligor and sector concentration risk on an ongoing basis, taking into consideration the impact of the macro and socioeconomic environment in different geographies. This included the impact of declining oil and other commodity prices on specific entities and portfolios, the associated impact on non-performing loans and credit impairments, as well as the risk of contagion and the impact of potential sovereign rating downgrades.

Reports on the group’s recovery and resolution plan, its approach to compliance with principles for effective risk data aggregation and risk reporting, the group’s readiness for electricity blackouts and the health of the South African consumer were considered. In addition, ongoing committee education sessions were held during the year covering Basel Capital Accord (Basel) III compliant capital instruments, an update on the Twin Peaks model of financial regulation (Twin Peaks) in relation to market conduct and treating customers fairly (TCF), as well as on the impairment requirements of IFRS 9 – Financial Instruments (IFRS 9).

At each meeting of the GRCMC, the group chief risk officer (CRO) provided the committee with an overview of the key risk issues discussed at the group risk oversight committee (GROC).

BOARD RESPONSIBILITY

The Standard Bank Group’s (group) board of directors (board) has the ultimate responsibility for the oversight of risk.

As at 31 December 2015, the board is satisfied that:

• the group’s risk, compliance, treasury, capital management and group internal audit (GIA) processes generally operated effectively

• the group’s business activities have been managed within the board-approved risk appetite

• the group is adequately funded and capitalised to support the execution of the group’s strategy.

In the instances where the group incurred losses, breached risk appetite or was fined by its regulators, the board is satisfied that management have taken appropriate remedial action.

GROUP RISK AND CAPITAL MANAGEMENT COMMITTEE

The group risk and capital management committee (GRCMC) is a subcommittee of the board. It provides an independent objective oversight of risk, compliance and capital management in the group. It also reviews and assesses the adequacy and effectiveness of the group risk, compliance and capital management governance framework, and the integrity of risk controls and systems.

GR

The GRCMC’s full terms of reference can be found in the governance and remuneration report. These are considered annually by the GRCMC and approved by the board.

The chairmen of the group audit committee (GAC), the remuneration committee and the group information technology (IT) committee are all members of the GRCMC. This common membership supports an integrated view of

Governance committees 3

Governance documents 5

Three lines of defence model 5

Riskgovernance

Board responsibility 2

Group risk and capital management committee 2

Governance framework 3

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GOVERNANCE FRAMEWORK

The group’s approach to managing risk and capital is set out in the group’s risk, compliance and capital management (RCCM) governance framework, which is approved by the GRCMC. The framework has two components:

• governance committees

• governance documents such as standards, frameworks and policies.

An update was also given by group risk-type heads and business line CROs on the specific issues of group-level significance, as well as other relevant items in their respective areas of responsibility. In relation to capital adequacy, the committee approved the internal capital adequacy assessment process (ICAAP) and its submission to the South African Reserve Bank (SARB). Capital adequacy was also assessed in light of Basel III requirements which are being phased in from 2013 to 2019.

GOVERNANCE COMMITTEES

Governance committees that operate within the RCCM governance framework are in place at both a board and management level. These committees have mandates and delegated authorities that are reviewed regularly.

RISK GOVERNANCE STRUCTURE

STANDARD BANK GROUP BOARD

Management committees

Board committees

Group executive committee

Group risk and capital management committee

Group audit committee

Group IT committee

Group model approval committee

PBB1 model approval committee

CIB2 model approval committee

Group management committee

Group risk oversight committee

Direct reporting lineIndirect reporting line

1 Personal & Business Banking2 Corporate & Investment Banking


RISK AND CAPITAL MANAGEMENT REPORT Risk governance Governance committees continued

independence of the second line of defence functions, the chairman of the GAC meets individually with the group chief compliance officer (GCCO), the group financial director, the group chief audit officer and the head of operational risk management, who is also responsible for financial crime control, without management being present, on a quarterly basis and as required.

The group model approval committeeThe group model approval committee is designated by the board to discharge the board’s regulatory responsibility of reviewing and approving the group’s material risk models, as well as models used in the calculation of regulatory capital. This committee is supported by the PBB and CIB model approval subcommittees, with the models being assigned to these three committees for approval based on an assessment of the materiality of each model.

Management committeesThe group risk oversight committeeExecutive management responsibility for all material risk types has been delegated by the group management committee to GROC which, in turn, assists the GRCMC in fulfilling its mandate.

As is the case with the GRCMC, GROC calls for and evaluates in-depth investigations and reports based on its assessment of the group’s risk profile and external factors.

GROC delegates authority to various subcommittees which deal with specific risk types or oversight activities. Material matters are escalated to GROC through reports or feedback from each subcommittee chairman.

The GROC subcommittees are as follows:

• CIB credit governance committee, chaired by the CIB CRO

• PBB credit governance committee, chaired by the PBB CRO

• group asset and liability committee (ALCO) and its subcommittees, the group capital management committee and the intragroup exposure committee, all chaired by the group financial director

• group compliance committee, chaired by the GCCO

• group country risk management committee, chaired by the group CRO

• group equity risk committee (ERC), chaired by the CIB CRO

• group internal financial control governance committee, chaired by the group financial director

Board committeesThe board committees that are responsible for the oversight of the group’s RCCM comprise the GAC, the GRCMC, the group IT committee, and the group model approval committee. The key roles and responsibilities of these committees, as they relate to RCCM, are summarised in the sections that follow.

GRDetailed information relating to these committees can be found in the governance and remuneration report.

The group risk and capital management committeeThe GRCMC provides independent oversight of RCCM across the group by:

• ensuring adequate and effective implementation of risk governance processes, standards, policies and frameworks

• ensuring that the risk strategy is executed by management in accordance with the board-approved risk appetite and the RCCM framework

• considering the quarterly risk management report which includes detailed updates on risk types, as well as the separate updates from legal, compliance, capital and liquidity risk and intragroup exposures

• reporting material risk and capital management matters to the board.

The group IT committeeThe group IT committee’s purpose is to assist the board in fulfilling its corporate governance responsibilities with respect to IT and reports to the board through its chairman. The committee has the authority to review and provide guidance on matters related to the group’s IT strategy, budget, operations, policies and controls, the group’s assessment of risks associated with IT, including disaster recovery, business continuity and IT security, as well as oversight of significant IT investments and expenditure.

The group audit committeeThe GAC has oversight of the group’s financial position and makes recommendations to the board on all financial matters, financial risks, internal financial controls, fraud, compliance, IT risks and the impact of IT on financial controls. In relation to RCCM, the GAC plays a role in assessing the adequacy and operating effectiveness of the group’s internal financial controls.

A risk management report is tabled at the GAC meetings and the group CRO provides the committee with an overview of key issues raised at the GRCMC. In order to ensure the

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The second line of defence functions provide independent oversight and assurance. They have resources at the centre and embedded within the business lines. Central resources provide groupwide oversight of risks, while resources embedded within the business lines support management in ensuring that their specific risks are effectively managed as close to the source as possible. Central and embedded resources jointly oversee risks at a legal entity level. The second line of defence functions develop and implement governance standards, frameworks and policies for each material risk type to which the group is exposed. This ensures consistency in approach across the group’s business lines and legal entities. Compliance with the standards and frameworks is ensured through annual self-assessments by the second line of defence and reviews by GIA.

The third line of defence is GIA who provides independent and objective assurance to the board and senior management on the effectiveness of the first and second lines of defence.

All three levels report to the board, either directly or through the GRCMC and GAC.

• group operational risk committee, chaired by the group head of operational risk management

• group regulatory and legislative oversight committee, chaired by the group chief executive

• group sanctions review committee, chaired by the group chief executive

• group stress testing and risk appetite committee, chaired by the group CRO

• recovery and resolution planning committee, chaired by the group financial director.

GOVERNANCE DOCUMENTS

Governance documents within the RCCM governance framework comprise standards, frameworks and policies which set out the requirements for the identification, assessment, measurement, monitoring, managing and reporting of risks and effective management of capital.

Governance standards and frameworks are approved by the relevant board committee.

Group policies are approved by the group management committee or subcommittee, relevant GROC subcommittee, GROC itself or, where regulations require board approval, by the board or relevant board committee.

Business line and legal entity policies are aligned to these group policies and are applied within their governance structures.

THREE LINES OF DEFENCE MODEL

The group uses the three lines of defence governance model which promotes transparency, accountability and consistency through the clear identification and segregation of roles.

The first line of defence is made up of the management of business lines and legal entities. It is the responsibility of first line management to identify and manage risks. This involves, at an operational level, the day-to-day effective management of risk in accordance with agreed risk policies, appetite and controls. Effective first line management includes:

• the proactive self-identification of issues and risks, including emerging risks

• the design, implementation and ownership of appropriate controls

• the associated operational control remediation

• a strong control culture of effective and transparent risk partnership.


Summary

Risk types 6

Highlights 7

– Stress testing and risk appetite 7

– Capital management 7

– Credit risk 8

– Compliance risk 8

– Country risk 9

RISK TYPES

The group’s business activities give rise to various risks, which include:

credit risk funding and liquidity risk operational risk

compliance risk market risk business risk

country risk insurance risk reputational risk

Each risk is defined within the relevant section, together with:

• an explanation of the application of the group’s RCCM governance framework to the specific risk

• the approved regulatory treatment for capital requirements to be held against the specific risk in terms of Basel

• a description of the relevant portfolio characteristics both in terms of prescribed disclosure and the group’s business model.

Refer to page 22 for information relating to risk appetite.

– Funding and liquidity risk 9

– Market risk 10

– Insurance risk 10

– Operational risk 10

– Legal risk 11

– Risk data aggregation and risk reporting 11

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HIGHLIGHTS

STRESS TESTING AND RISK APPETITE

Year in briefDuring the year, many risks that were anticipated and monitored previously, such as the slowdown in China’s economic growth and the normalisation of interest rates in the United States of America (US), started to crystalise. This reinforced the importance of utilising stress testing as a risk management tool to proactively manage and mitigate the risks to which the group is exposed.

During 2015, the group ran several stress tests on a groupwide, business unit, regional and risk type basis to understand the impact that potential stress events could have on various portfolios. These events included, among others, the impact of the fall in the oil price and of other commodities, the slowdown of growth in China, a faster than expected rate hiking cycle in the US and the impact of drought and infrastructure and electricity supply challenges in South Africa. The group also participated in an industry-wide stress testing exercise initiated by the Financial Stability Committee of the SARB.

Risk appetite is formally reviewed and updated on an annual basis to ensure alignment with, and relevance to, the group’s strategy. The group benchmarked itself in 2015 to external risk appetite practices to ensure that its risk appetite framework and implementation remains relevant and in line with leading international standards. The group focused on the implementation and cascading of the risk appetite on a groupwide, business unit, regional and risk type basis.

FOCUS AREAS FOR 2016

Economic headwinds, volatility in markets, and competitive pressures have combined to accelerate the need to continually assess the group’s forward-looking risk profile under normal and stress conditions against its stated risk appetite. Greater focus will be given to the following main areas:

• improving the embedding of risk appetite across the group with a focus on the rest of Africa legal entities

• enhancing our analysis capabilities to assess the group’s vulnerability to a broader range of stress events

• further integrating stress testing and risk appetite with strategic planning, financial planning and IFRS 9 processes and outcomes.

CAPITAL MANAGEMENT

Year in briefThe group remained adequately capitalised above minimum regulatory capital adequacy requirements. The net proceeds from the disposal of the group’s controlling interest in Standard Bank Plc were repatriated to South Africa as part of the repositioning of capital allocation to focus on customers and clients in Africa.

The SARB adopted the leverage framework that was issued by the Basel Committee on Banking Supervision (BCBS) in January 2014, with final calibrations and adjustments expected by 2017. Formal disclosure requirements commenced from 1 January 2015 and the ratio is expected to transition to a pillar 1 requirement by 2018.


• ensuring that the group remains adequately capitalised and well positioned to respond to instances of higher capital requirements prescribed by regulatory authorities in jurisdictions in which the group is present, as well as regulatory capital rules under the Basel III phase-in requirements

• ongoing consideration of capital buffers given the increase in volatility in capital markets, particularly in emerging markets

• optimising financial resource allocation, including capital and liquidity between product lines, trading desks, industry sectors and legal entities to enhance the overall group economic profit and return on equity (RoE)

• continuing to participate in the BCBS quantitative impact studies to assess the impact of proposed amendments to regulatory requirements.


RISK AND CAPITAL MANAGEMENT REPORT Summary Highlights continued

Although the NPL% within CIB remained stable, the makeup of the non-performing portfolio changed with new NPLs in the oil, gas and power and infrastructure sectors being offset by a reduction in the mining and metals sector.


• continuing to apply appropriate and responsible lending criteria and focus of risk appetite where required to ensure prudent lending prevails

• proactively managing exposure concentrations across counterparties, portfolios, products, industries and regions

• continuing to refine the credit risk governance documents that underpin the group’s credit risk appetite

• ongoing review and refinement of credit risk rating models

• continuing to focus on the effectiveness of collections

• ensuring further progress on IFRS 9’s expected credit loss impairment calculations and methodologies.

COMPLIANCE RISK

Year in briefThe year was characterised by the enhancement of resourcing capability and focused resource allocation, together with the implementation of advanced anti-money laundering (AML) and terrorist financing control systems.

Risk management structures and processes for market conduct, focusing on market integrity and conduct of business, were implemented.

During 2015, compliance developed various innovative training interventions. Executive management supported and actively engaged in both the promotion of compliance training, and consequence management for non-completion thereof.

Significant attention was given to remediation of the administrative sanctions and directives imposed by SARB following the imposition of a fine in 2014 in respect of AML and terrorist financing controls. Regular feedback sessions were held with the bank supervision department of the SARB and the Financial Intelligence Centre. New systems were also successfully implemented to assist in the prevention and reporting of money laundering and terrorist financing.

CREDIT RISK

Year in briefThe South African lending environment in 2015 was characterised by steady growth in credit extension to the corporate sector but growth in lending to households was subdued. This was largely attributed to increases in levels of household debt to disposable income, a reduced customer demand for lending products in response to weaker economic growth prospects, increasing lending rates and constrained business confidence. Appetite for risk in the rest of Africa was tempered by the decline in global demand for commodities.

Overall growth in loans and advances (net of impairments) in the group’s banking activities was largely reflected by the performance of the group which recorded a 16% increase year-on-year. Of this, CIB’s portfolio grew by 27% while PBB’s growth was 9%. All credit metrics at group level remained within approved risk appetite limits.

In CIB, mining and metals represented 8% of the total CIB exposure. Oil and gas represented 6% of the total CIB exposure.

The group credit loss ratio (CLR) improved from 1.00% in 2014 to 0.87% for the year ended in 2015. This was largely due to improvements in the PBB South Africa portfolio which reflected a CLR of 1.34% from a prior year level of 1.53%. This was attributed to secured lending portfolios where mortgage loans reflected benefits associated with improved collections and stabilisation in loss given default rates, while instalment sale and finance leases reflected improvements in new business risk levels and recoveries. This was partially offset by the deterioration in certain older vintages within unsecured lending products where consumer strain was evidenced. In addition, the agricultural segment reflected evidence of strain attributed to the drought conditions. The PBB portfolios in the rest of Africa recorded a slightly increased CLR of 2.04% compared to 1.83% at the end of 2014. This deterioration was driven by the western region, offset by positive performances in the southern and eastern regions.

The level of non-performing loans (NPL) for the group as a percentage of the portfolio was flat at 3.2%. CIB’s NPL% was stable at 1.4%, while PBB moved from 4.2% to 4.3% year-on-year. This was driven by the implementation of the restructure directive issued by the SARB earlier in the year. NPL deterioration was observed in the unsecured lending portfolios, notably in the card portfolios.

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The expansion of the central Africa compliance team provided significant support to jurisdictional compliance functions in order to further support the group’s focus on doing the right business the right way. Each jurisdiction was visited by the central Africa compliance team at least twice during the year.

The privacy office enhanced its capability in response to the enactment of the Protection of Personal Information Act (PoPI). We continue to assess our control environment against existing, new and perceived threats to privacy to promote the safeguarding and protection of personal information. Our privacy programme incorporates global privacy standards.

Prudential and conduct oversight continued to be vigorous across all group operations, with a focus on foreign exchange practices by authorised dealers. Reviews were conducted in some African subsidiaries and in South Africa, the SARB and the Financial Services Board (FSB) conducted a joint review of the foreign exchange trading practices among authorised dealers in the South African foreign exchange market. No instances or indication of malpractice, intentional sharing of confidential information or otherwise unethical or unlawful behaviour were evident in South Africa.


Group compliance aligns with the group’s strategy by focusing on market conduct to support client centricity and doing the right business the right way. This places emphasis on compliance involvement in culture, governance (including incentives), market integrity, products and the process value chain. Focused central compliance support to Africa and international operations and the embedding of compliance policies and procedures to support standardisation across the group will continue in 2016.

Initiatives to support these objectives focus on the regulatory environment and the compliance mandate to advise and train business, to monitor adherence to regulations and to report on the status of compliance risk management in the group. The integrated compliance regulatory change management strategy, together with the group’s automated surveillance capability, will support regulatory and supervisory expectations, and ensure the relevance of the compliance response in an innovative and dynamic business environment.

COUNTRY RISK

Year in briefThe relative concentration of cross-border exposure to the sub-Saharan Africa region continued to increase, consistent with the group’s strategic focus. Comparatively, adverse macroeconomic conditions, in part induced by weaker commodity prices, have featured in several of the group’s major African markets, underpinning a negative risk tendency. This required judicious management of cross-border exposure, with appropriate mechanisms instated to manage risk exposures.


Given continued challenging political and economic outlook, country risk appetite and country-specific risks will continue to be managed prudently. Risk management measures will be supplemented by continued refinement of the country risk operating model, governance framework and portfolio management tools.

FUNDING AND LIQUIDITY RISK

Year in briefThe group maintained its liquidity positions within the approved risk appetite and tolerance limits. Appropriate liquidity buffers were held in line with regulatory, prudential and internal stress testing requirements, taking into account the global risk profile and market conditions.

The group continued to advance its asset-liability management capabilities and its approach to liquidity risk management. The group further evolved its internal liquidity risk management framework to ensure that the group has, at all times, sufficient liquidity resources to continue operating under a group-specific and industry systemic stress event. The liquidity risk technology framework was updated in order to support the implementation of new regulations relevant to liquidity risk management.

Since 1 January 2015, the group has successfully maintained a Basel III liquidity coverage ratio (LCR) in excess of 60% to ensure compliance with the minimum regulatory requirement.

The group continued to evaluate the funding impact relating to the Basel III net stable funding ratio (NSFR). Towards the latter part of 2015, the SARB issued a draft directive whereby


INSURANCE RISK

Year in briefGood progress was made in implementing a number of emerging regulations, with specific focus on embedding the solvency assessment and management (SAM) programme, assessing the retail distribution review (RDR) proposals and preparing for Twin Peaks.


The group will continue to monitor and actively respond to the rapid pace of change in the emerging regulatory landscape affecting the insurance industry. There will be ongoing focus on the management of insurance risks across the group, with particular emphasis on the risk components of the SAM regime to ensure readiness for implementation on 1 January 2017. In addition, the implications of the proposed RDR regulation and Twin Peaks will be a continued area of focus for 2016.

OPERATIONAL RISK

Year in briefThe group continued to mature the integrated operational risk (IOR) approach, with a focus on enhancing resourcing through combining appropriate skills with deep understanding of business and risk management.

The group implemented a fully operational ‘24 hour, 7 days a week, 365 days a year’ cybersecurity capability, which continued to mature the group’s overall approach to cybersecurity-related incidents.

The group continued to see benefit in the fraud and information risk awareness initiatives undertaken. Efforts were focused on uncovering and measuring information and associated risk profiles, and overseeing the implementation of key controls, which lead to an enhanced understanding of emerging risks and trends in the environment.

The group hosted a number of successful crisis simulation exercises and implemented a business continuity management automation tool during the year to improve the strategic crisis response plans.

it is suggested that the funding received from financial corporates maturing within six months will receive an available stable funding factor of 35%. This proposal, together with further areas of national discretion pertaining to the NSFR, is expected to be finalised during the course of 2016.

In order to accurately price and measure the internal cost of funding, appropriate funds transfer pricing methodologies across the group were updated to take into account the cost of the Basel III liquidity regulations.


• continuing industry engagement and analysis with the Banking Association of South Africa (BASA) and the SARB to finalise market-based solutions and areas of national discretion in meeting the NSFR framework by 2018

• continuing to focus on the impact of a potential sovereign subinvestment grade scenario, as well as the development of funding platforms to mitigate the impact of a potential downgrade on the sustainability and cost of the foreign currency funding base.

MARKET RISK

Year in briefThe group maintained its trading and banking book positions within the approved risk appetite and tolerance limits.

The group continued to advance its interest rate risk management and make changes to its global markets and market risk technology.

The group provided comment on proposed changes to regulations impacting trading and banking book positions.


The group will focus on monitoring and managing the traded market risk, banking book interest rate risk and associated hedges in the context of current market volatility, including monetary policy decisions.

The implications of the revised trading book regulations published in January 2016 and further proposals impacting global markets and interest rate risk will be a continued area of focus.

RISK AND CAPITAL MANAGEMENT REPORT Summary Highlights continued

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IOR will focus on building awareness, thought leadership and controls aligned to emerging risks. This includes:

• increased focus on emerging and current cybercrime and cybersecurity threats, as well as continued improvement of the vulnerability management posture, through increased internal and third party coverage

• enhanced focus on third party risk and outsourcing

• continued deployment of fraud preventative measures through enhanced monitoring technology, awareness and enhanced detection capabilities in the rest of Africa

• increased focus on business resilience and crisis management as it relates to scenarios such as water and electricity shortages, and increased social and political unrest.

In addition to the focus on emerging risks, the IOR management team will also seek to align the operational risk framework with anticipated Basel changes in approach to operational risk capital.

LEGAL RISK

Year in briefDuring 2015, investigations were concluded by the governments of the US and United Kingdom (UK) into a suspicious transaction that was self-reported by our bank in Tanzania, which culminated in a group member being party to the UK’s first deferred prosecution agreement and a related civil settlement with the US Securities Exchange Commission. Other material events that occurred during the year include the disputes with regulators in Nigeria and South Africa.

Positively, the group successfully invoked its legal rights to recover from its insurers a material amount of the losses suffered from fraud in Qingdao Port, China. With the consent of all states concerned, the group also avoided a breach of international sanctions by negotiating the return of physical gold being held on behalf of an Iran-based client.


The lessons learnt from the material events in 2015 will be disseminated across the group and available legal resources will be re-organised. This will enable the group to better identify and prevent legal risks, and will also ensure that legal resources are not tied up in post-manifestation resolution.

RISK DATA AGGREGATION AND RISK REPORTING

Year in briefIn January 2013, the BCBS published principles for effective risk data aggregation and risk reporting (BCBS 239) with the overarching goal of improving the quality of information that banks use in decision making, particularly as it pertains to risk management. Globally systemically important banks (G-SIBs) are required to comply by 1 January 2016 and domestic systemically important banks (D-SIBs) by 1 January 2017.

The group made good progress in the effort to comply with this regulatory requirement. The foundation of the programme was successfully implemented during the course of 2015, wherein the governance framework, policies, scope definition and minimum requirements were agreed. An integrated plan was finalised and execution thereof was initiated in quarter four of 2015. The group consistently and proactively engaged with the SARB and the industry to ensure clarity around the requirements.


The focus in 2016 will be on executing the people, process and technology layers underpinning the governance, architecture, data aggregation and reporting principles. The group’s risk management functions will continue to improve systems and processes to ensure data accuracy and integrity in line with the BCBS 239 requirements.

Refer to page 104 for regulatory and legislative developments impacting the group.


GOVERNANCE

The primary management level subcommittees that oversee the risks associated with capital management are the group ALCO and its subcommittee, the group capital management committee.

The principal governance documents are the capital management governance framework and the model risk governance framework.

CAPITAL TRANSFERABILITY

Subject to compliance with the corporate laws of relevant jurisdictions and appropriate motivation to and approval by exchange control authorities, no significant restrictions exist on the transfer of funds and regulatory capital within the group.

OBJECTIVES

The group’s capital management function is designed to ensure that regulatory requirements are met at all times and that the group and its principal subsidiaries are capitalised in line with the group’s risk appetite and target ratios, both of which are approved by the board.

The capital management division within treasury and capital management comprises:

• Strategic capital management function: key responsibilities include raising capital to enable growth opportunities and to provide an optimal capital structure, advising on the dividend policy, facilitating capital allocation and risk-adjusted performance measurement (RAPM), and managing the ICAAP and capital planning process, including stress testing of capital supply and demand.

• Portfolio analysis and reporting function: key responsibilities include the measurement and analysis of regulatory and economic capital, internal and external reporting and implementation of new regulatory requirements.

• CIB and PBB capital management functions: key responsibilities include providing support on deal pricing, balance sheet utilisation and management of capital consumption against budgets.

• Regional capital management function: key responsibilities include supporting the group’s operations in the rest of Africa.

Economic capital 20

– Banking operations 20

– Insurance operations 21

Risk-adjusted performance measurement 21

Cost of equity 21

Capital management

Objectives 12

Governance 12

Capital transferability 12

Basel III capital requirements 13

Regulatory capital 14

– Banking operations 14

– Insurance operations 20

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BASEL III CAPITAL REQUIREMENTS

The SARB adopted the Basel III framework introduced by the BCBS from 1 January 2013. The group has been compliant with the minimum requirements from that date.

The group is well positioned to comply with the requirements that are subject to phase-in rules when they become effective.

Basel III aims to improve the quality of capital, increase capital levels and remove inconsistencies in the definition of capital across jurisdictions as explained in the table below.

OBJECTIVES OF BASEL III

Increased quality, quantity and consistency of capital

• increased focus on common equity tier (CET I)

• increased capital levels.

Increased risk coverage • credit valuation adjustment for over-the-counter (OTC) derivatives, being the capital charge for potential mark-to-market losses associated with deterioration in counterparty creditworthiness

• asset value correlation, being the increased capital charge on exposures to financial institutions

• strengthened standards for collateral management, margin period of risk, management of general wrong-way risk and stress testing.

Capital conservation buffer • 2.5% CET I capital buffer by 2019 to decrease pro-cyclicality

• build up capital during favourable economic conditions that can be drawn on during times of stress.

Pillar 2a D-SIB buffer • up to 2% of pillar 2a buffer prescribed by the SARB to be held against systemic risk requirements

• 0% – 2.5% D-SIB buffer required for banks deemed by the SARB to be systemically important

• the sum of the two requirements is limited to 3.5% and is split over all three tiers of capital.

Countercyclical buffer • 0% – 2.5% CET I capital buffer deployed by national jurisdictions when system-wide risk builds up

• ensures capital adequacy takes macro-financial environment into account.

Leverage ratio • constrain build-up of leverage in the banking sector

• the ratio is calculated as tier I qualifying capital/on- and off-balance sheet exposures, as defined by the BCBS, and is measured against the SARB prescribed minimum ratio of 4%.


RISK AND CAPITAL MANAGEMENT REPORT Capital management Basel III capital requirements continued

Banking operationsRegulatory capital adequacy is measured through the following three risk-based ratios:

• CET I: ordinary share capital, share premium, retained earnings and qualifying non-controlling interest less impairments divided by total risk-weighted assets.

• Tier I: CET I and other qualifying non-controlling interest plus perpetual, non-cumulative instruments with principal loss absorption features issued under the Basel III rules divided by total risk-weighted assets. Perpetual non-cumulative preference shares issued under Basel I and Basel II are included in tier I capital but are subject to regulatory phase-out requirements over a ten-year period, which commenced on 1 January 2013.

• Total capital adequacy: tier I plus other items such as the general allowance for credit impairments and subordinated debt with principal loss-absorption features issued under Basel III divided by total risk-weighted assets. Subordinated debt issued under Basel I and Basel II is included in total capital but is subject to regulatory phase-out requirements, over a ten-year period which commenced on 1 January 2013.

The ratios are measured against internal targets and regulatory minimum requirements.

CAPITAL ADEQUACY1 (%)

18

16

14

12

10

8

6

4

2

2013 201420112010 20152012

¢ Tier I ¢ Tier II ¢ Tier III � Required capital

1 2010 and 2011 are on a Basel II basis. Basel III was implemented on 1 January 2013. Risk-weighted assets and capital adequacy for 2012 are on a Basel III basis. pro forma

The graph below reflects the capital requirements and phase-in periods applicable to South Africa.

SARB RATIOS(capital as a % of risk-weighted assets)1

eective 1 January each year (%)

14

12

10

8

6

4

2

¢ CET 1 ¢ Conservation buer¢ Additional tier I ¢ Tier II

2015

6.50

1.50

2.00

10.00

2016

6.50

1.38

2.50

11.01

0.63

2017

6.50

1.50

2.75

12.00

1.25

2018

6.50

1.63

3.00

13.01

1.88

2019

6.50

1.75

3.25

14.00

2.50

1 Graph excludes countercyclical buer and confidential bank-specific pillar 2b capital requirement, but includes maximum potential D-SIB requirement which is also bank-specific and, therefore, confidential.

The South African D-SIB framework assesses the systemic importance of banks, controlling companies and branches of foreign banks licensed to operate in South Africa and came into effect on 1 January 2016. The requirements will be phased-in over a three year period with full implementation from 1 January 2019.

REGULATORY CAPITAL

The group manages its capital levels to support business growth, maintain depositor and creditor confidence, create value for shareholders, and ensure regulatory compliance.

The main regulatory requirements to be complied with are those specified in the Banks Act and related regulations, which are aligned with Basel III.

15

Risk-weighted assets are calculated in terms of the Banks Act and related regulations, which are aligned with Basel III.

The group complied with all regulatory capital requirements during the current and prior year.

The group’s CET I capital, including unappropriated profit, is R121,6 billion as at 31 December 2015 (2014: R113,5 billion). The group’s tier I capital, including unappropriated profit, is R125,7 billion as at 31 December 2015 (2014: R118 billion) and total capital, including unappropriated profit was R148 billion as at 31 December 2015 (2014: R142 billion).

The group has a balanced tier II subordinated debt maturity profile. During 2015, the group issued R3,6 billion Basel III compliant tier II instruments (2014: R2,3 billion).

TIER II INSTRUMENT MATURITY PROFILE (Rm)

7 000

6 000

5 000

4 000

3 000

2 000

1 000

¢ Callable date

2019 202020172016 20212018

BASEL III QUALIFYING CAPITAL EXCLUDING UNAPPROPRIATED PROFITS

2015 2014

Rm Rm

Normalised ordinary shareholders’ equity 152 042 139 588 Net IFRS adjustments (973) (2 603)

IFRS ordinary shareholders' equity 151 069 136 985 Qualifying non-controlling interest 5 896 4 159 Less: regulatory adjustments (35 394) (27 689)

Goodwill (4 152) (3 711)Other intangible assets (17 773) (15 850)Shortfall of credit provisions to future expected losses (2 186) (2 054)Investments in financial, banking and insurance entities exceeding threshold (10 358) (4 074)Other (925) (2 000)

Less: unappropriated profit (9 472) (13 049)

CET I capital 112 099 100 406 Qualifying perpetual preference shares 3 846 4 396 Qualifying non-controlling interest 293 119

Tier I capital 116 238 104 921

Tier II subordinated debt 20 118 22 727 General allowance for credit impairments 2 170 1 266

Tier II capital 22 288 23 993

Total regulatory capital 138 526 128 914

Total capital requirement 94 404 91 521

Total risk-weighted assets 944 039 915 213


BASEL III RISK-WEIGHTED ASSETS AND ASSOCIATED CAPITAL REQUIREMENTS

2015 20142

Risk-weighted

assetsRm

Capital requirement1

Rm

Risk-weighted

assetsRm


Rm

Credit risk 686 700 68 670 623 931 62 392

Portfolios subject to the standardised approach3 268 800 26 880 231 670 23 167

Corporate 111 176 11 118 99 468 9 947 Sovereign 85 443 8 544 66 184 6 618 Banks 16 400 1 640 8 791 879 Retail mortgages 11 333 1 133 12 601 1 260 Retail other4 44 167 4 417 44 361 4 436 Securitisation exposures 281 28 265 27

Portfolios subject to the foundation internal ratings- based (FIRB) approach 5 958 595

Corporate 2 834 283 Sovereign 1 491 149 Banks 1 633 163

Portfolios subject to the advanced internal ratings- based (AIRB) approach 388 018 38 802 357 222 35 722

Corporate 166 922 16 692 145 781 14 578 Sovereign 23 926 2 393 19 449 1 945 Banks 24 304 2 430 19 352 1 935 Retail mortgages 84 007 8 401 83 946 8 394 Qualifying retail revolving exposure (QRRE) 47 510 4 751 46 918 4 692 Retail other4 40 874 4 087 41 305 4 131 Securitisation exposures 475 48 471 47

Other assets 29 882 2 988 29 081 2 908

Counterparty credit risk 22 769 2 277 47 026 4 703

Portfolios subject to the standardised approach3 5 407 541 4 434 444

Corporate 4 259 426 2 648 265 Sovereign 403 40 Banks 1 148 115 1 383 139

Portfolios subject to the FIRB approach 32 355 3 235

Corporate 21 129 2 113 Sovereign 243 24 Banks 10 983 1 098

Portfolios subject to the AIRB approach 17 362 1 736 10 237 1 024

Corporate 6 397 640 6 317 632 Sovereign 329 33 971 97 Banks 10 636 1 063 2 949 295

Footnotes on the following page.

RISK AND CAPITAL MANAGEMENT REPORT Capital management Regulatory capital continued

17

BASEL III RISK-WEIGHTED ASSETS AND ASSOCIATED CAPITAL REQUIREMENTS CONTINUED

2015 20142

Risk-weighted

assetsRm


Rm

Risk-weighted

assetsRm


Rm

Equity risk in the banking book 11 052 1 105 14 469 1 447

Portfolios subject to the market-based approach 10 645 1 065 7 649 765

Listed 1 698 70 Unlisted 10 644 1 065 6 951 695

Portfolios subject to the probability of default (PD)/loss given default (LGD) approach 407 40 6 820 682

Market risk 46 745 4 675 71 153 7 115

Portfolios subject to the standardised approach3 31 658 3 166 29 259 2 926

Interest rate risk 29 697 2 970 25 935 2 594 Equity position risk 104 11 98 10 Foreign exchange risk 1 813 181 2 483 248 Commodities risk 44 4 743 74

Portfolios subject to the internal models approach 15 087 1 509 41 894 4 189

Value-at-risk (VaR) based 15 087 1 509 29 978 2 997

Interest rate risk 5 527 553 21 823 2 182 Equity position risk 9 279 928 8 891 889 Foreign exchange risk 12 444 1 244 7 570 757 Commodities risk 37 4 8 922 892 Diversification benefit (12 200) (1 220) (17 228) (1 723)

Non-VaR-based 11 916 1 192

Operational risk 140 163 14 016 131 459 13 146

Portfolios subject to the standardised approach3 86 256 8 625 82 931 8 293 Portfolios subject to the advanced measurement approach (AMA) 53 907 5 391 48 528 4 853

Risk-weighted assets for investments in financial entities 36 610 3 661 27 175 2 718

Total risk-weighted assets/capital requirement 944 039 94 404 915 213 91 521

1 Capital requirement at 10% (December 2014: 10%) excludes confidential bank-specific add-ons.2 Restated. Refer to page 103.3 Portfolios on the standardised approach relate to the rest of Africa operations and portfolios for which application to adopt the internal models approach has

not been submitted, or for which an application has been submitted but approval has not been granted.4 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending.


CAPITAL ADEQUACY RATIOS

2015 SARBminimum

regulatoryrequirement

%

Internaltarget ratios

includingunappropriated

profits%

Includingunappropriated

profits

Excludingunappropriated

profits

2015 2014 2015 2014

% % % %

Total capital adequacy ratio 10.0 14.0 – 15.0 15.7 15.5 14.7 14.1Tier I capital adequacy ratio 8.0 11.0 – 12.0 13.3 12.9 12.3 11.5CET I capital adequacy ratio 6.5 10.0 – 11.0 12.9 12.4 11.9 11.0

CAPITAL ADEQUACY RATIOS OF BANKING SUBSIDIARIES

Host tier I regulatory

requirements%

Host total regulatory

requirements%

2015 20141

Tier I capital%

Total capital%

Tier I capital%

Total capital%

Standard Bank Group 8.02 10.02 13.3 15.7 12.9 15.5The Standard Bank of South Africa Group3 8.0 10.0 12.1 15.3 12.3 15.8Rest of Africa CfC Stanbic Bank (Kenya) 10.5 14.5 15.4 18.1 16.9 20.5Stanbic Bank Botswana 7.5 15.0 14.0 24.2 11.7 20.0Stanbic Bank Ghana 6.7 10.0 11.8 13.7 13.1 14.0Stanbic Bank Tanzania 12.5 14.5 17.2 19.2 17.4 19.4Stanbic Bank Uganda 8.0 12.0 15.2 16.9 18.1 19.8Stanbic Bank Zambia 5.0 10.0 11.2 13.9 20.0 23.5Stanbic Bank Zimbabwe 8.0 12.0 19.8 22.8 20.6 23.7Stanbic IBTC Bank Nigeria 5.0 10.0 12.6 16.5 10.9 14.4Standard Bank de Angola 5.0 10.0 15.3 20.1 12.8 18.1Standard Bank Malawi 10.0 15.0 15.9 18.2 17.5 20.3Standard Bank Mauritius 7.5 10.0 29.5 39.0 12.9 18.5Standard Bank Mozambique 4.0 8.0 12.5 15.3 9.3 9.7Standard Bank Namibia 7.0 10.0 11.3 13.6 10.9 13.0Standard Bank RDC (Democratic Republic of Congo) 5.0 10.0 15.9 24.6 16.9 24.8Standard Bank Swaziland 4.0 8.0 12.3 14.9 11.9 16.5Standard Lesotho Bank 4.0 8.0 11.6 13.3 10.1 10.9Outside Africa Standard Bank Isle of Man 10.0 12.3 14.2 10.6 12.5Standard Bank Jersey 11.0 9.2 13.1 9.7 14.0

Liberty Group Limited (calculated in terms of the

Long-term Insurance Act) – capital adequacy requirements (CAR) – times covered 3.0 3.1

1 Restated. Refer to page 103. 2 Represents 2015 SARB Basel III minimum capital requirements.3 Incorporating: – The Standard Bank of South Africa Limited (SBSA).


19

The SARB adopted the leverage framework that was issued by the BCBS in January 2014, with final calibrations expected by 2017. Formal disclosure requirements commenced from 1 January 2015 and the ratio is expected to transition to a pillar 1 requirement by 2018.

The non-risk-based leverage measure is designed to complement the Basel III risk-based capital framework. The group’s leverage ratio inclusive of unappropriated profit was 6.9% as at 31 December 2015 (2014: 6.9%), in excess of the SARB minimum requirement of 4%.

TOTAL ASSETS VS LEVERAGE RATIO

2015

Rm

Total consolidated assets as per published financial statements 1 979 349

Adjustments for investment in banking, financial, insurance and commercial entities (199 161)Adjustment for derivative financial instruments (59 570)Adjustments for securities financing transactions 1 563 Adjustment for off-balance sheet items 91 616 Other adjustments 6 345

Leverage ratio exposure 1 820 142

LEVERAGE RATIO COMMON DISCLOSURE TABLE

2015

Rm

On-balance sheet exposures (excluding derivatives and securities financing transactions) 1 584 992

On-balance sheet items (excluding derivatives and securities financing transactions, but including collateral) 1 620 206 Assets amount deducted in determining Basel III tier I capital (35 214)

Derivative exposures 51 520

Replacement cost associated with all derivatives transactions 12 358 Add-on amounts for potential future exposure associated with all derivatives transactions 41 296 Deductions of receivables assets for cash variation margin provided in derivatives transactions (17 424)Exempted central counterparty (CCP) leg of client-cleared trade exposures (8 614)Adjusted effective notional amount of written credit derivatives 23 904

Adjusted effective notional offsets and add-on deductions for written credit derivatives Securities financing transactions exposures 92 014

Gross securities financing transactions assets (with no recognition of netting), after adjusting for sales accounting transactions 90 451 Counterparty credit risk exposure for securities financing transactions assets 1 563

Agent transaction exposures Other off-balance sheet exposures 91 616

Off-balance sheet exposure at gross notional amount 293 094 Adjusted for conversion to credit equivalent amounts (201 478)

Capital and total exposures Tier I capital 116 238 Total exposures 1 820 142

Leverage ratio Basel III leverage ratio (%) 6.4 Basel III leverage ratio (including unappropriated profits) (%) 6.9


ECONOMIC CAPITAL

Economic capital adequacy is the internal basis for measuring and reporting all quantifiable risks on a consistent risk-adjusted basis. The group assesses its economic capital adequacy by measuring its risk profile under both normal and stress conditions.

ICAAP considers the qualitative capital management processes within the organisation and includes the organisation’s governance, risk management, capital management and financial planning standards and frameworks. Furthermore, the quantitative internal assessments of the group’s business models are used to assess capital requirements to be held against all risks the group is or may become exposed to, in order to meet current and future needs, as well as to assess the group’s resilience under stressed conditions.

Banking operationsECONOMIC CAPITAL BY RISK TYPE

2015 2014

Rm Rm

Credit risk 68 733 62 780 Equity risk 8 300 5 286 Market risk 1 584 1 373 Operational risk 11 062 9 520 Business risk 3 847 5 844 Interest rate risk in the banking book 4 486 3 324

Economic capital requirement 98 012 88 127

Available financial resources 143 832 131 257

Economical capital coverage ratio (times) 1.47 1.49

Economic capital of R98 billion (2014: R88,1 billion) is the internal assessment of the amount of capital that is required to support the group’s banking operations’ economic risk profile. For potential losses arising from risk types that are statistically quantifiable, economic capital reflects the worst-case loss commensurate with a confidence level of 99.92%.

Available financial resources refer to capital supply as defined by the group for economic capital purposes and includes capital and reserve funds after adjusting for certain non-qualifying items.

RECONCILIATION WITH ANNUAL FINANCIAL STATEMENTS

2015

Rm

Total consolidated assets – annual financial statements (excluding derivative and gross securities financing transactions assets) 1 777 808

Gross-up for cash management schemes 41 558 Adjustment for share of consolidated insurance assets (199 160)

Total on-balance sheet exposure (excluding derivative and gross securities financing transactions assets) 1 620 206

Insurance operationsThe quarterly and annual returns submitted to the FSB in terms of the Long-term Insurance Act 52 of 1998 (Long-term Insurance Act) and the Short-term Insurance Act 53 of 1998 (Short-term Insurance Act) indicated that the CAR were met throughout 2015. However, the policyholder liabilities in Frank Life were transferred to Liberty Group Limited with effect from 1 January 2015. Subsequently, two minor technical breaches in the statutory capital requirement of the dormant Frank Life Limited occurred which were rectified immediately.

STANDARD INSURANCE LIMITED REGULATORY CAPITAL ADEQUACY

2015 2014

Rm Rm

Actual CAR coverage ratio 2.5 2.3

LIBERTY1 CAR RATIO

2015 2014

Statutory CAR Rm 5 145 4 534Available statutory capital Rm 15 585 13 919Actual CAR coverage (times) 3.0 3.1Liberty minimum CAR coverage ratio (times) 1.5 1.5

1 Liberty group which includes Liberty Holdings and its subsidiaries (Liberty).


21

Insurance operationsThe FSB plans to implement the new SAM regulatory regime no earlier than 1 January 2017. As prescribed under SAM, the assessment of capital will be on an economic basis for South African insurance entities. This will apply to Liberty Group Limited, Frank Life, STANLIB Multi-Manager and SIL. The regulatory capital will be the amount of financial resources required to protect against economic insolvency under extreme events. Liberty has completed the various SAM supervision submissions requested by the FSB in 2015. These indicate that Liberty’s capital is adequate.

Standard Insurance Limited (SIL) continues to embed group model risk and capital management principles in its business operations. The economic capital model in SIL was expanded in 2015 to include all material lines of business and other major risk types. Currently, market risk is being updated to allow for more accurate modelling techniques. The economic capital model will be externally reviewed thereafter. Following the review, it is intended that the model will be used to assess economic capital requirements, reinsurance optimisation, capital allocation and revised forward looking stresses for risk appetite purposes.

RISK-ADJUSTED PERFORMANCE MEASUREMENT

RAPM supports the maximisation of shareholder value by optimally managing financial resources within the board-approved risk appetite. Capital is centrally monitored and allocated, based on usage and performance, in a manner that enhances overall group economic profit and RoE. Business units are held accountable for achieving their RAPM targets. RAPM is calculated on both regulatory and economic capital measures.

COST OF EQUITY

The group’s rand-based cost of equity (CoE) is estimated using the capital asset pricing model. CoE is recalibrated twice a year using estimates of risk-free rate, beta and equity risk premium.

The group applied a CoE of 13.3% as at 31 December 2015 (2014: 13.2%).


Risk appetite is set, and stress testing activities are undertaken, at a group level, in business lines, in risk types and at a legal entity level within the risk appetite and stress testing governance frameworks.

GOVERNANCE

The primary management level governance committee overseeing risk appetite and stress testing is the group stress testing and risk appetite committee. It is chaired by the group CRO and is a subcommittee of GROC.

The principal governance documents are the risk appetite governance framework and the stress testing governance framework.

RISK APPETITE

Risk appetite governance frameworkThe risk appetite governance framework provides guidance on the following:

• setting and cascading of risk appetite by group, business line, risk type and legal entity

• measurement and methodology

• governance

• monitoring and reporting of the risk profile

• escalation and resolution.

The group has adopted the following definitions, where entity refers to a business line or legal entity within the group, or the group itself:

• Risk appetite: an expression of the amount or type of risk an entity is generally willing to take in pursuit of its financial and strategic objectives, reflecting its capacity to sustain losses and continue to meet its obligations as they fall due, under both normal and a range of stress conditions. The metric is referred to as a risk appetite trigger.

• Risk tolerance: the maximum amount of risk an entity is prepared to tolerate above risk appetite. The metric is referred to as a risk tolerance limit.

• Risk capacity: the maximum amount of risk the entity is able to support within its available financial resources.

• Risk appetite statement (RAS): the documented expression of risk appetite and risk tolerance which have been approved by the entity’s relevant governance committee. The RAS is reviewed and revised, if necessary, on an annual basis.

• Risk profile: the risk profile is defined in terms of three dimensions, namely current risk profile or forward risk profile unstressed or stressed risk profile pre- or post-management actions.

The current risk profile is the amount or type of risk to which the entity is currently exposed. The unstressed forward risk profile is the forward-looking view of how the entity’s risk profile is expected to evolve under expected conditions. The effectiveness of available management actions can be assessed through an analysis of pre- and post-management action risk profiles against risk appetite triggers and tolerance limits.

The diagram on the next page provides a schematic view of the three levels of risk appetite and the integral role that risk types play in the process of cascading risk appetite from dimensions such as regulatory capital, economic capital, stressed earnings and liquidity to more granular portfolio limits.

Stress testing 23

– Stress testing governance framework 23

– Stress testing programme 24

Risk appetite and stress testing

Governance 22

Risk appetite 22

– Risk appetite governance framework 22

– Risk appetite statement 23

23

RISK APPETITE

RISK APPETITE DIMENSIONS

Regulatory capital

Economic capital

Stressed earnings

Liquidity

RISK APPETITE DIMENSIONS BY RISK TYPE

Credit and equity risk

Operational risk

Market risk Interest rate risk

Business risk Liquidity risk

Capital demand/earnings at risk utilisation per risk type

PORTFOLIO LIMITS BY RISK TYPE

Credit and equity risk e.g.

Operationalrisk e.g.

Marketrisk e.g.

Interest rate risk e.g.

Business risk e.g.

Liquidity risk e.g.

• loss ratio

• NPL %

• concentrations

• operational losses % to gross income

• normal and stressed value-at-risk (SVaR) limits

• interest rate sensitivity

• cost-to-income ratio

• NSFR

RAS

1

2

3

LEV

EL

LEV

EL

LEV

EL

Risk appetite statementExecutive management is responsible for recommending the group’s RAS, which is then approved by the GRCMC on behalf of the board. In developing the RAS, executive management considers the group’s strategy and the desired balance between risk and return. The GRCMC reviews the group’s current risk profile on a quarterly basis and forward risk profile (both stressed and unstressed) at least annually.

Level one risk appetite dimensions can be either qualitative or quantitative. Quantitative level one risk appetite dimensions relate to available financial resources and earnings volatility. The standardised quantitative dimensions used by the group, as well as legal entities and business lines, are:

• stressed earnings

• economic capital

• regulatory capital

• liquidity (short-term liquidity and term liquidity).

Level two risk appetite represents the allocation of level one risk appetite to risk types. Specifically, the contribution of individual risk types to earnings volatility and overall capital demand (both economic and regulatory) is controlled through triggers and limits.

Level three consists of key metrics used to monitor the portfolio. Portfolio triggers and limits are required to be

broadly congruent with level one and level two triggers and limits. These metrics are regularly monitored at a risk type level and ensure proactive risk management.

STRESS TESTING

Stress testing governance frameworkStress testing is a key management tool within the group and is used to evaluate the sensitivity of the current and forward risk profile relative to different levels of risk appetite. Stress testing supports a number of business processes, including:

• strategic planning and financial budgeting

• the ICAAP, including capital planning and management, and the setting of capital buffers

• liquidity planning and management

• informing the setting of risk appetite

• identifying and proactively mitigating risks through actions such as reviewing and changing limits, limiting exposures, and hedging

• facilitating the development of risk mitigation or contingency plans, including recovery plans, across a range of stressed conditions

• supporting communication with internal and external stakeholders, including industrywide stress tests performed by the regulator.


RISK AND CAPITAL MANAGEMENT REPORT Risk appetite and stress testing Stress testing continued

Supervisory stress testsFrom time-to-time, a regulator may call for the group or a legal entity to run a supervisory stress test or common scenario with prescribed assumptions and methodologies. The purpose of these stress test requests could be for the regulator to assess the financial stability of the entire financial sector, or targeted stress tests where they may have a specific concern regarding a specific asset class or other potential stress event.

Business model stress testingBusiness model stress testing utilises the reverse stress testing technique to explore vulnerabilities in a particular strategy or business model. The outcome does not necessarily target business or bank failure, but rather seeks to inform what could have a severe impact, given a plausible but in most cases highly improbable event within a given set of circumstances and assumptions.

The purpose of business model stress testing is to identify potential vulnerabilities by:

• assuming the business model is severely impacted

• identifying potential circumstances/scenarios that could have led to this impact

• identifying vulnerabilities in the business model, human capital, infrastructure and control framework, as and when highlighted by underlying failures

• reviewing the existing risk mitigants

• supplementing risk mitigants if considered necessary.

Stress testing for the recovery planAs part of the annual review of the group’s recovery plan, the group’s procedures require the execution of stress tests in order to test the effectiveness of the recovery options proposed in the recovery plan, and to provide guidance on the selection of early warning indicators. The range of scenarios that are considered include both systemic, group-specific and combination events, as well as fast- and slow-moving scenarios.

Risk type stress testingRisk type stress tests apply to individual risk types. Risk type stress testing could take the form of scenario or sensitivity analysis.

Stress testing within the group is subject to the group’s stress testing governance framework which sets out the responsibilities for and approaches to stress testing activities. Stress tests are conducted at group, business line, material legal entity and risk type level. Broadly aligned and fit-for-purpose stress testing programmes are implemented for the group to ensure appropriate coverage of the different risks.

Stress testing programmeThe group’s stress testing programme uses one or a combination of stress testing techniques, including scenario analysis, sensitivity analysis and reverse stress testing to perform stress testing for different purposes.

Groupwide macroeconomic stress testingMacroeconomic stress testing is conducted across all major risk types on an integrated basis for a range of economic scenarios varying in severity from mild to very severe but plausible macroeconomic shocks. The impact, after consideration of mitigating actions, on the group’s income statement, statement of financial position (SOFP) and capital demand and supply of the group is measured against risk appetite.

Groupwide macroeconomic stress testing for the group and SBSA is performed, as a minimum, once a year for selected scenarios that are specifically designed by a scenario working group targeting the group’s risk profile, geographical presence and strategy.

The results of the groupwide macroeconomic stress testing are presented at a board level for the group and SBSA in order to consider whether the group’s risk profile is consistent with the group’s risk appetite and to set the capital buffer. Groupwide macroeconomic stress testing results are submitted as part of the annual ICAAP.

Additional stress testingGroupwide macroeconomic stress testing results are supplemented with additional ad hoc stress testing at the group, legal entity, business line, or risk type level that may be required from time-to-time for risk management or planning purposes. The purpose of this stress testing is to inform management of risks that may not yet form part of routine stress testing or where the focus is on a specific portfolio or business unit. Additional stress testing can take the form of either scenario analysis or sensitivity analysis. This type of stress testing will be performed and governed at the appropriate group, legal entity, business line, or risk type level.

The focus of additional stress tests for 2015 included various commodity-related stress tests, the impact of infrastructure challenges and interest rate scenarios.

25

– Credit portfolio characteristics and metrics in terms of IFRS

44

Insurance operations 55

– Consolidated mutual funds 55

– Credit exposure to debt instruments 55

– Impairments 58

– Reinsurance 58

Credit risk

Definition 25

Banking operations 25

– Approach to managing credit risk 25

– Governance 25

– Approved regulatory capital approaches 26

– Credit portfolio characteristics and metrics in terms of Basel

30

DEFINITION

Credit risk is the risk of loss arising out of the failure of counterparties to meet their financial or contractual obligations when due.

It is composed of counterparty risk (i.e. obligor risk, as distinct from counterparty credit risk, a subset of counterparty risk specific to the bilateral credit risks arising between trading counterparties), concentration risk, and country risk.

BANKING OPERATIONS

Approach to managing credit riskThe group’s credit risk comprises mainly wholesale and retail loans and advances, underwriting and guarantee commitments together with the counterparty credit risk arising from derivative and securities financing contracts entered into with our customers and trading counterparties. To the extent equity risk is held on the banking book, it is also managed under the credit risk governance framework.

The group manages credit risk through:

• maintaining a culture of responsible lending and a robust risk policy and control framework

• identifying, assessing and measuring credit risk across the group, from the level of individual facilities up to the total portfolio

• defining, implementing and continually re-evaluating our risk appetite under actual and stressed conditions

• monitoring the group’s credit risk exposure relative to limits

• ensuring that there is expert scrutiny and approval of credit risks and its mitigation independently of the business functions.

Primary responsibility for credit risk management resides with the business lines within the group’s business units. This is complemented by an independent credit risk function embedded within the business units, which is in turn supported with standards and oversight provided through the group risk function.

GovernanceThe primary management level governance committees overseeing credit risk are the CIB and PBB credit governance committees, the group ERC and the intragroup exposure committee, which are all GROC subcommittees. These committees are responsible for credit risk and credit concentration risk decision-making, and delegation thereof to credit officers and committees within defined parameters.

The PBB, CIB and group model approval committees approve key aspects of rating systems and credit risk models. Regular model validation and reporting to these committees is undertaken by the central validation function which is independent of the credit risk function.

The principal governance documents are the group credit risk governance standard and the model risk governance framework.

In response to the losses incurred in 2014 in the base metal trading business in China, a review of all trading and lending transactions reliant on physical commodities was performed. Following the disposal of Standard Bank Plc, the bank’s exposure to physical commodities arising from the CIB trading business significantly reduced and the bank does not currently trade commodities that could arise in physical commodity inventory or collateral exposure with the exception of precious metals. Within the CIB lending business where transactions are reliant on physical commodity collateral, the bank rigorously applies customer, collateral manager and location concentration limits in the approval process.


RISK AND CAPITAL MANAGEMENT REPORT Credit risk Banking operations continued

Standardised approachThe calculation of regulatory capital is based on a risk weighting and the net counterparty exposures after recognising a limited set of qualifying collateral. The risk weighting is based on the exposure characteristics and, in the case of corporate, bank and sovereign exposures, the external agency credit rating of the counterparty. In the case of counterparties for which there are no credit ratings available, exposures are classified as unrated for determining regulatory capital requirements.

Approved regulatory capital approachesThe group has approval from the SARB to adopt the AIRB approach for most credit portfolios in SBSA. The group has adopted the standardised approach for its rest of Africa portfolios and for some of its less material subsidiaries and portfolios. The group has approval from the SARB to adopt either the market-based or the PD/LGD approaches for material equity portfolios, with the latter applied to equity held on the banking book.

BASEL: EXPOSURE SUBJECT TO THE STANDARDISED APPROACH PER RISK WEIGHTING

2015 2014

ExposureRm

Mitigation1

Rm

Exposure after

mitigationRm

Exposure after

mitigationRm

Based on risk weights0% – 35% 42 167 4 108 38 059 55 239 50% 45 695 2 278 43 417 27 913

Rated 5 758 2 278 3 480 340 Unrated 39 937 39 937 27 573

75% 60 751 249 60 502 31 554 100% and above 233 051 12 363 220 688 210 046

Rated 46 46 36 Unrated 233 005 12 363 220 642 210 010

Total 381 664 18 998 362 666 324 752

1 Constitutes eligible financial collateral.

Internal ratings-based approachIntroductionUnder the internal ratings-based (IRB) regulatory capital approaches, the calculation of regulatory capital is based on an estimate of exposure at default (EAD) and a risk weighting. The risk weighting is based on asset class, and estimates of PD, LGD, and maturity. Under the AIRB approaches all the parameters need to be estimated internally, while only PD is estimated internally under the FIRB approach. EAD, LGD and maturity are regulatory-prescribed under the FIRB approach. All IRB models are managed under model development and validation policies that set out the requirements for model governance structures and processes, and the technical framework within which model performance and appropriateness is maintained. The models are developed using internal historical default and recovery data. In low-default portfolios, internal data is supplemented with external benchmarks and

studies. Models are assessed frequently to ensure ongoing appropriateness as business environments and strategic objectives change, and are recalibrated annually using the most recent internal data.

IRB risk componentsProbability of defaultThe group uses a 25-point master rating scale to quantify the credit risk for each borrower (corporate asset classes) or facility (specialised lending and retail asset classes), as illustrated in the table on the next page. Ratings are mapped to PDs by means of calibration formulae that use historical default rates and other data from the applicable portfolio. The group distinguishes between through-the-cycle PDs and point-in-time PDs, and utilises both measures in decision-making, managing credit risk exposures and measuring impairments against credit exposures.

27

The table below describes the internally defined relationship between the group master rating scale, generally accepted defined investment gradings, the group’s credit quality definitions and external rating scales.

CREDIT RATING SCALES

Group master rating scale

Grading Credit qualityMoody’s Investor

ServicesStandard & Poor’s

Fitch

1 – 4

Investment grade

Normal monitoring

Aaa, Aa1, Aa2, Aa3 AAA, AA+, AA, AA- AAA, AA+, AA, AA-

5 – 7 A1, A2, A3 A+, A, A- A+, A, A-

8 – 12 Baa1, Baa2, Baa3 BBB+, BBB, BBB- BBB+, BBB, BBB-

13 – 21Sub-investment

grade

Ba1, Ba2, Ba3, B1, B2, B3

BB+, BB, BB-, B+, B, B-

BB+, BB, BB-, B+, B, B-

22 – 25Close

monitoringCaa1, Caa2,

Caa3, CaCCC+, CCC,

CCC-CCC+, CCC,

CCC-

Default Default Default C D D

Loss given defaultLGD measures are a function of customer type, product type, seniority of loan, country of risk and level of collateralisation.

LGDs are estimated based on historic recovery data per category of LGD. A downturn LGD is used in the estimation of the capital charge and reflects the anticipated recovery rates in a downturn period.

Exposure at defaultEAD captures the impact of potential drawdowns against unutilised facilities and potential changes in counterparty credit risk positions due to changes in market prices. By using historical data, it is possible to estimate an account’s average utilisation of limits when default occurs, recognising that customers may use more of their facilities as they approach default.

Expected lossThe expected loss provides a measure of the value of the credit losses that may reasonably be expected to occur in the portfolio. Provisions must be sufficient to cover the expected losses in the credit portfolio. In its most basic form the expected loss can be represented as: PD x EAD x LGD.

Use of internal estimatesThe group’s credit risk rating systems and processes differentiate and quantify credit risk across counterparties and asset classes. Internal risk parameters are used extensively in risk management and business processes, including:

• setting risk appetite

• setting limits for concentration risk and counterparty limits

• credit approval and monitoring

• pricing transactions

• determining portfolio impairment provisions

• calculating economic capital.

.


BASEL: ANALYSIS OF PDS, EADS AND LGDS BY RISK GRADE UNDER THE IRB APPROACH

Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity

Average PD

%

Total EAD1 EAD

RmLGD

%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%Exposure

RmPD%

2015Non-default 1 027 233 353 921 112 931 88 718 306 546 76 417 88 700 2 498

1 – 4 0.02 16 425 576 35.29 8.49 12 210 40.75 3.24 1 570 37.31 10.30 34 12.32 0.98 1 63.05 1.47 2 034 38.40 4.40 5 – 7 0.06 57 713 12 677 39.43 21.08 7 22.07 15.11 38 132 39.41 16.69 1 359 13.13 2.48 2 369 62.91 3.18 3 169 41.68 7.97 8 – 12 0.30 450 854 184 153 26.16 33.21 90 769 27.26 21.76 43 019 43.12 37.75 108 506 12.72 8.50 7 720 63.07 8.01 16 687 41.08 22.30 562 0.29 13 – 21 2.22 468 870 155 994 27.85 64.99 9 863 21.43 47.12 5 997 48.60 100.00 174 935 15.37 31.18 60 495 64.90 57.41 61 586 34.42 49.05 1 936 1.80 22 – 25 30.29 33 371 521 45.28 237.07 82 43.75 250.16 21 712 17.44 90.85 5 832 64.77 177.16 5 224 43.52 109.33

Default 100.00 29 605 6 379 37.06 91.23 5 33.85 42.71 5 94.48 13 886 19.20 3.79 5 672 64.34 39.85 3 658 44.45 1.66 78

Total 1 056 838 360 300 27.59 112 936 28.22 88 723 41.79 320 432 14.77 82 089 64.62 92 358 36.87 2 576

2014Non-default 976 138 307 178 119 343 85 085 299 845 75 014 89 673 2 759

1 – 4 0.02 24 998 2 848 16.87 18.52 17 220 45.00 8.27 2 979 39.23 12.70 117 12.29 1.18 1 834 38.41 4.38 5 – 7 0.06 57 445 12 324 41.67 24.31 328 45.00 27.53 36 992 41.65 24.50 1 457 13.14 2.38 2 613 62.90 3.27 3 731 41.68 7.83 8 – 12 0.28 402 742 140 871 30.28 37.90 96 819 27.20 17.26 36 146 43.45 44.19 106 099 12.71 8.20 8 281 63.05 9.19 14 526 41.01 24.74 304 0.26 13 – 21 2.15 455 352 150 058 28.52 67.74 4 921 29.19 64.33 8 968 47.93 92.29 168 756 15.36 31.15 57 893 64.90 56.71 64 756 34.41 49.04 2 455 1.24 22 – 25 30.42 35 601 1 077 30.61 165.48 55 39.54 220.20 23 416 17.43 94.77 6 227 64.77 177.46 4 826 43.55 110.12

Default 100.00 30 675 8 349 40.48 84.04 9 33.07 44.24 69 45.29 13 622 19.25 3.27 4 942 64.34 57.31 3 684 44.21 1.35 78

Total 1 006 813 315 527 30.04 119 352 29.90 85 154 42.99 313 467 14.78 79 956 64.60 93 357 36.67 2 837

1 Excludes equity EAD.2 Exposure weighted average risk weights have been weighted by the sum of the EAD within each of the PD bands.

PortfoliosCorporate, sovereign and bank portfoliosCorporate entities include large companies, as well as small and medium enterprises that are managed on a relationship basis or have a combined exposure to the group of more than R7,5 million. Corporate exposures also include specialised lending (project, object and commodity finance, as well as income-producing real estate), public sector entities and CCPs.

Sovereign and bank borrowers include sovereign government entities, central banks, local and provincial government entities, bank and non-bank financial institutions.

The creditworthiness of corporate (excluding specialised lending), sovereign and bank exposures is assessed based on a detailed individual assessment of the financial strength of the borrower. This quantitative analysis coupled with a

detailed qualitative analysis of the entity together with expert judgement and external rating agency ratings, leads to an assignment of an internal rating to the entity.

Specialised lending’s creditworthiness is assessed on a transactional level, rather than on the financial strength of the borrower, insofar as the group relies only on repayment from the cash flows generated by the underlying assets thus financed.

Retail portfolioRetail mortgage exposures relate to mortgage loans to individuals and are a combination of both drawn and undrawn EADs.

QRRE relates to cheque accounts, credit cards and revolving personal loans and products, and includes both drawn and undrawn exposures.


29

BASEL: ANALYSIS OF PDS, EADS AND LGDS BY RISK GRADE UNDER THE IRB APPROACH

Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity

Average PD

%

Total EAD1 EAD

RmLGD

%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%EADRm

LGD%

Exposure weighted

average risk

weight2

%Exposure

RmPD%

2015Non-default 1 027 233 353 921 112 931 88 718 306 546 76 417 88 700 2 498

1 – 4 0.02 16 425 576 35.29 8.49 12 210 40.75 3.24 1 570 37.31 10.30 34 12.32 0.98 1 63.05 1.47 2 034 38.40 4.40 5 – 7 0.06 57 713 12 677 39.43 21.08 7 22.07 15.11 38 132 39.41 16.69 1 359 13.13 2.48 2 369 62.91 3.18 3 169 41.68 7.97 8 – 12 0.30 450 854 184 153 26.16 33.21 90 769 27.26 21.76 43 019 43.12 37.75 108 506 12.72 8.50 7 720 63.07 8.01 16 687 41.08 22.30 562 0.29 13 – 21 2.22 468 870 155 994 27.85 64.99 9 863 21.43 47.12 5 997 48.60 100.00 174 935 15.37 31.18 60 495 64.90 57.41 61 586 34.42 49.05 1 936 1.80 22 – 25 30.29 33 371 521 45.28 237.07 82 43.75 250.16 21 712 17.44 90.85 5 832 64.77 177.16 5 224 43.52 109.33

Default 100.00 29 605 6 379 37.06 91.23 5 33.85 42.71 5 94.48 13 886 19.20 3.79 5 672 64.34 39.85 3 658 44.45 1.66 78

Total 1 056 838 360 300 27.59 112 936 28.22 88 723 41.79 320 432 14.77 82 089 64.62 92 358 36.87 2 576

2014Non-default 976 138 307 178 119 343 85 085 299 845 75 014 89 673 2 759

1 – 4 0.02 24 998 2 848 16.87 18.52 17 220 45.00 8.27 2 979 39.23 12.70 117 12.29 1.18 1 834 38.41 4.38 5 – 7 0.06 57 445 12 324 41.67 24.31 328 45.00 27.53 36 992 41.65 24.50 1 457 13.14 2.38 2 613 62.90 3.27 3 731 41.68 7.83 8 – 12 0.28 402 742 140 871 30.28 37.90 96 819 27.20 17.26 36 146 43.45 44.19 106 099 12.71 8.20 8 281 63.05 9.19 14 526 41.01 24.74 304 0.26 13 – 21 2.15 455 352 150 058 28.52 67.74 4 921 29.19 64.33 8 968 47.93 92.29 168 756 15.36 31.15 57 893 64.90 56.71 64 756 34.41 49.04 2 455 1.24 22 – 25 30.42 35 601 1 077 30.61 165.48 55 39.54 220.20 23 416 17.43 94.77 6 227 64.77 177.46 4 826 43.55 110.12

Default 100.00 30 675 8 349 40.48 84.04 9 33.07 44.24 69 45.29 13 622 19.25 3.27 4 942 64.34 57.31 3 684 44.21 1.35 78

Total 1 006 813 315 527 30.04 119 352 29.90 85 154 42.99 313 467 14.78 79 956 64.60 93 357 36.67 2 837

1 Excludes equity EAD.2 Exposure weighted average risk weights have been weighted by the sum of the EAD within each of the PD bands.

Retail other covers other branch lending and vehicle finance for retail, personal, and small and medium enterprise portfolios. Branch lending includes both drawn and undrawn exposures, while vehicle and asset finance only has drawn exposures.

Internally developed behavioural scorecards are used to measure the anticipated performance for each account. Mapping of the behaviour score to a PD is performed for each portfolio using a statistical calibration of portfolio-specific historical default experience.

The behavioural scorecard PDs are used to determine the portfolio distribution on the master rating scale. Separate LGD models are used for each product portfolio and are based on historical recovery data. EAD is measured as a percentage of the credit facility limit and is based on historical averages. EAD is estimated per portfolio and per

portfolio-specific segment, using internal historical data on limit utilisation.

Equity portfolioEquity risk held on the banking book is substantively controlled in accordance with the credit risk governance standard, except insofar as it is approved and overseen under the mandate of the ERC rather than under the normal credit risk delegated authority structures.

Refer to page 81 for more information regarding equity risk on the banking book.


Credit portfolio characteristics and metrics in terms of BaselCredit portfolio analysisThe credit portfolio is analysed in the tables that follow in terms of the Basel approach and asset class.

BASEL: EXPOSURE BY APPROACH AND ASSET CLASS1

On-balance sheet Off-balance sheetSecurities financing

transactions Derivative instruments Total by approach EADImpairment of

exposures

Standard-ised FIRB AIRB




Standard-ised FIRB AIRB Total FIRB AIRB

Gross past due

but not impaired

exposures

Gross defaulted

expo-sures1 Specific

Port-folio

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

2015Corporate 124 687 287 375 42 415 113 055 6 588 45 541 2 751 36 288 176 441 482 259 658 700 360 300 2 673 10 512 4 631 Sovereign 102 762 108 767 2 402 10 141 1 087 11 556 111 1 062 106 362 131 526 237 888 112 936 4 2 Banks 29 443 60 087 6 126 10 353 151 82 592 1 208 65 614 36 928 218 646 255 574 88 723 24 Retail exposure 51 011 450 036 10 922 86 621 61 933 536 657 598 590 494 879 35 909 27 881 11 229

Retail mortgages 15 996 308 293 954 29 199 16 950 337 492 354 442 320 432 22 098 14 777 3 852 QRRE 62 030 35 705 97 735 97 735 82 089 3 444 5 798 3 641 Other retail 35 015 79 713 9 968 21 717 44 983 101 430 146 413 92 358 10 367 7 306 3 736

Total 307 903 906 265 61 865 220 170 7 826 139 689 4 070 0 102 964 381 664 1 369 088 1 750 752 1 056 838 38 582 38 421 15 862 6 790

2014Corporate 107 392 12 622 230 356 30 313 54 96 778 2 019 15 267 40 369 31 641 20 497 15 944 171 365 48 440 383 447 603 252 26 454 289 073 1 621 10 540 3 372 Sovereign 77 148 16 957 97 579 521 8 688 2 024 7 670 232 540 4 733 79 925 17 497 118 670 216 092 17 719 101 633 1 9 3 Banks 23 677 14 202 34 496 1 918 69 11 997 147 14 112 73 790 723 73 889 35 073 26 465 102 272 155 356 284 093 28 651 56 503 70 61 Retail exposure 47 892 438 181 11 635 89 163 59 527 527 344 586 871 486 780 30 397 25 575 10 017

Retail mortgages 14 633 300 478 1 782 30 463 16 415 330 941 347 356 313 467 16 940 14 273 3 513 QRRE 3 59 679 35 927 3 95 606 95 609 79 956 4 076 5 061 2 967 Other retail 33 256 78 024 9 853 22 773 43 109 100 797 143 906 93 357 9 381 6 241 3 537

Total 256 109 43 781 800 612 44 387 123 206 626 4 190 29 379 121 829 32 596 94 926 55 750 337 282 168 209 1184 817 1 690 308 72 824 933 989 32 019 36 194 13 453 5 315

1 Amount before the application of any applicable offset, mitigation or netting.


31

Credit portfolio characteristics and metrics in terms of BaselCredit portfolio analysisThe credit portfolio is analysed in the tables that follow in terms of the Basel approach and asset class.

BASEL: EXPOSURE BY APPROACH AND ASSET CLASS1

On-balance sheet Off-balance sheetSecurities financing

transactions Derivative instruments Total by approach EADImpairment of

exposures





Standard-ised FIRB AIRB Total FIRB AIRB

Gross past due

but not impaired

exposures

Gross defaulted

expo-sures1 Specific

Port-folio

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

2015Corporate 124 687 287 375 42 415 113 055 6 588 45 541 2 751 36 288 176 441 482 259 658 700 360 300 2 673 10 512 4 631 Sovereign 102 762 108 767 2 402 10 141 1 087 11 556 111 1 062 106 362 131 526 237 888 112 936 4 2 Banks 29 443 60 087 6 126 10 353 151 82 592 1 208 65 614 36 928 218 646 255 574 88 723 24 Retail exposure 51 011 450 036 10 922 86 621 61 933 536 657 598 590 494 879 35 909 27 881 11 229

Retail mortgages 15 996 308 293 954 29 199 16 950 337 492 354 442 320 432 22 098 14 777 3 852 QRRE 62 030 35 705 97 735 97 735 82 089 3 444 5 798 3 641 Other retail 35 015 79 713 9 968 21 717 44 983 101 430 146 413 92 358 10 367 7 306 3 736

Total 307 903 906 265 61 865 220 170 7 826 139 689 4 070 0 102 964 381 664 1 369 088 1 750 752 1 056 838 38 582 38 421 15 862 6 790

2014Corporate 107 392 12 622 230 356 30 313 54 96 778 2 019 15 267 40 369 31 641 20 497 15 944 171 365 48 440 383 447 603 252 26 454 289 073 1 621 10 540 3 372 Sovereign 77 148 16 957 97 579 521 8 688 2 024 7 670 232 540 4 733 79 925 17 497 118 670 216 092 17 719 101 633 1 9 3 Banks 23 677 14 202 34 496 1 918 69 11 997 147 14 112 73 790 723 73 889 35 073 26 465 102 272 155 356 284 093 28 651 56 503 70 61 Retail exposure 47 892 438 181 11 635 89 163 59 527 527 344 586 871 486 780 30 397 25 575 10 017

Retail mortgages 14 633 300 478 1 782 30 463 16 415 330 941 347 356 313 467 16 940 14 273 3 513 QRRE 3 59 679 35 927 3 95 606 95 609 79 956 4 076 5 061 2 967 Other retail 33 256 78 024 9 853 22 773 43 109 100 797 143 906 93 357 9 381 6 241 3 537

Total 256 109 43 781 800 612 44 387 123 206 626 4 190 29 379 121 829 32 596 94 926 55 750 337 282 168 209 1184 817 1 690 308 72 824 933 989 32 019 36 194 13 453 5 315



¢ Standardised 2015 ¢ Standardised 2014 ¢ FIRB 2014 ¢ AIRB 2015 ¢ AIRB 2014

BASEL: EXPOSURE BY APPROACH AND CLASS (Rbn)

500

400

300

200

100

Corporate Sovereign Banks Retail mortgages QRRE Other retail

Concentration riskConcentration risk is the risk of loss arising from an excessive concentration of exposure to a single counterparty, an industry, a product, a geography, maturity, or collateral. The group’s credit risk portfolio is well diversified. The group’s management approach relies on the reporting of concentration risk along key dimensions, the setting of portfolio limits and stress testing.


33

BASEL: EXPOSURES BY TYPE OF ASSET AND INDUSTRY1

On-balance

sheetRm

Off-balance

sheetRm

Securities financing

trans-actions

Rm

Derivative instru-ments

Rm

Total gross

exposureRm

Impairment of exposures

Gross defaulted

exposuresRm

SpecificRm

PortfolioRm

2015Agriculture 25 618 5 218 295 31 131 1 106 327 Mining 57 376 42 912 145 100 433 2 559 1 176 Manufacturing 80 292 28 955 1 319 110 566 693 504 Electricity 20 836 6 792 12 235 27 875 1 288 492 Construction 13 998 9 024 1 004 24 026 904 173 Wholesale 75 801 31 396 752 107 949 3 077 1 661 Transport 28 957 15 205 653 44 815 899 619 Finance, real estate and other

business services 312 738 60 414 146 265 102 328 621 745 2 380 805 Private households 446 408 67 159 513 567 24 041 9 459 Other 152 144 14 960 1 238 303 168 645 1 474 646

Total 1 214 168 282 035 147 515 107 034 1 750 752 38 421 15 862 6 790

2014 Agriculture 22 775 5 684 55 28 514 685 285 Mining 39 964 31 861 588 72 413 2 112 857 Manufacturing 62 641 25 491 464 4 698 93 294 852 478 Electricity 15 065 7 629 3 858 26 552 216 89 Construction 12 386 10 743 466 23 595 1 403 294 Wholesale 63 032 23 029 6 163 6 326 98 550 4 897 1 665 Transport 22 324 16 665 1 433 40 422 1 628 395 Finance, real estate and other

business services 245 740 41 815 146 546 165 436 599 537 1 458 571 Private households 426 371 70 423 496 794 21 781 8 136 Other 190 204 17 796 2 225 412 210 637 1 162 683

Total 1 100 502 251 136 155 398 183 272 1 690 308 36 194 13 453 5 315


BASEL: TOTAL GROSS EXPOSURE BY TYPE OF INDUSTRY (%)

2015 2014

¢ Finance, real estate and other business services 36 35

¢ Private households 29 29

¢ Other 10 12

¢ Wholesale 6 6

¢ Agriculture, mining, manufacturing, electricity, construction and transport 19 18


BASEL: TOTAL GROSS EXPOSURE BY GEOGRAPHIC REGION1

On-balance

sheetRm

Off-balance

sheetRm

Securities financing

trans-actions

Rm

Derivative instru-ments

Rm

Total gross

exposureRm

Gross defaulted exposures1

Rm

Impairment of exposures

SpecificRm

PortfolioRm

2015South Africa 809 968 200 162 41 284 28 978 1 080 392 26 486 10 069 Other African countries 268 858 57 110 4 874 2 789 333 631 9 491 4 114 Europe 46 389 13 182 99 300 50 801 209 672 Asia 46 216 3 522 998 10 354 61 090 1 779 1 217 North America 22 848 4 942 561 14 090 42 441 South America 11 498 411 11 909 232 235 Other 8 391 2 706 498 22 11 617 433 227

Total 1 214 168 282 035 147 515 107 034 1 750 752 38 421 15 862 6 790

2014 South Africa 747 098 190 729 21 328 22 928 982 083 24 784 9 297 Other African countries 237 128 39 438 4 101 2 732 283 399 7 498 2 617 Europe 64 394 9 730 109 477 119 017 302 618 70 61 Asia 29 005 5 184 14 863 17 281 66 333 3 503 1 225 North America 9 361 4 947 519 20 454 35 281 South America 10 822 544 4 766 608 16 740 174 140 Other 2 694 564 344 252 3 854 165 113

Total 1 100 502 251 136 155 398 183 272 1 690 308 36 194 13 453 5 315


BASEL: TOTAL GROSS EXPOSURE BY GEOGRAPHIC REGION (%)

2015 2014

¢ South Africa 62 58

¢ Rest of Africa 19 17

¢ Outside Africa 19 25


35

BASEL: EXPOSURES BY RESIDUAL CONTRACTUAL MATURITY1

Less than 1 year

Rm

1 to 5 years

Rm

Greater than 5 years

Rm

Total gross exposure

Rm

2015Corporate 275 685 322 036 60 979 658 700 Sovereign 189 932 40 036 7 920 237 888 Banks 199 898 37 599 18 077 255 574 Retail exposure 168 776 60 650 369 164 598 590

Retail mortgages 2 621 3 023 348 798 354 442 QRRE 97 735 97 735 Other retail 68 420 57 627 20 366 146 413

Total 834 291 460 321 456 140 1 750 752

2014 Corporate 288 276 272 969 42 007 603 252 Sovereign 153 666 45 307 17 119 216 092 Banks 212 334 56 775 14 984 284 093 Retail exposure 165 309 67 621 353 941 586 871

Retail mortgages 4 641 2 828 339 887 347 356 QRRE 95 609 95 609 Other retail 65 059 64 793 14 054 143 906

Total 819 585 442 672 428 051 1 690 308



Estimated losses versus actual lossesThe table on the next page provides a comparison of actual PDs, LGDs and EADs to the estimated through-the-cycle PDs, LGDs and EADs.

Note that this comparison is an approximation as the PD, LGD and EAD actual and estimated parameters are different for reasons that include:

• Estimated PDs are determined at the beginning of a 12-month horizon using calibrated regulatory models. The models are calibrated to long-run default experience to ensure stable regulatory models over an entire credit cycle and would tend to underestimate actual defaults at the top of the credit cycle and overestimate actual defaults at the bottom of the credit cycle. Actual PDs are the defaults experienced over the 12-month period.

• LGD estimates are determined at the beginning of a 12-month horizon using the regulatory long-run average-based models that include downturn adjustments. Actual LGD values can take several years to be determined as defaulted exposures have to reach a write-off stage to allow for accurate LGD calculations. In order to determine comparable actual LGD values, all accounts that reached a write-off stage during the previous three-year period were used to determine the actual LGD values.

• The EAD ratio reflects estimated through-the-cycle EADs, used to derive the regulatory expected loss, as a percentage of EADs derived from the actual losses. In order to be meaningful the calculated EADs are computed as averages over a three-year period.

The analysis is based on the AIRB portfolios only.

The zero or low level of sovereign defaults, experienced in the AIRB portfolio during the period did not allow for a meaningful calculation of actual LGD and PD values for sovereign values (bank and sovereign, comparative period) or a meaningful calculation of sovereign or bank’s EAD ratios.

Loss analysisActual lossesThe table below shows the actual losses experienced in the group’s IRB exposure classes as at 31 December 2015, compared to 2014.

Actual losses comprise impairments as determined by IFRS, and exclude post write-off recoveries. The values displayed in the table below exclude all standardised approach portfolios.

BASEL: ANALYSIS OF ACTUAL LOSSES1

2015 2014

Rm Rm

IRB exposure classCorporate 753 1 296Sovereign 32Banks 53Retail exposure 6 591 7 486

Retail mortgages 1 920 2 541QRRE 3 155 3 036Other retail 1 516 1 909

Total 7 344 8 867

1 Excludes recoveries, post write-off recoveries and all the standardised approach portfolios.


37

BASEL: IRB EXPOSURE BY CLASS1, 2

PD LGD EAD

Estimated%

Actual%

Estimated%

Actual%

Estimate toactual ratio

%

2015Corporate 1.22 0.80 30.66 24.70 97.95Sovereign 0.38 33.64 Banks 0.67 0.50 38.51 55.79 Retail exposure 3.97 4.09 28.36 23.95 102.41

Retail mortgages 3.81 3.56 17.99 15.06 100.00 QRRE 5.18 6.22 64.43 52.66 105.19 Other retail 3.46 3.93 39.88 36.64 106.60

Total 2.47 2.34 28.60 24.04 101.91

2014Corporate 1.60 0.62 33.00 21.96 110.10 Sovereign 2.23 29.22 Banks 0.93 40.74 Retail exposure 4.01 4.57 27.10 22.91 102.72


Total 2.56 2.15 27.49 22.79 102.88

2013Corporate 1.94 1.40 32.66 15.20 103.31 Sovereign 1.52 16.75 Banks 0.85 0.17 37.21 66.10 261.79 Retail exposure 4.67 4.37 26.19 22.54 104.70


Total 2.83 2.27 26.56 22.27 105.07

1 Excludes all the standardised approach and FIRB portfolios.2 No data in the columns headed actual reflects either that no default occurred or, if there was a default, there was no loss incurred.


Credit risk mitigationCollateral, guarantees, credit derivatives and on- and off-balance sheet netting are widely used to mitigate credit risk. Credit risk mitigation policies and procedures ensure that credit risk mitigation techniques are acceptable, used consistently, valued appropriately and regularly, and meet the risk requirements of operational management for legal, practical and timely enforcement. Detailed processes and procedures are in place to guide each type of mitigation used.

The main types of collateral obtained by the group for its banking book exposures include:

• mortgage bonds over residential, commercial and industrial properties

• cession of book debts

• pledge and cession of financial assets

• bonds over plant and equipment

• the underlying movable assets financed under leases and instalment sales.

Reverse repurchase agreements and commodity leases to customers are collateralised by the underlying assets.

Guarantees and related legal contracts are often required, particularly in support of credit extension to groups of companies and weaker counterparties. Guarantor counterparties include banks, parent companies, shareholders and associated counterparties. Creditworthiness is established for the guarantor as for other counterparty credit approvals.

For derivative transactions and where collateral support is considered necessary, the group typically uses internationally recognised and enforceable International Swaps and Derivatives Association (ISDA) agreements, with a credit support annexure. Other credit protection terms may be stipulated, such as limitations on the amount of unsecured credit exposure acceptable, collateralisation if the mark-to-market credit exposure exceeds acceptable limits, and termination of the contract if certain credit events occur, for example, downgrade of the counterparty’s public credit rating.


Wrong-way risk arises in transactions where the likelihood of default by a counterparty and the size of credit exposure to that counterparty tend to increase at the same time. This risk is managed both at an individual counterparty level and at an aggregate portfolio level by limiting exposure to such transactions, taking adverse correlation into account in the measurement and mitigation of credit exposure and increasing oversight and approval levels.

To manage actual or potential portfolio risk concentrations in areas of higher credit risk and credit portfolio growth, the group implements hedging and other strategies from time-to-time. This is done at individual counterparty, sub-portfolio and portfolio levels through the use of syndication, distribution and sale of assets, asset and portfolio limit management, credit derivatives and credit protection.

¢ Gross exposure 2015 ¢ Credit risk mitigation 2015¢ Gross exposure 2014 ¢ Credit risk mitigation 2014

BASEL: EXPOSURE AND MITIGATIONBY ASSET CLASS (Rbn)

700

600

500

400

300

200

100

Corporate Banks Sovereign Retail

39

BASEL: CREDIT RISK MITIGATION FOR PORTFOLIOS UNDER THE IRB APPROACH

Eligible financial

collateralRm

Othereligible IRB

collateralRm

Guarantees and credit

derivativesRm

Effects of netting

agreements1

Rm

Totalcredit riskmitigation

Rm

Total exposure

Rm

2015Corporate 63 790 78 829 868 23 289 166 776 482 259 Sovereign 14 753 890 494 16 137 131 526 Banks 84 269 71 562 155 831 218 646 Retail exposures 391 210 391 210 536 657

Retail mortgages 331 024 331 024 337 492 QRRE 219 219 97 735 Other retail 59 967 59 967 101 430

Total 162 812 470 929 868 95 345 729 954 1 369 088

2014Corporate 64 600 69 867 6 173 29 773 170 413 431 887 Sovereign 8 031 1 708 4 344 14 083 136 167 Banks 94 386 103 898 198 284 257 628 Retail exposures 374 992 374 992 527 344

Retail mortgages 317 036 317 036 330 941 QRRE 305 305 95 606 Other retail 57 651 57 651 100 797

Total 167 017 446 567 6 173 138 015 757 772 1 353 026

1 Netting is not equivalent to offsetting in terms of IFRS.

BASEL: CREDIT RISK MITIGATION FOR PORTFOLIOS UNDER THE STANDARDISED APPROACH

Eligible financial

collateralRm

Guarantees and credit

derivativesRm

Effects of netting

agreements1

Rm

Totalcredit riskmitigation

Rm

Total exposure

Rm

2015Corporate 18 749 4 602 23 351 176 441 Sovereign 106 362 Banks 36 928Retail 249 249 61 933

Total 18 998 4 602 23 600 381 664

2014 Corporate 12 166 299 9 479 21 944 171 365 Sovereign 2 2 79 925 Banks 251 58 309 26 465 Retail 111 111 59 527

Total 12 530 299 9 537 22 366 337 282

1 Netting is not equivalent to offsetting in terms of IFRS.


Counterparty credit riskThe group is exposed to counterparty credit risk through movements in the fair value of securities financing and derivative contracts. The risk amounts reflect the aggregate replacement costs that would be incurred by the group in the event of counterparties defaulting on their obligations.

The group’s exposure to counterparty credit risk is affected by the nature of the trades, the creditworthiness of the counterparty, and underlying netting and collateral arrangements. Counterparty credit risk is measured in potential future exposure terms and recognised on a net basis where netting agreements are in place and are legally enforceable, or otherwise on a gross basis. Exposures are generally marked-to-market daily. Cash or near cash collateral is posted where contractually provided for.

Counterparty credit risk, reflecting both pre-settlement and settlement risk, is subjected to explicit credit limits which are formulated and approved for each counterparty and economic group, with specific reference to its credit rating and other credit exposures to that counterparty.


The tables that follow detail the group’s exposure to securities financing transactions and derivatives.

BASEL: SECURITIES FINANCING TRANSACTIONS

2015 2014

Rm Rm

ExposureWith master netting agreement 13 173 29 164 Without master netting agreement 134 342 126 234

Total 147 515 155 398

CollateralCash 41 980 32 561 Commodities 5 378 Debt securities 97 113 117 806 Equities 12 186 8 359

Total 151 279 164 104

EAD 6 523 9 250

41

BASEL: DERIVATIVES EXPOSURE

2015 2014

Centrally cleared Centrally cleared

Non-centrally

clearedRm

On behalf of clients

Rm

Total exposure to CCPs

Rm

Non-centrally

clearedRm

On behalf of clients

Rm

Total exposure to CCPs

Rm

Notional principal amount1

Interest rate products 4 956 985 85 192 388 956 4 246 161 61 936 585 838 Forex and gold 1 717 497 3 121 48 732 1 424 311 1 886 12 555 Equities 63 183 138 746 196 287 71 177 150 390 204 320 Precious metals 2 686 64 37 928 52 6 535 Other commodities 8 860 58 066 58 136 137 046 9 923 151 151 Credit derivatives 51 551 131 936

Protection bought 49 216 72 603 Protection sold 2 335 59 333

Total 6 800 762 285 125 692 175 6 048 559 224 187 960 399

Netted current credit exposure after netting benefit Gross positive fair value 101 621 633 4 780 168 495 1 473 13 304

Interest rate products 33 091 44 3 937 35 154 2 4 256 Forex and gold 64 600 21 107 93 473 14 49 Equities 1 891 211 285 1 997 1 370 2 796 Precious metals 173 1 2 291 33 Other commodities 1 268 357 450 33 285 87 6 170 Credit derivatives 598 2 295

Protection bought 560 1 756 Protection sold 38 539

Netting benefits2 (81 651) (385) (489) (148 625) (1 059) (5 021)

Total 19 970 248 4 291 19 870 414 8 283

EAD 33 828 2 800 10 778 59 756 1 263 20 861

CollateralCash 10 817 14 413 Gold 1 Debt securities 2 579 1 937

Total 13 396 16 351

1 Notional principal amount for derivative assets and liabilities.2 Netting is not equivalent to offsetting in terms of IFRS.


The group uses SEs to securitise customer loans and advances that it has originated to diversify its sources of funding for asset origination, for capital efficiency purposes and to reduce risk. In addition, the group plays a secondary role as an investor in certain third party securitisation note issuances (SEs established by third parties).

The following SEs have been established by the group:

• Blue Granite Investments No. 1 (RF) Limited (BG 1)




• Siyakha Fund (RF) Limited (Siyakha)

• Blue Titanium Conduit (RF) Limited (BTC).

SecuritisationSecuritisation is a transaction whereby the credit risk associated with an exposure, or pool of exposures, is tranched, typically through loan notes, and where payments to investors via the loan notes in the transaction are dependent upon the performance of the exposure or pool of exposures.

A traditional securitisation involves the transfer of the exposures being securitised to a structured entity (SE) which issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and the underlying exposures are not removed from the SOFP.


BASEL: ROLES FULFILLED IN SECURITISING ASSETS

Securitisation transactions Originator Investor ServicerLiquidityprovider

Creditenhancement

providerSwap

counterparty

Traditional securitisationsBG 1BG 2BG 3BG 4Siyakha

Asset-backed commercial paper programmeBTC

Third party transactions

BASEL: SECURITISATION TRANSACTIONS

Asset typeYear

initiatedExpected

close

Assets securitised

Rbn

Assets outstanding

Notes outstanding1

Retained exposure1,2

2015 2014 2015 2014 2015 2014

Rbn Rbn Rbn Rbn Rbn Rbn

Traditional securitisations 17,9 7,8 8,9 8,5 9,8 4,5 5,4

BG 13 Retail mortgages 2005 2032 4,6 0,8 1,0 0,9 1,1 0,7 1,0BG 23 Retail mortgages 2006 2041 2,8 1,8 2,0 2,0 2,2 1,1 1,2BG 33 Retail mortgages 2006 2032 3,0 1,4 1,6 1,6 1,8 0,9 1,1BG 43 Retail mortgages 2007 2037 5,1 2,3 2,7 2,5 3,0 0,9 1,2Siyakha4 Retail mortgages 2007 2043 2,4 1,5 1,6 1,5 1,7 0,9 0,9

Asset-backed commercial paper programme BTC4 Various 2002 N/A N/A 3,2 4,1 3,2 4,1 0,2 0,7

Total 17,9 11,0 13,0 11,7 13,9 4,7 6,1

1 Capital plus accrued interest.2 Includes notes, first and second loss subordinated and notes held by BTC.3 Rating agency: Moody’s.4 Rating agency: Fitch.

43

For local securitisations in South Africa, Moody’s Investor Services and/or Fitch act as rating agencies. R3,9 billion of securitisation activities took place during 2015 (2014: R4,6 billion) (relates to the facilitation of the securitisation of third-party assets into an SE that is not consolidated by the group).

The transfer of assets by the group to an SE may give rise to the full or partial derecognition of the financial assets concerned. Only in the event that derecognition is achieved are sales and any resultant gains or losses on disposals recognised in the financial statements. Where the SEs are consolidated at group level, such gains or losses are eliminated.

For originated and sponsored or administered securitisations consolidated under IFRS (that is, BG1 – 4, Siyakha and BTC), intragroup exposures to and between these securitisations have been eliminated and the underlying assets consolidated in the relevant sections and classes (that is, primarily retail mortgages) of the risk disclosure. Only exposures to securitisations of assets originated by third parties are disclosed below. The approach applied in the calculation of risk-weighted assets is dependent on the group’s approved model for the underlying assets and the existence of a rating from an eligible external credit assessment institution. To date, the group has applied the standardised approach, ratings-based approach and standard formula approach, where relevant, in the calculation of risk-weighted assets.

BASEL: SECURITISED ON-BALANCE SHEET EXPOSURES

2015 2014

Retail mortgages

Rm

Retail loans

RmTotal

RmTotal

Rm

Standardised – unrated1 150 150 IRB 703 564 1 267 2 175

Unrated1 269 269 766Investment grade 434 564 998 1 409

Total 703 714 1 417 2 175

1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.

BASEL: SECURITISED OFF-BALANCE SHEET EXPOSURES

2015 2014

Retail mortgages

Rm

Retail loans

RmTotal

RmTotal

Rm

Standardised – unrated1 350 350 500 IRB 3 363 175 3 538 2 229

Unrated1 2 720 2 720 1 438 Investment grade 643 175 818 791

Total 3 363 525 3 888 2 729

1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.


Non-performing loansNon-performing loans are those loans for which:

• the group has identified objective evidence of default, such as a breach of a material loan covenant or condition; or

• instalments are due and unpaid for 90 days or more.

Non-performing but not specifically impaired loans are not specifically impaired due to the expected recoverability of the full carrying value when considering the recoverability of future cash flows, including collateral.

Non-performing specifically impaired loans are those loans that are regarded as non-performing and for which there has been a measurable decrease in estimated future cash flows. Specifically impaired loans are further analysed into the following categories:

• Sub-standard: items that show underlying well-defined weaknesses and are considered to be specifically impaired.

• Doubtful: items that are not yet considered final losses due to some pending factors that may strengthen the quality of the items.

• Loss: items that are considered to be uncollectible in whole or in part. The group provides fully for its anticipated loss, after taking collateral into account.

Credit portfolio characteristics and metrics in terms of IFRSAnalysis of loans and advancesThe tables on the pages that follow analyse the credit quality of loans and advances measured in terms of IFRS.

Maximum exposure to credit riskLoans and advances are analysed and categorised based on credit quality using the following definitions.

Performing loansPerforming loans are classified into two categories, namely:

• Neither past due nor specifically impaired loans: these loans are current and fully compliant with all contractual terms and conditions. Normal monitoring loans within this category are generally rated 1 to 21, and close monitoring loans are generally rated 22 to 25 using the group’s master rating scale.

• Early arrears but not specifically impaired loans: early arrears but not specifically impaired loans include those loans where the counterparty has failed to make contractual payments and payments are less than 90 days past due, but it is expected that the full carrying value will be recovered when considering future cash flows, including collateral. Ultimate loss is unlikely but could occur if the adverse conditions persist.


45

2015 2014

Non-performing but not specifically impaired loans (Rm) 67 30

Specifically impaired loans (Rm) 35 061 30 477

Sub-standard (Rm) 8 105 7 222

Doubtful (Rm) 20 664 18 871

Loss (Rm) 6 292 4 384

2015 2014

Neither past due nor specifically impaired loans (Rm) 1 026 337 885 725

Early arrears but not specifically impaired loans (Rm) 38 582 32 019

Normal monitoring (Rm) 1 008 260 865 486

Close monitoring (Rm) 18 077 20 239

Performing loans

Non-performing loans

LOANS

Portfolio credit impairment

Specific credit impairment


IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY Performing loans Non-performing loans

Neither past due nor specifically impaired Not specifically impaired Specifically impaired loans

Gross advances

totalRm

Normal monitoring

Rm

Close monitoring

Rm

Early arrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLoss

RmTotal

Rm

Securities and

expected recoveries

on specifically

impaired loans

Rm

Net after securities

and expected

recoveries on

specifically impaired

loansRm

Balance sheet

impair-ments

for non-performing specifically

impaired loans

Rm

Gross specific

impairment coverage

%

Total non-

performing loans

Rm

Non-performing

loans%

2015Personal & Business Banking 645 475 564 911 16 396 36 482 6 735 15 890 5 061 27 686 15 921 11 765 11 765 42 27 686 4.3

Mortgage loans 325 867 280 713 8 203 22 163 4 257 10 066 465 14 788 10 896 3 892 3 892 26 14 788 4.5Vehicle and asset finance 80 278 69 825 2 337 5 008 557 1 437 1 114 3 108 1 547 1 561 1 561 50 3 108 3.9Card debtors 31 174 25 757 1 444 1 926 596 481 970 2 047 644 1 403 1 403 69 2 047 6.6Other loans and advances 208 156 188 616 4 412 7 385 1 325 3 906 2 512 7 743 2 834 4 909 4 909 63 7 743 3.7

Personal unsecured lending 56 194 44 883 2 218 4 323 441 3 381 948 4 770 1 265 3 505 3 505 73 4 770 8.5Business lending and other 151 962 143 733 2 194 3 062 884 525 1 564 2 973 1 569 1 404 1 404 47 2 973 2.0

Corporate & Investment Banking 526 333 515 112 1 681 2 100 67 1 370 4 774 1 229 7 373 3 278 4 095 4 095 56 7 440 1.4

Corporate loans 470 283 459 349 1 681 2 100 57 1 310 4 570 1 216 7 096 3 166 3 930 3 930 55 7 153 1.5Commercial property finance 56 050 55 763 10 60 204 13 277 112 165 165 60 287 0.5

Central and other (71 761) (71 763) 2 2 2 2 2

Gross loans and advances 1 100 047 1 008 260 18 077 38 582 67 8 105 20 664 6 292 35 061 19 199 15 862 15 862 45 35 128 3.2

Less:Impairments for loans and advances (22 652)Tutuwa2 loans and advances IFRS adjustment (250)

Net loans and advances 1 077 145

Add the following other banking activities’ exposures:Cash and balances with central banks 75 112 Derivative assets 102 094 Financial investments 157 8553 Trading assets 84 5873 Pledged assets 15 2043 Other financial assets 7 407

Total on-balance sheet exposures 1 519 404

Off-balance sheet exposuresLetters of credit and bankers’ acceptances 11 437 Guarantees 67 161 Irrevocable unutilised facilities 99 255 Commodities and securities lending transactions 2 123

Total exposure to credit risk 1 699 380

1 Includes loans of R56 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.3 Includes exposure to equity instruments as managed under the credit risk governance framework.


47

IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY Performing loans Non-performing loans


Gross advances

totalRm

Normal monitoring

Rm

Close monitoring

Rm

Early arrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLoss

RmTotal

Rm

Securities and

expected recoveries

on specifically

impaired loans

Rm


and expected

recoveries on


loansRm

Balance sheet

impair-ments


impaired loans

Rm

Gross specific

impairment coverage

%

Total non-

performing loans

Rm

Non-performing

loans%



Personal unsecured lending 56 194 44 883 2 218 4 323 441 3 381 948 4 770 1 265 3 505 3 505 73 4 770 8.5Business lending and other 151 962 143 733 2 194 3 062 884 525 1 564 2 973 1 569 1 404 1 404 47 2 973 2.0

Corporate & Investment Banking 526 333 515 112 1 681 2 100 67 1 370 4 774 1 229 7 373 3 278 4 095 4 095 56 7 440 1.4

Corporate loans 470 283 459 349 1 681 2 100 57 1 310 4 570 1 216 7 096 3 166 3 930 3 930 55 7 153 1.5Commercial property finance 56 050 55 763 10 60 204 13 277 112 165 165 60 287 0.5

Central and other (71 761) (71 763) 2 2 2 2 2

Gross loans and advances 1 100 047 1 008 260 18 077 38 582 67 8 105 20 664 6 292 35 061 19 199 15 862 15 862 45 35 128 3.2

Less:Impairments for loans and advances (22 652)Tutuwa2 loans and advances IFRS adjustment (250)

Net loans and advances 1 077 145

Add the following other banking activities’ exposures:Cash and balances with central banks 75 112 Derivative assets 102 094 Financial investments 157 8553 Trading assets 84 5873 Pledged assets 15 2043 Other financial assets 7 407

Total on-balance sheet exposures 1 519 404


Total exposure to credit risk 1 699 380

1 Includes loans of R56 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.3 Includes exposure to equity instruments as managed under the credit risk governance framework.


IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUEDPerforming loans Non-performing loans


Gross advances

totalRm

Normal monitoring

Rm

Close monitoring

Rm

Early arrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLoss

RmTotal

Rm

Securities and

expected recoveries

on specifically

impaired loans

Rm


and expected

recoveries on


loansRm

Balance sheet

impair-ments


impaired loans

Rm

Gross specific

impairment coverage

%

Total non-

performing loans

Rm

Non-performing

loans%



Personal unsecured lending 54 362 43 594 1 943 4 667 454 2 885 819 4 158 1 247 2 911 2 911 70 4 158 7.6Business lending and other 115 868 107 922 2 490 3 137 673 1 126 520 2 319 989 1 330 1 330 57 2 319 2.0

Corporate & Investment Banking 412 717 405 386 185 1 202 30 2 357 2 708 849 5 914 2 771 3 143 3 143 53 5 944 1.4

Corporate loans 365 008 357 977 185 1 201 28 2 192 2 610 815 5 617 2 611 3 006 3 006 54 5 645 1.5Commercial property finance 47 709 47 409 1 2 165 98 34 297 160 137 137 46 299 0.6

Central and other (54 277) (54 279) 2 2 2 2 100 2

Gross loans and advances 948 251 865 486 20 239 32 019 30 7 222 18 871 4 384 30 477 17 085 13 392 13 392 44 30 507 3.2

Loans and advances held for sale 50 026 49 965 61 61 61 61 100 61 0.1

Less:Impairments for loans and advances (18 707) Tutuwa2 loans and advances IFRS adjustment (1 303) Discontinued operations loans and advances (50 026)

Net loans and advances 928 241

Add the following other banking activities’ exposures:Cash and balances with central banks 64 302 Derivative assets 56 382

Financial investments 148 225 Trading assets 70 823 Pledged assets 7 194

Other financial assets 8 508

Total on-balance sheet exposure of continuing operations 1 283 675

Discontinued operation – financial assets 218 900


Total exposure to credit risk 1 671 780 1 Includes loans of R24 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.


49

IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUEDPerforming loans Non-performing loans


Gross advances

totalRm

Normal monitoring

Rm

Close monitoring

Rm

Early arrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLoss

RmTotal

Rm

Securities and

expected recoveries

on specifically

impaired loans

Rm


and expected

recoveries on


loansRm

Balance sheet

impair-ments


impaired loans

Rm

Gross specific

impairment coverage

%

Total non-

performing loans

Rm

Non-performing

loans%



Personal unsecured lending 54 362 43 594 1 943 4 667 454 2 885 819 4 158 1 247 2 911 2 911 70 4 158 7.6Business lending and other 115 868 107 922 2 490 3 137 673 1 126 520 2 319 989 1 330 1 330 57 2 319 2.0

Corporate & Investment Banking 412 717 405 386 185 1 202 30 2 357 2 708 849 5 914 2 771 3 143 3 143 53 5 944 1.4

Corporate loans 365 008 357 977 185 1 201 28 2 192 2 610 815 5 617 2 611 3 006 3 006 54 5 645 1.5Commercial property finance 47 709 47 409 1 2 165 98 34 297 160 137 137 46 299 0.6

Central and other (54 277) (54 279) 2 2 2 2 100 2

Gross loans and advances 948 251 865 486 20 239 32 019 30 7 222 18 871 4 384 30 477 17 085 13 392 13 392 44 30 507 3.2

Loans and advances held for sale 50 026 49 965 61 61 61 61 100 61 0.1

Less:Impairments for loans and advances (18 707) Tutuwa2 loans and advances IFRS adjustment (1 303) Discontinued operations loans and advances (50 026)

Net loans and advances 928 241

Add the following other banking activities’ exposures:Cash and balances with central banks 64 302 Derivative assets 56 382

Financial investments 148 225 Trading assets 70 823 Pledged assets 7 194

Other financial assets 8 508

Total on-balance sheet exposure of continuing operations 1 283 675

Discontinued operation – financial assets 218 900


Total exposure to credit risk 1 671 780 1 Includes loans of R24 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.


IFRS: AGEING OF LOANS AND ADVANCES PAST DUE BUT NOT IMPAIRED

Less than 31 days

Rm

31 to 60 days

Rm

61 to 90 days

Rm

91 to 180 days

Rm

More than 180 days

RmTotal

Rm

2015Personal & Business Banking 22 859 8 820 4 803 36 482

Mortgage loans 13 172 5 818 3 172 22 162 Vehicle and asset finance 3 364 1 135 510 5 009 Card debtors 1 100 488 338 1 926 Other loans and advances 5 223 1 379 783 7 385

Personal unsecured lending 2 946 827 550 4 323 Business term lending and other 2 277 552 233 3 062

Corporate & Investment Banking 915 1 179 6 37 20 2 157

Corporate loans 915 1 179 6 37 20 2 157

Total 23 774 9 999 4 809 37 20 38 639

2014Personal & Business Banking 20 813 6 562 3 442 30 817

Mortgage loans 11 028 4 098 1 870 16 996 Vehicle and asset finance 3 045 823 251 4 119 Card debtors 1 222 433 243 1 898 Other loans and advances 5 518 1 208 1 078 7 804

Personal unsecured lending 3 215 853 599 4 667 Business term lending and other 2 303 355 479 3 137

Corporate & Investment Banking 694 508 24 1 226

Corporate loans 694 507 24 1 225 Commercial property finance 1 1

Total 20 813 7 256 3 950 24 32 043


51

IFRS: INDUSTRY SEGMENTAL ANALYSIS – GROSS LOANS AND ADVANCES

2015 2014

Rm Rm

Agriculture 30 058 25 537 Construction 24 670 24 032 Electricity 13 803 10 970 Finance, real estate and other business services 357 174 224 042 Individuals 439 900 421 343 Manufacturing 56 621 49 358 Mining 43 596 37 038 Transport 21 276 17 217 Wholesale 25 986 68 983 Other services 86 713 68 428

Gross loans and advances 1 099 797 946 948

IFRS: GEOGRAPHIC SEGMENTAL ANALYSIS – GROSS LOANS AND ADVANCES

2015 2014

% Rm % Rm

Segmental analysis – geographical areaSouth Africa 77 843 724 80 759 613Rest of Africa 16 175 092 14 130 525Outside Africa 7 80 981 6 56 810

Gross loans and advances 100 1 099 797 946 948

IFRS: INDUSTRY SEGMENTAL ANALYSIS – SPECIFIC CREDIT IMPAIRMENTS

2015 2014

Rm Rm

Agriculture 409 389Construction 441 555Electricity 377 11Finance, real estate and other business services 905 653Individuals 9 113 7 590Manufacturing 370 386Mining 1 502 866Transport 521 408Wholesale 1 748 691Other services 476 1 843

Total specific credit impairments 15 862 13 392

IFRS: GEOGRAPHIC SEGMENTAL ANALYSIS – SPECIFIC CREDIT IMPAIRMENTS

2015 2014

% Rm % Rm

Segmental analysis – geographical areaSouth Africa 78 12 413 81 10 902Rest of Africa 22 3 448 19 2 475Outside Africa 1 15

Total specific credit impairments 100 15 862 13 392


Collateral includes:

• financial securities that have a tradable market, such as shares and other securities

• physical items, such as property, plant and equipment

• financial guarantees, suretyships and intangible assets.

Netting agreements, which do not qualify for offset under IFRS but which are nevertheless enforceable, are included as part of the group’s collateral for risk management purposes. All exposures are presented before the effect of any impairment provisions. In the retail portfolio, 57% (2014: 56%) is fully collateralised. The R5,7 billion (2014: R4,1 billion) of retail accounts that lie within the 0% to 50% range of collateral coverage mainly comprise accounts which are either in default or legal. The total average collateral coverage for all retail mortgage exposures in the 50% to 100% collateral coverage category is 94% (2014: 90%).

Of the group’s total exposure, 43% (2014: 35%) is unsecured and mainly reflects exposures to well-rated corporate counterparties, bank counterparties and sovereign entities.

The bank does not currently trade commodities that could arise in physical commodity inventory or collateral exposure with the exception of precious metals. In the normal course of its precious metal trading operations the bank does not hold allocated physical metal, however this may occur from time to time. Where this does occur, appropriate risk and business approval is required to ensure that the minimum requirements are satisfied, including but not limited to approval of risk limits and insurance cover.

Renegotiated loans and advancesRenegotiated loans and advances are exposures which have been refinanced, rescheduled, rolled over or otherwise modified following weaknesses in the counterparty’s financial position, and where it has been judged that normal repayment under the revised conditions will likely continue after the restructure. Loans renegotiated in 2014 that would otherwise be past due or impaired comprised R4,3 billion.

Of this amount, R3,4 billion of mortgage loans that would otherwise be past due or impaired were restructured during 2014. During 2015, the group adopted the SARB directive D7/2015 which requires distressed restructures that are in a default or early arrears status to retain such status for a minimum period of six months to ensure that the minimum payment requirements are met. Consequently, the adoption of the directive has resulted in renegotiated loans being reflected as past due or impaired rather than as performing as historically was applied. Accordingly, no disclosure has been provided of loans that were renegotiated in 2015 on a similar basis to that provided for 2014, since such disclosures would not be comparable with one another.

CollateralThe table on the following page shows the financial effect that collateral has on the group’s maximum exposure to credit risk. The table is presented according to Basel asset categories and includes collateral that may not be eligible for recognition under Basel but that management takes into consideration in the management of the group’s exposures to credit risk. All on- and off-balance sheet exposures that are exposed to credit risk, including non-performing loans, have been included.


53

IFRS: COLLATERAL

Total exposure

Rm

Un-secured

RmSecured

Rm

Netting agree-ments

Rm

Secured exposure

after netting

Rm

Collateral coverage – total collateral

1% to 50%

Rm

50% to 100%

Rm

Greater than

100%Rm

2015Corporate 643 631 335 555 308 076 31 493 276 583 65 191 157 033 54 359 Sovereign 218 697 206 603 12 094 900 11 194 1 645 2 162 7 387 Bank 238 090 53 782 184 308 66 383 117 925 28 422 32 227 57 276 Retail 536 193 111 051 425 142 243 424 899 5 687 116 344 302 868

Retail mortgages 334 121 1 262 332 859 332 859 1 126 40 774 290 959 Other retail 202 072 109 789 92 283 243 92 040 4 561 75 570 11 909

Total 1 636 611 706 991 929 620 99 019 830 601 100 945 307 766 421 890

Add: financial assets not exposed to credit risk 85 741 Less: impairments for loans and advances (22 652)Less: unrecognised off-balance sheet items (179 976)Less: IFRS adjustment (320)

Total 1 519 404

Reconciliation to SOFPCash and balances with central banks 75 112 Derivative assets 102 094 Trading assets 84 587 Pledged assets 15 204 Financial investments 157 855 Loans and advances 1 077 145 Other financial assets 7 407

Total 1 519 404


IFRS: COLLATERAL CONTINUED

Total exposure

Rm

Un-secured

RmSecured

Rm

Netting agree-ments

Rm

Secured exposure

after netting

Rm

Collateral coverage – total collateral

1% to 50%

Rm

50% to 100%

Rm

Greater than

100%Rm

2014Corporate 569 940 204 918 365 022 32 155 332 867 89 645 190 129 53 093 Sovereign 189 208 168 104 21 104 3 200 17 904 6 120 11 784 Bank 309 602 69 484 240 118 98 346 141 772 9 724 54 919 77 129 Retail 515 820 111 400 404 420 95 404 325 4 138 113 414 286 773

Retail mortgages 322 949 1 022 321 927 321 927 575 42 081 279 271 Other retail 192 871 110 378 82 493 95 82 398 3 563 71 333 7 502

Total 1 584 570 553 906 1 030 664 133 796 896 868 103 507 364 582 428 779

Add: financial assets not exposed to credit risk 107 301 Less: impairments for loans and advances (18 707)Less: unrecognised off-balance sheet items (169 205)Less: IFRS adjustment (1 384)

Total 1 502 575

Reconciliation to SOFPCash and balances with central banks 64 302 Derivative assets 56 382 Trading assets 70 823 Pledged assets 7 194 Financial investments 148 225 Loans and advances 928 241 Other financial assets 8 508 Discontinued operation – financial assets 218 900

Total 1 502 575


55

The mutual funds into which Liberty and the group have invested are managed by STANLIB Limited, a wholly-owned Liberty subsidiary, and other asset managers as selected and mandated by Liberty from time to time.

Credit exposure to debt instrumentsVarious debt instruments are entered into by Liberty in order to match policyholder liabilities and invest surplus shareholder funds. Liberty is primarily exposed to the creditstanding of the counterparties that issued these instruments in terms of both default and spread risk.

The table on the following page provides information regarding the aggregated credit risk exposure of Liberty to debt instruments categorised by credit ratings, if available, as at 31 December 2015.

INSURANCE OPERATIONS

Consolidated mutual fundsLiberty invests in mutual funds through which it is also exposed to credit risk of the underlying assets in which the mutual funds are invested. Liberty’s exposure to mutual funds is classified at fund level and not at the underlying asset level and, although mutual funds are not rated, fund managers are required to invest in credit assets within the defined parameters stipulated in the fund’s mandate. These rules limit the extent to which fund managers can invest in unlisted and/or unrated credit assets and generally restrict funds to the acquisition of investment grade assets.

Liberty is exposed to counterparty credit risk in respect of investment reinsurance policies, as well as the underlying debt instruments supporting the valuation of the policy.


IFRS: EXPOSURE TO CREDIT RISK1

A- andabove

RmBBB+

RmBBBRm

BBB-Rm BB+ BB

BB- and

belowRm

Notrated

Rm

Pooledfunds

Rm

Totalcarrying

valueRm

2015Debt instruments 10 139 496 39 662 35 883 11 562 5 609 5 664 6 480 25 595 141 090 Investment policies 6 364 17 101 1 574 8 056 Local prepayments, insurance and other

receivables 342 151 13 3 854 4 360 Foreign prepayments, insurance and

other receivables Reinsurance assets 1 181 33 444 1 658 Derivatives and collateral deposits 3 660 894 2 593 4 606 137 11 890 Cash and cash equivalents 5 150 2 579 9 531 47 1 163 833 2 19 305

Total assets bearing credit risk 20 472 1 574 44 834 56 397 11 562 5 673 6 928 13 322 25 597 186 359

Credit exposure allocation estimated attributable to: Shareholders 99 936 Policyholders 61 583 Non-controlling interest and third party liabilities on mutual funds 24 840


Footnotes on the following page.

RISK AND CAPITAL MANAGEMENT REPORT Credit risk Insurance operations continued

57

IFRS: EXPOSURE TO CREDIT RISK1 CONTINUED

A- andabove

RmBBB+

RmBBB

RmBBB-

Rm BB+ BB

BB- andbelow

Rm

Notrated

Rm

Pooledfunds

Rm

Totalcarrying

valueRm

2014Debt instruments 5 184 38 213 28 750 13 390 1 660 5 503 3 928 3 239 18 715 118 582 Investment policies 6 515 1 128 7 643 Local prepayments, insurance and other

receivables 52 9 12 3 87 69 82 2 604 2 918 Foreign prepayments, insurance and

other receivables 8 742 750 Reinsurance assets 61 998 142 138 219 1 558 Derivatives and collateral deposits 1 259 1 644 4 717 102 55 7 777 Cash and cash equivalents 3 255 1 446 6 589 1 305 196 1 194 13 985


Credit exposure allocation estimated attributable to: Shareholders 76 294Policyholders 56 340Non-controlling interest and third party liabilities

on mutual funds 20 579

Total assets bearing credit risk 153 213

1 As reported by Liberty. Refer to Liberty’s annual financial statements.

SIL has indirect exposure to debt instruments through its asset managers. Approximately 20% of SIL’s assets are in a multi-manager fund with a return objective of consumer price index (CPI) plus 3% per annum over three years, of which less than 50% are in debt instruments. The asset manager’s mandate also stipulates capital preservation in any one year. The majority of SIL’s assets are invested in cash or cash equivalent instruments.


ReinsuranceReinsurance is used to manage insurance risk and consequently, in the liability valuation process, reinsurance assets are raised for expected recoveries on projected claims. This does not, however, discharge Liberty’s liability as primary insurer. In addition, reinsurance debtors are raised for specific recoveries on claims recognised.

A detailed credit analysis is conducted prior to the appointment of reinsurers. Cognisance is also taken of the potential future claims on reinsurers in the assessment process. Financial position strength, performance, track record, relative size, ranking within the industry and credit ratings of reinsurers are taken into account when determining the allocation of business to reinsurers. In addition, efforts are made to appropriately diversify exposure by using several reinsurers. A review of these reinsurers is done at least annually.

ImpairmentsLoans, comprising policy loans, are impaired when the amount of the loan exceeds the policyholder’s investment balance. The fair value of loans is R1,1 billion (2014: R1,2 billion). The loans are recoverable through offset against policyholders’ investment balances at policy maturity dates.

The impairment loss is determined on an incurred loss approach as the difference between the instrument’s carrying value and the present value of the asset’s estimated future cash flows, including any recoverable collateral, discounted at the instrument’s original effective interest rate. To provide for latent losses in a portfolio of loans where the loans have not yet been individually identified as impaired, impairment for incurred but not reported losses is recognised based on historic loss patterns and estimated emergence periods.

The table below indicates the impairments raised by Liberty against financial assets. SIL has no recognised impairments.

FINANCIAL ASSETS IMPAIRED

2015 2014

Rm Rm

LoansGross carrying value 1 243 1 360Less: accumulated impairment (33) (33)

Net carrying value 1 210 1 327

RISK AND CAPITAL MANAGEMENT REPORT Credit risk Insurance operations continued

Compliance risk

59

DEFINITION

Compliance risk is the risk of legal or regulatory sanction, financial loss or damage to reputation that the group may suffer as a result of its failure to comply with laws, regulations, codes of conduct and standards of good practice applicable to its financial services activities.

APPROACH TO MANAGING COMPLIANCE RISK

General approachThe compliance function operates independently of business as a second line of defence function, in terms of its mandate. The mandate is approved annually by the GAC and is drawn primarily from regulation 49 of the Banks Act.

The group’s proactive approach to managing compliance risk is standardised across the group and is premised on internationally accepted principles of compliance risk management and supervisory expectations.

Compliance risk management is a core risk management activity overseen by the GCCO. The GCCO has unrestricted access to the group chief executives and to the chairman of the GAC, thereby supporting the function’s independence.

A robust risk management reporting and escalation procedure requires business unit and functional area compliance heads to report on the status of compliance risk management in the group to the GCCO, who escalates significant matters to group management, executive and

independent board committees. These matters relate to key regulatory interaction and legislative developments, as well as significant compliance initiatives, current and developing compliance risks and exposures. The focus on market integrity supports the group code of ethics.

Attention to the group’s technological capability and coverage in all jurisdictions continues to support both regulatory requirements and supervisory expectations.

The relationship with our primary regulator, the SARB, is based on mutual trust with an emphasis on regular and transparent communication.

Approach to conduct riskConduct risk is the risk that detriment is caused to the group’s customers, the markets or the group itself because of inappropriate execution of business activities.

The group’s approach to managing conduct risk is integrated and covers all aspects of market conduct.

Risk management processes and structures for the conduct of business include the groupwide TCF programme and the privacy office, which oversees the protection of personal information. The embedding of a culture of doing the right business the right way focuses on both the compliance culture in the group, and the controls in place to manage and mitigate conduct-related risks. Group programmes focus on placing the customer first and managing interactions with customers to ensure that the service and products they receive are fair, relevant and appropriate to their needs. A dedicated customer resolution centre deals with complaints, and the internal complaints adjudicator is empowered to make findings and award compensation to customers.

The management of conduct risk is integral to the group’s code of ethics.

– Approach to sanctions management 60

– Approach to managing regulatory change 60

– Approach to occupational health and safety 60

Governance 60

Compliance risk

Definition 59

Approach to managing compliance risk 59

– General approach 59

– Approach to conduct risk 59

– Approach to managing money laundering and terrorist financing

60


The group regulatory and legislative oversight committee enhances regulatory risk management by proactively considering the impacts of regulatory developments on the group. The governance structure for regulatory change ensures that clear active board-level sponsorship provides correct ownership and accountability.

Approach to occupational health and safetyAny risks to the health and safety of employees and stakeholders resulting from hazards in the workplace and/or potential exposure to occupational illness are managed by the occupational health and safety team and are supported by executive management accountability structures.

GOVERNANCE

The primary management level governance committee overseeing compliance risk is the group compliance committee. It is chaired by the GCCO and is a subcommittee of GROC. Compliance is also represented on the group management committee which facilitates executive awareness of compliance risk-related matters.

The group compliance committee reports, through the GCCO, to both the GAC and GRCMC.

The principal governance document is the group compliance risk governance standard.

Approach to managing money laundering and terrorist financingLegislation pertaining to money laundering and terrorist financing control imposes significant requirements in terms of customer due diligence, record keeping, staff training and the obligation to detect, prevent and report suspected money laundering and terrorist financing. The group subscribes to the principles of the Financial Action Task Force, an intergovernmental body that develops and promotes policies to combat money laundering and terrorist financing. An integrated systems approach is being followed to support surveillance and reporting responsibilities.

Group minimum standards are implemented throughout the group, taking into account local jurisdictional requirements.

Approach to sanctions managementThe group actively manages the legal, regulatory, reputational and operational risks associated with doing business in jurisdictions which, or with customers who, are subject to embargoes or sanctions imposed by competent authorities. Sanctions surveillance capability has been enhanced to manage sanctions alerts and the staff complement has been increased to meet supervisory expectations. The group sanctions review committee, supported by a sanctions desk, is responsible for providing advice on all sanctions-related matters in a fluid sanctions environment.

Approach to managing regulatory changeThe group operates in a highly regulated industry across multiple jurisdictions and is increasingly subject to international legislation with extra-territorial reach.

The group aims to embed regulatory best-practice in its operations in a way that balances the interests of various stakeholders, while supporting the long-term stability and growth in the markets where the group has a presence.

The group’s regulatory advocacy and regulatory impact and strategy units assess the impact that emerging policy and regulation will have on the business. The group’s approach to regulatory advocacy is to engage with government policymakers, legislators, regulators and standard and policy setters in a proactive and constructive manner. The businesses impacted by new regulatory developments identify business model changes that will ensure the most efficient and effective approach to adoption and continued excellence in customer service. An integrated regulatory change management strategy ensures agility in a dynamic business and regulatory environment across multiple jurisdictions.

RISK AND CAPITAL MANAGEMENT REPORT Compliance risk Approach to managing compliance risk continued

Country risk

61

DEFINITION

Country risk, also referred to as cross-border country risk, is the uncertainty that obligors (including the relevant sovereign, and including the obligations of group branches and subsidiaries in a country) will be able to fulfil obligations to the group given political or economic conditions in the host country.

APPROACH TO MANAGING COUNTRY RISK

All countries to which the group is exposed are reviewed at least annually. Internal rating models are employed to determine ratings for country, sovereign and transfer and convertibility risk. In determining the ratings, extensive use is made of the group’s network of operations, country visits and external information sources. These ratings are also a key input into the group’s credit rating models.

The model inputs are continuously updated to reflect economic and political changes in countries. The model outputs are internal risk grades that are calibrated to a country risk grade (CR) from CR01 to CR25, as well as sovereign risk grade and transfer and convertibility risk grade (SB) from SB01 to SB25. Countries rated CR08 and higher, referred to as medium- and high-risk countries, are subject to increased analysis and monitoring.

Country risk is mitigated through a number of methods, including:

• political and commercial risk insurance

• co-financing with multilateral institutions

• structures to mitigate transferability and convertibility risk such as collection, collateral and margining deposits outside the jurisdiction in question.

GOVERNANCE

The primary management level governance committee overseeing this risk type is the group country risk management committee. It is chaired by the group CRO and is a subcommittee of GROC.

The principal governance document is the country risk governance standard.

APPROVED REGULATORY CAPITAL APPROACHES

There are no regulatory capital requirements for country risk. Country risk is, however, incorporated into regulatory capital for credit in the IRB approaches through the country risk and transfer and convertibility risk ratings’ impact on credit grades.

Approved regulatory capital approaches 61

Country risk portfolio characteristics and metrics 62

Country risk

Definition 61

Approach to managing country risk 61

Governance 61


COUNTRY RISK PORTFOLIO CHARACTERISTICS AND METRICS

The risk distribution of cross-border country risk exposures is weighted towards European and North American low-risk countries, as well as sub-Saharan African medium- and high-risk countries.

COUNTRY RISK EXPOSURE BY REGION AND RISK GRADE

Europe%

Asia%

North America

%

Sub-Saharan

Africa%

Latin America

%

Middle East and

North Africa%

Australasia% Total

2015Risk gradeCR01 – CR07 22.1 1.5 11.1 0.1 0.4 2.2 40.6 CR08 – CR11 0.1 13.5 5.7 3.1 0.9 23.0 CR12 – CR14 1.2 2.1 0.1 1.6 CR15 – CR17 24.3 0.7 23.5 CR18 – CR21 0.5 8.8 10.8 CR22+ 1.7 0.5

Total 25.3 15.0 12.1 39.5 3.9 1.6 2.6 100

Risk gradeCR01 – CR07 22.4 5.7 7.5 0.3 0.5 1.4 40.2 CR08 – CR11 1.0 14.4 5.4 2.7 2.3 19.1 CR12 – CR14 3.6 0.1 7.6 0.3 10.3 CR15 – CR17 0.2 0.4 20.9 0.6 27.4 CR18 – CR21 0.1 1.8 0.1 2.9 CR22+ 0.7 0.1

Total 29.6 11.2 7.1 44.3 3.8 1.7 2.3 100

Total medium- and high-risk country risk exposures and total low-risk country risk exposures for 2015 amounted to USD12 billion and USD7 billion, respectively (2014: USD17 billion and USD10 billion, respectively).

¢ Europe ¢ Asia ¢ Sub-Saharan Africa ¢ Latin America ¢ Middle East and North Africa

MEDIUM- AND HIGH-RISK COUNTRY EXPOSURE BY REGION (%)

25

20

15

10

5

CR08 – CR11 CR12 – CR14 CR15 – CR17 CR18 – CR21 CR22+

RISK AND CAPITAL MANAGEMENT REPORT Country risk continued

63

Exposure to the top five medium- and high-risk countries is shown together with comparatives in the graph below. These exposures are in line with the group’s growth strategy focused on Africa and selected emerging markets.

TOP FIVE MEDIUM- AND HIGH-RISKCOUNTRY RISK EAD (USDm)

3 500

3 000

2 500

2 000

1 500

1 000

500

¢ 2015 ¢ 2014

China Nigeria Kenya Ghana Zambia

CR08

MEDIUM- AND HIGH-RISK COUNTRY EAD CONCENTRATION BY COUNTRY RATING (%)

25

20

15

10

5

¢ 2015 ¢ 2014

CR09 CR10 CR11 CR12 CR13 CR14 CR15 CR16 CR17 CR18 CR19 CR20 CR21 CR22+


DEFINITION

Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms.

BANKING OPERATIONS

The group’s liquidity risk framework is designed to ensure the comprehensive management of liquidity risks within the group in all geographies and that regulatory, prudential, as well as internal minimum requirements are met at all times. This is achieved through a combination of maintaining adequate liquidity buffers to ensure that cash flow requirements can be met and ensuring that the group’s SOFP is structurally sound and supportive of the group’s strategy. Liquidity risk is managed on a consistent basis across the group’s banking subsidiaries, allowing for local requirements.

Information relating to the year ended 31 December 2015 is based on Basel III principles, including behavioural profiling methods and assumptions, as well as phasing-in requirements where applicable.

Approach to managing liquidity riskThe nature of the group’s banking and trading activities gives rise to continuous exposure to liquidity risk. Liquidity risk arises when the group, despite being solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations as they fall due, or can only do so at materially disadvantageous terms. This type of event may arise where counterparties, who provide the group with short-term funding, withdraw or do not roll over that funding, or normally liquid assets become illiquid as a result of a generalised disruption in asset markets.

The group manages liquidity in accordance with applicable regulations and within the group’s risk appetite framework. The group’s liquidity risk management governance framework supports the measurement and management of liquidity across both the corporate and retail sectors to ensure that payment obligations can be met by the group’s legal entities, under both normal and stressed conditions. Liquidity risk management ensures that the group has the appropriate amount, diversification and tenor of funding and liquidity to support its asset base at all times.

– The group’s credit ratings 71

– Conduits 72


– Long-term insurance 72

– Short-term insurance 74

Funding and liquidity risk

Definition 64


– Approach to managing liquidity risk 64

– Governance 66

– Liquidity characteristics and metrics 66

65

The group manages liquidity risk as three interrelated pillars, which are aligned to Basel III liquidity requirements.

LIQUIDITY MANAGEMENT CATEGORIES

manage intra-day liquidity positions

monitor interbank and repo shortage levels

monitor daily cash flow requirements

manage short-term cash flows

manage daily foreign currency liquidity

set deposit rates in accordance with structural and contingent liquidity requirements as informed by ALCO.

TACTICAL (SHORTER-TERM)LIQUIDITY RISK MANAGEMENT

ensure a structurally sound SOFP

identify and manage structural liquidity mismatches

determine and apply behavioural profiling

manage long-term cash flows

preserve a diversified funding base

inform term funding requirements

assess foreign currency liquidity exposures

establish liquidity risk appetite

ensure appropriate transfer pricing of liquidity costs

ensure Basel III NSFR readiness by 1 January 2018.

STRUCTURAL (LONG-TERM) LIQUIDITY RISK MANAGEMENT

monitor and manage early warning liquidity indicators

establish and maintain contingency funding plans

undertake regular liquidity stress testing and scenario analysis

convene liquidity crisis management committees, if needed

set liquidity buffer levels in accordance with anticipated stress events

advise on the diversification of liquidity buffer portfolios

ensure compliance with Basel III LCR.

CONTINGENCY LIQUIDITYRISK MANAGEMENT

The LCR, which was implemented on 1 January 2015, is a metric introduced by the BCBS to measure a bank’s ability to manage a sustained outflow of customer funds in an acute stress event over a 30-day period. The ratio is calculated by taking the group’s high-quality liquid assets (HQLA) and dividing it by net cash outflows. The minimum regulatory LCR requirement for 2015 is 60%, increasing by 10% annually to reach 100% by 1 January 2019.

The group has exceeded the 60% minimum phase-in requirement for 2015.

From 2018, the group will also be required to comply with the Basel III NSFR. This is a metric designed to ensure that the

majority of term assets are funded by stable sources, such as capital, term borrowings or other stable funds.

The group continues to evaluate the funding impact relating to the Basel III NSFR. Towards the latter part of 2015, the SARB issued a draft directive whereby it is suggested that the funding received from financial corporates maturing within six months receive an available stable funding factor of 35%. The group, together with the local banking industry, continue to engage with BASA and the SARB to explore alternate market-based solutions to ensure that the NSFR framework aligns to local industry conditions and requirements.

BASEL III IMPLEMENTATION TIMELINE

2013 2014 2015 2016 2017 2018 2019

Liq

uid

ity

Bank disclosure

starts

60% minimum standard



90% minimum standard 100%

Bank disclosure

starts 100% 100%

LCR

NSFRLiq

uid

ity


RISK AND CAPITAL MANAGEMENT REPORT Funding and liquidity risk Banking operations continued

Liquidity stress testing and scenario analysisStress testing and scenario analysis are based on both hypothetical, as well as historical events. These are conducted on the group’s funding profiles and liquidity positions. The crisis impact is typically measured over a 30 calendar day period as this is considered the most crucial time horizon for a liquidity event. This measurement period is also consistent with the Basel III LCR requirements.

Anticipated on- and off-balance sheet cash flows are subjected to a variety of bank-specific and systemic stresses and scenarios to evaluate the impact of unlikely but plausible events on liquidity positions. The results are assessed against the liquidity buffer and contingency funding plans to provide assurance as to the group’s ability to maintain sufficient liquidity under adverse conditions.

Internal stress testing metrics are supplemented with the regulatory Basel III LCR in monitoring the group’s ability to survive severe stress scenarios.

The Basel III LCR analysis that follows includes banking and/or deposit taking entities and represents an aggregation of the relevant individual net cash outflows and HQLA portfolios. These results reflect the simple average of the month-end values at 31 October 2015, 30 November 2015 and 31 December 2015, based on the regulatory submissions to the SARB.

GovernanceThe primary governance committee overseeing liquidity risk is the group ALCO, which is chaired by the group financial director and is a subcommittee of GROC. ALCOs have been established in each of the banking subsidiaries of the group and manage in-country liquidity risk.

The principal governance documents are the liquidity risk governance standard and model risk governance framework.

Liquidity characteristics and metricsContingency liquidity risk managementContingency funding plansContingency funding plans are designed to protect stakeholder interests and maintain market confidence in the event of a liquidity crisis. The plans incorporate an early warning indicator process supported by clear crisis response strategies. Early warning indicators cover bank-specific and systemic crises and are monitored according to assigned frequencies and tolerance levels.

Crisis response strategies are formulated for the relevant crisis management structures and address internal and external communications and escalation processes, liquidity generation management actions and operations, and heightened and supplementary information requirements to address the crisis event. The updating of contingency funding plans while considering budget forecasting continues to be a focus for the asset liability management teams across the group.

The group, in line with the SARB’s requirements, updates and submits its recovery and resolution plans to the SARB on an annual basis. The group’s recovery plan incorporates the contingent liquidity funding plan in addition to the focus given to capital planning and business continuity planning.

67

LCR (AVERAGE)Total

unweighted1

value (average)

Rm

Total weighted2

value (average)

Rm

HQLA Total HQLA 160 476Cash outflows 1 097 962 319 939

Retail deposits and deposits from small business customers, of which: 338 202 29 434

Stable deposits 43 862 Less stable deposits 294 340 29 434

Unsecured wholesale funding, of which: 488 888 247 249

Operational deposits (all counterparties) and deposits in networks of cooperative banks 144 786 41 626 Non-operational deposits (all counterparties) 343 274 204 795 Unsecured debt 828 828

Secured wholesale funding 12 789 Additional requirements 94 386 19 821

Outflows related to derivative exposures and other collateral requirements 9 405 8 324 Outflows related to loss of funding on debt products 2 694 2 694 Credit and liquidity facilities 82 287 8 803

Other contractual funding obligations 3 625 3 625 Other contingent funding obligations 172 861 7 021

Cash inflows 190 561 148 692

Secured lending 32 150 28 556 Inflows from fully performing exposures 140 435 110 422 Other cash inflows 17 976 9 714

Totaladjusted

value3 Rm

Total HQLA 160 476

Total net cash outflows 171 247

LCR (%) 93.7%

1 Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows).2 Total weighted value is calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).3 Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates, and (ii) any applicable caps (i.e. cap on level 2B and level 2

assets for HQLA and cap on inflows).

The group seeks to exceed the minimum LCR requirement with a sufficient buffer to allow for funding flow volatility as determined by its internal liquidity risk appetite. A buffer is maintained above the minimum regulatory requirement to cater for balance sheet and market volatility.

Total contingent liquidityPortfolios of highly marketable liquid securities to meet prudential, regulatory and internal stress testing requirements are maintained as protection against unforeseen disruptions in cash flows.

These portfolios are managed within ALCO-defined limits on the basis of diversification and liquidity.

The table on the following page provides a breakdown of the group’s liquid and marketable securities for 2015 and 2014. Eligible Basel III LCR HQLA are defined according to the BCBS January 2013 LCR and liquidity risk monitoring tools framework. Managed liquidity represents unencumbered marketable securities other than eligible Basel III LCR HQLA (excluding trading assets) which would be able to provide significant sources of liquidity in a stress scenario.


The behaviourally adjusted cumulative liquidity mismatch remains within the group’s liquidity risk appetite.

While following a consistent approach to liquidity risk management in respect of the foreign currency component of the SOFP, specific indicators are observed in order to monitor changes in market liquidity, as well as the impacts on liquidity as a result of movements in exchange rates.

BEHAVIOURALLY ADJUSTED CUMULATIVELIQUIDITY MISMATCH1 (%)

10

5

0

(5)

(10)

(15)

(20)0 – 7days

0 – 1month

0 – 3months

0 – 6months

0 – 12months

¢ 2015 ¢ 2014 � Internal limit

1 % of funding-related liabilities.

Maturity analysis of financial liabilities by contractual maturityThe table on the following page analyses cash flows on a contractual, undiscounted basis based on the earliest date on which the group can be required to pay (except for trading liabilities and derivative liabilities, which are presented as redeemable on demand) and will, therefore, not agree directly to the balances disclosed in the consolidated SOFP.

Derivative liabilities are included in the maturity analysis on a contractual, undiscounted basis when contractual maturities are essential for an understanding of the derivatives’ future cash flows. Management considers only contractual maturities to be essential for understanding the future cash flows of derivative liabilities that are designated as hedging instruments in effective hedge accounting relationships. All other derivative liabilities, together with trading liabilities are treated as trading and are included at fair value in the redeemable on demand bucket since these positions are typically held for short periods of time.

The table also includes contractual cash flows with respect to off-balance sheet items which have not yet been recorded on-balance sheet. Where cash flows are exchanged simultaneously, the net amounts have been reflected.

TOTAL CONTINGENT LIQUIDITY

2015 20142

Rbn Rbn

Eligible LCR HQLA1 comprising: 158,2 174,2

Notes and coins 19,7 19,0Cash and deposits with central banks 33,1 45,7Government bonds and bills 99,7 97,7Other eligible assets 5,7 11,8

Managed liquidity 142,6 113,7

Total contingent liquidity 300,8 287,9

Total contingent liquidity as a % of funding-related liabilities 24.5 24.8

1 Eligible LCR HQLA considers any liquidity transfer restrictions that will inhibit the transfer of HQLA across jurisdictions.

2 Restated. Refer to page 103.

Liquid assets held remain adequate to meet all internal stress testing, prudential and regulatory requirements.

Structural liquidity mismatchMaturity analysis of financial liabilities using behavioural profilingWith actual cash flows typically varying significantly from the contractual position, behavioural profiling is applied to assets, liabilities and off-balance sheet commitments, as well as to certain liquid assets. Behavioural profiling assigns probable maturities based on historical customer behaviour. This is used to identify significant additional sources of structural liquidity in the form of core deposits, such as current and savings accounts, which exhibit stable behaviour despite being repayable on demand or at short notice.

In order to highlight potential risks within the group’s defined liquidity risk thresholds, structural liquidity mismatch analyses are performed regularly to anticipate the mismatch between payment profiles of SOFP items.

The graph alongside shows the group’s cumulative maturity mismatch between assets and liabilities for the 0 to 12 months bucket, after applying behavioural profiling. The cumulative maturity is expressed as a percentage of the group’s total funding-related liabilities.

Expected aggregate cash outflows are subtracted from expected aggregate cash inflows. Guidelines are set internally to restrict the cumulative liquidity mismatch between expected inflows and outflows of funds in different time buckets. These mismatches are monitored on a regular basis with active management intervention if potential limit breaches are evidenced. Liquidity transfer restrictions across the group are considered as part of the prudent liquidity risk management assumptions that are followed.


69

MATURITY ANALYSIS OF FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

Redeemable on demand

Rm

Maturing within

1 monthRm

Maturing between

1 – 6 months

Rm

Maturing between

6 – 12 months

Rm

Maturing after

12 monthsRm

TotalRm

2015Financial liabilitiesDerivative financial instruments 120 232 298 546 1 081 375 122 532

Instruments settled on a net basis 75 592 304 591 1 084 375 77 946Instruments settled on a gross basis 44 640 (6) (45) (3) 44 586

Trading liabilities 43 809 43 809 Deposit and debt funding 741 207 101 521 151 105 71 810 150 957 1 216 600 Subordinated debt 50 51 720 4 118 21 277 26 216 Other 19 096 19 096

Total 905 298 120 966 152 371 77 009 172 609 1 428 253

Unrecognised financial instrumentsLetters of credit and bankers’ acceptances 11 437 11 437 Guarantees 67 161 67 161 Irrevocable unutilised facilities 99 255 99 255 Commodities and securities borrowing transactions

Total 177 853 177 853

2014Financial liabilitiesDerivative financial instruments 65 718 115 174 3 349 66 359

Instruments settled on a net basis 43 021 132 81 3 322 43 559 Instruments settled on a gross basis 22 697 (17) 93 27 22 800

Trading liabilities 46 033 46 033 Deposit and debt funding 643 557 109 465 114 090 62 352 145 533 1 074 997 Subordinated debt 459 40 3 675 738 25 285 30 197 Other 14 855 14 855

Total 755 767 124 475 117 939 63 093 171 167 1 232 441

Unrecognised financial instrumentsLetters of credit and bankers’ acceptances 16 162 16 162 Guarantees 53 365 53 365 Irrevocable unutilised facilities 80 881 80 881 Commodities and securities borrowing transactions 5 757 179 422 28 6 386

Total 156 165 179 422 28 156 794


FUNDING-RELATED LIABILITIES COMPOSITION1

2015 2014

Rbn Rbn

Corporate funding 401 351Retail deposits2 330 268Institutional funding 208 233Deposits from banks 95 71Non-current funding-related liabilities held for sale 74Government and parastatals 71 69Senior debt 49 42Term loan funding 42 27Subordinated debt issued 24 23Other liabilities to the public 6 3

Total funding-related liabilities 1 226 1 161

1 Composition aligned to Basel III liquidity classification.2 Comprises individual and small business customers.

Concentration risk limits are used within the group to ensure that funding diversification is maintained across products, sectors, geographic regions and counterparties.

DEPOSITOR CONCENTRATION

2015 2014

% %

Single depositor 1.5 1.9Top ten depositors 8.4 8.1

A component of the group’s funding strategy is to ensure that sufficient contractual term funding is raised in support of term lending and to ensure adherence to the structural mismatch tolerance limits and appetite guidelines.

The group successfully accessed the longer-term funding market during 2015 raising R32,1 billion (2014: R32,2 billion) in the form of senior and subordinated debt, as well as syndicated loans. SBSA issued R3,6 billion Basel III compliant tier II capital instruments in 2015 (2014: R2,3 billion).

Funding activitiesFunding markets are evaluated on an ongoing basis to ensure appropriate group funding strategies are executed depending on the market, competitive and regulatory environment. The group continued to focus on building its deposit base as a key component of the group’s funding mix. Deposits sourced from South Africa and other major jurisdictions in the rest of Africa, Isle of Man and Jersey provide diversity of stable sources of funding for the group.

Primary funding sources are in the form of deposits across a spectrum of retail and wholesale clients, as well as loan and debt capital markets across the group. Total funding-related liabilities grew from R1 161 billion in 2014 to R1 226 billion in 2015.

FUNDING DIVERSIFICATION BY PRODUCT (%)

2015 2014

Call deposits 24 22

Term deposits 20 21

Current accounts 17 16

Cash management deposits 11 11

Deposits from banks and central banks 11 10

Negotiable certificates of deposits 9 8

Senior and subordinated debt 6 6

Other funding 4

Savings accounts 2 2


71

The graph below is a representation of the market cost of liquidity, which is measured as the spread paid on the negotiable certificates of deposits (NCDs) relative to the prevailing swap curve for that tenor. The graph is based on actively-issued money market instruments by banks, namely 12- and 60-month NCDs. For the period under review, increased volatility was noted in liquidity spreads across both short- and long-term funding tenors. Market demand for term liquidity, impacted by changes in bank liquidity regulation and market risk sentiment, was a key driver of liquidity spreads.

12- AND 60-MONTH LIQUIDITY SPREAD (bps)

140

120

100

80

60

40

20

December2012

December2013

December2014

December2015

12-month NCD 60-month NCD

December2011

The group’s credit ratingsThe group’s ability to access funding at cost-effective levels is dependent on maintaining or improving the borrowing entity’s credit rating.

The following table provides a summary of the major credit ratings for the group and its principal operating subsidiary, SBSA.

CREDIT RATINGS

Long-term Fitch

Group foreign currency issuer default rating BBB-SBSA foreign currency issuer default rating BBB-RSA sovereign foreign currency issuer default rating BBB-

Moody’s

Group foreign currency issuer rating Baa3SBSA foreign currency deposit rating Baa2RSA sovereign foreign currency rating Baa2

Credit ratings for SBSA are dependent on multiple factors, including the South African sovereign rating, capital adequacy levels, quality of earnings, credit exposure, the credit risk governance framework and funding diversification. These parameters and their possible impact on the borrowing entity’s credit rating are monitored closely and incorporated into the group’s liquidity risk management and contingency planning considerations.

A downgrade in these ratings could have an adverse effect on the group’s access to liquidity sources and funding costs, may trigger collateral calls or lead to the activation of downgrade clauses and early termination associated with certain structured deposits. The group is implementing plans to mitigate the impact that a potential sovereign ratings downgrade could have on the group’s liquidity position and accompanying funding costs. Notwithstanding this mitigation, a ratings downgrade would likely have a meaningful impact on the cost and availability of foreign currency funding for the group.

Rating downgrades will reduce thresholds above which collateral must be posted with counterparties to cover the group’s negative mark-to-market on derivative contracts. These are managed within the liquidity management pillar. The potential cumulative impact on additional collateral requirements is as follows:

1, 2 AND 3 NOTCH RATING DOWNGRADES

2015 2014

Rm Rm

Impact on the group’s liquidity of a collateral call linked to downgrade by:1 notch 165 2962 notch 331 7243 notch 331 781


Liquidity profile of assetsGiven the quantum of investments held and managed by Liberty relative to the volumes of trading within the relevant exchanges and counterparty transactions, a substantial short-term liquidation may result in current values not being realised due to demand/supply principles. Furthermore, Liberty has consciously invested in certain illiquid asset classes, such as direct property and unlisted credit, in order to better duration match the long-term liabilities on its books, as well as for diversification and return enhancement purposes.

Certain of these asset classes are available for investment by policyholders. To the extent that Liberty’s liability profile changes or policyholders chose to disinvest in these asset classes, Liberty may choose to use its own balance sheet, through the shareholder investment portfolio, to avoid the need to sell these illiquid assets under pressure. Accordingly, Liberty’s risk management function ensures that Liberty retains a conservative liquid asset coverage ratio backed by investments in high quality liquid assets.

Maturity profiles of financial instrument liabilities in long-term insurance operationsThe table on the right summarises the maturity profile of the financial instrument liabilities, excluding policyholder liabilities, in the long-term insurance operations on the remaining undiscounted contractual obligations. This will, therefore, not equal the balances disclosed in the consolidated SOFP.

ConduitsThe group provides standby liquidity facilities to two conduits, namely BTC and Thekwini Warehouse Conduit. These facilities, which totalled R5,7 billion in 2015 (2014: R4,9 billion), had not been drawn on.

The liquidity risk associated with these facilities is managed in accordance with the group’s overall liquidity position and represents less than 2% of the group’s total liquidity (2014: 2%). The liquidity facilities are included in both the group’s structural liquidity mismatch, as well as in liquidity risk stress testing.


The principal risk relating to long-term insurance operations is a function of policyholder behaviour. For short-term insurance operations it is a function of the variation in actual claims and expenses from expected claims and expenses. Liquidity requirements are monitored on an ongoing basis as part of normal operating activities and formally reviewed on a monthly basis.

Long-term insurance

FINANCIAL, PROPERTY AND INSURANCE ASSET LIQUIDITY1

2015 2014

% Rm % Rm

Liquid2 80 331 645 78 289 173Medium3 12 49 879 14 52 589Illiquid4 8 34 979 8 31 305

100 416 503 100 373 067

1 As reported by Liberty. Refer to Liberty’s annual financial statements.2 Liquid assets are those that are considered to be realisable within

one month (for example, cash, listed equities and term deposits).3 Medium assets are those that are considered to be realisable within

six months (for example, unlisted equities and certain unlisted term deposits).

4 Illiquid assets are those that are considered to be realisable in excess of six months (for example, investment properties).


73

MATURITY PROFILE OF FINANCIAL INSTRUMENT LIABILITIES – CONTRACTUAL CASH FLOWS1 0 – 3

months2

Rm

4 – 12months

Rm

1 – 5years

Rm

6 – 10years

RmVariable

RmTotal

Rm

2015Subordinated notes3 96 194 3 739 546 4 575 Senior secured term facility at fair value 6 20 414 440 Redeemable preference shares3,4 5 5 Third party financial liabilities arising on consolidation of mutual funds 46 329 46 329 Repurchase agreements liabilities 8 384 680 1 175 10 239 Collateral deposits received 5 920 5 920 Insurance and other payables 9 567 399 72 3 10 041

Total 70 302 1 293 5 400 549 5 77 549

2014Subordinated notes3 95 154 2 884 1 678 4 811 Redeemable preference shares3,4 5 5 Third party financial liabilities arising on consolidation of mutual funds 34 501 34 501 Repurchase agreements’ liabilities 1 945 572 2 517 Collateral deposits received 2 674 2 674 Insurance and other payables 8 484 539 37 9 060

Total 47 699 693 3 493 1 678 5 53 568

1 As reported by Liberty. Refer to Liberty’s annual financial statements.2 0 – 3 months are either due within the timeframe or are payable on demand.3 Contractual cash flows are at amortised cost.4 No fixed maturity date, however redeemable with a two-year notice period at the instance of the company or the holder.

Policyholders’ liabilities under investment contracts, investment contracts with discretionary participation features (DPFs) and insurance contracts are managed according to expected and not contractual cash flows, and hence are reflected on the table on page 74.

Liquidity risks arising from long-term insurance obligations to policyholdersThe tables that follow provide an indication of liquidity needs in respect of cash flows required to meet obligations arising under insurance contracts, investment contracts with DPF and investment contracts.

All the cash flows are shown gross of reinsurance. Undiscounted cash flows are shown and the effect of discounting is taken into account to reconcile to total policyholder liabilities under insurance contracts, investment contracts and investment contracts with DPF in the SOFP.


RISK AND CAPITAL MANAGEMENT REPORT Funding and liquidity risk Insurance operations continued

EXPECTED CASH FLOWS – INVESTMENT AND INSURANCE CONTRACTS1

Within 1 year

Rm

1 – 5 years

Rm

6 – 10 years

Rm

11 – 20 years

Rm

Over 20 years

Rm

Effect of dis-

counting cash flows

RmTotal

Rm

2015Investment contracts 4 172 8 261 9 276 18 053 50 212 (1 515) 88 459 Investment contracts with DPF 276 (158) 974 2 912 7 246 11 250 Insurance contracts 17 042 72 489 21 988 65 111 157 392 (135 499) 198 523

Total 21 490 80 592 32 238 86 076 214 850 (137 014) 298 232

2014Investment contracts 5 201 11 790 10 209 20 949 35 378 (1 544) 81 983 Investment contracts with DPF 382 330 1 262 2 928 5 275 10 177 Insurance contracts 15 880 72 780 22 261 63 597 98 215 (77 377) 195 356

Total 21 463 84 900 33 732 87 474 138 868 (78 921) 287 516


The table below shows the cash surrender value for long-term insurance policyholders’ liabilities.

CASH SURRENDER VALUE FOR POLICYHOLDERS’ LIABILITIES1

2015 2014

Carryingvalue

Rm

Surrendervalue

Rm

Carryingvalue

Rm

Surrendervalue

Rm

Investment contracts 88 459 87 489 81 983 81 155 Investment contracts with DPF 11 250 11 073 10 177 9 621 Insurance contracts 198 523 172 310 195 356 164 767

Total long-term policyholders’ liabilities 298 232 270 872 287 516 255 543


The amount payable on surrender, of contracts which provide a surrender value is closely related to the carrying value. For the majority of unit-linked contracts the surrender value adjusts to the respective realisation values as surrender instructions are executed. Therefore the impact of market risk adjustments on surrender lies largely with the policyholder.

Liquidity requirements associated with issuance of subordinated debtThe FSB’s approval of Liberty Group Limited’s issuance of subordinated debt, namely R3,5 billion capital bonds, includes a requirement to hold qualifying liquid assets in a manner prescribed by the FSB. For 2015 and 2014, this requirement has been met and attested to by the statutory actuary of Liberty Group Limited.

Short-term insuranceThe investments of SIL are made considering the nature, term and uncertainty of its liabilities. SIL manages its liquidity risk in accordance with its risk appetite statement. This covers monitoring available liquid assets against immediate expenses such as operational expenses, technical provisions for claims outstanding and any outstanding reinsurance premium. SIL also includes the impact of unexpected losses from several catastrophic events in its liquidity risk management. SIL manages liquidity risk on a stand-alone basis such that no reliance is placed on the group to provide contingent funding to the insurance entity.

Market risk

75

DEFINITION

Market risk is the risk of a change in the market value, actual or effective earnings, or future cash flows of a portfolio of financial instruments, including commodities, caused by adverse movements in market variables such as equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of these variables.

The group’s key market risks are:

• trading book market risk

• interest rate risk in the banking book (IRRBB)

• equity risk in the banking book

• foreign currency risk

• own equity-linked transactions

• post-employment obligation risk.

BANKING OPERATIONS

GovernanceThe governance management level committees overseeing market risk are group ALCO, which is chaired by the group financial director, and the group equity risk committee, which is chaired by the CIB CRO. Both are subcommittees of GROC.

The principal governance documents are the market risk governance standard and the model risk governance framework.

Approved regulatory capital approachesThe group has approval from the SARB to adopt the internal models approach for most asset classes and across most market variables in SBSA with the balance on the standardised model.

For material equity portfolios, the group has approval from the SARB to adopt either the market-based or PD/LGD approach.

There are no regulatory capital requirements for IRRBB, structural foreign exchange exposures or own equity-linked transactions.

Trading book market riskDefinitionTrading book market risk is represented by financial instruments, including commodities, held in the trading book, arising out of normal global market’s trading activity.

Approach to managing market risk in the trading bookThe group’s policy is that all trading activities are undertaken within the group’s global markets’ operations.

The market risk functions are independent of the group’s trading operations and are accountable to the relevant legal entity ALCOs. ALCOs have a reporting line into group ALCO, a subcommittee of GROC.

All VaR and SVaR limits require prior approval from the respective entity ALCOs. The market risk functions have the authority to set these limits at a lower level.

Market risk teams are responsible for identifying, measuring, managing, monitoring and reporting market risk as outlined in the market risk governance standard.

– Foreign currency risk 82

– Own equity-linked transactions 83

– Post-employment obligation risk 84


– Long-term insurance 84

– Short-term insurance 90

Market risk

Definition 75


– Governance 75

– Approved regulatory capital approaches 75

– Trading book market risk 75

– Interest rate risk in the banking book 79

– Equity risk in the banking book 81


• VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intra-day exposures

• VaR is unlikely to reflect loss potential on exposures that only arise under significant market moves.

Trading book credit riskCredit issuer risk is assumed in the trading book by virtue of normal trading activity, and managed according to the market risk governance standard. These exposures arise from, inter alia, trading in debt securities issued by corporate and government entities, as well as trading derivative transactions with other banks and corporate clients. The credit spread risk is incorporated into the daily price movements used to compute VaR and SVaR mentioned above.

The VaR models used for credit risk are only intended to capture the risk presented by historical day-to-day market movements, and, therefore, do not take into account instantaneous or jump to default risk. Issuer risk is incorporated in the standardised approach interest rate risk charge for SBSA. The group’s largest single issuer risk exposure is to the South African sovereign with an EAD of R17,7 billion (2014: R12,8 billion).

Stop-loss triggersStop-loss triggers are used to protect the profitability of the trading desks, and are monitored by market risk on a daily basis. The triggers constrain cumulative or daily trading losses through acting as prompt to a review or close-out positions.

Stress testsStress testing provides an indication of the potential losses that could occur under extreme but plausible market conditions, including where longer holding periods may be required to exit positions. Stress tests comprise individual market risk factor testing, combinations of market factors per trading desk and combinations of trading desks using a range of historical, hypothetical and Monte Carlo simulations. Daily losses experienced during 2015 did not exceed the maximum tolerable losses as represented by the group’s stress scenario limits.

BacktestingThe group backtests its VaR models to verify the predictive ability of the VaR calculations and ensure the appropriateness of the models within the inherent limitations of VaR. Backtesting compares the daily hypothetical profit and losses under the one-day buy and hold assumption to the prior day’s calculated VaR. In addition, VaR is tested by changing various model parameters, such as confidence intervals and observation periods to test the effectiveness of hedges and risk-mitigation instruments.

Exposures and excesses are monitored and reported daily. Where breaches in limits and triggers occur, actions are taken by market risk functions to bring exposures back in line with approved market risk appetite, with such breaches being reported to management and entity ALCOs.

MeasurementThe techniques used to measure and control trading book market risk and trading volatility include VaR and SVaR, stop-loss triggers, stress tests, backtesting and specific business unit and product controls.

VaR and SVaRThe group uses the historical VaR and SVaR approach to quantify market risk under normal and stressed conditions.

For risk management purposes VaR is based on 251 days of unweighted recent historical data, a holding period of one day and a confidence level of 95%. The historical VaR results are calculated in four steps:

• calculate 250 daily market price movements based on 251 days’ historical data

• calculate hypothetical daily profit or loss for each day using these daily market price movements

• aggregate all hypothetical profits or losses for day one across all positions, giving daily hypothetical profit or loss, and then repeat for all other days

• VaR is the 95th percentile selected from the 250 days of daily hypothetical total profit or loss.

Daily losses exceeding the VaR are likely to occur, on average, 13 times in every 250 days.

SVaR uses a similar methodology to VaR, but is based on a period of financial stress and assumes a ten-day holding period and a worst case loss.

Where the group has received internal model approval, the market risk regulatory capital requirement is based on VaR and SVaR, both of which use a confidence level of 99% and a ten-day holding period.

Limitations of historical VaR are acknowledged globally and include:

• the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature

• the use of a one-day holding period assumes that all positions can be liquidated or the risk offset in one day. This will usually not fully reflect the market risk arising at times of severe illiquidity, when a one-day holding period may be insufficient to liquidate or hedge all positions fully

• the use of a 95% confidence level, by definition, does not take into account losses that might occur beyond this level of confidence

RISK AND CAPITAL MANAGEMENT REPORT Market risk Banking operations continued

77

Refer to the graph below for the results of the group’s backtesting for 2015.

Regulators categorise a VaR model as green, amber or red and assign regulatory capital multipliers based on this categorisation. A green model is consistent with a satisfactory VaR model and is achieved for models that have four or less backtesting exceptions in a 12-month period at 99% VaR. All of the group’s approved models were assigned green status for 2015 (2014: green). Seven exceptions occurred during 2015 (2014: 11) for 95% VaR and no exceptions (2014: one) for 99% VaR.

¢ Hypothetical income 95% VaR (including diversification benefits) 99% VaR (including diversification benefits)

BACKTESTING: HYPOTHETICAL PROFIT/LOSS AND VaR1 (Rm)

100

50

0

(50)

(100)

(150)

(200)January 2015 December 2015

1 Includes outside Africa global markets up to 31 January 2015.

Specific business unit and product controlsOther market risk limits and controls specific to individual business units include permissible instruments, concentration of exposures, gap limits, maximum tenor, stop-loss triggers, price validation and balance sheet substantiation.

Trading book portfolio characteristicsVaR for the year under reviewTrading book market risk exposures arise mainly from residual exposures from client transactions and limited trading for the group’s own account. In general, the group’s trading desks have run similar levels of market risk throughout the year when compared to 2014.



TRADING BOOK NORMAL VaR ANALYSIS BY MARKET VARIABLE Normal VaR

Maximum1

RmMinimum1

RmAverage

RmClosing

Rm

2015Commodities risk 16,8 0,1 1,3 0,1 Foreign exchange risk 35,5 12,7 21,0 21,8 Equity position risk 24,8 3,5 9,4 12,1 Debt securities 38,8 16,5 27,3 26,5 Diversification benefits2 (24,1) (23,2)

Aggregate 52,4 23,7 35,0 37,2

2014 Commodities risk 19,8 8,4 13,3 14,2 Foreign exchange risk 18,6 5,3 10,2 17,8 Equity position risk 18,2 2,5 8,6 6,1 Debt securities 55,0 23,6 36,2 27,5 Diversification benefits2 (27,5) (25,6)

Aggregate 52,0 27,9 40,8 40,0

1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different dates.

2 Diversification benefit is the benefit of measuring the VaR of the trading portfolio as a whole, that is, the difference between the sum of the individual VaRs and the VaR of the whole trading portfolio.

TRADING BOOK SVaR ANALYSIS Stressed VaR

MaximumRm

MinimumRm

AverageRm

ClosingRm

2015Pre-diversification 541,6 616,3 Aggregate 516,7 244,9 381,2 440,0

2014 Pre-diversification 722,0 703,1 Aggregate 676,2 286,1 436,9 409,3

79

Analysis of trading profitThe graph below shows the distribution of daily profit and losses for the year. It captures trading volatility and shows the number of days in which the group’s trading-related revenues fell within particular ranges. The distribution is skewed favourably to the profit side.

For 2015, trading profit was positive for 254 out of 260 days (2014: 247 out of 260 days) on an aggregated global basis.

DISTRIBUTION OF DAILY TRADING PROFIT OR LOSS (Rm)

140

120

100

80

60

40

20

¢ 2015 ¢ 2014

<(30) (30) to 0 0 to 30 30 to 60 60 to 90 >90

FRE

QU

EN

CY

OF

DA

YS

Interest rate risk in the banking bookDefinitionThis risk results from the different repricing characteristics of banking book assets and liabilities.

IRRBB is further divided into the following sub-risk types:

• Repricing risk: timing differences in the maturity (fixed rate) and repricing (floating rate) of assets and liabilities.

• Yield curve risk: shifts in the yield curve that have an adverse impact on the group’s income or underlying economic value.

• Basis risk: hedge price not moving in line with the price of the hedged position. Examples include bonds/swap basis, futures/underlying basis and prime/Johannesburg Interbank Agreed Rate (JIBAR) basis.

• Optionality risk: options embedded in bank asset and liability portfolios, providing the holder with the right, but not the obligation, to buy, sell, or in some manner alter the cash flow of an instrument or financial contract.

• Endowment risk: exposure arising from the net differential between interest rate insensitive assets such as non-earning assets and interest rate insensitive liabilities such as non-interest paying liabilities and equity.

Approach to managing IRRBBBanking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (net interest income and banking book mark-to-market profit or loss) and the economic value of equity.

The group’s approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group operates. The group’s treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of group ALCO.

MeasurementThe analytical techniques used to quantify IRRBB include both earnings- and valuation-based measures. The analysis takes into account embedded optionality such as loan prepayments and accounts where the account behaviour differs from the contractual position.

The results obtained from forward-looking dynamic scenario analyses, as well as Monte Carlo simulations, assist in developing optimal hedging strategies on a risk-adjusted return basis.

Desired changes to a particular interest rate risk profile are achieved through the restructuring of on-balance sheet repricing or maturity profiles, or through derivative overlays.


LimitsInterest rate risk limits are set in relation to changes in forecast banking book earnings and the economic value of equity. The economic value of equity sensitivity is calculated as the net present value of aggregate asset cash flows less the net present value of aggregate liability cash flows.

All assets, liabilities and derivative instruments are allocated to gap intervals based on either their repricing or maturity characteristics. Assets and liabilities for which no identifiable contractual repricing or maturity dates exist are allocated to gap intervals based on behavioural profiling.

Hedging of endowment riskIRRBB is predominantly the consequence of endowment exposures, being the net exposure of non-rate sensitive liabilities and equity less non-rate sensitive assets.

The endowment risk is hedged using liquid instruments as and when it is considered opportune. Where permissible, hedge accounting (in terms of IFRS) is adopted using the derivatives designated as hedging instruments. Following meetings of the monetary policy committees, or notable market developments, the interest rate view is formulated through ALCO processes.

Non-endowment IRRBB (repricing, yield curve, basis and optionality) is managed within the treasury and the global markets portfolios.

Banking book interest rate exposure characteristicsThe table below indicates the rand equivalent sensitivity of the group’s banking book earnings (net interest income and banking book mark-to-market profit or loss) and other comprehensive income (OCI) given a parallel yield curve shock. A floor of 0% is applied to all interest rates under the decreasing interest rate scenario resulting in asymmetric rate shocks in low-rate environments. Hedging transactions are taken into account while other variables are kept constant.

Assuming no management intervention, an upward 100 basis point parallel interest rate shock across all foreign currency yield curves and a 200 basis point parallel interest rate shock across rand yield curves would, based on the 31 December 2015 SOFP, increase the forecast 12-month net interest income by R3,3 billion (2014: R2,5 billion).

The group is well positioned for a rising interest rate environment.

INTEREST RATE SENSITIVITY ANALYSIS1

ZAR USD GBP Euro Other Total

2015Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 604 335 5 (25) 383 3 302 Sensitivity of OCI Rm (3) (51) (136) (190)Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 673) (245) (4) (429) (3 351)Sensitivity of OCI Rm 3 32 136 171

2014Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 1 975 217 1 (11) 323 2 505 Sensitivity of OCI Rm 18 (74) (3) (149) (208)Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 170) (103) (1) 1 (349) (2 622)Sensitivity of OCI Rm (18) 19 2 149 152

1 Before tax.


81

Equity risk in the banking bookDefinitionEquity risk is defined as the risk of loss arising from a decline in the value of an equity or equity-type instrument held on the banking book, whether caused by deterioration in the underlying operating asset performance, net asset value (NAV), enterprise value of the issuing entity, or by a decline in the market price of the equity or instrument itself.

Though issuer risk in respect of tradable equity instruments constitutes equity risk, such traded issuer risk is managed under the trading book market risk framework.

Approach to managing equity risk in the banking bookEquity risk relates to all transactions and investments subject to approval by the group ERC, in terms of that committee’s mandate, and includes debt, quasi-debt and other instruments that are considered to be of an equity nature.

For the avoidance of doubt, equity risk in the banking book excludes strategic investments by the group in subsidiaries, associates and joint ventures deployed in delivering the group’s business and service offerings unless the group financial director and group CRO deem such investments to be subject to the consideration and approval by the group ERC.

GovernanceThe group ERC is constituted as a subcommittee of GROC and operates under delegated authority from that committee, with additional reporting accountability to the CIB credit governance equity risk portfolio committee.

GROC grants the group ERC authority to approve equity risk transactions to be held on the banking book and to manage such equity risk. This includes the authority to:

• exercise such powers as are necessary to discharge its responsibilities in terms of this mandate

• seek independent advice at the group’s expense, and investigate matters within its mandate

• delegate authority to a combination of group ERC voting members based on the investment size.

To the extent equity exposures approved by the group ERC are held on the banking book, they are substantively managed and reviewed according to the credit risk governance standard.

Equity banking book price risk sensitivity analysisThe table below illustrates the market risk sensitivity for all non-trading equity investments assuming a 10% shift in the fair value. The analysis is shown before tax.

MARKET RISK SENSITIVITY OF NON-TRADING EQUITY INVESTMENTS

10% reduction

Rm

Fair value

Rm

10% increase

Rm

2015Equity securities listed and unlisted 2 900 3 222 3 544 Impact on profit or loss (296) 296 Impact on OCI (26) 26

2014 Equity securities listed and unlisted 1 982 2 202 2 422 Impact on profit or loss (200) 200 Impact on OCI (20) 20

Banking book equity portfolio characteristics

BASEL EQUITY POSITIONS IN THE BANKING BOOK1

2015 2014

Rm Rm

Fair valueListed 147 162Unlisted 2 805 2 131

Total 2 952 2 293

1 Banking book equity exposures are equity investments which comprise listed and unlisted private equity and strategic investments, and do not form part of the trading book.

The market-based and PD/LGD approaches are used to model the capital requirement for equity exposure. The market-based approach includes portfolios subject to the simple risk-weight method. For the PD/LGD approach, the group’s approved credit risk grade models are used together with the regulatory prescribed LGD of 90% and maturity factor of five years.


Hedging is undertaken in such a way that it does not constrain normal operating activities. In particular, for banking entities outside of the South African common monetary area, the need for capital to fluctuate with risk-weighted assets is taken into account.

The repositioning of the group’s NAV by currency, which is managed at a group level, is a controlled process based on underlying economic views and forecasts of the relative strength of currencies. The group does not ordinarily hold open exposures of any significance with respect to its banking book.

Gains or losses on derivatives that have been designated as either net investment or cash flow hedging relationships in terms of IFRS, are reported directly in OCI, with all other gains and losses on derivatives being reported in profit or loss.

Foreign currency risk sensitivity analysisThe table that follows reflects the expected financial impact, in rand equivalent, resulting from a 15% (2014: 10%) shock to foreign currency risk exposures, against ZAR. As a result of the significant depreciation of the rand over the past 12 months, a 15% sensitivity has been applied (2014:10%). The sensitivity analysis is based on net open foreign currency exposures arising from designated net investment hedges, other derivative financial instruments, foreign-denominated cash balances and accruals and intragroup foreign-denominated debt. The sensitivity analysis reflects the sensitivity to OCI and profit or loss on the group’s foreign-denominated exposures other than those trading positions for which sensitivity has been included in the trading book VaR analysis.

EQUITY EXPOSURES UNDER THE SIMPLE RISK-WEIGHT METHOD

2015 2014

Rm Rm

Listed 89Unlisted 712 1 056

Total 712 1 145

Foreign currency riskDefinitionThe group’s primary non-trading related exposures to foreign currency risk arise as a result of the translation effect on the group’s net assets in foreign operations, intragroup foreign-denominated debt and foreign-denominated cash exposures and accruals.

Approach to managing foreign currency riskThe group foreign currency management committee, a subcommittee of the group capital management committee, manages the risk according to existing legislation, South African exchange control regulations and accounting parameters. It takes into account naturally offsetting risk positions and manages the group’s residual risk by means of forward exchange contracts, currency swaps and option contracts.

FOREIGN CURRENCY RISK SENSITIVITY IN ZAR EQUIVALENTSUSD Euro GBP Naira Other Total

2015Total net long/(short) position Rm 895 5 7 (243) (1 274) (610)Sensitivity (ZAR depreciation) % 15 15 15 15 15

Impact on OCI Rm 37 189 226 Impact on profit or loss Rm (134) (1) (1) 3 (133)

2014Total net long/(short) position Rm (5 786) (5 238) 998 (962) (1 322) (12 310)Sensitivity (ZAR depreciation) % 10 10 10 10 10

Impact on OCI Rm 578 (97) 97 132 710 Impact on profit or loss Rm 524 (2) (1) 521


83

Own equity-linked transactionsDefinitionThe group has exposure to changes in its share price arising from its equity-linked remuneration contractual commitments.

AIR

Refer to the SBG annual integrated report for details regarding the group’s equity-linked share incentive schemes.

Depending on the nature of the group’s equity-linked share schemes, the group is exposed to either income statement

risk or NAV risk through equity risk due to changes in its own share price as follows:

• Income statement risk arises as a result of losses being recognised in the group’s income statement as a result of increases in the price of the group’s share price on cash-settled share schemes above the award grant price.

• NAV risk arises as a result of the group settling an equity-linked share scheme at a higher price than the price at which the share incentive was granted to the group’s employees.

The following table summarises the group’s most material share schemes together with an explanation of which risk (where applicable) the share scheme exposes the group to, and why, and an indication as to whether the share schemes are hedged:

SHARE SCHEME RISK TO THE GROUP EXPLANATION HEDGED

Equity growth scheme (EGS) and the group share incentive scheme (GSIS)

N/A The EGS and the GSIS equity-settled share schemes that are settled through the issuance of new shares. Accordingly, the group does not incur any cash flow in settling the share schemes and hence is not exposed to any risk as a result of changes in its own share price.

No

Quanto stock unit scheme (Quanto)

Income statement risk The Quanto is a cash-settled share scheme. Increases in the group’s share price result in losses being recognised in the income statement.

Yes

Deferred bonus scheme (DBS) and performance reward plan

NAV risk The DBS and performance reward plan are equity-settled share schemes that are settled through the purchase of shares from the external market. Accordingly, increases in the group’s share price above the grant price will result in losses being recognised in the group’s equity.

Yes


Approach to managing own equity-linked transactionsThe ALCOs of the respective group entities that issue the equity linked transactions approve hedges of the group’s share price risk with quarterly reporting to group ALCO which is chaired by the group financial director. Hedging is undertaken taking into account a number of considerations which include:

• expected share price levels based on investment analyst reports

• the value of the issued share scheme awards

• the cost of hedging

• the ability to hedge taking into account the nature of the share scheme and applicable legislative requirements.

Hedging instruments typically include equity forwards and equity options. Hedge accounting in terms of IFRS is applied to the extent that the hedge accounting requirements are complied with.

In terms of the JSE’s Listing Requirements, hedges are only permitted to be transacted outside of the group’s closed periods which are in effect from 1 January and 1 July to the publication of the group’s year end and interim results respectively and where the group is trading under a cautionary.

Post-employment obligation riskThe group operates both defined contribution plans and defined benefit plans, with the majority of its employees participating in defined contribution plans. The group’s defined benefit pension and healthcare provider schemes for past and certain current employees create post-employment obligations. Post-employment obligation risk arises from the requirement to contribute as an employer to an under-funded defined benefit plan.

The group mitigates these risks through independent asset managers and independent asset and liability management advisors for material funds. Potential residual risks which may impact the group are managed within the group asset and liability management process. Refer to note 47 in the annual financial statements for more detail on the group’s post-employment obligation risk.


Long-term insuranceFor management purposes, Liberty’s market risk is split into the following three categories:

• Market risks to which Liberty wishes to maintain exposure on a long-term strategic basis: these include market risks arising from assets backing shareholder funds, planned asset/liability mismatches, as well as those arising from the 90/10 fee exposure. In aggregate, these are referred to as the shareholder investment portfolio which is managed by Liberty Financial Solutions (LibFin) Investments.

• Market risks to which Liberty does not wish to maintain exposure on a long-term strategic basis as these are not expected to provide an adequate return on economic capital over time: this includes the asset-liability mismatch risk arising from Liberty’s interest rate exposure to annuity business, the mismatch risk arising from market-related guarantees and options embedded in policy terms (embedded derivatives), mismatch risk arising from guaranteed index trackers, as well as the market risk arising from negative rand reserves. In aggregate, this is referred to as the asset liability management portfolio and is managed by LibFin Markets.

• Market risks to which Liberty does not wish to maintain exposure but where Liberty is unable to adequately and/or economically mitigate these risks through hedging: in certain instances, these market risks are second order risks resulting from, for example, liquidity risks or reputational risks. While these risks cannot necessarily be hedged, they are identified, measured and monitored as far as possible.

Liberty’s shareholders are exposed to the following categories of market risk, noted above, arising from the following main areas:

• the 90/10 fee exposure • the policyholder asset/liability mismatch risk. This

occurs if Liberty’s property and financial assets do not move in the same direction or by the same magnitude as the obligations arising under its insurance and investment contracts despite the controls and hedging strategies employed

• exposure to management fee revenues not already recognised in the negative rand reserves

• financial assets and liabilities utilised to form Liberty’s capital base (also referred to as shareholder funds), including currency risks on capital invested outside South Africa.

The market risk associated with policyholder investment funds and with-profit funds pooling investment performance is largely borne by the policyholders. Poor performance on policyholder funds can lead to reputational damage and subsequently, to increased policyholder withdrawals and a reduction in new business volumes. This investment


85

The decision to hedge these risks is based on the following factors:

• there is an assumption that these market risks may result in Liberty operating outside of its risk appetite

• there is a liquid and tradable market in which to hedge these market risks

• these market risks are capital intensive and over time have the potential to reduce shareholders’ returns on capital unless actively managed

• some of the risks (for instance, those which arise from selling investment guarantees) are asymmetric in nature, and could compromise Liberty’s solvency in severe market conditions. This is because current regulatory capital rules require available capital to be impaired for such mark-to-market changes.

The exposures which are included in this hedging programme include the following:

• embedded derivatives provided in contracted policies, for example, minimum investment return guarantees and guaranteed annuity options

• the interest rate exposure from writing guaranteed immediate annuities, deferred annuities and guaranteed capital endowments. Credit risk on the backing assets is, however, not hedged and serves as a diversified source of revenue for Liberty

• negative rand reserves.

The net market risk impact of these exposures is managed by LibFin Markets using hedging instruments available in the market.

The nature of the existing business results in certain risks being difficult to hedge (e.g. long-dated volatility, long-dated interest rates and correlations). It is not possible to entirely hedge these risks and, therefore, some residual unhedged risks and associated volatility remain. The hedging programme can only remove those market risks from Liberty’s financial position where appropriate matching assets exist. As the risk appetite limits cover different dimensions, hedging activity may in certain cases mitigate risk in one dimension while causing increased risk in others. Therefore, the impacts of all hedging decisions are assessed across all dimensions prior to transacting. Post-transacting, the effectiveness of the hedges is monitored closely by Liberty’s market risk team.

performance risk is managed by the client fund control committee through the monitoring of asset managers and through the setting of appropriate policyholder fund mandates.

Shareholder investment portfolioLiberty recognises the importance of investing its capital base, namely the shareholder funds, in a diversified portfolio of financial assets. The market risk arising from this shareholder fund exposure is modelled together with the 90/10 fee exposure.

The Liberty board approves the long-term asset mix of this investment portfolio by considering the strategic asset allocation methodology with a long-term investment horizon. LibFin Investments has the responsibility to implement the investment strategy and monitor its performance with oversight from Liberty risk functions and ultimately, the Liberty board.

The typical asset classes included in this portfolio are equities, fixed income securities, property and cash, both in local and foreign currency. Hence there is exposure to currency movements, as well as local market movements in the underlying asset classes. LibFin Investments continued to make small allocations to alternative asset classes in search of yield and diversification benefits. STANLIB and other asset managers are mandated by LibFin Investments to manage the underlying assets in this portfolio.

Tactical asset allocation is performed by STANLIB within a mandate approved by the Liberty board. This is similar to the way in which an asset manager would invest on behalf of a customer with a long-term investment horizon.

On a through-the-cycle basis, this conservative, diversified portfolio is constructed to protect capital while maximising after-tax returns for a level of risk consistent with the Liberty risk appetite statement and taking into account the risk capacity already utilised by Liberty’s core business activities.

In the short term, market movements will contribute to some earnings volatility. The diversified nature of the portfolio should, however, reduce earnings volatility.

Asset liability management portfolioLiberty has chosen to mitigate a number of market risk exposures, arising from asset/liability mismatches, to which it does not wish to be exposed on a long-term strategic basis, through a dedicated ongoing hedging programme.


Exposure to financial, property and insurance assetsThe table below summarises Liberty’s exposure to financial, property and insurance assets. This exposure has been split into the relevant market risk categories and then attributed to the effective holders of the risk.

EXPOSURE TO FINANCIAL, PROPERTY AND INSURANCE ASSETS BY RISK CATEGORY1, 2

Totalfinancial,

property andinsurance

assetsRm

Attributable to

Long-termpolicyholder

market-related

liabilitiesRm

Otherlong-term

policyholderliabilities6

Rm

Ordinaryshareholders

of LibertyRm

Non-controlling

interestsRm

Third-partyfinancialliabilities

arising on consoli-

dation of mutual funds

Rm

2015Equity price 150 726 131 215 (6 053) 2 229 23 335 Interest rate 172 444 73 461 27 149 56 525 455 14 854 Property price3 41 842 32 772 (536) 3 192 3 799 2 615 Mixed portfolios4 49 833 42 198 (3 291) 5 401 5 525 Reinsurance assets5 1 658 1 317 341

Total 416 503 279 646 18 586 67 688 4 254 46 329

Percentage (%) 100 67 5 16 1 11

2014 Equity price 149 318 136 057 (5 676) 3 555 15 382 Interest rate 141 603 67 693 29 484 33 630 427 10 369 Property price3 36 474 27 918 (891) 2 842 3 720 2 885 Mixed portfolios4 44 114 34 583 (2 954) 6 620 5 865 Reinsurance assets5 1 558 1 302 256

Total 373 067 266 251 21 265 46 903 4 147 34 501

Percentage (%) 100 71 6 13 1 9

1 The group has a 54.5% interest in Liberty and, therefore, shares 54.5% of this exposure.2 As reported by Liberty. Refer to Liberty’s annual financial statements.3 Equity price and interest rate risk are included in property price risk where the invested entity only has exposure to investment properties.4 Mixed portfolios are subject to a combination of equity price, interest rate and property price risks depending on each portfolio’s construction. A substantial

portion of the mixed portfolios will be subject to equity price and interest rate risk. The exact proportion is practically difficult to accurately calculate given the number of mutual funds and hedge funds contained in the group portfolios.

5 Reinsurance assets are claims against reinsurers outstanding at the reporting date. They are not subject to market risk other than time value of money (interest rate) for the periods to settlement.

6 Negative exposure to the various risk categories can occur in ‘other policyholder liabilities’ since the present value of future inflows can exceed the present value of future benefits and expenses, resulting in a negative liability. The group offsets these negative liabilities against policyholders’ market related liabilities. The policyholders’ market risk exposure, however, remains unchanged. Shareholders, therefore, bear all the risks of shorting assets backing the policyholder market-related liabilities by the amount of these negative liabilities.

RISK AND CAPITAL MANAGEMENT REPORT Market risk Insurance operations continued

87

Interest rate riskThe table below provides additional detail on financial instrument assets and liabilities and their specific interest rate exposure. Due to practical considerations, interest rate risk details contained in investments in non-subsidiary mutual funds are not provided. Accounts receivable and accounts payable, where settlement is expected within 90 days, are not included in the analysis. The effect of interest rate risk on these balances is not considered significant given the short-term duration of the underlying cash flows.

INTEREST RATE EXPOSURE1

2015 20142

Rm Rm

Financial instruments liabilitiesCarrying value 20 068 8 761

Exposed to cash flow interest rate risk 16 994 5 690 Exposed to fair value interest rate risk 3 074 3 071

Financial instruments assets Carrying value 138 879 116 651

Exposed to cash flow interest rate risk 81 795 62 499 Exposed to fair value interest rate risk 57 084 54 152

1 As reported by Liberty. Refer to Liberty’s annual financial statements.2 Restated. Refer to page 103.

Foreign currency riskOffshore assets are held in policyholders’ portfolios to match the corresponding liabilities. Liberty is exposed to currency risk through minimum investment return guarantees issued on contracts invested in offshore portfolios and related mismatches, as well as through the 90/10 fee exposure and management fees. In addition, some of the shareholder capital base is invested in offshore assets.

Investment guarantees have not been offered on new business invested in offshore portfolios since 2005. The rand-denominated value of management fees derived from these contracts is subject to currency risk. Strengthening of the rand against the offshore currencies reduces the rand value of management fees on offshore portfolios and decreases the liability in respect of rand-denominated minimum investment return guarantees on this business. The weakening of the rand will have the opposite effect.

The gross exposure to foreign-denominated financial instruments expressed in rand (converted at closing rates) as at 31 December 2015, is R81,9 billion (2014: R62,2 billion). It is not practical to isolate accurately any detailed currency risk contained in investments in mutual funds and investment policies which are priced in rand and are not subsidiaries. The implied currency exposure to mutual funds and investment policies, however, is not material to Liberty. The table which follows segregates the currency exposure by major currency as at 31 December 2015.


of multi-tenanted buildings significantly reduce the exposure to this risk. As at 31 December 2015, the proportion of unlet space in the property portfolio was 6% (2014: 10%).

Property market risk also arises with respect to shareholder exposures to investment guarantees and negative rand reserves.

Liberty’s exposure to property market risk is shown below.

CURRENCY EXPOSURE BY MAJOR CURRENCY1

GBP USD Euro Japanese yen Hong Kong dollar Canadian dollar Other

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Foreign currency risk Rm 4 749 3 899 56 849 41 889 6 922 4 988 2 900 3 421 3 596 1 253 4 126 800 2 727 5 997 Gross exposure in foreign currency m 207 216 3 668 3 621 411 356 22 516 35 357 1 799 840 369 80 Derivative protection in foreign currency m (26) (7) (1 204) (449) (20) (11) 3 273 1 854 Net exposure in foreign currency m 181 209 2 464 3 172 391 345 25 789 37 211 1 799 840 369 80


Approximately R5,3 billion of the total currency exposure of R81,9 billion is effectively shareholders’. The remainder is predominantly policyholder exposure through unit linked investment returns.

Property market riskLiberty is exposed to tenant default, depressed rental markets and unlet space within its investment property portfolio affecting property values and rental income. The managed diversity of the property portfolio and the existence

PROPERTY MARKET RISK1

2015 2014

Rm Rm

Investment properties including operating leases accrued income 31 781 28 283 Owner-occupied properties 1 540 1 464

Gross direct exposure 33 321 29 747 Mutual funds with >80% property exposure 2 939 2 087 Indirect exposure through debt and equity shareholdings 5 583 4 640 Attributable to non-controlling interests (3 799) (3 720)

Net exposure 38 044 32 754

Concentration use risk within directly held properties is summarised below: Shopping malls 26 389 24 485 Office buildings 2 719 2 868 Hotels 1 100 1 219 Other property2 3 113 1 175

33 321 29 747

1 As reported by Liberty. Refer to Liberty’s annual financial statements.2 The main items in other property are a 25% share in the Melrose Arch precinct, a convention centre and properties under development.


89

CURRENCY EXPOSURE BY MAJOR CURRENCY1

GBP USD Euro Japanese yen Hong Kong dollar Canadian dollar Other

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Foreign currency risk Rm 4 749 3 899 56 849 41 889 6 922 4 988 2 900 3 421 3 596 1 253 4 126 800 2 727 5 997 Gross exposure in foreign currency m 207 216 3 668 3 621 411 356 22 516 35 357 1 799 840 369 80 Derivative protection in foreign currency m (26) (7) (1 204) (449) (20) (11) 3 273 1 854 Net exposure in foreign currency m 181 209 2 464 3 172 391 345 25 789 37 211 1 799 840 369 80


Derivative financial instruments and risk mitigationCertain Liberty entities are party to contracts for derivative financial instruments, mainly entered into as part of the dedicated hedging strategy. In addition, derivatives are used for efficient portfolio management. These instruments are used to mitigate equity, interest rate and currency risk and include vanilla futures, options, swaps, swaptions and forward exchange contracts. Derivative financial instruments do inevitably give rise to credit default and operational risk which are managed appropriately.

Derivative financial instruments are either traded on a regulated exchange, for example, the South African Futures Exchange (SAFEX), or negotiated OTC as a direct arrangement between two counterparties. Instruments traded on SAFEX are margined and SAFEX is the counterparty to each and every trade. OTC instruments are only entered into with appropriately approved counterparties and are entered into in terms of signed ISDAs and collateral support agreements with each counterparty.

Sensitivity analysisThe table below provides a description of the sensitivities provided on market risk assumptions. Sensitivities on expected taxation and on long-term expense inflation assumptions have not been provided.

The equity price and rand currency sensitivities are applied as an instantaneous event at the financial position date with no change to long-term market assumptions used in the measurement of policyholder liabilities. In other words, the assets are instantaneously impacted by the sensitivity on the financial position date. The new asset levels are applied to the measurement of policyholder liabilities, where applicable, but no changes are made to the prospective assumptions used in the measurement of policyholder liabilities. The interest rate yield curve and implied option volatility sensitivities are applied similarly but the assumptions used in the measurement of policyholder liabilities that are dependent on interest rate yield curves and implied option volatilities are updated.

The market sensitivities are applied to all assets held by Liberty (and not just assets backing the policyholder liabilities). Each sensitivity is applied in isolation with all other assumptions left unchanged.

MARKET VALUE DESCRIPTION OF SENSITIVITY

Interest rate yield curve A parallel shift in the interest rate yield curve

Implied option volatilities A change in the implied short-term equity, property and interest rate option volatility assumptions

Equity prices A change in the local and foreign equity prices

Rand exchange rates A change in the ZAR exchange rate to all applicable currencies


The table below summarises the impact of the change in the aforementioned risk variables on policyholders’ liabilities and on ordinary shareholders’ equity and attributable profit after taxation.

SENSITIVITY ANALYSIS OF RISK VARIABLE1

2015 2014

Change invariable

%

Impact onpolicy-

holders’liabilities

Rm

Impact onequity and

attributableprofit after

taxationRm

Change invariable

%

Impact onpolicy-


Rm

Impact onequity and

attributableprofit after

taxationRm

Market assumptionsInterest rate yield curve 12 (4 182) (211) 12 (3 638) (285)

(12) 5 161 54 (12) 4 288 224 Option price volatilities 20 (18) 13 20 34 (22)

(20) 47 (34) (20) (2) (2)Equity prices 15 20 730 1 286 15 18 909 1 284

(15) (20 595) (1 265) (15) (19 077) (1 260)Rand exchange rates 122 (5 409) (639) 122 (4 373) (655)

(12)3 5 455 640 (12)3 4 462 652

1 As reported by Liberty. Refer to Liberty’s annual financial statements.2 Strengthening of the rand.3 Weakening of the rand.

Short-term insuranceMarket risk arises from investments in cash, corporate money market and collective investment schemes. It is not material for the short-term insurance business as it is in the group context due to the nature of SIL’s liabilities, where larger portions of investments are in cash and bond-type investments.

Management of the investment portfolio is outsourced to investment managers within the group, with target returns, portfolio limits and capital preservation requirements specified in the mandate. The mandate and performance of investments relative to the insurance entity’s budget and risk appetite is reviewed and monitored by the insurance entity’s investment committee.

Insurance risk


91

– Sensitivity analysis 94

Short-term insurance risk 95

– Overview 95

– Approach to managing short-term insurance risk 95

– Short-term insurance risk types 95

Insurance risk

Definition 91

Long-term insurance risk 91

– Overview 91

– Approach to managing long-term insurance risks 91

– Long-term insurance risk subtypes 92

DEFINITION

Insurance risk is the risk that actual future demographic and related expense experience will differ from that expected and, therefore, from that used in measuring policyholder liabilities and in pricing products.

Insurance risk arises due to uncertainty regarding the timing and amount of future cash flows from insurance contracts.

Insurance risk applies to long-term insurance operations housed in Liberty and the short-term insurance operations housed in Liberty Africa and SIL.

LONG-TERM INSURANCE RISK

OverviewThe management and staff in all business units accepting insurance risk are responsible for the day-to-day identification, monitoring and treatment of insurance risk. It is also management’s responsibility to report any material insurance risks, risk events and issues identified to senior management through certain pre-defined escalation procedures.

The Liberty group head of insurance risk provides group oversight of insurance risk.

The Liberty statutory actuaries, insurance risk department and the heads of risk in the business units provide independent oversight of compliance with Liberty’s risk management policies and procedures and the effectiveness of Liberty’s insurance risk management processes.

Approach to managing long-term insurance risksRisk management takes place prior to the acceptance of risks through the product development and pricing processes and at the point of sale. Risks continue to be managed through the measurement, monitoring and treatment of risks once the risks are contracted.

Risk management through product development, pricing and at the point of saleThe product development and pricing process defines the terms and conditions on which the group is willing to accept risks. Once a policy has been sold, the group is placed on risk for the duration of the contract and the group cannot unilaterally change the terms and conditions of the policy except where the policy allows for rate reviews. It is for these reasons that risks need to be carefully assessed and appropriately mitigated before a product is launched and before new policies are accepted onto the group’s balance sheet. In order to manage these risks, new products need to comply with the groupwide product development risk policy. The product development and approval process ensures that:

• risks inherent in new products are identified and quantified

• sensitivity tests are performed to enhance understanding of the risks and appropriateness of mitigating actions

• pricing is adequate for the risk undertaken

• product design takes account of various factors, including size and timing of fees and charges, appropriate levels of minimum premiums, commission structures and policy terms and conditions

• the group makes use of reinsurance to reduce its exposures to some insurance risks

• customers’ needs and expectations will be met by the product

• post implementation reviews are performed to ensure that intended outcomes are realised and to determine if any further action is required.


RISK AND CAPITAL MANAGEMENT REPORT Insurance risk Long-term insurance risk continued

Risk management post-implementation of products and of in-force policiesThe ongoing management of insurance risk, once the risk has been contracted, includes the management of costs, premium adjustments where permitted and appropriate, and management strategies to encourage customers to retain their contracts.

Experience investigations are conducted at least annually on all significant insurance risks to ascertain the extent of deviations from assumptions and their financial impacts. If the investigations indicate that these deviations are likely to persist in future, the assumptions will be adjusted accordingly for the subsequent measurement of policyholder liabilities. Furthermore, any deviations that are likely to persist are also used to inform the product development and pricing of new and existing products.

Insurance risks are assessed and reviewed against the group’s risk appetite and risk target. Mitigating actions are developed for any risks that fall outside of management’s assessment of risk appetite in order to reduce the level of risk to within the approved tolerance limits.

Long-term insurance risk subtypesPolicyholder behaviour riskPolicyholder behaviour risk is the risk of adverse financial impact caused by actual policyholders’ behaviour deviating from expected policyholders’ behaviour, mainly due to:

• regulatory and law changes (including taxation)

• changes in economic conditions

• sales practices

• competitor behaviour

• policy conditions and practices

• policyholders’ perceptions.

Policyholders’ behaviour risk includes a consideration of comparable risks in the asset management business.

The business has continued to focus on a broad programme of initiatives to manage persistency risk and withdrawal rates on major product lines.

Underwriting risksThe primary purpose of underwriting is to ensure that an appropriate premium is charged for each risk and that cover is not offered for uninsurable risks. Underwriting risks are the risks that future demographic or claims incidence experience will exceed the allowance for expected demographic or claims incidence experience, as determined through provisions, pricing, risk measures and value measures. Underwriting risks include, among others, mortality and morbidity risks, longevity risks and non-life (short-term insurance) risks.

Mortality and morbidity riskMortality risk is the risk of an adverse financial impact due to actual mortality (death) claims being higher than anticipated. Morbidity risk is the risk of an adverse financial impact due to policyholder health-related (disablement and dread disease) claims being higher than expected.

Liberty has a range of standard processes and procedures in place to manage mortality and morbidity risk, including differentiating by the individual characteristics, right of review of premiums, underwriting at inception, medical tests, and use of experienced reinsurers and claims assessors.

Liberty views mortality and morbidity risks as risks that are core to the business. These risks will generally be retained. Mortality and morbidity risk gives rise to significant economic capital requirements in particular due to potential catastrophic events. Since it is difficult to obtain reinsurance for certain catastrophic events on reasonable terms, the mortality and morbidity economic capital requirements are likely to remain significant.

93

PROFILE FOR AMOUNTS AT RISK FOR INDIVIDUAL AND CORPORATE1

Beforereinsurance

Afterreinsurance

Rm % Rm %

Sum assured at risk band (rands)20150 – 1 499 999 634 674 44 604 340 48 1 500 000 – 2 999 999 290 425 20 264 338 21 3 000 000 – 7 499 999 326 682 23 283 166 23 7 500 000 and above 189 034 13 103 142 8

Total 1 440 815 100 1 254 986 100

2014 0 – 1 499 999 582 782 44 555 747 49 1 500 000 – 2 999 999 265 956 20 239 963 21 3 000 000 – 7 499 999 296 279 23 252 645 22 7 500 000 and above 165 218 13 88 679 8

Total 1 310 235 100 1 137 034 100


The table above demonstrates that the sums assured are spread over many lives in terms of amounts at risk, and that the exposure to individual lives has been reduced by means of reinsurance arrangements. Given the large number of assured lives, the random fluctuation in mortality claims is expected to be small, as the larger the portfolio of uncorrelated insurance risks, the smaller the relative variability around the expected outcome becomes.

CORPORATE BUSINESS BY INDUSTRY CLASS (%)

2015 2014

Administrative/ professional 36 34Retail 24 23Light manufacturing 22 25Heavy manufacturing 15 15Heavy industrial and other high risk 3 3

Total 100 100

Longevity riskLongevity risk is the risk of an adverse financial impact due to actual annuitant mortality being lower than anticipated, that is annuitants living longer than expected.

For life annuities, the loss arises as a result of the group having undertaken to make regular payments to policyholders for their remaining lives, and possibly to the policyholders’ spouses for their remaining lives. The most significant risks on these liabilities are continued medical advances and improvements in social conditions that lead to longevity improvements being better than expected.

Liberty manages the longevity risk by:

• annually monitoring the actual longevity experience and identifying trends over time

• making allowance for future mortality rates falling in the pricing of new business and the measurement of policyholder liabilities. This allowance will be based on the trends identified in experience investigations and external data.

Expense expectation, tax expectation and new business riskExpense expectation risk is the risk of an adverse financial impact due to the timing or amount of administration expenses incurred, or both, differing from those expected, e.g. the actual cost per policy differs from that assumed in the pricing or reserving basis.

Tax expectation risk is the risk of losses arising due to the actual tax assessed being more than the tax expected.

New business risk is the risk of an adverse financial impact due to the actual volume, mix and/or quality of new business deviating from that expected in calculating expected financial outcomes. New business strain is included in this risk type.


Sensitivity analysisThe table below provides a description of the sensitivities that are provided on insurance risk assumptions.

INSURANCE RISK VARIABLE

DESCRIPTION OF SENSITIVITY

Assurance mortality

A level percentage change in the expected future mortality rates on assurance contracts

Annuitant longevity

A level percentage change in the expected future mortality rates on annuity contracts

Morbidity A level percentage change in the expected future morbidity rates

Withdrawal A level percentage change in the policy withdrawal rates

Expense per policy

A level percentage change in the expected maintenance expenses

Insurance risk sensitivities are applied as a proportional percentage change to the assumptions made in measuring policyholders’ liabilities.

The table on the next page summarises the impact of the change in the above risk variables on policyholder liabilities, ordinary shareholders’ equity and attributable profit after taxation.

Allowance is made for expected future maintenance expenses in the measurement of long-term contract policyholder liabilities using a cost per policy methodology. These expected expenses are dependent on estimates of the number of in-force and new business policies. As a result, the risk of expense loss arises due to expenses increasing by more than expected, as well as from the number of in-force and/or new business policies being less than expected.

Liberty manages the expense and new business risk by:

• regularly monitoring actual expenses against the budgeted expenses

• regularly monitoring new business volumes and mix

• regularly monitoring withdrawal rates, including lapses

• implementing cost control measures in the event of expenses exceeding budget or of significant unplanned reductions in the number of in-force policies.

Even though expense risk does not give rise to large capital requirements, the management of expense risk is core to the business. The expenses that the group expects to incur on policies are allowed for in product pricing. If the expenses expected to be incurred are considerably higher than those of other insurers offering competing products, the ability of the group to sell business on a profitable basis will be impaired. This not only has capital implications, but can also affect the group’s ability to function as a going concern in the long term.

Tax expectation risk is mitigated through the implementation of Liberty’s tax risk framework, as well as the employment of tax experts to identify and manage tax risks.

RISK AND CAPITAL MANAGEMENT REPORT Insurance risk Long-term insurance risk continued

95

SENSITIVITY ANALYSIS OF INSURANCE RISK VARIABLES1

2015 2014

Change invariable

%

Impact onpolicy-


Rm

Impact on ordinary

shareholders’ equity and

attributable profit after

taxationRm

Change invariable

%

Impact onpolicy-


Rm

Impact on ordinary

shareholders’ equity and

attributable profit after

taxationRm

Insurance assumptionsMortalityAssured lives 2 302 (218) 2 263 (189)

(2) (306) 221 (2) (264) 190 Annuitant longevity 42 316 (228) 42 349 (251)

(4)3 (303) 218 (4)3 (334) 241 Morbidity 5 431 (310) 5 426 (306)

(5) (431) 310 (5) (425) 306 Withdrawals 8 444 (320) 8 506 (364)

(8) (484) 349 (8) (562) 405 Expense per policy 5 334 (240) 5 271 (195)

(5) (334) 240 (5) (271) 195

1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Annuitant life expectancy increases, i.e. annuitant mortality reduces.3 Annuitant life expectancy reduces, i.e. annuitant mortality increases.

SHORT-TERM INSURANCE RISK

OverviewSIL writes mainly property, motor, accident and health insurance on a countrywide basis within South Africa. Approximately 70% of the total gross written premium is property insurance which indemnifies, subject to any limits or excesses, the policyholder against loss or damage to their own property and business interruption arising from this damage.

Liberty Africa writes mainly property and motor business through Liberty Kenya Holdings Limited, and medical expense business through Total Health Trust Limited in Nigeria.

Approach to managing short-term insurance riskShort-term insurance risk is managed through various control processes, including risk rating pricing, underwriting conditions, product design, efficient and effective claims management processes, fraud risk management and reinsurance controls.

The principal governance document governing short-term insurance risk is the short-term insurance risk governance standard.

The insurance entity manages risk through the consideration of trigger conditions that result in the review of its risk strategy. This considers the nature, scale and complexity of the entity’s risks. Risk appetite metrics and stress/scenario testing form part of risk management practices to better understand and manage the threats and opportunities the business faces.

Short-term insurance risk typesThe underwriting strategy seeks diversity to ensure a balanced portfolio and is based on a large portfolio of similar risks over a large geographical area. This strategy is cascaded down to individual underwriters through detailed underwriting authorities that set out the limits that any one underwriter can write by line size, class of business, territory and industry in order to enforce appropriate risk selection within the portfolio.

The key risks associated with this product are underwriting risk, competitor risk and claims experience risk (including


fraud. The potential for fraudulent behaviour is also very high. New business and lapse rates are budgeted each year and monitored on a monthly basis. These rates are reported and compared to budget figures.

Catastrophe riskThe risk of adverse financial impact due to a single event or series of events of major magnitude, usually over a short period (often 72 hours), leads to a significant deviation in actual claims from the total expected claims.

Claims incidence riskThis is the risk of loss in excess of what has been priced for, arising from accident, fire and theft on short-term insurance business.

On certain types of business, for example, third-party liability claims, the claim distribution is longer tailed. This means that the final cost of the claim is only known many years into the future. The risk here is that the group reserves inadequately for this ultimate claims cost.

Expense riskThis is the risk of an adverse financial impact due to the timing and/or amount of expenses incurred, or both differing from those expected in administering policies, e.g. assumed in the pricing basis or actual cost per policy.

The expenses that the group is expected to incur on policies are allowed for in product pricing. If the expenses expected to be incurred are considerably higher than those of insurers offering competing products, the group’s ability to sell business on a profitable basis will be restricted. This does not only have capital implications, but can also affect the group’s ability to function as a going concern in the long term.

New business riskThis is the risk of an adverse financial impact due to the actual volume and/or quality of new business deviating from the expected volume and/or quality.

Emerging risksIn addition to monitoring and assessing existing risks, there also needs to be a focus on emerging risks. These are likely to take the form of a change in the quantification of one of the aforementioned risks. Examples of this include an increase in natural disasters due to climate change and/or changes in regulation.

the variable incidence of natural disasters). Property is subject to a number of risks, including theft, fire, business interruptions and weather. For property classes of business there is a significant geographical concentration of risk so that external factors such as adverse weather conditions may adversely impact upon a large proportion of a particular geographical portion of the company’s property risks. Claim inducing perils such as storms, floods, subsidence, fires, explosions and rising crime levels will occur on a regional basis, meaning that SIL has to manage its geographical risk dispersion carefully.

The greatest likelihood of significant losses to the group arises from catastrophe events such as flood, storm or earthquake damage. To mitigate this risk, the insurance entity buys reinsurance across a diversified panel of multiple reinsurers, each participating on different structures according to their own risk tolerance. Reinsurance protects the insurance entity from downside risk from individual large claims, several accumulations of claims and catastrophic claims such as hail damage and earthquakes.

Risk and catastrophe reinsuranceThe business reinsures a portion of the risks it underwrites in order to control its exposure to losses and protect capital resources. For example, excess of loss reinsurance and catastrophe reinsurance protect against major losses on high sums insured and major natural disasters respectively. The key natural disasters affecting the business includes hail and water damage, which has impacted South Africa more regularly over the last few years, as well as the potential of earthquake damage, which is, however, a more remote risk.

Policyholder behaviour riskPolicyholder behaviour risk is the risk of loss arising due to actual policyholders discontinuing their insurance policies earlier or more frequently than expected. This may arise due to a change in economic conditions and/or inconsistent policy practices, regulatory and tax changes, selling practices and policyholder perceptions.

The primary policyholder behaviour risk is persistency risk, which arises due to policyholders discontinuing insurance on short-term insurance business, where the policyholder cancels cover. This could lead to a reduction in premium income, an increase in the expense ratio (i.e. overheads and more fixed type costs are covered by less income volumes) and a reduction on the return on capital.

Short-term insurance operations are impacted by adverse economic conditions which could lead to lower new business take-up rates, higher than budgeted cancellation rates and

Operational risk

RISK AND CAPITAL MANAGEMENT REPORT Insurance risk Short-term insurance risk continued

97

– Operational risk subtype: environmental and social risk

99

– Operational risk subtype: IT risk and IT change risk 99

– Operational risk subtype: information risk 100

– Operational risk subtype: cyber risk 100

– Operational risk subtype: financial crime risk 100

– Operational risk subtype: physical commodities risk 100

Operational risk

Definition 97

Approach to managing operational risk 97

Governance 98

Approved regulatory capital approach 98

Operational risk subtypes 98

– Operational risk subtype: model risk 98

– Operational risk subtype: tax risk 98

– Operational risk subtype: legal risk 99

DEFINITION

Operational risk is defined as the risk of loss suffered as a result of the inadequacy of, or failure in, internal processes, people and/or systems or from external events.

Operational risk subtypes are managed and overseen by specialist functions. These subtypes include:

• model risk

• tax risk

• legal risk

• environmental and social risk

• IT risk and IT change risk

• information risk

• cyber risk

• compliance risk (more information on page 59)

• financial crime risk

• physical commodities risk.

The following risk types are part of the extended operational risk taxonomy and are necessary for capital allocation purposes in the ICAAP process:

• physical assets risk

• human capital risk

• accounting and financial risk.

APPROACH TO MANAGING OPERATIONAL RISK

Operational risk exists in the natural course of business activity. The group operational risk governance standard sets out the minimum standards for operational risk management to be adopted across the group. The governance standard seeks to ensure adequate and consistent governance, identification, assessment, monitoring, managing and reporting of operational risk to support the group’s business areas. In addition, it ensures that the relevant regulatory criteria can be met by those banking entities adopting the AMA, and those adopting the basic indicator approach or the standardised approach for regulatory capital purposes.

It is not an objective to eliminate all exposure to operational risk as this would be neither commercially viable nor possible. The group’s approach to managing operational risk is to adopt fit-for-purpose operational risk practices that assist business line management in understanding their inherent risk and reducing their risk profile while maximising their operational performance and efficiency.

The IOR management function is independent from business line management and is part of the second line of defence reporting to the group CRO. It is responsible for the development and maintenance of the operational risk governance framework, facilitating the business’s adoption of the framework, oversight and reporting, and challenging the risk profile. The team proactively analyses root causes, trends and emerging threats, advises on the remediation of potential control weaknesses and recommends best practice solutions.


RISK AND CAPITAL MANAGEMENT REPORT Operational risk Approach to managing operational risk continued

documents are the operational risk governance standard and the operational risk governance framework.

Operational risk subtypes report to various governance committees and have various governance documents applicable to each risk subtype.

APPROVED REGULATORY CAPITAL APPROACH

The group has approval from the SARB to adopt the AMA for SBSA and the standardised approach for all other legal entities.

The migration of the rest of Africa countries to the AMA approach is currently underway.

The group does not include insurance as a mitigant in the calculation of regulatory capital.

OPERATIONAL RISK SUBTYPES

Operational risk subtype: model riskModel risk arises from potential weaknesses in a model that is used in the measurement, pricing and management of risk. These weaknesses include incorrect assumptions, incomplete information, inaccurate implementation, limited model understanding, inappropriate use or inappropriate methodologies leading to incorrect conclusions by the user.

The group’s approach to managing model risk is based on the following principles:

• Fit-for-purpose governance, which includes:

– an approved model risk governance framework

– a three lines of defence governance structure comprising independent model development, model validation and GIA oversight functions

– technical forums that challenge and recommend models for approval to model approval committees

– model approval committees with board and executive management membership based on model materiality and regulatory requirements

– policies that define minimum standards, materiality, validation criteria, approval criteria, validation frequency, and roles and responsibilities

• A skilled and experienced pool of technically competent staff is maintained in the development, validation and audit functions

• Robust model-related processes, including:

– the application of best-practice modelling methodologies

Individual teams are dedicated to each business line and report to the business unit CRO with a functional reporting line to the group head of operational risk management. The IOR team provides dedicated teams to enabling functions such as finance, IT and human capital. These teams work alongside their business areas and facilitate the adoption of the operational risk governance framework. As part of the second line of defence, they also monitor and challenge the business units’ and enabling functions’ management in respect of their operational risk profile.

Business continuity management is a process that identifies potential operational disruptions and provides a basis for planning for the mitigation of the negative impact from such disruptions. In addition, it promotes operational resilience and ensures an effective response that safeguards the interests of both the group and its stakeholders. The group’s business continuity management framework encompasses emergency response preparedness and crisis management capabilities to manage the business through a crisis to full recovery. The group’s business continuity capabilities are evaluated by testing business continuity plans and conducting crisis simulations.

The group is fully cognisant of the risks which the prevailing electricity shortages in South Africa pose to the continuity of SBSA’s services and operations and to the broader group through services provided out of South Africa. The group has completed a high-level assessment of its readiness to withstand both routine load shedding and a national grid interruption to ensure that the risks are proactively mitigated.

Insurance coverThe group buys insurance to mitigate operational risk. This cover is reviewed on an annual basis. The group insurance committee oversees a substantial insurance programme designed to protect the group against loss resulting from its business activities.

The principal insurance policies in place are the group crime, professional indemnity, and group directors’ and officers’ liability policies. In addition, the group has fixed assets and liabilities coverage in respect of office premises and business contents; third-party liability for visitors to the group’s premises, and employer’s liability. The group’s business travel policy provides cover for group staff while travelling on behalf of the group.

GOVERNANCE

The primary management level governance committees overseeing operational risk are GROC and the group operational risk committee. The primary governance

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– independent model validation in accordance with both regulatory and internal materiality assessments to test the appropriateness and effectiveness of models

– validation of regulatory capital models at initial development and at least annually thereafter

– validation of other models at initial development and thereafter reviewed at intervals determined by materiality and performance criteria

– adequate model documentation, including the coverage of model use and limitations

– controlled implementation of approved models into production systems

– ongoing monitoring of model performance

– review and governance of data used as model inputs

– peer challenge in technical forums.

Operational risk subtype: tax riskTax risk is the possibility of suffering unexpected loss, financial or otherwise, as a result of the application of tax systems, whether in legislative systems, rulings or practices, applicable to the entire spectrum of taxes and other fiscal imposts to which the group is subject.

The group’s approach to tax risk is governed by the GAC-approved tax risk control framework which, in turn, is supported by policies dealing with specific aspects of tax risk such as, for example, transfer pricing, indirect taxes, withholding taxes and remuneration taxes.

Operational risk subtype: legal riskLegal risk is defined as the exposure to adverse consequences attendant upon non-compliance with legal or statutory responsibilities and/or inaccurately drafted contracts and their execution, as well as the absence of written agreements or inadequate agreements. This includes the exposure to new laws, as well as changes in interpretations of existing law by appropriate authorities and exceeding authority as contained in the contract. This applies to the full scope of group activities and may also include others acting on behalf of the group.

The group has processes and controls in place to identify, manage and mitigate its legal risks.

Operational risk subtype: environmental and social riskEnvironmental risk is described as a measure of the potential threats to the environment. It combines the probability that events will cause or lead to the degradation of the environment and the magnitude of such degradation. Environmental risk includes risks related to or resulting from climate change, human activities or from natural processes that are disturbed by changes in natural cycles.

Social risk is described as risks to people, their livelihoods, health and welfare, socioeconomic development, social cohesion and the ability to adapt to changing circumstances.

Environmental and social risk assessment and management deals with two aspects:

• Risks over which the group has direct control. These include our immediate direct impact, such as our waste management and the use of energy and water, as well as our broader impact, including risks that occur as a result of our lending or financial services activities

• Risks over which the group does not have control but which have the potential to impact on the group’s operations and its clients.

Group policy, advocacy and sustainability develops the strategy, policy and management frameworks that enable the identification, management, monitoring and reporting of both aspects.

The group has an environmental and social risk management policy and subscribes to a number of international norms and codes, such as those of the United Nations Environment Programme Finance Initiative, the Equator Principles and the BASA’s code of conduct for banks. In support of these policy commitments, it has developed guidance to bankers, screening tools to assist in categorising environmental and social risk and various training programmes to assist credit evaluators, dealmakers and other key individuals.

Operational risk subtype: IT risk and IT change riskIT risk encompasses both IT risk and IT change risk. The group’s IT risk refers to the risk associated with the use, ownership, operation, involvement, influence and adoption of IT within the group. It consists of IT-related events and conditions that could potentially impact the business. IT change risk refers to the risk arising from changes, updates or alterations made to the IT infrastructure, systems or applications that could affect service reliability and availability.

The advancement of IT has brought about rapid changes in the way businesses and operations are being conducted in the financial industry. IT is no longer a support function within the organisation but is a key enabler for business strategies, including reaching out to external customers and meeting their needs. As technology becomes increasingly important and integrated into business processes, the need for adequate and effective governance and management of IT resources, risks and any constraints becomes imperative.

The board is responsible for ensuring that prudent and reasonable steps have been taken with respect to fulfilling its


Operational risk subtype: cyber riskCyber risk is the risk associated with injury, damage or loss from electronic exposure that can result in an adverse impact on the group’s business. This risk may arise due to the disclosure, modification, destruction or theft of information, or from the unavailability of the transaction site, systems or networks. The cybersecurity operations centre, within IOR, manages this risk by proactively identifying malicious activity that poses a risk to the confidentiality, integrity and availability of the group’s information assets. Identification and mitigation of cyber threats includes services to deliver both the proactive immobilisation of threats that are active in the group and the identification, investigation, resolution and reporting of threats that have materialised into cyber incidents.

Operational risk subtype: financial crime riskFinancial crime risk is defined as the risk of economic loss, reputational risk and regulatory sanction arising from any type of financial crime against the group. It includes fraud, bribery, corruption, theft and integrity misconduct by staff, customers, suppliers, business partners, stakeholders and third parties. The group financial crime control function combats financial crime risk through the prevention and detection of, and response to, all financial crime incidents to mitigate economic loss, reputational risk and regulatory sanction. As is the case with the other functions within operational risk, group financial crime control maintains close working relationships with other risk functions, specifically compliance, legal risk and credit risk, and with other group functions such as IT, human capital, and finance.

Operational risk subtype: physical commodities riskPhysical commodities risk relates primarily to collateral held. Exposure to physical commodities arises as a result of collateral held in relation to lending activity, and periodically from inventory held as a result of trading activity. This is managed by the relevant lending or trading business area together with the group’s operations department.

responsibilities for IT governance. To assist the board to fulfil this obligation, the group IT committee has been delegated the authority to ensure the implementation of the IT governance framework. It delegates this responsibility to management. A group IT executive committee has been established to provide assurance that management has implemented an effective IT governance framework. The group IT executive committee has established a group IT architecture governance committee and a group IT risk and compliance committee to assist in the fulfilment of its architecture and risk obligations.

IT, as it relates to financial reporting and the ongoing concern aspects of the organisation, is the responsibility of the GAC.

The group’s main IT risks include the failure or interruption of critical systems, cybercrime, unauthorised access to systems and the inability to serve its customers’ needs in a timely manner. These risks are mitigated through various controls which are implemented and closely monitored by management. The group continuously reviews and invests in its security systems and processes to ensure that its customers are well protected. Actions to reduce the likelihood of risks materialising are identified and accountabilities for remediation are allocated to management.

AIRFor more information, refer to the IT report included in the annual integrated report.

Operational risk subtype: information riskInformation risk encompasses the risk of accidental or intentional unauthorised use, modification, disclosure or destruction of information resources, which would compromise the confidentiality, integrity or availability of information and which would potentially be harmful to the group’s business. Additionally, it comprises of all the challenges that result from the need to control and protect the group’s information.

The group has adopted a risk-based approach to managing information risks. The IOR management function oversees the information risk management system, policies and practices across the group.

The Promotion of Access to Information Act 2 of 2000 gives effect to the constitutional right of access to information that is held by a private or public body. The following information was disclosed in terms of applicable regulations.

• During 2015, the group processed 20 (2014: six) requests for access to information, of which four were granted, 11 were denied, five are still in progress.

• The reason for the denial of access was that the owners of the personal information declined to give consent for access to be given to the requestor.

RISK AND CAPITAL MANAGEMENT REPORT Operational risk Operational risk subtypes continued

Business risk

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Business risk is the risk of loss due to operating revenues not covering operating costs after excluding the effects of market risk, credit risk, structural interest rate risk and operational risk.

Business risk is, therefore, not directly attributable to internal operational failures or external market price events, but nevertheless covers a host of internal and external factors.

Business risk includes strategic risk. Strategic risk is the risk that the group’s future business plans and strategies may be inadequate to prevent financial loss or protect the group’s competitive position and shareholder returns. The group’s business plans and strategies are discussed and approved by executive management and the board and, where appropriate, subjected to stress tests.

Business risk is usually caused by the following:

• inflexible cost structures

• market-driven pressures, such as decreased demand, increased competition or cost increases

• group-specific causes, such as a poor choice of strategy, reputational damage or the decision to absorb costs or losses to preserve reputation.

The group mitigates business risk in a number of ways, including:

• performing extensive due diligence during the investment appraisal process, in particular for new acquisitions and joint ventures

• detailed analysis of the business case for, and financial, operational and reputational risk associated with, disposals

• the application of new product processes per business line through which the risks and mitigating controls for new and amended products and services are evaluated

• stakeholder management to ensure favourable outcomes from external factors beyond the group’s control

• monitoring the profitability of product lines and customer segments

• maintaining tight control over the group’s cost base, including the management of its cost-to-income ratio, which allows for early intervention and management action to reduce costs

• being alert and responsive to changes in market forces

• a strong focus in the budgeting process on achieving headline earnings growth while containing cost growth; and building contingency plans into the budget that allow for costs to be significantly reduced in the event that expected revenues do not materialise

• increasing the ratio of variable costs to fixed costs which creates flexibility to reduce costs during an economic downturn.

The primary governance committee for overseeing this risk is the group ALCO which is chaired by the group financial director. The primary governance document is the business risk governance standard.

Business risk


Reputational risk

Reputational risk is the risk of potential or actual damage to the group’s image which may impair the profitability and/or sustainability of its business.

Such damage may result from a breakdown of trust, confidence or business relationships on the part of customers, counterparties, shareholders, investors or regulators that can adversely affect the group’s ability to maintain existing business or generate new business relationships and continued access to sources of funding. The breakdown may arise from a number of factors or incidents such as a poor business model, continued losses and failures in risk management.

Safeguarding the group’s reputation is of paramount importance. There is growing emphasis on reputational risks arising from compliance breaches, as well as from ethical considerations linked to countries, clients and sectors, and environmental considerations.

The breakdown may be triggered by an event or may occur gradually over time. The group’s crisis management processes are designed to minimise the reputational impact of such events or developments. Crisis management teams are in place both at executive and business line level. This includes ensuring that the group’s perspective is fairly represented in the media.

The principal governance document is the reputational risk governance standard.

The group’s code of ethics is an important reference point for all staff. The group ethics officer and group chief executives are the formal custodians of the code of ethics.

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RISK-WEIGHTED ASSETS

Risk-weighted assets on securitisation exposures have been restated to reflect the group’s exposure to external party securitisation vehicles only. The restatement had no effect on the overall risk-weighted assets total or the group’s capital requirements.

GR Refer to page 17.

CAPITAL ADEQUACY RATIOS

Capital adequacy ratios for some rest of Africa countries were restated following final in-country regulatory submissions.


TOTAL CONTINGENT LIQUIDITY

Liquidity policies and calculations have been updated in line with the Basel III liquidity framework and the comparative results have accordingly been restated.


INTEREST RATE EXPOSURE

To enhance disclosure, repurchase agreement liabilities and collateral received, which were previously included in insurance and other payables, are now reflected in financial instrument liabilities.


Restatements


The impact of new regulatory standards which have been developed by international standard setting bodies and regulators in the wake of the global financial crisis is significant for financial institutions’ business models.

Different regulatory regimes apply in the countries in which the group operates, but there is commonality in many of the focus areas.

The group continues to take a strategic approach to its internal regulatory response in order to efficiently and effectively deal with the breadth and complexity of emerging regulation. This ensures that the group entities are appropriately positioned within the context of the new regulations.

Recently developed regulations can be classified into three main categories: those generally focused on financial sustainability, conduct and culture, and resolvability. In line with the international regulatory agenda, South Africa is adopting Twin Peaks, comprising the Prudential Authority and the Financial Sector Conduct Authority, with the SARB to play the role of the Resolution Authority. The diagram below provides a view of the three regulatory categories.

Profitability

� RoE more than covers the cost of equity

� successful provision of profitable business lines

� cost control

Capital and liquidity

� meet all regulatory capital, leverage and liquidity requirements

� meet internally assessed capital and liquidity requirements

� capital and liquidity planning

� ability to access equity and additional funding as and when required

Enabling regulations

� capital quality and buffers

� range of risks assessed: IRRBB, fundamental review of the trading book, securitisations and credit valuation adjustment (CVA)

� liquidity LCR and NSFR� leverage� SAM� OTC derivatives

Financialsustainability(Prudential Authority)

Resolvability(Resolution Authority)

Conduct and culture

(Financial Sector Conduct Authority)

Variable and sustainable

business model

Resolvability

� meet all legislative requirements for resolution� credible and effective recovery and other

contingency planning� facilitate resolution planning by the authorities� legal and operational structure� continuity of critical economic functions and

of the services that support them� sufficient loss absorbing capacity


� higher loss absorbing requirements (D-SIB, total loss-absorbing capacity)

� recovery and resolution plans� South African resolution framework� resolvability assessments� structural reforms

Conduct

� focus on the customer� tone from top –

alignment of core values with behaviour

� accountability� effective challenge� incentives

Culture

� fostering a sound risk culture that emanates from the top and cascades down

� promoting board engagement and willingness to quickly address risk appetite breaches


� RDR� PoPI� TCF� interchange

determination� financial markets code

of conduct

Annexure ARegulatory and legislative developments impacting the group


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The key regulations that have been finalised over the past year, as well as the regulations that are expected to be finalised in the short term are outlined per jurisdiction in the table below.

Within the South African context, certain new regulations impact both banking and insurance entities. More information can be found in the table below and on the pages that follow.

Global South Africa Rest of Africa

Basel III Twin Peaks Exchange control

NSFR Financial Markets Act (FMA) Financial crime (anti-money laundering)

Securitisations Market conduct and TCF Corporate governance

Pillar 3 disclosure requirements PoPI Consumer protection

Revised standardised approach for credit risk Consumer credit insurance UK, European Union (EU) and US

Revised standardised approach for operational risk RDR EU benchmark regulation

Fundamental review of the trading book

Cybercrime and cybersecurity

Dodd Frank Wall Street Reform and Consumer Protection Act

Interest rate risk in the banking book Insurance

CVA risk framework Draft insurance bill

Leverage ratio SAM

Sovereign risk Retirement reform

OTC derivatives TCF

Recovery and resolution planning Consumer credit insurance

IFRS RDR

IFRS 9

¢ Financial sustainability (Prudential Authority)¢ Conduct and culture (Financial Sector Conduct Authority)¢ Resolvability (Resolution Authority)

Revenue

Leases

Insurance contracts


RISK AND CAPITAL MANAGEMENT REPORT Annexure A Regulatory and legislative developments impacting the group continued

Standardised approach for credit riskThe second consultation on proposed revisions to the credit risk standardised approach was released at the end of 2015. The key change is the reintroduction of the use of external rating agency ratings, for exposures to banks and corporates. The revised proposal also includes alternative approaches for jurisdictions that do not allow the use of external ratings for regulatory purposes.

Standardised approach for operational riskA new consultation paper on operational risk is expected to be released by the BIS during 2016. This is expected to include changes to their proposals for a new standardised approach.

Fundamental review of the trading bookThe BIS endorsed the new market risk framework on 10 January 2016. The fundamental review of the market risk standard is a core component of the Basel III reform package. Notable improvements in the new risk framework, which takes effect in 2019, include:

• a revised boundary between the banking and trading books that will reduce scope for arbitrage

• a revised internal models approach with more coherent and comprehensive risk capture

• an enhanced model approval process and more prudent recognition of hedging and portfolio diversification

• a revised standardised approach that serves as a credible fall-back and floor to the model-based approach, and facilitates more consistent and comparable reporting of market risk across banks and jurisdictions.

Interest rate risk in the banking bookThe BIS has been reassessing the approach to IRRBB over the last two years. The BIS issued a consultative document in June 2015 on the risk management, capital treatment and supervision of IRRBB. Two options for the capital treatment of interest rate risk in the banking book were presented:

• the adoption of a uniformly applied pillar 1 measure for calculating minimum capital requirements, which would have the benefit of promoting greater consistency, transparency and comparability

• a pillar 2 option, which includes quantitative disclosure of IRRBB based upon the proposed pillar 1 approach, which would better accommodate differing market conditions and risk management practices across jurisdictions.

The guidelines are expected to be finalised in the first half of 2016.

GLOBAL

Basel IIIFinalisation of the post-crisis Basel III regulatory reforms are expected by the end of 2016, with the focus then shifting to supervision. Revisions to the standardised approaches for credit, market and operational risk, as well as revisions to IRRBB and a fundamental review of the trading book are on track to be finalised in 2016.

Net stable funding ratioThe NSFR is a key component of the Basel III reforms to promote a more resilient banking sector. The NSFR requires each bank to maintain available stable funding that exceeds its required stable funding as determined by standardised available stable funding and required stable funding factors specified in the Basel III liquidity framework for each type of asset. The Basel III liquidity framework requires that a bank maintains a minimum NSFR, of greater than 100% by 1 January 2018.

The group has played an active role in both international and local industry forums on NSFR, including providing quantitative input to assess potential economic and market implications of the Basel III NSFR framework for South Africa. The SARB issued a proposed NSFR directive on 18 November 2015, with the final legislation expected to be released in the first quarter of 2016.

SecuritisationsCriteria for identifying simple, transparent and comparable securitisations have been proposed by the Bank for International Settlements (BIS). The purpose of these criteria is to assist in the financial industry’s development of simple, transparent and comparable securitisation structures.

The group has been providing relevant information to the BIS and SARB on this topic, facilitating an understanding of the market dynamics of securitisations in our jurisdictions and, therefore, emerging market economies.

Pillar 3 disclosuresThe BIS finalised the first phase of the pillar 3 disclosure review in January 2015. The revised disclosure standards aim to increase transparency of a bank’s risk exposure and the adequacy of its regulatory capital, thereby promoting market discipline. Banks are required to publish these enhanced disclosures from their 2016 year end. The group has put a formal programme in place for the adoption of these requirements.

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effectively and efficiently with local and/or offshore counterparts. It is expected that the FMA regulations will introduce a requirement for some OTC derivatives transactions to be cleared through a CCP, and for non-cleared transactions to become subject to risk mitigation requirements that ultimately provide additional protection to end users of OTC derivative products.

The group will work closely with its clients and counterparts to ensure that the implementation of requirements imposed by the FMA regulations do not disrupt its current and/or ongoing financial market activities. It is expected that the FMA regulations should be finalised during the course of 2016/2017, and that the new requirements will be implemented in a phased-in approach from 2017 onwards.

Recovery and resolution planningSouth Africa is in the process of adopting the global Financial Stability Board standards for the effective management of institutions under severe circumstances that could affect the stability of the financial system. These guidelines require the development of recovery and resolution plans, another form of proactive planning within the risk management framework. The recovery plans for systemically important institutions proactively identifies management actions which can be adopted during periods of severe stress to ensure the survival of the entity and the sustainability of the economy within which it operates. In the event that these actions prove unsuccessful, the resolution plan sets out the approach for unwinding the entity in an orderly manner minimising the impact on its stakeholders.

The group submitted its first comprehensive integrated recovery plan in July 2013 and is now updating and annually submitting this plan to ensure that it remains relevant with the most current view of the group’s strategy, legal entity structure and financial and risk positions. The group’s integrated recovery plan was developed to provide a valuable tool to management and the board to manage the implications of severe stress and proactively addresses potential hurdles in effecting these actions. The group is obtaining similar benefits from planning for the stability of its subsidiaries under severe conditions and through the role-out of the development of subsidiary recovery plans.

The NT and regulatory authorities are in the process of finalising the resolution framework for South Africa. The group plays an active role in recovery and resolution industry forums both locally and internationally. The South African resolution framework will address the globally requisite topics of resolution authority mandate, tools available under

Review of the credit valuation adjustment risk frameworkA review of the CVA risk framework is being undertaken by the BIS. The objectives of the review are to:

• ensure that all important drivers of CVA risk and CVA hedges are covered in the Basel regulatory capital standard

• align the capital standard with the fair value measurement of CVA employed under various accounting regimes

• ensure consistency with the proposed revisions to the market risk framework under the Basel committee’s fundamental review of the trading book.

The Basel III capital framework already establishes a minimum capital charge to capture the potential mark-to-market losses faced by a bank from the deterioration in counterparties’ creditworthiness. This capital treatment addresses any variability in CVA that arises due to changes in credit spreads but does not take account of variability arising from daily changes in market risk factors (for example, account exposure variability).

Leverage ratioThe revised framework will be effective on 1 January 2017. The BIS requires banks’ leverage ratio to be above a 3% (SARB 4%) minimum requirement, where the leverage ratio is calculated as tier I capital divided by the sum of on- and off-balance sheet exposures, securities financing transactions and derivatives. The BIS is evaluating the minimum leverage ratio which is expected to be finalised in 2016. The final calibration of the leverage ratio is also still in progress.

Sovereign riskThe BIS has initiated a review of the existing regulatory treatment of sovereign risk. The implications for emerging markets should be considered in the final proposals and the group has been providing input from an emerging market perspective to the international standard setting bodies.

OTC derivativesThe FMA regulatory reform framework for OTC derivatives (FMA regulations) is yet to be finalised by our national regulators. Local banks, including SBSA, are working closely with the National Treasury (NT), the SARB and the local FSB to ensure that the FMA regulations meet the objectives set by the Group of Twenty leaders, is harmonised insofar as is possible with the frameworks being implemented in other Group of Twenty countries, and does not impede on the ability of local counterparts to continue to hedge risk


Comparison with existing financial instrument accounting requirementsThe accounting for financial instruments is currently governed by IAS 39, which sets out the requirements for the recognition and measurement of financial instruments.

In addition to the new expected loss impairment model, IFRS 9 also specifies new requirements for the classification and measurement of financial instruments, hedge accounting and the accounting for own credit risk.

The group is currently preparing for the adoption of IFRS 9. The IFRS 9’s expected loss model will represent an impact to the group’s financial results, risk metrics and regulatory capital requirements. Other key risk parameters such as economic capital, the group’s funding and liquidity and stressed earnings are also expected to be impacted by greater earnings volatility. Due to changes in impairment provisions such impact is not expected to be significant. The group continues to assess and monitor the impact of IFRS 9 on all key risk and finance dimensions.

IFRS 9 is required to be adopted prospectively from 1 January 2018 with the option to restate comparative financial results. The difference between the previous (IAS 39) and new (IFRS 9) carrying values will be recognised in the group’s opening retained earnings. While IFRS 9 does provide an entity with an option to transition early to the new requirements, it is currently not the intention of the group to do so. IFRS 9 permits an entity to either restate comparative financial results, subject to there being no hindsight, or to adopt the requirements prospectively from 1 January 2018.

Consistent with other South African banking groups, the group’s default approach is to prospectively apply IFRS 9 from 1 January 2018. The group is considering providing additional information in its 2018 financial results to provide an indication of the impact that IFRS 9 would have had on its comparative financial results had the requirements been adopted retrospectively.

resolution such as bail-in, creditor hierarchy, sale of business and approaches for cross-border cooperation with other regulators. It is anticipated that the draft special resolution bill will be released in 2016/2017.

Globally, the following topics are currently under discussion:

• operational continuity

• resolvability

• total loss absorbing capacity

• bail-in execution.

IFRSUp to the date of the approval of the group’s financial statements, the International Accounting Standards Board (IASB) finalised and issued a number of new and proposed accounting requirements. The most significant of these being as follows:

IFRS 9 – financial instrumentsBackgroundThe IASB has issued IFRS 9, which is the replacement for International Accounting Standards (IAS) 39 Financial Instruments: Recognition and Measurement (IAS 39), and is effective for the group’s financial year commencing 1 January 2018. The IASB developed a new expected credit loss (ECL) impairment model with the objective of recognising greater levels of impairment provisions and recognising such provisions earlier and not only following an incurred loss event as a response to criticisms following the financial crisis.

RISK AND CAPITAL MANAGEMENT REPORT Annexure A Global continued

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IFRS 9’s impairment requirementsThe following diagram sets out the key differences between IAS 39’s incurred loss model and IFRS 9’s expected loss model:

ON-BALANCE SHEET

EXPOSURES

Incurred credit loss

model

DETERIORATION OF CREDIT QUALITY

IAS 39 – incurred loss approach (current view)

Performing book and early arrears Non-performing book

Credit impairment

Specific provision

incurred loss (loss event)

The incurred but not reported impairment provision includes the application emergence periods that are

determined for each portfolio and generally range from three to 12 months for retail portfolios

and 12 months for corporate exposures

Specific credit impairments are recognised for exposure for which

there is objective evidence of impairment

IFRS 9 – expected loss approach (future view)

Stage 1 Performing book

Stage 2 Significant increase

in credit risk

Stage 3 Default

12-month expected losses, being the lifetime ECL that will

result from default events expected in the next

12 months

Lifetime ECL, being the ECL that results from all possible default events over the life of the financial instrument

No significant deterioration in credit risk since origination

ORlow credit risk at reporting date

(e.g. investment quality)

Significant deterioration in credit risk since origination

Incurred loss (loss event) as in IAS 39

ON- AND OFF-BALANCE

SHEET EXPOSURES

Expected loss

impairment model

Credit impairment

provision

Performing portfolio provision

Incurred but not

reported losses


Approach to model developmentThe group has approached the development of its IFRS 9 ECL models by leveraging wherever possible off its existing IAS 39 impairment and Basel capital models.

Project governanceThe group has structured its IFRS 9 project in such a way as to effectively enable the delivery of all IFRS 9 requirements across the group.

Business unit subcommittees have been established and are responsible for the detailed work required in order to transition to IFRS 9. These subcommittees report to the project’s steering committee which is responsible for providing overall direction to the project, as well as to effectively deal with project-related issues and to determine the appropriate means to resolve project-related issues. The project board, to which the IFRS 9 steering committee reports provides strategic direction to the project, monitors the project’s progress, identifies required interventions and project interdependencies with other group initiatives.

In order to ensure appropriate board oversight, the IFRS 9 board reports on the project’s activities to the GAC. The GRCMC is also updated on the project’s progress. The group’s board, GAC, GRCMC, GROC and group model approval committee mandates, as contained in the governance and remuneration report are currently being reviewed to assess the impact of IFRS 9, but are not expected to change significantly.

Key milestones and progressThe group’s IFRS 9 project commenced in late 2014 with initial training and communications across the group. Following the establishment of a dedicated programme office with a dedicated project manager, the establishment of the formal project structure and development of the project plan, the project has achieved several key milestones and is on track to achieve a high quality implementation.

Key components within IFRS 9’s expected credit loss modelSignificant increase in credit risk and low credit riskThe assessment of ‘significant increase in credit risk’ for the group’s retail exposures will be based on changes in a customer’s credit score and for the group’s corporate exposures by changes in internal credit ratings, together with expected outlook for the specific sector and industry and other relevant available information. For both the group’s retail and corporate exposures, the determination will be set to identify deterioration in credit risk before the exposure reaches a past due status of 30 days.

Exposures for which there is a significant increase in credit risk but for which the credit risk is low remain in stage 1. The group is currently determining the extent to which the low credit risk threshold will be applicable to its corporate credit exposures.

Forward-looking informationIn determining whether there has been a significant increase in credit risk and in determining the expected loss calculation, IFRS 9 requires the consideration of forward looking information. The determination of ‘significant increase in credit risk’ is required to include consideration of all reasonable and supportable information available without undue cost or effort. This information will typically include forward looking information based on expected macro-economic conditions, specific factors that impact individual portfolios, for example, industry outlooks and expectations of vehicle sales and house price indices for retail portfolios, performance of the customer’s other products with the group and general bureau information for retail products.

The incorporation of forward looking information represents a major change from existing accounting requirements which are based on observable events. The use of such forward looking information will increase the use of management judgement and is expected to increase the volatility of impairment as a result of continuous changes in future expectations. The development of a forward looking framework is expected to be based on the group’s economic house view expectations, industry and sub-sector specific expectations as well as expert management judgement.

DefaultWhile default is not specifically defined by IFRS 9, the group is seeking to align the determination of default with its internal credit risk management definitions and approach.


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Other considerationsImpact on key risk dimensionsWhile the group has conducted internal quantitative impact analyses, it is not in a position to be able to disclose such results since the new IFRS 9 prototype models are subject to finalisation, validation and audit. However, the nature of IFRS 9’s requirements, when compared to existing IFRS impairment requirements, lends itself to require additional impairment allowances. These allowances will be recognised as a deduction from the group’s retained reserves at 1 January 2018. The following table summarises the group’s expectations in terms of how IFRS 9 will affect the group from both a PBB and CIB perspective:

IFRS 9 DRIVER REASON

Stage one – 12-month expected loss

• PBB’s existing emergence period is three to six months and for CIB is 12 months

• IFRS 9’s stage 1 requirement lends itself to require greater impairment provisions for PBB and a less significant change for CIB

Stage two – lifetime expected loss for items for which there is significant increase in credit risk

• IFRS 9 will require a lifetime loss to be recognised for items for which there has been deterioration in credit risk

• it is likely that this will increase both PBB and CIB’s impairments

Stage three – lifetime expected loss for exposures in default

• similar requirements to that of existing accounting requirements

Off-balance sheet exposures • IFRS 9 requirement for impairments for off-balance sheet facilities lends itself to requiring additional impairments

Forward-looking information • will require significant management judgement

• the inclusion of such information may either increase or decrease the impairment provision and will vary depending on the expected future economic outcomes. The incorporation of forward-looking information will also result in additional volatility in reported impairments

IFRS 9 will also affect the group’s regulatory capital requirements. Absent any further changes in regulatory capital requirements, the group’s expected loss shortfall, being the difference between total IFRS provisions and the regulatory expected loss provision, is expected to reduce.


RevenueIFRS 15 Revenue from Contracts with Customers (IFRS 15) replaces the existing IFRS revenue standards and their related interpretations. IFRS 15 sets out the requirements for recognising revenue that applies to all contracts with customers (except for contracts that are within the scope of the standards on leases, insurance contracts or financial instruments).

The core principle of the standard is that revenue should be recognised to reflect the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to the customer. IFRS 15 incorporates a five step analysis to determine the amount and timing of revenue recognition. The standard will be applied retrospectively with an effective date of 1 January 2018.

LeasesIn January 2016, the IASB issued IFRS 16 Leases (IFRS 16), which is the replacement of IAS 17 Leases (IAS 17), as well as related interpretations. The effective date of IFRS 16 is 1 January 2019.

The objective of IFRS 16 is to set out the principles for the recognition, measurement, presentation and disclosure of lease contracts for both lessors and lessees. While the lessor accounting requirements have not changed substantially, IFRS 16 includes significant changes for the lessee’s accounting treatment. These changes will require the lessee to account for all leases similar to how finance leases were accounted for under IAS 17 and not to distinguish whether the leases are operating leases or finance leases as is required by IAS 17. In terms of the lessee accounting treatment, IFRS 16 will require a right of use (ROU) asset together with a liability for the future payments to be recognised for all leases with a term of more than 12 months, unless the underlying asset is of low value.

Insurance contractsThe IASB’s exposure draft on insurance contracts proposes a comprehensive measurement approach for all types of insurance contracts that are issued by entities (and reinsurance contracts held by entities) with a modified approach for some short-duration contracts.

The comprehensive measurement approach is based on the principle that insurance contracts create a bundle of rights and obligations that work together to generate a package of

cash inflows (premiums) and outflows (benefits and claims). The proposals state that an insurer applies a measurement approach utilising building blocks to this package of cash flows. The proposals and effective date are both yet to be finalised but is not expected to be effective before 1 January 2020.

With respect to the abovementioned accounting developments, the group continues to participate in industry body discussions on the new and proposed changes. The group is currently developing its adoption framework to ensure that it is positioned to adopt the requirements of the new standards on their respective effective dates in line with the standards’ required transition requirements.

SOUTH AFRICA

Twin Peaks regulatory frameworkThe second draft of the financial sector regulation bill was tabled in Parliament in November 2015, and consultation on the bill continues. The Twin Peaks system will consist of a Prudential Authority focused on the safety and soundness of financial institutions, and a Financial Sector Conduct Authority focused on the manner in which financial institutions conduct their business and the fair treatment of financial customers. Once enacted, the bill will be adopted in two phases:

• phase one: establishes the two regulatory authorities to harmonise the various sub-sectoral legislation

• phase two: aligns prudential and market conduct standards across the sector.

In line with the bill, the discussion document ‘recovery planning: strengthening South Africa’s resolution framework for financial institutions’ was released in August 2015 and outlines steps to strengthen financial stability and crisis resolution in financial institutions.

Financial Markets ActThe FMA impacts a number of activities of corporate and investment banking. This act regulates the functioning of the stock exchange, as well as market abuse such as insider trading and price manipulation. Draft regulations were released by the NT for OTC derivatives with specific requirements for reporting, clearing, and OTC product providers. Following public comment and stakeholder engagement, the regulatory framework for OTC derivatives is expected to be finalised in 2016.


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Specifically, the RDR focuses on the remuneration of financial advisors, financial advice and products sold to customers and makes proposals to address potential areas in the value chain which could result in conflicts of interest. The RDR is being implemented in stages and SBSA is participating in workshops with the FSB and engaging on the development of RDR proposals.

Cybercrime and cybersecurityThe Department of Justice published the draft cybercrime and cybersecurity bill for comment in November 2015. It is part of the broader national cybersecurity policy framework and defines various cybercrime offences and the related penalties. The draft bill also defines cybersecurity and introduces entities defined as national critical information infrastructure. In the draft bill banks fall into the national critical information infrastructure category which are subject to higher levels of protection, but are also subject to greater regulation and supervision.

INSURANCE

The draft insurance billThe draft bill was released for comment in 2015, and sets out a consolidated legal framework for the prudential supervision of the insurance sector, and replaces the parts of the current Long-term Insurance Act and the Short-term Insurance Act which currently deal with prudential matters, ensuring the safety and soundness of insurers. The framework will be supervised and enforced by the Prudential Authority under the proposed Twin Peaks system of regulation. The draft bill also enables the implementation of the SAM regime of risk-based prudential regulation, and also enables a new groupwide supervision regime for insurers. A new draft of the bill is expected in 2016.

Solvency assessment and managementFollowing international practice, the South African FSB is in the process of adopting a risk-based regulatory requirement for South African insurance and reinsurance organisations, known as SAM. The regime is the local equivalent of the EU solvency II capital regime, and similarly aims to address the adequacy of capital allocation and risk management to protect policyholders.

Market conduct and treating customers fairlyIn December 2014, the NT released the draft market conduct policy framework to support the new Financial Sector Conduct Authority which will be created under Twin Peaks. The intention is to ensure that the fair treatment of customers is embedded within the culture of financial services firms, the six fairness outcomes of TCF form the basis of the policy. The group is consulting with NT on the policy, and has initiated an internal TCF programme. Senior management owns TCF and the various boards of directors of affected group entities will ensure that TCF is central to the entities’ ethics, values, culture and strategy.

Consumer creditThe National Credit Amendment Act regulates consumer credit and has implications for several of the group’s models, systems and processes. The affordability assessment regulations came into effect in March 2015, and outline specific steps to assess customers’ ability to afford credit. Further, the regulations for the limitation of initiation fees and interest rates were published and will come into effect in 2016. These regulations limit the interest and fees on credit agreements. A programme has been initiated in PBB South Africa to ensure the continuation of sound credit extension within its risk appetite.

Consumer credit insuranceThe Department of Trade and Industry published the draft credit life insurance regulations in terms of the National Credit Act for public comment in November 2015. The draft regulations set caps on the total cost of credit life insurance and prescribe the minimum benefits that these policies must offer. The draft regulations also set out the types of exclusions permissible on consumer credit insurance policies. The group is engaging with the Department of Trade and Industry and the National Credit Regulator on the regulations.

The retail distribution reviewThe RDR discussion paper was released in November 2014 and proposes structural reforms to the regulatory framework for distributing retail financial products to customers in South Africa. The RDR is aimed at addressing poor customer outcomes in the current system, and increasing customer confidence in the retail financial industry.


market have continued predominantly in countries such as Nigeria and Angola. Nigeria has seen increased regulatory focus on the ability of banks’ management of foreign exchange due to the volatility in the market, resulting in more regulatory developments and inspections. There is, therefore, additional pressure on business to be responsive and flexible to respond promptly to changes in the regulatory environment.

A number of initiatives are focused at mitigating the risk associated with the developments in foreign exchange control. The group’s global markets department has developed a policy framework, within which foreign currency is allocated to clients based on their foreign currency payment requirements. Various focused interventions have required compliance teams in the group to collaborate to resolve matters promptly which has included frequent country visits and a robust strategy in an effort to address identified and potential weaknesses.

The enhancement of consumer participation and inclusion has received widespread attention across the rest of Africa through giving effect and legitimacy to non-banking institutions and platforms facilitating banking products and services, roll-out of specific products or customer segments and clear bank strategies to deliver on inclusion.

In an effort to move away from cash-based, manual clearing and settlement; the use of paper documents; and accommodate innovative payment methods various enhancements to national payments systems have been noted across the rest of Africa since payment and securities settlement systems play an essential role in the functioning of economies. Notable among these payment systems reforms are efforts aimed at developing the Society for the Worldwide Interbank Financial Telecommunication and real time gross settlement systems across the western region.

Given the inherent risk of financial crime, regulators have continued to implement measures to improve on their regulatory framework and oversight powers. Security concerns and the proliferation of security threats have further added to the continued focus on financial crime.

With ensuing country evaluations across a number of jurisdictions in 2016 focusing on the robustness of anti-money laundering/counter-terrorism financing systems and legal frameworks against Financial Actions Task Force recommendations, the upward trend towards refining and strengthening regulations in place has been widely expected. Sophisticated AML surveillance systems have been launched in six jurisdictions in 2015, with further jurisdictions planned for 2016.

Full implementation of the SAM framework by the South African FSB is planned for 1 January 2017. Both SIL and Liberty are currently participating in a parallel run, and are considered to be ready for the implementation.

SAM requires organisations to integrate risk and capital management within the organisation. Both SIL and Liberty are deriving certain business benefits from implementing SAM principles, such as:

• increased risk transparency

• reduced capital requirements

• higher profit potential

• improved credit rating.

SIL and Liberty remain well represented at all levels of the South African FSB’s SAM industry forums through participation in the task groups and working groups, the SAM steering committee and its subcommittees.

Retirement reformThe intention of NT’s retirement reform is to safeguard savers and pensioners against presumed market failures in costs, access and disclosure and to mobilise additional savings and ensure sensible fund preservation. The proposed reforms aim to improve the transparency and disclosure of product offerings to encourage competition (and decrease cost) and allow consumers to effectively compare and choose savings products.

Other regulatory reforms noted above also impacts the group’s short- and long-term insurance entities and their associated distribution businesses. These include:

• TCF

• consumer credit insurance

• RDR.

REST OF AFRICA

Refining, standardising and broadening the reach of existing legislation and regulation has to a large extent informed the regulatory reform agenda for 2015. Measures and efforts to bolster financial stability, enhance consumer protection, strengthen financial crime controls and corporate governance, and further improve financial inclusion have been taken with a sense of urgency and determination by regulators.

With financial institutions considered to have the potential to help fuel economic growth and/or contribute to economic collapse, developments with regard to the foreign exchange

RISK AND CAPITAL MANAGEMENT REPORT Annexure A Insurance continued

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Dodd Frank Wall Street Reform and Consumer Protection ActThis act came into effect in the US in July 2010, and has been implemented in a phased-in approach since December 2012. It impacts directly on the activities of persons and entities located within the US borders, and is designed to provide consumers of financial products with greater protection, to make banking activities within the US more transparent to regulators, and to ensure greater financial stability. Group entities located outside of the US are ready to assist our US counterparts in their compliance with the requirements of this act. The Commodities Futures Trading Commission recently issued for consultation their margin rules for OTC derivatives transactions that are not cleared through a central clearing counterparty. Group entities trading OTC derivatives products with US counterparts may be impacted by the requirement to post variation margin and initial margin, with the first of these impacts expected to become due in March 2017.

Other key regulatory developments in the UK, EU and the US in future include:

• EU markets in financial instruments’ recast directive and new regulation

• EU capital markets’ union

• EU financial transactions’ tax

• EU market abuse regulation

• EU fourth money-laundering directive

• UK senior managers’ and certification regime.

Various measures have been put in place such as the Kenya bank’s reference rate that was launched by the Central Bank of Kenya as part of efforts to facilitate a transparent credit pricing framework within the banking sector. A number of consumer protection measures have also been noted across the rest of Africa.

The strengthening of corporate governance rules to conform to international best practice has similarly come into focus during 2015. The extent to which reforms have been proposed has included dealing with issues of corruption in the public and private sector, corporate disclosure, safeguarding stakeholder investments, communication and mechanisms for creating trust between shareholders, boards, management and employees.

It is anticipated that the regulatory agenda for 2016 will continue, predominantly, to focus on strengthening existing regulations in place. The extent to which regulators respond to economic pressures within their environments will remain of particular interest.

UNITED KINGDOM, EUROPE AND THE UNITED STATES

EU benchmark regulationThe regulation is expected to become effective in 2017, establishing a legal basis for the International Organisation of Securities Commissions’ principles for financial benchmarks. Once adopted, administration of benchmarks will become a regulated activity, requiring prior regulatory approval. Use of unregulated benchmarks will be prohibited, along with any third country benchmarks, not deemed equivalent to the proposed regulation. The regulation also introduces prescriptive requirements for contributors to benchmarks.

This regulation has been in effect since August 2012. It impacts the OTC derivatives activities of EU established entities. The EU regulators are yet to finalise their margin rules for non-cleared transactions. Clearing of some OTC derivative products come into effect this year, with group entities located outside the EU to start clearing in December 2016.


Annexure B

IFRS AND BASEL REPORTING FRAMEWORKS

Tables in this report have been labelled to identify content disclosed in terms of IFRS or Basel reporting frameworks.

The method of measurement in terms of Basel differs from the method of measurement in accordance with IFRS. The table that follows highlights the principal differences between the IFRS and Basel reporting frameworks. The IFRS requirements have been further analysed between that which is currently required and IFRS 9’s future requirements.

PRINCIPLE BASEL IAS 39 (CURRENT – 2017) IFRS 9 (2018 –)

CATEGORISATION AND CLASSIFICATION OF EXPOSURES

Categorisation of exposures/financial assets for credit risk-related disclosures

Exposures under the IRB approach are categorised into asset classes as prescribed by the regulator which are based on homogeneous risk characteristics. The regulator-defined categories are as follows:

• corporate • sovereign • banks • retail* • equity.

* Retail is analysed further between retail mortgages, QRRE and retail other.

Where classes are not prescribed by the regulator, the group determines categories at an appropriate level of granularity that consider the nature of the required disclosure, for example, industry- and geographical-related disclosures.

Where applicable, financial instruments are categorised by class, taking into account the nature of the information to be disclosed and the characteristics of the underlying financial instruments.

These categories are typically provided in terms of the type of the financial product, categories similar to that of Basel or type of industry.

While the categorisation of such disclosures is yet to be determined, it is expected that the disclosures will be categorised on a similar basis to that as currently provided.

Classification of exposures/financial assets for credit risk-related disclosures

Exposures are classified per the regulator for both the IRB and standardised approach as follows:

• on-balance sheet • off-balance sheet • securities financing

transactions • derivative instruments.

These exposures are further analysed for disclosure purposes into the categories mentioned above.

The group has classified its financial assets on the SOFP into the following classifications:

• derivative assets • trading assets • pledged assets • financial investments • loans and advances • other assets.

These financial asset categories are further analysed for disclosure purposes by category as explained above.

While the classification of such disclosures is yet to be determined, it is expected that the disclosures will be classified on a similar basis to that as currently provided.


Risk and capital management reporting frameworks

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VALUATION OF EXPOSURES

Measurement Exposure values for non-derivatives are determined as the gross contractual exposure before the impact of netting, collateral or expected recoveries. The exposure includes the impact of potential drawdowns against unutilised facilities by using credit conversion factors.

Certain revolving facilities are, in terms of regulatory requirements, reported using monthly average balances.

Derivative instruments are measured at fair value.

All financial instruments are initially measured at fair value and are subsequently measured at either amortised cost or at fair value based on the instrument’s IFRS classification.

The IFRS classification is determined based on the nature, characteristics and contractual terms of the underlying financial instruments and are classified into one of the following categories:

• loans and receivables • held-to-maturity • available for sale • designated to be measured

at fair value through profit or loss (FVTPL)

• held-for-trading.

All financial instruments initially measured at fair value are subsequently measured at either amortised cost or at fair value based on the instrument’s IFRS classification.

The IFRS classification will be based on the nature of the underlying business model within which the financial asset is held and the nature of the asset’s contractual cash flows and will be categorised into one of the following categories:

• amortised cost • fair value through other

comprehensive income (FVOCI) (equities)

• FVOCI (debt instruments) • held-for-trading • FVTPL.

Own credit risk value adjustments

Fair value gains and losses attributable to own credit risk on financial liabilities are excluded when calculating regulatory capital.

All changes in the fair value of financial liabilities subsequently measured at fair value, due to changes in own credit risk, are recognised in the income statement.

Changes in the fair value of financial liabilities designated at FVTPL, due to changes in own credit risk, will be recognised in OCI provided that such recognition will not increase or give rise to an accounting mismatch.

Changes in fair value due to changes in own credit risk for all other financial liabilities that are subsequently measured at fair value will be recognised in the income statement.


RISK AND CAPITAL MANAGEMENT REPORT Annexure B IFRS and Basel reporting frameworks continued


EXPECTED LOSS AND IMPAIRMENTS OF EXPOSURES

Scope Expected and unexpected losses are calculated for all on- and off-balance sheet exposures.

Impairments for incurred credit loss events are calculated for all financial assets that are subsequently measured on an amortised cost basis, including exposures classified as available for sale.

Impairments for both incurred and expected credit loss events are calculated for all financial assets that are measured on an amortised cost basis, including debt instruments that are classified to be measured at FVOCI.

Impairments are also recognised for off-balance sheet financial assets.

Determination Expected losses are calculated based on through-the-cycle average loss levels for exposures with similar credit quality.

Unexpected losses are accounted for through holding regulatory capital in relation to the size and nature of the exposure held.

Differences between Basel and IFRS are treated as follows:

• Basel compared to IAS 39: the difference between the Basel and current IFRS impairment values produces a shortfall if the expected loss amount under Basel exceeds the total impairments determined in terms of IFRS. The shortfall, if any, is deducted from CET I capital. The excess, if any, is to be included in tier II capital subject to regulatory limits.

• Basel compared to IFRS 9: where the total expected losses as determined in terms of IFRS 9 will exceed that of Basel’s expected losses. It is expected that the difference will be eligible to count as tier II capital resources up to a specified ceiling determined with reference to risk-weighted assets.

On-balance sheet financial assets measured at amortised cost and debt instruments classified as available-for-sale are specifically impaired and the resulting loss recognised in the income statement where:

• there is objective evidence of impairment resulting from one or more events that have occurred after the initial recognition of the asset

• that event has an impact on the estimated future cash flows of the asset that can be reliably measured.

Examples of objective evidence of impairment include:

• actual breach of contracts • observable data indicating that

there is a measurable decrease in the estimated cash flows from a group of assets since their initial recognition due to:

– adverse changes in the payment status of the borrowers in the group; or

– a deterioration in national or local economic conditions that correlate with defaults on the assets in the group.

Impairments are accounted for all on-balance sheet exposures.

Impairments for incurred but not reported losses are recognised based on historic loss patterns and estimated emergence periods.

Impairments are recognised for both on- and off-balance sheet financial assets.

Impairments are recognised with reference to an expected loss credit impairment model which considers historical, current and forward looking information. The measurement of credit losses is based on the extent to which there has been a change in the exposure’s credit risk, whether the credit risk is considered to be low and whether the exposure has defaulted.

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EXPECTED LOSS AND IMPAIRMENTS OF EXPOSURES CONTINUED

Default Defines default as the obligor being 90 days past due on the obligation.

The definition of default is not specifically defined by IFRS. The group defines non-performing loans as those loans for which:

• the group has identified objective evidence of default such as a breach of a material loan covenant or condition; or

• instalments are due and unpaid for 90 days or more.

Default is an indicator of impairment but is not the only criteria for a financial asset to have objective evidence of impairment for the determination of an impairment loss.

While the definition of default is not specifically defined by IFRS 9, the determination of default should be consistent with internal credit risk management definitions. IFRS 9 includes a rebuttable assumption that default does not occur later than when a financial asset is more than 90 days past due. The assumption can be rebutted where an entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

EAD EAD is the expected exposure at the point of default and is determined using historic averages which include the impact of potential drawdowns against unutilised facilities by using credit conversion factors.

The EAD is the exposure’s gross carrying value at the reporting date in the SOFP. No account is taken of potential future drawdowns or other off-balance sheet exposures.

The EAD takes into account the exposure’s gross carrying value at the reporting date in the SOFP and off-balance sheet commitments which include certain unutilised loan facilities.

PD Under the IRB approach, exposures are internally rated and mapped to PDs. The group considers both through-the-cycle PDs and point-in-time PDs in measuring impairment against credit exposures.

Point in time PDs, including roll rate assumptions, are used to determine the probability that an exposure will default during the exposure’s lifetime.

The group will use lifetime PDs for all exposures for which there is a significant increase in credit risk (and where the credit risk is not low) or where the exposure has defaulted. 12-month PDs will be used for all other exposures.

The PDs will be determined by taking into account historical, current and forward looking elements.

LGD LGDs are determined with reference to the nature of the exposure, its risk and level of collateralisation. Downturn LGDs are used which reflects the anticipated recovery rates in a downturn period.

Discount rates are applied to the LGD and are based on the weighted average cost of capital or a risk-free rate based on a risk-adjusted rate.

LGDs are determined using historical and expected recovery rates and are discounted using the exposure’s effective interest rate.

As per IAS 39.



EXPECTED LOSS AND IMPAIRMENTS OF EXPOSURES CONTINUED

Measurement The expected loss provides a measure of the value of the credit losses that may reasonably be expected to occur during downturn conditions in the portfolio and the level of capital required to be held.

Expected losses are determined as follows:

• Standardised approach: calculated with reference to the exposure’s risk weighting (determined with reference to the exposure’s characteristics and where, applicable, the external credit agency’s credit rating) and the net counterparty exposures after recognising a limited set of qualifying collateral.

• IRB approach: expected losses are determined for the average estimate of defaults expected within the next 12 months and is determined with reference to the financial asset’s EAD, PD and LGD.

Impairment losses are measured as follows:

• For financial assets measured on an amortised cost basis: the difference between the asset’s carrying amount and the present value of its estimated future cash flows discounted using the asset’s original effective interest rate is recognised in the income statement. Credit losses with respect to future events are excluded from the assessment.

• For available for sale financial assets: the cumulative loss that has been recognised in OCI, being the difference between the asset’s carrying value and its fair value, is reclassified to the income statement.

To provide for latent losses in a portfolio of loans where the loans have not yet been specifically identified as impaired, impairment for incurred but not reported losses is recognised based on historical loss patterns and estimated emergence periods.

For incurred but not reported losses the consideration period is determined separately for each asset class and instruments are segmented based on the incurred level of credit risk, in particular using days past due for retail portfolios and credit ratings for corporate portfolios.

Impairments are recognised with reference to the financial asset’s EAD, PD and LGD.

Impairment losses are measured with reference to a three stage approach based as follows:

• stage one financial assets generally comprise performing loan exposures for which there has not been a significant increase in credit risk or those assets for which there has been a significant increase in credit risk but for which the credit risk is considered to be low. A 12-month expected loss, being the lifetime expected credit loss that results from default events that are possible within the 12 months after the reporting date, is recognised

• stage two financial assets consist of performing assets for which the credit risk has significantly deteriorated since initial recognition and for which the credit risk is not considered to be low. A lifetime expected credit loss is held for such exposures

• stage three financial assets consist of all exposures that have defaulted. A lifetime expected credit loss is held for such exposures.

Impairments are recognised with reference to the financial asset’s EAD, PD and LGD.


121

REPORTING FRAMEWORK CONSOLIDATION DIFFERENCES

In accordance with IFRS, all entities, regardless of the nature of their underlying activities, are either consolidated or equity accounted based on the extent of control or influence that the group exerts over those entities. Basel differentiates entities based on the underlying activity of the entity combined with the extent of control or influence that the group exerts over those entities. The different treatments for entities for regulatory and accounting consolidation are explained in the table below.

SHARE-HOLDING REGULATORY TREATMENT IFRS TREATMENT

BANKING, FINANCIAL ENTITY

OR SECURITIES FIRM1

INSURANCE ENTITY

COMMERCIAL ENTITY

STANDARDISED APPROACH

IRB APPROACH

<10% Aggregate of investments are compared to a threshold of 10% of the group’s CET I capital. Amounts above the threshold are deducted against the corresponding component of capital and amounts below the threshold are risk-weighted.

Risk weight at no less than 100%.

Risk weight up to a maximum of 1 250%.

Typically treated as a financial investment and is measured at fair value (cost in certain circumstances). Where the group has significant influence over that investment, equity accounting is applied unless designated to be measured at FVTPL in terms of IFRS.>10% but

≤20% • Apply the deduction method2. • Aggregate of investments in tier I and

tier II instruments are deducted against the corresponding component of capital.

1 For Basel purposes, financial entities other than financial entities acquired through realisation of security in respect of previously contracted debt (held temporarily) are subject to other materially different rules and regulations or non-consolidation as required by law.

2 Aggregate of investments compared to 10% of the group’s CET I capital and amounts above the 10% threshold are deducted against CET I capital. Amounts not deducted are combined with mortgage servicing rights and deferred tax assets and compared to 15% of the group’s CET I capital. Amounts above the 15% threshold are deducted against CET I capital and amounts below are risk-weighted at 250%.


SHARE-HOLDING REGULATORY TREATMENT IFRS TREATMENT

BANKING, FINANCIAL ENTITY

OR SECURITIES FIRM1

INSURANCE ENTITY

COMMERCIAL ENTITY

STANDARDISED APPROACH

IRB APPROACH

>20% but ≤50%

• Other significant shareholder: Proportionately consolidate.

• No other significant shareholder: Apply the deduction method2.

• Aggregate of investments in tier I and tier II instruments are deducted against the corresponding component of capital.

• Apply the deduction method2.

• Aggregate of investments in tier I and tier II instruments are deducted against the corresponding component of capital.

• Individual investments up to 15% of the group’s CET I, additional tier I and tier II: risk weight at no less than 100%.

• Individual investments in excess of 15% of the group’s CET I, additional tier I and tier II: risk weight at 1 250%.

• Aggregate of investments >60% of the group’s CET I, additional tier I and tier II: risk weight excess above 60% at 1 250%.

• Individual investments up to 15% of the group’s CET I, additional tier I and tier II: risk weight at no less than 100%.

• Individual investments in excess of 15% of the group’s CET I, additional tier I and tier II: risk weight at 1 250%.

Equity accounting (unless designated to be measured at FVTPL in terms of IFRS) applied unless there is evidence of control in which case the group consolidates the investment into its results.

>50% Consolidated Consolidate unless there is evidence to indicate that the group does not have control over that investment in which case equity accounting will typically be applied unless designated to be measured at FVTPL in terms of IFRS.

1 For Basel purposes, financial entities other than financial entities acquired through realisation of security in respect of previously contracted debt (held temporarily) are subject to other materially different rules and regulations or non-consolidation as required by law.

2 Aggregate of investments compared to 10% of the group’s CET I capital and amounts above the 10% threshold are deducted against CET I capital. Amounts not deducted are combined with mortgage servicing rights and deferred tax assets and compared to 15% of the group’s CET I capital. Amounts above the 15% threshold are deducted against CET I capital and amounts below are risk-weighted at 250%.


123

Intercompany transactions between Liberty and the group’s banking operations have not been eliminated for the purposes of separately reporting on the banking and insurance operations’ risk disclosures in this risk and capital management report.

The group controls 54.5% (2014: 53.6%) of the issued ordinary shares of Liberty Holdings Limited. The nature of the arm’s length transactions entered into between Liberty and the group’s banking operations include the following:

• Group ordinary shares: Liberty purchases the group’s ordinary shares for the risk and reward of its policyholders. From an IFRS perspective these shares are accounted for by the group as treasury shares and by Liberty as a financial investment.

• Debt financial instruments: as part of its funding activities, the group’s banking operations issue debt financial instruments which include preference shares, term deposits, debt issued by consolidated structured entities and subordinated bonds. These debt instruments are accounted for by the group’s banking operations as liabilities within deposits and debt funding and subordinated debt as appropriate and are recognised by Liberty as financial investments. These intercompany transactions are eliminated by the group on consolidation. The intercompany debt financial instruments are typically measured by the group’s banking operations on an amortised cost basis and by the group’s insurance operations on a fair value basis. The effect of this measurement inconsistency is assessed and, where applicable, reversed on consolidation.

• Derivative financial instruments: in order to hedge the market risk inherent in Liberty’s assets and liabilities, Liberty may enter into derivatives with the group’s banking operations. These derivatives are respectively accounted for as derivative assets and liabilities by the group’s banking and insurance operations on a fair value basis and are eliminated by the group on consolidation.

The table that follows discloses the value of the transactions entered into between the group’s banking and insurance operations and IFRS risk disclosure tables within which such transactions have not been eliminated. The values on page 69, as included in the group’s banking operations’ liquidity analysis, have not been provided as they will not be able to be meaningfully compared to the fair value of the debt instruments as the liquidity risk disclosures are prepared on an undiscounted contractual cash flow basis.

BASEL APPROACHES ADOPTED FOR REGULATORY CAPITAL PURPOSES

Basel provides various approaches for the calculation of regulatory capital to be held against credit, market and operational risk. In general, there are three approaches:

• a basic approach

• an intermediate approach

• an advanced approach.

The regulators approve the approach adopted on a case-by-case basis, both at a solo regulated entity and consolidated regulated entity level.

The group does not adopt advanced approaches for certain portfolios, either because these methods are not yet recognised in a particular jurisdiction or because the group has chosen, on a materiality basis, to adopt the intermediate or basic approaches. In these cases, the group nevertheless adopts practices similar to the advanced approach for its internal economic capital, risk measurement and management purposes where it is felt that these offer better information for managing risks.

The approaches per risk type approved by regulators are specified in the relevant credit, market and operational risk sections of this report.

RISK DISCLOSURE PRESENTATION FOR INTERCOMPANY TRANSACTIONS BETWEEN THE GROUP’S BANKING AND INSURANCE OPERATIONS

In the ordinary course of business, both the group’s banking operations and the insurance operations of its subsidiary, Liberty, enter into arm’s length transactions with each other. The risks arising from these transactions are managed independently within the group’s banking and insurance operations as part of each operation’s risk management framework. The group’s banking operations’ risk and capital management disclosures are predominantly regulated by both IFRS and Basel III, whereas Liberty’s insurance risk disclosures are influenced by both IFRS and the FSB’s planned implementation of the SAM framework with effect from 1 January 2017. The group’s risk and capital management report disclosures are driven by the scope of these regulatory requirements and follow the manner in which the group’s risks are managed, resulting in separately presented disclosures for the group’s banking and insurance operations.


Nature of instrument

Values

Banking operations’ risk disclosures Insurance operation risk disclosures

Maturityanalysis

offinancialliabilities

by con-tractual

maturity

Tradingbook VaRand SVaR

analysis

Interest rate

sensi-tivity

Creditexposure

to debtinstru-ments

Financialasset

liquidity

Interestrate

exposure

Currencyexposureby majorcurrency

Maturityprofiles

of the group’s

financialinstru-

mentliabilities

2015 2014

Ordinary shares

10 501 000ordinary shares

with a fair value

of R1,2 billion

12 244 000ordinary shares

with a fair value

of R1,8 billion X

Preference share assets

R138,0 million fair value

R169,0 million fair value X X X X X

Term deposits (including subordinated bonds)

R10,5 billion fair value

R11,6 billion fair value X X X X X X

Derivative liabilities

R1 185 million fair value

R273 million fair value X X X X X

Deposits and current accounts

R5,1 billion cash balance

R5,9 billion cash balance X X X X X X

Sale and repurchase agreements R1 942 million R26 million X X

RISK AND CAPITAL MANAGEMENT REPORT Annexure B Risk disclosure presentation for intercompany transactions between the group’s banking and insurance operations continued

125

Annexure C

December December

2015 2014

Basel III Rm

Basel III Rm

CET I capital 112 099 100 406

Instruments and reserves CET I capital before regulatory adjustments 141 597 123 936

Directly issued qualifying common share capital plus related stock surplus 17 946 18 067Retained earnings 112 657 97 455Accumulated other comprehensive income (and other reserves) 10 994 8 414Directly issued capital subject to phase out from CET I (only applicable to non-joint stock companies) Public sector capital injections grandfathered until 1 January 2018 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET I) 5 896 4 159

Regulatory adjustments Less: total regulatory adjustments to CET I (35 394) (27 689)

Prudential valuation adjustments Goodwill (net of related tax liability) (4 152) (3 711)Other intangibles other than mortgage-servicing rights (net of related tax liability) (17 773) (15 850)Deferred tax assets that rely on future profitability, excluding those arising from temporary differences (net of related tax liability) (399) (511)Cash flow hedge reserve 252 (467)Shortfall of provisions to expected losses (2 186) (2 054)Securitisation gain on sale Gains and losses due to changes in own credit risk on fair valued liabilities (179) (195)Defined benefit pension fund net assets (355) (516)Investments in own shares (if not already netted of paid-in capital on reported balance sheet) (244) (308)Reciprocal cross-holdings in common equity Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions,

where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible

short positions (amount above 10% threshold) (10 358) (4 074)Mortgage servicing rights (amount above 10% threshold) Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) Amount exceeding the 15% threshold, relating to:

Significant investments in the common stock of financials Mortgage servicing rights Deferred tax assets arising from temporary differences

National specific regulatory adjustments (3)

Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment

Regulatory adjustments applied to CET I due to insufficient additional tier I and tier II to cover deductions 1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 31 December 2015.

Composition of capital1


December December

2015 2014

Basel III Rm

Basel III Rm

Additional tier I capital 4 139 4 515

Instruments Additional tier I capital before regulatory adjustments 4 139 4 515

Directly issued qualifying additional tier I instruments plus related stock surplus, classified as: 3 846 4 396

Equity under applicable accounting standards 3 846 4 396Liabilities under applicable accounting standards

Directly issued capital instruments subject to phase out from additional tier I 5 495 5 495

Additional tier I instruments (and CET I instruments not included in common share capital) issued by subsidiaries and held by third parties (amount allowed

in group additional tier I), including: 293 119

Instruments issued by subsidiaries subject to phase out

Regulatory adjustments Total regulatory adjustments to additional tier I capital

Investments in own additional tier I instruments Reciprocal cross-holdings in additional tier I instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where

the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible

short positions (amount above 10% threshold) National specific regulatory adjustments:

Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment

Regulatory adjustments applied to additional tier I due to insufficient additional tier I due to insufficient tier II to cover deductions

Tier I capital 116 238 104 921

1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 31 December 2015.

RISK AND CAPITAL MANAGEMENT REPORT Annexure C Composition of capital continued

127

December December

2015 2014

Basel III Rm

Basel III Rm

Capital and provisions Tier II capital before regulatory adjustments 22 288 23 993

Directly issued qualifying tier II instruments plus related stock surplus

Directly issued capital instruments subject to phase out from tier II

Tier II instruments (and CET I and additional tier I instruments not included in common share capital and additional tier I instruments) issued by

subsidiaries and held by third parties (amount allowed in group tier II), including: 20 118 22 727

Instruments issued by subsidiaries subject to phase out 15 457 26 283

Provisions 2 170 1 266

Regulatory adjustments Total regulatory adjustments to tier II capital

Investments in own tier II instruments Reciprocal cross-holdings in tier II instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short

positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of

eligible short positions) National specific regulatory adjustments

Regulatory adjustments applied to tier II in respect of amounts subject to pre-Basel III treatment

Tier II capital 22 288 23 993

Total capital 138 526 128 914

Total risk-weighted assets 944 039 914 213

Risk-weighted assets in respect of amounts subject to pre-Basel III treatment

Capital ratios and buffers CET I (as a percentage of risk-weighted assets) % 11.9 11.0Tier I (as a percentage of risk-weighted assets) % 12.3 11.5Total capital (as a percentage of risk-weighted assets) % 14.7 14.1Institution specific buffer requirement (minimum CET I requirement plus capital conservation buffer plus countercyclical buffer requirements

plus global systemically important banks’ (G-SIB) buffer requirement, expressed as a percentage of risk-weighted assets) % 6.5 5.5

Capital conservation buffer requirement % Bank specific countercyclical buffer requirement % G-SIB buffer requirement %

Common equity tier I available to meet buffers (as a percentage of risk-weighted assets) % 5.3 5.5



December December

2015 2014

Basel III Rm

Basel III Rm

National minima (if different from Basel III) National CET I minimum ratio (if different from Basel III minimum) – excluding individual capital requirement (ICR) and D-SIBs % 6.5 5.5National tier I minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 8.0 7.0National total capital minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 10.0 10.0

Amounts below the threshold for deductions (before risk weighting) Non-significant investments in the capital of other financials 423 484Significant investments in the common stock of financials 12 246 10 448Mortgage servicing rights (net of related tax liability) Deferred tax assets arising from temporary differences (net of related tax liability) 2 398 422

Applicable caps on the inclusion of provisions in tier II Provisions eligible for inclusion in tier II in respect of exposures subject to standardised approach (prior to application of cap) 2 170 5 315Cap on inclusion of provisions in tier II under standardised approach 3 428 2 951Provisions eligible for inclusion in tier II in respect of exposures subject to internal ratings-based approach (prior to application of cap) Cap for inclusion of provisions in tier II under internal ratings-based approach 2 432 2 435

Capital instruments subject to phase-out arrangements (only applicable between 1 January 2018 and 1 January 2022) Current cap on CET I instruments subject to phase out arrangements Amount excluded from CET I due to cap (excess over cap after redemptions and maturities) Current cap on additional tier I instruments subject to phase out arrangements Amount excluded from additional tier I due to cap (excess over cap after redemptions and maturities) Current cap on tier II instruments subject to phase out arrangements Amount excluded from tier II due to cap (excess over cap after redemptions and maturities)


RISK AND CAPITAL MANAGEMENT REPORT Annexure C Composition of capital continued

129

Reconciliation of IFRS audited statement of financial position and regulatory capital and reserves

Statementof financial

positionRm

Underregulatory

scope ofconsolidation

Rm

2015 Assets Cash and balances with central banks 75 112 75 112Financial investments, trading and pledged assets 607 352 257 712Non-current assets held for sale Loans and advances 1 076 917 1 077 395Current tax assets 534 Deferred tax assets 1 881 1 690Derivatives and other assets 135 641 118 453Interest in associates and joint ventures 9 703 9 432Investment property 30 508 Goodwill and other intangible assets 24 031 23 714Property and equipment 17 670 14 952

Total assets 1 979 349

Equity and liabilities Equity 178 908 151 632

Equity attributable to ordinary shareholders 151 069 141 596

Ordinary share capital 162 162 Ordinary share premium 17 784 17 784Reserves 133 123 123 650

Preference share capital and premium 5 503 3 847Non-controlling interests 22 336 6 189

Liabilities 1 800 441 1 723 315

Derivative, trading and other liabilities 279 156 194 018Non-current liabilities held for sale Deposit and debt funding 1 186 514 1 201 549Current tax liabilities 4 304 4 741Deferred tax liabilities 5 094 4 657Policyholders’ liabilities 298 232 298 232Subordinated debt 27 141 20 118

Total equity and liabilities 1 979 349

Annexure D



Annexure E

Ordinary share capital (including

share premium)Subordinated bond – SBK9

Subordinatedbond – SBK12

Subordinated bond – SBK13












31 December 2015 Issuer SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA

Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) ZAG000029687 ZAG000073388 ZAG000073396 ZAG000091018 ZAG000092339 ZAG000093741 ZAG000097619 ZAG000100827 ZAG000100835 ZAG00121781 ZAG000123258 ZAG000126442 ZAG000126434 ZAG000130584

Governing law(s) of the instrument SA SA SA SA SA SA SA SA SA SA SA SA SA SA SA

Regulatory treatment Transitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II N/A N/A N/A N/A N/A

Post-transitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II

Eligible at solo/group/group & solo Solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo

Instrument type (types to be specified by each jurisdiction)

Ordinary share capital and

premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debt

Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR40 198 ZAR1 050 ZAR1 120 ZAR805 ZAR1 246 ZAR854 ZAR1 400 ZAR1 400 ZAR2 450 ZAR350 ZAR2 250 ZAR750 ZAR1 000 ZAR1 000 ZAR880

Par value of instrument ZAR1 ZAR1 500 ZAR1 600 ZAR1 150 ZAR1 780 ZAR1 220 ZAR2 000 ZAR2 000 ZAR3 500 ZAR500 ZAR2 250 ZAR750 ZAR1 000 ZAR1 000 ZAR880

Accounting classification

Equity attributable to ordinary

shareholdersSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debt

Original date of issuance Ongoing 10/04/2006 24/11/2009 24/11/2009 01/12/2011 23/01/2012 15/03/2012 30/07/2012 24/10/2012 24/10/2012 02/12/2014 28/01/2015 28/05/2015 28/05/2015 19/10/2015

Perpetual or dated Perpetual Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated

Original maturity date N/A 10/04/2023 24/11/2021 24/11/2021 01/12/2022 23/01/2022 15/03/2023 30/07/2024 24/10/2025 24/10/2024 02/12/2024 28/01/2025 28/05/2025 28/05/2027 19/10/2025

Issuer call subject to prior supervisory approval No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Optional call date, contingent call dates and redemption amount (currency in Rm) N/A

2018/04/10 ZAR1 500

2016/11/24ZAR1 600

2016/11/24 ZAR1 150

2017/12/01ZAR1 780

2017/01/23 ZAR1 220

2018/03/15 ZAR2 000

2019/07/30 ZAR2 000

2020/10/24 ZAR3 500

2019/10/24 ZAR500

2019/12/02 ZAR2 250

2020/01/28 ZAR750

2020/05/28 ZAR1 000

2022/05/28 ZAR1 000

2020/10/19ZAR880

Subsequent call dates, if applicable

2018/04/10 or any

subsequent interest

payment date N/A

2017/12/01 or any

subsequent interest

payment date N/A N/A N/A N/A N/A

2019/12/02 or any interest payment date

thereafter


thereafter


thereafter


thereafter


thereafter

Coupons/dividends Fixed or floating dividend/coupon N/A Fixed Fixed Floating Fixed Floating Floating Floating Floating Floating Floating Floating Floating Fixed Floating

Coupon rate and any related index N/A8.40%

semi-annual10.82%

semi-annual JIBAR + 2.209.66%

semi-annual JIBAR + 2.00 JIBAR + 2.10 JIBAR + 2.20 JIBAR + 2.35 JIBAR + 2.20 JIBAR + 3.50 JIBAR + 330 JIBAR + 350 11.56% semi-annual JIBAR + 350

Existence of a dividend stopper No No No No No No No No No No No No No No No

Fully discretionary, partially discretionary or mandatory Full discretionary Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

Existence of step up or other incentive to redeem No Yes Yes Yes No No No No No No No No No No No

Non-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative

Convertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible

If convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Write-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Yes Yes Yes Yes Yes

If write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APoint of

non-viability Point of




non-viability

If write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/ARegulatory discretion

Regulatory discretion




If write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Permanent Permanent Permanent Permanent Permanent

If temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Most subordinated Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured

Non-compliant transitioned features No Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No

If yes, specify non-compliant features N/A

Regulation 38(14)(a)(i)

Regulation 38(14) (a)(iv)(D)

Regulation 38(14) (a)(iv)(H)(ii)

Regulation 38(14) (a)(i)









Regulation 38(14)(a)(iv)(H)(ii)








Regulation 38(14)(a)(iv)(H)(ii) N/A N/A N/A N/A N/A

Main features disclosure template

131

Ordinary share capital (including

share premium)Subordinated bond – SBK9














31 December 2015 Issuer SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA

Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) ZAG000029687 ZAG000073388 ZAG000073396 ZAG000091018 ZAG000092339 ZAG000093741 ZAG000097619 ZAG000100827 ZAG000100835 ZAG00121781 ZAG000123258 ZAG000126442 ZAG000126434 ZAG000130584

Governing law(s) of the instrument SA SA SA SA SA SA SA SA SA SA SA SA SA SA SA

Regulatory treatment Transitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II N/A N/A N/A N/A N/A

Post-transitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II

Eligible at solo/group/group & solo Solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo



premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debt

Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR40 198 ZAR1 050 ZAR1 120 ZAR805 ZAR1 246 ZAR854 ZAR1 400 ZAR1 400 ZAR2 450 ZAR350 ZAR2 250 ZAR750 ZAR1 000 ZAR1 000 ZAR880

Par value of instrument ZAR1 ZAR1 500 ZAR1 600 ZAR1 150 ZAR1 780 ZAR1 220 ZAR2 000 ZAR2 000 ZAR3 500 ZAR500 ZAR2 250 ZAR750 ZAR1 000 ZAR1 000 ZAR880



shareholdersSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debt

Original date of issuance Ongoing 10/04/2006 24/11/2009 24/11/2009 01/12/2011 23/01/2012 15/03/2012 30/07/2012 24/10/2012 24/10/2012 02/12/2014 28/01/2015 28/05/2015 28/05/2015 19/10/2015

Perpetual or dated Perpetual Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated

Original maturity date N/A 10/04/2023 24/11/2021 24/11/2021 01/12/2022 23/01/2022 15/03/2023 30/07/2024 24/10/2025 24/10/2024 02/12/2024 28/01/2025 28/05/2025 28/05/2027 19/10/2025

Issuer call subject to prior supervisory approval No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Optional call date, contingent call dates and redemption amount (currency in Rm) N/A

2018/04/10 ZAR1 500

2016/11/24ZAR1 600

2016/11/24 ZAR1 150

2017/12/01ZAR1 780

2017/01/23 ZAR1 220

2018/03/15 ZAR2 000

2019/07/30 ZAR2 000

2020/10/24 ZAR3 500

2019/10/24 ZAR500

2019/12/02 ZAR2 250

2020/01/28 ZAR750

2020/05/28 ZAR1 000

2022/05/28 ZAR1 000

2020/10/19ZAR880


2018/04/10 or any

subsequent interest

payment date N/A

2017/12/01 or any

subsequent interest

payment date N/A N/A N/A N/A N/A


thereafter


thereafter


thereafter


thereafter


thereafter

Coupons/dividends Fixed or floating dividend/coupon N/A Fixed Fixed Floating Fixed Floating Floating Floating Floating Floating Floating Floating Floating Fixed Floating

Coupon rate and any related index N/A8.40%

semi-annual10.82%

semi-annual JIBAR + 2.209.66%

semi-annual JIBAR + 2.00 JIBAR + 2.10 JIBAR + 2.20 JIBAR + 2.35 JIBAR + 2.20 JIBAR + 3.50 JIBAR + 330 JIBAR + 350 11.56% semi-annual JIBAR + 350

Existence of a dividend stopper No No No No No No No No No No No No No No No

Fully discretionary, partially discretionary or mandatory Full discretionary Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

Existence of step up or other incentive to redeem No Yes Yes Yes No No No No No No No No No No No

Non-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative

Convertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible

If convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

If convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Write-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Yes Yes Yes Yes Yes

If write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APoint of





non-viability

If write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/ARegulatory discretion





If write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Permanent Permanent Permanent Permanent Permanent

If temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Most subordinated Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured

Non-compliant transitioned features No Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No






















Regulation 38(14)(a)(iv)(H)(ii) N/A N/A N/A N/A N/A


Ordinary share capital

(including share premium)

Cumulativepreference

share capital

Non-cumulativepreference

share capital

Subordinated bond –

Standard Bank Swaziland 1

Subordinatedbond –

Stanbic Bank Botswana 1




Standard Bank Mozambique








CfC Stanbic Bank Kenya 3




CfC Stanbic Bank Kenya


Stanbic Bank Ghana 1

Subordinated loan –

Standard Bank Mauritius

31 December 2015

Issuer SBG SBG SBGStandard Bank

Swaziland LimitedStanbic Bank

Botswana LimitedStanbic Bank

Botswana LimitedStandard Bank

MozambiqueStandard Bank



MozambiqueCFC Stanbic

Bank LimitedCFC Stanbic


Bank LimitedStanbic Bank

Ghana LimitedStandard Bank

MauritiusUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)

SBKZAE 000109815

SBKPZAE000038881

SBPP ZAE000056339 SZD000551465 SBBL056 SBBL057 MZSTB0OC07S6 MZSTB0OC1516 MZSTB0OC1524 MZSTBOC1532 KE1000001684 KE1000001672 KE4000002438 SBG001

Standard Bank South Africa

Governing law(s) of the instrument SA SA SA Swaziland Botswana Botswana Mozambique Mozambique Mozambique Mozambique Kenya Kenya Kenya Ghana Mauritius

Regulatory treatment Transitional Basel III rules CET I Tier II Additional tier I N/A Tier II Tier II Tier II N/A N/A N/A Tier II Tier II N/A Tier II Tier IIPost-transitional Basel III rules CET I Tier II Additional tier I N/A Tier II Tier II Tier II N/A N/A N/A Tier II Tier II N/A Tier II Tier IIEligible at solo/group/group & solo Group Group Group Solo Group & solo Group & solo Group & solo Solo Solo Solo Group & solo Group & solo Solo Group & solo Solo



premium

Preference share capital and

share premium

Preference share capital and share

premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

bond Subordinated

bond Subordinated

bond Subordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

loanAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR17 496 ZAR5 503 ZAR3 847 E50

ZAR48 BWP50

ZAR77BWP80

ZAR24MT 260 MT 300 MT 381 MT 320

ZAR51KES2 402

ZAR2KES98 KES4 000

ZAR20GHS7 USD25

Par value of instrument 10c ZAR1 1c E50ZAR69BWP50

ZAR110BWP80

ZAR84MT 260 MT 300 MT 381 MT 320

ZAR364KES2 402

ZAR15KES98 KES4 000

ZAR28GHS7 USD25



shareholders


premium


share premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

bond Subordinated

bond Subordinated

bond Subordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

loan

Original date of issuance Ongoing 25/11/1969

2004/07/07, 2006/05/23, 2006/08/12 14/12/2014 13/06/2011 23/05/2012 29/06/2007 07/08/2015 04/09/2015 29/10/2015 07/07/2009 07/07/2009 15/12/2014 23/01/2012 03/12/2012

Perpetual or dated Perpetual Perpetual Perpetual Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated DatedOriginal maturity date N/A N/A N/A 14/12/2024 13/06/2021 23/05/2022 29/06/2017 04/09/2025 04/09/2025 29/10/2025 07/07/2016 07/07/2016 08/12/2021 23/01/2022 04/12/2022Issuer call subject to prior supervisory approval No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesOptional call date, contingent call dates and redemption amount (currency in Rm) N/A N/A N/A

2019/12/14E 50

2016/06/13BWP50

2017/05/23BWP80 N/A

2020/09/04MT 300

2020/09/04MT 381

2020/10/29MT 320 N/A N/A

June 2020KES4 000

2017/01/23GHS7

2017/12/04USD25

Subsequent call dates, if applicable N/A N/A N/A

15 December 2019 or any interest payment date

thereafterOn or after

13 June 2016On or after

23 May 2017 N/A

4 September 2020 or any

interest payment date thereafter



29 October 2020 or any

interest payment date thereafter N/A N/A

June 2020 or any interest payment date

thereafter

23 January 2017 or any

interest payment date

thereafter

5 December 2017 or any


thereafter

Coupons/dividends

Fixed or floating dividend/coupon N/A Fixed Floating Fixed

Fixed margin linked to a

floating base rate

Fixed margin linked

to a floating base rate

Fixed margin linked


First coupon fixed rate,

thereafter fixed margin linked







to a floating base rate Fixed


floating base rate Fixed


floating base rate


floating base rate

Coupon rate and any related index N/A 6.50%77% of prime interest rate 8.75%

91 day BoBC + 130bps

91 day BoBC + 150bps WA + 50bps

12%SLF + 450bps

12%SLF + 450bps

12%SLF + 450bps 12.5%

182 day T-bill + 175 bps 12.95%

365 day T-bill + 350bps LIBOR + 300bps

Existence of a dividend stopper No No No No No No No No No No No No No No NoFully discretionary, partially discretionary or mandatory Full discretionary Full discretionary Full discretionary Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem No No No Yes Yes Yes Yes Yes Yes No Yes Yes No Yes YesNon-cumulative or cumulative Non-cumulative Cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)

Non-cumulative preference shares

Subordinated debt

Cumulative preference shares Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior debt

Non-compliant transitioned features No Yes Yes N/A Yes Yes Yes N/A N/A N/A Yes Yes N/A Yes Yes


No loss- absorbency features at the point of

non-viability


non-viability N/A








Regulation 38(14)(a)(iv)(D)

Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A





Regulation 38(14) (a)(iv)(H)(ii) N/A







RISK AND CAPITAL MANAGEMENT REPORT Annexure E Main features disclosure template continued

133

Ordinary share capital

(including share premium)

Cumulativepreference

share capital

Non-cumulativepreference

share capital


Standard Bank Swaziland 1

Subordinatedbond –

















CfC Stanbic Bank Kenya


Stanbic Bank Ghana 1



31 December 2015

Issuer SBG SBG SBGStandard Bank

Swaziland LimitedStanbic Bank

Botswana LimitedStanbic Bank

Botswana LimitedStandard Bank




MozambiqueCFC Stanbic



Bank LimitedStanbic Bank

Ghana LimitedStandard Bank

MauritiusUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)

SBKZAE 000109815

SBKPZAE000038881

SBPP ZAE000056339 SZD000551465 SBBL056 SBBL057 MZSTB0OC07S6 MZSTB0OC1516 MZSTB0OC1524 MZSTBOC1532 KE1000001684 KE1000001672 KE4000002438 SBG001


Governing law(s) of the instrument SA SA SA Swaziland Botswana Botswana Mozambique Mozambique Mozambique Mozambique Kenya Kenya Kenya Ghana Mauritius

Regulatory treatment Transitional Basel III rules CET I Tier II Additional tier I N/A Tier II Tier II Tier II N/A N/A N/A Tier II Tier II N/A Tier II Tier IIPost-transitional Basel III rules CET I Tier II Additional tier I N/A Tier II Tier II Tier II N/A N/A N/A Tier II Tier II N/A Tier II Tier IIEligible at solo/group/group & solo Group Group Group Solo Group & solo Group & solo Group & solo Solo Solo Solo Group & solo Group & solo Solo Group & solo Solo



premium


share premium


premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

bond Subordinated

bond Subordinated

bond Subordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

loanAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR17 496 ZAR5 503 ZAR3 847 E50

ZAR48 BWP50

ZAR77BWP80

ZAR24MT 260 MT 300 MT 381 MT 320

ZAR51KES2 402

ZAR2KES98 KES4 000

ZAR20GHS7 USD25

Par value of instrument 10c ZAR1 1c E50ZAR69BWP50

ZAR110BWP80

ZAR84MT 260 MT 300 MT 381 MT 320

ZAR364KES2 402

ZAR15KES98 KES4 000

ZAR28GHS7 USD25



shareholders


premium


share premiumSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

bond Subordinated

bond Subordinated

bond Subordinated

debtSubordinated

debtSubordinated

debtSubordinated

debtSubordinated

loan

Original date of issuance Ongoing 25/11/1969

2004/07/07, 2006/05/23, 2006/08/12 14/12/2014 13/06/2011 23/05/2012 29/06/2007 07/08/2015 04/09/2015 29/10/2015 07/07/2009 07/07/2009 15/12/2014 23/01/2012 03/12/2012

Perpetual or dated Perpetual Perpetual Perpetual Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated DatedOriginal maturity date N/A N/A N/A 14/12/2024 13/06/2021 23/05/2022 29/06/2017 04/09/2025 04/09/2025 29/10/2025 07/07/2016 07/07/2016 08/12/2021 23/01/2022 04/12/2022Issuer call subject to prior supervisory approval No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes YesOptional call date, contingent call dates and redemption amount (currency in Rm) N/A N/A N/A

2019/12/14E 50

2016/06/13BWP50

2017/05/23BWP80 N/A

2020/09/04MT 300

2020/09/04MT 381

2020/10/29MT 320 N/A N/A

June 2020KES4 000

2017/01/23GHS7

2017/12/04USD25

Subsequent call dates, if applicable N/A N/A N/A

15 December 2019 or any interest payment date

thereafterOn or after

13 June 2016On or after

23 May 2017 N/A






interest payment date thereafter N/A N/A

June 2020 or any interest payment date

thereafter

23 January 2017 or any


thereafter



thereafter

Coupons/dividends

Fixed or floating dividend/coupon N/A Fixed Floating Fixed


floating base rate

Fixed margin linked


Fixed margin linked










to a floating base rate Fixed


floating base rate Fixed


floating base rate


floating base rate

Coupon rate and any related index N/A 6.50%77% of prime interest rate 8.75%

91 day BoBC + 130bps

91 day BoBC + 150bps WA + 50bps

12%SLF + 450bps

12%SLF + 450bps

12%SLF + 450bps 12.5%

182 day T-bill + 175 bps 12.95%

365 day T-bill + 350bps LIBOR + 300bps

Existence of a dividend stopper No No No No No No No No No No No No No No NoFully discretionary, partially discretionary or mandatory Full discretionary Full discretionary Full discretionary Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem No No No Yes Yes Yes Yes Yes Yes No Yes Yes No Yes YesNon-cumulative or cumulative Non-cumulative Cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)

Non-cumulative preference shares

Subordinated debt

Cumulative preference shares Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior debt

Non-compliant transitioned features No Yes Yes N/A Yes Yes Yes N/A N/A N/A Yes Yes N/A Yes Yes



non-viability


non-viability N/A









Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A














Standard BankTanzania


Stanbic Bank Uganda

Subordinatedloan –

Standard Bank Angola


Stanbic Bank IBTC


Standard Bank Zambia


Stanbic Bank DRC


Stanbic Bank IBTC


Standard Bank Namibia


Stanbic Bank Botswana


Stanbic Bank Zambia




Standard Bank Lesotho


Stanbic Bank Ghana


Standard Bank Offshore Group



31 December 2015

IssuerStandard Bank

TanzaniaStanbic Bank

UgandaStandard Bank

AngolaStanbic Bank

IBTCStandard Bank

ZambiaStanbic Bank

DRCStanbic Bank

IBTCStandard Bank

NamibiaStanbic Bank

BotswanaStanbic Bank

ZambiaStandard Bank

NamibiaStandard Bank

LesothoStanbic Bank

Ghana SBOG SBOGUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)






Standard Bank South Africa NGSB20245181 NA000A1ZRK11

Standard Bank South Africa ZM2000000272






Governing law(s) of the instrument Tanzania Uganda Angola Nigeria Zambia DRC Congo Nigeria Namibia Botswana Zambia Namibia Lesotho Ghana IOM Ltd IOM Ltd

Regulatory treatment Transitional Basel III rules Tier II Tier II N/A N/A Tier II N/A N/A N/A N/A N/A N/A N/A N/A Tier II Tier IIPost-transitional Basel III rules Tier II Tier II N/A N/A Tier II N/A N/A N/A N/A N/A N/A N/A N/A Tier II Tier IIEligible at solo/group/group & solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo

Instrument type (types to be specified by each jurisdiction)Subordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtSubordinated

loanSubordinated

debtSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date) TZS10 838 UGX23 740 AOA4 103 NGN7 972 ZMK165 CDF2 808 NGN15 440 NAD100 BWP300 ZMK36.7 NAD100 LES50 GHS47 GBP8 GBP3Par value of instrument TZS10 838 UGX23 740 AOA4 103 NGN7 972 ZMK165 CDF2 808 NGN15 440 NAD100 BWP300 ZMK36.7 NAD100 LES50 GHS47 GBP8 GBP3

Accounting classificationSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtSubordinated

loanSubordinated

debtSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtOriginal date of issuance 15/12/2011 31/10/2011 23/05/2013 30/04/2013 13/12/2011 20/05/2014 30/09/2014 23/10/2014 28/11/2014 31/10/2014 30/04/2015 03/08/2015 17/11/2015 09/06/2011 09/06/2011Perpetual or dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated DatedOriginal maturity date 15/12/2021 31/10/2021 23/05/2023 31/05/2025 13/12/2021 20/05/2024 30/09/2024 23/10/2024 28/11/2024 31/10/2024 30/04/2025 03/08/2025 17/11/2025 30/06/2021 30/06/2025Issuer call subject to prior supervisory approval Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes N/A N/AOptional call date, contingent call dates and redemption amount (currency in Rm)

2016/12/15TZS10 838

2016/10/31UGX23 740

2018/05/23AOA4 103

2020/05/31NGN7 972

2016/12/13ZMK165

2019/05/20CDF2 808

2019/10/01NGN15 440

2019/10/24NAD100

2019/11/28 BWP300

2019/11/01ZMK36.7

2020/04/30NAD100

2020/08/03LES50

2020/11/17GHS47 N/A N/A




thereafter



thereafter

23 May 2018 or any


thereafter

31 May 2020 or any


thereafter



thereafter

20 May 2019 or any interest payment date

thereafter





29 November 2019 or any





thereafter

4 August 2020 or any interest payment date

thereafter



thereafter N/A N/A

Coupons/dividends

Fixed or floating dividend/coupon

Fixed margin linked


Fixed margin linked


Fixed margin linked


Fixed margin linked


Fixed margin linked



floating base rate Fixed Fixed Fixed


floating base rate


floating base rate


floating base rate


floating base rate Floating Floating

Coupon rate and any related index LIBOR + 395bps LIBOR + 376bps LIBOR + 360bps LIBOR + 360bps LIBOR + 385bps LIBOR + 975bps 13.25% 9.00% 10.25%182-day T-bill

+ 275 bps JIBAR + 350bps JIBAR + 350bps LIBOR + 430bps

25bps over LIBOR,

payable 6 monthly

25bps over LIBOR,

payable 3 monthly

Existence of a dividend stopper No No No No No No No No No No No No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No NoNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Senior debt Senior debt Senior debt Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Senior debt Senior unsecured Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Non-compliant transitioned features Yes Yes N/A N/A Yes N/A N/A N/A N/A N/A N/A N/A N/A Yes Yes

If yes, specify non-compliant features









Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A N/A N/A N/A N/A N/A

Non compliant with Basel III

post transition


post transition


135


Standard BankTanzania


Stanbic Bank Uganda


Standard Bank Angola


Stanbic Bank IBTC


Standard Bank Zambia


Stanbic Bank DRC


Stanbic Bank IBTC






Stanbic Bank Zambia




Standard Bank Lesotho


Stanbic Bank Ghana





31 December 2015

IssuerStandard Bank

TanzaniaStanbic Bank

UgandaStandard Bank

AngolaStanbic Bank

IBTCStandard Bank

ZambiaStanbic Bank

DRCStanbic Bank

IBTCStandard Bank

NamibiaStanbic Bank

BotswanaStanbic Bank

ZambiaStandard Bank

NamibiaStandard Bank

LesothoStanbic Bank

Ghana SBOG SBOGUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)






Standard Bank South Africa NGSB20245181 NA000A1ZRK11

Standard Bank South Africa ZM2000000272






Governing law(s) of the instrument Tanzania Uganda Angola Nigeria Zambia DRC Congo Nigeria Namibia Botswana Zambia Namibia Lesotho Ghana IOM Ltd IOM Ltd

Regulatory treatment Transitional Basel III rules Tier II Tier II N/A N/A Tier II N/A N/A N/A N/A N/A N/A N/A N/A Tier II Tier IIPost-transitional Basel III rules Tier II Tier II N/A N/A Tier II N/A N/A N/A N/A N/A N/A N/A N/A Tier II Tier IIEligible at solo/group/group & solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo Solo

Instrument type (types to be specified by each jurisdiction)Subordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtSubordinated

loanSubordinated

debtSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date) TZS10 838 UGX23 740 AOA4 103 NGN7 972 ZMK165 CDF2 808 NGN15 440 NAD100 BWP300 ZMK36.7 NAD100 LES50 GHS47 GBP8 GBP3Par value of instrument TZS10 838 UGX23 740 AOA4 103 NGN7 972 ZMK165 CDF2 808 NGN15 440 NAD100 BWP300 ZMK36.7 NAD100 LES50 GHS47 GBP8 GBP3


loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtSubordinated

loanSubordinated

debtSubordinated

loanSubordinated

loanSubordinated

loanSubordinated

debtSubordinated

debtOriginal date of issuance 15/12/2011 31/10/2011 23/05/2013 30/04/2013 13/12/2011 20/05/2014 30/09/2014 23/10/2014 28/11/2014 31/10/2014 30/04/2015 03/08/2015 17/11/2015 09/06/2011 09/06/2011Perpetual or dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated Dated DatedOriginal maturity date 15/12/2021 31/10/2021 23/05/2023 31/05/2025 13/12/2021 20/05/2024 30/09/2024 23/10/2024 28/11/2024 31/10/2024 30/04/2025 03/08/2025 17/11/2025 30/06/2021 30/06/2025Issuer call subject to prior supervisory approval Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes N/A N/AOptional call date, contingent call dates and redemption amount (currency in Rm)

2016/12/15TZS10 838

2016/10/31UGX23 740

2018/05/23AOA4 103

2020/05/31NGN7 972

2016/12/13ZMK165

2019/05/20CDF2 808

2019/10/01NGN15 440

2019/10/24NAD100

2019/11/28 BWP300

2019/11/01ZMK36.7

2020/04/30NAD100

2020/08/03LES50

2020/11/17GHS47 N/A N/A




thereafter



thereafter

23 May 2018 or any


thereafter

31 May 2020 or any


thereafter



thereafter


thereafter










thereafter

4 August 2020 or any interest payment date

thereafter



thereafter N/A N/A

Coupons/dividends

Fixed or floating dividend/coupon

Fixed margin linked


Fixed margin linked


Fixed margin linked


Fixed margin linked


Fixed margin linked



floating base rate Fixed Fixed Fixed


floating base rate


floating base rate


floating base rate


floating base rate Floating Floating

Coupon rate and any related index LIBOR + 395bps LIBOR + 376bps LIBOR + 360bps LIBOR + 360bps LIBOR + 385bps LIBOR + 975bps 13.25% 9.00% 10.25%182-day T-bill

+ 275 bps JIBAR + 350bps JIBAR + 350bps LIBOR + 430bps

25bps over LIBOR,

payable 6 monthly

25bps over LIBOR,

payable 3 monthly

Existence of a dividend stopper No No No No No No No No No No No No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No NoNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Senior debt Senior debt Senior debt Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Senior debt Senior unsecured Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Non-compliant transitioned features Yes Yes N/A N/A Yes N/A N/A N/A N/A N/A N/A N/A N/A Yes Yes










Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A N/A N/A N/A N/A N/A


post transition


post transition










31 December 2015 Issuer SBOG SBOG SBOG SBOG

Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)


Standard Bank Group

International LtdStandard Bank

Offshore GroupStandard Bank

Offshore GroupGoverning law(s) of the instrument Jersey Jersey Jersey Jersey

Regulatory treatment Transitional Basel III rules Tier II Tier II Tier II Tier IIPost-transitional Basel III rules Tier II Tier II Tier II Tier IIEligible at solo/group/group & solo Solo Solo Solo SoloInstrument type (types to be specified by each jurisdiction)

Subordinated debt

Subordinated debt

Subordinated debt

Subordinated debt

Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date) GBP10 GBP6 GBP10 GBP11Par value of instrument GBP10 GBP6 GBP10 GBP11


debtSubordinated

debtSubordinated

debtSubordinated

debtOriginal date of issuance 10/06/2010 15/06/2011 15/06/2011 29/06/2011Perpetual or dated Dated Dated Dated DatedOriginal maturity date 30/06/2025 30/06/2021 30/06/2025 30/06/2021Issuer call subject to prior supervisory approval N/A N/A N/A N/AOptional call date, contingent call dates and redemption amount (currency in Rm) N/A N/A N/A N/ASubsequent call dates, if applicable N/A N/A N/A N/A

Coupons/dividends Fixed or floating dividend/coupon Floating Floating Floating Floating

Coupon rate and any related index

390bps over LIBOR,

payable 3 monthly

25bps over LIBOR,

payable 3 monthly

LIBOR + 390bps,payable 3

monthly

25bps over LIBOR,

payable 3 monthly

Existence of a dividend stopper No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem No No No NoNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Senior unsecured Senior unsecured Senior unsecured Senior unsecured Non-compliant transitioned features Yes Yes Yes Yes


Non-compliant with Basel III

post transition


post transition


post transition


post transition


137

Directors’ responsibility for financial reporting 138

Group secretary’s certification 139

Report of the group audit committee 140

Directors’ report 142

Independent auditors’ report 145

Statement of financial position 146

Income statement 147

Statement of other comprehensive income 148

Statement of cash flows 149

Statement of changes in equity 150

Accounting policy elections 154

Key management assumptions 157

Notes to the financial statements 165

Standard Bank Group Limited – company financial statements 237

Annexure A – subsidiaries, consolidated and unconsolidated structured entities 246

Annexure B – associates and joint ventures 262

Annexure C – group share incentive schemes 267

Annexure D – detailed accounting policies 272

Annexure E – emoluments and share incentives of directors and prescribed officers 320

Annexure F – six year review 332

Annexure G – third-party funds under management 340

The group and company annual financial statements were audited in terms of the Companies Act 71 of 2008.

The preparation of the group and company annual financial statements were supervised by the group financial director, Simon Ridley, BCom (Natal), CA(SA), AMP (Oxford).

A summary of these results was made publicly available on 3 March 2015.

Annual financial statements


Directors’ responsibility for financial reporting

In accordance with the Companies Act, the directors are responsible for the preparation of the annual financial statements. These annual financial statements conform to IFRS as issued by the IASB, and fairly present the affairs of Standard Bank Group Limited (the company) and Standard Bank Group (the group)/(SBG) as at 31 December 2015, and the net income and cash flows for the year then ended.

The directors are ultimately responsible for the internal controls of the company and the group. Management enables the directors to meet these responsibilities. Standards and systems of internal controls are designed, implemented and monitored by management to provide reasonable assurance of the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for shareholder investments and company and group assets. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties.

It is the responsibility of the independent auditors to report on the fair presentation of the financial statements.

Based on the information and explanations provided by management and the group’s internal auditors, the directors are of the opinion that the internal financial controls are adequate and that the financial records may be relied upon for preparing the financial statements in accordance with IFRS and to maintain accountability for the company and the group’s assets and liabilities. Nothing has come to the

attention of the directors to indicate that a breakdown in the functioning of these controls, resulting in material loss to the company and the group, has occurred during the year and up to the date of this report.

The directors have a reasonable expectation that the company and the group will have adequate resources to continue in operational existence and as a going concern in the financial year ahead. The 2015 annual financial statements which appear on pages 146 to 331 and specified sections of the risk and capital management report contained within pages 2 to 136 were approved by the board on 2 March 2016 and signed on its behalf by:

Thulani GcabasheChairman2 March 2016

Ben Kruger Sim TshabalalaGroup chief executive Group chief executive2 March 2016 2 March 2016


139

Compliance with the Companies Act 71 of 2008 (Companies Act)In terms of the Companies Act and for the year ended 31 December 2015, I certify that Standard Bank Group Limited has filed all returns and notices required by the Companies Act with the Companies and Intellectual Property Commission and that all such returns and notices are true, correct and up to date.

Zola StephenGroup secretary2 March 2016

Group secretary’s certification


This report is provided by the audit committee, in respect of the 2015 financial year of Standard Bank Group Limited, in compliance with section 94 of the Companies Act, as amended from time-to-time, and in terms of the JSE Listings Requirements. The committee’s operation is guided by a detailed mandate that is informed by the Companies Act, the Banks Act and the Code of Corporate Practices and Conduct set out in the King Code and is approved by the board. The committee is appointed by the board annually. Information on the membership and composition of the audit committee, its terms of reference and its activities is provided in greater detail in the corporate governance statement.

Execution of functionsThe audit committee has executed its duties and responsibilities during the financial year in accordance with its mandate as it relates to the group’s accounting, internal auditing, internal control and financial reporting practices.

During the year under review, the committee, among other matters, considered the following:

• In respect of the external auditors and the external audit:

– considered and recommended the reappointment of KPMG Inc. and PricewaterhouseCoopers Inc. as joint external auditors for the financial year ended 31 December 2015, in accordance with all applicable legal requirements

– approved the external auditors’ terms of engagement, the audit plan and budgeted audit fees payable

– reviewed the audit process and evaluated the effectiveness of the audit

– obtained assurance from the external auditors that their independence was not impaired

– considered the nature and extent of all non-audit services provided by the external auditors

– through the chairman, approved proposed contracts with the external auditors for the provision of non-audit services and pre-approved proposed contracts with the external auditors for the provision of non-audit services above an agreed threshold amount

– confirmed that no reportable irregularities were identified and reported by the external auditors in terms of the Auditing Profession Act 26 of 2005

– considered reports from subsidiary audit committees and from management through the group’s governance structures on the activities of subsidiary entities.

• ➢In respect of the financial statements:

– confirmed the going concern basis for the preparation of the interim and annual financial statements

– examined and reviewed the interim and annual financial statements prior to submission and approval by the board

– reviewed reports on the adequacy of provisions for performing and non-performing loans and impairment of other assets and considered feedback from the external auditors concerning any changes that were made to the models applied by management in determining charges for and levels of impairment of performing loans

– ensured that the annual financial statements fairly present the financial position of the company and of the group as at the end of the financial year and the results of operations and cash flows for the financial year and considered the basis on which the group was determined to be a going concern

– ensured that the annual financial statements conform with IFRS

– considered accounting treatments, significant unusual transactions and accounting judgements

– considered the appropriateness of the accounting policies adopted and changes thereto

– reviewed and discussed the external auditors’ audit report

– considered and made recommendations to the board on the interim and final dividend payments to shareholders

– noted that there were no material reports or complaints received concerning accounting practices, internal audit, internal financial controls, content of annual financial statements, internal controls and related matters.

• In respect of the annual integrated report: – recommended the annual integrated report to the

board for approval

– evaluated management’s judgements and reporting decisions in relation to the annual integrated report and ensured that all material disclosures are included

– reviewed forward-looking statements, financial and sustainability information.

• In respect of internal control, internal audit and financial crime control:

– reviewed and approved the annual internal audit charter and audit plan and evaluated the independence, effectiveness and performance of the internal audit department and compliance with its charter

– considered reports of the internal and external auditors on the group’s systems of internal control, including internal financial controls, and maintenance of effective internal control systems

– reviewed significant issues raised by the internal audit processes and the adequacy of corrective action in response to such findings


Report of the group audit committee

141

– the chairman is a member of and attended the risk and capital management committee and the group IT committee meetings held during the year under review

– Peter Sullivan, an independent non-executive board member and member of the GAC is the chairman of the group IT committee.

• In respect of the coordination of assurance activities, the committee:

– reviewed the plans and work outputs of the external and internal auditors as well as compliance and financial crime control, and concluded that these were adequate to address all significant financial risks facing the business

– considered the expertise, resources and experience of the finance function and the senior members of management responsible for this function and concluded that these were appropriate

– considered the appropriateness of the experience and expertise of the group financial director and concluded that these were appropriate.

Independence of the external auditors The audit committee is satisfied that KPMG Inc. and PricewaterhouseCoopers Inc. are independent of the group. This conclusion was arrived at, inter alia, after taking into account the following factors:

• the representations made by KPMG Inc. and PricewaterhouseCoopers Inc. to the audit committee

• the auditors do not, except as external auditors or in rendering permitted non-audit services, receive any remuneration or other benefits from the group

• the auditors’ independence was not impaired by any consultancy, advisory or other work undertaken by the auditors

• the auditors’ independence was not prejudiced as a result of any previous appointment as auditor

• the criteria specified for independence by the Independent Regulatory Board for Auditors and international regulatory bodies were met.

In conclusion, the audit committee has complied with its legal, regulatory and governance responsibilities as set out in its mandate.

On behalf of the group audit committee

Richard DunneChairman, group audit committee1 March 2016

– noted that there were no significant differences of opinion between the internal audit function and management

– assessed the adequacy of the performance of the internal audit function and adequacy of the available internal audit resources and found them to be satisfactory

– based on the above, the committee formed the opinion that, at the date of this report, there were no material breakdowns in internal control, including internal financial controls, resulting in any material loss to the group

– reviewed and approved the mandate of financial crime as an independent risk function

– discussed significant financial crime matters and control weaknesses identified

– over the course of the year, met with the chief audit officer, the GCCO, the group CRO, the head of financial crime control, management and the external auditors

– reviewed any significant legal and tax matters that could have a material impact on the financial statements

– considered quarterly reports from the group’s internal financial controls committee

– considered the routine independent quality assurance review of audit execution, the results of which confirmed that internal audit had generally conformed with the International Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing.

• In respect of legal, regulatory and compliance requirements:

– reviewed, with management, matters that could have a material impact on the group

– monitored compliance with the Companies Act, the Banks Act, other applicable legislation and governance codes and reviewed reports from internal audit, external auditors and compliance detailing the extent of this

– noted that no complaints were received through the group’s ethics and fraud hotline concerning accounting matters, internal audit, internal financial controls, contents of financial statements, potential violations of the law and questionable accounting or auditing matters

– reviewed and approved the annual compliance mandate and compliance plan.

• In respect of risk management and information technology:

– considered and reviewed reports from management on risk management, including fraud and information technology risks as they pertain to financial reporting and the going concern assessment


Nature of businessStandard Bank Group Limited is the ultimate holding company for the group’s interests and is an African financial services organisation with South African roots. It is South Africa’s largest banking group by assets and currently operates in 21 countries on the African continent. Our strategic position enables us to connect Africa to other selected emerging markets and pools of capital in developed markets.

Headquartered in Johannesburg, South Africa, the group’s primary listing is on the JSE and its secondary listing is on the Namibian Stock Exchange (NSX). Other subsidiary entities are listed on exchanges in Kenya, Malawi, Nigeria and Uganda.

A simplified group organogram with principal subsidiaries is shown in annexure A.

Group resultsGroup headline earnings and headline earnings per share increased by 29% to R22 187 million and 28% to 1388,9 cents respectively. Net asset value per share increased by 9% and group return on equity increased to 15.6%. A final dividend of 371 cents per share has been declared.

Share capitalOrdinary sharesDuring the year, 3 813 706 ordinary shares (2014: 4 879 268 ordinary shares) were issued in terms of equity compensation. Surplus capital was used to repurchase 3 923 373 ordinary shares (2014: 4 361 547 ordinary shares) to counteract the dilutive impact of the shares issued under the equity compensation plans.

Registered officeThe address of the registered office is 9th floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg 2001.

InsuranceThe group protects itself against financial loss by maintaining banker’s comprehensive crime and professional indemnity cover. The insurance terms and conditions are reviewed by the group insurance committee annually to ensure they are ‘fit-for-purpose’ against the group’s risk exposures.

Shareholder analysisShareholders at the close of the financial year, holding beneficial interests in excess of 5% of the company’s issued share capital, determined from the share register and investigations conducted on our behalf, were as follows:

% held

2015 2014

Ordinary sharesIndustrial and Commercial Bank

of China Limited (ICBC) 20.1 20.1Government Employees Pension

Fund (PIC) 12.5 13.16.5% preference sharesOld Sillery Proprietary Limited 9.1 9.1L Lombard 8.8 8.8DJ Saks 7.5 7.5Estate Late G Spitz 6.8 1.7DF Foster 5.2 6.0

Events during 2015Disposal of subsidiariesStandard Bank PlcThe group disposed of 60% of Standard Bank Plc (SB Plc) to ICBC on 1 February 2015. The final cash proceeds on this 60% disposal, which was based on a discount to the 31 January 2015 net asset value (this net asset value was impacted by the valuation writedown of certain aluminium claims) amounted to USD675 million. The final tranche of payment in this respect was made, in terms of the transaction agreements, in early July 2015. SB Plc’s financial results, together with the net gain on disposal, have been reported as part of the group’s discontinued operation’s results up to the date of completion of the transaction. ICBC has a five-year call option to purchase a further 20% of the outstanding shares of SB Plc, exercisable from 1 February 2017. Contingent upon ICBC exercising its call option and from six months after such exercise, the group has a five-year option to require ICBC to acquire its residual shareholding for cash.

The group retained a 40% interest in SB Plc (subsequently renamed ICBC Standard Bank Plc (ICBCS)), with this interest being recognised as investment in an associate from 1 February 2015. An associate was recognised at an initial value of USD450 million (R5 219 million) on this date. This value was determined to be the fair value based on the terms of the disposal transaction. The results from the group’s remaining 40% interest in ICBCS have been included, with effect from 1 February 2015, in the group’s continuing operation’s results.

Directors’ reportfor the year ended 31 December 2015


143

Aluminium reverse repurchase agreementDuring the year, a settlement agreement was concluded with the majority of the group’s third-party insurers in respect of the losses suffered as a consequence of the fraud in Qingdao port relating to certain aluminium reverse repurchase agreements. An amount of approximately USD70,5 million in cash was received by ICBCS with respect to this settlement. Pursuant to the amendments to the disposal agreement with ICBC in relation to ICBCS, the group enjoys the full economic benefit of this subsequent recovery.

Efforts continue through a number of avenues to recover amounts owing from the remaining third-party insurer and to pursue other recovery mechanisms from other counterparties, and to access metal stocks held by the authorities in China.

Deferred Prosecution Agreement (DPA)As explained in the announcement made to shareholders via the JSE’s Stock Exchange News Service (SENS) on 30 November 2015, the group’s former subsidiary, SB Plc (now renamed to ICBCS) entered into a DPA with the United Kingdom Serious Fraud Office (SFO) with the approval of the President of the Queen’s Bench Division of the High Court of England and Wales.

The DPA relates to allegations that SB Plc failed to prevent two executives of Stanbic Bank Tanzania Limited (Stanbic) from engaging a local partner with the intent that the engagement would induce Tanzanian Government representatives into acting partially in awarding a capital raising mandate to SB Plc and Stanbic. SB Plc self-reported this suspicious transaction to the SFO in 2013. In terms of the DPA, prosecution has been suspended and will be withdrawn after three years provided that SB Plc has complied with its obligations under the DPA. In the same announcement, it was confirmed that SB Plc had reached a settlement agreement with the United States Securities and Exchange Commission (SEC) in relation to allegations of negligence relating to the same matter.

The total cost relating to the DPA and the SEC settlement, including penalties, compensation payments and legal costs, amounted to USD40,3 million (R562 million). In terms of the completion of the disposal by the group of a controlling interest in SB Plc to ICBC on 1 February 2015, the group indemnified ICBC against costs of this nature. USD16,1 million (R226 million) of the total cost has been recognised within the group’s continuing operations through the equity accounted earnings of its 40% interest in ICBCS and USD24,2 million (R336 million) has been included in the group’s discontinued operation’s results.

As part of the disposal of SB Plc, the group provided ICBC with certain indemnities to be paid in cash to ICBC or, at ICBC’s direction, to any SB Plc group company, a sum equal to the amount of losses suffered or incurred by ICBC arising from certain circumstances. Where an indemnity payment is required to be made by the group to SB Plc, such payment would be grossed up from ICBC’s shareholding at the time in SB Plc to 100%. Such payments may arise as a result of the ownership, conduct or operation of all or any part of the businesses that have, in terms of the transaction agreements, been transferred from SB Plc to the group prior to disposal (excluded business) or from an enforcement action, the cause of which occurred prior to the completion date of 1 February 2015. Enforcement actions include actions taken by regulatory or governmental authorities to enforce the relevant laws in any jurisdiction. The indemnities provided are uncapped and of unlimited duration as they reflect that the risks of ownership and conduct of the excluded business, and pre-completion regulatory risks attaching to the global market outside Africa business, remain with the group post completion.

BrazilIn April 2015, the group completed the disposal of Banco Standard de Investimentos S.A. (BSI), the group’s Brazilian licensed banking subsidiary, to Grupo Financiero Inbursa SAB, a listed Mexican banking group. The final disposal proceeds amounted to R581 million. The net gain on the disposal of R262 million (of which R111 million is included in headline earnings) has been included in the group’s income statement as part of its continuing operation’s results.

Black economic empowerment (BEE) transactionsIn 2004, the group entered into a series of transactions whereby investments were made in cumulative, redeemable, preference shares issued by BEE entities. The group’s banking operations’ BEE initiative is referred to as Tutuwa and Liberty’s is referred to as Lexshell. A key feature of these BEE initiatives is that all participants were subject to a ten-year lock-in restriction which expired on 31 December 2014.

To the extent that the Tutuwa participants accessed their underlying equity value and to the extent that those equity shares are financed by the group, a proportionate amount of the group’s negative empowerment reserve is released through the payment of the underlying debt owing on the preference shares by the participants. From January 2015 to December 2015, an equivalent of R1,3 billion was released from the group’s empowerment reserve.


DISTRIBUTIONS

Ordinary shares

6.5% cumulativepreference shares

(first preference shares)

Non-redeemable,non-cumulative,

non-participatingpreference shares

(secondpreference shares)

Interim2014Dividend per share (cents) 259,00 3,25 340,582015Dividend number 92 92 22Dividend per share (cents) 303,00 3,25 353,20Record date in respect of the cash

dividendFriday, 11 September

2015Friday, 4 September

2015Friday, 4 September

2015Dividend cheques posted and CSDP*/

broker accounts credited/updated (payment date)

Monday, 14 September 2015



Final2014Dividend per share (cents) 339,00 3,25 358,162015Dividend number 93 93 23Dividend per share (cents) 371,00 3,25 369,76Record date in respect of the cash

dividendFriday, 22 April

2016Friday, 15 April

2016Friday, 15 April

2016Dividend cheques posted and CSDP*/

broker accounts credited/updated (payment date)

Monday, 25 April 2016



* Central Securities Depository Participant.

Change in directorateThe following changes in directorate of the company and the group have taken place during the 2015 financial year end up to 2 March 2016:

APPOINTMENTS

Dr ML Oduor-Otieno as director 1 January 2016

T Gcabashe as chairman 28 May 2015

RESIGNATIONS AND RETIREMENTS

FA du Plessis as director 28 May 2015

F Phaswana as chairman 28 May 2015

Lord Smith of Kelvin, KT as director 28 May 2015

ANNUAL FINANCIAL STATEMENTS Directors’ report continued

145

To the shareholders of Standard Bank Group Limited Report on the financial statementsWe have audited the group’s consolidated and company’s separate financial statements of the Standard Bank Group Limited, which comprise the statements of financial position as at 31 December 2015, and the income statements and statements of comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and notes to the financial statements including the appendices, as set out on pages 146 to 331, and specified sections marked as “audited” in the risk and capital management report.

Directors’ responsibility for the financial statements The company’s directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibilityOur 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 misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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 auditors consider 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.

OpinionIn our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Standard Bank Group Limited as at 31 December 2015, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Other reports required by the Companies ActAs part of our audit of the financial statements for the year ended 31 December 2015, we have read the directors’ report, the report of the group audit committee and the group secretary’s certification 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 our reading of 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.

Report on Other Legal and Regulatory RequirementsIn terms of the IRBA notice published in the Government Gazette Number 39475 dated 4 December 2015 we report that, based on available statutory records, KPMG Inc. and PricewaterhouseCoopers Inc. have been the joint auditors of the Standard Bank Group Limited for 53 years.

KPMG Inc.Registered Auditor

Per Peter MacDonaldChartered Accountant (SA)Registered AuditorDirector2 March 2016

85 Empire RoadParktown2193

PricewaterhouseCoopers Inc.Registered Auditor

Per Fulvio TonelliChartered Accountant (SA)Registered AuditorDirector2 March 2016

2 Eglin RoadSunninghill2157

Independent auditors’ report



Statement of financial position

Group

2015 2014

as at 31 December 2015 Note Rm Rm

AssetsCash and balances with central banks 1 75 112 64 302Derivative assets 2 111 089 61 633Trading assets 3 86 219 72 040Pledged assets 4 34 429 14 185Financial investments 5 486 704 450 921Current tax assets 534 498Loans and advances 6 1 076 917 928 241Non-current assets held for sale 7 219 958Other assets 8 24 552 20 691Interest in associates and joint ventures 9 9 703 3 727Investment property 10 30 508 27 022Property and equipment 11 17 670 16 737Goodwill and other intangible assets 12 24 031 21 175Deferred tax assets 16.1 1 881 1 715

Total assets 1 979 349 1 902 845

Equity and liabilitiesEquity 178 908 161 634

Equity attributable to ordinary shareholders 151 069 136 985

Ordinary share capital 13.2 162 162Ordinary share premium 13.2 17 784 17 905Reserves 133 123 118 918

Preference share capital and premium 13.2 5 503 5 503Non-controlling interests 22 336 19 146

Liabilities 1 800 441 1 741 211

Derivative liabilities 2 133 958 72 281Trading liabilities 15 43 304 43 761Current tax liabilities 4 304 4 505Deposits and debt funding 17 1 186 514 1 047 212Non-current liabilities held for sale 7 182 069Policyholders’ liabilities 18 298 232 287 516Subordinated debt 19 27 141 25 521Provisions and other liabilities 20 101 894 73 871Deferred tax liabilities 16.1 5 094 4 475

Total equity and liabilities 1 979 349 1 902 845

147

Income statement

Group

2015 20141

for the year ended 31 December 2015 Note Rm Rm

Continuing operationsIncome from banking activities 91 113 84 043

Net interest income 49 310 45 152

Interest income 27 91 535 83 397Interest expense 28 (42 225) (38 245)

Non-interest revenue 41 803 38 891

Net fee and commission revenue 26 920 26 079

Fee and commission revenue 29 31 397 30 399Fee and commission expense 30 (4 477) (4 320)

Trading revenue 31 11 016 9 294Other revenue 32 3 867 3 518

Income from investment management and life insurance activities 23 997 21 209

Insurance premiums received 33 37 572 40 724Insurance benefits and claims paid 34 (36 884) (47 200)Investment management and service fee income and gains 35 36 791 38 743Fair value adjustments to investment management liabilities and third-party

fund interests 36 (13 482) (11 058)

Total income 115 110 105 252Credit impairment charges 37 (9 371) (9 009)

Net income after credit impairment charges 105 739 96 243Operating expenses in banking activities 38 (51 434) (46 596)Operating expenses in insurance activities 38 (16 184) (14 546)

Net income before non-trading and capital related items 38 121 35 101Non-trading and capital related items 39 (1 512) 986Share of post-tax (loss)/profit from associates and joint ventures 9 (323) 626

Net income before indirect taxation 36 286 36 713Indirect taxation 41 (2 739) (2 439)

Profit before direct taxation 33 547 34 274Direct taxation 41 (8 187) (8 061)

Profit for the year from continuing operations 25 360 26 213Profit/(loss) for the year from discontinued operation 40 2 741 (4 048)

Profit for the year 28 101 22 165

Attributable to ordinary shareholders 23 754 17 905Attributable to preference shareholders 377 356Attributable to non-controlling interests 3 970 3 904

Earnings per share from continuing operations and discontinued operationBasic earnings per ordinary share (cents) 42 1 487,0 1 129,9Diluted earnings per ordinary share (cents) 42 1 474,0 1 107,3Earnings per share from continuing operationsBasic earnings per ordinary share (cents) 42 1 315,5 1 385,3Diluted earnings per ordinary share (cents) 42 1 303,9 1 357,6

1 Refer to the Accounting policy elections regarding adjustments to the comparative results. These adjustments were as a result of enhanced disclosures and have no effect on the profit for the year, earnings per share measures or reserves.



Statement of other comprehensive income

Group

2015 2014

for the year ended 31 December 2015 Rm Rm

Profit for the year 28 101 22 165Other comprehensive income after tax for the year1 3 009 (888)

Items that may be reclassified subsequently to profit and loss 3 109 (757)

Movements in the cash flow hedging reserve (903) (379)

Net change in fair value of cash flow hedges 1 551 272Realised fair value adjustments of cash flow hedges transferred to profit or loss (2 454) (651)

Movements in the available-for-sale revaluation reserve 234 (226)

Net change in fair value of available-for-sale financial assets 117 (208)Realised fair value adjustments on available-for-sale financial assets

transferred to profit or loss 117 (18)

Exchange differences on translating foreign operations 4 103 (5)Net change on hedges of net investments in foreign operations (325) (147)

Items that may not be reclassified to profit and loss (100) (131)

Defined benefit fund remeasurements (121) (99)Other losses 21 (32)

Total comprehensive income for the year 31 110 21 277

Attributable to non-controlling interests 5 227 2 689Attributable to equity holders of the parent 25 883 18 588

1 Income tax relating to each component of other comprehensive income is disclosed in note 41.

149

Statement of cash flows

Group

2015 2014


Net cash flows from operating activities 35 504 29 654

Net income before non-trading and capital related items 38 121 35 101Adjusted for non-cash items and other adjustments included in the

income statement 45.1 (44 062) (48 476)Increase in income-earning assets 45.2 (108 259) (149 791)Increase in deposits, trading and other liabilities 45.3 98 021 141 223Dividends received 6 063 6 209Interest paid (43 476) (39 156)Interest received 101 846 91 143Direct taxation paid (8 012) (8 070)Net cash flows (used in)/from operating activities in discontinued

operation (4 738) 1 471

Net cash flows used in investing activities (31 828) (8 298)

Capital expenditure on property and equipment (4 267) (3 536)Proceeds from sale of property and equipment 685 735Capital expenditure on intangible assets (5 260) (4 890)Investment (in)/from investment properties (2 125) 1 470Increase in investments by insurance operations (16 307) (3 145)Cash flow resulting from the disposal of subsidiaries 45.4 (4 554) 9Cash flow resulting from the acquisition of subsidiaries (13)Acquisition and disposals of associates and joint ventures 1 235Net cash flows used in investing activities in discontinued operation (163)

Net cash flows used in financing activities (11 509) (10 262)

Proceeds from issue of share capital net of buybacks (641) (599)Net cash flow from equity transactions with non-controlling interests (1 118) (617)Cash proceeds from settlement of BEE transaction 1 317Subordinated debt issued 4 005 4 385Subordinated debt redeemed (3 127) (2 425)Dividends paid (11 945) (10 694)Net cash flows used in financing activities in discontinued operation (312)

Effect of exchange rate changes on cash and cash equivalents 2 066 2 376

Net (decrease)/increase in cash and cash equivalents (5 767) 13 470Cash and cash equivalents at the beginning of the year 80 879 67 409

Cash and cash equivalents at the end of the year 75 112 80 8791

1 Includes cash and balances with central bank that have been classified as held for sale (note 7).



Ordinary share

capital and

premium

Empower-ment

reserveTreasury

shares

Foreigncurrency

translationreserve

Foreigncurrency

hedge of net

investmentreserve

Cash flow hedging reserve

Statutorycredit risk

reserve

Available-for-sale

revaluationreserve

Share-based

payment reserve

Otherreserves

Retained earnings

Ordinary share-

holders’equity

Preferenceshare

capital and

premium

Non-controlling

interestsTotal

equityfor the year ended 31 December 2015 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Balance at 1 January 2015 18 067 (1 934) (636) 7 359 (415) 467 2 105 62 1 172 234 110 504 136 985 5 503 19 146 161 634Total comprehensive income/(loss)

for the year 2 864 (325) (851) 160 21 23 637 25 506 377 5 227 31 110

Profit for the year 23 754 23 754 377 3 970 28 101Other comprehensive income/(loss) for

the year 2 864 (325) (851) 160 21 (117) 1 752 1 257 3 009

Increase in statutory credit risk reserve 674 (674)Unincorporated property partnerships

capital reductions and distributions (144) (144)Transactions with shareholders,

recorded directly in equity (121) 1 486 12 (1 461) (11 338) (11 422) (377) (1 893) (13 692)

Equity-settled share-based payment transactions1 (690) (702) (1 392) 73 (1 319)

Transfer of vested equity options (771) 771Issue of share capital and share premium

and capitalisation of reserves 520 (520)Share buy-back (641) (641) (641)Deferred tax on share-based payment

transactions (72) (72) (72)Transactions with non-controlling

shareholders (3) (366) (369) (778) (1 147)Net decrease in treasury shares 15 51 66 49 115Redemption of preference shares 1 317 1 317 1 317Net dividends paid 169 (10 500) (10 331) (377) (1 237) (11 945)

Dividends paid to equity holders 169 (10 565) (10 396) (377) (1 512) (12 285)Dividends received from Tutuwa initiative

and policyholders’ deemed treasury shares 65 65 275 340

Balance at 31 December 2015 17 946 (448) (624) 10 223 (740) (384) 2 779 222 (289) 255 122 129 151 069 5 503 22 336 178 908

1 Includes hedges of the group’s equity-settled share incentive schemes.

Statement of changes in equity

151

Ordinary share

capital and

premium

Empower-ment

reserveTreasury

shares

Foreigncurrency

translationreserve

Foreigncurrency

hedge of net

investmentreserve



reserve

Available-for-sale

revaluationreserve

Share-based

payment reserve

Otherreserves

Retained earnings

Ordinary share-

holders’equity

Preferenceshare

capital and

premium

Non-controlling

interestsTotal



for the year 2 864 (325) (851) 160 21 23 637 25 506 377 5 227 31 110


the year 2 864 (325) (851) 160 21 (117) 1 752 1 257 3 009



recorded directly in equity (121) 1 486 12 (1 461) (11 338) (11 422) (377) (1 893) (13 692)

Equity-settled share-based payment transactions1 (690) (702) (1 392) 73 (1 319)

Transfer of vested equity options (771) 771Issue of share capital and share premium

and capitalisation of reserves 520 (520)Share buy-back (641) (641) (641)Deferred tax on share-based payment

transactions (72) (72) (72)Transactions with non-controlling

shareholders (3) (366) (369) (778) (1 147)Net decrease in treasury shares 15 51 66 49 115Redemption of preference shares 1 317 1 317 1 317Net dividends paid 169 (10 500) (10 331) (377) (1 237) (11 945)

Dividends paid to equity holders 169 (10 565) (10 396) (377) (1 512) (12 285)Dividends received from Tutuwa initiative

and policyholders’ deemed treasury shares 65 65 275 340

Balance at 31 December 2015 17 946 (448) (624) 10 223 (740) (384) 2 779 222 (289) 255 122 129 151 069 5 503 22 336 178 908




Statement of changes in equity continued

Ordinary share

capital and

premium

Empower-ment

reserveTreasury

shares

Foreigncurrency

translationreserve

Foreigncurrency

hedge of net

investmentreserve



reserve

Available-for-sale

revaluationreserve

Share-based

payment reserve

Otherreserves

Retained earnings

Ordinary share-

holders’equity

Preferenceshare

capital and

premium

Non-controlling

interestsTotal



for the year 1 085 (147) (337) (134) (11) 17 776 18 232 356 2 689 21 277


the year 1 085 (147) (337) (134) (11) (129) 327 (1 215) (888)



recorded directly in equity (59) (88) (351) (61) (9 624) (10 183) (356) (1 673) (12 212)

Equity-settled share-based payment transactions1 580 (359) 221 48 269

Transfer of vested equity options (641) 641Issue of share capital and share

premium and capitalisation of reserves 554 (540) 14 14Share buy-back (613) (613) (613)Deferred tax on share-based payment

transactions 150 150 150Transactions with non-controlling

shareholders (1) (415) (416) (26) (442)Net increase in treasury shares (350) (242) (592) (304) (896)Net dividends paid (88) (8 859) (8 947) (356) (1 391) (10 694)

Dividends paid to equity holders (141) (8 911) (9 052) (356) (1 480) (10 888)Dividends received from Tutuwa initiative

and policyholders’ deemed treasury shares 53 52 105 89 194

Balance at 31 December 2014 18 067 (1 934) (636) 7 359 (415) 467 2 105 62 1 172 234 110 504 136 985 5 503 19 146 161 634


Refer to annexure D for the accounting policies relating to the reserves.

All balances are stated net of tax, where applicable.

153

Ordinary share

capital and

premium

Empower-ment

reserveTreasury

shares

Foreigncurrency

translationreserve

Foreigncurrency

hedge of net

investmentreserve



reserve

Available-for-sale

revaluationreserve

Share-based

payment reserve

Otherreserves

Retained earnings

Ordinary share-

holders’equity

Preferenceshare

capital and

premium

Non-controlling

interestsTotal



for the year 1 085 (147) (337) (134) (11) 17 776 18 232 356 2 689 21 277


the year 1 085 (147) (337) (134) (11) (129) 327 (1 215) (888)



recorded directly in equity (59) (88) (351) (61) (9 624) (10 183) (356) (1 673) (12 212)

Equity-settled share-based payment transactions1 580 (359) 221 48 269

Transfer of vested equity options (641) 641Issue of share capital and share

premium and capitalisation of reserves 554 (540) 14 14Share buy-back (613) (613) (613)Deferred tax on share-based payment

transactions 150 150 150Transactions with non-controlling

shareholders (1) (415) (416) (26) (442)Net increase in treasury shares (350) (242) (592) (304) (896)Net dividends paid (88) (8 859) (8 947) (356) (1 391) (10 694)

Dividends paid to equity holders (141) (8 911) (9 052) (356) (1 480) (10 888)Dividends received from Tutuwa initiative

and policyholders’ deemed treasury shares 53 52 105 89 194

Balance at 31 December 2014 18 067 (1 934) (636) 7 359 (415) 467 2 105 62 1 172 234 110 504 136 985 5 503 19 146 161 634


Refer to annexure D for the accounting policies relating to the reserves.

All balances are stated net of tax, where applicable.


The principal accounting policies applied in the presentation of the group and company’s annual financial statements are set out below.

Basis of preparationThe group’s consolidated and company’s separate annual financial statements (annual financial statements) are prepared in accordance with IFRS as issued by the IASB, its interpretations adopted by the IASB, the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides as issued by the Accounting Practices Committee, the JSE Listings Requirements, and the South African Companies Act. The annual financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

• available-for-sale financial assets, financial assets and liabilities classified at fair value through profit or loss, investment property, liabilities for cash-settled share-based payment arrangements and interests in mutual funds, policyholder investment contract liabilities and third-party financial liabilities arising on the consolidation of mutual funds that are measured at fair value

• policyholder insurance contract liabilities and related reinsurance assets that are measured in terms of the Financial Soundness Valuation (FSV) basis as set out in accounting policy 13 – Policyholder insurance and investment contracts

• post-employment benefit obligations that are measured in terms of the projected unit credit method.

The following principal accounting policy elections in terms of IFRS have been made, with reference to the detailed accounting policies shown in brackets:

• purchases and sales of financial assets under a contract whose terms require delivery of the asset within the timeframe established generally by regulation or convention in the marketplace concerned are recognised and derecognised using trade date accounting (accounting policy 3)

• cumulative gains and losses recognised in other comprehensive income (OCI) in terms of a cash flow hedge relationship are transferred from OCI and included in the initial measurement of the non-financial asset or liability (accounting policy 3)

• commodities acquired principally for the purpose of selling in the near future or generating a profit from fluctuation in price or broker-traders’ margin are measured at fair value less cost to sell (accounting policy 3)

Accounting policy elections


• investment property is accounted for using the fair value model (accounting policy 6)

• mutual fund investments held by investment-linked insurance funds, that do not meet the definition of a subsidiary, are designated on initial recognition as at fair value through profit or loss (accounting policy 2)

• tangible assets (intangible assets other than goodwill) are accounted for at cost less accumulated depreciation (amortisation) and impairment (accounting policy 6)

• intercompany transactions between the group’s continuing operations and discontinued operation are not eliminated but presented as part of the group’s respective continuing and discontinued operation’s results (accounting policy 10)

• the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities on a net basis (accounting policy 4).

Functional and presentation currencyThe annual financial statements are presented in South African rand, which is the functional and presentation currency of the group and the company. All amounts are stated in millions of rand (Rm), unless indicated otherwise.

Changes in accounting policiesThe accounting policies are consistent with those reported in the previous year except as required in terms of the adoption of the following:

Adoption of new and amended standards effective for the current financial period

• IAS 19 Employee Benefits (IAS 19): Amendment to employee contributions for defined benefit plans requires contributions that are dependent on the number of years of service are to be attributed to periods of service based on the plan’s contribution formula or a straight-line basis. Contributions that are independent of the number of years of service are to be recognised as a reduction in service cost in the period in which the related service is rendered.

155

information. The following key changes resulted in a more streamlined and concise set of annual financial statements:

– changes to the ordering of line items in the financial statements, notably in the statement of financial position to better reflect liquidity

– consideration of regulatory disclosure and reporting requirements to identify information that was not required and was better placed outside of the financial statements

– the application of materiality to items resulting in aggregation/deletion of immaterial items

– the development of a revised income statement and statement of cash flows, which included the following changes and related restatements;

Early adoption of revised standards • Annual improvements 2010 – 2012, 2011 – 2013 and

2012 – 2014 cycle: the IASB issued various amendments and clarifications to existing IFRS, none of which had a significant impact on the group’s and company’s annual financial statements.

• Amendment to IAS 1 Presentation of Financial Statements (IAS 1): the group and company early adopted the amendment which clarified that materiality applies to the whole set of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. As a consequence of early adopting the amendment, the group and company undertook a project to assess the effectiveness of disclosures in the annual financial statements and, where necessary, remove immaterial and unnecessary

INCOME STATEMENTAs previously presented Revised presentation

Description

2014Rm

gain/(loss) Description

2014Rm

gain/(loss)

Investment income and gains 35 505 Investment management and service fee income and gains

38 743Management and service fee income 3 238

Fair value adjustment to policyholders’ liabilities under investment contracts (7 473) Fair value adjustments to investment

management liabilities and third-party fund interests

(11 058)Fair value adjustments on third-party fund

interests (3 585)

Goodwill impairment (4)

Now included in non-trading and capital related items

986

Gains on disposal and liquidation of subsidiaries 1 210

Reversal of impairments of associates1 34

Gain on sale of associate1 19

Impairment of intangible asset2 (257)

Loss on sale of property and equipment2 (16)

Revenue sharing agreements with discontinued operation (171) Now included in fee and commission revenue (171)

Net insurance benefits and claims – previously included after the determination of total income (47 200)

Net insurance benefits and claims – now included as part of income from investment management and life insurance activities as part of the group’s total income (47 200)

The revised standards did not have any effect on the group and company’s reported earnings, financial statement position, reserves and had no material impact on the accounting policies.

1 Included in share of profits from associates and joint ventures.2 Included in other operating expenses.


STATEMENT OF CASH FLOWSAs previously presented Revised presentation

Description2014

Rm Description2014

Rm

Net income before goodwill impairment 34 826

Replaced by Net income before non-trading and capital related items 35 101

Adjusted for: (48 201)

Adjusted for non-cash items and other adjustments included in the income statement (being the impairment of intangible assets and loss on sale of property and equipment no longer included in the subtotal ‘net income before non-trading and capital related items’.) (48 476)

ANNUAL FINANCIAL STATEMENTS Accounting policy elections continued

157

In preparing the financial statements, estimates and assumptions are made that could materially affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on factors such as historical experience and current best estimates of uncertain future events that are believed to be reasonable under the circumstances. Unless otherwise stated, no material changes to assumptions have occurred during the year. The following represents the most material key management assumptions applied in preparing these financial statements.

Credit impairment losses on loans and advancesPortfolio loan impairmentsThe group assesses its loan portfolios for impairment at each reporting date. In determining whether an impairment loss should be recorded in profit or loss, the group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be allocated to an individual loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an individual basis.

The impairment for performing and non-performing but not specifically impaired loans is calculated on a portfolio basis, based on historical loss patterns, adjusted for national and

Key management assumptions

industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These include early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. At year end, the group applied an average loss emergence period of three months (2014: three months) for PBB and 12 months (2014: 12 months) for CIB loans and advances.

Specific loan impairmentsNon-performing loans include those loans for which the group has identified objective evidence of default, such as a breach of a material loan covenant or condition as well as those loans for which instalments are due and unpaid for 90 days or more. The methodology used in determining the specific loan impairment includes modelling with various inputs such as segmentation, levels of loss expectation and probability of default. Management’s estimates of future cash flows on individually impaired loans are based on historical loss experience for assets with similar credit risk characteristics. 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. Expected time to recover securities and recoveries of individual loans as a percentage of the outstanding balances are estimated as follows:

Expected time to recovery1

Expected recoveries as a percentage of

impaired loans

2015 2014 2015 2014

Months Months % %

Personal & Business Banking 10 – 15 10 – 15 58 58

Mortgage loans 15 15 74 74Vehicle and asset finance 10 10 50 47Card debtors 15 15 31 31Other lending 14 14 37 35

Corporate & Investment Banking 17 – 24 17 – 22 44 47

South Africa 22 22 36 55Rest of Africa 24 18 57 41Outside Africa2 17 54

1 The expected time to recovery was adjusted in 2015 due to changes in market conditions.2 There were no specifically impaired loans during 2015.

Refer to note 6 for the carrying amounts of loans and advances.


proxies. The fair value of certain financial instruments is determined using industry standard models such as, discounted cash flow analysis and standard option pricing models. These models are generally used to estimate future cash flows and discount these back to the valuation date. For complex or unique instruments, more sophisticated modelling techniques may be required, which require assumptions or more complex parameters such as correlations, prepayment spreads, default rates and loss severity.

Valuation adjustments: Valuation adjustments are an integral part of the valuation process. In making appropriate valuation adjustments, the group applies methodologies that consider factors such as bid-offer spreads, liquidity, counterparty and own credit risk.

Validation and control: All financial instruments carried at fair value, regardless of classification, and for which there are no quoted market prices for that instrument, are fair valued using models that conform to international best practice and established financial theory. These models are validated independently by the group’s model validation unit and formally reviewed and approved by the market risk methodologies committee. This control applies to both off-the-shelf models as well as those developed internally by the group. Further, all inputs into the valuation models are subject to independent price validation procedures carried out by the group’s market risk unit. Such price validation is performed on at least a monthly basis, but daily where possible given the availability of the underlying price inputs. Independent valuation comparisons are also performed and any significant variances noted are appropriately investigated. Less liquid risk drivers, which are typically used to mark level 3 assets and liabilities to model, are carefully validated and tabled at the monthly price validation forum to ensure that these are reasonable and used consistently across all entities in the group. Sensitivities arising from exposures to such drivers are similarly scrutinised, together with movements in level 3 fair values. They are also disclosed on a monthly basis at the market risk and asset and liability committees.

Portfolio exception: The group has, on meeting certain qualifying criteria, elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities on a net basis.

The total amount of the change in fair value estimated using valuation techniques not based on observable market data (level 3) that was recognised in profit or loss for the year ended 31 December 2015 was a net loss of R4 304 million (2014: R382 million net loss)1. Other financial instruments (materially level 2) are utilised to mitigate the risk of these changes in fair value.

1 Restated.

Fair valueFinancial instrumentsIn terms of IFRS, the group is either required to or elects to measure a number of its financial assets and financial liabilities at fair value, being the price that would, respectively, be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market between market participants at the measurement date. Regardless of the measurement basis, the fair value is required to be disclosed, with some exceptions, for all financial assets and financial liabilities. Fair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value it is presumed that the entity is a going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. Information obtained from the valuation of financial instruments is used to assess the performance of the group and, in particular, provides assurance that the risk and return measures that the group has taken are accurate and complete.

The group’s valuation control framework governs internal control standards, methodologies, and procedures over its valuation processes, which include:

Prices quoted in an active market: The existence of quoted prices in an active market represents the best evidence of fair value. Where such prices exist, they are used in determining the fair value of financial assets and financial liabilities.

Valuation techniques: Where quoted market prices are unavailable, the group establishes fair value using valuation techniques that incorporate observable inputs, either directly, such as quoted prices, or indirectly, such as derived from quoted prices, for such assets and liabilities. Parameter inputs are obtained directly from the market, consensus pricing services or recent transactions in active markets, whenever possible. Where such inputs are not available, the group makes use of theoretical inputs in establishing fair value (unobservable inputs). Such inputs are based on other relevant input sources of information and incorporate assumptions that include prices for similar transactions, historic data, economic fundamentals, and research information, with appropriate adjustment to reflect the terms of the actual instrument being valued and current market conditions. Changes in these assumptions would affect the reported fair values of these financial instruments. Valuation techniques used for financial instruments include the use of financial models that are populated using market parameters that are corroborated by reference to independent market data, where possible, or alternative sources, such as, third-party quotes, recent transaction prices or suitable

ANNUAL FINANCIAL STATEMENTS Key management assumptions continued

159

investment risk associated with the variable rental element on a property by property basis.

Refer to note 10 for investment property disclosures.

Consolidation of entitiesThe group controls and consolidates an entity where the group has power over the entity’s relevant activities; is exposed to variable returns from its involvement with the investee; and has the ability to affect the returns through its power over the entity, including SEs. Determining whether the group controls another entity requires judgement by identifying an entity’s relevant activities, being those activities that significantly affect the investee’s returns, and whether the group controls those relevant activities by considering the rights attached to both current and potential voting rights, de facto control and other contractual rights, including whether such rights are substantive.

Interests in unconsolidated SEs that are not considered to be a typical customer-supplier relationship are required to be identified and disclosed. An interest would be a typical customer-supplier relationship where the level of risk inherent in that interest in the SE exposes the group to a similar risk profile to that found in standard market-related transactions. The group sponsors an SE where it provides financial support to the SE when not contractually required to do so. Financial support may be provided by the group for events such as litigation, tax and operational difficulties.

Significant influence – investment fundsThe group accounts for its interests in investment funds as associates where the group is the fund manager, for which there is an irrevocable fund management agreement, and the group has a monetary interest in the particular fund. Such associates are equity accounted unless designated to be measured at fair value through profit or loss.

Computer software intangible assetsThe group reviews assets brought into use for impairment at each reporting date and tests for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. These circumstances include, but are not limited to, technological developments, obsolescence, changes in the manner in which the software is used or is expected to be used, changes in discount rates or changes in estimates of related future cash benefits. The impairment tests are performed by comparing an asset’s recoverable amounts to their carrying amounts. The review and testing of assets for impairment inherently requires significant management judgement as it requires management to derive the estimates of the identified assets’ future cash flows in order to derive the asset’s recoverable amount. The recoverable amount is based on the value in use and is calculated by estimating

Impairment of available-for-sale investmentsThe group determines that available-for-sale investments are impaired and recognised as such in profit or loss when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the group evaluates, among other factors, the normal volatility in the instrument’s fair value. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry or sector, or operational and financing cash flows or significant changes in technology.

Refer to note 22 for fair value disclosures.

Valuation of investment propertyInvestment property is measured at fair value taking into account the characteristics of the properties that market participants would consider when pricing the property at measurement date. These include various inputs relating to existing tenant terms, location, vacancy levels and restrictions, if any, on the sale or use of the asset. The group makes judgements regarding the unit of account, i.e. whether it should be valued as a stand-alone property or as a group of properties. The properties have been valued on a discounted cash flow basis. In the majority of cases, discounted cash flows have been used and summed together with the capitalised and discounted value of the projected income to give a present value as at 31 December 2015. In order to determine the reversionary rental income on lease expiry, renewal or review, a market gross rental income (basic rental plus operating cost rental) has been applied to provide a market-related rental value for each property as at 31 December 2015. Market rental growth has been determined based on the individual property, property market trends and economic forecasts. Vacancies have been considered based on historic and current vacancy factors as well as the nature, location, size and popularity of each building.

Appropriate discount rates have been applied to the cash flows for each property to reflect the relative investment risk associated with the particular building, tenant, covenant and the projected income flow. Primary discount rates used to value the South African properties range from 6.8% to 10.5% (2014: 6.75% to 10.5%) on a property by property basis. Exit capitalisation rates generally range from 6.3% to 10.5% (2014: 6.75% to 10.5%). This compares to the ten-year government yield of 9.73%. The non-observable adjustments included in the valuation can, therefore, be referenced to the variance to the ten-year government rate.

On the basis that turnover or profit rental income has a greater degree of uncertainty and risk than the contractual base rental, a risk premium of between 1% and 6% (2014: 1% and 6%) has been added to the discount rate and to the exit capitalisation rate, to reflect the greater


• Future cash flows – the forecast periods adopted reflect a set of cash flows that, based on management’s judgement and expected market conditions, could be sustainably generated over such a period. A forecast period of greater than five years has been used in order to take into account the level of development in these markets. The cash flows from the final discrete cash flow period are extrapolated into perpetuity to reflect the long-term plans for the entity. It is common valuation methodology to avoid placing too high a proportion of the total value on the perpetuity value.

• Discount rates – the CoE discount rates utilised in the equity pricing models are deemed appropriate based on the entities under review. The risk-free rate used to determine the CoE has been derived from the respective local ten-year government bonds adjusted for inflation differential and country risk yield. The future cash flows are discounted using the CoE assigned to the appropriate CGUs and by nature can have a significant effect on their valuations.

The following table summarises the impairment test methodology applied and the key inputs used in testing the group’s goodwill relating to Nigeria and Kenya.

future cash benefits that will result from each asset and discounting those cash benefits at an appropriate pre-tax discount rate.

During the 2015 financial year, impairment indicators were identified with regard to certain components of the group and company’s computer software assets. The recoverable values for these identified components were determined to be nil due to components being obsolete, redundant or unusable. The carrying value of these components was fully impaired.

Refer to note 12 for intangible assets’ disclosure.

Goodwill impairmentIn terms of IFRS, the group is required on an annual basis to test its recognised goodwill for impairment. The impairment tests are performed by comparing the cash-generating units’ (CGUs) recoverable amounts to the carrying amounts. The recoverable amount is defined as the higher of the entity’s fair value less costs to sell and its value in use. The review and testing of goodwill for impairment inherently requires significant management judgement as it requires management to derive the estimates of the identified CGUs’ future cash flows. The principal assumptions considered in determining an entity’s value in use include:


Stanbic IBTC Holdings PLCValue in use

CfC Stanbic Holdings LimitedValue in use

2015 2014 2015 2014

MethodologyDiscount rate (nominal) (%) 19.0 18.3 17.6 17.6Terminal growth rate (nominal) (%) 10.0 10.0 10.4 8.8Forecast period (years) 10 10 8 8

Note 12 summarises the group’s impairment test results and lists the main composition of goodwill.

Current and deferred taxationThe group is subject to direct and indirect taxation in a number of jurisdictions. There may be transactions and calculations for which the ultimate tax determination has an element of uncertainty during the ordinary course of business. Where the final tax determination is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions, disclosed in note 41 and note 16, respectively, in the period in which such determination is made.

Uncertain tax positions, which do not meet the probability criteria defined within IFRS, are not provided for but are rather disclosed as contingent liabilities or assets as appropriate. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.The most significant management assumption are the forecasts used to support the probability assessment that sufficient taxable profits will be generated by the entities in the group in order to utilise the deferred tax assets.

161

Refer to annexure C for further details regarding the carrying amount of the liabilities arising from the group’s cash-settled share incentive schemes and the expenses recognised in the income statement.

Post-employment benefitsThe group’s post-employment benefits consist of both post-employment retirement funds and healthcare benefits. The measurement of the group’s obligations to fund these benefits are derived from actuarial valuations performed by the appointed actuaries taking into account various assumptions. The funds are subject to a statutory financial review by the group’s independent actuaries at intervals of not more than three years. The principal assumptions used in the determination of the group’s obligations include the following:

Group share incentive schemesThe group has a number of cash and equity-settled share incentive schemes which are issued to qualifying employees based on the rules of the respective schemes. The group uses the group’s share price and the Black-Scholes option pricing model where applicable to determine the fair value of awards on grant date for its equity-settled share incentive schemes. The valuation of the group’s obligation with respect to its cash-settled share incentive scheme obligations is determined with reference to the group’s share price, which is an observable market input. In determining the expense to be recognised for both the cash and equity-settled share schemes, the group estimates the expected future vesting of the awards by considering staff attrition levels. The group also makes estimates of the future vesting of awards that are subject to non-market vesting conditions by taking into account the probability of such conditions being met.

2015 2014

Retirement fundPost-employmentmedical aid fund Retirement fund

Post-employmentmedical aid fund

Discount rate Nominal government bond yield curve Nominal government bond yield curve

Return on investments (discount rate of term equal to discounted mean term of liabilities)

10.01% – 10.68% Unfunded liability and, therefore, there

is no asset-backing portfolio

8.29% – 8.84% Unfunded liability and, therefore, there

is no asset-backing portfolio

Salary/benefit/medical cost inflation

Future salary increases based on inflation curve plus

1% – 2% pa to each

point on the curve

Not applicable to fund

Future salary increases based on inflation curve plus

1% – 2% pa to each

point on the curve

Not applicable to fund

CPI inflation Difference between nominal and index-linked bond yield curves

Difference between nominal and index-linked bond yield curves

Pension increase in allowance

Inflation rates Not applicable to fund

Inflation rates Not applicable to fund

Remaining service life of employees (years)

11.62 Not applicable to fund

12.5 Not applicable to fund

Refer to note 47 for further details regarding the group’s post-employment benefits.

Long-term insurance contractsPolicyholder liabilities under insurance contracts and reinsurance assets are derived from actual claims submitted which are not settled at the reporting date, and estimates of the net present value of future claims and benefits under existing contracts, offset by probable future premiums to be received or paid (net of expected service costs). The key assumptions applied and analysis of their sensitivity have been detailed in the insurance risk and sensitivity analysis components of the risk and capital management report.


Expense inflationThe inflation rate is set at 60% of the risk-free rate (gilt rate) when the risk-free rate is below 6.5%. The inflation rate is set at the risk-free rate less 3% when the risk-free rate is above 8.5%. At risk-free rates between 6.5% and 8.5% the inflation rate is interpolated to ensure a smooth transition between the two methodologies. This results in a best estimate inflation assumption of 6.97% at 31 December 2015 (2014: 5.06%). The expense inflation assumption is set taking into consideration the expected future development of the number of in-force policies, as well as the expected future profile of maintenance expenses.

TaxationTaxation rates consistent with that position, and the likely future changes in that position, are allowed for. In respect of capital gains taxation (CGT), taxation is allowed for at the full CGT rate. Deferred taxation liabilities include a provision for CGT on unrealised gains/losses at the valuation date, at the full undiscounted value. Allowance is also made for dividend withholding tax at the applicable rate.

CorrelationsNo correlations between assumptions are allowed for.

Contribution increasesIn the valuation of the liabilities, voluntary premium increases that give rise to expected profits are not allowed for. However, compulsory increases, and increases that give rise to expected losses are allowed for. This is consistent with the requirements of Standard of Actuarial Practice (SAP) 104.

Embedded investment derivative assumptionsThe assumptions used to value embedded derivatives in respect of policyholder contracts are set in accordance with APN 110. Account is taken of the yield curve at the valuation date. Both implied market volatility and historical volatility are taken into account when setting volatility assumptions. The 30-year annualised implied-at-the-money volatility assumption, estimated using the economic scenario generator output for the Financial Times Stock Exchange (FTSE)/JSE Top 40 index, is 41.83% (2014: 39.44%). Correlations between asset classes are set based on historical data. Over 16 000 simulations are performed in calculating the liability.

Process used to decide on assumptions and changes in assumptionsMortalityAn appropriate base table of standard mortality is chosen depending on the type of contract and class of business. Industry standard tables are used for smaller classes of business and company-specific tables are used for larger classes. In setting the assumptions, provision is made for the expected impact of Aids-related claims consistent with the requirements of Advisory Practice Note (APN) 105 issued by the Actuarial Society of South Africa.

MorbidityThe incidence of disability claims is derived from the risk premium rates determined from annual investigations. The incidence rates are reviewed on an annual basis, based on medical claims experience. The adjusted rates are intended to reflect future expected experience.

WithdrawalThe withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future trends. The withdrawal rates are analysed by product type and policy duration.

Investment returnFuture investment returns are set for the main asset classes as follows:

• Gilt rate – Effective ten-year yield curve rate at the reporting date, 9.97 % (2014: 8.04%).

• Equity rate – Gilt rate plus 3.5 percentage points as an adjustment for risk, 13.47% (2014: 11.54%).

• Property rate – Gilt rate plus 1 percentage point as an adjustment for risk, 10.97% (2014: 9.04%).

• Cash – Gilt rate less 1.5 percentage points, 8.47% (2014: 6.54%).

The overall investment return for a block of business is based on the investment return assumptions allowing for the current mix of assets supporting the liabilities. The pre-taxation discount rate is set at the same rate. For life annuity and guaranteed endowments, discount rates are set at risk-free rates consistent with the duration and type of the liabilities allowing for an average illiquidity premium on the backing assets and reduced by an allowance for investment expenses and the relevant prescribed margin.

ExpensesAn expense analysis is performed on the actual expenses incurred in the calendar year preceding the statement of financial position date. This analysis is used to calculate the acquisition costs incurred and to set the maintenance expense assumption which is based on the budget approved by the board.


163

Using the simulated investment returns, the prices and implied volatilities of the following instruments are:

2015 2014

InstrumentPrice

%Volatility

%Price

%Volatility

%

A one-year at-the-money (spot) put on the FTSE/JSE Top 40 index 5.46 19.69 5.75 19.35

A one-year put on the FTSE/JSE Top 40 index, with a strike price equal to 80% of spot 1.43 24.54 1.31 23.24

A one-year at-the-money (forward) put on the FTSE/JSE Top 40 index 7.23 18.68 7.25 18.71

A five-year at-the-money (spot) put on the FTSE/JSE Top 40 index 6.44 23.37 8.53 23.28

A five-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,045# of spot 11.78 22.25 15.32 22.28

A five-year (forward) put on the FTSE/JSE Top 40 index 16.68 21.63 17.04 22.09A five-year put with a strike price equal to 1,045# of spot on

an underlying index constructed as 60% FTSE/JSE Top 40 and 40% All Bond Index, with rebalancing of the underlying index back to these weights taking place annually 4.49 N/A 7.00 N/A

A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 2.52 30.15 3.58 29.45

A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,0420# of spot 11.50 31.83 15.61 31.02

A 20-year at-the-money (forward) put on the FTSE/JSE Top 40 index 31.79 33.51 30.63 32.05

A 20-year put option based on an interest rate with a strike equal to the present five-year forward rate as at maturity of the put option, which pays out if the five-year interest rate at the time of maturity (in 20 years) is lower than the strike price 0.50 N/A 0.53 N/A

# Exponent.


ProvisionsThe principal assumptions taken into account in determining the value at which provisions are recorded at include determining whether there is an obligation as well as assumptions about the probability of the outflow of resources and the estimate of the amount and timing for the settlement of the obligation. For legal provisions, management assesses the probability of the outflow of resources by taking into account historical data and the status of the claim in consultation with the group’s legal counsel. In determining the amount and timing of the obligation once it has been assessed to exist, management exercises its judgement by taking into account all available information, including that arising after the balance sheet date up to the date of the approval of the financial statements.

The zero coupon yield curve used in the projection is as follows (rates calculated on the nominal annualised continuously compounded method):

ZERO COUPON YIELD CURVE (%)

12

10

8

6

4

2

1 4 5

� 2015 curve � 2014 curve

2 3 10 15 20 25 30 35 40 45 50 year

Process used to decide on assumptions and changes in assumptions for non-South African life companiesChanges in assumptionsModelling and other assumption changes were made to realign valuation assumptions with expected future experience. These changes resulted in a net increase in long-term policyholder liabilities of R302 million in 2015 compared to a net decrease of R110 million in 2014.


165

Notes to the financial statementsfor the year ended 31 December 2015

1. Cash and balances with central banks2015 2014

Rm Rm

Coins and bank notes 20 060 19 218Balances with central banks 55 052 45 084

75 112 64 302

Cash and balances with central banks include R40 059 million (2014: R32 257 million) that is not available for use by the group. These balances primarily comprise of reserving requirements held with central banks.

2. Derivative instruments All derivatives are classified either as held-for-trading or held-for-hedging. A summary of the total derivative assets and

liabilities is shown in the table below.

Fair value of assets Fair value of liabilities

2015 2014 2015 2014

Rm Rm Rm Rm

Total derivative assets/(liabilities) held-for-trading 107 831 59 264 (127 582) (69 502)Total derivative assets/(liabilities) held-for-hedging 3 258 2 369 (6 376) (2 779)

Total derivative assets/(liabilities) 111 089 61 633 (133 958) (72 281)

2.1 Use and measurement of derivative instruments In the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging

purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, inflation, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, credit risk, inflation risk, interest rates and the prices of commodities and equities.

The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks are also measured across the product range in order to take into account possible correlations.

2.2 Derivatives held-for-tradingFair value of assets

Fair value of liabilities

Contract/notional amount

2015 2014 2015 2014 2015 2014

Rm Rm Rm Rm Rm Rm

Foreign exchange derivatives 45 258 21 772 (46 356) (24 106) 1 568 566 1 120 660

Interest rate derivatives 53 304 31 510 (70 483) (38 969) 5 596 482 4 495 406Commodity derivatives 1 404 196 (1 208) (1 093) 14 083 8 315Credit derivatives 4 320 3 103 (6 345) (3 654) 67 867 65 112Equity derivatives 3 545 2 683 (3 190) (1 680) 241 130 150 764

Total 107 831 59 264 (127 582) (69 502) 7 488 128 5 840 257


2. Derivative instruments continued2.3 Derivatives held-for-hedging The group enters into derivative transactions, which are designated and qualify as either fair value, cash flow, or net

investment hedges for recognised assets or liabilities or highly probable forecast transactions. Derivatives designated as hedging instruments consist of:

Fair value of assets

Fair value of liabilities

Contract/notional amount

2015 2014 2015 2014 2015 2014

Rm Rm Rm Rm Rm Rm

Derivatives designated as fair value hedges 763 1 709 (2 285) (1 085) 79 464 25 172

Interest rate swaps 763 1 709 (2 285) (1 085) 79 464 25 172

Derivatives designated as cash flow hedges 2 457 547 (3 979) (1 488) 11 397 13 940

Currency forwards and swaps 2 460 529 (3 979) (1 488) 9 620 13 696Equity forwards (3) 18 1 777 244

Derivatives designated as hedges of net investments in foreign operations 38 113 (112) (206) 1 385 7 451

Forward exchange contracts 38 113 (112) (206) 1 385 7 451

Total 3 258 2 369 (6 376) (2 779) 92 246 46 563

2.3.1 Derivatives designated in fair value relationships The group uses interest rate swaps and hedges, by major currency, fixed rate assets and liabilities with the objective to

mitigate against changes in the fair value of those assets and liabilities due to changes in market interest rates.

Gains or losses arising from fair value hedges The group’s fair value hedges principally consist of currency swaps and interest rate swaps that are used to mitigate

the risk of changes in market interest rates and currencies. The group uses interest rate swaps for the portfolio hedge of interest rate risk.

2015 2014

Rm Rm

(Losses)/gainson hedging instruments (1 274) 201on the hedged items attributable to the hedged risk 1 427 (244)

2.3.2 Derivatives designated in cash flow hedge relationships The group uses currency forwards and swaps to mitigate against the risk of changes in future cash flows on its

foreign-denominated exposures. Interest rate swaps are primarily used to hedge, by major currency, variable rate financial assets and liabilities with the objective to mitigate against changes in future interest cash flows resulting from the impact of changes in market interest rates, and reinvestment or reborrowing of current balances. The group uses equity forwards to hedge its share incentive schemes against changes in the group’s underlying share price.

ANNUAL FINANCIAL STATEMENTS Notes to the financial statements continued

167

2. Derivative instruments continued2.3 Derivatives held-for-hedging continued2.3.2 Derivatives designated in cash flow hedge relationships continued The forecasted timing of the release of net cash flows before tax from the cash flow hedging reserve into profit or loss

at 31 December is as follows:

3 months or less

Rm

More than 3 months

but less than 1 year

Rm

More than 1 year

but less than 5 years

Rm

More than 5 years

Rm

2015Net cash outflow (17) (270) (465)

2014Net cash inflow/(outflow) 529 389 (458) (20)

Reconciliation of movements in the cash flow hedging reserve2015 2014

Rm Rm

Balance at the beginning of the year 467 804Amounts recognised directly in OCI before tax 2 216 349Less: amounts released to profit or loss before tax (3 432) (677)

Net interest income (2 715) 10Other operating expenses (717) (687)

Deferred tax 314 33Non-controlling interests 51 (42)

Balance at the end of the year (384) 467

No gain or loss was recognised in profit or loss due to ineffectiveness arising from cash flow hedges in the current or prior year. There were no transactions for which cash flow hedge accounting had to be discontinued during 2015 or 2014 as a result of highly probable cash flows no longer being expected to occur.

2.3.3 Derivatives designated as hedges of net investments in foreign operations The objective of the hedges of net investments is to limit the risk of a decline in the net asset value of the group’s

investments in foreign operations brought about by changes in exchange rates. To limit this risk, the group enters into forward exchange contracts where considered appropriate. No ineffectiveness was recognised in profit or loss for the current and prior year that arose from hedges of net investments in foreign operations.



2. Derivative instruments continued2.4 Day one profit or loss – derivatives held-for-trading and held-for-hedging The table below sets out the aggregate net day one profits to be recognised in profit or loss at the beginning and end of

the year with a reconciliation of changes in the balance during the year:

2015 20141

Rm Rm

Unrecognised net profit at the beginning of the year 61 2Additional net profit on new transactions 346 144Recognised in profit or loss during the year (159) (85)Exchange differences 47

Unrecognised net profit at the end of the year 295 61

1 The group identified day one gains and losses which were not previously disclosed. This correction to the disclosure had no impact on the income statement or statement of financial position in the current or prior reporting period.

3. Trading assets3.1 Classification Comprising:

2015 2014

Rm Rm

Government, municipality, utility bonds and treasury bills 20 268 20 080Corporate bonds and floating rate notes 7 968 4 811Listed equities 20 974 17 418Collateral 4 374 3 339Reverse repurchase and other collateralised agreements 21 958 16 723Other instruments 10 677 9 669

86 219 72 040

3.2 Day one profit or loss – trading assets The table below sets out the aggregate net day one profits to be recognised in the profit or loss at the beginning and

end of the year with a reconciliation of changes in the balance during the year:

2015 20141

Rm Rm

Unrecognised net profit at the beginning of the year 418Additional net profit on new transactions 268 68Transfers 390Recognised in profit and loss during the year (104) (40)

Unrecognised net profit at the end of the year 582 418

1 The group identified day one gains and losses on trading assets which were not previously disclosed. This correction to the disclosure had no impact on the income statement or statement of financial position in the current or prior reporting period.

169

4. Pledged assets2015 2014

Rm Rm

Financial assets that may be repledged or resold by counterpartiesGovernment, municipality and utility bonds 22 881 8 781Corporate bonds 1 033 870Listed equities 8 391 4 265Commodities 2 124 269

34 429 14 185

4.1 Total assets pledged The total amount of financial assets that have been pledged as collateral for liabilities and contingent liabilities was

R44 498 million (2014: R20 307 million).

The assets pledged by the group are strictly for the purpose of providing collateral to the counterparty. To the extent that the counterparty is permitted to sell or repledge the assets in the absence of default, they are classified in the statement of financial position as pledged assets.

These transactions are conducted under terms that are usual and customary to repurchase securities and lending activities.

4.2 Collateral accepted as security for assets As part of the reverse repurchase and securities borrowing agreements, the group has received securities which are

not recorded on the statement of financial position that it is allowed to sell or repledge. The fair value of the financial assets accepted as collateral that the group is permitted to sell or repledge in the absence of default is R115 202 million (2014: R100 843 million).

The fair value of financial assets accepted as collateral and commodities received through commodity leases that have been sold or repledged in terms of repurchase agreements or leased in terms of leasing transactions is R19 625 million (2014: R23 685 million).

These transactions are conducted under terms that are usual and customary to reverse repurchase and securities borrowing activities.

170


Standard Bank Group Risk and capital management report and annual financial statements 2015

4. Pledged assets continued4.3 Assets transferred not derecognised Securitisations The group enters into transactions in the normal course of business by which it transfers recognised financial assets

directly to third parties or structured entities. These transfers may give rise to full derecognition of the financial assets concerned.

Full derecognition occurs when the group transfers substantially all the risks and rewards of ownership and its contractual right to receive cash flows from the financial assets or retains the contractual rights to receive the cash flows of the financial assets but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets IFRS’ derecognition requirements. The risks include interest rate, currency, prepayment and other price risks.

However, where the group has retained substantially all of the credit risk associated with the transferred assets, it continues to recognise these assets.

The following table analyses the cumulative (i.e. for all years up to 31 December 2015) carrying amount of securitised financial assets that did not qualify for derecognition, and the associated liabilities:

Carrying amount of

transferred assets

Rm

Carrying amount of

associated liabilities

Rm

Fair value of

transferred assets1

Rm

Fair value of

associated liabilities1

Rm

Net fair value

Rm

Nature of transaction2015Mortgage loans 23 912 4 114 23 172 4 120 19 052

2014Mortgage loans 25 117 4 976 24 394 4 989 19 405

1 The associated liabilities relating to the transferred assets only include external funding for the assets. The transferred assets are also funded by intercompany funding, which has been eliminated at a group level.

The interests and rights to the mortgage loans have been ceded as security for the associated liabilities, which have recourse only to the transferred assets. The cash flows from the transferred assets are required to service the associated liabilities.

171

4. Pledged assets continued4.3 Assets transferred not derecognised continued Other assets transferred not derecognised The majority of other financial assets that do not qualify for derecognition are debt securities held by counterparties as

collateral under repurchase agreements, listed equities held as collateral under scrip lending transactions and commodities leased out to third parties. Risks to which the group remains exposed include credit and interest rate risk.

The following table presents the cumulative (i.e. for all transactions up to and still in existence at 31 December 2015)details of other financial assets which have been sold or otherwise transferred, but which have not been derecognised in their entirety, and their associated liabilities. This table does not disclose the total risk exposure in terms of these transactions, instead it provides disclosures as required by IFRS.

Carrying amount of

transferred assets

Rm

Carrying amount of

associated liabilities

Rm

Fair value of

transferred assets1

Rm

Fair value of

associated liabilities1

Rm

Net fair value1

Rm

2015Bonds 23 914 23 319 23 914 23 319 595Listed equities 8 391 8 391 8 391Commodities 2 124 2 124 2 124

Pledged assets 34 429 23 319 34 429 23 319 11 110Financial investments 11 615 11 548 11 615 11 548 67

Total 46 044 34 867 46 044 34 867 11 177

2014Bonds 9 651 9 272 9 619 9 272 347Listed equities 4 265 4 265 4 265Commodities 269 269 269

Pledged assets 14 185 9 272 14 153 9 272 4 881Financial investments 7 679 6 993 7 679 7 670 9

Total 21 864 16 265 21 832 16 942 4 890

1 Where the counterparty has recourse to the transferred asset.

During the current year, there were no instances of financial assets that were sold or otherwise transferred, but which were partially derecognised. Further, there were no instances of financial assets transferred and derecognised for which the group had continuing involvement.

172



5. Financial investments2015 2014

Rm Rm

Financial investments held in banking activities (note 5.1) 157 855 148 225Financial investments held by investment management and life insurance activities

(note 5.2) 311 899 286 199Interest in associates and joint ventures held at fair value (annexure B) 16 950 16 497

486 704 450 921

5.1 Financial investments held in banking activities2015 2014

Rm Rm

Short-term negotiable securities 103 369 94 204Other financial investments 54 486 54 021

157 855 148 225

Comprising:Government, municipality, utility bonds and treasury bills 141 461 128 846Corporate bonds 7 002 8 176Listed equities 372 555Unlisted equities 2 850 1 647Mutual funds and unit-linked investments 3 975 7 782Other instruments 2 195 1 219

157 855 148 225

5.2 Financial investments held by investment management and life insurance activities

2015 2014

Rm Rm

Quoted in an active market – listed 204 665 188 215

Equities 118 555 121 553Preference shares 1 113 1 247Commercial term deposits 38 675 22 803Mutual funds 13 656 11 078Government, municipal and utility bonds 32 666 31 534

Quoted in an active market – unlisted 81 805 79 548

Commercial term deposits 19 185 26 157Mutual funds 62 620 53 323Government, municipal and utility bonds 68

Unquoted and unlisted 10 018 9 054

Equities 1 425 720Preference shares 537 691Investment policies 8 056 7 643

Loans and receivables 15 411 9 382

Mortgages and loans 1 210 1 327Cash held with banks 14 201 8 055

311 899 286 199

173

6. Loans and advances6.1 Loans and advances net of impairments

2015 2014

Rm Rm

Loans and advances to banks 145 320 116 220Loans and advances to customers 931 597 812 021

Gross loans and advances to customers 954 249 830 728

Mortgage loans 325 867 317 069Vehicle and asset finance (note 6.2) 82 075 74 793Card debtors 31 174 30 029Overdrafts and other demand loans 88 158 80 918Other term loans 321 571 262 702Loans granted under resale agreements 36 391 10 948Commercial property finance 65 843 54 157Other loans and advances 3 170 112

Credit impairments for loans and advances (note 6.3) (22 652) (18 707)

Specific credit impairments (15 862) (13 392)Portfolio credit impairments (6 790) (5 315)

Net loans and advances 1 076 917 928 241

6.2 Vehicle and asset finance The maturity analysis is based on the remaining periods to contractual maturity from year end.

2015 2014

Gross advances

Rm

Unearned finance charges

Rm

Net advances

Rm

Gross advances

Rm

Unearned finance

chargesRm

Net advances

Rm

Receivable within one year 28 997 (5 897) 23 100 26 394 (5 010) 21 384Receivable between one and five years 68 487 (9 880) 58 607 61 020 (7 882) 53 138Receivable after five years 407 (39) 368 314 (43) 271

97 891 (15 816) 82 075 87 728 (12 935) 74 793

Leases entered into are at market-related terms. Under the terms of the lease agreements, no contingent rentals are receivable. Moveable assets are leased or sold to customers under finance leases and instalment sale agreements for periods varying between 60 and 84 months. Depending on the terms of the agreement, the lessee may have the option to purchase the asset at the end of the lease term.

174



6. Loans and advances continued6.3 Credit impairments for loans and advances Total impairments A summary of the allowance for impairment losses for loans and advances, by class:

Mortgage loans

Rm

Vehicle and

asset finance

Rm

Card debtors

Rm

Personal unsecured

lendingRm

Business lending

and other

Rm

Corporate lending

Rm

Com-mercial

property finance

RmTotal

Rm

2015Specific impairmentsBalance at the

beginning of the year 3 545 1 435 1 030 2 911 1 330 3 004 137 13 392

Net impairments raised1 2 017 1 253 1 523 2 689 836 788 47 9 153

Impaired accounts written off (1 299) (1 112) (1 118) (1 908) (745) (719) (19) (6 920)

Discount element recognised in interest income (400) (70) (43) (253) (93) (10) (869)

Exchange and other movements 29 55 11 66 78 867 1 106

Balance at the end of the year 3 892 1 561 1 403 3 505 1 406 3 930 165 15 862

Portfolio impairmentsBalance at the

beginning of the year 804 625 577 1 390 1 085 737 97 5 315

Net impairments raised/(released)1 281 167 74 (50) 329 472 1 273

Exchange and other movements 9 10 3 25 37 118 202

Balance at the end of the year 1 094 802 654 1 365 1 451 1 327 97 6 790

Total specific and portfolio impairments 4 986 2 363 2 057 4 870 2 857 5 257 262 22 652

175

6. Loans and advances continued6.3 Credit impairments for loans and advances continued Total impairments continued

Mortgage loans

Rm

Vehicle and asset

financeRm

Card debtors

Rm

Personal unsecured

lendingRm

Business lending

and other

Rm

Corporate lending

Rm

Commercial property

financeRm

TotalRm

2014Specific impairmentsBalance at the

beginning of the year 3 943 1 158 924 2 927 1 567 3 122 161 13 802

Net impairments raised1 2 559 1 266 1 342 2 800 943 1 233 11 10 154

Impaired accounts written off (2 597) (1 003) (1 172) (2 618) (986) (1 497) (35) (9 908)

Discount element recognised in interest income (348) (54) (63) (235) (54) (9) (763)

Exchange and other movements (12) 68 (1) 37 (140) 155 107

Balance at the end of the year 3 545 1 435 1 030 2 911 1 330 3 004 137 13 392

Portfolio impairmentsBalance at the

beginning of the year 754 520 586 1 482 882 1 043 97 5 364

Net impairments raised/(released)1 57 112 (9) (104) 210 (313) (47)

Exchange and other movements (7) (7) 12 (7) 7 (2)

Balance at the end of the year 804 625 577 1 390 1 085 737 97 5 315

Total specific and portfolio impairments 4 349 2 060 1 607 4 301 2 415 3 741 234 18 707

1 Net impairments raised/(released) less recoveries of amounts written off in previous years as well as credit recovery on off-balance sheet exposure, equals income statement impairment charges (note 37).

176



7. Non-current assets and liabilities held for sale Standard Bank Plc On 1 February 2015, the group disposed of 60% of SB Plc to ICBC. The final cash proceeds on this 60% disposal, which

was based on a discount to the 31 January 2015 net asset value (this net asset value was impacted by the valuation write down of certain aluminium claims) amounted to USD675 million. The total gain on disposal was R3,2 billion of which R404 million was included in headline earnings. The disposal gain, together with the discontinued operation’s operating loss has been included in the income statement as part of the profit/loss from the discontinued operation. Following the disposal, SB Plc was renamed to ICBCS.

As part of the disposal of SB Plc, the group provided ICBC with certain indemnities to be paid in cash to ICBC or, at ICBC’s direction, to any SB Plc group company, a sum equal to the amount of losses suffered or incurred by ICBC arising from certain circumstances. Where an indemnity payment is required to be made by the group to the SB Plc group, such payment would be grossed up from ICBC’s shareholding at the time in SB Plc to 100%. These payments may arise as a result of the ownership, conduct or operation of all or any part of the businesses that have, in terms of the transaction agreements, been transferred from SB Plc to the group prior to disposal (excluded business) or from an enforcement action, the cause of which occurred prior to the date of disposal. Enforcement actions include actions taken by regulatory or governmental authorities to enforce the relevant laws in any jurisdiction. The indemnities provided are uncapped and of unlimited duration as they reflect that the risks of ownership and conduct of the excluded business, and pre-completion regulatory risks attaching to the disposed of business, remain with the group post completion.

The group retains the right to any net recoveries on metal exposures that may result from, inter alia, ongoing litigation in China and insurance claims. During the year, ICBCS instituted legal proceedings against several parties with respect to its rights to physical aluminium held in bonded warehouses in China. In June 2015, ICBCS successfully claimed USD70,5 million from its insurers with respect to its USD167 million exposure for which the group enjoyed the economic benefit of USD65 million with the remaining USD5,5 million being payable by the group’s insurance cell-captive. 40% of this recovery was recognised in the group’s continuing operations as part of its equity accounted earnings with the remaining 60% recognised in the discontinued operation’s results. Efforts continue through a number of avenues to recover amounts owing from an insurer and to pursue other recovery mechanisms from other counterparties, as well as to access metal stocks held by the authorities in China.

During the year, the group settled several indemnified items to ICBCS and ICBC, the most material of which was the DPA (refer to the directors’ report for further information). The group’s total settlement with respect to the DPA, related settlement with the United States Securities and Exchange Commission and legal costs in this regard amounted to USD40,3 million (R562 million), of which USD16,1 million (R226 million) was recognised in the group’s continuing operations and USD24,2 million (R336 million) was included in the group’s discontinued operation’s results.

Brazil In April 2015, the group completed the disposal of Banco Standard de Investimentos S.A., the group’s Brazilian-licenced

banking subsidiary, to Grupo Financiero Inbursa SAB, a listed Mexican banking group. The final disposal proceeds amounted to R581 million. The net gain on the disposal of R262 million (of which R111 million is included in headline earnings) has been included in the group’s income statement as part of its continuing operation’s results.

177

7. Non-current assets and liabilities held for sale continued2014

SB Plc and BSI

Rm

Assets held for saleCash and balances with central banks 16 577Derivative assets 90 644Trading assets 47 722Pledged assets 12 222Financial investments 702Loans and advances 49 818Deferred tax assets 285Other assets 1 988

Total assets held for sale 219 958

Liabilities held for saleDerivative liabilities 91 323Trading liabilities 13 183Deposit and debt funding 66 605Current tax liabilities 69Provisions and other liabilities 2 967Subordinated debt 7 922

Total liabilities held for sale 182 069

8. Other assets

2015 2014

Rm Rm

Trading settlement assets 8 001 6 192Items in the course of collection 947 1 606Operating leases – accrued income (note 10) 1 273 1 261Deferred acquisition costs (DAC) 673 590Retirement funds and post-employment healthcare benefits (note 47) 1 461 1 658Insurance prepayments and reinsurance assets 3 751 4 193Accounts receivable 422 716Prepayments 3 070 2 253Properties in possession 219 109Property developments 135 549Other debtors 4 600 1 564

24 552 20 691

178



9. Interest in associates and joint ventures2015 2014

Rm Rm

Equity accounted associates and joint venturesCarrying value at the beginning of the year 3 727 4 797Share of (losses)/profits (323) 626(Impairment)/reversal of impairment of associates and joint ventures (105) 34Acquisitions1 5 427Disposal of associate – carrying value (256) (1 216)

Gain on disposal of associates 3 19Disposal of associate – fair value (259) (1 235)

Share of direct reserve movements 1 366 (264)Distribution of profit (133) (250)

Carrying value at the end of the year 9 703 3 727

Comprising:Cost of investments 8 047 2 841Share of reserves 2 429 1 554Cumulative impairment (773) (668)

9 703 3 727

1 The group disposed of 60% of SB Plc to ICBC on 1 February 2015. The 40% retained interest in SB Plc (subsequently renamed ICBCS) has been recognised as an investment in an associate from 1 February 2015.

There are no significant restrictions on the ability of associates and joint ventures to transfer funds to the group in the form of cash dividends or in the repayment of loans or advances.

Refer to annexure B for further information.

179

10. Investment property2015 2014

Rm Rm

Fair value at the beginning of the year 27 022 27 299Revaluations net of lease straight-lining 1 257 1 178Additions – capitalised subsequent expenditure and acquisitions 2 418 898Disposals (239) (2 346)Transfers from/(to) property and equipment (note 11) 16 (14)Exchange movements 34 7

Fair value at the end of the year 30 508 27 022

Investment property and related operating lease balances comprise the following:Investment properties at fair value 30 508 27 022Operating leases – accrued income (note 8) 1 273 1 261

Total investment property 31 781 28 283

Amount recognised in profit and lossRental income earned, excluding straight-lining of operating leases 2 322 2 149Direct operating expenses 821 638

Investment property mainly comprises of shopping malls located in South Africa.

The South African located investment properties were independently valued as at 31 December 2015 by registered professional valuers with the South African Council for the Property Valuers Profession as well as members of the Institute of Valuers of South Africa. The method of valuation is consistent with that described in the key management assumptions section.

The Kenyan and Nigerian located properties were independently valued as at 31 December 2015 by various registered professional valuers in each territory.

At 31 December 2015, unlet space amounted to 6.3% (2014: 9.7%) of available lease area in the investment properties held by the group. The average net rental growth is 2.4% (2014: 0.6%).

180



11. Property and equipmentProperty Equipment

TotalRm

FreeholdRm

LeaseholdRm

Computerequipment

Rm

Furnitureand fittings

Rm

Officeequipment

Rm

Motorvehicles

Rm

Net book value at 1 January 2014 6 250 2 189 4 049 3 442 677 275 16 882

Movement 446 (238) (326) (105) 85 (7) (145)

Additions 849 350 1 292 664 262 120 3 537Disposals (328) (97) (83) (169) (39) (35) (751)Reclassified as held

for sale (3) (2) (6) (11)Depreciation (107) (443) (1 520) (611) (141) (93) (2 915)Exchange movements 18 (45) (13) 17 3 1 (19)Transfer from

investment property 14 14

Net book value at 1 January 2015 6 696 1 951 3 723 3 337 762 268 16 737

Cost 7 378 3 682 10 199 6 980 1 611 609 30 459Accumulated

depreciation and impairment (682) (1 731) (6 476) (3 643) (849) (341) (13 722)

Movement 176 94 337 282 23 21 933

Additions 307 631 2 008 951 231 139 4 267Disposals (92) (245) (199) (85) (77) (35) (733)Depreciation (149) (504) (1 577) (620) (175) (94) (3 119)Exchange movements 126 212 105 36 44 11 534Transfer to investment

property (16) (16)

Net book value at 31 December 2015 6 872 2 045 4 060 3 619 785 289 17 670

Cost 7 686 4 234 11 672 7 467 1 693 662 33 414Accumulated

depreciation and impairment (814) (2 189) (7 612) (3 848) (908) (373) (15 744)

During 2015, no interest (2014: R9 million) was capitalised to property and equipment. There are no additions (2014: R2 million) through business combinations. Property and equipment include work in progress of R963 million (2014: R648 million) for which depreciation has

not yet commenced. There is no significant property or equipment for which title is restricted or which is pledged as security for liabilities.

11.1 Valuation The fair value of completed freehold property, based on valuations undertaken for the period 2013 to 2015, was

estimated at R8 808 million (2014: R8 581 million). Registers of freehold property are available for inspection by members, or their authorised agents, at the registered office of the company and its subsidiaries. Valuations were generally in terms of the investment method whereby net income is capitalised having regard to tenancy, location and the physical nature of the property.

181

12. Goodwill and other intangible assets

GoodwillRm

Computer software

Rm

Presentvalue of

in-force lifeinsurance

(PVIF)Rm

Other intangible

assetsRm

TotalRm

Net book value at 1 January 2014 3 786 13 917 233 149 18 085Movement (34) 3 208 (107) 23 3 090

Additions 16 4 805 90 4 911Amortisation (1 162) (108) (59) (1 329)Exchange movements (46) 15 1 (8) (38)Impairments (4) (450) (454)

Net book value at 1 January 2015 3 752 17 125 126 172 21 175

Cost 5 314 22 298 1 691 789 30 092Accumulated amortisation and

impairment (1 562) (5 173) (1 565) (617) (8 917)

Movement 449 2 550 (60) (83) 2 856

Additions 5 334 5 334Disposals (74) (74)Amortisation (1 450) (64) (50) (1 564)Exchange movements 782 29 4 8 823Impairments (333) (1 289) (41) (1 663)

Net book value at 31 December 2015 4 201 19 675 66 89 24 031

Cost 6 778 27 463 1 704 901 36 846Accumulated amortisation and

impairment (2 577) (7 788) (1 638) (812) (12 815)

During 2015, R354 million (2014: R337 million) of interest was capitalised. During 2015, no amounts have been included in additions as a result of business combinations (2014: R13 million). Intangible assets include work in progress of R6 239 million (2014: R6 733 million) for which amortisation has not

yet commenced. No intangible assets are pledged as security for liabilities.

12.1 Goodwill2015 2014

Gross goodwill

Rm

Accu-mulated

impairmentRm

Net goodwill

Rm

Gross goodwill

Rm

Accu-mulated

impairmentRm

Net goodwill

Rm

Stanbic IBTC Holdings PLC 4 151 (1 325) 2 826 3 366 (805) 2 561CfC Stanbic Holdings

Limited 1 126 1 126 985 985Other 1 501 (1 252) 249 963 (757) 206

6 778 (2 577) 4 201 5 314 (1 562) 3 752

182



12. Goodwill and other intangible assets continued12.1 Goodwill continued Stanbic IBTC Holdings PLC Based on the impairment testing performed, an impairment of R333 million (2014: nil) was recognised in the CIB CGU

which had a recoverable value of R4 239 million.

CfC Stanbic Holdings Limited Based on the impairment testing performed, no impairment was identified in 2015 or 2014.

Goodwill relating to other entities The remaining aggregated carrying amount of the goodwill of R249 million (2014: R206 million) has been allocated to

CGUs that are not considered to be individually significant. Based on the impairment testing performed, no impairment (2014: R4 million) was recognised.

13. Share capital13.1 Authorised

2015 2014

Rm Rm

2 billion (2014: 2 billion) ordinary shares1 200 2008 million (2014: 8 million) first preference shares2 8 81 billion (2014: 1 billion) second preference shares3 10 10

218 218

13.2 IssuedOrdinary shares 17 946 18 067

Ordinary share capital 162 162Ordinary share premium 17 784 17 905

Preference share capital and premium 5 503 5 503

First preference share capital 8 8Second preference share capital 1 1Second preference share premium 5 494 5 494

23 449 23 570

1 Ordinary shares comprise shares of 10 cents each traded on the JSE under the symbol SBK. 2 First preference shares comprise 6.5% cumulative non-redeemable preference shares of R1 each traded on the JSE under the symbol SBKP. 3 Second preference shares comprise non-redeemable, non-cumulative, non-participating preference shares of 1 cent each traded on the JSE under

the symbol SBPP. The preference shares are entitled to an annual dividend, if declared, payable in two semi-annual instalments of not less than 77% of the prime interest rate multiplied by the subscription price of R100 per share.

183

13. Share capital continued13.2 Issued continued

Reconciliation of shares issued Number of ordinary shares

Shares in issue at 1 January 2014 1 617 844 128Shares issued during 2014 in terms of the group’s equity compensation plans 4 879 268Share buy-back (4 361 547)

Shares in issue at 31 December 2014 1 618 361 849

Net shares held in terms of the group’s Tutuwa initiative 27 725 901

Total number of shares held initially by Tutuwa SEs (note 14) 99 190 197Less: portion of shares financed directly by third parties (note 14) (60 444 267)Less: number of shares sold in terms of the ICBC transaction (note 14) (11 020 029)

Shares held by entities within the group 12 807 677Shares held by other shareholders 1 577 828 271

Shares issued during 2015 in terms of the group’s equity compensation plans 3 813 706Share buy-back (3 923 373)

Shares in issue at 31 December 2015 1 618 252 182

Net shares held in terms of the group’s Tutuwa initiative 5 750 291

Total number of shares held initially by Tutuwa SEs (note 14) 99 190 197Less: portion of shares financed directly by third parties (note 14) (44 612 399)Less: portion of shares sold by participants (note 14) (37 807 478)Less: number of shares sold in terms of the ICBC transaction (note 14) (11 020 029)

Shares held by entities within the group 11 084 016Shares held by other shareholders 1 601 417 875

All issued shares are fully paid up. There has been no movement in the first and second preference shares. The number of shares in issue for first and second preference shares are 8 000 000 and 52 982 248 respectively.

13.3 Unissued shares2015 2014

Number of shares

Number of shares

Ordinary unissued shares 250 363 143 246 439 770Ordinary shares reserved to meet the requirements of the EGS and GSIS 131 384 675 135 198 381

Ordinary shares reserved in terms of the rules of EGS and GSIS as approved by members’ resolution dated 27 May 2010 155 825 715 155 825 715

Less: issued to date of the above resolution for the EGS and GSIS schemes (24 441 040) (20 627 334)

Unissued ordinary shares – total 381 747 818 381 638 151

Unissued second preference shares 947 017 752 947 017 752

At the end of the year, the group would need to issue 5 767 801 (2014: 13 582 079) SBG ordinary shares to settle the outstanding options in Group Share Incentive Scheme (GSIS) and rights in Equity Growth Scheme (EGS) awarded to participants historically.

184



13. Share capital continued13.4 Interest of directors in the capital of the company

Direct beneficial1 Indirect beneficial1

2015 2014 2015 2014

Number ofshares

Number of shares

Number ofshares

Number ofshares

Ordinary sharesRMW Dunne 14 000 14 000 14 000 14 000TS Gcabashe2 100 000 111 112BJ Kruger 275 000 275 000KD Moroka2 515 515 66 636 111 112ANA Peterside con 100 000 100 000SP Ridley 60 145 28 589MJD Ruck 140 000 175 000BS Tshabalala 426 426SK Tshabalala2 81 140 40 900 418 814 698 339EM Woods 52 450 52 450

623 250 586 454 699 876 1 034 989

Direct beneficial1

2015 2014

Number ofshares

Number ofshares

Second preference sharesBJ Kruger 26 791 26 791

2015 2014

Number ofshares

Number ofshares

Shares as at 31 DecemberShare incentives 2 762 036 3 065 191

There have been no changes to directors’ interests between 1 January 2016 and 3 March 2016.

Refer to footnotes on following page.

185

13. Share capital continued13.5 General authority of directors to issue shares3

2015 2014

Number ofshares

Number ofshares

Ordinary shares 80 892 206 80 892 206Preference shares 947 017 752 947 017 752

13.6 Treasury shares2015 2014

Number ofshares

Number ofshares

Purchased during the year 58 629 786 54 331 546Total treasury shares held at the end of the year 11 084 016 12 807 677Ordinary shares delisted and reinstated to authorised 3 923 373 4 361 547

1 As per JSE Listings Requirements.2 As reported on SENS on 16 February 2015, KD Moroka and SK Tshabalala sold 44 476 and 279 525 of the group’s ordinary shares respectively

out of the Tutuwa structure in order to settle employees’ tax, associated funding and transaction costs arising from the expiry of the lock-in period. In addition, TS Gcabashe sold a further 11 112 shares on 25 March 2015.

3 The general authority expires at the annual general meeting on 26 May 2016.

The average share price for the shares purchased during the year was R150,08 (2014: R134,58).

186



13. Share capital continued13.7 Shareholder analysis

2015 2014

Number of shares (millions) % holding

Number of shares (millions) % holding

Spread of ordinary shareholders (million)Public1 1 056,0 65.2 989,3 61.1Non-public1 562,3 34.8 629,1 38.9

Directors and prescribed officers of SBG, and its subsidiaries2 1,3 0.1 1,3 0.1ICBC 325,0 20.1 325,0 20.1Government Employees Pension Fund (investments managed by PIC) 202,0 12.5 212,2 13.1Standard Bank Group retirement funds 2,0 0.1 2,3 0.1Tutuwa participants3 31,9 2.0 88,2 5.5Associates of directors 0,1 0,1

1 618,3 100.0 1618,4 100.0

2015 2014

Number of shares % holding

Number of shares % holding

Spread of first preference shareholdersPublic1 8 000 000 100.0 8 000 000 100.0

Spread of second preference shareholdersPublic1 52 931 957 99.9 52 929 457 99.9Non-public1 50 291 0.1 52 791 0.1

Directors and prescribed officers of SBG, and its subsidiaries2 50 291 0.1 1,3 0.1

52 982 248 100.0 52 982 248 100.0

1 As per the JSE Listings Requirements.2 Excludes indirect holdings of strategic partners, which are included in Tutuwa participants.3 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1,2 and 3, Tutuwa Community and General Staff Share Trust.

187

14. Empowerment reserve SBG and Liberty entered into a series of transactions in 2004 whereby investments were made in cumulative,

redeemable, preference shares issued by BEE entities which are SEs. The initial investments made by SBG and Liberty totalled R4 017 million and R1 251 million, respectively. The proceeds received were used by the BEE entities to purchase 99 190 197 ordinary shares of SBG. All participants were subject to a ten-year lock-in period which expired on 31 December 2014.

The preference shares owned by the group do not meet the definition of a financial asset in terms of IFRS and are, therefore, treated as a negative empowerment reserve within the statement of changes in equity. The empowerment reserve represents SBG shares held by the SEs that are deemed to be treasury shares in terms of IFRS. Refer to accounting policy 11.

The investment in the cumulative, redeemable, preference shares of the BEE entities, accounted for by the group as a negative empowerment reserve, is set out below:

Number of SBG ordinary

shares

2015 2014

Rm Rm

Standard Bank Group1 14 609 781 526 1 802

Original amount invested in 2004 99 190 197 4 017 4 017Redemption – 2008 (11 020 029) (986) (986)Redemption – 2013 (35 752 909) (1 229) (1 229)Redemption – 2015 (37 807 478) (1 276)

Liberty 322 807

Total investment 14 609 781 848 2 609Financing by external parties (8 859 490) (464) (1 000)Attributable to non-controlling interests of Liberty (148) (371)Preference dividends accrued but not received due to

dividends distributed 212 696

Standard Bank Group empowerment reserve 5 750 291 448 1 934

1 Comprises the Black Managers’ Trust – Tutuwa Staff Holdings 1-3 Proprietary Limited and the Community Trust – Tutuwa Community Holdings Proprietary Limited.

The cumulative, redeemable, preference shares owned by the group attract dividends at 8.5% per annum, while those of Liberty accrue dividends at 67% of the Standard Bank prime lending rate. The dividend obligation of the preference shares compounds on each date when the issuing company receives a dividend from the group or Liberty respectively.

For the purposes of the earnings per share calculation, the weighted average number of company shares in issue is reduced by the number of shares held by the BEE entities bought with the proceeds received from the preference shares (note 42).

188



15. Trading liabilities2015 2014

Rm Rm

Comprising:Government, municipality and utility bonds 5 018 4 119Listed equities 18 056 16 777Collateral 367 346Repurchase and other collateralised agreements 10 446 13 188Credit-linked notes 3 828 1 106Other instruments 5 589 8 225

43 304 43 761

16. Deferred taxation16.1 Deferred tax analysis

2015 2014

Rm Rm

Accrued interest receivable 23 5Assessed losses1 (399) (571)Assets on lease 230 226Capital gains tax 1 853 1 717Credit impairment charges (1 463) (977)Deferred acquisition costs 182 161Deferred revenue liability (DRL) (66) (59)Property and equipment 1 813 1 755Derivatives and financial instruments 928 711Fair value adjustments on financial instruments (97) 214Intangible asset – PVIF 40 65Policyholder change in valuation basis 2 385 2 239Post-employment benefits 58 149Share-based payments (290) (617)Special transfer to life fund (284) (442)Provisions and other items (1 700) (1 816)

Deferred tax closing balance 3 213 2 760

Deferred tax liabilities 5 094 4 475Deferred tax assets (1 881) (1 715)

1 The group has estimated tax losses of R1 659 million (2014: R2 080 million) which are available for set-off against future taxable income. These tax losses have arisen from the group entities incurring operating tax losses. The asset is anticipated to be recovered as financial projections indicate these entities are likely to produce sufficient taxable income in the near future. These deferred tax asset balances were offset against deferred tax liabilities, refer to annexure D – accounting policy 14.

189

16. Deferred taxation continued16.2 Deferred tax reconciliation

2015 2014

Rm Rm

Deferred tax at the beginning of the year 2 760 2 459Deferred tax adjustment due to change in tax rate 24

Assessed losses 24

Originating/(reversing) temporary differences for the year: 453 277

Accrued interest receivable 18 (20)Assessed losses 172 459Assets on lease 4 (74)Capital gains tax 136 256Credit impairment charges (486) (168)Deferred acquisition costs 21 17Deferred revenue liability (7) (6)Property and equipment 58 506Derivatives and financial instruments 217 (132)Fair value adjustments on financial instruments (311) (137)Intangible asset – PVIF (25) 6Policyholder change in valuation basis 146 242Post-employment benefits (91) (69)Share-based payments 327 (105)Special transfer to life fund 158 (63)Provisions and other differences 116 (435)

Deferred tax at the end of the year 3 213 2 760

Temporary differences for the year comprise:Recognised in OCI from continuing operations (269) (43)

Fair value adjustments on financial instruments (223) (26)Defined benefit fund remeasurements (46) (17)

Recognised in equity-deferred tax on share-based payments 72 (150)Recognised in the income statement 849 494Exchange differences (199)

Recognised in OCI 156 5Recognised in the income statement (355) (5)

453 301

190



17. Deposits and debt funding2015 2014

Rm Rm

Deposits and debt funding from banks 137 202 97 606Deposits and debt funding from customers 1 049 312 949 606

Current accounts 212 356 188 739Cash management deposits 130 386 124 766Call deposits 294 576 246 722Savings accounts 23 136 20 332Term deposits 240 246 227 055Negotiable certificates of deposit 105 447 95 421Repurchase agreements 3 345Securitisation issuances 3 172 3 819Other funding 39 993 39 407

Total deposits and debt funding 1 186 514 1 047 212

18. Policyholders’ liabilities2015 2014

Rm Rm

Policyholders’ liabilities under insurance contracts 209 773 205 533

Insurance contracts (note 18.1) 198 523 195 356Investment contracts with DPF (note 18.1) 11 250 10 177

Policyholders’ liabilities under investment contracts (note 18.2) 88 459 81 983

298 232 287 516

191

18. Policyholders’ liabilities continued18.1 Policyholders’ liabilities under insurance contracts and reinsurance assets

2015 2014

Insurancecontracts

Rm

Investmentcontracts with DPF1

Rm

Rein-surance

assets2

Rm

Insurancecontracts

Rm

Investmentcontracts with DPF1

Rm

Rein-surance

assets2

Rm

Balance at the beginning of the year 195 356 10 177 (1 302) 180 742 9 056 (1 161)

Inflows 49 500 3 157 (1 216) 59 339 2 614 (1 138)

Insurance premiums 35 119 2 413 (1 209) 38 882 1 820 (1 015)Investment returns 14 374 744 (7) 20 450 794 (123)Fee revenue 7 7

Outflows (44 226) (2 296) 1 089 (42 324) (1 529) 970

Claims and policyholders’ benefits (31 294) (2 092) 998 (30 677) (1 367) 925

Acquisition costs associated with insurance contracts (3 662) (92) 17 (3 804) (70) 7

General marketing and administration expenses (5 480) (99) 28 (4 887) (87) 18

Profit share allocations (896) (867)Finance costs (1 091) (266)Taxation (1 803) (13) 46 (1 823) (5) 20

Net income from insurance operations (2 304) (59) 117 (2 444) (35) 28

Changes in estimates 275 (103) (6) (1)Planned margins and other

variances (4 168) (84) 163 (3 952) (42) 43New business 171 190 1Shareholder taxation on

transfer of net income 1 418 25 (46) 1 421 13 (15)

Exchange differences 197 271 (5) 43 71 (1)

Balance at the end of the year 198 523 11 250 (1 317) 195 356 10 177 (1 302)

Liquidity profileCurrent 17 042 276 (263) 15 880 382 (261)Non-current 181 481 10 974 (1 054) 179 476 9 795 (1 041)

198 523 11 250 (1 317) 195 356 10 177 (1 302)

1 The group cannot reliably measure the fair value of investment contracts with DPF. The DPF is a contractual right that gives investors in these contracts the right to receive supplementary discretionary returns through participation in the surplus arising from the assets held in the investment DPF fund. These supplementary returns are subject to the discretion of the group.

2 Reinsurance contracts are included in the insurance prepayments and reinsurance assets under Other assets in note 8.

192



18. Policyholders’ liabilities continued18.2 Policyholders’ liabilities under investment contracts

2015 2014

Rm Rm

Balance at the beginning of the year 81 983 74 146Fund inflows from investment contracts (excluding switches) 16 348 14 729Net fair value adjustment 6 181 7 473Fund outflows from investment contracts (excluding switches) (16 013) (14 213)Switches between investments with DPF and investment without DPF 1 132 786Service fee income (1 172) (938)

Balance at the end of the year 88 459 81 983

Liquidity profileCurrent 4 172 5 201Non-current 84 287 76 782

88 459 81 983

Net income from investment contracts1 25 45

Service fee income 1 172 938Expenses (1 147) (893)

Property expenses applied to investment returns 378 348Shareholder taxation on transfer of net income (9) (17)Acquisition costs (471) (302)General marketing and administration expenses (964) (837)Finance costs (81) (85)

1 Prior to DAC and DRL adjustments.

193

19. Subordinated debt

Redeemable/ repayable date Callable date

Notional value

Carrying value1

Carrying value1

2015 2015 2014

LCm Rm Rm

Subordinated bondsThe Standard Bank of South Africa 21 309 20 735

SBK 7 24 May 2020 24 May 2015 3 030SBK 12 24 November 2021 24 November 2016 ZAR1 600 1 618 1 618SBK 13 24 November 2021 24 November 2016 ZAR1 150 1 160 1 160SBK 15 23 January 2022 23 January 2017 ZAR1 220 1 239 1 239SBK 14 1 December 2022 1 December 2017 ZAR1 780 1 795 1 795SBK 16 15 March 2023 15 March 2018 ZAR2 000 2 008 2 008SBK 9 10 April 2023 10 April 2018 ZAR1 500 1 529 1 529SBK 17 30 July 2024 30 July 2019 ZAR2 000 2 029 2 029SBK 19 24 October 2024 24 October 2019 ZAR500 508 508SBK 202 2 December 2024 2 December 2019 ZAR2 250 2 269 2 261SBK 212 28 January 2025 28 January 2020 ZAR750 763SBK 222 28 May 2025 28 May 2020 ZAR1 000 1 009SBK 242 19 October 2025 19 October 2020 ZAR880 897SBK 18 24 October 2025 24 October 2020 ZAR3 500 3 557 3 558SBK 232 28 May 2027 28 May 2022 ZAR1 000 928

Rest of Africa tier II bonds

July 2016 – May 2022

October 2015 – May 2017 Various 676 642

Subordinated bonds issued to group companies (789) (1 140)

Total bonds qualifying as SARB regulatory banking capital 21 196 20 237Rest of Africa bonds not qualifying as SARB regulatory

banking capital 2 371 1 652

CfC Stanbic Bank Kenya 8 December 2021 1 June 2020 KES4 000 602 511Stanbic IBTC Bank (Nigeria) 30 September 2024 1 October 2019 NGN15 440 1 226 991Standard Bank Mozambique

September 2025 – October 2025

August 2020 – October 2020 MZN1 001 334

Other rest of Africa bonds

October 2024 – October 2025

October 2019 – December 2019 Various 209 150

Total subordinated bonds – banking activities 23 567 21 889

194



19. Subordinated debt continued

Redeemable/ repayable date Callable date

Notional value

Carrying value1

Carrying value1

2015 2015 2014

LCm Rm Rm

LibertyQualifying as regulatory insurance capital 3 574 3 570

LGL 02 13 August 2017 ZAR1 000 1 028 1 026LGL 03 3 April 2018 ZAR1 000 1 016 1 015LGL 04 14 August 2020 ZAR1 000 1 031 1 030LGL 05 12 December 2021 ZAR500 499 499

Total subordinated bonds 27 141 25 459

Subordinated loans issued within the rest of Africa 29 March 2018 USD5 62

Total subordinated debt 27 141 25 521

1 The difference between the carrying and notional value represents foreign exchange movements, transaction costs included in the initial carrying amounts, accrued interest and the unamortised fair value adjustments relating to bonds, where applicable, hedged for interest rate risk.

2 The terms of the issued bonds include a regulatory requirement which provides for the write-off in whole or in part on the earlier of a decision by the relevant regulator (SARB) that a write-off, or a public sector injection of capital or equivalent support is necessary, without which the issuer would have become non-viable.

195

20. Provisions and other liabilities20.1 Summary

2015 2014

Rm Rm

Trading settlement liabilities 7 078 6 568Items in the course of transmission 3 798 1 383Post-employment benefits (note 47) 1 372 1 277Third-party liabilities arising on consolidation of mutual funds (note 20.2) 46 329 34 503Cash-settled share-based payment liability (annexure C) 481 5511

Insurance payables 7 963 7 170Staff-related accruals 8 250 5 055Deferred revenue liability 247 216Accounts payable 762 2 268Deemed disposal taxation liability 268Collateral owing and other insurance risk management liabilities 16 159 5 191Other liabilities 9 455 9 4211

101 894 73 871

1 Restated, refer to annexure C.

20.2 Third-party liabilities arising on consolidation of mutual funds2015 2014

Rm Rm

Balance at the beginning of the year 34 503 41 817Additional mutual funds classified as subsidiaries 330 2 152Net capital contribution/(repayment) or change in effective ownership 6 600 (11 719)Mutual funds no longer classified as subsidiaries (1 158) (115)Distributions (1 247) (1 217)Fair value adjustment 7 301 3 585


The group has classified certain mutual funds as investments in subsidiaries. Consequently, fund interests not held by the group are classified as third-party liabilities as they represent demand deposit liabilities measured at fair value.

196



21. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities The tables that follow categorise the group’s assets and liabilities as at 31 December 2015 between that which is

financial and non-financial. All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for these items.

Held-for-trading

Rm

Designated at fair value

Rm

Held-to-maturity

Rm

Loans and receivables1

Rm

Available-for-sale

Rm

Other amortised

cost1

Rm

Other assets/

liabilitiesRm

Total carrying amount

RmFair value2

Rm

2015AssetsCash and balances with central banks 75 112 75 112 75 112Derivative assets 111 089 111 089 111 089Trading assets 86 219 86 219 86 219Pledged assets 8 220 22 319 175 3 715 34 429 34 434Financial investments 350 544 73 689 21 418 41 053 486 704 487 147Loans and advances to banks 145 320 145 320 143 145Loans and advances to customers 78 931 519 931 597 915 905Interest in associates and joint ventures 9 703 9 703Investment property 30 508 30 508 30 508Other financial assets3 11 767 11 767Other non-financial assets 56 901 56 901

205 528 372 941 73 689 1 185 311 44 768 97 112 1 979 349

LiabilitiesDerivative liabilities 133 958 133 958 133 958Trading liabilities 43 304 43 304 43 304Deposits and debt funding from banks 137 202 137 202 134 531Deposits and debt funding from customers 18 929 1 030 383 1 049 312 1 035 638Policyholders’ liabilities4 88 459 209 773 298 232 88 459Subordinated debt 27 141 27 141 23 456Other financial liabilities3 46 329 46 580 92 909Other non-financial liabilities 18 383 18 383

177 262 153 717 1 241 306 228 156 1 800 441

Refer to footnotes on page 198.

197

21. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities The tables that follow categorise the group’s assets and liabilities as at 31 December 2015 between that which is

financial and non-financial. All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for these items.

Held-for-trading

Rm


Rm

Held-to-maturity

Rm


Rm

Available-for-sale

Rm

Other amortised

cost1

Rm

Other assets/

liabilitiesRm


RmFair value2

Rm

2015AssetsCash and balances with central banks 75 112 75 112 75 112Derivative assets 111 089 111 089 111 089Trading assets 86 219 86 219 86 219Pledged assets 8 220 22 319 175 3 715 34 429 34 434Financial investments 350 544 73 689 21 418 41 053 486 704 487 147Loans and advances to banks 145 320 145 320 143 145Loans and advances to customers 78 931 519 931 597 915 905Interest in associates and joint ventures 9 703 9 703Investment property 30 508 30 508 30 508Other financial assets3 11 767 11 767Other non-financial assets 56 901 56 901

205 528 372 941 73 689 1 185 311 44 768 97 112 1 979 349

LiabilitiesDerivative liabilities 133 958 133 958 133 958Trading liabilities 43 304 43 304 43 304Deposits and debt funding from banks 137 202 137 202 134 531Deposits and debt funding from customers 18 929 1 030 383 1 049 312 1 035 638Policyholders’ liabilities4 88 459 209 773 298 232 88 459Subordinated debt 27 141 27 141 23 456Other financial liabilities3 46 329 46 580 92 909Other non-financial liabilities 18 383 18 383

177 262 153 717 1 241 306 228 156 1 800 441


198



21. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued

Held-for-trading

Rm


Rm

Held-to-maturity

Rm


Rm

Available-for-sale

Rm

Other amortised

cost1

Rm

Other assets/

liabilitiesRm


RmFair value2

Rm

2014AssetsCash and balances with central banks 64 302 64 302 64 302Derivative assets 61 633 61 633 61 633Trading assets 72 040 72 040 72 040Pledged assets 5 084 6 990 206 1 905 14 185 14 191Non-current assets held for sale 150 587 671 66 396 30 1 216 1 058 219 958 213 096Financial investments 133 376 894 16 786 16 644 40 464 450 921 448 411Loans and advances to banks 363 115 857 116 220 122 389Loans and advances to customers 83 811 938 812 021 810 484Interest in associates and joint ventures 3 727 3 727Investment property 27 022 27 022 27 022Other financial assets3 10 513 10 513Other non-financial assets 50 303 50 303

289 477 385 001 16 786 1 085 856 42 399 1 216 82 110 1 902 845

LiabilitiesDerivative liabilities 72 281 72 281 72 281Trading liabilities 43 761 43 761 43 761Deposits and debt funding from banks 21 97 585 97 606 104 675Deposits and debt funding from customers 21 808 927 798 949 606 965 097Policyholders’ liabilities4 81 983 205 533 287 516 81 983Subordinated debt 25 521 25 521 23 095Non-current liabilities held for sale 104 507 76 146 1 416 182 069 172 356Other financial liabilities3 36 335 28 561 64 896Other non-financial liabilities 17 955 17 955

220 549 140 147 1 155 611 224 904 1 741 211

1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.

2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. Refer to the fair value section in accounting policy 4 and Key management assumptions for a description on how fair values are determined.

3 The fair value of the other financial assets and liabilities approximates the carrying value due to their short-term nature.4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining

liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not defined as financial instruments.

199

21. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued

Held-for-trading

Rm


Rm

Held-to-maturity

Rm


Rm

Available-for-sale

Rm

Other amortised

cost1

Rm

Other assets/

liabilitiesRm


RmFair value2

Rm

2014AssetsCash and balances with central banks 64 302 64 302 64 302Derivative assets 61 633 61 633 61 633Trading assets 72 040 72 040 72 040Pledged assets 5 084 6 990 206 1 905 14 185 14 191Non-current assets held for sale 150 587 671 66 396 30 1 216 1 058 219 958 213 096Financial investments 133 376 894 16 786 16 644 40 464 450 921 448 411Loans and advances to banks 363 115 857 116 220 122 389Loans and advances to customers 83 811 938 812 021 810 484Interest in associates and joint ventures 3 727 3 727Investment property 27 022 27 022 27 022Other financial assets3 10 513 10 513Other non-financial assets 50 303 50 303

289 477 385 001 16 786 1 085 856 42 399 1 216 82 110 1 902 845

LiabilitiesDerivative liabilities 72 281 72 281 72 281Trading liabilities 43 761 43 761 43 761Deposits and debt funding from banks 21 97 585 97 606 104 675Deposits and debt funding from customers 21 808 927 798 949 606 965 097Policyholders’ liabilities4 81 983 205 533 287 516 81 983Subordinated debt 25 521 25 521 23 095Non-current liabilities held for sale 104 507 76 146 1 416 182 069 172 356Other financial liabilities3 36 335 28 561 64 896Other non-financial liabilities 17 955 17 955

220 549 140 147 1 155 611 224 904 1 741 211

1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.

2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. Refer to the fair value section in accounting policy 4 and Key management assumptions for a description on how fair values are determined.

3 The fair value of the other financial assets and liabilities approximates the carrying value due to their short-term nature.4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining

liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not defined as financial instruments.

200



22. Fair value disclosures22.1 Assets and liabilities measured at fair value

2015 2014

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalRm Rm Rm Rm Rm Rm Rm Rm

AssetsMeasured on a recurring basis1

Derivative assets 59 108 573 2 457 111 089 242 60 638 753 61 633Trading assets 31 486 45 791 8 942 86 219 25 671 41 722 4 647 72 040Pledged assets 29 977 4 277 34 254 9 482 4 497 13 979Financial investments 202 120 179 464 10 013 391 597 203 332 208 352 5 807 417 491Loans and advances to

banks 363 363Loans and advances to

customers 2 76 78 11 72 83Investment property 30 508 30 508 27 022 27 022Measured on a non-recurring basis2

Non-current assets held for sale3 38 426 109 288 3 574 151 288

Total assets at fair value 263 644 338 181 51 920 653 745 277 527 424 569 41 803 743 899

LiabilitiesMeasured on a recurring basis1

Derivative liabilities 19 119 298 14 641 133 958 17 66 306 5 958 72 281Trading liabilities 21 388 19 432 2 484 43 304 20 889 20 950 1 922 43 761Deposits and debt

funding from banks 21 21Deposits and debt

funding from customers 18 929 18 929 21 808 21 808

Policyholders’ liabilities 88 459 88 459 81 983 81 983Other financial liabilities 46 329 46 329 36 335 36 335Measured on a non-recurring basis2

Non-current liabilities held for sale3 11 869 86 156 6 482 104 507

Total liabilities at fair value 21 407 292 447 17 125 330 979 32 775 313 559 14 362 360 696

1 Recurring fair value measurements of assets or liabilities are those assets and liabilities that IFRS require to be carried at fair value in the statement of financial position at the end of each reporting period.

2 Non-recurring fair value measurements of assets or liabilities are those assets and liabilities that IFRS require or permit to be carried at fair value in the statement of financial position at the end of the reporting period in particular circumstances.

3 While the disposal group has been classified as held for sale and has been measured to its fair value less costs, the disposal group’s fair value measured assets and liabilities have been categorised within the fair value hierarchy in the table above.

Assets and liabilities transferred between level 1 and level 2 During the current and prior year, no significant assets or liabilities were transferred between level 1 and level 2.

201

22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Reconciliation of level 3 assets The following table provides a reconciliation of the opening to closing balance for all assets that are measured at fair

value and incorporate inputs that are not based on observable market data (level 3).

Measured on a recurring basis

Measured on a non-

recurring basis

TotalRm

Derivative assets

Rm

Trading assets

Rm

Financial invest-ments

Rm

Invest-ment

propertyRm

Non-current assets

held for sale1

Rm

Balance at 1 January 2015 753 4 647 5 807 27 022 3 574 41 803

Total gains/(losses) included in profit or loss 649 212 (11) 1 285 (510) 1 625

Interest income 65 65Trading revenue 649 212 (2) (510) 349Other revenue (172) (172)Investment gains 98 1 285 1 383

Total gains/(losses) included in OCI 129 (1) 128

Issuances and purchases 1 672 1 100 1 851 2 434 7 057

Sales and settlements (626) (495) (1 696) (267) (3) (3 087)Transfers into level 32 3 477 3 552 7 029Transfers out of level 33 (167) (167)Disposal of non-current

assets held for sale (3 143) (3 143)Exchange movement

gains 9 1 548 34 83 675

Balance at 31 December 2015 2 457 8 942 10 013 30 508 51 920

1 Relates to financial assets within the disposal group that have been classified as level 3.2 Transfers of financial assets between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. During the

year, the valuation inputs of certain financial assets became unobservable. The fair value of these assets was transferred into level 3.3 During the year, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial assets was transferred

into level 2.

202



22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Reconciliation of level 3 assets continued


Measured on a non-

recurring basis

TotalRm

Derivative assets

Rm

Trading assets

Rm

Pledged assets

Rm

Loans and advances

to customers

Rm


Rm

Invest-ment

propertyRm

Non-current assets

held for sale1

Rm

Balance at 1 January 2014 2 090 2 110 8 43 4 181 27 299 5 613 41 344

Total gains/(losses) included in profit or loss 186 (126) 3 717 1 179 142 2 101

Interest income 143 143Trading revenue 186 (126) 3 142 205Other revenue 136 136Investment gains 438 1 179 1 617

Total gains/(losses) included in OCI 2 (1) 1

Issuances and purchases 553 3 875 1 620 858 770 7 676

Sales and settlements (1 889) (665) (8) (46) (1 601) (2 348) (2 565) (9 122)Transfers into level 32 791 349 1 140Transfers out of level 33 (190) (84) (1 068) (1 342)Reclassifications (546) (546)Exchange movement

gains/(losses) 3 (1) 181 34 334 551

Balance at 31 December 2014 753 4 647 5 807 27 022 3 574 41 803

1 Relates to financial assets within the disposal group that have been classified as level 3.2 Transfers of financial assets between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. During the

year, the valuation inputs of certain financial assets became unobservable. The fair value of these assets was transferred into level 3.3 During the year, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial assets was transferred

into level 2.

203

22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Unrealised gains/(losses) for the period included in profit or loss for level 3 assets held at the end of the

reporting period


Measured on a non-

recurring basis

TotalRm

Derivative assets

Rm

Trading assets

Rm


Rm

Invest-ment

propertyRm

Non-current assets

held for saleRm

2015Interest income 47 47Trading revenue 414 266 (58) 622Other revenue 165 165Investment gains 1 147 1 147

414 266 154 1 147 1 981

2014Trading revenue 37 (102) (205) (270)Other revenue 103 103Investment gains (80) 1 141 1 061

37 (102) 23 1 141 (205) 894

204



22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Reconciliation of level 3 liabilities The following table provides a reconciliation of the opening to closing balance for all liabilities that are measured at fair

value based on the inputs that are not based on observable market data (level 3).


Measured on a non-recurring

basis

TotalRm


Rm

Trading liabilities

Rm

Non-current liabilities

held for sale1

Rm

Balance at 1 January 2014 7 875 432 6 928 15 235Total losses included in profit or loss

– trading revenue 699 179 841 1 719Issuances and purchases 764 1 309 2 073Sales and settlements (2 444) (1 603) (4 047)Transfers into level 32 306 54 360Transfers out of level 33 (1 242) (573) (1 815)Exchange movement

losses/(gains) 2 835 837

Balance at 31 December 2014 5 958 1 922 6 482 14 362

Balance at 1 January 2015 5 958 1 922 6 482 14 362Total losses included in profit or loss

– trading revenue4 5 641 56 232 5 929Issuances and purchases 3 344 924 4 268Sales and settlements (301) (435) (736)Disposal of non-current liabilities held for sale (6 905) (6 905)Exchange movement

(gains)/losses (1) 17 191 207

Balance at 31 December 2015 14 641 2 484 17 125

1 Relates to financial liabilities within the disposal group that have been classified as level 3.2 Transfers of financial liabilities between the levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

During 2014, the valuation inputs of certain financial liabilities became unobservable. The fair value of these liabilities was transferred into level 3.3 During 2014, the valuation inputs of certain financial liabilities became observable. The fair value of these financial liabilities was transferred into

level 2.4 The change in fair value has been materially offset by changes in the fair value of financial assets and liabilities classified as level 2 in the fair value

hierarchy which hedges this position.

205

22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Unrealised losses for the period included in profit or loss for level 3 liabilities held at the end of the

reporting period


Measured on a non-recurring

basis

TotalRm


Rm

Trading liabilities

Rm

Non-current liabilities

held for saleRm

2015Trading revenue 5 879 56 5 935

2014Trading revenue 692 179 414 1 285

Sensitivity and interrelationships of inputs The behaviour of the unobservable parameters used to fair value level 3 assets and liabilities is not necessarily

independent, and may often hold a relationship with other observable and unobservable market parameters. Where material and possible, such relationships are captured in the valuation by way of correlation factors, though these factors are, themselves, frequently unobservable. In such instances, the range of possible and reasonable fair value estimates is taken into account when determining appropriate model adjustments.

The table that follows indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 3 assets and liabilities measured and disclosed at fair value. The table further indicates the effect that a significant change in one or more of the inputs to a reasonably possible alternative assumption would have on profit or loss and at the reporting date (where the change in the unobservable input would change the fair value of the asset or liability significantly). The changes in the inputs that have been used in the analysis have been determined taking into account several considerations such as the nature of the asset or liability and the market within which the asset or liability is transacted.

206



22. Fair value disclosures continued22.1 Assets and liabilities measured at fair value continued Sensitivity and interrelationships of inputs continued

Effect on comprehensive income

Variance in fair value

measurementFavourable

Rm

(Unfavour-able)Rm

2015Derivative instruments From (1%) to 1% 48 (48)Trading assets From (1%) to 1% 239 (239)Financial investments From (1%) to 1% 283 (283)Trading liabilities From (1%) to 1% 163 (163)

Total 733 (733)

2014Derivative instruments From (1%) to 1% 512 (512)Trading assets From (1%) to 1% 418 (418)Financial investments From (1%) to 1% 287 (275)Trading liabilities From (1%) to 1% 310 (310)

Total 1 527 (1 515)

22.2 Assets and liabilities not measured at fair value for which fair value is disclosed

2015 2014

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

AssetsCash and balances

with central banks 75 112 75 112 64 302 64 302Financial

investments 34 619 58 863 2 068 95 550 28 955 1 921 44 30 920Non-current assets

held for sale 37 571 20 358 3 879 61 808Loans and advances

to banks 6 932 128 913 7 300 143 145 7 751 107 580 6 695 122 026Loans and advances

to customers 10 601 137 083 768 143 915 827 12 110 113 088 685 203 810 401Pledged assets 180 180 212 212

Total assets 127 264 324 859 777 691 1 229 814 150 689 242 947 696 033 1 089 669

LiabilitiesDeposits and debt

funding from banks 40 960 90 989 2 582 134 531 46 505 55 222 2 927 104 654Deposits and debt

funding from customers 502 009 466 297 48 403 1 016 709 519 885 389 034 34 370 943 289

Subordinated debt 102 23 354 23 456 791 22 304 23 095Non-current

liabilities held for sale 10 692 7 687 49 470 67 849

Total liabilities 543 071 580 640 50 985 1 174 696 577 873 474 247 86 767 1 138 887

207

22. Fair value disclosures continued22.3 Third-party credit enhancements There were no significant liabilities measured at fair value that existed during the year which had been issued with

inseparable third-party credit enhancements.

22.4 Loans and advances and deposits from customers designated at fair value through profit or loss

2015 2014

Rm Rm

Loans and advancesMaximum exposure to credit risk 78 446Exposure mitigated 62Current year gain on changes in fair value attributable to changes in credit risk 17 390Cumulative gain/(loss) on changes in fair value attributable to changes in credit risk 17 (331)Deposits from customersCurrent year gain on changes in fair value attributable to changes in credit risk 1 27Cumulative gain on changes in fair value attributable to changes in credit risk 60 59Contractual payment required at maturity 19 413 18 058

Carrying amount of deposits from customers 18 929 21 829Difference between carrying amount and contractual payment 484 (3 771)

The changes in fair value of the designated financial liabilities attributable to changes in credit risk are calculated by reference to the change in the credit risk implicit in the market value of the group’s senior notes.

23. Reclassification of financial assets The group reclassified assets from held-for-trading to loans and receivables for which there was a clear change in intent

to hold the assets for the foreseeable future rather than to exit or trade in the short term. In the current financial year, no assets (2014: R546 million) were reclassified from held-for-trading to loans and receivables. The weighted average effective interest rate on reclassified assets in 2014 amounted to 10.18%.

2015 2014

Rm Rm

Carrying value of reclassified financial assets at the end of the year 997 1 095Fair value of reclassified financial assets at the end of the year 917 1 109

A fair value gain of R92 million (2014: R49 million gain) after tax would have been recognised had all reclassifications not been effected.

Period after reclassification – amounts recognised in profit/loss on reclassified assetsNet interest income 29 31

208



24. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements

IFRS requires a financial asset and a financial liability to be offset and the net amount presented in the statement of financial position when, and only when, the group has a current legally enforceable right to set off recognised amounts, as well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. There are no instances where the group has a current legally enforceable right to offset without the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

The following table sets out the impact of offsetting, as well as the required disclosures where financial assets and financial liabilities that are subject to enforceable master netting arrangements, or similar agreements, irrespective of whether they have been offset in accordance with IFRS. There are no items measured on different measurement bases within the line items in the tables below.

It should be noted that the information below is not intended to represent the group’s actual credit exposure nor will it agree to that presented in the statement of financial position.

Gross amount of

recognised financial

assets1

Rm

Gross amount of recognised

financial liabilities set

off in the statement of

financial position2

Rm

Net amount of financial assets

subject to offset3

Rm

Financial collateral and

cash collateral received4, 5

Rm

Net amount

Rm

Assets2015Derivative assets 146 565 146 565 (134 668) 11 897Trading assets 45 512 45 512 (37 273) 8 239Loans and advances4 185 022 (34 862) 150 160 (74 256) 75 904

377 099 (34 862) 342 237 (246 197) 96 040

2014Derivative assets 170 304 (40 676) 129 628 (109 362) 20 266Trading assets 8 990 8 990 (7 566) 1 424Loans and advances4 141 118 (39 082) 102 036 (24 266) 77 770

320 412 (79 758) 240 654 (141 194) 99 460

Refer to footnotes on the following page.

209

24. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements continued

Gross amount of

recognised financial liabilities1

Rm

Gross amount of recognised

financial liabilities set

off in the statement of

financial position2

Rm

Net amounts of financial liabilities

subject to offset3

Rm

Financial collateral and

cash collateral received4, 5, 6

Rm

Net amount

Rm

Liabilities2015Derivative liabilities 172 963 172 963 (134 726) 38 237Trading liabilities 30 284 30 284 (27 950) 2 334Deposits and debt

funding4 47 265 (34 862) 12 403 (8 552) 3 851

250 512 (34 862) 215 650 (171 228) 44 422

2014Derivative liabilities 184 537 (40 676) 143 861 (116 334) 27 527Trading liabilities 6 479 6 479 (6 477) 2Deposits and debt

funding4 56 462 (39 082) 17 380 (6 644) 10 736

247 478 (79 758) 167 720 (129 455) 38 265

1 Gross amounts are disclosed for recognised financial assets and financial liabilities that are either offset in the statement of financial position or are subject to a master netting arrangement or a similar agreement, irrespective of whether the offsetting criteria is met.

2 Gross amounts of recognised financial assets or financial liabilities that qualify for offset in accordance with the criteria per IFRS.3 Related amounts not offset in the statement of financial position that are subject to a master netting arrangement or similar agreement, including

financial collateral (whether recognised or unrecognised) and cash collateral. In most cases the group is allowed to sell or repledge collateral received.

4 The most material amounts offset in the statement of financial position pertain to cash management accounts. The cash management accounts allow holding companies (or central treasury functions) to manage the cash flows of a group by linking the current accounts of multiple legal entities within a group. It allows for cash balances of the different legal entities to be offset against each other to arrive at a net balance for the whole group. In addition, it should be noted that all repurchase agreements and reverse repurchase agreements, subject to a master netting arrangement (or similar agreement), have been included.

5 Related amounts not offset in the statement of financial position that are subject to a master netting arrangement or similar agreement, including financial collateral (whether recognised or unrecognised) and cash collateral.

6 In most instances, the counterparty may not sell or repledge collateral pledged by the group.

210



24. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements continued

The table below sets out the nature of agreements and the types of rights relating to items which do not qualify for offset but that are subject to a master netting arrangement or similar agreement.

NATURE OF AGREEMENT RELATED RIGHTS

Derivative assets and liabilities

International swaps and derivatives associations

The agreement allows for offset in the event of default

Trading assets and liabilities Global master repurchase agreements

The agreement allows for offset in the event of default

Loans and advances Customer agreement and Banks Act

In the event of liquidation or bankruptcy, offset shall be enforceable subject to meeting Banks Act requirements

Deposits and debt funding Customer agreement and Banks Act

In the event of liquidation or bankruptcy, offset shall be enforceable subject to meeting Banks Act requirements

25. Contingent liabilities and commitments25.1 Contingent liabilities

2015 2014

Rm Rm

Letters of credit and bankers’ acceptances 11 437 16 162Guarantees 67 161 53 365

78 598 69 527

Loan commitments of R99 255 million (2014: R80 881 million) that are irrevocable over the life of the facility or revocable only in response to material adverse changes are included in the risk management section on page 46.

211

25. Contingent liabilities and commitments continued25.2 Commitments

2015 2014

Rm Rm

Investment property 835 2 934Property and equipment 405 456Other intangible assets 1 169 826

2 409 4 216

The expenditure will be funded from the group’s internal resources.

In addition, in February 2016, the Standard Bank of South Africa Limited (on behalf of the Standard Bank Group) concluded conditional agreements to subscribe for R595 million of ordinary shares in ‘Good Bank’ to be created from the restructuring and resolution of African Bank Limited, as part of the consortium of parties, including the SARB, Government Employees Pension Fund and several other banks, contributing to this capitalisation. This subscription will entitle the Standard Bank Group to 5.95% of the ordinary shares of ‘Good Bank’. This transaction remains subject to a number of conditions, which are only expected to be fulfilled in March 2016.

25.3 Operating lease commitments The future minimum payments under non-cancellable operating leases are as follows:

2015 2014

Rm Rm

Property and equipmentWithin one year 937 1 116After one year but within five years 2 089 2 510After five years 709 785

3 735 4 411

The operating lease commitments comprise a number of separate operating leases in relation to properties and equipment, none of which are individually significant to the group.

25.4 Legal proceedings In the conduct of its ordinary course of business, the group is involved in litigation, lawsuits and other proceedings

relating to alleged errors and omissions, or receives claims arising from the conduct of its business which can require the group to engage in legal proceedings in order to enforce and/or defend its rights.

From time-to-time the group is also the subject of various regulatory reviews, requests for information and investigations by various governmental and regulatory bodies arising from the group’s business operations. While the group seeks to comply with the letter and spirit of all applicable laws and regulations, the outcome of these reviews, requests for information and investigations is uncertain and it is not possible to predict the extent of any liabilities or other consequences that may arise.

While recognising the inherent difficulty of predicting the outcome of defended legal proceedings, management believes, based upon current knowledge and after consulting with legal counsel, that the legal proceedings currently pending against it should not have a material adverse effect on the consolidated financial position. The directors are satisfied, based on present information and the assessed probability of claims eventuating, that the group has adequate insurance programmes and provisions in place to meet such claims.

212



26. Maturity analysis The group assesses the maturity of financial assets and financial liabilities at 31 December each year. This gives an

indication of the remaining life of these assets at that point in time. Maturity is assessed on a contractual discounted basis. The table below illustrates the maturities of the group:

Redeem-able on

demandRm

Within 1 year

Rm

Within 1 – 5 years

Rm

After 5 years

RmUndated

RmTotal

RmNote

Group2015Net derivative (liability)/asset 2 (6 928) 150 (16 091) (22 869)Trading assets 3 2 814 29 503 31 105 85 22 712 86 219Pledged assets 4 23 113 8 591 2 725 34 429Financial investments 5 9 140 070 51 490 49 707 245 428 486 704Gross loans and advances 6 128 534 288 129 363 986 318 920 1 099 569Trading liabilities 15 284 19 108 6 264 17 648 43 304Deposit and debt funding 17 732 954 306 546 113 211 33 803 1 186 514Subordinated debt 19 3 074 22 643 1 424 27 141

2014Net derivative (liability) 2 (4 479) (3 563) (2 606) (10 648)Trading assets 3 19 844 22 516 705 28 975 72 040Pledged assets 4 1 970 1 844 5 627 4 744 14 185Financial investments 5 512 130 624 49 062 52 518 218 205 450 921Gross loans and advances 6 103 646 221 815 328 854 292 633 946 948Trading liabilities 15 716 20 643 5 371 17 031 43 761Deposit and debt funding 17 653 352 273 940 90 152 29 768 1 047 212Subordinated debt 19 3 080 22 101 340 25 521

27. Interest income2015 2014

Rm Rm

Interest on loans and advances 83 918 77 998Interest on investments 4 959 2 843Unwinding of discount element of credit impairments for loans and advances

(note 6.3) 869 763Fair value adjustments on debt financial instruments 23 59Dividends on dated securities 1 766 1 734

91 535 83 397

Comprising:Interest income on items measured at fair value through profit and loss 5 142 5 931Interest income on items measured on an amortised cost basis 86 393 77 466

91 535 83 397

213

28. Interest expense2015 2014

Rm Rm

Current accounts 376 479Savings and deposit accounts 13 134 12 253Foreign finance creditors 1 001 695Subordinated debt 2 773 2 392Other interest-bearing liabilities 24 941 22 426

42 225 38 245

Comprising:Interest expense on items measured at fair value through profit and loss 4 637 1 390Interest expense on items measured on an amortised cost basis 37 588 36 855

42 225 38 245

29. Fee and commission revenue2015 2014

Rm Rm

Account transaction fees 10 856 10 267Card-based commission 5 655 5 511Knowledge-based fees and commission 2 336 2 778Electronic banking fees 2 823 2 777Insurance – fees and commission 1 767 1 747Foreign currency service fees 1 925 1 813Documentation and administration fees 1 693 1 639Revenue sharing agreements with discontinued operation (171)Other 4 342 4 038

31 397 30 399

All fee and commission revenue reported above relates to financial assets or liabilities not carried at fair value through profit or loss.

30. Fee and commission expense2015 2014

Rm Rm

Account transaction fees 999 927Card-based commission 1 737 1 719Electronic banking fees 646 627Insurance fees and commission 541 492Documentation and administration fees 192 187Other 362 368

4 477 4 320

All fee and commission expense reported above relates to financial assets or liabilities not carried at fair value through profit and loss.

214



31. Trading revenue2015 2014

Rm Rm

Fixed income and currencies (FIC) 9 447 8 283Equities 1 368 904Commodities 201 107

11 016 9 294

32. Other revenue2015 20141

Rm Rm

Banking and other revenue 1 804 630Property-related revenue 371 1 246Insurance – bancassurance profit 1 692 1 642

3 867 3 518

33. Insurance premiums received2015 2014

Rm Rm

Insurance premiums 39 245 42 139Reinsurance premiums (1 673) (1 415)

37 572 40 724

34. Insurance benefits and claims paid2015 2014

Rm Rm

Claims and policyholders’ benefits under insurance contracts 34 362 32 629Insurance claims recovered from reinsurers (1 203) (898)

33 159 31 731

Change in policyholder liabilities under insurance contracts 3 725 15 469

Insurance contracts 2 933 14 559Investment contracts with DPF 802 1 050Reinsurance assets (10) (140)

36 884 47 200

1 Restated.

215

35. Investment management and service fee income and gains2015 2014

Rm Rm

Investment income 20 070 16 418

Interest income1 12 942 10 224Dividends received 4 151 3 357

Listed shares 2 097 2 343Unlisted instruments 1 489 863Manufactured dividends on scrip lending 565 151

Rental income from investment property 2 306 2 095Hotel operations’ sales 524 673Adjustment to surplus recognised on defined benefit pension fund 20 19Sundry income 127 50

Investment gains 16 721 22 325

Investment property 1 285 1 178Financial instruments held at fair value through profit or loss 10 212 17 102Financial instruments held-for-trading through profit or loss (3 954) (1 083)Foreign exchange differences on intercompany monetary items 72 6Joint ventures measured at fair value 3Mutual funds 5 266 1 881Management and service fee income 3 840 3 238

36 791 38 743

1 Interest of R12 855 million (2014: R10 210 million) relates to financial assets held at fair value through profit or loss.

36. Fair value adjustments to investment management liabilities and third-party fund interests

2015 2014

Rm Rm

Fair value loss on investment management liabilities 6 181 7 473Fair value loss on investment third-party fund interests 7 301 3 585

13 482 11 058

37. Credit impairment charges2015 2014

Rm Rm

Net credit impairments raised and released for loans and advances (note 6.3) 10 426 10 107Recoveries on loans and advances previously written off (1 055) (1 098)

9 371 9 009

216



38. Operating expenses – banking and insurance2015 2014

Rm Rm

Banking activities 51 434 46 596

Information technology 5 755 5 098Communication 1 173 1 141Premises 3 561 3 573Staff costs 27 968 24 961Other 12 977 11 823

Investment management and life insurance activities 16 184 14 546

Staff costs 3 950 3 828Office costs 3 259 2 992Training and development costs 609 647Acquisition costs 4 760 4 579Other 3 606 2 500

67 618 61 142

The following disclosable items are included in other operating expenses:Amortisation – intangible assets (note 12) 1 564 1 329Auditors’ remuneration 249 305

Audit fees 207 230

Current year 206 228Prior year 1 2

Fees for other services1 42 75

Depreciation (note 11) 3 119 2 915Operating lease charges 2 049 2 169Premises – other expenses 1 515 2 735Professional fees 2 174 2 562

1 All fees for services paid to the group’s auditors were considered and approved by the group’s audit committee in terms of the audit committee’s non-audit services policy. Refer to the report of the group audit committee on pages 140 to 141.

39. Non-trading and capital related items2015 2014

Rm Rm

Impairment of goodwill (Note 12) (333) (4)Gain on disposal of businesses 311 1 263Impairment to associates and joint ventures (112)Loss on sale of property and equipment (48) (16)Impairment of intangibles (Note 12) (1 330) (257)

(1 512) 986

217

40. Profit/(loss) for the year from discontinued operation Standard Bank Plc The agreed disposal resulted in the group classifying its investment in the SB Plc group as a discontinued operation

in both the current and prior year. The income and expenses relating to the disposal group have been presented in the income statement as a single amount relating to the after-tax loss for the current and prior year. Refer to note 7 for further details.

2015 2014

Rm Rm

Operating loss (378) (2 079)Aluminium residual asset write-down (276) (1 624)Separation and legal costs (45) (192)Held for sale impairment (153)Partial insurance recovery for aluminium 541Deferred prosecution agreement (336)Gain on disposal 3 235

Profit/(loss) from discontinued operation 2 741 (4 048)

41. Direct and indirect taxation41.1 Indirect taxation

2015 2014

Rm Rm

Value added tax 2 222 1 977Other indirect taxes and levies 517 462

2 739 2 439

2015 2014

Rm Rm

41.2 Direct taxationSouth African normal taxation 6 568 4 369

Current 6 884 4 769Prior year (316) (400)

Deferred taxation 453 301

Current 578 272Prior year (125) 5Change in tax rate adjustment 24

CGT, foreign normal and withholding tax 1 125 3 203

Current 1 125 3 177Prior year 26

8 146 7 873Deferred tax recognised in OCI 113 38Deferred tax recognised directly in equity (72) 150

Direct taxation per the income statement 8 187 8 061

218



41. Direct and indirect taxation continued41.2 Direct taxation continued Income tax recognised in OCI from continuing operations The table below sets out the amount of income tax relating to each component within OCI:

2015 2014

Rm Rm

Items that may be reclassified subsequently to profit or lossMovement in the cash flow hedging reserve 101 33

Net change in fair value of cash flow hedges (656) (77)Realised fair value adjustments of cash flow hedges transferred to profit or loss 757 110

Movement in the available-for-sale revaluation reserve (17) 14

Net change in fair value of available-for-sale financial assets (3) 13Realised fair value adjustments on available-for-sale financial assets transferred to

profit or loss (14) 1

Items that may not be reclassified to profit or lossDefined benefit fund adjustments 46 17Other (17) (26)

113 38

Tax rate reconciliation2015 2014

% %

Direct taxation – statutory rate 28.0 28.0Prior period tax (1.3) (1.0)

Direct taxation – current year 26.7 27.0Capital gains tax 1.9 1.8Foreign tax and withholding tax 1.5 1.8Change in tax rate 0.1

Direct taxation – current year – normal 30.1 30.7Permanent differences (5.7) (7.2)

Dividends received (3.0) (2.7)Other non-taxable income – interest income (5.1) (5.0)Other non-taxable income – capital profit (1.0) (0.2)Non-deductible expenses – other 4.3 0.9Non-deductible expenses – DPA fine 0.2 –Effects of profits taxed in different jurisdictions (1.1) (0.2)

Direct effective tax rate1 24.4 23.5

1 Expressed as a percentage of profit before direct taxation.

219

42. Earnings per ordinary share2015 2014

Rm Rm

Earnings per ordinary share are as follows:Earnings attributable to ordinary shareholders 23 754 17 905

Continuing operations 21 013 21 953Discontinued operation 2 741 (4 048)

Weighted average number of ordinary shares in issue (number of shares)Weighted average number of ordinary shares in issue before adjustments 1 618 659 186 1 618 556 221Adjusted for shares held pursuant to Tutuwa initiative1 (7 600 667) (27 725 901)Adjusted for deemed treasury shares held by entities within the group2 (13 659 540) (6 110 379)

1 597 398 979 1 584 719 941

Basic earnings per ordinary share (cents) 1 487,0 1 129,9

Continuing operations 1 315,5 1 385,3Discontinued operation 171,5 (255,4)

Diluted earnings per ordinary shareWeighted average number of ordinary shares in issue (number of shares) 1 597 398 979 1 584 719 941Adjusted for the following potential dilution:Share incentive schemes 14 124 212 32 287 969

Standard Bank GSIS3 929 331 1 188 465Standard Bank EGS4 2 738 389 8 440 089DBS (2012)5 5 903 128 5 687 619PRP6 1 462 894 693 272Tutuwa initiative7 3 090 470 16 278 524

Diluted weighted average number of ordinary shares in issue (number of shares) 1 611 523 191 1 617 007 910

Diluted earnings per ordinary share (cents) 1 474,0 1 107,3

Continuing operations 1 303,9 1 357,6Discontinued operation 170,1 (250,3)

1 The number of shares held by the Tutuwa participants are deducted as they are deemed not to be issued in terms of IFRS.2 The number of shares held by entities within the group are deemed to be treasury shares for IFRS purposes.3 2 752 820 (2014: 4 152 884) share options were outstanding at the end of the year in terms of the GSIS. 4 22 626 594 (2014: 28 515 142) rights outstanding at the end of the year in terms of the EGS, convertible into 3 014 981 (2014: 15 477 832) ordinary

shares that is equivalent to the full value of the rights at year end, were not included in the calculation of diluted earnings per ordinary share because they were non-dilutive.

5 11 148 980 (2014: 11 242 206) units were outstanding in terms of the DBS (2012).6 5 014 170 (2014: 2 979 700) units were outstanding in terms of the PRP.7 Dilutive effect of shares held pursuant to Tutuwa initiative.

Dilutive impact of shares issued during the year 1 361 888 (2014: 1 433 067) rights were issued during the year in terms of the Standard Bank EGS. In 2015, none of

those rights were convertible into ordinary shares.

4 895 306 (2014: 5 603 792) units were issued to individuals in employment of the group entity domiciled in South Africa during the year in terms of the DBS (2012), of which 4 895 306 (2014: 5 603 792) were included in the calculation of diluted earnings per ordinary share because they were dilutive. 13 764 174 (2014: 541 094) of these issued units were hedged by entering into a forward contract, and 9 924 827 (2014: 541 094) were included in the calculation of diluted earnings per ordinary share because they were dilutive.

1 983 200 (2014: 2 451 700) units were issued to individuals in employment of the group entity domiciled in South Africa, of which 1 983 200 (2014: 2 451 700) were dilutive.

Refer to annexure C for further details on the group’s share incentive schemes.

220



43. Headline earnings

2015 2014

GrossRm

Direct taxRm

Non-controlling

interests and

preference share-

holdersRm

Profit attri-

butable to ordinary

share-holders

RmGross

Rm

Direct taxRm

Non-controlling

interests and

preference share-

holdersRm

Profit attri-

butable to ordinary

share-holders

Rm

Profit for the year from continuing operations 33 547 (8 187) (4 347) 21 013 34 274 (8 061) (4 260) 21 953

Headline adjustable items added/(reversed) 1 687 (381) (42) 1 264 (1 017) (81) 27 (1 071)

Goodwill impairment – IAS 36 333 333 4 4

Loss on sale of property and equipment – IAS 16 48 (10) 38 16 (17) 15 14

Gains on disposal of business – IAS 27 (195) 15 (180) (62) (62)

Realised foreign currency profit on foreign operations – IAS 21 (5) (5) (1 203) (1 203)

Impairment of associate – IAS 27/IAS 36 112 112

Impairment of intangible assets – IAS 36 1 330 (372) (28) 930 257 (63) 194

Realised losses/(gains) on available-for-sale assets – IAS 39 64 (14) (14) 36 (29) (1) 12 (18)

Standard Bank Group headline earnings from continuing operations 35 234 (8 568) (4 389) 22 277 33 257 (8 142) (4 233) 20 882

221

43. Headline earnings continued

2015 2014

GrossRm

Direct taxRm

Non-controlling

interests and

preference share-

holdersRm

Profit attri-

butable to ordinary

share-holders

RmGross

Rm

Direct tax

Rm

Non-controlling

interests and

preference share-

holdersRm

Profit attri-

butable to ordinary

share-holders

Rm

Profit for the year from discontinued operation 2 741 2 741 (4 077) 29 (4 048)

Headline adjustable items reversed (2 831) (2 831) 346 (43) 303

Impairment of intangible assets – IAS 38 193 (43) 150

Loss on disposal of subsidiary – IFRS 10 1 303 1 303

Realised foreign currency profit on foreign operations – IAS 21 (4 054) (4 054)

Net investment hedge gain – IAS 39 (68) (68)

Impairment of non-current assets held for sale – IFRS 5 153 153

Realised gains on available-for-sale assets – IAS 39 (12) (12)

Standard Bank Group headline earnings from discontinued operation (90) (90) (3 731) (14) (3 745)

Standard Bank Group headline earnings 35 144 (8 568) (4 389) 22 187 29 526 (8 156) (4 233) 17 137

2015 2014

Rm Rm

Headline earnings per ordinary share (cents) 1 388,9 1 081,4

Continuing operations 1 394,5 1 317,7Discontinued operation (5,6) (236,3)

Diluted headline earnings per ordinary share (cents) 1 376,8 1 059,8

Continuing operations 1 382,4 1 291,4Discontinued operation (5,6) (231,6)

Headline earnings are calculated in accordance with Circular 2/2013 Headline earnings issued by SAICA at the request of the JSE.

222



44. Distributions2015 2014

Rm Rm

Ordinary shares 10 396 9 052Final339 cents per share declared on 5 March 2015 (2014: 300 cents per share declared

on 6 March 2014) 5 485 4 860

Interim303 cents per share declared on 14 August 2015 (2014: 259 cents per share

declared on 14 August 2014) 4 911 4 192

A final dividend No. 93 of 371 cents per share was declared on 3 March 2016, payable on 25 April 2016 to all shareholders registered on 22 April 2016, bringing the total dividends declared in respect of 2015 to 674 cents per share (2014: 598 cents per share).

Second preference sharesFinal 377 356

358,16 cents per share declared on 5 March 2015 (2014: 329,94 cents per share declared on 6 March 2014) 190 175

Interim353,20 cents per share declared on 14 August 2015 (2014: 340,58 cents per share

declared on 14 August 2014) 187 181

Total distributions 10 773 9 408

6.5% first cumulative preference shares dividend No. 93 of 3,25 cents per share (2014: 3,25 cents) was declared on 3 March 2016, payable on 18 April 2016 to all shareholders registered on 15 April 2016.

Non-redeemable, non-cumulative, non-participating preference shares dividend No. 23 of 369,76 cents per share (2014: 358,16 cents), payable on 18 April 2016, was declared to shareholders registered on 15 April 2016.

223

45. Statement of cash flows notes45.1 Adjustment for non-cash items and other adjustments included in the income statement

2015 2014

Rm Rm

Depreciation and amortisation 4 683 4 244Credit impairment 9 371 9 009Investment gains and policyholders’ transfers (2 971) 3 865Net inflows/(outflows) from third-party financial liabilities arising on consolidation

of mutual funds 4 527 (9 067)Interest expense 43 245 38 395Interest income (104 481) (93 699)Other 1 564 (948)

(44 062) (48 201)

45.2 Decrease/(increase) in income-earning assetsNet derivative assets 9 205 5 596Trading assets (10 617) (17 530)Pledged assets (7 574) (1 866)Financial investments (7 420) (47 986)Loans and advances (90 489) (89 851)Other assets (1 364) 1 846

(108 259) (149 791)

45.3 Increase/(decrease) in deposits, trading and other liabilitiesDeposit and current accounts 88 327 130 588Trading liabilities (3 649) 9 191Other liabilities and provisions 13 343 1 444

98 021 141 223

45.4 Disposal of subsidiaryNon-current assets held for sale (217 381)Non-current liabilities held for sale 202 867

Net asset value disposed of (14 514)

Profit on disposal of subsidiaries (3 495) (9)Release of reserve movements to profit or loss 4 608

Sale consideration (13 401) (9)Insurance and settlement costs (232)Deferred non-cash consideration 1 126Investment in associate 5 222

Cash consideration received (7 285)Less: cash held within subsidiaries disposed 11 839

Net cash outflow/(inflow) resulting from disposal of subsidiaries 4 554 (9)

224



46. Related party transactions46.1 Key management personnel Key management personnel include: the members of the Standard Bank Group Limited, board of directors and

prescribed officers effective for 2015 and 2014. Non-executive directors are included in the definition of key management personnel as required by IFRS. Prescribed officers are defined in the Companies Act. The board of directors is the same for the company and the group. The definition of key management includes the close family members of key management personnel and any entity over which key management exercises control or joint control. Close family members are those family members who may be expected to influence, or be influenced by, that person in their dealings with SBG. They may include the person’s domestic partner and children, the children of the person’s domestic partner, and dependants of the person or the person’s domestic partner.

2015 2014

Rm Rm

Key management compensationSalaries and other short-term benefits paid 119 110Post-employment benefits 5 5IFRS 2 value of share options, rights and units expensed 76 59

200 174

Loans and advancesLoans outstanding at the beginning of the year 10 9Change in key management structures (2)Net loans granted during the year 3 1

Loans outstanding at the end of the year 11 10

Interest income 1 1Loans include mortgage loans, vehicle and asset finance and credit cards. No specific credit impairments have been recognised in respect of loans granted to key management in the current or prior year.

The mortgage loans and vehicle and asset finance are secured by the underlying assets.

All other loans are unsecured.

Deposit and current accountsDeposits outstanding at the beginning of the year 150 125Change in key management structures (118) (63)Net deposits received during the year 88

Deposits outstanding at the end of the year 32 150

Net interest income/(expense) 3 (2)Deposits include cheque, current and savings accounts.

Investment productsBalance at the beginning of the year 400 430Change in key management structures (257) (131)Investments placed during the year 19 101

Balance at the end of the year 162 400

225

46. Related party transactions continued46.1 Key management personnel continued

2015 2014

Rm Rm

Third-party funds under managementFund value at the beginning of the year 859 748Change in key management structures (590) 28Net deposits, including commission and other transaction fees 30 83

Fund value at the end of the year 299 859

Net investment return 7 74Financial consulting fees and commission 9 12

Shares and share options heldAggregate details of Standard Bank Group Limited shares and share options held by key management personnel.

Shares beneficially owned (number) 1 349 917 1 647 808Share options held (number) 3 982 654 4 938 802

46.2 Transactions and balances with ICBCS On 1 February 2015, the group disposed of its controlling interest in SB Plc to ICBC. With effect from that date, SB Plc

was renamed to ICBCS and became a supported subsidiary of ICBC. The group’s retained 40% interest in ICBCS was, with effect from the disposal date, classified as an interest in an associate and equity accounted thereafter. As at 31 December 2015, the group was party to the following lending, deposit, derivative and other trading-related transactions with ICBCS on market-related terms as follows:

2015

Rm

Derivative assets 4 780Trading assets 35Loans and advances 29 902Other receivables 158

Derivative liabilities (5 351)Deposits (6 756)Other payables (218)

During the year, transactions were entered into with ICBCS that resulted in interest income of R197 million, other income of R33 million, interest expense of R128 million and fee and commission expense of R89 million. In addition, as part of the group’s divesture of ICBCS, the group agreed to enter into certain transitional service level arrangements with ICBCS in order to manage the orderly separation of ICBCS from the group. In terms of these arrangements, services are delivered to and received from ICBCS for the account of each respective party under formal service level agreements. Revenue and expenses recognised in respect of these arrangements amounted to R402 million and R58 million respectively as at 31 December 2015.

226



46. Related party transactions continued46.3 Transactions and balances with ICBC The group has several business relationships with ICBC, a 20.1% shareholder. Transactions with ICBC are made in the

ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other third parties. These transactions also did not involve more than the normal risk of collectability or present other unfavourable features. There were no bad debt expenses or provisions for bad debts that related to balances and transactions with ICBC. The following transactions took place between the group and ICBC:

2015 2014

Rm Rm

Trading assetsTrading assets outstanding at the beginning of the year 20Net trading positions (closed)/opened during the year (13) 20

Trading assets outstanding at the end of the year 7 20

The group entered into commodity leasing transactions with ICBC at market-related terms and conditions, from which gross trading revenue of R74 million was recognised (2014: R94 million). As at 31 December 2015, a trading asset of R7 million with respect to these transactions was recognised (2014: R20 million).

2015 2014

Rm Rm

Loans and advancesLoans and advances at the beginning of the year 1 462Loans and advances (repaid)/granted during the year (1 309) 1 462

Loans and advances outstanding at the end of the year 153 1 462

Loans and advances to ICBC includes fixed term loans with a maturity of less than 12 months from the reporting date, current account balances and confirmed letters of credit. Net interest income from these arrangements amounted to R39 million in 2015 (2014: R60 million).

2015 2014

Rm Rm

Other receivables and payablesAluminium indemnification receivable1 619Bank account held with ICBC 299 2 087Other payables (71)

1 The group recognised losses in respect of certain commodity reverse repurchase agreements (repos) with third parties prior to the completion of the disposal of SB Plc to ICBC. As a consequence of the amendments made to the sale and purchase agreement relating to the repos, the group has a right to 60% of any related insurance and other recoveries, net of costs, relating to these repos from ICBC. Settlement of these amounts will occur based on audited information on pre-agreed anniversaries of the completion of the transaction and also on the full and final settlement of all claims in respect of losses incurred. As at 31 December 2015, a balance of USD40 million (R619 million) is receivable from ICBC in respect of this arrangement. An amount of R595 million was recognised as part of the group’s results from the discontinued operation.

Letters of credit The group has off-balance sheet letters of credit exposure issued to ICBC as at 31 December 2015 of R216 million

(2014: R646 million). The group received R2 million in fee and commission income relating to these transactions (2014: R2 million).

227

46. Related party transactions continued46.4 Post-employment benefit plans

2015 2014

Rm Rm

Details of balances with SBG and transactions between SBG and the group’s post-employment benefit plans are listed below:Fee income 39 18Deposits held with the group 563 160Interest paid 123 54Value of assets under management 11 776 9 077Investments held in bonds and money market funds 667 655Value of ordinary SBG shares held 471 330

47. Pensions and other post-employment benefits2015 2014

Rm Rm

Amounts recognised as assets in the statement of financial position (note 8)Standard Bank banking activitiesRetirement funds (note 47.1) 1 160 1 382LibertyRetirement funds (note 47.1) 301 276

1 461 1 658

Amounts recognised as liabilities in the statement of financial position (note 20.1)Standard Bank banking activitiesRetirement funds (note 47.1) 91 71Post-employment healthcare benefits – other funds (note 47.2) 801 783LibertyPost-employment healthcare benefits (note 47.2) 480 423

1 372 1 277

The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R881 million (2014: R872 million).

228



47. Pensions and other post-employment benefits continued47.1 Retirement funds47.1.1 Banking activities retirement funds Membership of the principal fund, the Standard Bank Group Retirement Fund (SBGRF), exceeds 95% of SBSA’s

permanent staff. The fund, one of the ten largest in South Africa, is governed by the Pension Funds Act 24 of 1956 (Pension Funds Act). Member-elected trustees represent 50% of the trustee board. The assets of the fund are held independently.

SBGRF is regulated by the Pension Funds Act as well as the FSB.

The fund is subject to a statutory financial review by actuaries at an interval of not more than three years. A full actuarial valuation will be performed during 2016 for 31 December 2015. The previous full actuarial valuation was performed on 31 December 2012 and, in the opinion of the actuary, the fund was considered to be financially sound. The next actuarial valuation is to be performed on 31 December 2018.

From 1 January 1995, new employees became entitled to defined contribution benefits only. Employees who were members of the fund on 31 December 1994, were entitled to guaranteed benefits under the old rules of the defined benefit fund. Given the defined benefit nature of the guaranteed benefits, the entire plan is classified as a defined benefit plan and accounted for as such. A specific liability was recognised within the fund to provide for the guaranteed defined benefits.

On 1 November 2009, the fund introduced individual member investment choice for defined contribution members and the pre-1995 members could choose to give up their guaranteed defined benefits and instead accept an offer of a 10% enhancement to their actuarial reserve values. Over 90% of the pre-1995 defined benefit members accepted the offer and converted to defined contribution plans. The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Funds Act, 1956 as amended into the SBGRF.

The majority of employees in South Africa who are not members of the SBGRF are members of two other funds designed for their occupational groups. Employees in territories beyond South African jurisdiction are members of either defined contribution or defined benefit plans governed by legislation in their respective countries.

229

47. Pensions and other post-employment benefits continued47.1 Retirement funds continued47.1.2 Liberty retirement funds1

The Liberty defined benefit pension scheme closed to new employees from 1 March 2001 and with effect from this date, the majority of employees accepted an offer to convert their retirement plans from defined benefit to defined contribution plans. Employees joining after 1 March 2001 automatically become members of the defined contribution schemes. The ACA and Rentmeester defined benefit pension funds are all fully funded. All funds are governed by the Pension Funds Act.

Description of risks Post-retirement obligation risk is the risk to the group’s comprehensive income that arises from the requirement to

contribute as an employer to an under-funded defined benefit plan. The group operates both defined contribution plans and defined benefit plans, with the majority of its employees participating in defined contribution plans. The defined benefit pension and healthcare schemes for past and certain current employees, create post-retirement obligations. The group mitigates these risks through independent asset managers and independent asset and liability management advisors for material funds. Potential residual risks which may impact the group are managed within the group asset and liability management process.

Standard Bank Group retirement funds

2015 2014

Rm Rm

The amounts recognised in the statement of financial position in respect of the retirement funds are determined as follows:Present value of funded obligations (32 194) (30 368)Fair value of plan assets 33 643 32 028

Surplus 1 449 1 660Asset ceiling (79) (73)

Included in the statement of financial position 1 370 1 587

Comprising:SBGRF 1 160 1 382Liberty retirement funds 301 276Other retirement funds (91) (71)

1 370 1 587

Included in:Other assets (note 8) 1 461 1 658Other liabilities (note 20.1) (91) (71)

Movement in the present value of funded obligationsBalance at the beginning of the year 30 368 29 067Current service cost 839 786Interest cost 2 439 2 411Employee contributions 632 588Actuarial losses 1 088 553Exchange losses 112 20Benefits paid (3 284) (2 855)Settlement payments (202)


1 This includes the Liberty Group defined benefit pension fund. The ACA defined benefit fund and Rentmeester defined benefit fund are not material.

230



47. Pensions and other post-employment benefits continued47.1 Retirement funds continued

2015 2014

Rm Rm

Movement in the fair value of plan assetsBalance at the beginning of the year 32 028 30 987Interest income 2 549 2 553Contributions received 1 310 1 312Net return on assets 968 273Reduction in employer surplus account (17) (14)Exchange gains 89 14Benefits paid (3 284) (2 855)Settlement payments (242)


Plan assets consist of the following:Cash 1 281 1 108Equities 13 543 13 280Bonds 9 782 9 964Property and other 9 037 7 676

33 643 32 028

Plan assets do not include property occupied by the group.

The group expects to pay R775 million in contributions to the Standard Bank retirement funds in 2016 (2015: R662 million).

231

47. Pensions and other post-employment benefits continued47.1 Retirement funds continued

2015 2014

Rm Rm

The amounts recognised in profit or loss are determined as follows:Current service cost 839 786Net interest costs (108) (116)

Included in staff costs 731 670

The expected long-term rate of return is based on the expected long-term returns on equities, cash and bonds. The split between the individual asset categories is considered in setting these assumptions. Adjustments were made to reflect the effect of expenses.

Components of statement of OCINet return on assets 974 297Actuarial losses (1 088) (553)

(Loss)/gain from changes in demographic assumptions (1 249) 71Gain/(loss) from changes in financial assumptions 169 (586)Loss from changes in experience adjustments (8) (38)

Asset ceiling (6) 171

Remeasurements recognised in OCI (120) (85)

Reconciliation of net defined benefit assetNet defined benefit asset at the beginning of the year 1 587 1 676Net expense recognised (731) (670)Amounts recognised in OCI (120) (85)Company contributions 658 710Settlement payments (40)Exchange differences (24) (4)

Net defined benefit asset at the end of the year 1 370 1 587

47.2 Post-employment healthcare benefits The group provides the following post-employment healthcare benefits to its employees:

Standard Bank – banking activities The largest portion of this liability represents a South African post-employment healthcare benefit scheme that covers

all employees who went on retirement before 1 March 2000. The liability is unfunded and is valued every year using the projected unit credit method. The latest full actuarial valuation was performed at 31 December 2015. The next actuarial valuation is to be performed on 31 December 2018.

Liberty Liberty operates an unfunded post-employment medical aid benefit for employees who joined before 1 July 1998.

For past service of employees, Liberty recognises and provides for the actuarially determined present value of post-employment medical aid employer contributions on an accrual basis using the projected unit credit method.

232



47. Pensions and other post-employment benefits continued47.2 Post-employment healthcare benefits continued

2015 2014

Rm Rm

The amounts recognised in the statement of financial position in respect of post-employment healthcare benefits are determined as follows:Present value of unfunded defined benefit obligations 1 281 1 206

Included in the statement of financial position 1 281 1 206

Comprising:Standard Bank 801 783Liberty 480 423

Movement in the present value of defined benefit obligationsBalance at the beginning of the year 1 206 1 139Expense included in staff costs 109 105Benefits paid, including member transfers (83) (69)Amounts recognised in OCI 49 31


The amounts recognised in profit or loss are determined as follows:Current service cost 41 11Interest cost 68 94

Included in staff costs 109 105

Components of statement of OCIActuarial losses arising from changes in financial assumptions 50 40Actuarial gains arising from experience adjustments (1) (9)

Remeasurements recognised in OCI 49 31

Assumed medical inflation rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in the medical inflation rate would have the following effects on amounts recognised:

2015 2014

1% increase 1% decrease 1% increase 1% decreaseRm Rm Rm Rm

Effect on the aggregate of the current service cost and interest cost 20 12 17 (7)

Effect on the defined benefit obligation 80 (67) 139 (116)

233

48. Segment reporting48.1 Operating segments The group is organised on the basis of products and services and the segments have been identified on this basis.

The principal business units in the group are as follows:

BUSINESS UNIT SCOPE OF OPERATIONS

Personal & Business Banking (PBB)

Banking and other financial services to individual customers and small- to medium-sized enterprises in South Africa, rest of Africa and the Channel Islands.

Mortgage lending – provides residential accommodation loans to mainly personal market customers.

Vehicle and asset finance – finance of vehicles for retail market customers and finance of vehicles and equipment in the business and corporate assets market as well as fleet solutions.

Card products – credit card facilities to individuals and businesses (credit card issuing) and merchant transaction acquiring services (merchant solutions).

Transactional and lending products – a comprehensive suite of transactional, saving, investment, trade, foreign exchange, payment and liquidity management solutions made accessible through a range of physical and electronic channels. Lending products offered to both personal and business markets. Business lending offerings constitute a comprehensive suite of lending product offerings, structured working capital finance solutions and commercial property finance solutions.

Bancassurance and wealth – short-term and long-term insurance products comprising simple embedded products, including homeowners’ insurance, funeral cover, household contents, vehicle insurance, loan protection plans sold in conjunction with related banking products and complex insurance products, including life, disability and investment policies sold by qualified intermediaries. Also provides financial planning, fiduciary advice, will drafting and custody services, trust and estates administration, employee benefit services, tailored banking, wealth management and investment and advisory services for private high net worth individuals.

Corporate & Investment Banking (CIB)

Corporate and investment banking services to clients, including governments, parastatals, larger corporates, financial institutions and international counterparties.

CIB’s client coverage include relationship management and sector expertise.

Global markets – includes FIC, commodities and equities.

Transactional Products and services – includes transactional banking, trade finance and investor services.

Investment banking – includes advisory, debt products, structured finance, structured trade and commodity finance, debt capital markets, equity capital markets and real estate finance.

CIB also provides real estate and principal investment management.

Liberty Life insurance and investment management activities of group companies in the Liberty Holdings Group. Liberty includes long-term investments, long-term risk (life and disability), pension fund management, asset management, endowment and retirement annuities, corporate benefits, healthcare, health insurance, as well as investment-related advice and solutions.

Central and other Includes the impact of the Tutuwa initiative, group hedging activities, group capital instruments and group surplus capital and strategic acquisition costs. Includes the results of centralised support functions (back office) with the direct costs of support functions recharged to the business segments.

234



48. Segment reporting continued48.1 Operating segments continued

Personal & Business Banking

Corporate & Investment Banking Central and other Banking activities Liberty

Normalised Standard Bank

GroupAdjustments

to IFRS1

IFRSStandard Bank

Group

2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Income from banking activities 60 393 55 399 31 319 29 171 (597) (501) 91 115 84 069 91 115 84 069 (2) (26) 91 113 84 043

Net interest income 35 051 31 720 14 774 13 291 (511) 245 49 314 45 256 49 314 45 256 (4) (104) 49 310 45 152

Interest income 61 350 55 545 46 279 40 739 (16 098) (12 783) 91 531 83 501 91 531 83 501 4 (104) 91 535 83 397Interest expense (26 299) (23 825) (31 505) (27 448) 15 587 13 028 (42 217) (38 245) (42 217) (38 245) (8) (42 225) (38 245)

Net fee and commission revenue 22 711 21 444 5 389 5 629 (1 180) (994) 26 920 26 079 26 920 26 079 26 920 26 079

Fee and commission revenue 26 029 24 567 5 569 5 966 (201) (134) 31 397 30 399 31 397 30 399 31 397 30 399Fee and commission expense (3 318) (3 123) (180) (337) (979) (860) (4 477) (4 320) (4 477) (4 320) (4 477) (4 320)

Trading revenue 375 169 9 925 8 880 714 167 11 014 9 216 11 014 9 216 2 78 11 016 9 294Other revenue 2 256 2 066 1 231 1 371 380 81 3 867 3 518 3 867 3 518 3 867 3 518

Income from investment management and life insurance activities 23 650 21 486 23 650 21 486 347 (277) 23 997 21 209

Insurance premiums received 37 572 40 724 37 572 40 724 37 572 40 724Insurance benefits and claims paid (36 884) (47 200) (36 884) (47 200) (36 884) (47 200)Investment management and service fee income 36 444 39 020 36 444 39 020 347 (277) 36 791 38 743Fair value adjustments to investment management liabilities and third-party

fund interests (13 482) (11 058) (13 482) (11 058) (13 482) (11 058)

Total income 60 393 55 399 31 319 29 171 (597) (501) 91 115 84 069 23 650 21 486 114 765 105 555 345 (303) 115 110 105 252Credit impairment charges (7 815) (8 204) (1 279) (804) (277) (1) (9 371) (9 009) (9 371) (9 009) (9 371) (9 009)

Net income after credit impairment charges 52 578 47 195 30 040 28 367 (874) (502) 81 744 75 060 23 650 21 486 105 394 96 546 345 (303) 105 739 96 243Operating expenses in banking activities (36 380) (33 008) (17 439) (15 791) 2 385 2 203 (51 434) (46 596) (51 434) (46 596) (51 434) (46 596)Operating expenses in insurance activities (16 184) (14 546) (16 184) (14 546) (16 184) (14 546)

Net income before non-trading and capital related items 16 198 14 187 12 601 12 576 1 511 1 701 30 310 28 464 7 466 6 940 37 776 35 404 345 (303) 38 121 35 101Non-trading and capital related items (804) (197) (261) (3) (337) 1 186 (1 402) 986 (110) (1 512) 986 (1 512) 986Share of post-tax profit/(loss) from associates and joint ventures 172 176 (1 123) 64 611 372 (340) 612 17 14 (323) 626 (323) 626

Net income before indirect taxation 15 566 14 166 11 217 12 637 1 785 3 259 28 568 30 062 7 373 6 954 35 941 37 016 345 (303) 36 286 36 713Indirect taxation (618) (558) (410) (348) (953) (841) (1 981) (1 747) (758) (692) (2 739) (2 439) (2 739) (2 439)

Profit before direct taxation 14 948 13 608 10 807 12 289 832 2 418 26 587 28 315 6 615 6 262 33 202 34 577 345 (303) 33 547 34 274Direct taxation (3 984) (3 560) (1 648) (2 150) (238) (412) (5 870) (6 122) (2 303) (1 926) (8 173) (8 048) (14) (13) (8 187) (8 061)

Profit for the year from continuing operations 10 964 10 048 9 159 10 139 594 2 006 20 717 22 193 4 312 4 336 25 029 26 529 331 (316) 25 360 26 213(Loss)/profit from discontinued operation (316) (3 853) 3 057 (195) 2 741 (4 048) 2 741 (4 048) 2 741 (4 048)

Profit for the year 10 964 10 048 8 843 6 286 3 651 1 811 23 458 18 145 4 312 4 336 27 770 22 481 331 (316) 28 101 22 165

Attributable to equity holders of the parent 10 633 9 662 7 507 4 876 3 614 1 759 21 754 16 297 2 200 2 158 23 954 18 455 177 (194) 24 131 18 261Attributable to non-controlling interests 331 386 1 336 1 410 37 52 1 704 1 848 2 112 2 178 3 816 4 026 154 (122) 3 970 3 904

Headline earnings 11 232 9 797 7 923 4 980 596 388 19 751 15 165 2 251 2 158 22 002 17 323 185 (186) 22 187 17 137Return on equity (ROE) (%) 18.1 18.1 14.3 10.2 14.9 12.3 19.7 20.9 15.3 12.9 15.6 13.0Net interest margin (%) 5.45 5.31 1.85 2.12 3.50 3.80 3.50 3.80 3.50 3.79Credit loss ratio (%) 1.27 1.41 0.24 0.22 0.87 1.00 0.87 1.00 0.87 1.00Cost-to-income ratio (%) 60.1 59.4 57.8 54.0 56.7 55.0 56.7 55.0 56.7 55.0Number of employees 27 256 23 014 4 235 4 341 16 467 15 287 47 958 42 642 6 403 6 617 54 361 49 259 54 361 49 259Impairment of non-financial assets 771 234 277 172 23 1 220 257 110 1 330 257 1 330 257

1 The group’s segmental results are prepared on a normalised basis which normalises or adjusts the group’s IFRS results to reflect the group’s view of the economics and legal substance for deemed treasury share arrangements, which include the group’s Tutuwa initiative and group shares held by Liberty for the benefit of policyholders or to facilitate client trading activities. The normalised results reflect the basis on which management manages the group.

2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly.

235

48. Segment reporting continued48.1 Operating segments continued

Personal & Business Banking

Corporate & Investment Banking Central and other Banking activities Liberty

Normalised Standard Bank

GroupAdjustments

to IFRS1

IFRSStandard Bank

Group

2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142 2015 20142


Income from banking activities 60 393 55 399 31 319 29 171 (597) (501) 91 115 84 069 91 115 84 069 (2) (26) 91 113 84 043

Net interest income 35 051 31 720 14 774 13 291 (511) 245 49 314 45 256 49 314 45 256 (4) (104) 49 310 45 152

Interest income 61 350 55 545 46 279 40 739 (16 098) (12 783) 91 531 83 501 91 531 83 501 4 (104) 91 535 83 397Interest expense (26 299) (23 825) (31 505) (27 448) 15 587 13 028 (42 217) (38 245) (42 217) (38 245) (8) (42 225) (38 245)

Net fee and commission revenue 22 711 21 444 5 389 5 629 (1 180) (994) 26 920 26 079 26 920 26 079 26 920 26 079

Fee and commission revenue 26 029 24 567 5 569 5 966 (201) (134) 31 397 30 399 31 397 30 399 31 397 30 399Fee and commission expense (3 318) (3 123) (180) (337) (979) (860) (4 477) (4 320) (4 477) (4 320) (4 477) (4 320)

Trading revenue 375 169 9 925 8 880 714 167 11 014 9 216 11 014 9 216 2 78 11 016 9 294Other revenue 2 256 2 066 1 231 1 371 380 81 3 867 3 518 3 867 3 518 3 867 3 518

Income from investment management and life insurance activities 23 650 21 486 23 650 21 486 347 (277) 23 997 21 209

Insurance premiums received 37 572 40 724 37 572 40 724 37 572 40 724Insurance benefits and claims paid (36 884) (47 200) (36 884) (47 200) (36 884) (47 200)Investment management and service fee income 36 444 39 020 36 444 39 020 347 (277) 36 791 38 743Fair value adjustments to investment management liabilities and third-party

fund interests (13 482) (11 058) (13 482) (11 058) (13 482) (11 058)

Total income 60 393 55 399 31 319 29 171 (597) (501) 91 115 84 069 23 650 21 486 114 765 105 555 345 (303) 115 110 105 252Credit impairment charges (7 815) (8 204) (1 279) (804) (277) (1) (9 371) (9 009) (9 371) (9 009) (9 371) (9 009)

Net income after credit impairment charges 52 578 47 195 30 040 28 367 (874) (502) 81 744 75 060 23 650 21 486 105 394 96 546 345 (303) 105 739 96 243Operating expenses in banking activities (36 380) (33 008) (17 439) (15 791) 2 385 2 203 (51 434) (46 596) (51 434) (46 596) (51 434) (46 596)Operating expenses in insurance activities (16 184) (14 546) (16 184) (14 546) (16 184) (14 546)

Net income before non-trading and capital related items 16 198 14 187 12 601 12 576 1 511 1 701 30 310 28 464 7 466 6 940 37 776 35 404 345 (303) 38 121 35 101Non-trading and capital related items (804) (197) (261) (3) (337) 1 186 (1 402) 986 (110) (1 512) 986 (1 512) 986Share of post-tax profit/(loss) from associates and joint ventures 172 176 (1 123) 64 611 372 (340) 612 17 14 (323) 626 (323) 626

Net income before indirect taxation 15 566 14 166 11 217 12 637 1 785 3 259 28 568 30 062 7 373 6 954 35 941 37 016 345 (303) 36 286 36 713Indirect taxation (618) (558) (410) (348) (953) (841) (1 981) (1 747) (758) (692) (2 739) (2 439) (2 739) (2 439)

Profit before direct taxation 14 948 13 608 10 807 12 289 832 2 418 26 587 28 315 6 615 6 262 33 202 34 577 345 (303) 33 547 34 274Direct taxation (3 984) (3 560) (1 648) (2 150) (238) (412) (5 870) (6 122) (2 303) (1 926) (8 173) (8 048) (14) (13) (8 187) (8 061)

Profit for the year from continuing operations 10 964 10 048 9 159 10 139 594 2 006 20 717 22 193 4 312 4 336 25 029 26 529 331 (316) 25 360 26 213(Loss)/profit from discontinued operation (316) (3 853) 3 057 (195) 2 741 (4 048) 2 741 (4 048) 2 741 (4 048)

Profit for the year 10 964 10 048 8 843 6 286 3 651 1 811 23 458 18 145 4 312 4 336 27 770 22 481 331 (316) 28 101 22 165

Attributable to equity holders of the parent 10 633 9 662 7 507 4 876 3 614 1 759 21 754 16 297 2 200 2 158 23 954 18 455 177 (194) 24 131 18 261Attributable to non-controlling interests 331 386 1 336 1 410 37 52 1 704 1 848 2 112 2 178 3 816 4 026 154 (122) 3 970 3 904

Headline earnings 11 232 9 797 7 923 4 980 596 388 19 751 15 165 2 251 2 158 22 002 17 323 185 (186) 22 187 17 137Return on equity (ROE) (%) 18.1 18.1 14.3 10.2 14.9 12.3 19.7 20.9 15.3 12.9 15.6 13.0Net interest margin (%) 5.45 5.31 1.85 2.12 3.50 3.80 3.50 3.80 3.50 3.79Credit loss ratio (%) 1.27 1.41 0.24 0.22 0.87 1.00 0.87 1.00 0.87 1.00Cost-to-income ratio (%) 60.1 59.4 57.8 54.0 56.7 55.0 56.7 55.0 56.7 55.0Number of employees 27 256 23 014 4 235 4 341 16 467 15 287 47 958 42 642 6 403 6 617 54 361 49 259 54 361 49 259Impairment of non-financial assets 771 234 277 172 23 1 220 257 110 1 330 257 1 330 257

1 The group’s segmental results are prepared on a normalised basis which normalises or adjusts the group’s IFRS results to reflect the group’s view of the economics and legal substance for deemed treasury share arrangements, which include the group’s Tutuwa initiative and group shares held by Liberty for the benefit of policyholders or to facilitate client trading activities. The normalised results reflect the basis on which management manages the group.

2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly.

236



48. Segment reporting continued48.2 Geographic information

South Africa

Rm

Rest of Africa

Rm

Outside Africa

Rm

Elimi-nations1

Rm

Standard Bank

Group –normalised

Rm

Adjust-ments to

IFRS2

Rm

IFRS Standard

Bank Group

Rm

2015Total income3 82 095 30 416 2 552 (298) 114 765 345 115 110

Banking activities 60 968 27 893 2 552 (298) 91 115 (2) 91 113Liberty 21 127 2 523 23 650 347 23 997

Total headline earnings 17 245 4 313 (692) 1 136 22 002 185 22 187

Banking activities 15 081 4 226 (692) 1 136 19 751 367 20 118Liberty 2 164 87 2 251 (182) 2 069

Total assets 1 651 520 341 527 106 886 (118 848) 1 981 085 (1 736) 1 979 349

Banking activities 1 255 671 335 150 106 886 (118 848) 1 578 859 (2 382) 1 576 477Liberty 395 849 6 377 402 226 646 402 872

Non-current assets4 54 197 17 991 97 (76) 72 209 72 209

Banking activities 25 671 12 974 97 (76) 38 666 38 666Liberty 28 526 5 017 33 543 33 543

2014Total income3 77 424 26 973 3 508 (2 350) 105 555 (303) 105 252

Banking activities 58 276 24 635 3 508 (2 350) 84 069 (26) 84 043Liberty 19 148 2 338 21 486 (277) 21 209

Total headline earnings 16 669 3 932 (3 437) 159 17 323 (186) 17 137

Banking activities 14 628 3 815 (3 437) 159 15 165 (42) 15 123Liberty 2 041 117 2 158 (144) 2 014

Total assets 1 480 896 287 968 296 158 (158 316) 1 906 706 (3 861) 1 902 845

Banking activities 1 129 649 282 770 296 158 (158 316) 1 550 261 (1 384) 1 548 877Liberty 351 247 5 198 356 445 (2 477) 353 968

Non-current assets4 53 055 11 895 63 (79) 64 934 64 934

Banking activities 23 772 11 349 63 (79) 35 105 35 105Liberty 29 283 546 29 829 29 829

1 Eliminations include intersegmental transactions and balances.2 The group’s segmental results are prepared on a normalised basis which normalises or adjusts the group’s IFRS results to reflect the group’s view

of the economics and legal substance for deemed treasury share arrangements, which include the group’s Tutuwa initiative and group shares held by Liberty for the benefit of policyholders or to facilitate client trading activities. The normalised results reflect the basis on which management manages the group and is consistent with that reported in the group’s segment report.

3 Total income from continuing operations. Total income is attributable based on where the operations are located.4 Non-current assets are assets that are expected to be recovered more than 12 months after the reporting period.

237

Statement of financial position

Company

2015 2014

as at 31 December 2015 Note Rm Rm

AssetsFinancial investments 49 114Other assets 170 332Interest in subsidiaries 50 68 329 67 104Interest in associates 51 142 313Current tax 67 45

Total assets 68 822 67 794

Equity and liabilitiesEquity 67 864 65 808

Share capital and premium 13 17 946 18 067Preference share capital and premium 13 5 503 5 503Reserves 44 415 42 238

Liabilities 958 1 986

Derivative liabilities 53 174Indebtedness by the company to group subsidiaries 50 921 1 700Other liabilities 37 112

Total equity and liabilities 68 822 67 794

Standard Bank Group Limited – company financial statements


Statement of comprehensive income

Company

2015 2014


Interest income 81 31Interest expense (3) (32)Other income 54 19 (80)Dividends from subsidiaries 12 104 10 623

Total income 12 201 10 542Operating expenses (244) (41)

Income after operating expenses 11 957 10 501Gain on disposal of subsidiary and associate 129 256Impairment of investment in associate (105) (631)

Profit before direct taxation 11 981 10 126Direct taxation 55 (164) (120)

Total comprehensive income 11 817 10 006

ANNUAL FINANCIAL STATEMENTS Standard Bank Group Limited Company financial statements continued

239

Statement of cash flows

Company

2015 2014


Net cash flows from operating activities 11 705 10 731

Profit before direct taxation 11 981 10 126Adjusted for non-cash items and other adjustments included in the income

statement 56.1 (12 145) (10 149)Decrease in income-earning assets 56.2 48(Decrease)/increase in deposits, trading and other liabilities 56.3 (249) 258Interest received 81 31Interest expense (3) (32)Dividends received 12 104 10 576Taxation paid (112) (79)

Net cash flows used in investing activities (1 866) (1 263)

Increase in investment in subsidiaries 56.4 (1 866) (1 263)

Net cash flows used in financing activities (9 839) (9 468)

Proceeds from issue of share capital 520 553Share buy-backs (641) (613)Preference share redemption 1 055Net dividends paid (10 773) (9 408)

Net increase in cash and cash equivalentsCash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year




Share capital and premium

Preference share

capital and premium

Share-based payment

reserveRevaluation

reserve


Available- for-sale reserve

Empowerment reserve

Retained earnings Total

for the year ended 31 December 2015 Note Rm Rm Rm Rm Rm Rm Rm Rm Rm

CompanyBalance at 1 January 2014 18 126 5 503 186 3 100 969 (1 357) 38 722 65 249Issue of share capital and share premium 13 554 554Repurchase of share capital and share premium (613) (613)Equity-settled share-based payment transactions 20 20Total comprehensive income 10 006 10 006Dividends paid 44 (141) (9 267) (9 408)

Balance at 31 December 2014 18 067 5 503 206 3 100 969 (1 498) 39 461 65 808

Balance at 1 January 2015 18 067 5 503 206 3 100 969 (1 498) 39 461 65 808Issue of share capital and share premium 13 520 520Repurchase of share capital and share premium (641) (641)Equity-settled share-based payment transactions 76 76Available-for-sale reserve: Net fair value adjustments 2 2Total comprehensive income 11 817 11 817Dividends paid 44 169 (10 942) (10 773)Preference share redemption 1 055 1 055

Balance at 31 December 2015 17 946 5 503 282 3 100 969 2 (274) 40 336 67 864

241


Share capital and premium

Preference share

capital and premium

Share-based payment

reserveRevaluation

reserve


Available- for-sale reserve

Empowerment reserve

Retained earnings Total

for the year ended 31 December 2015 Note Rm Rm Rm Rm Rm Rm Rm Rm Rm

CompanyBalance at 1 January 2014 18 126 5 503 186 3 100 969 (1 357) 38 722 65 249Issue of share capital and share premium 13 554 554Repurchase of share capital and share premium (613) (613)Equity-settled share-based payment transactions 20 20Total comprehensive income 10 006 10 006Dividends paid 44 (141) (9 267) (9 408)

Balance at 31 December 2014 18 067 5 503 206 3 100 969 (1 498) 39 461 65 808

Balance at 1 January 2015 18 067 5 503 206 3 100 969 (1 498) 39 461 65 808Issue of share capital and share premium 13 520 520Repurchase of share capital and share premium (641) (641)Equity-settled share-based payment transactions 76 76Available-for-sale reserve: Net fair value adjustments 2 2Total comprehensive income 11 817 11 817Dividends paid 44 169 (10 942) (10 773)Preference share redemption 1 055 1 055

Balance at 31 December 2015 17 946 5 503 282 3 100 969 2 (274) 40 336 67 864



Notes

49. Financial investmentsCompany

2015 2014

Rm Rm

Comprising:Unlisted equities 114

114

The unlisted equities have been classified as available-for-sale and included in level 2 in the fair value hierarchy.

50. Interest in subsidiaries Company

2015 2014

Rm Rm

Shares at cost 64 140 63 973Indebtedness to the company (annexure A) 3 243 2 261Investment through equity-settled share incentives 946 870

68 329 67 104Indebtedness by the company (annexure A) (921) (1 700)

Total interest in subsidiaries 67 408 65 404

Principal subsidiaries and investments and related loans are listed in annexure A. For more detail regarding the transactions with related parties, please refer to note 46.

Indebtedness to the company are all current assets and not impaired and have been classified as loans and advances which are measured on an amortised cost basis and are classified as level 3 in the fair value hierarchy. Changes in the indebtedness during the year include repayments, new loans, interest accruals and exchange rate differences.

Indebtedness by the company are all liabilities repayable on demand, measured at amortised cost and classified as level 3 in the fair value hierarchy. Changes in the indebtedness during the year include repayments, new loans, interest accruals and exchange rate differences.

During the year, the company:

• sold its interest in BSI

• decreased its investment in Standard Bank London Holdings Limited, due to a reduction in Standard Bank London Holdings Limited share capital

• increased its legal ownership in Standard Bank Swaziland Limited from 65% to 72.22%

• repaid its loan, including interest to Standard Bank London Holdings Limited.

243

51. Interest in associatesCompany

2015 2014

Rm Rm

Carrying value at the beginning of the year 313 313Disposals and impairment of associate (171)

Carrying value at the end of the year 142 313

During the year, the company sold its interest in associate – Ünlü Finansal Yatirmlar A.S. for R132 million.

52. Deferred taxCompany

2015 2014

Rm Rm

52.1 Deferred tax reconciliationDeferred tax asset at the beginning of the year 26Reversing temporary difference for the year (26)

Deferred tax on assessed loss (utilised) (26)

Deferred tax asset at the end of the year

53. Derivative liabilitiesCompany

Within1 year

Fairvalue of

liabilities

Contract/notionalamount

Rm Rm Rm

2014Derivatives held-for-tradingForeign exchange derivatives 174 174 5 421

Forwards 174 174 5 421

Total derivative liabilities held-for-trading 174 174 5 421

All derivatives are classified as derivatives held-for-trading and included in level 2 in the fair value hierarchy.



54. Other incomeCompany

2015 2014

Rm Rm

Losses on derivatives (34) (19)Foreign exchange gains/(losses) 32 (86)Other 21 25

19 (80)

55. Direct taxationCompany

2015 2014

Rm Rm

Current yearSouth African normal tax 113 23Deferred tax charge 26Foreign and withholding taxes 74 48Prior yearsSouth African normal tax – (over)/under provision (23) 23

Total direct taxation recognised in statement of comprehensive income 164 120

South African tax rate reconciliation (%)Effective tax rate 0.9 0.5Withholding tax 0.6 0.5Tax relating to prior years (0.2) 0.2

Net tax charge 1.3 1.2The charge for the year has been reduced as a consequence of:Gain on disposal of subsidiary and associate 0.3 0.7Impairment of investment in associate (0.2) (1.7)Dividends received 28.3 29.4Other permanent differences (1.7) (1.6)

Standard rate of South African tax 28.0 28.0

245

56. Cash flow statement notesCompany

2015 2014

Rm Rm

56.1 Adjustment for non-cash items and other adjustments included in the income statementDividends received (12 104) (10 623)Interest income (81) (31)Interest expense 3 32Gain on disposal of subsidiary and associate (129) (256)Impairment of investment in subsidiary and associate 105 631Non-cash expenses 59Mark-to-market adjustment on derivatives 34 12Foreign exchange gains and losses (32) 86

(12 145) (10 149)

56.2 Decrease/(increase) in income-earning assetsIncrease in financial investments (114)Decrease in other assets 162

48

56.3 (Decrease)/increase in deposits, trading and other liabilities(Decrease)/increase in derivative liabilities (174) 162(Decrease)/increase in other liabilities (75) 96

(249) 258

56.4 Increase in investment in subsidiaries(Increase)/decrease in investment in subsidiaries (167) 67Proceeds on disposal of subsidiaries 62 256Impairment of investment in subsidiaries (631)Movement in indebtedness to the company (982) (983)Movement in indebtedness by the company (779) 28

(1 866) (1 263)

57. Liquidity, credit and market risk information Other assets and liabilities consist mainly of non-financial assets and liabilities which are not subject to liquidity, credit

and market risk.



Annexure A

as at 31 December 2015

StandardBankGroup

The Standard Bank of South Africa1

Diners Club (S.A.)1

Blue Bond Investments1

Standard Bank Insurance Brokers1

Melville Douglas Investment Management1

Standard Insurance1

Standard Trust1

Stanvest1

SBG Securities1

Standard Bank Properties1

Standard Lesotho Bank (80%)

Stanbic Africa Holdings, UK


Stanbic Bank Ghana (99.5%)

Stanbic Bank Tanzania (99.9%)

Stanbic Bank Uganda (80%)

Stanbic Bank Zambia (99.9%)

Stanbic IBTC Holdings, Nigeria (53.2%) Stanbic IBTC Bank, Nigeria

CfC Stanbic Holdings, Kenya (60%) CfC Stanbic Bank, Kenya

Standard Bank, Malawi (60.2%)


Standard Bank S.A.R.L, Mozambique (98.1%)

Standard Bank RDC S.A. (99.9%)

Stanbic Bank Zimbabwe


Standard Bank Swaziland (72.2%)

Standard Bank de Angola S.A. (51%)

Standard Advisory (China)

Standard Advisory London, UK

Standard New York, USA

The diagram depicts principal subsidiaries only. A full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office. The holding in subsidiaries is 100% unless otherwise indicated. The country of incorporation is stated where it is not apparent from the entity’s name.

Subsidiaries, consolidated and unconsolidated structured entities

247

StandardBankGroup

Standard Bank Group International, Isle of Man

Stanbic International Insurance, Isle of Man

Standard Finance, Isle of Man

SBIC Finance, Isle of Man

SML, Isle of Man

Standard Bank London Holdings, UK

SBA Hong Kong Standard Advisory Asia, Hong Kong

Standard Bank Offshore Group, Jersey

Standard Bank Offshore Trust Company, Jersey

Standard Bank International Investments, Jersey

Standard Bank Trust Company (Mauritius)

Standard Bank Isle of Man

Liberty Holdings1 (53.6%)

Liberty Group1

Liberty Active1

STANLIB1

STANLIB Collective Investments1 STANLIB Asset Management1

STANLIB Multi-Manager1 STANLIB Fund Managers Jersey

STANLIB Wealth Management1

Liberty Kenya Holdings (57.7%)

Liberty Holdings Namibia (75%)

Liberty Group Properties1

Standard Bank Jersey

1 Incorporated in South Africa.


Subsidiaries

Nature of operation

Nominal share capital

issuedRm

Effective holding Non-controlling interest Book value of shares Net indebtedness

2015 2014 2015 2014 2015 2014 2015 2014

% % % % Rm Rm Rm Rm

Standard Bank Group Limited will ensure that the capital adequacy of its subsidiaries denoted by # will meet the requirements of home and host regulators, as required by section 70(A) of the South African Banks Act.

Banking subsidiariesCfC Stanbic Bank Limited (Kenya)1# Commercial bank 418 60 60 40 40Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 423 100 100Stanbic Bank Ghana Limited (Ghana)1,3# Commercial bank 630 99 99 1 1Standard Bank RDC S.A.1,3# Commercial bank 129 100 100Stanbic Bank Tanzania Limited (Tanzania)1,3# Commercial bank 44 100 100Stanbic Bank Uganda Limited (Uganda)1,4# Commercial bank 227 80 80 20 20Stanbic Bank Zambia Limited (Zambia)1,3# Commercial bank 660 100 100Stanbic Bank Zimbabwe Limited (Zimbabwe)1# Commercial bank 2 100 100 136 136Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 103 53 53 47 47Standard Bank de Angola S.A. (Angola)# Commercial bank 768 51 51 49 49 359 359Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100Standard Bank Jersey Limited (Jersey)1# Merchant bank 320 100 100Standard Bank Limited (Malawi)1,4# Commercial bank 23 60 60 40 40Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100Standard Bank Namibia Limited (Namibia)1# Commercial bank 2 1005 1005 444 444Standard Bank S.A.R.L. (Mozambique)1# Commercial bank 309 98 98 2 2Standard Bank Swaziland Limited (Swaziland)# Commercial bank 15 72 65 28 35 94 33Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 20 20 13 13The Standard Bank of South Africa Limited# Commercial bank 60 100 100 40 005 36 163 2 341 1 473

Non-banking subsidiariesCfC Stanbic Holdings Limited (Kenya)4 Bank holding company 232 60 60 40 40Ecentric Payment Systems Proprietary Limited1 Development and marketing transactions

– switching software and services 100 80 20Liberty Group Limited1 Insurance company 28 54 54 46 46Liberty Holdings Limited4 Insurance holding company 26 54 54 46 46 7 668 7 668Melville Douglas Investment Management Proprietary Limited# Asset and portfolio management 100 100 53 53Standard Bank International Investments Limited (Jersey)1# Portfolio management 100 100SBG Securities Proprietary Limited# Stockbrokers 100 100 320 320Stanbic IBTC Holdings PLC (Nigeria)1,4 Bank holding company 275 53 53 47 47SBN Holdings Limited (Namibia) Bank holding company 1005 1005

Stanbic Africa Holdings Limited (UK)2 Investment holding company 100 100 2 160 2 160Standard Bank Group International Limited (Isle of Man)

Investment holding company100 100 5 588 5 588

Standard Bank London Holdings Limited (UK) Investment holding company 5 785 100 100 6 555 9 795 (867)Standard Bank Offshore Group Limited (Jersey) Investment holding company 73 100 100 49 49Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 6 100 100Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company 100 100

ANNUAL FINANCIAL STATEMENTS Annexure A Subsidiaries, consolidated and unconsolidated structured entities continued

249

Subsidiaries

Nature of operation


issuedRm


2015 2014 2015 2014 2015 2014 2015 2014

% % % % Rm Rm Rm Rm

Standard Bank Group Limited will ensure that the capital adequacy of its subsidiaries denoted by # will meet the requirements of home and host regulators, as required by section 70(A) of the South African Banks Act.

Banking subsidiariesCfC Stanbic Bank Limited (Kenya)1# Commercial bank 418 60 60 40 40Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 423 100 100Stanbic Bank Ghana Limited (Ghana)1,3# Commercial bank 630 99 99 1 1Standard Bank RDC S.A.1,3# Commercial bank 129 100 100Stanbic Bank Tanzania Limited (Tanzania)1,3# Commercial bank 44 100 100Stanbic Bank Uganda Limited (Uganda)1,4# Commercial bank 227 80 80 20 20Stanbic Bank Zambia Limited (Zambia)1,3# Commercial bank 660 100 100Stanbic Bank Zimbabwe Limited (Zimbabwe)1# Commercial bank 2 100 100 136 136Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 103 53 53 47 47Standard Bank de Angola S.A. (Angola)# Commercial bank 768 51 51 49 49 359 359Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100Standard Bank Jersey Limited (Jersey)1# Merchant bank 320 100 100Standard Bank Limited (Malawi)1,4# Commercial bank 23 60 60 40 40Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100Standard Bank Namibia Limited (Namibia)1# Commercial bank 2 1005 1005 444 444Standard Bank S.A.R.L. (Mozambique)1# Commercial bank 309 98 98 2 2Standard Bank Swaziland Limited (Swaziland)# Commercial bank 15 72 65 28 35 94 33Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 20 20 13 13The Standard Bank of South Africa Limited# Commercial bank 60 100 100 40 005 36 163 2 341 1 473

Non-banking subsidiariesCfC Stanbic Holdings Limited (Kenya)4 Bank holding company 232 60 60 40 40Ecentric Payment Systems Proprietary Limited1 Development and marketing transactions

– switching software and services 100 80 20Liberty Group Limited1 Insurance company 28 54 54 46 46Liberty Holdings Limited4 Insurance holding company 26 54 54 46 46 7 668 7 668Melville Douglas Investment Management Proprietary Limited# Asset and portfolio management 100 100 53 53Standard Bank International Investments Limited (Jersey)1# Portfolio management 100 100SBG Securities Proprietary Limited# Stockbrokers 100 100 320 320Stanbic IBTC Holdings PLC (Nigeria)1,4 Bank holding company 275 53 53 47 47SBN Holdings Limited (Namibia) Bank holding company 1005 1005

Stanbic Africa Holdings Limited (UK)2 Investment holding company 100 100 2 160 2 160Standard Bank Group International Limited (Isle of Man)

Investment holding company100 100 5 588 5 588

Standard Bank London Holdings Limited (UK) Investment holding company 5 785 100 100 6 555 9 795 (867)Standard Bank Offshore Group Limited (Jersey) Investment holding company 73 100 100 49 49Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 6 100 100Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company 100 100



Subsidiaries continued

Nature of operation


issuedRm


2015 2014 2015 2014 2015 2014 2015 2014

% % % % Rm Rm Rm Rm

Standard Trust Limited# Trust company 100 100Standard Finance Limited (Isle of Man)1# Finance company 100 100Standard Insurance Limited Short-term insurance 15 100 100 30 30Standard New York, Inc (USA) Securities broker/dealer 55 100 100 55 55Standard Advisory (China) Limited (China) Trading company 8 100 100 10 10STANLIB Limited1 Wealth and asset management 54 54 46 46Standard Advisory London Limited (UK) Arranging and advisory company 100 100 557 557Miscellaneous Finance companies 88 88 (19) (45)

Entities disposed of during 2015Banco Standard de Investimentos S.A. (Brazil) Investment bank 100 496ICBC Standard Securities Inc (USA) (previously Standard New York Securities, Inc)

Securities broker/dealer100

ICBC Standard Resources (China) Limited (previously Standard Resources (China) Limited)

Trading company100

ICBC Standard NY Holdings Inc (USA) (previously Standard NY Holdings, Inc)

Investment holding company100

ICBC Standard Resources (America) Inc (USA) (previously Standard Americas, Inc)

Trading company100

ICBC Standard Bank Plc (UK) (previously Standard Bank Plc) Investment bank 100

64 140 63 973 2 322 561

1 Held indirectly, no book value in Standard Bank Group Limited.2 Effective holding company comprises direct and indirect holdings.3 Minorities hold 0.5% or less.4 Listed on a stock exchange.5 Standard Bank Group legally owns 90% of SBN Holdings (Namibia) but consolidates 100% due to the empowerment structure.

The nominal issued share capital of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of provision of capital. The country of incorporation is South Africa unless otherwise indicated.

A full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office.


251

Subsidiaries continued

Nature of operation


issuedRm


2015 2014 2015 2014 2015 2014 2015 2014

% % % % Rm Rm Rm Rm

Standard Trust Limited# Trust company 100 100Standard Finance Limited (Isle of Man)1# Finance company 100 100Standard Insurance Limited Short-term insurance 15 100 100 30 30Standard New York, Inc (USA) Securities broker/dealer 55 100 100 55 55Standard Advisory (China) Limited (China) Trading company 8 100 100 10 10STANLIB Limited1 Wealth and asset management 54 54 46 46Standard Advisory London Limited (UK) Arranging and advisory company 100 100 557 557Miscellaneous Finance companies 88 88 (19) (45)

Entities disposed of during 2015Banco Standard de Investimentos S.A. (Brazil) Investment bank 100 496ICBC Standard Securities Inc (USA) (previously Standard New York Securities, Inc)

Securities broker/dealer100

ICBC Standard Resources (China) Limited (previously Standard Resources (China) Limited)

Trading company100

ICBC Standard NY Holdings Inc (USA) (previously Standard NY Holdings, Inc)

Investment holding company100

ICBC Standard Resources (America) Inc (USA) (previously Standard Americas, Inc)

Trading company100

ICBC Standard Bank Plc (UK) (previously Standard Bank Plc) Investment bank 100

64 140 63 973 2 322 561

1 Held indirectly, no book value in Standard Bank Group Limited.2 Effective holding company comprises direct and indirect holdings.3 Minorities hold 0.5% or less.4 Listed on a stock exchange.5 Standard Bank Group legally owns 90% of SBN Holdings (Namibia) but consolidates 100% due to the empowerment structure.

The nominal issued share capital of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of provision of capital. The country of incorporation is South Africa unless otherwise indicated.

A full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office.



Consolidated structured entities

Name of the entity Nature of the operations

Amount of support provided as at1,2,3 Type of support4

Terms of contractual arrangementsEvents/circumstances that could expose the group to a loss as a result of the contractual arrangements

2015 2014 2015 2014

Rm Rm

Blue Granite Investments No. 1 (RF) Limited (BG1)

Facilitates mortgage-backed securitisations. The group is the primary liquidity facility provider to BG1.

49 159 Subordinated loan

Subordinatedloan

The subordinated loan does not have a fixed term or repayment date. All the profits in BG1 are paid out to the group as interest on the loan granted.

Should BG1’s customers be unable to meet their contractual obligations under the mortgage loan agreements and the loans are classified as non-performing.

898 871 Mortgage- backed

notes

Mortgage- backed

notes

The group holds class A4, A6, B, C, D, E and F notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 0.55% to 8%. Interest is payable quarterly. The notes’ maturity date is 21 November 2032.




Subordinated loan

The loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.5% and is only payable when BG2 has sufficient cash reserves.


1 261 1 372 Mortgage- backed

notes

Mortgage- backed

notes

The group holds class A1, A2, A3, B, C, D and Y notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.4% and 4%. Interest is payable quarterly. Furthermore, the group holds class Y notes for which interest accrues at prime plus 3%. Interest is payable quarterly. The notes’ maturity date is 21 July 2041.




Subordinated loan

The subordinated loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.5% and is only payable when BG3 has sufficient cash reserves.

Should BG3’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.


notes

Mortgage- backed

notes

The group holds notes of classes A1, A2, A3, A4, B and C, for which interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.15% and 3.1%. The group also holds class D and Y notes, for which interest accrues at prime plus a margin ranging between 1% and 3%. Interest is payable quarterly. The notes’ maturity date is 30 October 2031.




Subordinated loan



1270 1 271 Mortgage- backed

notes

Mortgage- backed

notes

The group holds class A1, A2, A3, A4, B and C notes for which interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.15% and 3.1%. The group holds class D and Y notes for which interest accrues at prime plus a margin ranging between 1% and 3%. Interest is payable quarterly. The notes’ maturity date is 15 June 2037.



253

Consolidated structured entities




2015 2014 2015 2014

Rm Rm




Subordinatedloan

The subordinated loan does not have a fixed term or repayment date. All the profits in BG1 are paid out to the group as interest on the loan granted.



notes

Mortgage- backed

notes

The group holds class A4, A6, B, C, D, E and F notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 0.55% to 8%. Interest is payable quarterly. The notes’ maturity date is 21 November 2032.




Subordinated loan

The loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.5% and is only payable when BG2 has sufficient cash reserves.


1 261 1 372 Mortgage- backed

notes

Mortgage- backed

notes

The group holds class A1, A2, A3, B, C, D and Y notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.4% and 4%. Interest is payable quarterly. Furthermore, the group holds class Y notes for which interest accrues at prime plus 3%. Interest is payable quarterly. The notes’ maturity date is 21 July 2041.




Subordinated loan




notes

Mortgage- backed

notes

The group holds notes of classes A1, A2, A3, A4, B and C, for which interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.15% and 3.1%. The group also holds class D and Y notes, for which interest accrues at prime plus a margin ranging between 1% and 3%. Interest is payable quarterly. The notes’ maturity date is 30 October 2031.




Subordinated loan



1270 1 271 Mortgage- backed

notes

Mortgage- backed

notes

The group holds class A1, A2, A3, A4, B and C notes for which interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.15% and 3.1%. The group holds class D and Y notes for which interest accrues at prime plus a margin ranging between 1% and 3%. Interest is payable quarterly. The notes’ maturity date is 15 June 2037.




Consolidated structured entities continued




2015 2014 2015 2014

Rm Rm

Siyakha Fund (RF) Limited (Siyakha)

Facilitates mortgage-backed securitisations. The group is the primary liquidity facility provider to Siyakha.

82 82 Subordinatedloan

Subordinatedloan

The loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.50% and is only payable when Siyakha has sufficient cash reserves.

Should Siyakha’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

1038 1 105 Mortgage-backed

notes

Mortgage-backed

notes

The group holds class A1 notes for which interest accrues at the three-month JIBAR rate plus 1.10%. The group also holds class A2, B, C and D notes for which interest accrues at a rate from prime less 2.1% to prime plus 2%. Interest is payable quarterly. The notes’ maturity date is 11 February 2045.

Tabistone 06 (RF) Limited (Tabistone)

Facilitates mortgage-backed securitisations. The group is the primary liquidity facility provider to Tabistone.


Subordinatedloan

The subordinated loan is provided by the group. Interest is charged at the lower of prime plus 10% or net profit after tax or cash balance available in Tabistone.

Should Tabistone’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

16 073 16 073 Mortgage-backed

notes

Mortgage-backed

notes

The group holds class A1, A2, A3 and C notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.55% and 4.00%. Interest is payable quarterly. The notes’ maturity date is 21 November 2019.

Blue Banner Securitisation Vehicle RC1 Proprietary Limited (Blue Banner)

Originates mortgage loans on behalf of the group. The group is required to provide the funding for these mortgage loans.

160 195 Bridging finance

Bridging finance

The loan does not have a fixed term or repayment date. Any profits in Blue Banner are paid out as interest to the group.

Should Blue Banner’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

Out of the Blue Originator Proprietary Limited (OTB)

OTB originates loans on behalf of Blue Titanium Conduit Limited (BTC).

– 650 Overdraft facility

Overdraft facility

OTB applies for the necessary overdraft facility as and when it originates loans. The drawn amount is settled once the originated loan is sold to BTC. The terms are negotiated and agreed upon at the time of granting of the overdraft facility. OTB applied for and was granted an overdraft facility of R600 million in 2015 (2014: R650 million). OTB drew down on the overdraft facility in both the current and prior year. As at 31 December 2015, the outstanding balance on the loan was nil (2014: R650 million).

This SE does not expose the group to a risk of loss as it acts as a conduit between the group and BTC. OTB draws down on the overdraft facility as and when BTC originates loans and the facility is repaid on the same day of the draw down.



255





2015 2014 2015 2014

Rm Rm

Siyakha Fund (RF) Limited (Siyakha)

Facilitates mortgage-backed securitisations. The group is the primary liquidity facility provider to Siyakha.


Subordinatedloan

The loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.50% and is only payable when Siyakha has sufficient cash reserves.

Should Siyakha’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

1038 1 105 Mortgage-backed

notes

Mortgage-backed

notes

The group holds class A1 notes for which interest accrues at the three-month JIBAR rate plus 1.10%. The group also holds class A2, B, C and D notes for which interest accrues at a rate from prime less 2.1% to prime plus 2%. Interest is payable quarterly. The notes’ maturity date is 11 February 2045.

Tabistone 06 (RF) Limited (Tabistone)

Facilitates mortgage-backed securitisations. The group is the primary liquidity facility provider to Tabistone.


Subordinatedloan

The subordinated loan is provided by the group. Interest is charged at the lower of prime plus 10% or net profit after tax or cash balance available in Tabistone.

Should Tabistone’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

16 073 16 073 Mortgage-backed

notes

Mortgage-backed

notes

The group holds class A1, A2, A3 and C notes. Interest for the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.55% and 4.00%. Interest is payable quarterly. The notes’ maturity date is 21 November 2019.

Blue Banner Securitisation Vehicle RC1 Proprietary Limited (Blue Banner)

Originates mortgage loans on behalf of the group. The group is required to provide the funding for these mortgage loans.

160 195 Bridging finance

Bridging finance

The loan does not have a fixed term or repayment date. Any profits in Blue Banner are paid out as interest to the group.

Should Blue Banner’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

Out of the Blue Originator Proprietary Limited (OTB)

OTB originates loans on behalf of Blue Titanium Conduit Limited (BTC).

– 650 Overdraft facility

Overdraft facility

OTB applies for the necessary overdraft facility as and when it originates loans. The drawn amount is settled once the originated loan is sold to BTC. The terms are negotiated and agreed upon at the time of granting of the overdraft facility. OTB applied for and was granted an overdraft facility of R600 million in 2015 (2014: R650 million). OTB drew down on the overdraft facility in both the current and prior year. As at 31 December 2015, the outstanding balance on the loan was nil (2014: R650 million).

This SE does not expose the group to a risk of loss as it acts as a conduit between the group and BTC. OTB draws down on the overdraft facility as and when BTC originates loans and the facility is repaid on the same day of the draw down.






Amount of support provided as at1,2,3

Type of support4


2015 2014 2015 2014

Rm Rm

Blue Titanium Conduit (RF) Limited (BTC)

Purchases eligible term assets and funds such investments through the issuance of commercial paper. The group is the primary liquidity facility provider to BTC.

2 463 2 845 Liquidityfacility

Liquidityfacility

The liquidity facility is limited to the value of the underlying assets in BTC. As at 31 December 2015, the liquidity facility limit was R3 171 million (2014: R4 078 million). BTC had not drawn down on the liquidity facility as at 31 December 2015.

In the event that the underlying assets are classified as non-performing loans.

233 715 Commercial paper

Commercial paper

The group periodically invests in commercial paper (CP) issued by BTC. The CP is typically short term in nature, and issued at arm’s length. During the year ended 31 December 2015, commercial paper issued by BTC was priced at a spread of between 34 and 48 basis points over JIBAR.

475 518 Credit enhancement

facility

Credit enhancement

facility

The credit enhancement facility is limited to 14.9% of the outstanding commercial paper issued in the market. BTC had drawn down on the credit enhancement facility as at 31 December 2015.

Rapvest Investment Proprietary Limited

Facilitates finance deals for other group companies and third parties through preference share investments and loans to clients.

3 253 2 321 Loan Loan The loan is repayable on demand and no interest is charged on the loan.


1 056 1 054 Preference shares

Preference shares

The preference shares accrue dividends at a rate of 85% of the prime interest rate payable in April and October annually. The maturity date of the preference shares is 28 November 2022.

SB-Debtors Discounting No. 1 Proprietary Limited (SB-Debtors)

SB-Debtors was set up to enable Main Street 367 (RF) Proprietary Limited (Main Street) to fund the subordinated loans to BG1, BG2, BG3, BG4 and Siyakha. The group provides the funding to enable SB-Debtors to originate these loans.

105 105 Loan Loan The loan has no fixed repayment date. Interest is calculated as the higher of the variable rate of three-month JIBAR plus 0.7% per annum and the cash available less R15 000.

In the event that customers of BG1, BG2, BG3, BG4 and Siyakha are unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

Main Street Facilitates financing to BG1, BG2, BG3, BG4 and Siyakha.SB-Debtors provides the funding to Main Street to enable Main Street to originate these loans.


Subordinatedloan

The loan is only repayable to the extent that Main Street receives payment from BG1, BG2, BG3, BG4 and Siyakha. The interest is charged at the higher of JIBAR plus 10% and the cash available in terms of Main Street’s priority of payments less R15 000.


1 The amount of support provided includes loans and advances and undrawn credit facilities provided to SEs by the group.2 During the reporting period, the group did not provide any financial or other support to any SE without having a contractual obligation to do so.3 This is the amount as reported on the balance sheet as at 31 December 2015 and 2014 respectively. For credit facilities, the amount shown is the undrawn

balance as at the reporting date.4 In addition to the financial support provided to the SEs, the group enters into other transactions with SEs in the ordinary course of business. These

transactions include loans and advances, deposits and debt funding and derivatives.


257



Amount of support provided as at1,2,3

Type of support4


2015 2014 2015 2014

Rm Rm

Blue Titanium Conduit (RF) Limited (BTC)

Purchases eligible term assets and funds such investments through the issuance of commercial paper. The group is the primary liquidity facility provider to BTC.

2 463 2 845 Liquidityfacility

Liquidityfacility

The liquidity facility is limited to the value of the underlying assets in BTC. As at 31 December 2015, the liquidity facility limit was R3 171 million (2014: R4 078 million). BTC had not drawn down on the liquidity facility as at 31 December 2015.


233 715 Commercial paper

Commercial paper

The group periodically invests in commercial paper (CP) issued by BTC. The CP is typically short term in nature, and issued at arm’s length. During the year ended 31 December 2015, commercial paper issued by BTC was priced at a spread of between 34 and 48 basis points over JIBAR.

475 518 Credit enhancement

facility

Credit enhancement

facility

The credit enhancement facility is limited to 14.9% of the outstanding commercial paper issued in the market. BTC had drawn down on the credit enhancement facility as at 31 December 2015.

Rapvest Investment Proprietary Limited

Facilitates finance deals for other group companies and third parties through preference share investments and loans to clients.

3 253 2 321 Loan Loan The loan is repayable on demand and no interest is charged on the loan.


1 056 1 054 Preference shares

Preference shares

The preference shares accrue dividends at a rate of 85% of the prime interest rate payable in April and October annually. The maturity date of the preference shares is 28 November 2022.

SB-Debtors Discounting No. 1 Proprietary Limited (SB-Debtors)

SB-Debtors was set up to enable Main Street 367 (RF) Proprietary Limited (Main Street) to fund the subordinated loans to BG1, BG2, BG3, BG4 and Siyakha. The group provides the funding to enable SB-Debtors to originate these loans.

105 105 Loan Loan The loan has no fixed repayment date. Interest is calculated as the higher of the variable rate of three-month JIBAR plus 0.7% per annum and the cash available less R15 000.


Main Street Facilitates financing to BG1, BG2, BG3, BG4 and Siyakha.SB-Debtors provides the funding to Main Street to enable Main Street to originate these loans.


Subordinatedloan

The loan is only repayable to the extent that Main Street receives payment from BG1, BG2, BG3, BG4 and Siyakha. The interest is charged at the higher of JIBAR plus 10% and the cash available in terms of Main Street’s priority of payments less R15 000.


1 The amount of support provided includes loans and advances and undrawn credit facilities provided to SEs by the group.2 During the reporting period, the group did not provide any financial or other support to any SE without having a contractual obligation to do so.3 This is the amount as reported on the balance sheet as at 31 December 2015 and 2014 respectively. For credit facilities, the amount shown is the undrawn

balance as at the reporting date.4 In addition to the financial support provided to the SEs, the group enters into other transactions with SEs in the ordinary course of business. These

transactions include loans and advances, deposits and debt funding and derivatives.



Unconsolidated structured entitiesThe group has an interest in the following unconsolidated SEs:

Nature and purpose of entityPrincipal nature of funding

Principal nature of assets

Terms of contractual arrangements Terms of contractual arrangements

Events/circumstances that could expose the group to a loss

Blue Diamond Investments No. 1 (RF) Limited



The group purchases credit protection from Blue Diamond Investments No. 1, No. 2 and No. 3 (BD) in the form of credit-linked notes on single or multiple corporate names. BD then purchases credit protection from third-party investors on single or multiple corporate names. The group purchases high-quality collateral with maturities that match BD’s obligations in respect of its issued credit-linked notes. The group provides collateral to BD which is held as credit protection for the third-party investors. The collateral is ring-fenced such that it is linked to a particular series of notes and the relevant related contract(s) as part of a transaction. This structure has been designed to provide third-party investors indirect exposure to corporate names, and in doing so, reduces the group’s exposure to credit risk.

Credit-linked notes issued to third-party investors

Credit-linked notes issued by the group

12 years The group compensates BD for providing credit protection over single or multiple corporate names. The group also settles BD’s operating expenses as and when necessary, typically in the event that BD has liquidity constraints. Any payment for such amounts is to be refunded by BD to the group.

In the event of a credit event and BD is unable to pay, the group would be exposed to a credit loss. This risk is considered remote given the collateral held by BD.

The group is further exposed to the risk of loss should it be unable to recover any unexpected operating expenses from BD.

Africa ETF Issuer (Limited) offering the following:• AfricaPalladium ETF (JSE

code: ETFPLD)• AfricaPlatinum ETF (JSE

code: ETFPLT)• AfricaGold ETF (JSE

code: ETFGLD)

The palladium, platinum and gold exchange traded funds (ETFs) have been established for investors to participate in changes in the spot price of underlying commodities. The ETFs issue debentures to investors with each debenture backed by the respective physical commodity. On issuance each debenture is based on 1/100th of a troy ounce of the respective commodity. The physical commodities are stored at recognised custodian vaults in London. The ETFs are denominated in rands and are classified as domestic assets. The ETFs are regulated by the Financial Markets Act and the JSE Listing Requirements.

The unconsolidated SE is funded by the issue of non-interest-bearing debentures that are 100% backed by the underlying physical commodity

Physical commodities (palladium, platinum and gold)

Undated The group established these structured entities to accommodate client requirements to hold investments in specific commodity assets. The group manages the ETFs and also provides liquidity to the ETFs by acting as a committed market maker.

The maximum exposure to loss is limited to the on-balance sheet position held by the group through acting as a committed market maker for the ETFs. This exposes the group to the commodity price risk associated with the underlying commodity and is managed in accordance with the group’s market risk management policy.


259

Unconsolidated structured entitiesThe group has an interest in the following unconsolidated SEs:

Nature and purpose of entityPrincipal nature of funding

Principal nature of assets

Terms of contractual arrangements Terms of contractual arrangements

Events/circumstances that could expose the group to a loss




The group purchases credit protection from Blue Diamond Investments No. 1, No. 2 and No. 3 (BD) in the form of credit-linked notes on single or multiple corporate names. BD then purchases credit protection from third-party investors on single or multiple corporate names. The group purchases high-quality collateral with maturities that match BD’s obligations in respect of its issued credit-linked notes. The group provides collateral to BD which is held as credit protection for the third-party investors. The collateral is ring-fenced such that it is linked to a particular series of notes and the relevant related contract(s) as part of a transaction. This structure has been designed to provide third-party investors indirect exposure to corporate names, and in doing so, reduces the group’s exposure to credit risk.

Credit-linked notes issued to third-party investors

Credit-linked notes issued by the group

12 years The group compensates BD for providing credit protection over single or multiple corporate names. The group also settles BD’s operating expenses as and when necessary, typically in the event that BD has liquidity constraints. Any payment for such amounts is to be refunded by BD to the group.

In the event of a credit event and BD is unable to pay, the group would be exposed to a credit loss. This risk is considered remote given the collateral held by BD.

The group is further exposed to the risk of loss should it be unable to recover any unexpected operating expenses from BD.

Africa ETF Issuer (Limited) offering the following:• AfricaPalladium ETF (JSE

code: ETFPLD)• AfricaPlatinum ETF (JSE

code: ETFPLT)• AfricaGold ETF (JSE

code: ETFGLD)

The palladium, platinum and gold exchange traded funds (ETFs) have been established for investors to participate in changes in the spot price of underlying commodities. The ETFs issue debentures to investors with each debenture backed by the respective physical commodity. On issuance each debenture is based on 1/100th of a troy ounce of the respective commodity. The physical commodities are stored at recognised custodian vaults in London. The ETFs are denominated in rands and are classified as domestic assets. The ETFs are regulated by the Financial Markets Act and the JSE Listing Requirements.

The unconsolidated SE is funded by the issue of non-interest-bearing debentures that are 100% backed by the underlying physical commodity

Physical commodities (palladium, platinum and gold)

Undated The group established these structured entities to accommodate client requirements to hold investments in specific commodity assets. The group manages the ETFs and also provides liquidity to the ETFs by acting as a committed market maker.

The maximum exposure to loss is limited to the on-balance sheet position held by the group through acting as a committed market maker for the ETFs. This exposes the group to the commodity price risk associated with the underlying commodity and is managed in accordance with the group’s market risk management policy.



Unconsolidated structured entities continued

2015 2014

Rm Rm

The following represents the group’s interests in these entities:Balance sheetUnconsolidated SEs:Financial Investments 175 199Deposits and debt funding accounts from customers (1 658) (1 732)Trading assets 36 60

(1 447) (1 473)

For both 2014 and 2015, BD earned income via a once-off fee and commission income earned for structuring the SE.

For 2014, AfricaPalladium ETF (JSE code: ETFPLD), AfricaPlatinum ETF (JSE code: ETFPLT), AfricaGold ETF (JSE code: ETFGLD) earned fees net of related expenses for managing the funds. These fees are recognised within non-interest revenue. Interest income is recognised on any funding provided to the SEs. Any trading revenue as a result of transactions with the SEs are recognised in trading revenue.


261

Details of group companies with material non-controlling interests

Liberty Group Limited

Rest of Africa legal entities

2015 2014 2015 2014

Place of business and country of incorporation South Africa Various

Non-controlling interests (%) 46 46 * *

Rm Rm Rm Rm

Summarised financial information on an IFRS basis before intercompany eliminationsTotal assets1 419 318 375 732 312 631 269 008Total liabilities1 393 325 352 098 273 052 238 213Total income2 73 995 79 705 26 931 24 202Profit for the year2 4 287 4 283 6 747 6 819Change in cash balances with

central banks2 5 128 4 083 12 778 8 690

Profit attributable to non-controlling interests after intercompany eliminations2 2 121 2 168 1 702 1 850

Non-controlling interest within statement of financial position 13 626 12 290 8 700 6 658Dividends paid to non-controlling interests2 905 829 590 668

1 Translated using the closing exchange rate.2 Translated using average exchange rates.* Please refer to page 248 to 251 for further detail.



Annexure B

Safika Holdings Proprietary Limited

Industrial andCommercial Bank

of China(Argentina) S.A.

South African Home Loans Proprietary

Limited (SAHL)

ICBC Standard Bank Plc

(ICBCS)2Other

joint venturesOther

associates

Total associates and joint ventures

– equity accounted

Ownership structure Associate Associate Associate Associate Joint ventures Associates Associates and joint ventures

Nature of business Investment holding company Banking Finance Banking Various Various Various

Principal place of business and country of incorporation South Africa Argentina South Africa London, UK Various Various Various

Year end February December February December Various Various Various

Accounting treatment Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted

Date to which equity accounted 31 December 2015 31 December 2015 31 December 2015 31 December 2015 31 December 2015 Various Various

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Effective holding (%) 26.67 26.67 20 20 50 50 40 Various Various Various Various Various Various

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Carrying value 646 698 2 097 1 716 672 592 5 836 76 54 375 667 9 703 3 727

Income statementRevenue 66 562 17 968 12 995 880 741 2 107Total comprehensive income/(losses) 55 306 3 025 1 780 317 17 (2 933)

Total comprehensive income/(losses) attributed to equity holders of the associate and joint ventures 55 280 3 025 1 780 317 241 (2 933)

Dividend received from associates/joint ventures 50 20 75 200

Statement of financial position1

Non-current assets 3 119 2 819 19 373 12 367 25 794 22 261 70 001Current assets 235 179 49 883 39 896 2 261 2 203 190 522Non-current liabilities (125) (248) (6 490) (2 022) (25 634) (22 749) (133 608)Current liabilities (807) (27) (54 728) (44 098) (796) (250) (112 786)Non-controlling interest (108)

Net asset value attributed to equity holders of the associate and joint venture 2 422 2 615 8 038 6 142 1 625 1 465 14 129

Proportion of net asset value based on effective holding 646 698 1 607 1 228 813 733 5 836

Goodwill 490 488Cumulative impairment (141) (141)

Carrying value 646 698 2 097 1 716 672 592 5 836

Loans to group entities3 25 943 2 2

Share of profits/(losses) from associate and joint ventures 15 75 605 356 158 120 (1 173) 18 (10) 54 84 (323) 6261 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received.2 The group disposed of 60% of SB Plc to ICBC on 1 February 2015. The final cash proceeds on this 60% disposal, which was based on a discount to the

31 January 2015 net asset value, amounted to USD675 million. The group retained a 40% interest in SB Plc (subsequently renamed ICBCS), with this interest being recognised as investment in an associate from 1 February 2015.

3 These loans are provided on an arm’s length basis.


Associates and joint ventures

263

Safika Holdings Proprietary Limited

Industrial andCommercial Bank

of China(Argentina) S.A.

South African Home Loans Proprietary

Limited (SAHL)

ICBC Standard Bank Plc

(ICBCS)2Other

joint venturesOther

associates

Total associates and joint ventures

– equity accounted

Ownership structure Associate Associate Associate Associate Joint ventures Associates Associates and joint ventures

Nature of business Investment holding company Banking Finance Banking Various Various Various

Principal place of business and country of incorporation South Africa Argentina South Africa London, UK Various Various Various

Year end February December February December Various Various Various

Accounting treatment Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted

Date to which equity accounted 31 December 2015 31 December 2015 31 December 2015 31 December 2015 31 December 2015 Various Various

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Effective holding (%) 26.67 26.67 20 20 50 50 40 Various Various Various Various Various Various

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Carrying value 646 698 2 097 1 716 672 592 5 836 76 54 375 667 9 703 3 727

Income statementRevenue 66 562 17 968 12 995 880 741 2 107Total comprehensive income/(losses) 55 306 3 025 1 780 317 17 (2 933)

Total comprehensive income/(losses) attributed to equity holders of the associate and joint ventures 55 280 3 025 1 780 317 241 (2 933)

Dividend received from associates/joint ventures 50 20 75 200


Non-current assets 3 119 2 819 19 373 12 367 25 794 22 261 70 001Current assets 235 179 49 883 39 896 2 261 2 203 190 522Non-current liabilities (125) (248) (6 490) (2 022) (25 634) (22 749) (133 608)Current liabilities (807) (27) (54 728) (44 098) (796) (250) (112 786)Non-controlling interest (108)

Net asset value attributed to equity holders of the associate and joint venture 2 422 2 615 8 038 6 142 1 625 1 465 14 129

Proportion of net asset value based on effective holding 646 698 1 607 1 228 813 733 5 836

Goodwill 490 488Cumulative impairment (141) (141)

Carrying value 646 698 2 097 1 716 672 592 5 836

Loans to group entities3 25 943 2 2

Share of profits/(losses) from associate and joint ventures 15 75 605 356 158 120 (1 173) 18 (10) 54 84 (323) 6261 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received.2 The group disposed of 60% of SB Plc to ICBC on 1 February 2015. The final cash proceeds on this 60% disposal, which was based on a discount to the

31 January 2015 net asset value, amounted to USD675 million. The group retained a 40% interest in SB Plc (subsequently renamed ICBCS), with this interest being recognised as investment in an associate from 1 February 2015.

3 These loans are provided on an arm’s length basis.


The Cullinan Hotel Proprietary Limited

STANLIB Income Fund

SA Infrastructure Fund

STANLIB Balanced Cautious Fund

STANLIB Balanced Fund

STANLIB Corporate Money

Market Fund

Other associates and joint ventures – fair value accounted

Total associates and joint ventures – fair value accounted

Ownership structure Associate Associate Associate Associate Associate Joint ventures AssociatesAssociates

and joint ventures

Nature of business Leisure Fund Fund Fund Fund Various Various Various

Principal place of business South Africa South Africa Argentina South Africa South Africa Various Various Various

Year end February December December March February Various Various Various

Accounting treatment Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Effective holding (%) 40 40 9 16 31 31 16 15 23 25 12 12 Various Various Various Various


Fair value 492 406 1 667 3 276 2 141 2 026 1 438 1 043 1 694 1 532 3 062 2 973 5 906 4 697 16 400 15 593

Income statementRevenue 580 450 1 594 1 893 661 377 438 321 265 193 2 072 2 102Total profit for the year 216 62 1 447 1 691 621 355 332 234 193 129 2 007 1 691

Total comprehensive income 216 62 1 447 1 691 621 355 332 234 193 129 2 007 1 691

Dividend received from associates 206 238 39 10 48 37 44 31 284 95


Non-current assets 2 772 2 354 19 068 20 557 4 966 4 471 8 778 6 792 7 050 5 936 20 269 19 057Current assets 66 67 594 562 53 31 435 220 465 182 6 143 6 614Current liabilities (233) (32) (319) (328) (18) (2) (18) (119) (117) (107) (6) (5)

Net asset value 2 605 2 389 19 343 20 791 5 001 4 500 9 195 6 893 7 398 6 011 26 406 25 666

Loans measured at fair value2 550 544 550 544

Total carrying value, including loans measured at fair value 1 042 950 1 667 3 276 2 141 2 026 1 483 1 043 1 694 1 532 3 062 2 973 5 861 4 697 16 950 16 497

1 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received.2 These loans are provided on an arm’s length basis.

ANNUAL FINANCIAL STATEMENTS Annexure B Associates and joint ventures continued

265

The Cullinan Hotel Proprietary Limited

STANLIB Income Fund

SA Infrastructure Fund

STANLIB Balanced Cautious Fund

STANLIB Balanced Fund

STANLIB Corporate Money

Market Fund

Other associates and joint ventures – fair value accounted

Total associates and joint ventures – fair value accounted

Ownership structure Associate Associate Associate Associate Associate Joint ventures AssociatesAssociates

and joint ventures

Nature of business Leisure Fund Fund Fund Fund Various Various Various

Principal place of business South Africa South Africa Argentina South Africa South Africa Various Various Various

Year end February December December March February Various Various Various

Accounting treatment Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Effective holding (%) 40 40 9 16 31 31 16 15 23 25 12 12 Various Various Various Various


Fair value 492 406 1 667 3 276 2 141 2 026 1 438 1 043 1 694 1 532 3 062 2 973 5 906 4 697 16 400 15 593

Income statementRevenue 580 450 1 594 1 893 661 377 438 321 265 193 2 072 2 102Total profit for the year 216 62 1 447 1 691 621 355 332 234 193 129 2 007 1 691

Total comprehensive income 216 62 1 447 1 691 621 355 332 234 193 129 2 007 1 691

Dividend received from associates 206 238 39 10 48 37 44 31 284 95


Non-current assets 2 772 2 354 19 068 20 557 4 966 4 471 8 778 6 792 7 050 5 936 20 269 19 057Current assets 66 67 594 562 53 31 435 220 465 182 6 143 6 614Current liabilities (233) (32) (319) (328) (18) (2) (18) (119) (117) (107) (6) (5)

Net asset value 2 605 2 389 19 343 20 791 5 001 4 500 9 195 6 893 7 398 6 011 26 406 25 666

Loans measured at fair value2 550 544 550 544

Total carrying value, including loans measured at fair value 1 042 950 1 667 3 276 2 141 2 026 1 483 1 043 1 694 1 532 3 062 2 973 5 861 4 697 16 950 16 497

1 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received.2 These loans are provided on an arm’s length basis.


Private equity/venture capital associates and joint ventures1

2015 2014

Rm Rm

Cost 48 94Carrying value 492 625


Non-current assets 3 207 3 882Current assets 235 621Non-current liabilities (125) (893)Current liabilities (814) (238)Income statementAttributable income before impairment 51 64Other income 81 93

Fair value 482 589

1 Included in note 9.2 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received.

The investments in associates and joint ventures were made by the group’s private equity operations and have been ring-fenced for headline earnings purposes. On the disposal of these associates and joint ventures held by the private equity division of the group, the gain or loss on the disposal will be included in headline earnings in terms of Circular 2/2013 Headline Earnings, issued by the South African Institute of Chartered Accountants at the request of the JSE.

ANNUAL FINANCIAL STATEMENTS Annexure B Associates and joint ventures continued

267

The group’s share incentive schemes enable key management personnel and senior employees to benefit from the performance of Standard Bank Group Limited, Liberty Holdings Limited shares and Stanbic IBTC Holdings Plc share price.

2015 2014

Rm Rm

Expenses recognised in staff costs:1 312 1 322

Equity growth scheme (EGS) 88 108Quanto stock scheme 184 3551

Deferred bonus scheme (DBS 2012) 745 618Performance reward plan (PRP) 180 85Other Liberty schemes 148 126Other (33) 30

Total expenses recognised in staff costs 1 312 1 322

Liabilities recognised in other liabilities (note 20.1)Quanto stock scheme 326 4381

Deferred bonus scheme (DBS 2012) 41 47Performance reward plan 39 18Other (including Liberty) 75 48

Total liability recognised in other liabilities 481 551

1 Prior year amounts have been restated for an error in classification between “cash-settled share-based payment liabilities” and “other liabilities” within note 20: Provisions and other liabilities.

Equity growth schemeThe EGS is an equity-settled scheme and represents appreciation rights allocated to employees. The converted value of the rights is effectively settled by issue of shares equivalent to the value of the rights. The scheme has five different subtypes of vesting categories as illustrated by the table below:

Year%

vestingExpiry (years)

Vesting categoriesType A 3,4,5 50,75,100 10Type B 5,6,7 50,75,100 10Type C 2,3,4 50,75,100 10Type D 2,3,4 33,67,100 10Type E 3,4,5 33,67,100 10

Annexure CGroup share incentive schemes


Equity growth scheme continuedA reconciliation of the movement of share options is detailed below:

Average pricerange (rand) Number of rights

2015 2015 2014

Movement summaryReconciliationRights outstanding at the beginning of the year 28 515 142 36 180 992Granted 156,96 1 361 888 1 433 067Exercised 60,35 – 116,21 (6 202 199) (7 369 177)Forfeited 60,35 – 126,87 (1 048 237) (1 729 740)

Rights outstanding at the end of the year 22 626 594 28 515 142

During the year, 2 004 396 (2014: 2 092 064) SBG shares were issued to settle the appreciated rights value. At the end of the year, the group would need to issue 3 014 982 (2014: 9 429 195) SBG shares to settle the outstanding appreciated rights value. The EGS rights are only awarded to individuals in the employment of a group equity domiciled in South Africa.

The group is required to ensure that employees’ tax arising from benefits due in terms of the scheme is paid in accordance with the Fourth Schedule of the Income Tax Act of South Africa. Where employees have elected not to fund the tax from their own resources the tax due is treated as a diminution of the gross benefits due under the scheme. A total of 631 361 (2014: 802 572) SBG shares were issued and sold to settle the employees’ tax due during the year. This reduces the liability due in respect of the outstanding appreciated rights value.

Share options were exercised regularly throughout the year. The weighted average share price for the year was R147,88 (2014: R134,83).

The following rights granted to employees, including executive directors, had not been exercised at year end:

2015 2014

Option expiry periodNumber of rights

Option price range (rand)

Weighted average

price (rand)

Number of rights

Option price range (rand)

Weighted average

price (rand)

Year to 31 December 2015 622 602 60,35 – 65,60 65,41Year to 31 December 2016 1 047 234 77,83 – 82,00 79,53 1 799 113 77,83 – 87,00 79,74Year to 31 December 2017 1 291 189 98,00 – 106,8 98,03 1 785 677 98,00 – 111,00 98,18Year to 31 December 2018 2 679 384 83,10 – 92,00 91,96 3 878 382 69,99 – 100,08 91,93Year to 31 December 2019 2 675 233 62,39 – 98,20 64,11 3 932 205 62,39 – 98,20 64,33Year to 31 December 2020 4 583 623 102,00 – 116,80 111,76 6 283 765 102,00 – 116,80 111,69Year to 31 December 2021 5 986 779 90,50 – 107,55 98,76 7 050 318 90,50 – 107,55 98,77Year to 31 December 2022 720 835 98,75 – 108,90 108,44 800 008 98,75 – 110,56 108,54Year to 31 December 2023 930 005 115,51 115,51 930 005 115,51 115,51Year to 31 December 2024 1 350 424 126,87 126,87 1 433 067 126,87 126,87Year to 31 December 2025 1 361 888 156,96 156,96

22 626 594 28 515 142

ANNUAL FINANCIAL STATEMENTS Annexure C Group share incentive schemes continued

269

Equity growth scheme continuedThe share appreciation rights granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting type and the assumptions utilised are illustrated below:

Type D

2015 2014

Number of appreciation rights granted 1 361 888 1 433 067Weighted average fair value at grant date (rands) 37,72 32,39The principal inputs are as follows:Weighted average share and exercise price (rand) 156,96 126,87Expected life (years) 6,20 5,96Expected volatility (%) 22.19 22.45Risk-free interest rate (%) 7.24 7.94Dividend yield (%) 3.87 3.80

No A,B,C or E rights were granted during the year. The appreciation rights granted during the year, which are estimated to vest, had a fair value of R51 million (2014: R46,4 million) at grant date.

Quanto stock schemeSince 2007, SB Plc has operated a deferred incentive arrangement in the form of the Quanto stock unit plan. Qualifying employees, with an incentive award above a set threshold are awarded Quanto stock units denominated in USD for nil consideration, the value of which moves in parallel to the change in price of the SBG shares listed on the JSE. The cost of the award is accrued over the vesting period (generally three years), normally commencing the year in which these are awarded and communicated to employees. Following the disposal of SB Plc, qualifying employees, with their awards, were transferred into various companies within the SBG group.

Special terms apply to employees designated by the Prudential Regulatory Authority (PRA) as Code Staff. For these employees the deferred portion of the incentive is delivered in Quanto stock units with three-year vesting and an additional six-months holding period after vesting. Thereafter half of the remaining incentive (non-deferred portion) is paid immediately in cash and the other half is delivered in Quanto stock units with a six-month vesting period.

The change in liability due to the change in the SBG share price, is hedged through the use of equity options designated as cash flow hedges.

Units

2015 2014

Movement summaryUnits outstanding at the beginning of the year 334 247 394 151Granted 128 640 187 140Lapsed/Forfeited (33 725) (225)Exercised (165 728) (246 819)

Units outstanding at the end of the year 263 434 334 247

The previously updated balances have been restated to exclude the group’s discontinued operation.


Deferred bonus schemeThe purpose of the DBS (2012) is to encourage a longer-term outlook in business decision-making and closer alignment of performance with long-term value creation.

All employees granted an annual performance award over a threshold have part of their award deferred. The award is indexed to the group’s share price and accrues notional dividends during the vesting period, which are payable on vesting. Awards are issued to individuals in employment of a group entity domiciled in South Africa and are equity-settled. Awards vest in three equal amounts at 18 months, 30 months and 42 months from the date of award. The final payout is determined with reference to the group’s share price on vesting date. These awards have been partially hedged through the use of equity forwards.

Units

2015 2014

Movement summaryUnits outstanding at the beginning of the year 11 242 206 8 770 144Units granted during the year 5 497 632 6 458 429Exercised (5 105 155) (3 157 841)Lapsed/Forfeited (485 703) (828 526)

Units outstanding at the end of the year 11 148 980 11 242 206

Weighted average fair value at grant date (R) 156,10 127,79Expected life (years) 2,51 2,51

Performance reward planA new performance-driven share plan commenced in March 2014 which rewards value delivered against specific targets. The PRP incentivises a group of senior executives to meet the strategic long-term objectives that deliver value to shareholders, to align the interests of those executives with those of shareholders and to act as an attraction and retention mechanism in a highly competitive marketplace for skills. The PRP operates alongside the existing conditional, equity-settled long-term plans, namely the EGS, the GSIS and DBS (2012).

The PRP is settled in shares to the employee on the applicable vesting dates together with notional dividends that are settled in cash. Awards are issued to individuals in employment of a group entity domiciled in South Africa and are equity-settled. Shares that vest (if any), and that are delivered to the employee, are conditional on the pre-specified performance metrics. These awards have been partially hedged through the use of equity forwards.

Units

2015 2014

Movement summaryUnits outstanding at the beginning of the year 2 979 700Units granted during the year 2 449 700 3 086 100Lapsed/Forfeited (415 230) (106 400)

Units outstanding at the end of the year 5 014 170 2 979 700

Weighted average fair value at grant date (R) 157,04 126,87Expected life (years) 3,07 3,07

ANNUAL FINANCIAL STATEMENTS Annexure C Group share incentive schemes continued

271

Other share schemes2015 2014

Scheme Description ClassificationStock

symbolOutstanding

UnitsOutstanding

Units

Deferred bonus scheme (Pre-2012)

The initial deferred bonus scheme commenced in 2009. Vesting of the deferred bonus occurs after three years, conditional on continued employment. Payment of the deferred bonus is calculated with increments at vesting and one year thereafter. The scheme expired on 30 November 2015.

Cash-settled scheme

SBK

– 336 846

Liberty Holdings group restricted share plan

During 2012, Liberty introduced the Liberty Holding group restricted share plan which has two methods of participation: 1) Long-term plan awards granted prior to 28 February 2013 vest 331/3% at the end of year two, three and four respectively while awards granted subsequently vest 331/3% at the end of year three, four and five respectively. 2) Deferred-plan – Awards vest 331/3% at the end of 18 months, 30 months and 42 months respectively.

Equity-settled scheme

LBH

3 779 974 3 459 155

Liberty equity growth scheme

50% of the options vest in year three, thereafter 25% in year four and five. Typically, the employee must remain in the employment of the company in order or exercise their options.


LBH

3 190 505 5 173 961

Liberty share units rights (SUR)

In 2010, Liberty introduced a SUR plan where units are allocated to qualifying executives and senior management, the units are settled in cash up to three years after grant date.

Cash-settled scheme

LBH

83 734 26 309

Liberty 2010 deferred bonus scheme

The 2010 deferred bonus scheme relates to short-term management incentives that were deferred from awards granted for the 2010 financial year and vest three years after grant date. Participants can extend their vesting for a year which will then qualify them for an additional payment of 25% of the original value.

Cash-settled scheme

LBH

– 100 213

Nigeria share schemes

On 1 March 2010 and 1 March 2011, share appreciation rights were issued to key management personnel. 50% of the rights vests three years after grant date, 25% of the rights vest four years after grant date and 25% of the rights vest five years after grant date.

Cash-settled scheme

IBTCCB: NL

67 824 702 89 691 073

Group share incentive scheme (GSIS)

GSIS confers rights to employees to acquire shares at the value of the SBG share price at the date the option was granted. The scheme has various vesting periods, and expires ten years after grant date. During the year, 1 177 949 (2014: 1 984 632) SBG shares were issued to settle the GSIS awards.


SBK

2 752 820 4 152 884



1. Basis of consolidation

BASIS OF CONSOLIDATION

Subsidiaries

Common control transactions

Foreign currency translations

Separate financialstatements

Consolidated financialstatements

Acquisitions

Disposal of asubsidiary

Partial disposalof a subsidiary

Initial measurementof non-controlling interest

Group companiesTransactionsand balances

Subsidiaries (including mutual funds in which the group has both an irrevocable asset management agreement and a significant investment) Separate financial statementsInvestments in subsidiaries are accounted for at cost less accumulated impairment losses (where applicable) in the separate financial statements. The carrying amounts of these investments are reviewed annually for impairment indicators and, where an indicator of impairment exists, are impaired to the higher of the investment’s fair value less costs to sell or value in use.

Consolidated financial statementsThe accounting policies of subsidiaries that are consolidated by the group conform to the group’s accounting policies. Intragroup transactions, balances and unrealised gains (losses) are eliminated on consolidation. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment. The proportion of comprehensive income and changes in equity allocated to the group and non-controlling interest are determined on the basis of the group’s present ownership interest in the subsidiary.

Subsidiaries are consolidated from the date on which the group acquires control up to the date that control is lost. Control is assessed on a continuous basis. For mutual funds the group further assesses its control by considering the existence of either voting rights or significant economic power.

Annexure DDetailed accounting policies

273

1. Basis of consolidation continued

Acquisitions The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group.

The consideration transferred is measured as the sum of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. The consideration includes any asset, liability or equity resulting from a contingent consideration arrangement. The obligation to pay contingent consideration is classified as either a liability or equity based on the terms of the arrangement. The right to a return of previously transferred consideration is classified as an asset.

Transaction costs are recognised within profit or loss as and when they are incurred. Where the initial accounting is incomplete by the end of the reporting period in which the business combination occurs (but no later than 12 months since the acquisition date), the group reports provisional amounts.

Where applicable, the group adjusts retrospectively the provisional amounts to reflect new information obtained about facts and circumstances that existed at the acquisition date and affected the measurement of the provisional amounts. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess (shortage) of the sum of the consideration transferred (including contingent consideration), the value of non-controlling interest recognised and the acquisition date fair value of any previously held equity interest in the subsidiary over the fair value of identifiable net assets acquired is recorded as goodwill in the statement of financial position (gain on bargain purchase, which is recognised directly in non-trading and capital related items).

When a business combination occurs in stages, the previously held equity interest is remeasured to fair value at the acquisition date and any resulting gain or loss is recognised in non-trading and capital related items.

Increases in the group’s interest in a subsidiary, when the group already has control, are accounted for as transactions with equity holders of the group. The difference between the purchase consideration and the group’s proportionate share of the subsidiary’s additional net asset value acquired is accounted for directly in equity.

Disposal of a subsidiary

A disposal arises where the group loses control of a subsidiary. When the group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between the fair value of the consideration received (including the fair value of any retained interest in the underlying investee) and the carrying amount of the assets and liabilities and any non-controlling interest. Any gains or losses in OCI that relate to the subsidiary are reclassified to profit or loss at the time of the disposal. On disposal of a subsidiary that includes a foreign operation, the relevant amount in the foreign currency translation reserve (FCTR) is reclassified to profit or loss at the time at which the profit or loss on disposal of the foreign operation is recognised.

Partial disposal of a subsidiary

A partial disposal arises as a result of a reduction in the group’s ownership interest in an investee that is not a disposal (i.e. a reduction in the group’s interest in a subsidiary while retaining control). Decreases in the group’s interest in a subsidiary, where the group retains control, are accounted for as transactions with equity holders of the group. Gains or losses on the partial disposal of the group’s interest in a subsidiary are computed as the difference between the sales consideration and the group’s proportionate share of the investee’s net asset value disposed of, and are accounted for directly in equity. On the partial disposal of a subsidiary that includes a foreign operation, a proportionate share of the balance of the FCTR is transferred to non-controlling interest.

Initial measurement of non-controlling interest

The group elects on each acquisition to initially measure non-controlling interest on the acquisition date at either fair value or at the non-controlling interest’s proportionate share of the investees’ identifiable net assets.


ANNUAL FINANCIAL STATEMENTS Annexure D Detailed accounting policies continued

1. Basis of consolidation continuedCommon control transactionsCommon control transactions, in which the company is the ultimate parent entity both before and after the transaction, are accounted for at book value.

Foreign currency translationsGroup companiesThe results and financial position of foreign operations that have a functional currency that is different from the group’s presentation currency are translated into the group’s presentation currency as follows:

• assets and liabilities (including goodwill, intangible assets and fair value adjustments arising on acquisition) are translated at the closing rate at the reporting date

• income and expenses are translated at average exchange rates

• all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the group’s FCTR.

Transactions and balancesForeign currency transactions are translated into the respective group entities’ functional currencies at exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss (except when recognised in OCI as part of qualifying cash flow hedges and net investment hedges).

Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the transaction date, and those measured at fair value are translated at the exchange rate at the date that the fair value was determined. Exchange rate differences on non-monetary items are accounted for based on the classification of the underlying items.

Foreign exchange gains and losses on equities (debt) classified as available-for-sale financial assets are recognised in the available-for-sale reserve in OCI (interest income) whereas the exchange differences on equities (debt) that are classified as held at fair value through profit or loss are reported as part of the other revenue (interest income).

Foreign currency gains and losses on intragroup loans are recognised in profit or loss except where the settlement of the loan is neither planned nor likely to occur in the foreseeable future. In these cases the foreign currency gains and losses are recognised in the group’s FCTR.

275

2. Interest in associates and joint arrangements

INTEREST IN ASSOCIATES AND JOINT ARRANGEMENTS


Private equity and venture capital investments

Joint operations

TYPE INITIAL AND SUBSEQUENT MEASUREMENT (CONSOLIDATED ACCOUNTS)


Associates and joint ventures are initially measured at cost and subsequently accounted for using the equity method at an amount that reflects the group’s share of the net assets of the associate or joint venture (including goodwill).

Equity accounting is applied from the date on which the entity becomes an associate or joint venture up to the date on which the group ceases to have significant influence or joint control.

Equity accounting of losses is restricted to the interests in these entities, including unsecured receivables or other commitments, unless the group has an obligation or has made payments on behalf of the associate or joint ventures.

Unrealised profits from transactions are eliminated in determining the group’s share of equity accounted profits. Unrealised losses are eliminated in the same way as unrealised gains (but only to the extent that there is no evidence of impairment).

Where there is an indicator of impairment the carrying amount of the investment is tested for impairment by comparing its recoverable amount with its carrying amount.

Impairment losses are recognised through non-trading and capital related items. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the investment’s carrying amount does not exceed the carrying amount that would have been determined, net of equity accounted losses, if no impairment loss had been recognised.

For a disposal of an associate or joint venture, being where the group loses significant influence over an associate or loses joint control over a joint venture, the difference between the sales proceeds and any retained interest and the carrying value of the equity accounted investment is recognised as a gain or loss in non-trading and capital related items. On disposal of an associate or joint venture that is a foreign operation, the relevant amount in the FCTR is reclassified to non-trading and capital related items at the time at which the profit or loss on disposal is recognised. Any gains or losses in other OCI reserves that relate to the associate or joint venture are reclassified to non-trading and capital related items at the time of the disposal.

SEPARATE FINANCIAL STATEMENTSAssociates and joint ventures are accounted for at cost less impairment losses.



TYPE INITIAL AND SUBSEQUENT MEASUREMENT (CONSOLIDATED ACCOUNTS)

Associates and joint ventures continued

For a partial disposal of an associate or joint venture, being where there is a reduction in an interest in an associate while retaining significant influence and the reduction of an interest in a joint venture while retaining joint control, the difference between the consideration received and the carrying value of the proportionate share of the investment disposed is accounted for as a gain or loss on disposal and are accounted for in non-trading and capital related items. For the partial disposal of an associate or a joint venture, that includes a foreign operation, the proportionate share of the balance of the FCTR is reclassified to non-trading and capital related items. Any gains or losses in other OCI reserves that relate to the associate or joint venture are reclassified to non-trading and capital related items at the time of the disposal to the extent of the proportionate share disposed of.

The accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies of the group.

Private equity and venture capital investments

Private equity and venture capital investments, including mutual funds held by investment-linked insurance funds that are associates. These associates are either designated on initial recognition at fair value through profit or loss, or are equity accounted.

Joint operations The following is recognised for joint operations:

• assets it controls, including its share of assets jointly controlled

• liabilities, including its share of liabilities incurred jointly

• revenue from the sale of its share of output and from the sale of the output by a joint operation

• expenses, including the share of expenses incurred jointly.

Individual assets are individually assessed for impairment and, where applicable, are impaired to the higher of the fair value less cost to sell and the asset’s value in use.

SEPARATE FINANCIAL STATEMENTSSame accounting treatment as for group financial statements.

2. Interest in associates and joint arrangements continued

277

3. Financial instruments

Financial guarantee contracts

Other

FINANCIAL INSTRUMENTS

Financial assets

Financial liabilities

Derivatives and embedded derivatives

Hedge accounting

Held-to-maturity

Nat

ure

Su

bse

qu

ent

mea

sure

men

t

Imp

airm

ent

Rec

lass

ifica

tion

Der

ecog

nit

ion

Loans and receivables

Available-for-sale

Held-for-trading

Designated at fair value through profit or loss


Held-for-trading

Amortised cost

Fair value hedges

Cash flow hedges

Net investment hedges

Sale and repurchase agreements and lending of securities (including commodities)Offsetting

Initial measurement – financial instrumentsAll financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those financial instruments that are subsequently measured at fair value where such transaction costs and fees are immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting).

Financial assetsNature

Held-to-maturity Non-derivative financial assets with fixed or determinable payments and fixed maturities that management has both the positive intent and ability to hold-to-maturity.

Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified as at fair value through profit or loss or available-for-sale.


3. Financial instruments continuedFinancial assets continuedNature continued

Held-for-trading Those financial assets acquired principally for the purpose of selling in the near term (including all derivative financial assets), those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

Included are commodities that are acquired principally for the purpose of selling in the near future or generating a profit from fluctuations in price or broker-traders’ margin.


Financial assets are designated to be measured at fair value in the following instances:

• to eliminate or significantly reduce an accounting mismatch that would otherwise arise

• where the financial assets are managed and their performance evaluated and reported on a fair value basis

• where the financial asset contains one or more embedded derivatives that significantly modify the financial asset’s cash flows.

Available-for-sale Financial assets that are not classified into one of the above-mentioned financial asset categories.

Subsequent measurementSubsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised cost or fair value as follows:

Held-to-maturity and loans and receivables

Amortised cost using the effective interest method with interest recognised in interest income, less any impairment losses which are recognised as part of credit impairment charges.

Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate.

Available-for-sale Fair value, with gains and losses recognised directly in the available-for-sale reserve until the financial asset is derecognised or impaired.

Interest income on debt financial assets is recognised in interest income in terms of the effective interest rate method. Dividends received on debt (equity) available-for-sale financial assets are recognised in interest income (other revenue) within profit or loss.

When debt (equity) available-for-sale financial assets are disposed of, the cumulative fair value adjustments in OCI are reclassified to interest income (other revenue).

Held-for-trading Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.


Fair value, with gains and losses recognised in interest income/(other revenue) for all debt/(equity) financial assets.


279

3. Financial instruments continuedFinancial assets continuedImpairmentA financial asset is impaired if objective evidence indicates that a loss event has occurred after initial recognition which has a negative effect on the estimated future cash flows of the financial asset that can be estimated reliably. The group assesses at each reporting date whether there is objective evidence that a financial asset which is either carried at amortised cost or classified as available-for-sale is impaired as follows:

Held-to-maturity and loans and receivables (‘amortised cost’)

The following criteria are used in determining whether there is objective evidence of impairment for loans or groups of loans:

• known cash flow difficulties experienced by the borrower

• a breach of contract, such as default or delinquency in interest and/or principal payments

• breaches of loan covenants or conditions

• it becomes probable that the borrower will enter bankruptcy or other financial reorganisation

• where the group, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower a concession that the group would not otherwise consider.

The group first assesses whether there is objective evidence of impairment individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. Non-performing loans include those loans for which there is identified objective evidence of impairment, such as a breach of a material loan covenant or condition as well as those loans for which instalments are due and unpaid for 90 days or more. The impairment of non-performing loans takes into account past loss experience adjusted for changes in economic conditions and the nature and level of risk exposure since the recording of the historic losses.

When a loan carried at amortised cost has been identified as specifically impaired, the carrying amount of the loan is reduced to an amount equal to the present value of its estimated future cash flows, including the recoverable amount of any collateral, discounted at the financial asset’s original effective interest rate. The carrying amount of the loan is reduced through the use of a specific credit impairment account and the loss is recognised as a credit impairment charge in profit or loss.

Increases in loan impairments and any subsequent reversals thereof, or recoveries of amounts previously impaired (including loans that have been written off), are reflected within credit impairment charges in profit or loss. Subsequent to impairment, the effects of discounting unwind over time as interest income.

The calculation of the present value of the estimated future cash flows of collateralised financial assets recognised on an amortised cost basis includes cash flows that may result from foreclosure less costs of obtaining and selling the collateral, whether or not foreclosure is probable.

If the group determines that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a group of financial loans with similar credit risk characteristics and collectively assesses for impairment. Loans that are individually assessed for impairment and for which an impairment loss is recognised are not included in a collective assessment for impairment.

Impairment of groups of loans that are assessed collectively is recognised where there is objective evidence that a loss event has occurred after the initial recognition of the group of loans but before the reporting date. In order to provide for latent losses in a group of loans that have not yet been identified as specifically impaired, a credit impairment for incurred but not reported losses is recognised based on historic loss patterns and estimated emergence periods (time period between the loss event and the date on which the group identifies the losses). Groups of loans are also impaired when adverse economic conditions develop after initial recognition, which may impact future cash flows. The carrying amount of groups of loans is reduced through the use of a portfolio credit impairment account and the loss is recognised as a credit impairment charge in profit or loss.

Previously impaired loans are written off once all reasonable attempts at collection have been made and there is no realistic prospect of recovering outstanding amounts.


3. Financial instruments continuedImpairment continued

Available-for-sale Available-for-sale financial assets are impaired when there has been a significant or prolonged decline in the fair value of the instrument below its cost and for equity instruments where there is information about significant changes with an adverse effect on the environment in which the issuer operates that indicates that the cost of the investment in the equity instrument may not be recovered.

When an available-for-sale asset has been identified as impaired, the cumulative loss, measured as the difference between the acquisition price and the current fair value, less any previously recognised impairment losses on that financial asset, is reclassified from OCI to profit or loss, within interest income (other revenue) for debt (equity) instruments.

If, in a subsequent period, the amount relating to an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through interest income for available-for-sale debt instruments. Any reversal of an impairment loss in respect of an available-for-sale equity instrument is recognised directly in OCI.

ReclassificationReclassifications of financial assets are permitted only in the following instances:

Held-to-maturity Where the group is to sell more than an insignificant amount of held-to-maturity investments, the entire category would be tainted and reclassified as available-for-sale assets with the difference between amortised cost and fair value being accounted for in OCI.

Available-for-sale The group may choose to reclassify financial assets that would meet the definition of loans and receivables if the group, at the date of reclassification, has the intention and ability to hold these financial assets for the foreseeable future or until maturity.

Held-for-trading The group may elect to reclassify non-derivative financial assets out of held-for-trading category in the following instances:

• if the financial asset is no longer held for the purpose of selling it in the near term and the financial asset would not otherwise have met the definition of loans and receivables, it is permitted to be reclassified only in rare circumstances

• if the financial asset is no longer held for the purpose of selling it in the near team and the financial asset would have met the definition of loans and receivables, it is permitted to be reclassified if the group, at the date of reclassification, has the intention and ability to hold these financial assets for the foreseeable future or until maturity.

Reclassifications are made at fair value as of the reclassification date. Effective interest rates for financial assets reclassified to loans and receivables, held-to-maturity and available-for-sale categories are determined at the reclassification date. Subsequent increases in estimates of cash flows adjust the financial asset’s effective interest rates prospectively. On reclassification of a trading asset, all embedded derivatives are reassessed and, if necessary, accounted for separately.


281

3. Financial instruments continuedFinancial liabilitiesNature

Held-for-trading Those financial liabilities incurred principally for the purpose of re-purchasing in the near term (including all derivative financial liabilities) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.


Financial liabilities are designated to be measured at fair value in the following instances:

• to eliminate or significantly reduce an accounting mismatch that would otherwise arise

• where the financial liabilities are managed and their performance evaluated and reported on a fair value basis

• where the financial liability contains one or more embedded derivatives that significantly modify the financial asset’s cash flows.

At amortised cost All other financial liabilities not included in the above categories.

Subsequent measurementSubsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either amortised cost or fair value as follows:

Held-for-trading Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.


Fair value, with gains and losses recognised in interest expense.

Amortised cost Amortised cost using the effective interest method with interest recognised in interest expense.


3. Financial instruments continuedDerecognition and modification of financial assets and liabilitiesFinancial assets and liabilities are derecognised in the following instances:

DERECOGNITION MODIFICATION

Financial assets Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired, or where the group has transferred its contractual rights to receive cash flows on the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. Any interest in the transferred financial assets that is created or retained by the group is recognised as a separate asset or liability.

The group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or a portion of the risks or rewards of the transferred assets. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with the retention of all or substantially all risks and rewards include securities lending and repurchase agreements.

When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction, similar to repurchase transactions. In transactions where the group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, the asset is derecognised if control over the asset is lost. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate.

In transfers where control over the asset is retained, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

Where an existing financial asset or liability is replaced by another with the same counterparty on substantially different terms, or the terms of an existing financial asset or liability are substantially modified, such an exchange or modification is treated as a derecognition of the original asset or liability and the recognition of a new asset or liability, with the difference in the respective carrying amounts being recognised in profit or loss. In all other instances, the renegotiated asset or liability’s effective interest rate is redetermined taking into account the renegotiated terms.

Financial liabilities Financial liabilities are derecognised when the financial liabilities’ obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.


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3. Financial instruments continuedFinancial guarantee contractsA financial guarantee contract is a contract that requires the group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Financial guarantee contracts are subsequently measured at the higher of the:

• present value of any expected payment, when a payment under the guarantee has become probable or

• unamortised premium.

Derivatives and embedded derivativesIn the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, inflation, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, credit risk, inflation risk, interest rates and the prices of commodities and equities.

Derivatives are initially recognised at fair value. Derivatives that are not designated in a qualifying hedge accounting relationship are classified as held-for-trading with all changes in fair value being recognised within trading revenue. This includes forward contracts to purchase or sell commodities, where net settlement occurs or where physical delivery occurs and the commodities are held to settle another derivative contract. All derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Embedded derivatives included in hybrid instruments are treated and disclosed as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone derivative and the combined contract is not measured at fair value through profit or loss. The host contract is accounted for and measured applying the relevant group accounting policy.

The method of recognising fair value gains and losses on derivatives designated as a hedging instrument depends on the nature of the hedge relationship.

Hedge accountingDerivatives are designated by the group into the following relationships:

TYPE OF HEDGE NATURE TREATMENT

Fair value hedges Hedges of the fair value of recognised financial assets, liabilities or firm commitments.

Where a hedging relationship is designated as a fair value hedge, the hedged item is adjusted for the change in fair value in respect of the risk being hedged. Gains or losses on the remeasurement of both the derivative and the hedged item are recognised in profit or loss. Fair value adjustments relating to the hedging instrument are allocated to the same line item in profit or loss as the related hedged item. Any hedge ineffectiveness is recognised immediately in trading revenue.

If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The adjustment to the carrying amount of a hedged item measured at amortised cost, for which the effective interest method is used, is amortised to profit or loss as part of the hedged item’s recalculated effective interest rate over the period to maturity.


3. Financial instruments continuedHedge accounting continued

TYPE OF HEDGE NATURE TREATMENT

Cash flow hedges

Hedges of highly probable future cash flows attributable to a recognised asset or liability, a forecasted transaction, or a highly probable forecast intragroup transaction.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedging reserve. The ineffective part of any changes in fair value is recognised immediately in profit or loss as trading revenue.

Amounts recognised in OCI are transferred to profit or loss in the periods in which the hedged forecast cash flows affect profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the cumulative gains or losses recognised previously in OCI are transferred and included in the initial measurement of the cost of the asset or liability.

If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The cumulative gains or losses recognised in OCI remain in OCI until the forecast transaction is recognised in the case of a non-financial asset or a non-financial liability, or until the forecast transaction affects profit or loss in the case of a financial asset or a financial liability. If the forecast transaction is no longer expected to occur, the cumulative gains and losses recognised in OCI are immediately reclassified to profit or loss and classified as trading revenue.

Net investment hedges

Hedges of net investments in a foreign operation.

The designated component of the hedging instrument that relates to the effective portion of the hedge, is recognised directly in the foreign currency hedge of net investment reserve. The ineffective part of any changes in fair value is recognised immediately in profit or loss as trading revenue. The cumulative gains and losses in OCI are accounted for similarly to cash flow hedges.

OtherSale and repurchase agreements and lending of securities (including commodities)Securities sold subject to linked repurchase agreements (repurchase agreements) are reclassified in the statement of financial position as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral. The liability to the counterparty is included under deposit and current accounts or trading liabilities, as appropriate.

Securities purchased under agreements to resell (reverse repurchase agreements), at either a fixed price or the purchase price plus a lender’s rate of return, are recorded as loans and included under trading assets or loans and advances, as appropriate. For repurchase and reverse repurchase agreements measured at amortised cost, the difference between the purchase and sales price is treated as interest and amortised over the expected life using the effective interest method.

Securities lent to counterparties are retained in the annual financial statements. Securities borrowed are not recognised in the annual financial statements unless sold to third parties. In these cases, the obligation to return the securities borrowed is recorded at fair value as a trading liability. Income and expenses arising from the securities borrowing and lending business are recognised over the period of the transactions.

OffsettingFinancial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to setoff the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the counterparties to the transaction.


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4. Fair value

FAIR VALUE

Fair value hierarchy

Inputs and valuation techniques

Portfolio valuations

Day one profit/loss

Cost exception

In terms of IFRS, the group is either required to or elects to measure a number of its financial assets and financial liabilities at fair value. Regardless of the measurement basis, the fair value is required to be disclosed, with some exceptions, for all financial assets and financial liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market between market participants at the measurement date under current market conditions. Fair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value it is presumed that the entity is a going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. In estimating the fair value of an asset or a liability, the group takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability at the measurement date.

Hierarchy levels

Hierarchy transfer policy


4. Fair value continuedFair value hierarchyThe group’s financial instruments that are both carried at fair value and for which fair value is disclosed are categorised by level of fair value hierarchy. The different levels are 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.

Hierarchy levelsThe levels have been defined as follows:

Level 1 Fair value is based on quoted market prices (unadjusted) in active markets for an identical financial asset or liability. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as those derived from quoted prices. This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 Fair value is determined through valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instrument being valued and the similar instrument.

Hierarchy transfer policyTransfers of financial assets and financial liabilities between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

Inputs and valuation techniquesFair value is measured based on quoted market prices or dealer price quotations for identical assets and liabilities that are traded in active markets, which can be accessed at the measurement date, and where those quoted prices represent fair value. If the market for an asset or liability is not active or the instrument is not quoted in an active market, the fair value is determined using other applicable valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. These include the use of recent arm’s length transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market participants.

Fair value measurements are categorised into level 1, 2 or 3 within the fair value hierarchy 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.

Where discounted cash flow analyses are used, estimated future cash flows are based on management’s best estimates and a market-related discount rate at the reporting date for an asset or liability with similar terms and conditions.

If an asset or a liability measured at fair value has both a bid and an ask price, the price within the bid-ask spread that is most representative of fair value is used to measure fair value.


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4. Fair value continuedInputs and valuation techniques continuedThe group’s valuation control framework governs internal control standards, methodologies, and procedures over its valuation processes, which include the following valuation techniques and main inputs and assumptions per type of instrument:

ITEM AND DESCRIPTION VALUATION TECHNIQUEMAIN INPUTS AND ASSUMPTIONS

Derivative financial instruments Derivative financial instruments comprise foreign exchange, interest rate, commodity, credit and equity derivatives that are either held-for-trading or designated as hedging instruments in hedge relationships.

Standard derivative contracts are valued using market accepted models and quoted parameter inputs. More complex derivative contracts are modelled using more sophisticated modelling techniques applicable to the instrument. Techniques include:

• Discounted cash flow model

• Black-Scholes model

• Combination technique models.

FOR LEVEL 2 AND 3 FAIR VALUE HIERARCHY ITEMS

• Discount rate*

• Spot prices of the underlying

• Correlation factors

• Volatilities

• Dividend yields

• Earnings yield

• Valuation multiples.

Trading assets and trading liabilities Trading assets and liabilities comprise instruments which are part of the group’s underlying trading activities. These instruments primarily include sovereign and corporate debt, commodities, collateral, collateralised lending agreements and equity securities.

Where there are no recent market transactions in the specific instrument, fair value is derived from the last available market price adjusted for changes in risks and information since that date. Where a proxy instrument is quoted in an active market, the fair value is determined by adjusting the proxy fair value for differences between the proxy instrument and the financial investment being fair valued. Where proxies are not available, the fair value is estimated using more complex modelling techniques. These techniques include discounted cash flow and Black-Scholes models using current market rates for credit, interest, liquidity, volatility and other risks. Combination techniques are used to value unlisted equity securities and include inputs such as earnings and dividend yields of the underlying entity.

Pledged assets Pledged assets comprise instruments that may be sold or repledged by the group’s counterparty in the absence of default by the group. Pledged assets include sovereign and corporate debt, equities, commodities pledged in terms of repurchase agreements and commodities that have been leased to third parties.

Financial investments Financial investments are non-trading financial assets and primarily comprise of sovereign and corporate debt, listed and unlisted equity instruments, listed sovereign or corporate debt, investments in debentures issued by the SARB, investments in mutual fund investments and unit-linked investments.


4. Fair value continuedInputs and valuation techniques continued


Loans and advances to banks and customers Loans and advances comprise:

• Loans and advances to banks: call loans, loans granted under resale agreements and balances held with other banks

• Loans and advances to customers: mortgage loans (home loans and commercial mortgages), other asset-based loans, including collateralised debt obligations (instalment sale and finance leases), and other secured and unsecured loans (card debtors, overdrafts, other demand lending, term lending and loans granted under resale agreements).

For certain loans fair value may be determined from the market price of a recently occurring transaction adjusted for changes in risks and information between the transaction and valuation dates. Loans and advances are reviewed for observed and verified changes in credit risk and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value. Discounted cash flow models incorporate parameter inputs for interest rate risk, foreign exchange risk, liquidity and credit risk, as appropriate. For credit risk, probability of default and loss given default parameters are determined using credit default swaps (CDS) markets, where available and appropriate, as well as the relevant terms of the loan and loan counterparty such as the industry classification and subordination of the loan.


• Discount rate*.

Deposits and debt funding Deposits from banks and customers comprise amounts owed to banks and customers, deposits under repurchase agreements, negotiable certificates of deposit, credit-linked deposits and other deposits.

For certain deposits, fair value may be determined from the market price on a recently occurring transaction adjusted for all changes in risks and information between the transaction and valuation dates. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value based on the contractual cash flows related to the instrument. The fair value measurement incorporates all market risk factors, including a measure of the group’s credit risk relevant for that financial liability. The market risk parameters are valued consistently to similar instruments held as assets stated in the section above. The credit risk of the reference asset in the embedded CDS in credit-linked deposits is incorporated into the fair value of all credit-linked deposits that are designated to be measured at fair value through profit or loss. For collateralised deposits that are designated to be measured at fair value through profit or loss, such as securities repurchase agreements, the credit enhancement is incorporated into the fair valuation of the liability.


• Discount rate*.


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4. Fair value continuedInputs and valuation techniques continued


Policyholder liabilities Policyholder liabilities comprise unit-linked policies and annuity certains.

Unit-linked policies: assets which are linked to the investment contract liabilities are owned by the group. The investment contract obliges the group to use these assets to settle these liabilities. Therefore, the fair value of investment contract liabilities is determined with reference to the fair value of the underlying assets (i.e. amount payable on surrender of the policies).

Annuity certains: discounted cash flow models are used to determine the fair value of the stream of future payments.


• Discount rate*.

• Spot price of underlying.

Third-party financial liabilities arising on the consolidation of mutual funds (included in other liabilities)These are liabilities that arise on the consolidation of mutual funds.

The fair values of third-party financial liabilities arising on the consolidation of mutual funds are determined using the quoted put (exit) price provided by the fund manager and discounted for the applicable notice period. The fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.


• Discount rate*.

* Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of settlement, storage/service costs, prepayment and surrender risk assumptions and recovery rates/loss given default.

Portfolio valuationsThe group has elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities. This exception permits the group of financial assets and financial liabilities to be measured at fair value on a net basis, with the net fair value being allocated to the financial assets and financial liabilities.

Day one profit or lossFor financial instruments, where the fair value of the financial instrument differs from the transaction price, the difference is commonly referred to as day one profit or loss. Day one profit or loss is recognised in profit or loss immediately where the fair value of the financial instrument is either evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models with only observable market data as inputs.

Day one profit or loss is deferred where the fair value of the financial instrument is not able to be evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models that utilise non-observable market data as inputs.

The timing of the recognition of deferred day one profit or loss is determined individually depending on the nature of the instrument and availability of market observable inputs. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement.

Cost exceptionWhere the fair value of investments in equity instruments or identical instruments do not have a quoted price in an active market, and derivatives that are linked to and must be settled by delivery of such equity instruments, are unable to be reliably determined, those instruments are measured at cost less impairment losses. Impairment losses on these financial assets are not reversed.


5. Employee benefits

Post-employment benefits

EMPLOYEE BENEFITS

Termination benefits

Short-term benefits

Defined contribution plans

Defined benefit plan

TYPE AND DESCRIPTION

STATEMENT OF FINANCIAL POSITION

STATEMENT OF OTHER COMPREHENSIVE INCOME INCOME STATEMENT

Defined contribution plans The group operates a number of defined contribution plans. See note 47 for more information.

Accruals are recognised for unpaid contributions.

No direct impact. Contributions are recognised as an operating expense in the periods during which services are rendered by the employees.

Defined benefit plans The group operates a number of defined benefit retirement and post-employment medical aid plans. Employer companies contribute to the cost of benefits taking account of the recommendations of the actuaries. See note 47 for more information.

Assets or liabilities measured at the present value of the estimated future cash outflows, using interest rates of government bonds denominated in the same currency as the defined benefit plan (corporate bonds are used for currencies for which there is a deep market of high-quality corporate bonds), with maturity dates that approximate the expected maturity of the obligations, less the fair value of plan assets.

A net defined benefit asset is only recognised to the extent that economic benefits are available to the group from reductions in future contributions or future refunds from the plan.

Remeasurements of the net defined benefit obligation, including actuarial gains and losses, the return on plan assets (excluding interest calculated) and the effect of any asset ceiling are recognised within OCI.

Net interest income/(expense) is determined on the defined benefit asset/(liability) by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset/(liability).

Other expenses related to the defined benefit plans are also recognised in operating expenses.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in operating expenses. The group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.


291

5. Employee benefits continued




Termination benefits Termination benefits are recognised when the group is committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy when it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

A liability is recognised for the termination benefit representing the best estimate of the amount payable.

No direct impact. Termination benefits are recognised as an expense in operating expenses if the group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

Short-term benefits Short-term benefits consist of salaries, accumulated leave payments, profit share, bonuses and any non-monetary benefits such as medical aid contributions.

A liability is recognised for the amount expected to be paid under short-term cash bonus plans or accumulated leave if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

No direct impact. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed in operating expenses as the related service is provided.

6. Non-financial assets

Tangible assets

NON-FINANCIAL ASSETS Intangible assets

Investment property

Property

Equipment

Land

Goodwill

Computer software

Other intangible assets

Present value of acquired in-force policyholder contracts and investment contracts with discretionary participation features


6. Non-financial assets continued

TYPE AND INITIAL AND SUBSEQUENT MEASUREMENT

USEFUL LIVES, DEPRECIATION/ AMORTISATION METHOD OR FAIR VALUE BASIS IMPAIRMENT

Tangible assets (Property, equipment and land)Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Land is measured at cost less accumulative impairment losses.

Costs that are subsequently incurred are included in the asset’s related carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the group and the cost of the item can be measured reliably. Expenditure, which does not meet these criteria, is recognised in operating expenses as incurred.

Where significant parts of an item of property or equipment have different useful lives, they are accounted for as separate major components of property and equipment.

Property and equipment are depreciated on the straight-line basis over estimated useful lives (see below) of the assets to their residual values. Land is not depreciated.

Land N/A

Buildings 40 years

Computer equipment 3 – 5 years

Motor vehicles 4 – 5 years

Office equipment 5 – 10 years

Furniture 5 – 13 years

Capitalised leased assets

Shorter of lease term or

useful life

The residual values, useful lives and the depreciation method applied are reviewed, and adjusted if appropriate, at each financial year end.

These assets are reviewed for impairment at each reporting date and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised in non-trading and capital related items for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined as the higher of an asset’s fair value less costs to sell and value in use.

Fair value less costs to sell is determined by ascertaining the current market value of an asset and deducting any costs related to the realisation of the asset.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purposes of assessing impairment, assets that cannot be tested individually are grouped at the lowest levels for which there are separately identifiable cash inflows from continuing use (CGUs).

Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. The carrying amount of these other assets may, however, not be reduced below the higher of the CGU’s fair value less costs to sell and its value in use.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed through non-trading and capital related items only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.


293




Goodwill Goodwill represents the excess of the consideration transferred and the acquisition date fair value of any previously held equity interest over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, associate or joint venture at the date of the acquisition. The group’s interest in acquired subsidiaries takes into account any non-controlling interest.

Goodwill arising on the acquisition of subsidiaries (associates or joint venture) is reported in the statement of financial position as part of ‘Goodwill and other intangible assets’ (‘Interest in associates and joint ventures’).

Not applicable. The accounting treatment is generally the same as that for tangible assets except as noted below.

Goodwill is tested annually for impairment and additionally when an indicator of impairment exists.

An impairment loss in respect of goodwill is not reversed.

Present value of acquired in-force policyholder contracts and investment contracts with discretionary participation features Where a portfolio of policyholder contracts is acquired either directly from another insurer or through the acquisition of a subsidiary, the PVIF business on the portfolio, being the net present value of estimated future cash flows of the existing contracts, is recognised as an intangible asset.

The PVIF intangible asset is carried in the statement of financial position at cost less accumulated amortisation and accumulated impairment losses.

The PVIF intangible asset is amortised on a basis consistent with the settlement of the relevant liability in respect of the purchased contracts (4 to 12 years). The estimated life is re-evaluated annually.

Same accounting treatment as for tangible assets.





Computer software Costs associated with developing or maintaining computer software programmes and the acquisition of software licences are generally recognised as an expense as incurred.

However, direct computer software development costs that are clearly associated with an identifiable and unique system, which will be controlled by the group and have a probable future economic benefit beyond one year, are recognised as intangible assets.

Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses from the date that the assets are available for use.

Expenditure subsequently incurred on computer software is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.

Amortisation is recognised in operating expenses on a straight-line basis at rates appropriate to the expected lives of the assets (2 to 15 years) from the date that the asset is available for use.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted, if necessary.

Intangible assets that have an indefinite useful life are tested annually for impairment and additionally when an indicator of impairment exists.

The accounting treatment for computer software and other intangible assets is otherwise the same as for tangible assets.

Other intangible assets The group recognises the costs incurred on internally generated intangible assets such as brands, customer lists, customer contracts and similar rights and assets, in operating expenses as incurred.

The group capitalises brands, customer lists, customer contracts, distribution forces and similar rights acquired in business combinations.

Capitalised intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised in operating expenses on a straight-line basis over the estimated useful lives of the intangible assets, not exceeding 20 years, from the date that the asset is available for use.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted, if necessary.

DERECOGNITIONNon-financial assets are derecognised on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal proceeds and the carrying amount of the non-financial asset.


295




Investment propertyInitially measured at cost, including transaction costs.

Subsequently measured at fair value and included as part of investment management and service fee income and gains within the profit or loss.

The fair value is based on valuation information at the reporting date.

If the valuation information cannot be reliably determined, the group uses alternative valuation methods such as discounted cash flow projections or recent prices in active markets.

Fair value adjustments recognised in investment management and service fee income and gains are adjusted for any double-counting arising from the recognition of lease income on the straight-line basis compared to the accrual basis normally assumed in the fair value determination.

Not applicable.

DERECOGNITIONInvestment property is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on derecognition is recognised in investment management and service fee income and gains and is determined as the difference between the net disposal proceeds and the carrying amount of the non-financial asset.

When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

When the use of a property changes such that it is reclassified from property and equipment to investment property, the difference between the carrying value at date of reclassification and its fair value is recognised in OCI.


7. Property developments and properties in possession

Property developmentsPROPERTY DEVELOPMENT AND PROPERTIES IN POSSESSION

Properties in possession

Property developments

Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and where applicable, development and borrowing costs during development.

Properties in possession

Properties in possession are properties acquired by the group which were previously held as collateral for underlying lending arrangements that, subsequent to origination, have defaulted. The properties are initially recognised at cost and are subsequently measured at the lower of cost and its net realisable value.

Any subsequent write-down in the value of the acquired properties is recognised as an operating expense. Any subsequent increases in the net realisable value, to the extent that it does not exceed its original cost, are also recognised within operating expenses.


297

8. Equity-linked transactions

Equity-settled share-based paymentsEQUITY COMPENSATION PLANS

Cash-settled share-based payments

Equity-settled share-based payments

The fair value of the equity-settled share-based payments are determined on grant date and accounted for within operating expenses – staff costs over the vesting period with a corresponding increase in the group’s share-based payment reserve. Non-market vesting conditions, such as the resignation of employees and retrenchment of staff, are not considered in the valuation but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of options expected to vest is reassessed and adjusted against operating expenses and share-based payment reserve over the remaining vesting period.

On vesting of the equity-settled share-based payments, amounts previously credited to the share-based payment reserve are transferred to retained earnings through an equity transfer. On exercise of the equity-settled share-based payment, any proceeds received are credited to share capital and premium.

Cash-settled share-based payments

Cash-settled share-based payments are accounted for as liabilities at fair value until the date of settlement. The liability is recognised over the vesting period and is revalued at every reporting date up to and including the date of settlement. All changes in the fair value of the liability are recognised in operating expenses.


9. Leases

Finance leasesLEASES

Operating leases

Lessee

Lessor

Lessee

Lessor



INCOME STATEMENT

Finance leases – lessee Leases, where the group assumes substantially all the risks and rewards incidental to ownership, are classified as finance leases.

The leased asset is capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments together with an associated liability to the lessor. Refer to non-financial assets accounting policy for the treatment of the leased asset.

Lease payments less the interest component, which is calculated using the interest rate implicit in the lease or the group’s incremental borrowing rate, are recognised as a capital repayment which reduces the liability to the lessor.

A lease finance cost, determined with reference to the interest rate implicit in the lease or the group’s incremental borrowing rate, is recognised within interest expense over the lease period.

Finance leases – lessor Leases, where the group transfers substantially all the risks and rewards incidental to ownership, are classified as finance leases.

Finance lease receivable, including initial direct costs and fees, are primarily accounted for as financing transactions in banking activities, with rentals and instalments receivable, less unearned finance charges, being included in loans and advances.

Finance charges earned within interest income are computed using the effective interest method, which reflects a constant periodic rate of return on the investment in the finance lease.

The tax benefits arising from investment allowances on assets leased to clients are accounted for within direct taxation.


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9. Leases continued



INCOME STATEMENT

Operating leases – lessee All leases that do not meet the criteria of a financial lease are classified as operating leases.

Accruals for unpaid lease charges, together with a straight-line lease asset or liability, being the difference between actual payments and the straight-line lease expense are recognised.

Payments made under operating leases, net of any incentives received from the lessor, are recognised in operating expenses on a straight-line basis over the term of the lease.Contingent rentals are expensed as they are incurred.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of a penalty is recognised as operating expenses in the period in which termination takes place.

Operating leases – lessor All leases that do not meet the criteria of a financial lease are classified as operating leases.

The asset underlying the lease continues to be recognised and accounted for in terms of the relevant group accounting policies.

Accruals for outstanding lease charges, together with a straight-line lease asset or liability, being the difference between actual payments and the straight-line lease income are recognised.

Operating lease income net of any incentives given to lessees, is recognised on the straight-line basis or a more representative basis where applicable over the lease term and is recognised in operating expenses.

When an operating lease is terminated before the lease period has expired, any payment required by the group by way of a penalty is recognised as income in the period in which termination takes place.


10. Non-current assets held for sale, disposal groups and discontinued operations

NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE

Continuing operations

Discontinued operations




Non-current assets and liabilities Comprising assets and liabilities that are expected to be recovered primarily through sale or distribution to owners rather than continuing use (including regular purchases and sales in the ordinary course of business).

Immediately before classification, the assets (or components of a disposal group) are remeasured in accordance with the group’s accounting policies and tested for impairment. Thereafter, the assets are measured at the lower of their carrying amount and fair value less costs to sell.

Assets and liabilities (or components of a disposal group) are presented separately in the statement of financial position.

In presenting the group’s non-current assets and liabilities as held for sale, intercompany balances are eliminated in full.

OCI movements are presented separately.

Impairment losses on initial classification as well as subsequent gains and losses on remeasurement of these assets are recognised in profit or loss.

Property and equipment and intangible assets are not subsequently depreciated or amortised.

Equity accounting thereafter for an interest in an associate or joint venture is suspended.


301

10. Non-current assets held for sale, disposal groups and discontinued operations continued




Discontinued operations The group classifies a component of the business as a discontinued operation when that component has been disposed of, or is classified as held for sale or for distribution, and:

• represents a separate major line of business or geographical area of operations

• is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or

• is a subsidiary acquired exclusively with a view to resale.

See above treatment for non-current assets/disposal groups that are either held for sale or for distribution to owners.

Discontinued operations are presented separately within the income statement, statement of OCI and the statement of cash flows.

Intercompany income and expense transactions between the group’s continuing and discontinued operations are not eliminated.

Continuing operations Non-current assets/disposal groups that are either held for sale or for distribution to owners that do not meet the criteria of a discontinued operation.

See above treatment for non-current assets/disposal groups that are either held for sale or for distribution to owners.

Non-current assets/disposal groups that are either held for sale or for distribution to owners that do not meet the criteria of a discontinued operation are accounted for within the group’s continuing operations.


11. Equity

Reacquired equity instruments

Black economic empowerment ownership initiative (Tutuwa)

Share issue costs

Dividends

EQUITY

Reacquired equity instruments

Where subsidiaries purchase/(short sell) Standard Bank Group Limited’s equity instruments, the consideration paid/(received) is deducted/(added) from/(to) equity attributable to ordinary shareholders as treasury shares on consolidation.

Fair value changes recognised by subsidiaries on these instruments are reversed on consolidation and dividends received are eliminated against dividends paid. Where such shares are subsequently sold or reissued/(reacquired) outside the group, any consideration received/(paid) is included in equity attributable to ordinary shareholders.

Black economic empowerment ownership initiative (Tutuwa)

The group subscribed for 8.5% redeemable, cumulative, preference shares issued by the Tutuwa entities controlled by the group. The initial repurchase of group shares by the Tutuwa entities was treated as a reduction in the group’s equity. Subsequent to the repurchase of the group shares, the Tutuwa entities containing these shares were sold to the black participants. The capital and dividends on the preference shares are repayable from future ordinary dividends received on group shares or from the disposal of the group’s shares. As a result of the group’s right to receive its own dividends back in the form of preference dividends and capital on the preference shares, the subsequent sale of the Tutuwa entities and consequent delivery of the group shares to the black participants (although legally effected) is not accounted for as a sale. The preference share investment in the Tutuwa entities is also not accounted for as an asset. The preference share asset is effectively eliminated against equity as a negative empowerment reserve.

As a consequence of the above, the IFRS accounting treatment followed until full redemption, or third-party financing, is as follows:

• the 8.5% redeemable, cumulative, preference shares issued by the Tutuwa entities and subscribed for by the group are not recognised as financial assets, but eliminated against equity as a negative empowerment reserve

• the preference dividends received from the Tutuwa entities are eliminated against the ordinary dividends paid on the group shares held by the Tutuwa entities

• preference dividends accrued but not received, due to cash distributions paid to participants, increase the empowerment reserve

• for purposes of the calculation of earnings per share, the weighted average number of shares in issue is reduced by the number of shares held by those Tutuwa entities that have been sold to the black participants. The shares will be restored on full redemption of the preference shares, or to the extent that the preference share capital is financed by a third party

• perpetual preference shares issued by the group for the purposes of financing the repurchased group shares are classified as equity. Dividends paid are accounted for on declaration.


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11. Equity continued

Share issue costs Incremental external costs directly attributable to a transaction that increases or decreases equity are deducted from equity, net of related tax. All other share issue costs are expensed.

Dividends Distributions are recognised in equity in the period in which they are declared. Distributions declared after the reporting date are disclosed in the distributions note to the financial statements.

12. Provisions, contingent assets and contingent liabilities

Provisions

PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES

Contingent assets

Contingent liabilities

Provisions for legal claims

Provision for restructuring

Provision for onerous contracts

Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The group’s provisions typically (when applicable) include the following:

Provisions for legal claimsProvisions for legal claims are recognised on a prudent basis for the estimated cost for all legal claims that have not been settled or reached conclusion at the reporting date. In determining the provision management considers the probability and likely settlement (if any). Reimbursements of expenditure to settle the provision are recognised when and only when it is virtually certain that the reimbursement will be received.

Provision for restructuringA provision for restructuring is recognised when the group has approved a detailed formal plan, and the restructuring either has commenced or has been announced publicly. Future operating costs or losses are not provided for.

Provision for onerous contractsA provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the group recognises any impairment loss on the assets associated with that contract.


12. Provisions, contingent assets and contingent liabilities continued

Contingent assets Contingent assets are not recognised in the annual financial statements but are disclosed when, as a result of past events, it is probable that economic benefits will flow to the group, but this will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the group’s control.

Contingent liabilities Contingent liabilities include certain guarantees (other than financial guarantees) and letters of credit and are not recognised in the annual financial statements but are disclosed in the notes to the annual financial statements unless they are considered remote.

13. Policyholder insurance and investment contracts

POLICYHOLDER INSURANCE AND INVESTMENT CONTRACTS

Guidance on classification of

contracts

Classification of contracts

Receivables and payables

Reinsurance contracts held

Insurance and investment contract classification

Discretionary participation features (DPF)

Professional guidance issued by the Actuarial Society of South Africa

Long-term insurance contracts and investment contracts with DPF

Long-term investment contracts without DPF

Investment contracts with a DPF switching option

Short-term insurance

Guidance on classification of contractsInsurance and investment contract classificationThe group issues contracts that transfer insurance risk or financial risk or, in some cases, both.

An insurance contract is a contract under which the group (insurer) accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder or, in the case of life annuities, the lifespan of the policyholder is greater than that assumed. Such contracts may also transfer financial risk. The group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are significantly more than the benefits payable if the insured event did not occur.

Short-term insurance provides benefits under short-term policies, typically one year or less, which include engineering, fire, personal liability, marine and aviation, motor, personal accident, medical expenses, theft and the Workmen’s Compensation Act, or a contract comprising a combination of any of those policies.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable.


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13. Policyholder insurance and investment contracts continuedGuidance on classification of contracts continuedDiscretionary participation features (DPF)A number of insurance and investment contracts contain a DPF feature. This feature entitles the policyholder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses at the discretion of the group.

The terms and conditions or practice relating to these contracts are in accordance with the group’s published Principles and Practices of Financial Management, as approved by the Financial Services Board. The terms ‘reversionary bonus’ and ‘smoothed bonus’ refer to the specific forms of DPF contracts underwritten by the group. All components in respect of DPFs are included in policyholder liabilities.

Professional guidance issued by the Actuarial Society of South AfricaIn terms of IFRS 4 Insurance Contracts (IFRS 4), insurance liabilities are measured under existing local practice. The group had, prior to the adoption of IFRS 4, adopted the Professional Guidance Notes (PGNs) issued by the Actuarial Society of South Africa to determine the liability in respect of insurance contracts issued in South Africa. The group has continued to value long-term insurance liabilities in accordance with these.

In 2012, the naming convention was changed and the term PGN was replaced with either APN or SAP depending on whether the former PGN was best-practice or mandatory respectively.

These are available on the Actuarial Society of South Africa website – www.actuarialsociety.org.za

Where applicable, the APNs and SAPs are referred to in the accounting policies and notes to the annual financial statements.

Classification of contractsPolicyholder contracts are classified into four categories, depending on the duration of or type of investment benefit or insurance risks. The accounting for each of these contracts are detailed below.

Long-term insurance contracts and investment contracts with DPF

Measurement These contracts are valued in terms of the FSV basis as described in SAP 104 Life offices – valuation of long-term insurers (SAP 104), using a discounted cash flow methodology. The liability is reflected as policyholders’ liabilities in the statement of financial position. The discounted cash flow methodology allows for premiums and benefits payable in terms of the contract, future administration expenses and commission, investment return, tax and any expected losses in respect of options.

The liability is based on assumptions of the best estimate of future experience, plus compulsory margins as required in terms of SAP 104, plus additional discretionary margins. Derivatives embedded in the group’s insurance contracts are not separated and measured at fair value if the embedded derivative itself meets the definition of an insurance contract.

The liabilities in respect of the investment guarantees’ underlying maturity and death benefits, and guaranteed annuity options are measured in accordance with APN 110 Reserving for minimum investment return guarantees on a market-consistent basis. Discretionary margins are held to ensure that the profit and risk margins in the premiums are not capitalised before it is probable that future economic benefits will flow to the entity.

These profits emerge over the lifetime of the contract in line with the risk borne by the group. Liabilities for individual market-related policies, where benefits are in part dependent on the performance of underlying investment portfolios, are taken as the aggregate value of the policies’ investment in the investment portfolio at the valuation date (the unit reserve element), reduced by the excess of the present value of the expected future risk and expense charges over the present value of the expected future risk benefits and expenses on a policy-by-policy cash flow basis (the rand reserve element).


13. Policyholder insurance and investment contracts continuedClassification of contracts continuedLong-term insurance contracts and investment contracts with DPF continued

Measurement continued

Reversionary bonus classes of policies, and policies with fixed and guaranteed benefits are valued by discounting the expected future cash flows at market-related rates of interest reduced by an allowance for investment expenses and the relevant compulsory margins (the guaranteed element). Future bonuses have been allowed for at the latest declared rates where appropriate. The rand reserve element of market-related policies and the guaranteed element in respect of other policies are collectively known as the rand reserve.

In respect of corporate life and lump sum disability business, no discounting of future cash flows is performed. However, a provision will be held if the expected guaranteed premiums under the current basis and investment returns in the short term are not sufficient to meet expected future claims and expenses. For corporate investment contracts with DPF, in addition to the value of the policies’ investment in the investment portfolios held, an additional provision will be held if the expected fee recoveries in the short term are not sufficient to meet expected expenses.

Within the group all investment contracts invested in smoothed bonus portfolios are classified as investment contracts with DPF. In respect of insurance and investment contracts with DPF where bonuses are smoothed, bonus stabilisation provisions are held arising from the difference between the after taxation investment performance of the assets net of the relevant management fees and the value of the bonuses declared. In accordance with SAP 104, where the bonus stabilisation provision is negative, this provision is restricted to an amount that can reasonably be expected to be recovered through under-distribution of bonuses during the ensuing three years. All bonus stabilisation provisions are included in policyholders’ liabilities. The liability estimates are reviewed biannually. The effect of any change in estimates is recognised in profit or loss.

Where policyholders, in respect of certain policies, are entitled to a part surrender, any part surrender is treated as a derecognition of the policyholder liability.

Shadow accounting is applied to policyholder insurance contracts where the underlying measurement of the policyholder insurance liability depends directly on the fair value of any owner-occupied properties. Any unrealised gains and losses on such owner-occupied properties are recognised in OCI. The shadow accounting adjustment to policyholder insurance contracts is recognised in OCI to the extent that the unrealised gains or losses, together with any related taxation on owner-occupied properties backing policyholder insurance liabilities are also recognised directly in OCI.

Incurred but not reported claims (IBNR)

Provision is made in policyholders’ liabilities for the estimated cost at the end of the year of claims incurred but not reported at that date. IBNR provisions for the main categories of business are calculated using run-off triangle techniques. These liabilities are not discounted due to the short-term nature of IBNR claims. Outstanding claims and benefit payments are stated gross of reinsurance.

Liability adequacy test At each reporting date the adequacy of the insurance liabilities is assessed. If that assessment shows that the carrying amount of insurance liabilities net of any related intangible PVIF business assets is inadequate in the light of the estimated future cash flows, then the deficiency is recognised in profit or loss.

Premium income Premiums and annuity considerations on insurance contracts, other than in respect of universally costed policies (policies where insurance risk charges are dependent on the excess of the sum assured over the value of units underlying the contract), recurring premium pure risk policies (collectively the Lifestyle series) and corporate schemes, are recognised when due in terms of the contract. Premiums receivable in respect of corporate schemes are recognised when there is a reasonable assurance of collection in terms of the policy contract. Premiums in respect of the Lifestyle series of policies are recognised when premiums are received, as failure to pay a premium will result in a reduction of attributable fund value, if available, or else in the lapse of the policy. Premium income on insurance contracts is recognised gross of reinsurance. Premiums are shown before deduction of commission.


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13. Policyholder insurance and investment contracts continuedClassification of contracts continuedLong-term insurance contracts and investment contracts with DPF continued

Claims Claims on insurance contracts, which include death, disability, maturity, surrender and annuity payments, are recognised in insurance benefits and claims paid when the group is notified of a claim, based on the estimated liability for compensation owed to policyholders. Changes in the provision for IBNR claims are also recognised in insurance benefits and claims paid. Reinsurance recoveries are accounted for in the same period as the related claims.

Acquisition costs

Acquisition costs for insurance contracts represent commission and other costs that relate to the securing of new contracts and the renewing of existing contracts. These costs are expensed as incurred in insurance benefits and claims paid.

The FSV method for valuing insurance contracts and investment contracts with DPF makes implicit allowance for the deferral of acquisition costs and hence no explicit deferred acquisition cost asset is recognised in the statement of financial position for these contracts.

Long-term investment contracts without DPF

Measurement The group issues investment contracts without fixed benefits (unit-linked and structured products) and investment contracts with fixed and guaranteed benefits (term certain annuity). Investment contracts without fixed benefits are financial liabilities whose fair value is dependent on the fair value of the underlying financial assets, derivatives and/or investment property and are designated at inception as at fair value through profit or loss. These investment contracts are accounted for as financial liabilities and are designated at fair value through profit or loss.

For investment contracts with fixed and guaranteed terms, future benefit payments and premium receipts are discounted using market-related rates at the relevant statement of financial position date. No initial profit is recognised immediately as any profit on initial recognition is amortised over the life of the contract.

Amounts received and claims incurred on investment contracts

Amounts received under investment contracts, such as premiums, are recorded as deposits to investment contract liabilities, whereas claims incurred are recorded as deductions from investment contract liabilities.

DRL on investment management contracts

A DRL is recognised in respect of upfront fees, which are directly attributable to a contract, that are charged for investment management services. The DRL is then released to investment management and service fee income and gains when the services are provided, over the expected duration of the contract on a straight-line basis.

Regular charges billed in advance are recognised on a straight-line basis over the billing period, which is the period over which the service is rendered. Outstanding fees are accrued as a receivable in terms of the investment management contract.

DAC in respect of investment contracts

Commissions paid and other incremental acquisition costs are incurred when new investment contracts are obtained or existing investment contracts are renewed. These costs are expensed as incurred, unless specifically attributable to an investment contract with an investment management service element. Such costs are deferred and amortised on a straight-line basis over the expected life of the contract (10 to 16 years for linked annuities, one year for corporate business and five years for other investment contracts), taking into account all decrements, as they represent the right to receive future management fees.

A DAC asset is recognised for all applicable policies with the amortisation being calculated on a portfolio basis. An impairment test is conducted annually at the reporting date on the DAC balance to ensure that the amount will be recovered from future revenue generated by the applicable remaining investment management contracts.


13. Policyholder insurance and investment contracts continuedClassification of contracts continuedInvestment contracts with a DPF switching option

Measurement On certain investment contracts, policyholders have an option to switch some or all of their investment from a DPF fund to a non-DPF fund (and vice versa). The value of the liability held with respect to these contracts is taken at the aggregate value of the policyholder investment in the investment portfolio at the valuation date.

Short-term insurance

Gross written premiums

Gross premiums exclude value added tax (VAT). Premiums are accounted for as income when the risk related to the insurance policy commences and are amortised over the contractual period of risk cover by using an unearned premium provision. All premiums are shown before deduction of commission payable to intermediaries.

Provision for unearned premiums

The provision for unearned premiums represents the portion of the current year’s premiums that relate to risk periods extending into the following year. The unearned premiums are calculated using a straight-line basis, except for those insurance contracts where allowance is made for uneven exposure.

Liability adequacy Provision is made for underwriting losses that may arise from unexpired risks when it is anticipated that unearned premiums will be insufficient to cover future claims, as well as claims-handling fees and related administrative costs.

Provision for reported claims and IBNR claims

Provision is made on a prudent basis for the estimated final cost of all claims that had not been settled on the accounting date, less amounts already paid. Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. The group’s own assessors or contracted external assessors individually assess claims. The claims provision includes an estimated portion of the direct expenses of the claims and assessment charges.

Provision is also made for claims arising from insured events that occurred before the close of the accounting period, but which had not been reported to the group at that date (IBNR claims). This provision is calculated using run-off triangle techniques. The provision for claims is not discounted for the time value of money due to the expected short duration to settlement.

Deferred acquisition costs (DAC)

Commissions that vary and are related to securing new contracts and renewing existing contracts are deferred over the period in which the related premiums are earned, and recognised as a current asset. All other costs are recognised as expenses within insurance benefits and claims paid when incurred.

Deferred revenue liability (DRL)

A DRL is raised for any income receivable on the placement of reinsurance for risks arising from short-term insurance contracts. The DRL is released to income systematically over the coverage period of the respective reinsurance contract.


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13. Policyholder insurance and investment contracts continuedReceivables and payablesReceivables and payables related to insurance contracts and investment contracts are recognised when due. These include amounts due to and from agents, brokers and policyholders. Receivables and payables related to insurance contracts are subsequently measured in terms of IFRS 4 Insurance Contracts (IFRS 4), while those related to investment contracts are designated at fair value.

Reinsurance contracts heldThe group cedes some insurance risk in the normal course of business. Reinsurance contracts are contracts entered into by the group with reinsurers under which the group is compensated for the entire, or a portion of, losses arising on one or more of the insurance contracts issued by the group.

The expected benefits to which the group is entitled under its reinsurance contracts held are recognised as reinsurance assets and included in ‘Other assets’ in the statement of financial position. Reinsurance assets are assessed for impairment at each reporting date. Any impairment loss is recognised in profit or loss.

Outward reinsurance premiums are recognised as an expense and are accounted for in the same accounting period that premiums received are recognised as revenue in insurance premiums.


14. Taxation

Direct taxation: Direct taxation includes all domestic and foreign taxes based on taxable profits and capital gains tax

Indirect tax

Dividends tax

TAXATION

Current tax

Deferred tax

TYPEDESCRIPTION, RECOGNITION AND MEASUREMENT OFFSETTING

Direct taxation: current tax

Current tax is recognised in the direct taxation line in the income statement except to the extent that it relates to a business combination (relating to a measurement period adjustment where the carrying amount of the goodwill is greater than zero), or items recognised directly in equity or in OCI.

Current tax represents the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years.

Current and deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Direct taxation: deferred tax

Deferred tax is recognised in direct taxation except to the extent that it relates to a business combination (relating to a measurement period adjustment where the carrying amount of the goodwill is greater than zero), or items recognised directly in equity or in OCI.

Deferred tax is recognised in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax is not recognised for the following temporary differences:

• the initial recognition of goodwill

• the initial recognition of assets and liabilities in a transaction that is not a business combination, which affects neither accounting nor taxable profits or losses

• investments in subsidiaries, associates and jointly controlled arrangements (excluding mutual funds) where the group controls the timing of the reversal of temporary differences and it is probable that these differences will not reverse in the foreseeable future.


311

14. Taxation continued

TYPEDESCRIPTION, RECOGNITION AND MEASUREMENT OFFSETTING

Direct taxation: deferred tax continued

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of the asset or liability and is not discounted.

Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the group is unable to control the reversal of the temporary difference for associates unless there is an agreement in place that gives the group the ability to control the reversal of the temporary difference.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

Indirect taxation Indirect taxes, including non-recoverable VAT, skills development levies and other duties for banking activities, are recognised in the indirect taxation line in the income statement.

Not applicable.

Dividend tax Taxes on dividends declared by the group are recognised as part of the dividends paid within equity as dividend tax represents a tax on the shareholder and not the group.

Dividends tax withheld by the group on dividends paid to its shareholders and payable at the reporting date to the South African Revenue Service (where applicable) is included in ‘Other liabilities’ in the statement of financial position.

Not applicable.


15. Revenue and expenditure

Banking activities

Investment management

and life insurance

REVENUE AND EXPENDITURE

Net interest income Net fee and commission revenue

Non-interest revenue Trading revenue

Insurance premium revenue Other revenue

Investment income Dividend income

Management fees on assets under management

Revenue sharing agreements with group companies

Short-term insurance income

Customer loyalty programmes

TYPE DESCRIPTION RECOGNITION AND MEASUREMENT

Banking activities

Net interest income Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying assets, that is assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value) are recognised in net interest income using the effective interest method for all interest-bearing financial instruments.

In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing margin-yielding assets or liabilities into the statement of financial position, are capitalised to the carrying amount of financial instruments that are not at fair value through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the effective interest rate.

Where the estimates of payments or receipts on financial assets (except those that have been reclassified from held-for-trading) or financial liabilities are subsequently revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and revised estimated cash flows. The carrying amount is calculated by computing the present value of the adjusted cash flows at the financial asset or financial liability’s original effective interest rate. Any adjustment to the carrying value is recognised in net interest income.

Where financial assets have been impaired, interest income continues to be recognised on the impaired value based on the original effective interest rate.

Fair value gains and losses on realised debt financial instruments, including amounts reclassified from OCI in respect of available-for-sale debt financial assets are included in net interest income.

Dividends received on preference share investments classified as debt form part of the group’s lending activities and are included in interest income.


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15. Revenue and expenditure continued


Banking activities continued

Net fee and commission revenue

Fee and commission revenue, including transactional fees, account servicing fees, investment management fees, sales commissions and placement fees are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period.

Loan syndication fees, where the group does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued financial guarantee contracts on initial recognition is amortised as income over the term of the contract.

Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and service fees relating to financial instruments, which are expensed as the services are received. Expenditure is recognised as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue.

Trading revenue Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends.

Other revenue Other revenue includes gains and losses on equity instruments designated at fair value through profit or loss, dividends relating to those financial instruments, underwriting profit from the group’s short-term insurance operations and related insurance activities and remeasurement gains and losses from contingent consideration on disposals and purchases.

Gains and losses on equity available-for-sale financial assets are reclassified from OCI to other revenue on derecognition or impairment of the investments. Dividends on these instruments are also recognised in other revenue.

Dividend income Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative.




Banking activities continued

Revenue sharing agreements with group companies

Revenue sharing agreements with group companies include the allocation of revenue from transfer pricing agreements between the group’s legal entities. The service payer makes payment to service sellers for services rendered. All agreements of a revenue sharing nature are presented in the income statement as follows:

• The service payer of the agreement recognises, to the extent the charge is less than revenue from the agreement, the charge to the service sellers within the income statement line item revenue sharing agreements with group companies. To the extent that the revenue allocation to service sellers within the group is greater than the available revenue from the agreement, the charge above the available revenue is recognised within other operating expenses

• The service seller of the agreement recognises, to the extent the allocation is made out of available revenue of the service payer, the revenue from the service payer within the income statement line item revenue sharing agreements with group companies. To the extent the revenue is not received from the service payer’s available revenue, such revenue is recognised as a fee and commission revenue.

Short-term insurance income

Includes premium income, commission and policy fees earned as well as net incurred claim losses and broker commission paid. Annual business income is accounted for on the accrual basis and comprises the cash value of commission and fees earned when premiums or fees are payable directly to the group. Direct commission income is accounted for as and when cash is received and comprises the cash value of commission earned when premiums are payable directly to the underwriters.

Customer loyalty programmes

The group’s banking activities operate a customer loyalty programme in terms of which it undertakes to provide goods and services to certain customers. The reward credits are accounted for as a separately identifiable component of the fee and commission income transactions of which they form a part.

The consideration allocated to the reward credits is measured at the fair value of the reward credit and is recognised over the period in which the customer utilises the reward credits. Expenses relating to the provision of the reward credits are recognised in operating expenses as and when they are incurred.


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Investment management and life insurance

Insurance premium revenue

Insurance premium revenue includes life insurance premiums, health insurance premiums and short-term insurance premiums. Refer to accounting policy 13.

Investment income Investment income for investment management and life insurance activities comprises mainly rental income from properties, interest, hotel operations’ sales and dividends. Dividends are recognised when the right to receive payment is established and interest income is recognised using the effective interest method.

Hotel operation sales comprise the fair value of the sale of accommodation, food and beverage, other guest facilities and rentals received. Revenue is shown net of VAT, returns, rebates and discounts.

Management fees on assets under management

Fee income includes management fees on assets under management and administration fees. Management fees on assets under management are recognised over the period for which the services are rendered, in accordance with the substance of the relevant agreements.

Administration fees received for the administration of medical schemes are recognised when the services are rendered.

OffsettingIncome and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions.


16. Other significant accounting policies

OTHER SIGNIFICANT ACCOUNTING POLICIES

Segment reporting

Fiduciary activities

Statutory credit risk reserve

Non-trading and capital related items

Segment reporting An operating segment is a component of the group engaged in business activities, whose operating results are reviewed regularly by management in order to make decisions about resources to be allocated to segments and assessing segment performance. The group’s identification of segments and the measurement of segment results is based on the group’s internal reporting to the chief operating decision maker.

Transactions between segments are priced at market-related rates.

The group’s segmental results are presented by normalising the group’s IFRS results. The normalised adjustments reflect the group’s view of the economics of its black economic empowerment ownership initiatives, the group’s share exposures entered into to facilitate client trading activities and for the benefit of Liberty policyholders that are deemed to be treasury shares. To arrive at the normalised results, the IFRS results have been adjusted for the following items:

• Preference share funding for the group’s Tutuwa transaction is deducted from equity and restates the number of shares held by black participants to the weighted number of shares in issue

• Group shares held for the benefit of Liberty policyholders are recognised as assets with fair value changes, including dividends thereon, recognised in the income statement

• Group shares purchased or sold short to facilitate client trading activities are recognised as assets or liabilities as appropriate with fair value changes, including dividends thereon, recognised in trading revenue.

Fiduciary activities The group commonly engages in trust or other fiduciary activities that result in the holding or placing of assets on behalf of individuals, trusts, post-employment benefit plans and other institutions. These assets and the income arising directly thereon are excluded from these annual financial statements as they are not assets of the group. However, fee income earned and fee expenses incurred by the group relating to the group’s responsibilities from fiduciary activities are recognised in profit or loss.

Statutory credit risk reserve

The statutory credit risk reserve represents the amount which local regulatory authorities within the group’s rest of Africa operations require in addition to the IFRS impairment provision.

Non-trading and capital related items

Non-trading and capital related items primarily include the following: • gains and losses on disposal of subsidiaries, joint ventures and associates (including foreign exchange

translation gains and losses) • gains and losses on the disposal of property and equipment and intangible assets • impairment and reversals of impairments of joint ventures and associates • impairment of investments in subsidiaries, associates and joint ventures, property and equipment, and

intangible assets • other items of a capital related nature.


317

16. Other significant accounting policies continuedNew standards and interpretations not yet adopted The following new or revised standards, amendments and interpretations are not yet effective for the year ended 31 December 2015 and have not been applied in preparing these annual financial statements.

PRONOUNCEMENT TITLE EFFECTIVE DATE

IFRS 9 Financial Instruments This standard will replace the existing standard on the recognition and measurement of financial instruments and requires all financial assets to be classified and measured on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

The change in the fair value of financial liabilities that are designated at fair value through profit or loss due to changes in own credit risk will be required to be recognised within OCI.

The standard has introduced a new expected-loss impairment model that will require impairment losses to be recognised on an expected loss basis. This new model will apply to financial assets measured at either amortised cost or fair value through OCI, as well as certain off-balance sheet exposures.

With the exception of purchased or originated credit impaired financial assets, expected credit losses are required to be measured through a loss allowance at an amount equal to either 12-month expected credit losses or lifetime expected credit losses.

A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition. For all other financial instruments, expected credit losses are measured at an amount equal to 12-month expected credit losses.

The revised general hedge accounting requirements are better aligned with an entity’s risk management activities, and provides additional opportunities to apply hedge accounting and various simplifications in achieving hedge accounting.

The standard will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined. Refer to page 108 of the risk management report for details of the group’s implementation project.

Annual periods beginning on or after 1 January 2018.


16. Other significant accounting policies continuedNew standards and interpretations not yet adopted continued


IFRS 10 and IAS 28 (amendments)

Sale or Contribution of Assets between an Investor and its Associate or Joint VentureThe amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture.

The amendments will be applied prospectively and are not expected to have a material impact on the group’s financial statements.

To be determined.

IFRS 11 (amendments) Joint Arrangements: Accounting for Acquisitions of Interests in Joint OperationsThe amendments specify the appropriate accounting treatment for acquisitions of interests in joint operations in which the activities of the joint operation constitute a business.

The amendments will be applied prospectively and are not expected to have a material impact on the group’s financial statements.


IFRS 15 Revenue from Contracts with CustomersThis standard will replace the existing revenue standards and their related interpretations. The standard sets out the requirements for recognising revenue that applies to all contracts with customers (except for contracts that are within the scope of the standards on leases, insurance contracts or financial instruments).

The core principle of the standard is that revenue recognised reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to the customer.

The standard will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.


IAS 27 (amendments) Equity Method in Separate Financial StatementsThe amendments allow entities preparing separate financial statements to utilise the equity method to account for investments in subsidiaries, joint ventures and associates.

The standard will be applied retrospectively. The impact on the company’s annual financial statements has not yet been fully determined.



319

16. Other significant accounting policies continuedNew standards and interpretations not yet adopted continued


IFRS 16 LeasesThis standard will replace the existing standard IAS 17 Leases as well as the related interpretations and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, being the lessee (customer) and the lessor (supplier).

The core principle of this standard is that the lessee and lessor should recognise all rights and obligations arising from leasing arrangements on balance sheet.

The most significant change pertaining to the accounting treatment of operating leases is from the lessees’ perspective. IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and introduces a single lessee accounting model, where a right of use (ROU) asset together with a liability for the future payments is to be recognised for all leases with a term of more than 12 months, unless the underlying asset is of low value.

The lessor accounting requirements in IAS 17 have not changed substantially in terms of this standard.

The standard does however require the lessor to provide enhanced disclosures about its leasing activities and in particular about its exposure to residual value risk and how it is managed.



IAS 7 (amendments) Statement of Cash FlowThe amendments require entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments require the nature of the changes in liabilities arising from financing activities to be disclosed and should be separate from other assets and liabilities.

The standard will be applied prospectively. The impact on the annual financial statements has not yet been fully determined.


IAS 12 (amendments)

Income Tax The amendments clarify various accounting requirements with respect to the recognition of deferred tax assets for unrealised losses.





Annexure E

Executive directors’ and prescribed officers’ emoluments 2015

Fixed remuneration Variable remuneration

Cash portion of

packageR’000

Otherbenefits

R’000

Pension contributions

R’000

Total fixed

remunerationR’000

Cash bonusR’000

DBS: incremental

payments and

notional dividends

R’000

Deferred bonusR’000

Total variable

compensation for the year

R’000

% changein variable

compensation

Total compensation

for the yearR’000

% change in total

compensation

Black- Scholes

value of conditional

awards forfeited

R’000

Executive directorsBJ Kruger 2015 7 538 171 1 076 8 785 10 1501 896 11 8502 22 896 104 31 681 58 (914)

2014 7 352 199 1 209 8 760 5 2751 994 4 9752 11 244 (46) 20 004 (31) (5 377)

SK Tshabalala 2015 7 583 277 1 129 8 989 10 1501 350 11 8502 22 350 41 31 339 27 (457)2014 7 378 277 1 248 8 903 7 3371 483 8 0382 15 858 (25) 24 761 (14) (3 587)

SP Ridley 2015 5 532 271 677 6 480 6 6501 986 8 3502 15 986 27 22 466 19 (457)2014 5 328 289 692 6 309 5 1501 635 6 8502 12 635 (12) 18 944 (6) (3 048)

Prescribed officersDC Munro 2015 5 609 202 774 6 585 12 1501 2 286 13 8502 28 286 116 34 871 80 (228)

2014 5 355 254 710 6 319 5 6501 1 587 5 8502 13 087 (58) 19 406 (47) (2 243)

PL Schlebusch 2015 5 594 230 755 6 579 10 6501 1 523 12 3502 24 523 35 31 102 282014 5 342 206 709 6 257 8 6501 806 8 6502 18 106 (15) 24 363 (9)

Former prescribed officerJB Hemphill3 2015 5 400 68 318 5 786 5 786

2014 5 316 154 662 6 132 8 1501 8 1502 16 300 (26) 22 432 (17) (899)

1 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective of when payment is made.

2 The DBS (2012) is an equity-settled share scheme. The final value of the award is dependent on the performance of the group’s share price. The deferred award is issued in the following financial year. The deferred award in the table above is the total award relating to the respective performance year. Deferred bonus amounts awarded for the 2014 and 2015 performance years are subject to choice. Participants can elect to have the value of the deferred award, or a part thereof, invested in the EGS rather than the default DBS (2012). To the extent that EGS is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in EGS will be unitised with respect to the group’s closing share price on the date on which the group’s year end financial results are communicated publicly. The elections and the number of units have, for the 2014 performance years, been included in the table commencing on page 324, with the elections relating to the 2015 performance year to be disclosed in the group’s 2016 annual financial statements.

3 Resigned with notice on 31 May 2015.* All executive directors were also prescribed officers of the group for 2014 and 2015, and JB Hemphill was a prescribed officer until the date of his resignation.

Emoluments and share incentives of directors and prescribed officers

321

Executive directors’ and prescribed officers’ emoluments 2015

Fixed remuneration Variable remuneration

Cash portion of

packageR’000

Otherbenefits

R’000

Pension contributions

R’000

Total fixed

remunerationR’000

Cash bonusR’000

DBS: incremental

payments and

notional dividends

R’000

Deferred bonusR’000

Total variable

compensation for the year

R’000

% changein variable

compensation

Total compensation

for the yearR’000

% change in total

compensation

Black- Scholes

value of conditional

awards forfeited

R’000

Executive directorsBJ Kruger 2015 7 538 171 1 076 8 785 10 1501 896 11 8502 22 896 104 31 681 58 (914)

2014 7 352 199 1 209 8 760 5 2751 994 4 9752 11 244 (46) 20 004 (31) (5 377)

SK Tshabalala 2015 7 583 277 1 129 8 989 10 1501 350 11 8502 22 350 41 31 339 27 (457)2014 7 378 277 1 248 8 903 7 3371 483 8 0382 15 858 (25) 24 761 (14) (3 587)

SP Ridley 2015 5 532 271 677 6 480 6 6501 986 8 3502 15 986 27 22 466 19 (457)2014 5 328 289 692 6 309 5 1501 635 6 8502 12 635 (12) 18 944 (6) (3 048)

Prescribed officersDC Munro 2015 5 609 202 774 6 585 12 1501 2 286 13 8502 28 286 116 34 871 80 (228)

2014 5 355 254 710 6 319 5 6501 1 587 5 8502 13 087 (58) 19 406 (47) (2 243)

PL Schlebusch 2015 5 594 230 755 6 579 10 6501 1 523 12 3502 24 523 35 31 102 282014 5 342 206 709 6 257 8 6501 806 8 6502 18 106 (15) 24 363 (9)

Former prescribed officerJB Hemphill3 2015 5 400 68 318 5 786 5 786

2014 5 316 154 662 6 132 8 1501 8 1502 16 300 (26) 22 432 (17) (899)

1 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective of when payment is made.

2 The DBS (2012) is an equity-settled share scheme. The final value of the award is dependent on the performance of the group’s share price. The deferred award is issued in the following financial year. The deferred award in the table above is the total award relating to the respective performance year. Deferred bonus amounts awarded for the 2014 and 2015 performance years are subject to choice. Participants can elect to have the value of the deferred award, or a part thereof, invested in the EGS rather than the default DBS (2012). To the extent that EGS is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in EGS will be unitised with respect to the group’s closing share price on the date on which the group’s year end financial results are communicated publicly. The elections and the number of units have, for the 2014 performance years, been included in the table commencing on page 324, with the elections relating to the 2015 performance year to be disclosed in the group’s 2016 annual financial statements.

3 Resigned with notice on 31 May 2015.* All executive directors were also prescribed officers of the group for 2014 and 2015, and JB Hemphill was a prescribed officer until the date of his resignation.

Emoluments and share incentives of directors and prescribed officers


Non-executive directors 2015

Fixed remuneration

Services as directors of

Standard Bank Group

R’000

Standard Bank Group committee

feesR’000

Services as directors

of group subsidiaries

R’000

Other benefits

R’000

Totalcompensation

for the yearR’000

MJD Ruck 2015 233 810 2 145 3 188 2014 220 829 1 805 2 854

Adv KD Moroka 2015 233 689 233 1 155 2014 220 251 220 691

TS Gcabashe1 2015 3 446 155 119 2512 3 971 2014 220 378 264 862

EM Woods 2015 233 1 043 326 1 602 2014 220 1 044 242 1 506

RMW Dunne 2015 233 1 128 256 1 617 2014 220 1 133 285 1 638

PD Sullivan 2015 939 1 131 1 171 3 241 2014 811 857 2 237 3 905

W Wang 2015 233 325 558 2014 211 305 516

BS Tshabalala 2015 233 438 728 1 399 2014 176 153 176 505

AC Parker 2015 233 271 441 945 2014 176 165 307 648

ANA Peterside con 2015 939 252 939 2 130 2014 291 291 582

S Gu 2015 939 528 1 467 2014 49 30 79

Total 2015 7 894 6 770 6 358 251 21 273

Total 2014 2 814 5 145 5 827 13 786

Refer to footnotes on next page.

ANNUAL FINANCIAL STATEMENTS Annexure E Emoluments and share incentives of directors and prescribed officers continued

323

Former non-executive directors 2015

Fixed remuneration

Services as directors of

Standard Bank Group

R’000

Standard Bank Group committee

feesR’000

Services as directors

of group subsidiaries

R’000

Other benefits

R’000

Totalcompensation

for the yearR’000

DDB Band3 20152014 91 333 221 645

AC Nissen3 20152014 91 42 90 223

K Kalyan4 20152014 39 18 39 96

Dr Y Liu5 20152014 34 34

S Macozoma6 20152014 220 842 2 552 3 614

HL Zhang5 20152014 34 15 49

K Yang7 20152014 731 396 1 127

TMF Phaswana8 2015 2 315 1512 2 4662014 5 320 3012 5 621

Lord Smith of Kelvin, KT8 2015 385 112 382 8792014 811 258 811 1 880

FA du Plessis9 2015 95 155 165 4152014 176 213 176 565

Total 2015 2 795 267 547 151 3 760

Total 2014 7 547 2 117 3 889 301 13 854

1 Appointed as group chairman on 28 May 2015.2 Use of motor vehicle and/or club subscriptions.3 Retired on 29 May 2014.4 Resigned on 3 March 2014.5 Resigned on 16 January 2014.6 Resigned on 31 December 2014.7 Resigned on 10 December 2014.8 Retired on 28 May 2015.9 Resigned on 28 May 2015.


Share IncentivesGroup Share Incentive Scheme (GSIS)The GSIS confers rights to employees to acquire ordinary shares at the value of the Standard Bank Group share price at the date the option is granted.

Standard Bank/Liberty Equity Growth Scheme (EGS)The EGS allocates participation rights to participate in the future growth of the Standard Bank Group share price. The eventual value of the right is settled by the receipt of Standard Bank Group shares equivalent to the full value of the participation rights.

Liberty Holdings Group restricted share planAwards are made to selected executives in the format of fully paid up shares in Liberty Holdings Limited which are held in trust subject to vesting conditions (service and performance) and will be forfeited if these conditions are not met during the performance measurement period.

Liberty Holdings Group restricted share plan (deferred plan)Annual short-term incentives performance bonus payments in excess of thresholds determined annually by Liberty’s remuneration committee are subject to mandatory deferral. This is achieved by investing the deferred portions of the short-term incentive awards into Liberty Holdings Limited shares, which are held in a trust, subject to vesting conditions.


Director’s name

Opening balance

1 January

Number of share

incentives allocated

Issue or offer date

Number of participation

rights forfeited

for the performance

year

Black-Scholes value of

participation rights

forfeited (R)

Number of share

incentives exercised

or accepted during

the year

Issue price (R)/ resultant

shares

Difference between

issue price and closing

price on date of

delivery (R)

Balance of share

incentives 31 December

Number of share

incentives as at

31 December 2015

Issue date

Issue or offer price

(R)Vesting

categoryExpiry

date

SK Tshabalala2 GSIS

2014 25 000 (25 000) 2 125 000

EGS 2015 1 196 414 (12 500) (456 750) (50 000) 22 311 4 165 000 1 133 914 22 500 2006/03/10 79,50 A 2016/03/10 2014 1 265 164 (68 750) (3 587 451) 1 196 414 22 500 2006/03/10 79,50 B 2016/03/10 25 000 2007/03/07 98,00 A 2017/03/07 25 000 2007/03/07 98,00 B 2017/03/07 100 000 2008/03/06 92,00 B 2018/03/06 37 5001 2009/03/06 62,39 B 2019/03/06 62 5001 2010/03/05 111,94 A 2020/03/05 62 5001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 212 834 2012/03/08 108,90 D 2022/03/08 70 7421 2013/03/07 115,51 E 2023/03/07

231 367 2013/03/07 115,51 D 2023/03/07

PRP 20163 162 200 108 700 2016/03/03 270 900 98 500 2014/03/06 126,87 2017/03/31 2015 98 500 63 700 2015/03/05 156,96 162 200 63 700 2015/03/05 156,96 2018/03/31

Refer to page 328 for the footnotes.

325

Standard Bank/Liberty Deferred Bonus Scheme (DBS (2012))Employees are awarded a deferred bonus, as a mandatory deferral of their short-term incentive or as discretionary award, into the DBS (2012). The deferred bonus is unitised into a number of units with respect to the group’s share price on the date of award. The shares are delivered to the employee on the vesting date. Notional dividends on the units are paid to the employees on the vesting date.

Performance Reward PlanThe group’s PRP has a three-year vesting period and is designed to incentivise the group’s senior executives, whose roles enable them to contribute to and influence the group’s long-term decision-making and performance results. The PRP seeks to promote the achievement of the group’s strategic long-term objectives and to align the interests of those executives with overall group performance in both headline earnings growth and ROE.

These are the most important financial metrics to create shareholder value and, therefore, aligns the interests of management and shareholders. The awards are subject to the achievement of performance conditions for future financial years set at award date and that determine the number of shares that ultimately vest. The awards will only vest in future in terms of the rules of the PRP. The shares, subject to meeting the pre-specified conditions, are delivered to the employee on vesting date. Notional dividends accrue during the vesting period and will be payable on vesting date.

Director’s name

Opening balance

1 January

Number of share


Issue or offer date


rights forfeited

for the performance

year



forfeited (R)

Number of share


or accepted during

the year

Issue price (R)/ resultant

shares

Difference between


price on date of

delivery (R)

Balance of share


Number of share

incentives as at

31 December 2015

Issue date


(R)Vesting

categoryExpiry

date

SK Tshabalala2 GSIS

2014 25 000 (25 000) 2 125 000

EGS 2015 1 196 414 (12 500) (456 750) (50 000) 22 311 4 165 000 1 133 914 22 500 2006/03/10 79,50 A 2016/03/10 2014 1 265 164 (68 750) (3 587 451) 1 196 414 22 500 2006/03/10 79,50 B 2016/03/10 25 000 2007/03/07 98,00 A 2017/03/07 25 000 2007/03/07 98,00 B 2017/03/07 100 000 2008/03/06 92,00 B 2018/03/06 37 5001 2009/03/06 62,39 B 2019/03/06 62 5001 2010/03/05 111,94 A 2020/03/05 62 5001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 212 834 2012/03/08 108,90 D 2022/03/08 70 7421 2013/03/07 115,51 E 2023/03/07

231 367 2013/03/07 115,51 D 2023/03/07

PRP 20163 162 200 108 700 2016/03/03 270 900 98 500 2014/03/06 126,87 2017/03/31 2015 98 500 63 700 2015/03/05 156,96 162 200 63 700 2015/03/05 156,96 2018/03/31



Share incentives continued

Director’s name

Opening balance

1 January

Number of share


Issue or offer date


rights forfeited

for theperformance

year



forfeited1 (R)

Number of share


or accepted during

the year

Issueprice (R)/ resultant

shares

Difference between


price on date of

delivery (R)

Balance of share


Number of share

incentives as at

31 December 2015

Issue date


(R)Vesting

categoryExpiry

date

BJ Kruger EGS 2015 909 387 (25 000) (913 500) 884 387 50 0001 2009/03/06 62,39 B 2019/03/06 2014 1 143 065 316 322 2014/03/06 (100 000) (5 377 019) (150 000) 29 544 4 852 500 100 0001 2010/03/05 111,94 A 2020/03/05 (300 000) 93 056 15 255 000 909 387 100 0001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 56 5941 2013/03/07 115,51 E 2023/03/07 316 322 2014/03/06 126,87 D 2024/03/06

PRP 20163 162 200 108 700 2016/03/03 270 900 98 500 2014/03/06 126,87 2017/03/31 2015 98 500 63 700 2015/03/05 156,96 162 200 63 700 2015/03/05 156,96 2018/03/31

SP Ridley EGS 2015 476 828 (12 500) (456 750) (25 000) 9 811 1 912 500 439 328 15 000 2007/03/07 98,00 A 2017/03/07 2014 584 328 (57 500) (3 048 086) (50 000) 12 864 2 239 500 476 828 15 000 2007/03/07 98,00 B 2017/03/07 30 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 36 8831 2012/03/08 108,90 A 2022/03/08

42 4451 2013/03/07 115,51 E 2023/03/07

PRP 20163 114 100 2016/03/03 114 100 63 100 2014/03/06 126,87 2017/03/31 2015 63 100 51 000 2015/03/05 156,96 114 100 51 000 2015/03/05 156,96 2018/03/31

DC Munro EGS 2015 927 708 (6 250) (228 375) (50 000) 23 681 4 552 500 796 458 175 000 2006/03/10 79,50 B 2016/03/10 (75 000) 33 491 5 786 250 23 750 2007/03/07 98,00 A 2017/03/07 2014 865 661 105 797 2014/03/06 (43 750) (2 243 196) 126,87 927 708 23 750 2007/03/07 98,00 B 2017/03/07 50 000 2008/03/06 92,00 B 2018/03/06 25 0001 2009/03/06 62,39 B 2019/03/06 50 000 2010/03/05 111,94 A 2020/03/05 50 000 2010/03/05 111,94 B 2020/03/05 50 0001 2011/03/04 98,80 A 2021/03/04 50 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 60 948 2013/03/07 115,51 D 2023/03/07 70 7421 2013/03/07 115,51 E 2023/03/07

105 797 2014/03/06 126,87 D 2024/03/06

PRP 20163 168 000 87 000 2016/03/03 255 000 78 800 2014/03/06 126,87 2017/03/31 2015 78 800 89 200 2015/03/05 156,96 168 000 89 200 2015/03/05 156,96 2018/03/31



327


Director’s name

Opening balance

1 January

Number of share


Issue or offer date


rights forfeited

for theperformance

year



forfeited1 (R)

Number of share


or accepted during

the year


shares

Difference between


price on date of

delivery (R)

Balance of share


Number of share

incentives as at

31 December 2015

Issue date


(R)Vesting

categoryExpiry

date

BJ Kruger EGS 2015 909 387 (25 000) (913 500) 884 387 50 0001 2009/03/06 62,39 B 2019/03/06 2014 1 143 065 316 322 2014/03/06 (100 000) (5 377 019) (150 000) 29 544 4 852 500 100 0001 2010/03/05 111,94 A 2020/03/05 (300 000) 93 056 15 255 000 909 387 100 0001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 56 5941 2013/03/07 115,51 E 2023/03/07 316 322 2014/03/06 126,87 D 2024/03/06

PRP 20163 162 200 108 700 2016/03/03 270 900 98 500 2014/03/06 126,87 2017/03/31 2015 98 500 63 700 2015/03/05 156,96 162 200 63 700 2015/03/05 156,96 2018/03/31

SP Ridley EGS 2015 476 828 (12 500) (456 750) (25 000) 9 811 1 912 500 439 328 15 000 2007/03/07 98,00 A 2017/03/07 2014 584 328 (57 500) (3 048 086) (50 000) 12 864 2 239 500 476 828 15 000 2007/03/07 98,00 B 2017/03/07 30 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 36 8831 2012/03/08 108,90 A 2022/03/08

42 4451 2013/03/07 115,51 E 2023/03/07

PRP 20163 114 100 2016/03/03 114 100 63 100 2014/03/06 126,87 2017/03/31 2015 63 100 51 000 2015/03/05 156,96 114 100 51 000 2015/03/05 156,96 2018/03/31

DC Munro EGS 2015 927 708 (6 250) (228 375) (50 000) 23 681 4 552 500 796 458 175 000 2006/03/10 79,50 B 2016/03/10 (75 000) 33 491 5 786 250 23 750 2007/03/07 98,00 A 2017/03/07 2014 865 661 105 797 2014/03/06 (43 750) (2 243 196) 126,87 927 708 23 750 2007/03/07 98,00 B 2017/03/07 50 000 2008/03/06 92,00 B 2018/03/06 25 0001 2009/03/06 62,39 B 2019/03/06 50 000 2010/03/05 111,94 A 2020/03/05 50 000 2010/03/05 111,94 B 2020/03/05 50 0001 2011/03/04 98,80 A 2021/03/04 50 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 60 948 2013/03/07 115,51 D 2023/03/07 70 7421 2013/03/07 115,51 E 2023/03/07

105 797 2014/03/06 126,87 D 2024/03/06

PRP 20163 168 000 87 000 2016/03/03 255 000 78 800 2014/03/06 126,87 2017/03/31 2015 78 800 89 200 2015/03/05 156,96 168 000 89 200 2015/03/05 156,96 2018/03/31




Director’s name

Opening balance

1 January

Number of share


Issue or offer date


rights forfeited

for theperformance

year



forfeited1 (R)

Number of share


or accepted during

the year


shares

Difference between


price on date of

delivery (R)

Balance of share


Number of share

incentives as at

31 December 2015

Issue date


(R)Vesting

categoryExpiry

date

PL Schlebusch EGS 2015 430 352 (12 500) 4 444 1 182 125 175 036 12 500 2009/03/06 62,39 B 2019/03/06 (71 875) 23 073 4 669 000 25 000 2010/03/05 111,94 B 2020/03/05 (40 000) 13 663 2 358 400 12 5001 2011/03/04 98,80 A 2021/03/04 (37 500) 10 853 2 230 000 50 0001 2011/03/04 98,80 B 2021/03/04 (18 441) 4 886 1 218 766 18 4421 2012/03/08 108,90 A 2022/03/08 (75 000) 23 207 4 728 750 56 5941 2013/03/07 115,51 E 2023/03/07 2014 467 852 (37 500) 14 129 2 910 375 430 352

PRP 20163 142 500 87 000 2016/03/03 229 500 78 800 2014/03/06 126,87 2017/03/31 2015 78 800 63 700 2015/03/05 156,96 142 500 63 700 2015/03/05 156,96 2018/03/31

JB Hemphill EGS (Standard Bank Group)2015 125 000 (65 625) (59 375) 11 476 2 718 2812014 231 250 (18 750) (898 941) (6 250) 1 273 238 625 125 000

(25 000) 10 299 1 915 750(56 250) 9 193 1 408 500

EGS (Liberty Holdings)2015 100 000 (20 000) (80 000) 29 075 7 166 0002014 720 000 (40 000) 20 416 2 932 000 100 000

(60 000) 24 793 3 265 200(120 000) 46 137 6 174 000

(80 000) 32 021 4 679 200(100 000) 39 346 6 655 000(180 000) 59 272 11 286 000

(40 000) 11 809 2 280 000

PRP2015 78 800 63 700 2015/03/05 (142 500) 156,96

1 Conditional awards.2 As at 31 December 2015, SK Tshabalala has a right to 418 814 (2014: 698 339) shares as a beneficiary of the Tutuwa Managers’ Trust. At 31 December 2015, the

debt per share was R56,82 (2014: R52,39). Rights are subject to settlement of funding and transaction costs. 3 PRP units allocated in 2016 has been determined using the closing SBG price of R115,00 on 2 March 2016. The actual number of PRP units will, in terms of the

scheme’s rules, be determined with reference to the closing SBG share price on 3 March 2016. The actual number of units will be updated in the group’s 2016 annual financial statements.


329


Director’s name

Opening balance

1 January

Number of share


Issue or offer date


rights forfeited

for theperformance

year



forfeited1 (R)

Number of share


or accepted during

the year


shares

Difference between


price on date of

delivery (R)

Balance of share


Number of share

incentives as at

31 December 2015

Issue date


(R)Vesting

categoryExpiry

date

PL Schlebusch EGS 2015 430 352 (12 500) 4 444 1 182 125 175 036 12 500 2009/03/06 62,39 B 2019/03/06 (71 875) 23 073 4 669 000 25 000 2010/03/05 111,94 B 2020/03/05 (40 000) 13 663 2 358 400 12 5001 2011/03/04 98,80 A 2021/03/04 (37 500) 10 853 2 230 000 50 0001 2011/03/04 98,80 B 2021/03/04 (18 441) 4 886 1 218 766 18 4421 2012/03/08 108,90 A 2022/03/08 (75 000) 23 207 4 728 750 56 5941 2013/03/07 115,51 E 2023/03/07 2014 467 852 (37 500) 14 129 2 910 375 430 352

PRP 20163 142 500 87 000 2016/03/03 229 500 78 800 2014/03/06 126,87 2017/03/31 2015 78 800 63 700 2015/03/05 156,96 142 500 63 700 2015/03/05 156,96 2018/03/31

JB Hemphill EGS (Standard Bank Group)2015 125 000 (65 625) (59 375) 11 476 2 718 2812014 231 250 (18 750) (898 941) (6 250) 1 273 238 625 125 000

(25 000) 10 299 1 915 750(56 250) 9 193 1 408 500

EGS (Liberty Holdings)2015 100 000 (20 000) (80 000) 29 075 7 166 0002014 720 000 (40 000) 20 416 2 932 000 100 000

(60 000) 24 793 3 265 200(120 000) 46 137 6 174 000

(80 000) 32 021 4 679 200(100 000) 39 346 6 655 000(180 000) 59 272 11 286 000

(40 000) 11 809 2 280 000

PRP2015 78 800 63 700 2015/03/05 (142 500) 156,96

1 Conditional awards.2 As at 31 December 2015, SK Tshabalala has a right to 418 814 (2014: 698 339) shares as a beneficiary of the Tutuwa Managers’ Trust. At 31 December 2015, the

debt per share was R56,82 (2014: R52,39). Rights are subject to settlement of funding and transaction costs. 3 PRP units allocated in 2016 has been determined using the closing SBG price of R115,00 on 2 March 2016. The actual number of PRP units will, in terms of the

scheme’s rules, be determined with reference to the closing SBG share price on 3 March 2016. The actual number of units will be updated in the group’s 2016 annual financial statements.


Deferred bonus schemesThe table below reflects bonus awards for the 2015 and prior financial years. The awards will only vest in future in terms of the rules of the DBS (2012). The deferred bonus awards for the 2015 performance year are only issued in the 2016 financial year.

Performanceyear

Issuedate

Amountdeferred

(R)Award

priceUnits

awarded

Expiry date/final vesting

dateBalance of units 1 January 2015

Number of unitsexercised during

the year

Shareprice

(R)

Value of unitsexercised

(R)

Balance of units31 December

2015

SK Tshabalala 2013 2014/03/062 11 100 000 126,87 87 492 2017/09/30 87 492 29 164 133,76 3 900 977 58 3282014 2015/03/052 8 037 500 156,96 51 208 2018/09/30 51 2082015 2016/03/033 11 850 000

BJ Kruger 2011 2012/03/082 9 762 558 108,90 89 647 2015/09/30 29 883 29 883 133,76 3 997 1502012 2013/03/072 5 100 000 115,51 44 153 2016/09/30 29 436 14 717 133,76 1 968 546 14 7192014 2015/03/052 4 975 000 156,96 31 696 2018/09/30 31 6962015 2016/03/033 11 850 000

SP Ridley 2010 2011/03/041 552 875 98,80 5 596 2015/11/30 3 357 3 357 133,15 446 9852011 2012/03/082 5 600 074 108,90 51 424 2015/09/30 17 142 17 142 133,76 2 292 9142012 2013/03/072 4 700 000 115,51 40 690 2016/09/30 27 127 13 563 133,76 1 814 187 13 5642013 2014/03/062 7 850 000 126,87 61 875 2017/09/30 61 875 20 625 133,76 2 758 800 41 2502014 2015/03/052 6 850 000 156,96 43 642 2018/09/30 43 6422015 2016/03/033 8 350 000

DC Munro 2010 2011/03/041 3 850 000 98,80 38 968 2015/11/30 23 380 23 380 174,99 4 091 2662011 2012/03/082 10 334 000 108,90 94 895 2015/09/30 31 633 31 633 133,76 4 231 2302012 2013/03/072 5 887 500 115,51 50 970 2016/09/30 33 980 16 990 133,76 2 272 582 16 9902013 2014/03/062 11 137 500 126,87 87 787 2017/09/30 87 787 29 262 133,76 3 914 085 58 5252014 2015/03/052 5 850 000 156,96 37 271 2018/09/30 37 2712015 2016/03/033 13 850 000

PL Schlebusch 2010 2011/03/041 1 962 000 98,80 19 858 2015/11/30 11 914 11 914 168,00 2 001 5522011 2012/03/082 5 850 000 108,90 53 720 2015/09/30 17 908 17 908 133,76 2 395 3742012 2013/03/072 6 225 000 115,51 53 892 2016/09/30 35 928 17 964 133,76 2 402 865 17 9642013 2014/03/062 10 850 000 126,87 85 521 2017/09/30 85 521 28 507 133,76 3 813 096 57 0142014 2015/03/052 8 650 000 156,96 55 110 2018/09/30 55 1102015 2016/03/033 12 350 000

JB Hemphill6 2011 2012/03/014 2 714 000 87,90 30 874 2015/09/01 10 292 10 292#

2011 2012/03/015 6 000 000 87,90 68 260 2016/03/01 45 507 22 753 141,36 3 216 364 22 754#

2012 2013/03/014 3 850 000 121,02 31 813 2016/09/01 21 209 21 209#

2012 2013/03/015 7 000 000 121,02 57 842 2017/03/01 57 842 57 842#

2013 2014/03/014 4 150 000 123,39 33 634 2017/09/01 33 634 33 634#

2013 2014/03/015 9 400 000 123,39 76 182 2018/03/01 76 182 76 182#

2014 2015/03/055 8 150 000 156,96 51 925 2018/09/30 51 925#

1 Units granted in DBS vest in three years from date of award. 2 Units vest in three equal tranches at 18, 30 and 42 months from date of award.3 Deferred bonus amounts awarded in March 2016 are still subject to choice. Participants can elect to have the value of the deferred award, or a part thereof,

invested in the EGS rather than the default DBS. To the extent that EGS is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in EGS will be unitised with respect to the group’s closing share price on 3 March 2016. This award will be updated in the group’s 2016 annual financial statements to reflect the choices made and units/rights awarded.

4 Units are granted in Liberty Holdings DBS and vest in three equal tranches at 18, 30 and 42 months from date of award.5 Units are granted in Liberty Holdings DBS and vest in three equal tranches at 2, 3 and 4 years from date of award.6 Resigned with notice on 31 May 2015.# Forfeiture as a result of resignation from the group on 31 May 2015.


331

Deferred bonus schemesThe table below reflects bonus awards for the 2015 and prior financial years. The awards will only vest in future in terms of the rules of the DBS (2012). The deferred bonus awards for the 2015 performance year are only issued in the 2016 financial year.

Performanceyear

Issuedate

Amountdeferred

(R)Award

priceUnits

awarded

Expiry date/final vesting

dateBalance of units 1 January 2015

Number of unitsexercised during

the year

Shareprice

(R)

Value of unitsexercised

(R)

Balance of units31 December

2015

SK Tshabalala 2013 2014/03/062 11 100 000 126,87 87 492 2017/09/30 87 492 29 164 133,76 3 900 977 58 3282014 2015/03/052 8 037 500 156,96 51 208 2018/09/30 51 2082015 2016/03/033 11 850 000

BJ Kruger 2011 2012/03/082 9 762 558 108,90 89 647 2015/09/30 29 883 29 883 133,76 3 997 1502012 2013/03/072 5 100 000 115,51 44 153 2016/09/30 29 436 14 717 133,76 1 968 546 14 7192014 2015/03/052 4 975 000 156,96 31 696 2018/09/30 31 6962015 2016/03/033 11 850 000

SP Ridley 2010 2011/03/041 552 875 98,80 5 596 2015/11/30 3 357 3 357 133,15 446 9852011 2012/03/082 5 600 074 108,90 51 424 2015/09/30 17 142 17 142 133,76 2 292 9142012 2013/03/072 4 700 000 115,51 40 690 2016/09/30 27 127 13 563 133,76 1 814 187 13 5642013 2014/03/062 7 850 000 126,87 61 875 2017/09/30 61 875 20 625 133,76 2 758 800 41 2502014 2015/03/052 6 850 000 156,96 43 642 2018/09/30 43 6422015 2016/03/033 8 350 000

DC Munro 2010 2011/03/041 3 850 000 98,80 38 968 2015/11/30 23 380 23 380 174,99 4 091 2662011 2012/03/082 10 334 000 108,90 94 895 2015/09/30 31 633 31 633 133,76 4 231 2302012 2013/03/072 5 887 500 115,51 50 970 2016/09/30 33 980 16 990 133,76 2 272 582 16 9902013 2014/03/062 11 137 500 126,87 87 787 2017/09/30 87 787 29 262 133,76 3 914 085 58 5252014 2015/03/052 5 850 000 156,96 37 271 2018/09/30 37 2712015 2016/03/033 13 850 000

PL Schlebusch 2010 2011/03/041 1 962 000 98,80 19 858 2015/11/30 11 914 11 914 168,00 2 001 5522011 2012/03/082 5 850 000 108,90 53 720 2015/09/30 17 908 17 908 133,76 2 395 3742012 2013/03/072 6 225 000 115,51 53 892 2016/09/30 35 928 17 964 133,76 2 402 865 17 9642013 2014/03/062 10 850 000 126,87 85 521 2017/09/30 85 521 28 507 133,76 3 813 096 57 0142014 2015/03/052 8 650 000 156,96 55 110 2018/09/30 55 1102015 2016/03/033 12 350 000

JB Hemphill6 2011 2012/03/014 2 714 000 87,90 30 874 2015/09/01 10 292 10 292#

2011 2012/03/015 6 000 000 87,90 68 260 2016/03/01 45 507 22 753 141,36 3 216 364 22 754#

2012 2013/03/014 3 850 000 121,02 31 813 2016/09/01 21 209 21 209#

2012 2013/03/015 7 000 000 121,02 57 842 2017/03/01 57 842 57 842#

2013 2014/03/014 4 150 000 123,39 33 634 2017/09/01 33 634 33 634#

2013 2014/03/015 9 400 000 123,39 76 182 2018/03/01 76 182 76 182#

2014 2015/03/055 8 150 000 156,96 51 925 2018/09/30 51 925#

1 Units granted in DBS vest in three years from date of award. 2 Units vest in three equal tranches at 18, 30 and 42 months from date of award.3 Deferred bonus amounts awarded in March 2016 are still subject to choice. Participants can elect to have the value of the deferred award, or a part thereof,

invested in the EGS rather than the default DBS. To the extent that EGS is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in EGS will be unitised with respect to the group’s closing share price on 3 March 2016. This award will be updated in the group’s 2016 annual financial statements to reflect the choices made and units/rights awarded.

4 Units are granted in Liberty Holdings DBS and vest in three equal tranches at 18, 30 and 42 months from date of award.5 Units are granted in Liberty Holdings DBS and vest in three equal tranches at 2, 3 and 4 years from date of award.6 Resigned with notice on 31 May 2015.# Forfeiture as a result of resignation from the group on 31 May 2015.


Annexure F

CONSOLIDATED NORMALISED STATEMENT OF FINANCIAL POSITION

2015 CAGR** 2015 2014 2013 2012 2011 2010

USDm* GBPm* EURm* % Rm Rm Rm Rm Rm Rm

AssetsBanking activities 101 883 68 870 93 641 6 1 578 859 1 550 261 1 357 857 1 274 234 1 258 033 1 107 986

Cash and balances with central banks 4 847 3 276 4 455 17 75 112 64 302 53 310 61 985 31 907 28 675Financial investments, trading and

pledged assets 16 630 11 242 15 285 6 257 712 226 323 163 989 220 670 193 770 178 567Loans and advances 69 524 46 997 63 900 7 1 077 395 929 544 840 819 813 892 803 811 713 025Current and deferred taxation assets 134 91 124 6 2 089 1 758 1 590 1 261 1 700 1 492Derivative and other assets 7 644 5 167 7 025 (5) 118 453 69 791 78 337 145 325 167 005 160 437Non-current assets held for sale 219 958 183 284 960 34 085Interest in associates and joint

ventures 609 411 559 14 9 432 3 480 4 560 2 810 1 881 4 388Goodwill and other intangible assets 1 530 1 034 1 406 18 23 714 20 807 17 610 13 928 11 449 8 965Property and equipment 965 652 887 3 14 952 14 298 14 358 13 403 12 425 12 437

Liberty 25 956 17 545 23 856 10 402 226 356 445 335 826 290 567 255 714 229 535

Total assets 127 839 86 415 117 497 7 1 981 085 1 906 706 1 693 683 1 564 801 1 513 747 1 337 521

Equity and liabilitiesEquity 11 649 7 875 10 706 9 180 530 165 367 155 372 135 267 122 485 108 210

Equity attributable to ordinary shareholders 9 811 6 632 9 017 9 152 042 139 588 130 865 114 619 102 982 90 755

Preference share capital and premium 355 240 326 5 503 5 503 5 503 5 503 5 503 5 503Non-controlling interests 1 483 1 003 1 363 12 22 985 20 276 19 004 15 145 14 000 11 952

Liabilities 116 190 78 540 106 791 7 1 800 555 1 741 339 1 538 311 1 429 534 1 391 262 1 229 311

Banking activities 91 928 62 140 84 492 6 1 424 580 1 409 282 1 224 696 1 158 442 1 152 870 1 015 119

Deposit and debt funding 77 535 52 412 71 264 7 1 201 549 1 064 076 934 811 924 885 881 949 787 151Derivative and other liabilities 9 693 6 552 8 909 (2) 150 209 89 375 91 914 153 579 178 590 166 480Trading liabilities 2 827 1 911 2 598 3 43 809 46 033 36 988 45 373 38 164 36 586Current and deferred taxation liabilities 301 203 276 7 4 657 4 638 4 383 4 491 2 862 3 137Non-current liabilities held for sale 182 069 134 504 27 939Subordinated debt 1 572 1 062 1 445 2 24 356 23 091 22 096 30 114 23 366 21 765

Liberty 24 262 16 400 22 299 10 375 975 332 057 313 615 271 092 238 392 214 192

Total equity and liabilities 127 839 86 415 117 497 7 1 981 085 1 906 706 1 693 683 1 564 801 1 513 747 1 337 521

* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the closing exchange rates. The foreign denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates.

** Compound annual growth rate.

Exchange rates utilised to convert the 31 December 2015 statement of financial position:USD – 15,50 (2014: 11,57)GBP – 22,93 (2014: 18,02)EUR – 16,86 (2014: 14,01)


Six-year review

333

CONSOLIDATED NORMALISED STATEMENT OF FINANCIAL POSITION

2015 CAGR** 2015 2014 2013 2012 2011 2010


AssetsBanking activities 101 883 68 870 93 641 6 1 578 859 1 550 261 1 357 857 1 274 234 1 258 033 1 107 986

Cash and balances with central banks 4 847 3 276 4 455 17 75 112 64 302 53 310 61 985 31 907 28 675Financial investments, trading and

pledged assets 16 630 11 242 15 285 6 257 712 226 323 163 989 220 670 193 770 178 567Loans and advances 69 524 46 997 63 900 7 1 077 395 929 544 840 819 813 892 803 811 713 025Current and deferred taxation assets 134 91 124 6 2 089 1 758 1 590 1 261 1 700 1 492Derivative and other assets 7 644 5 167 7 025 (5) 118 453 69 791 78 337 145 325 167 005 160 437Non-current assets held for sale 219 958 183 284 960 34 085Interest in associates and joint

ventures 609 411 559 14 9 432 3 480 4 560 2 810 1 881 4 388Goodwill and other intangible assets 1 530 1 034 1 406 18 23 714 20 807 17 610 13 928 11 449 8 965Property and equipment 965 652 887 3 14 952 14 298 14 358 13 403 12 425 12 437

Liberty 25 956 17 545 23 856 10 402 226 356 445 335 826 290 567 255 714 229 535

Total assets 127 839 86 415 117 497 7 1 981 085 1 906 706 1 693 683 1 564 801 1 513 747 1 337 521

Equity and liabilitiesEquity 11 649 7 875 10 706 9 180 530 165 367 155 372 135 267 122 485 108 210

Equity attributable to ordinary shareholders 9 811 6 632 9 017 9 152 042 139 588 130 865 114 619 102 982 90 755

Preference share capital and premium 355 240 326 5 503 5 503 5 503 5 503 5 503 5 503Non-controlling interests 1 483 1 003 1 363 12 22 985 20 276 19 004 15 145 14 000 11 952

Liabilities 116 190 78 540 106 791 7 1 800 555 1 741 339 1 538 311 1 429 534 1 391 262 1 229 311

Banking activities 91 928 62 140 84 492 6 1 424 580 1 409 282 1 224 696 1 158 442 1 152 870 1 015 119

Deposit and debt funding 77 535 52 412 71 264 7 1 201 549 1 064 076 934 811 924 885 881 949 787 151Derivative and other liabilities 9 693 6 552 8 909 (2) 150 209 89 375 91 914 153 579 178 590 166 480Trading liabilities 2 827 1 911 2 598 3 43 809 46 033 36 988 45 373 38 164 36 586Current and deferred taxation liabilities 301 203 276 7 4 657 4 638 4 383 4 491 2 862 3 137Non-current liabilities held for sale 182 069 134 504 27 939Subordinated debt 1 572 1 062 1 445 2 24 356 23 091 22 096 30 114 23 366 21 765

Liberty 24 262 16 400 22 299 10 375 975 332 057 313 615 271 092 238 392 214 192

Total equity and liabilities 127 839 86 415 117 497 7 1 981 085 1 906 706 1 693 683 1 564 801 1 513 747 1 337 521

* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the closing exchange rates. The foreign denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates.


Exchange rates utilised to convert the 31 December 2015 statement of financial position:USD – 15,50 (2014: 11,57)GBP – 22,93 (2014: 18,02)EUR – 16,86 (2014: 14,01)


CONSOLIDATED NORMALISED INCOME STATEMENT

2015 CAGR** 2015 20141 20131 20121 20111 20101


Banking activitiesNet interest income 3 866 2 530 3 487 11 49 314 45 256 39 248 34 233 29 027 27 028Non-interest revenue 3 278 2 144 2 955 6 41 801 38 813 34 257 34 474 29 724 28 720Net fee and commission revenue 2 111 1 381 1 903 7 26 920 26 079 23 184 21 319 19 782 17 883Trading revenue 864 565 779 5 11 014 9 216 7 757 8 868 7 895 8 032Other revenue 303 198 273 5 3 867 3 518 3 316 4 287 2 047 2 805

Total income 7 144 4 674 6 442 9 91 115 84 069 73 505 68 707 58 751 55 748Credit impairment charges (735) (481) (663) 4 (9 371) (9 009) (9 158) (8 800) (6 436) (7 394)Income after credit impairment

charges 6 409 4 193 5 779 9 81 744 75 060 64 347 59 907 52 315 48 354Operating expenses (4 033) (2 639) (3 637) 7 (51 434) (46 596) (41 815) (39 860) (34 483) (34 387)Net income before non-trading and

capital related items 2 376 1 554 2 142 14 30 310 28 464 22 532 20 047 17 832 13 967Non-trading and capital related items (110) (72) (99) 36 (1 402) 986 (318) (1 697) (303) (222)Net income before associates and

joint ventures 2 266 1 482 2 043 13 28 908 29 450 22 214 18 350 17 529 13 745Share of post-tax (loss)/profit from

associates and joint ventures (27) (17) (24) (340) 612 673 543 257 572Net income before indirect taxation 2 239 1 465 2 019 12 28 568 30 062 22 887 18 893 17 786 14 317Indirect taxation (155) (102) (140) 13 (1 981) (1 747) (1 514) (1 412) (1 085) (947)Profit before direct taxation 2 084 1 363 1 879 12 26 587 28 315 21 373 17 481 16 701 13 370Direct taxation (460) (301) (415) 12 (5 870) (6 122) (4 596) (4 333) (4 312) (3 040)Profit for the year from continuing

operations 1 624 1 062 1 464 12 20 717 22 193 16 777 13 148 12 389 10 330Profit/(loss) for the year from

discontinued operations 215 141 194 36 2 741 (4 048) (1 022) 2 435 641 428Profit for the year 1 839 1 203 1 658 14 23 458 18 145 15 755 15 583 13 030 10 758Attributable to non-controlling interests

and preference shareholders (164) (107) (148) 13 (2 089) (2 212) (1 494) (1 212) (1 033) (993)Banking activities’ profit attributable

to ordinary shareholders 1 675 1 096 1 510 14 21 369 15 933 14 261 14 371 11 997 9 765LibertyProfit for the year 338 221 305 8 4 312 4 336 4 532 4 180 2 942 2 704Attributable to non-controlling interests (166) (108) (149) 7 (2 112) (2 178) (2 379) (2 151) (1 514) (1 381)Liberty profit attributable to ordinary

shareholders 172 113 156 9 2 200 2 158 2 153 2 029 1 428 1 323Attributable to group ordinary

shareholders 1 847 1 209 1 666 13 23 569 18 091 16 414 16 400 13 425 11 088Headline earnings 1 725 1 129 1 556 12 22 002 17 323 17 194 14 918 13 599 11 2831 Figures included in the six year review have been restated where necessary to provide a meaningful comparison of performance over the years.* The foreign denominated results above have been derived from the group’s audited ZAR results by using the average exchange rates. The foreign denominated

results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates.


Exchange rates utilised to convert the 31 December 2015 income statementZAR exchange rates – (average)

USD – 12,75 (2014: 10,84)GBP – 19,49 (2014: 17,85)EUR – 14,14 (2014: 14,39)

ANNUAL FINANCIAL STATEMENTS Annexure F Six-year review continued

335

CONSOLIDATED NORMALISED INCOME STATEMENT

2015 CAGR** 2015 20141 20131 20121 20111 20101


Banking activitiesNet interest income 3 866 2 530 3 487 11 49 314 45 256 39 248 34 233 29 027 27 028Non-interest revenue 3 278 2 144 2 955 6 41 801 38 813 34 257 34 474 29 724 28 720Net fee and commission revenue 2 111 1 381 1 903 7 26 920 26 079 23 184 21 319 19 782 17 883Trading revenue 864 565 779 5 11 014 9 216 7 757 8 868 7 895 8 032Other revenue 303 198 273 5 3 867 3 518 3 316 4 287 2 047 2 805

Total income 7 144 4 674 6 442 9 91 115 84 069 73 505 68 707 58 751 55 748Credit impairment charges (735) (481) (663) 4 (9 371) (9 009) (9 158) (8 800) (6 436) (7 394)Income after credit impairment

charges 6 409 4 193 5 779 9 81 744 75 060 64 347 59 907 52 315 48 354Operating expenses (4 033) (2 639) (3 637) 7 (51 434) (46 596) (41 815) (39 860) (34 483) (34 387)Net income before non-trading and

capital related items 2 376 1 554 2 142 14 30 310 28 464 22 532 20 047 17 832 13 967Non-trading and capital related items (110) (72) (99) 36 (1 402) 986 (318) (1 697) (303) (222)Net income before associates and

joint ventures 2 266 1 482 2 043 13 28 908 29 450 22 214 18 350 17 529 13 745Share of post-tax (loss)/profit from

associates and joint ventures (27) (17) (24) (340) 612 673 543 257 572Net income before indirect taxation 2 239 1 465 2 019 12 28 568 30 062 22 887 18 893 17 786 14 317Indirect taxation (155) (102) (140) 13 (1 981) (1 747) (1 514) (1 412) (1 085) (947)Profit before direct taxation 2 084 1 363 1 879 12 26 587 28 315 21 373 17 481 16 701 13 370Direct taxation (460) (301) (415) 12 (5 870) (6 122) (4 596) (4 333) (4 312) (3 040)Profit for the year from continuing

operations 1 624 1 062 1 464 12 20 717 22 193 16 777 13 148 12 389 10 330Profit/(loss) for the year from

discontinued operations 215 141 194 36 2 741 (4 048) (1 022) 2 435 641 428Profit for the year 1 839 1 203 1 658 14 23 458 18 145 15 755 15 583 13 030 10 758Attributable to non-controlling interests

and preference shareholders (164) (107) (148) 13 (2 089) (2 212) (1 494) (1 212) (1 033) (993)Banking activities’ profit attributable

to ordinary shareholders 1 675 1 096 1 510 14 21 369 15 933 14 261 14 371 11 997 9 765LibertyProfit for the year 338 221 305 8 4 312 4 336 4 532 4 180 2 942 2 704Attributable to non-controlling interests (166) (108) (149) 7 (2 112) (2 178) (2 379) (2 151) (1 514) (1 381)Liberty profit attributable to ordinary

shareholders 172 113 156 9 2 200 2 158 2 153 2 029 1 428 1 323Attributable to group ordinary

shareholders 1 847 1 209 1 666 13 23 569 18 091 16 414 16 400 13 425 11 088Headline earnings 1 725 1 129 1 556 12 22 002 17 323 17 194 14 918 13 599 11 2831 Figures included in the six year review have been restated where necessary to provide a meaningful comparison of performance over the years.* The foreign denominated results above have been derived from the group’s audited ZAR results by using the average exchange rates. The foreign denominated

results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates.


Exchange rates utilised to convert the 31 December 2015 income statementZAR exchange rates – (average)

USD – 12,75 (2014: 10,84)GBP – 19,49 (2014: 17,85)EUR – 14,14 (2014: 14,39)


SHARE STATISTICS AND MARKET INDICATORS – NORMALISED

CAGR 2015 2014 2013 2012 2011 2010

% Rm Rm Rm Rm Rm Rm

Share statisticsDividend cover times 1 2,0 1,8 2,0 2,1 2,0 1,9Dividend yield % 9 5.9 4.2 4.1 3.8 4.3 3.6Earnings yield % 10 12.0 7.5 8.2 7.9 8.7 6.7Price earnings ratio times (9) 8,3 13,4 12,2 12,7 11,5 15,0Price-to-book times (7) 1,2 1,7 1,6 1,7 1,5 1,9Number of shares traded millions (2) 1 052,8 798,0 1 012,2 938,2 959,4 1 169,9Turnover in shares traded % (2) 65 49 63 59 61 74Market capitalisation Rm 1 183 672 232 203 209 381 190 937 156 889 170 471

Market indicators at 31 DecemberStandard Bank Group share price High for the year cents 7 17 700 14 930 13 054 12 030 11 000 11 800 Low for the year cents (1) 9 480 11 416 10 316 9 876 8 775 10 075 Closing cents 1 11 350 14 348 12 942 11 888 9 875 10 755Prime overdraft rate

(closing) % 1 9.75 9.25 8.50 8.50 9.00 9.00JSE All Share Index (closing) 8 50 694 49 771 46 256 39 250 31 986 32 119JSE Banks Index (closing) 7 61 072 72 998 57 745 53 362 41 178 40 985ZAR exchange rates (closing) USD 15 15,50 11,57 10,49 8,48 8,09 6,64 GBP 14 22,93 18,02 17,36 13,71 12,48 10,29 EUR 11 16,86 14,01 14,44 11,18 10,46 8,87ZAR exchange rates (average) USD 10 12,75 10,84 9,64 8,21 7,25 7,32 GBP 10 19,49 17,85 15,09 13,01 11,62 11,30 EUR 6 14,14 14,39 12,81 10,55 10,08 9,71


337

CAPITAL ADEQUACY, EMPLOYEE AND OTHER RELEVANT STATISTICS

CAGR 2015 2014 2013 2012 2011 2010

% Rm Rm Rm Rm Rm Rm

Capital adequacy1

Risk-weighted assets Rm 7 944 039 915 213 841 272 841 835 710 725 620 064Tier I capital2 Rm 8 125 710 117 970 110 834 94 420 85 547 79 996Total capital2 Rm 8 147 998 141 963 136 084 120 173 101 978 94 805Tier I capital to risk-

weighted assets2 % 1 13.3 12.9 13.2 11.2 12.0 12.9Total capital to risk-

weighted assets2 % 15.7 15.5 16.2 14.3 14.3 15.3Employee statisticsNumber of employees Banking activities 47 958 42 642 42 221 42 736 45 904 48 125 Group 54 361 49 259 48 808 49 017 51 656 53 351Employee turnover rate % 2 11.2 10.5 13.2 10.2 11.6 10.1Normalised headline

earnings per employee Rm 12 404 739 355 635 354 871 302 508 265 140 205 506Points of representation ATMs and ANAs 2 7 193 7 065 7 861 7 841 6 770 6 473Banking branches and

service centres 1 1 221 1 233 1 283 1 249 1 217 1 159Social investment and

environmentCorporate social

investment spend3 Rm (3) 115,9 115,0 104,0 106,4 119,5 139,7Carbon footprint

(metric tonnes CO2)3 11 324 637 309 017 392 159 412 089 180 403 177 289

1 In accordance with Basel III principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base of the banking group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is not recognised in group capital.

2 Capital includes unappropriated profit.3 South African banking activities.


RATIOS AND RESULTS – NORMALISED

CAGR 2015 2014 2013 2012 2011 2010

% Rm Rm Rm Rm Rm Rm

Standard Bank GroupShare statisticsNumber of ordinary shares

listed on JSE (millions)Weighted average 1 1 618,7 1 618,6 1 614,7 1 595,6 1 587,1 1 576,1End of period 1 1 618,3 1 618,4 1 617,8 1 606,1 1 588,7 1 585,0Share statistics per ordinary share (cents)Basic earnings cents 13 1 456,1 1 117,7 1 016,6 1 027,8 845,9 703,5Headline earnings cents 11 1 359,3 1 070,3 1 064,9 934,9 856,9 715,9Dividends cents 10 674,0 598,0 533,0 455,0 425,0 386,0Net asset value cents 9 9 395,4 8 625,0 8 089,0 7 136,3 6 482,0 5 725,7ROE % 3 15.3 12.9 14.1 14.0 14.3 12.5Normalised headline earnings per business unit1

Personal & Business Banking Rm 17 11 232 9 797 8 401 7 343 5 872 4 364

Corporate & Investment Banking Rm 7 7 923 4 980 6 500 4 419 5 521 5 252

Central and other Rm 14 596 388 82 1 166 778 274Liberty Rm 8 2 251 2 158 2 211 1 990 1 428 1 393

Total normalised headline earnings Rm 12 22 002 17 323 17 194 14 918 13 599 11 283

Banking activities normalisedSelected returns and ratiosHeadline earnings

contribution Rm 12 19 751 15 165 14 983 12 928 12 171 9 890 ROE % 4 14.9 12.3 13.2 13.2 13.8 11.8Continuing operationsNet interest margin % 3 3.50 3.80 3.67 3.09 2.92 2.87Non-interest income to

total income % (2) 45.9 46.3 46.6 50.2 50.6 51.5Cost-to-income ratio % (1) 56.7 55.0 56.3 55.2 58.6 61.1Credit loss ratio % (3) 0.87 1.00 1.12 1.08 0.87 1.04Effective taxation rate % 27.5 26.2 26.7 30.4 30.3 27.8

1 Where responsibility for individual cost centres and divisions within business units change, the comparative figures are reclassified accordingly.


339

RATIOS AND RESULTS – IFRS

CAGR 2015 2014 2013 2012 2011 2010

% Rm Rm Rm Rm Rm Rm

Standard Bank GroupShare statisticsNumber of ordinary shares

listed on JSE (millions)Weighted average 1 1 597,4 1 584,7 1 566,7 1 521,5 1 510,4 1 492,0End of period 1 1 601,4 1 577,8 1 584,4 1 535,9 1 514,1 1 505,1Share statistics per ordinary share (cents)Basic earnings cents 13 1 487,0 1 129,9 1 034,4 1 054,6 875,7 722,1Headline earnings cents 11 1 388,9 1 081,4 1 084,2 957,2 887,2 735,2Dividends cents 10 674,0 598,0 533,0 455,0 425,0 386,0Net asset value cents 8 9 433,5 8 682,0 8 137,6 7 232,5 6 568,3 5 785,2ROE % 4 15.6 13.0 14.2 14.2 14.6 12.7

IFRS headline earnings per business unit1

Personal & Business Banking Rm 17 11 232 9 797 8 358 7 343 5 872 4 364

Corporate & Investment Banking Rm 7 7 923 4 980 6 591 4 419 5 521 5 252

Central and other Rm 28 599 346 (84) 970 572 135Liberty Rm 12 2 433 2 014 2 121 1 832 1 435 1 218

Total IFRS headline earnings Rm 13 22 187 17 137 16 986 14 564 13 400 10 969

Banking activities IFRSSelected returns and ratiosHeadline earnings

contribution Rm 12 19 754 14 865 12 732 11 965 9 751 ROE % 4 14.9 13.3 13.3 13.9 11.9Continuing operationsNet interest margin % 3 3.50 3.67 3.62 2.91 2.86Non-interest income to

total income % (2) 45.9 46.7 48.6 50.8 51.8Credit loss ratio % (3) 0.87 1.12 1.19 0.87 1.04Effective taxation rate % 27.5 26.9 27.7 30.7 28.2

1 Where responsibility for individual cost centres and divisions within business units change, the comparative figures are reclassified accordingly.


Third-party assets under management and funds under administrationMembers of the group provide discretionary and non-discretionary investment management services to institutional and private investors. Commissions and fees earned in respect of trust and management activities performed are included in profit or loss. Assets managed and funds administered on behalf of third-parties include:

2015 2014

Rbn Rbn

Banking activitiesAsset managementTrusts and estates 101 76Unit trusts/collective investments 10 6Portfolio management 198 151Other 8 18

317 251

Fund administrationUnit trusts/collective investments 31 55Portfolio management 48 38Other 156 69

235 162

Geographical areaAfrica 365 317International 187 96

552 413

LibertyAsset management 50 53

Segregated funds 46 49Properties 4 4

Wealth management – funds under administration 308 281

Single manager unit trust 126 120Institutional marketing 47 45Linked and structured life products 72 64Multi-manager 13 11Rest of Africa 50 41

Total Liberty 358 334

Total assets under management and funds under administration 910 747

Included in the balances above are funds for which the fund value is determined using directors’ valuations.


Annexure GThird-party funds under management

341

STANDARD BANK GROUP

Basic earnings per share (cents)

Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue.

Capital adequacy ratio (%) Capital as a percentage of risk-weighted assets.

Diluted earnings per ordinary share (cents)

Earnings attributable to ordinary shareholders divided by the weighted average number of shares, adjusted for potential dilutive ordinary shares resulting from share-based payments and related hedges.

Dividend cover (times) Headline earnings per share divided by dividend per share.

Dividend per share (cents) Total dividends to ordinary shareholders in respect of the year.

Dividend yield (%) Dividend per share as a percentage of the closing share price.

Earnings yield (%) Headline earnings per share as a percentage of the closing share price.

Headline earnings (Rm) Determined, in terms of the circular issued by the South African Institute of Chartered Accountants at the request of the JSE, by excluding from reported earnings-specific separately identifiable remeasurements net of related tax and non-controlling interests.

Headline earnings per ordinary share (cents)

Headline earnings divided by the weighted average number of ordinary shares in issue.

Net asset value (Rm) Equity attributable to ordinary shareholders.

Net asset value per share (cents)

Net asset value divided by the number of ordinary shares in issue at year end.

Notional amount The contract/notional amount is the sum of the absolute value of all bought and sold contracts. The notional amounts have been translated at the closing exchange rate at the reporting date where cash flows are payable or receivable in foreign currency. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts.

Profit attributable to ordinary shareholders (Rm)

Profit for the year attributable to ordinary shareholders, calculated as profit for the year less dividends on non-redeemable, non-cumulative, non-participating preference shares declared before year end, less non-controlling interests.

Profit for the year (Rm) Income statement profit attributable to ordinary shareholders, non-controlling interests and preference shareholders for the year.

Return on equity (RoE) (%) Headline earnings as a percentage of monthly average ordinary shareholders’ funds.

Shares in issue (number) Number of ordinary shares in issue as listed on the exchange operated by the JSE.

SBG or the group Standard Bank Group.

Turnover in shares traded (%)

Number of shares traded during the year as a percentage of the weighted average number of shares.

Weighted average number of shares (number)

The weighted average number of ordinary shares in issue during the year as listed on the JSE.

Financial and other definitions


BANKING ACTIVITIES

Cost-to-income ratio (%) Operating expenses as a percentage of total income after revenue sharing agreements but before credit impairments, share of profit/(loss) from associates and joint ventures.

Credit loss ratio (CLR) (%) Total impairment charges on loans and advances per the income statement as a percentage of average daily and monthly gross loans and advances.

Effective tax rate (%) Direct taxation as a percentage of income before taxation.

Gross specific impairment coverage ratio (%)

Balance sheet impairments for non-performing specifically impaired loans as a percentage of specifically impaired loans.

Net interest margin (%) Net interest income as a percentage of daily and monthly average total assets, excluding derivative assets.

Non-interest revenue to total income (%)

Non-interest revenue as a percentage of total income.

Portfolio credit impairments (Rm)

Impairment for latent losses inherent in groups of loans and advances that have not yet been specifically impaired.

Return on equity (RoE) (%) Headline earnings as a percentage of monthly average ordinary shareholders’ funds.

Risk-weighted assets (Rm) Determined by applying prescribed risk weightings to on- and off-balance sheet exposures according to the relative credit risk of the counterparty.

Specific credit impairments (Rm)

Impairment for loans and advances that have been classified as non-performing and specifically impaired, net of the present value of estimated recoveries.

OTHER DEFINITIONS

Additional increment To enhance the retention component of the DBS, additional increments of the deferred award become payable at vesting and one year thereafter. This feature was replaced by notional dividends for awards in respect of the 2011 and future financial years’ awards.

Black African, Coloured, Indian and South African Chinese people (who fall within the ambit of the definition of black people in the relevant legislation as determined by court ruling).

Black economic empowerment (BEE)

Socioeconomic term concerning formalised initiatives and programmes to enable historically disadvantaged black individuals and groups to participate gainfully and equitably in the mainstream economy.

CPI (%) A South African index of prices used to measure the change in the cost of basic goods and services.

Credit enhancement provider The group provides credit enhancements to the SEs which include financial guarantees and loans that are subordinated in favour of third party investors.

Deferred acquisition costs The direct and indirect costs incurred during the financial period arising from the writing or renewing of investment contracts without discretionary participation features (DPF), which are deferred to the extent that these costs are recoverable out of future premiums.

Deferred revenue liability (DRL)

Initial and other front-end fees received for the rendering of future investment management services relating to investment contracts without DPF, which are deferred and recognised as revenue when the related services are rendered.

ADDITIONAL INFORMATION Financial and other definitions continued

343

Discretionary participation features (DPF)

A contractual right given to a policyholder to receive, as a supplement to guaranteed benefits, additional benefits that are:

• likely to be a significant portion of the total contractual benefits

• whose amount or timing is contractually at the discretion of the issuer, and

• that are contractually based on the:

– performance of a specified pool of contracts or a specified type of contract

– realised and/or unrealised investment returns on a specified pool of assets held by the issuer, or

– profit or loss of the company, fund or other entity that issues the contract.

Exposure at default (EAD) Counterparty’s expected exposure to the group at the time a default occurs.

Financial soundness valuation (FSV)

The valuation methodology used to value insurance contracts and investment contracts with DPF as described in Professional Guidance Note (PGN) 104 issued by the Actuarial Society of South Africa.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).

Investor In order to fund the purchase of the assets, the SEs issue funding notes and commercial paper to investors, which includes the group.

Liquidity provider The commercial paper issued by BTC has a shorter maturity than the assets it holds. The group provides liquidity stand-by facilities to BTC to enable BTC to settle the commercial paper as it becomes due in the event that BTC is unable to refinance the paper through the maturity of its assets.

Loss given default (LGD) Amount of a counterparty’s obligation to the group that is not expected to be recovered after default and is expressed as a percentage of the EAD.

Normalised results The financial results and ratios restated on an economic substance basis to reflect the group’s view of the economic and legal substance of certain defined arrangements.

Originator The group originates term assets and sells these assets to the SEs.

Probability of default (PD) Probability of a counterparty not making full and timely repayment of credit obligations over a specific time horizon.

Reinsurance Insurance or investment risk that is ceded to another insurer in return for premiums. The ultimate obligation to the policyholder remains with the entity who issued the original insurance contract.

Risk appetite An expression of the maximum level of residual risk that the group is prepared to accept in order to deliver its business objectives.

Structured entity (SE) An entity created to accomplish a narrow and well-defined objective.

Swap counterparty In order to align the cash flows between the underlying securitised assets and the issued loan notes and commercial paper, the SEs may enter into interest rate swap agreements with counterparties which include the group.

Servicer The group provides administrative services to the securitisation vehicle.

Tutuwa initiative The Tutuwa initiative is the group’s black economic empowerment ownership initiative entered into in terms of the Financial Sector Charter.


ADDITIONAL INFORMATION

Acronyms and abbreviations

A

AIRB Advanced internal ratings-based

ALCO Asset and liability committee

AMA Advanced measurement approach

AML Anti-money laundering

ANA Automated notes acceptor

APN Advisory practice note

AOA Angolan kwanza

ATM Automated teller machine

B

Banks Act South African Banks Act 94 of 1990

BASA Banking Association of South Africa

Basel Basel Capital Accord

BCBS Basel Committee on Banking Supervision

BD Blue Diamond

BEE Black economic empowerment

BG 1 Blue Granite Investments No. 1 (RF) Limited




BIS Bank for International Settlements

Blue Banner Blue Banner Securitisation Vehicle RC1 Proprietary Limited

Board Standard Bank Group board of directors

BoBC Bank of Botswana certificate

BSI Banco Standard de Investimentos S.A.

bps Basis points

BTC Blue Titanium Conduit (RF) Limited

BWP Botswana pula

C

CAR Capital adequacy requirements

CAGR Compound annual growth rate

CCP Central counterparty

CDF Congolese franc

CDS Credit default swap

CET I Common equity tier I

CGT Capital gains taxation

CGU Cash-generating unit

CIB Corporate & Investment Banking

CLR Credit loss ratio

CoE Cost of equity

Companies Act South African Companies Act 71 of 2008

CP Commercial paper

CPI Consumer price index

CR Country risk grade

CRO Chief risk officer

CSDP Central Securities Depository Participant

CVA Credit valuation adjustment

D

DAC Deferred acquisition cost

DBS Deferred bonus scheme

DPA Deferred prosecution agreement

DPF Discretionary participation feature

DRC Democratic Republic of Congo

DRL Deferred revenue liability

D-SIB Domestic systemically important banks

345

E

EAD Exposure at default

ECL Expected credit loss

EGS Equity growth scheme

ERC Group equity risk committee

ETF Exchange traded fund

EU European Union

EUR Euro

F

FCTR Foreign currency translation reserve

FIC Fixed income and currencies

FIRB Foundation internal ratings-based

FMA Financial Markets Act

FSB Financial Services Board

FSV Financial soundness valuation

FTSE Financial Times Stock Exchange

FVOCI Fair value through other comprehensive income

FVTPL Fair value through profit or loss

G

GAC Group audit committee

GBP British pound sterling

GCCO Group chief compliance officer

GHS Ghanaian cedi

GIA Group internal audit

GRCMC Group risk and capital management committee

GROC Group risk oversight committee

G-SIB Global systemically important banks

GSIS Group share incentive scheme

The group Standard Bank Group

H

HQLA High quality liquid assets

I

IAS International Accounting Standards

IASB International Accounting Standards Board

IBNR Incurred but not reported

ICAAP Internal capital adequacy assessment process

ICBC Industrial and Commercial Bank of China Limited

ICBCS ICBC Standard Bank Plc

ICR Individual capital requirement

IFRS International Financial Reporting Standards

IOR Integrated operational risk

IRB Internal ratings-based

IRRBB Interest rate risk in the banking book

ISDA International Swaps and Derivatives Association

IT Information technology

J

JIBAR Johannesburg interbank agreed rate

JSE JSE Limited, the licensed securities exchange in Johannesburg

K

KES Kenyan shilling

King Code The Code of Corporate Practices and Conduct set out in the King Report on Corporate Governance for South Africa 2009


ADDITIONAL INFORMATION Acronyms and abbreviations continued

L

LCR Liquidity coverage ratio

LES Lesotho loti

LGD Loss given default

Lexshell Liberty’s black economic empowerment ownership initiative

LibFin Liberty Financial Solutions

Liberty Liberty group which includes Liberty Holdings Limited and its subsidiaries

LIBOR London interbank offer rate

Long-term Insurance Act

Long-term Insurance Act 52 of 1998

M

Main street Main Street 367 (RF) Proprietary Limited

MOI Memorandum of Incorporation

MT Mozambican metical

N

NAD Namibian dollar

NAV Net asset value

NCD Negotiable certificates of deposit

NGN Nigerian naira

NPL Non-performing loans

NSFR Net stable funding ratio

NSX Namibian Stock Exchange

NT National Treasury

O

OCI Other comprehensive income

OTB Out of the Blue Originator Proprietary Limited

OTC Over-the-counter

P

PBB Personal & Business Banking

PD Probability of default

PGN Professional guidance note

PIC Public Investment Corporation

PoPI Protection of Personal Information Act

PRA Prudential Regulatory Authority

Prime The prime interest rate

PRP Performance reward plan

PVIF Present value of in-force

Q

QRRE Qualifying retail revolving exposure

Quanto Quanto stock unit scheme

R

R South African rand

Rbn Billions of rand

RAPM Risk-adjusted performance measurement

RAS Risk appetite statement

RCCM Risk, compliance and capital management

RDR Retail distribution review

Rm Millions of rand

RoE Return on equity

ROU Right of use

347

S

SAFEX South African Futures Exchange

SAHL South African Home Loans Proprietary Limited

SAICA The South African Institute of Chartered Accountants

SAM Solvency assessment management

SAP Standard of Actuarial Practice

SARB The South African Reserve Bank

SB Sovereign risk grade transfer and convertibility

SB-Debtors SB-Debtors Discounting No. 1 Proprietary Limited

SBG Standard Bank Group

SBGRF Standard Bank Group Retirement Fund

SBSA The Standard Bank of South Africa Limited

SB Plc Standard Bank Plc

SE Structured entity

SEC Securities and Exchange Commission

SENS Stock exchange news service

SFO Serious fraud office

Short-term Insurance Act

Short-term Insurance Act 53 of 1998

SIL Standard Insurance Limited

Siyakha Siyakha Fund (RF) Limited

SLF Standard lending facility

SOFP Statement of financial position

SVaR Stressed value-at-risk

T

T-bill Treasury bill

Tabistone Tabistone 06 (RF) Limited

TCF Treating customers fairly

Tier I Primary capital

Tier II Secondary capital

Tier III Tertiary capital

Tutuwa Black economic empowerment ownership initiative

Twin Peaks Twin Peaks model of financial regulation

TZS Tanzanian shilling

U

UGX Ugandan shilling

UK United Kingdom

US United States of America

USD United States dollar

V

VaR Value-at-risk

VAT Value added tax

Z

ZAR South African rand

ZMK Zambian kwacha

Standard Bank Group LimitedRegistration No. 1969/017128/06Incorporated in the Republic of South Africa

Head: Investor relationsDavid KinseyTel: +27 11 631 3931

Group secretaryZola StephenTel: +27 11 631 9106

Group financial directorSimon RidleyTel: +27 11 636 3756

Group financial director designateArno DaehnkeTel: +27 11 415 4184

Registered address9th Floor, Standard Bank Centre5 Simmonds StreetJohannesburg 2001PO Box 7725Johannesburg 2000

Contact detailsTel: +27 11 636 9111Fax: +27 11 636 4207

Website: www.standardbank.com

Please direct all customer-related queries and comments to: [email protected] Please direct all shareholder queries and comments to: [email protected]

DisclaimerThis document contains certain statements that are ’forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon.

Contact details

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