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Standard Bank Group

Risk and capital management report and annual financial statements 2013

Risk and capital management report

Overview 3

Risk and capital reporting frameworks 11

Capital management 15

Risk appetite and stress testing 23

Credit risk 25

Country risk 57

Liquidity risk 60

Market risk 68

Insurance risk 79

Operational risk 85

Business risk 89

Reputational risk 90

Restatements 91

Annexure A – regulatory and legislative developments 93

Annexure B – composition of capital 98

Annexure C – reconciliation of audited statement of financial position and regulatory capital and reserves 101

Annexure D – capital instruments: main features disclosure template 102

Annual financial statements

Directors’ responsibility for financial reporting 109

Group secretary’s certification 109

Report of the group audit committee 110

Directors’ report 112

Independent auditors’ report 116

Statement of financial position 117

Income statement 118

Statement of other comprehensive income 120

Statement of cash flows 122

Statement of changes in equity 124

Accounting policy elections 128

Notes to the annual financial statements 130

Standard Bank Group Limited – company annual financial statements 237

Annexure A – restatements 244

Annexure B – subsidiaries, consolidated and unconsolidated structured entities 251

Annexure C – associates and joint ventures 266

Annexure D – group share incentive schemes 271

Annexure E – detailed accounting policies 277

Annexure F – emoluments and share incentives of directors and prescribed officers 296

Annexure G – special resolutions 308

Annexure H – seven-year review 310

Annexure I – segmental statement of financial position 322

Annexure J – banking activities average statement of financial position (normalised) 324

Annexure K – third-party funds under management 326

Additional information

Financial and other definitions 327

Acronyms and abbreviations 330

Contact details ibc

Contents

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Provides a detailed discussion of how we manage strategic financial and non-financial risks related to the group’s banking and insurance operations, as well as capital and liquidity management and regulatory developments.

www.standardbank.com/reporting


Sets out the full audited annual financial statements for the group, including the report of the group audit committee (GAC).


Annual integrated report

Provides an integrated assessment of the Standard Bank Group’s (SBG or the group) ability to create value over time.


Sustainability report

Presents a balanced and comprehensive analysis of the group’s sustainability performance in relation to issues material to the group and our stakeholders.

www.standardbank.com/sustainability

FeedbackWe welcome the views of our stakeholders. Please contact us at [email protected] with your feedback.

A limited number of printed risk and capital management report and annual financial statements books are available on request. Please contact our investor relations department, using the details at the back of this report, and we willpost a copy to you.

Our reports Cross-referencing tools

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

Indicates that additional information is available online.

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

SR

AIR

RCM

AFSPG


Standard Bank Group Risk and capital management report and annual financial statements 2013 2

3


Annual financialstatements

Additionalinformation

Board responsibility 3

Statement from the chairman of the group risk

and capital management committee 4

Risk types 6


Board responsibility

The group board of directors (board) has the ultimate responsibility for the oversight of risk and capital management.

PG Various board and management committees, as set out on pages 9 to 10, support the board in its oversight of the risks faced by the group, the effectiveness of the compliance function and the effectiveness with which the group manages risks and the group’s capital.

For the year under review, the board is satisfied that the group’s risk, compliance and capital management processes generally operated effectively, that the group’s business activities have been managed within the board-approved risk appetite, and that the group is adequately capitalised to support the execution of the group’s strategy.

Highlights 6

Governance framework 8

Overview

4 Standard Bank Group Risk and capital management report and annual financial statements 2013

Risk and capital management report Overview continued

Attendance of each member at meetings of the GRCMC in 2013 can be found in the corporate governance statement on page 119.

AIR

I have been chairman of the group risk and capital management committee (GRCMC) since July 2010. Other members of the committee during 2013 were Doug Band, Richard Dunne, Saki Macozoma, Fred Phaswana, Peter Sullivan, Ted Woods and Hongli Zhang (alternate: Yagan Liu). With the exception of Hongli Zhangand Saki Macozoma, all members of the GRCMC were independent non-executive directors.

Richard Dunne is the chairman of the GAC and Ted Woods is the chairman of the remuneration committee. This common membership supports an integrated view of finance and risk, and ensures that relevant finance and risk input is considered in the determination of levels of compensation.

The key terms of reference of the GRCMC can be found in the corporate governance statement on page 116These are considered annually by the GRCMC and approved by the board.

AIR

A total of four meetings of the GRCMC were held during 2013. One special meeting was held to approve the interim risk and capital management report.

The GRCMC is responsible for:

determining the group’s risk appetite as set out in the risk appetite framework and risk appetite statement (RAS)

monitoring the current and future risk profile of the group to confirm that it is managed within risk appetite

approving macroeconomic scenarios used for stress testing, and evaluating the results of these and other stress tests

reviewing and providing oversight of the adequacy and effectiveness of the group’s risk, compliance and capital management (RCCM) governance framework

approving governance standards, frameworks and policies in terms of the RCCM governance framework

reviewing the impact on capital of significant transactions entered into by the group

reviewing reports on the implementation of an information technology (IT) governance framework and updates on significant IT investments

evaluating and approving significant outsourcing arrangements

Statement from the chairman of the group risk and capital management committee

The GRCMC provides independent and 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.

Myles Ruck

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assisting on such other matters as may be referred to it by the group risk oversight committee (GROC)

promoting a risk awareness culture within the group

reporting to the board any matters within its remit where action or improvement is needed and making recommendations as to the steps to be taken.

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 risk profile of the group and any concerns it may have had. The GRCMC was satisfied that, as far as it was aware, there were no material risks that presently threaten the sustainability of the group. It also considered the group’s exposure to country, single name obligor and sector concentration risk on an ongoing basis.

Reports on the South African unsecured lending portfolio and debt counselling regulatory and industry developments were considered. In addition, ongoing committee education sessions were held during the year covering risk appetite and stress testing, as well as the degree of expert judgement involved in the development and application of risk models.

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 GROC. An update was also given by group risk-typeheads 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 July 2011, the United Kingdom (UK) Regulator, the Financial Services Authority, now the Financial Conduct Authority (FCA), conducted an onsite review of Standard Bank Plc’s anti-money laundering policies and procedures. As a result of this review, and following continuous engagement between the FCA andStandard Bank Plc, the FCA announced in January 2014 that ithad fined Standard Bank Plc GBP7,64 million for not applying itsown anti-money laundering policies and procedures for corporate customers connected to politically exposed persons. The findings from this review and the extensive remediation exercise undertaken since 2011 have been noted by the GRCMC. Anti-money laundering and terrorist financing risks are key concerns of the group; this committee and management are committed to monitoring and managing our performance in this regard.

In relation to capital adequacy, the committee approved the internal capital adequacy assessment process (ICAAP) and submission tothe South African Reserve Bank (SARB). Capital adequacy was also assessed in light of Basel Capital Accord (Basel) III requirementswhich are being phased in from 2013 to 2019.

The group RCCM governance framework provides a basis for annual self-assessment of compliance with the group’s requirements for the identification, assessment, measurement, monitoring, management and reporting of risks.

The GRCMC received regular reports on the development of the group’s risk appetite framework, and approved the RAS.

Members of the GRCMC have attended and will continue to attend the risk meetings on site of the group’s major subsidiaries as appropriate.

During 2013, an internal self-assessment on the effectiveness ofthe GRCMC was conducted. This assessment concluded that the committee was operating effectively. In addition, the externally facilitated board and board subcommittee evaluation concludedthat the GRCMC was operating effectively.

Myles RuckChairman, GRCMC


Risk types

The group’s activities give rise to various risks. These are:

credit risk (page 25)

country risk (page 57)

liquidity risk (page 60)

market risk (page 68)

insurance risk (page 79)

operational risk (page 85)

business risk (page 89)

strategic risk (page 89)

post-retirement obligation risk (page 89)

reputational risk (page 90).

Each risk is defined within the relevant section, together with an explanation of the application of the governance framework, the approved regulatory treatment for capital requirements to be held against the risk in terms of Basel, and the portfolio characteristics analysed both in terms of prescribed disclosure and the group’sown business model.

Highlights

Credit risk

Year in briefNet loans and advances to customers increased by 9% in 2013, while group credit impairments rose 5%, reflecting a more normalised level of corporate credit losses.

Personal & Business Banking’s (PBB) credit loss ratio increased to 1.47% (2012: 1.39%), mainly due to small and medium enterprise lending in the rest of Africa and higher losses in card products and instalment sale and finance leases. The mortgage portfolio continued its improving trend with non-performing loans and credit losses declining in 2013.

Corporate & Investment Banking’s (CIB) credit loss ratio declined to a more normalised 0.36% from the high level of 0.63% in 2012.

Focus areas for 2014The group will continue to apply appropriate and responsible lending criteria to ensure prudent lending practices in line with anticipated country-specific economic conditions and risk appetite. Focus will continue to be placed on standardising credit risk methodologies and processes across the group, and on enhancing stress testing practices.

Another key focus area will include refining the credit risk governance standard and supporting tools to align to the group’s credit risk appetite and tolerance.

Capital management

Year in briefThe group has successfully maintained its strong capital position, meeting or exceeding all target ratios. The SARB adopted the Basel III framework from 1 January 2013 and the group has been compliant with the minimum requirements from that date.

Focus areas for 2014Specific focus areas include:

ensuring that the group is adequately positioned to respond to regulatory capital rules under the Basel III phase-in requirements

providing an optimal capital mix for the group

optimising capital and liquidity allocation between product lines, trading desks, industry sectors and legal entities to enhance the overall group economic profit and return on equity (ROE).

Liquidity management

Year in briefDuring 2013, the group maintained its liquidity positions within the approved limits. Appropriate liquidity buffers were held in excess of regulatory, prudential and internal stress-testing requirements, taking into account ongoing global risk appetite and market conditions.

The implications of the proposed Basel lll liquidity framework continued to be an area of focus, especially the liquidity coverage ratio (LCR) with the support of the SARB’s committed liquidity facility that was confirmed during 2013.

The group’s liquidity contingency recovery plan was comprehensively reviewed and presented by the board to the SARB during the year. The updates were completed in conjunction with the construction of an Integrated Recovery Plan (IRP) for the group. The IRP framework will guide management and the board in the reduction of the risk profile of the group during severe stress to ensure the group’s survival.

Focus areas for 2014Specific focus areas include:

refining funds transfer pricing methodologies across the group to accurately price and measure the internal cost of funding

ensuring the group is adequately positioned for the Basel III liquidity phase-in requirements with effect from 1 January 2015

extending The Standard Bank of South Africa Limited’s (SBSA) asset and liability management system and automated reporting to the group’s rest of Africa banking entities.

Country risk

Year in briefThe relative concentration of cross-border exposure to the sub- Saharan region continued to increase, consistent with the group’s strategic focus.

Focus areas for 2014Country risk appetite and the mitigation of country specific risks will be proactively managed in response to the challenging global economic and political risk environment.

Risk and capital management report Overview continued

PG

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The group will implement a revised country risk model that takes account of structural changes in the global economy; this will provide more targeted measurement of transfer and convertibility risk.

Market risk

Year in briefThe group’s banking book interest rate risk remained within approved limits, with the largest exposure on the SBSA balance sheet.

From a trading book perspective, 2013 was a year of consolidation in Europe, mild recovery in the United States (US), slowing down in Asia and initial actions by central banks to tighten monetary policy which resulted in acute volatility in emerging markets.

Trading book market risk remained within approved limits in spite of volatile conditions in the middle of the year. Average value-at-risk (VaR) remained low as the group continued implementing a conservative approach to market risk. The daily profit and loss results for the year showed a profit for 245 out of 259 trading days, which is reflective of CIB’s client flow business model.

Focus areas for 2014The group will focus on monitoring and managing the banking book interest rate risk and associated hedges in the context of current market volatility and monetary policy expectations.

From a traded risk perspective, particular emphasis will be put on system automation and integration as well as policy and process harmonisation, and providing input into the Basel III fundamental trading book review proposed regulations.

Operational risk

Year in briefThe group adopted an integrated approach to risk management, whereby group financial crime control, information security risk management and operational risk management were combined into a single integrated operational risk (IOR) management unit.

Progress continues to be made in terms of implementing the IOR framework to support the introduction of the advanced measurement approach (AMA) throughout the group. The group expanded itsfraud awareness initiative which proved to be an effective deterrent mechanism. Other initiatives include the introduction of a risk grading system to support the group’s proactive approach to combatting financial crime and investing in IT-related capabilities. A cyber security operations centre was established.

The group’s RCCM framework was extended to include an IT and change risk governance standard which is overseen by a dedicated executive.

Focus areas for 2014Areas of focus include promoting model risk management awareness, ensuring secure physical and system infrastructure, promoting continuous customer and employee awareness of financial crime, and fighting crime through supporting industry initiatives in the countries in which the group has a presence and through the South African Banking Risk Information Centre.

Quantitative methodologies will be refined to better measure the operational risk profile in relation to risk appetite and tolerance.

Sustainability

Year in briefSignificant changes in environmental legislation and regulation combined with progressively higher enforcement and penalties placed increased pressure on screening of lending and operational activities across the global banking sector.

Increasingly, central banks and other bodies are promoting codes and best practice norms which are becoming part of the regulatory framework and which build on the requirements from international finance institutions for more stringent environmental and social risk management. The group contributed to the development of learning and development programmes which would give effect to the Banking Association of South Africa’s (BASA) code on environmental and social risk management which was developed in 2012 and has been incorporated into the group’s policies.

Focus areas for 2014Occupational health and safety will be promoted. Environmental and social risk mitigation will be enhanced through improving the internal management of such risks, including those posed by climate change, energy and water security, and by providing products and services to clients who are also faced with these challenges.

Legal risk

Year in briefThere was a significant increase in litigation against certain of our African businesses, all of which are being defended and none of which are expected to have a material adverse impact on the group. Legal resources were restructured and enhanced to improve the processes and controls to manage legal risks.

Focus areas for 2014The capacity of the legal resources in South Africa will continue to be enhanced to better service the transactions that originated outside of South Africa but are booked onto the South African balance sheet.

Additionally, the legal network will be improved to ensure minimum and uniform standards of legal support and more efficient access groupwide to available legal expertise.


Risk and capital management report Overview > Highlights continued

Insurance risk

Year in briefThe group focused on building capacity for the forthcoming solvency assessment management (SAM) regulations, including embedding a number of insurance risk-related policies across the group’s long- and short-term insurance operations.

Focus areas for 2014Focus will continue to be placed on the insurance risk components of the SAM programme. These include the implementation of economic capital methodologies.

Compliance risk

Year in brief In 2013, compliance saw the continued embedding of a culture of compliance throughout the group. This was manifested in training and awareness initiatives and increased automation of systems introduced to enhance regulatory compliance, especially in the money laundering and sanctions control areas. The regulatory focus on market conduct compliance gave rise to the establishment of a privacy office, the introduction of a protection of personal information project, and the implementation of a revised conflicts control model. Alignment of the compliance framework in our African banking operations gained momentum and continues to be a focus area for 2014. There has been an increased intensity in regulatory supervision of banks internationally.

The group’s UK subsidiary, SB Plc, was fined by the UK regulator for shortcomings related to the application of its own anti-money laundering policies and procedures. Extensive remediation exercises were undertaken to address these shortcomings.

Focus areas for 2014The 2014 compliance focus areas will be driven by supervisory expectations, international best practice and legislative developments impacting the financial services sector.

PG Regulatory and legislative developments are set out in annexure A on page 93.

The development of automated regulatory surveillance capability will continue in the areas of anti-money laundering and combating the financing of terrorism, sanctions management and market abuse, which are focus areas of regulators internationally.

A treating customers fairly (TCF) regulatory regime is being introduced in South Africa and an internal TCF programme has been created to assist in meeting the TCF outcomes. Other areas of focus inSouth Africa include the Financial Advisory and IntermediaryServices Act 37 of 2002, the South African Consumer Protection Act 68 of 2008 (Consumer Protection Act), the National Credit Act 34of 2005 and the recently promulgated Protection of Personal Information Act 4 of 2013 (PoPI). Training and awareness initiatives will continue to be undertaken to ensure that staff members are aware of their regulatory responsibilities relating to relevant legislation.

Governance framework

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

governance committees

governance documents such as standards, frameworks and policies.

Governance committeesGovernance committees within the RCCM governance framework are in place at both a board and management level. They have clearly defined mandates and delegated authorities which are reviewed regularly.

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Board committeesBoard subcommittees responsible for effective risk management comprise the GAC, the GRCMC, the SBSA large exposure credit committee and the group model approval committee. Key roles and responsibilities of these committees, as they relate to risk and capital management, are detailed in the sections that follow.

The group risk and capital management committee

The GRCMC provides independent oversight of risk, compliance and capital management across the group:

determining the group’s risk appetite as set out in the risk appetite framework and RAS

monitoring the current and future risk profile of the group to confirm that it is managed within risk appetite

approving macroeconomic scenarios used for stress testing, and evaluating the results of these and other stress tests

reviewing and providing oversight of the adequacy and effectiveness of the group’s RCCM governance framework

approving governance standards, frameworks and policies in terms of the RCCM governance framework

reviewing the impact on capital of significant transactions entered into by the group

reviewing reports on the implementation of an IT governance

framework and updates on significant IT investments

evaluating and approving significant outsourcing arrangements

assisting on such other matters as may be referred

to it by the GROC

promoting a risk awareness culture within the group

reporting to the board any matters within its remit where action

or improvement is needed and making recommendations

as to the steps to be taken.

The group audit committee

The GAC reviews the group’s financial position and makes

recommendations to the board on all financial matters, financial risks,

internal financial controls, fraud and, to the extent they impact

financial reporting, IT risks. In relation to risk and capital management,

the GAC plays a role in assessing the adequacy and operating

effectiveness of the group’s internal financial controls.

Minutes of the GRCMC meetings are tabled at the GAC meetings. In

order to ensure the independence of the compliance and audit

functions, the chairman of the GAC, who is also a member of the

GRCMC, meets with the group chief compliance officer (GCCO) and

RCCM governance committees

Standard Bank Group Board

Board committees

Group executive committees

Group risk and capital

management committee

Group audit committee

SBSA large exposure credit

committee1

Group model approval

committee

Solid line – direct reporting lineDotted line – indirect reporting line

PBB model approval

committee

CIB model approval

committee

1 A subcommittee of the SBSA board of directors.

IT steering committee

Group risk oversight

committee

Group executive committee

Group management committee


Risk and capital management report Overview > Governance framework continued

the group chief audit officer without management being present. In addition, the CRO reports on significant matters discussed at the GRCMC and GROC meetings.

SBSA large exposure credit committeeThe SBSA large exposure credit committee is designated by the SBSA board of directors to discharge the regulatory responsibility of ensuring compliance with the South African Banks Act 94 of 1990 (Banks Act) regulations in respect of large exposures. It meets as required and reports quarterly to the SBSA board of directors through its chairman on all large exposures as defined in the regulations.

Group model approval committeeThe group model approval committee is designated by the board to discharge the regulatory responsibility of reviewing and approving the group’s material models for credit risk. This committee is supported by the PBB and CIB model approval subcommittees which approve less material models requiring approval in terms of the regulations. The committees also approve models used by credit risk in their respective business lines which fall outside the regulatory approval requirements.

Management committeesGroup 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 risk profile and external factors.

GROC delegates authority to various subcommittees which deal with specific risk types or oversight activities. Matters are escalated to GROC, based on materiality, through reports or feedback from the subcommittee chairman.

The GROC subcommittees are as follows:

group stress testing and risk appetite committee

group equity risk committee

group regulatory and legislative oversight committee

group sanctions review committee

group country risk management committee

group compliance committee

intragroup exposure committee

group asset and liability committee (ALCO) (subcommittee: group capital management committee)

group operational risk committee

group internal financial control governance committee

PBB credit governance committee

CIB credit governance committee.

Group IT steering committeeThe purpose of the committee is to provide assurance to the group management committee and the board that management has implemented an efficient IT governance framework that supports the effective management of resources, optimisation of costs and the mitigation of risk in a secure and sustainable manner.

Three lines of defence modelThe 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. The second line of defence functions provide independent oversight of RCCM. 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 the RCCM governance framework at a legal entity level.

The second line of defence functions 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. All governance standards and frameworks are approved by the GRCMC. Compliance with the standards and frameworks is ensured through annual self-assessments by the second line of defence and reviews by internal audit (IA).

IA is the third line of defence and reports to and operates under a mandate from the GAC. In terms of its mandate, the IA function’s role is to provide independent and objective assurance. IA has the authority to independently determine the scope and extent of work to be performed. All IA employees in the group report functionally to the group chief audit officer and operationally to management of their legal entity.

Governance documentsGovernance 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, for effective oversight of compliance and effective management of capital.

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

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IFRS and Basel reporting frameworks

Tables in this report have been labelled to identify content required to be disclosed by International Financial Reporting Standards (IFRS) or Basel reporting frameworks.1

The differences in the principles underlying the IFRS and Basel reporting frameworks are summarised below.

PG Please refer to pages 117 to 307 for the audited financial statements.

Categorisation of exposures By Basel asset class which, under the internal ratings-based (IRB) approach, is based on homogeneous risk characteristics.

By class of financial instrument, taking into account the nature of the information to be disclosed and the characteristics of the underlying financial instruments.

Valuation Requires that fair value gains and losses attributable to own credit risk be excluded when calculating regulatory capital.

All changes in fair value (including fair value gains and losses attributable to own credit risk) on financial liabilities that, on meeting specific criteria, have been designated to be measured at fair value as well as held-for-trading liabilities are recognised in profit or loss.

Impairment of assets Impairment is based on the concepts of expected and unexpected losses.

Expected losses are accounted for through the level of impairments held against the underlying exposure. Statistical modelling of expected losses is required.

Unexpected losses are accounted for through holding regulatory capital in relation to the size and nature of the exposure held.

The difference between the Basel and IFRS impairment values produces a shortfall if the expected loss amount under Basel exceeds total impairments under IFRS, or an excess if total impairments exceed the expected loss amount. Basel requires shortfall amounts, if any, to be deducted from common equity tier I capital (CET I).

Assets measured at amortised cost and debt instruments classified as available-for-sale are specifically impaired and the resulting losses recognised only if:

there is objective evidence of impairment resulting from one or more events that have occurred after the initial recognition of the asset, and

that event has an impact on the estimated future cash flows of assets that can be reliably measured.

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 use of statistical models is permitted, but an event of default must occur before an impairment loss canbe recognised.

Principle Basel IFRS

1 The Basel and IFRS disclosures presented within this risk report include, unless otherwise specified, the exposures from our outside Africa global market operations which, for 2013 financial reporting purposes, have been classified as non-current assets and liabilities held for sale in terms of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations (IFRS 5).

IFRS and Basel reporting frameworks 11

Basel approaches adopted for regulatory

capital purposes 14

Risk and capital reporting frameworks


Risk and capital management report Risk and capital reporting frameworks > IFRS and Basel reporting frameworks continued

Default Defines default as the obligor being 90 days pastdue on the obligation (extended to 180 days forsome products).

Defines objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the asset.

Examples of objective evidence of impairment include:

actual breach of contract 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.

Principle Basel IFRS

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Reporting framework consolidation differencesIn 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 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 consolidation IFRS treatment

Banking,financial entity

or securities firm1 Insurance entity

Commercial entity

Standardisedapproach

IRB approach

Less than 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%.

IRB approach risk weight up to a maximum of1 250%.

Typically treated as an investment and is measured at fair value. Where the group has significant influence over that investment, equity accounting is applied.

Between 10% and 20%

Individual investments in excess of 10% of the group’s CET I capital are deducted from CET I capital. Apply the deduction method2 to individual investments less than 10% of the group’s CET I capital.

Between 20% and 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 in excess of 15% of the group’s CET I, additional tier I and tier II: risk weight 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%.

Aggregate of investments >60% of the group’s CET I, additional tier I and tier II: risk weight excess above 60%.

Individual investments in excess of 15% of the group’s CET I, additional tier I and tier II: risk weight 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%.

Equity accounting applied unless there is evidence of control in which case the group consolidates the investment into its results.

Greater than 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.

1 Other than financial entities acquired through realisation of security in respect of previously contracted debt (held temporarily); subject to other materially different rules and regulations or non-consolidation is 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%.


Risk and capital management report Risk and capital reporting frameworks continued

Basel approaches adopted for regulatory capital purposes

Basel provides various approaches for the calculation of regulatory capital to be held against each risk type. In general, there are three approaches per risk type:

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 specific approaches per risk type approved by regulators are specified in the relevant risk section.

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Objectives

The group’s capital management functionis designed to ensure that regulatoryrequirements are met at all times and thatthe group and its principal subsidiaries arecapitalised in line with the group’s riskappetite and target ratios, both of whichare approved by the board.

The capital management division within treasury and capital management (TCM) comprises:

Strategic capital management function: Key responsibilities are raising capital to enable growth opportunities and to provide an optimal capital structure, advising on the dividend policy, facilitating capital allocation, 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 are 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 are supporting the group’s operations in the rest of Africa and outside Africa.

Governance committees

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

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 banking group.

Basel III

The SARB adopted the Basel III framework introduced by the Basel Committee on Banking Supervision (BCBS) from 1 January 2013 and 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.

Objectives 15

Governance committees 15

Capital transferability 15

Basel III 15

Regulatory capital 17

Banking operations 17

Insurance operations 21

Economic capital 21



Risk-adjusted performance measurement 22

Cost of equity 22

A

A

Capital management


Risk and capital management report Capital management > Basel III continued

Basel III aims to improve the quality of capital, increase capital levels and remove inconsistencies in the definition of capital across jurisdications.

Objectives of Basel III

Increased quality, quantity

and consistency of capital

Increased focus on CET I Increased capital levels.

Increased risk coverage Credit valuation adjustment (CVA) 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% 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 and domestic

systemically important bank

(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 two buffers are complementary – that is, combined impact is less than or equal to 3.5% and is split over

all three tiers of capital.

Countercyclical buffer 0 – 2.5% capital buffer deployed by national jurisdictions when systemwide 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%.

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

CET I Conservation buffer Additional tier I Tier II

15

12

9

6

3

2013 2014 2015 2016 2017 2018 2019

4.50

1.50

3.50

9.50

6.00

2.50

3.25

14.00

2.25

6.25

1.88

3.00

13.01

1.88

6.50

1.25

1.50

12.00

2.75

6.50

1.38

11.01

6.50

2.00

10.00

1.50

5.50

1.50

10.00

3.00

0.625

SARB minimum ratios (capital as a % of risk�weighted assets)1 effective 1 January each year (%)

2.50

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

The SARB has adopted a principle-based approach in developing a framework for dealing with domestic systemically important banks in South Africa (South African D-SIB framework). 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. While the D-SIB loss-absorbency requirement imposed on banks will only become effective on 1 January 2016, the SARB has advised banks of their bank-specific loss-absorbency requirements in advance of the implementation date to allow banks sufficient time to account for the loss-absorbency requirement in their capital planning and management processes.

17




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.

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

CET I: ordinary share capital, share premium and retained earnings divided by total risk-weighted assets.

Tier I: CET I 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 II are included in tier I capital but are subject to regulatory phase-out requirements over a 10-year period, effective from 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 are included in total capital but are subject to regulatory phase-out requirements, over a 10-year period effective from 1 January 2013.

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

Tier I

Tier II

Tier III

Required capital

Capital adequacy1 (%)

20

15

10

5

2013201220112010200920082007

1 Basel II implemented 1 January 2008. Risk-weighted assets and capital adequacy for 2007 are on a Basel II pro forma basis. Basel III implemented 1 January 2013. Risk-weighted assets and capital adequacy for 2012 are on a pro forma Basel III basis. 2008 to 2011 are on a Basel II basis.

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 externally imposed capital requirements during the current and prior year.

The group’s CET I capital, including unappropriated profit, is R105,8 billion as at 31 December 2013 (2012: R89,5 billion). The group’s tier I capital, including unappropriated profit, is R110,8 billion as at 31 December 2013 (2012: R94,4 billion) and total capital, including unappropriated profit was R136,1 billion as at 31 December 2013 (2012: R120,2 billion). The above comparatives are disclosed on a Basel III pro forma basis.

The group has a balanced tier II subordinated debt maturity profile.

Callable date

SBG tier II instrument maturity profile (Rm)

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

2020201920182017201620152014

The group continues to monitor its leverage ratio while proposals regarding the calibration of the ratio are being finalised by the BCBS. The non-risk-based measure is designed to complement the Basel III risk-based capital framework. The group’s leverage ratio was 6.0% as at 31 December 2013, well in excess of the minimum SARB and BCBS requirements of 4% and 3% respectively.

A


Risk and capital management report Capital management > Regulatory capital continued

Basel III qualifying capital excluding unappropriated profits

2013Rm

20121,2

Rm

Normalised ordinary shareholders’ equity 131 475 114 619 Net IFRS adjustments (2 539) (3 534)

IFRS ordinary shareholders’ equity 128 936 111 085 Qualifying non-controlling interest 4 196 2 738 Less: regulatory adjustments: (27 298) (24 348)

Goodwill (3 747) (3 092)Other intangible assets (12 933) (10 445) Shortfall of provisions to expected losses (2 667) (2 108) Investments in financial, banking and insurance entities (4 705) (5 269)Other (3 246) (3 434)

Less: regulatory exclusions – unappropriated profit (9 328) (12 055)

CET I capital 96 506 77 420Qualifying perpetual preference shares 4 945 4 945 Qualifying non-controlling interest 55

Tier I capital 101 506 82 365

Tier II subordinated debt 24 273 25 020 General allowance for credit impairments 977 733

Tier II capital 25 250 25 753

Total regulatory capital 126 756 108 118

Total capital requirement 79 920 79 974

Total risk-weighted assets 841 272 841 835 1 Pro forma Basel III basis (unaudited). The Basel II tier I and tier II December 2012 capital amounts were R87 523 million and R22 887 million respectively.2 Restated. Refer to page 91.

Basel III risk-weighted assets and associated capital requirements

2013 20121

Risk-weighted assets

Rm

Capital requirement2

Rm


Rm

Capitalrequirement2

Rm

Credit risk 565 234 53 697 563 262 53 511

Portfolios subject to the standardised approach3 180 419 17 139 164 035 15 583

Corporate 82 750 7 861 107 699 10 231 Sovereign 57 930 5 503 25 742 2 445 Banks 4 349 413 5 240 498 Retail mortgages 8 717 828 6 961 661 Retail other4 26 399 2 508 17 968 1 707 Securitisation exposure 274 26 425 41

Portfolios subject to the foundation internal ratings-based (FIRB) approach 16 260 1 546 22 715 2 158

Corporate 15 562 1 478 15 947 1 515 Sovereign 301 29 1 716 163 Banks 397 39 5 052 480

Portfolios subject to the advanced internal ratings-based (AIRB) approach 341 983 32 488 350 514 33 300

Corporate 141 415 13 434 145 734 13 845 Sovereign 8 053 765 8 932 849 Banks 19 292 1 833 23 039 2 189 Retail mortgages 81 978 7 788 77 234 7 337 Qualifying retail revolving exposure (QRRE) 47 163 4 480 52 179 4 957 Retail other4 41 527 3 945 40 490 3 847 Securitisation exposure 2 555 243 2 906 275

Other assets 26 572 2 524 25 998 2 470

A

19




Basel III risk-weighted assets and associated capital requirements continued

2013 20121


Rm

Capital requirement2

Rm


Rm

Capitalrequirement2

Rm

Counterparty credit risk 50 121 4 761 59 343 5 637

Portfolios subject to the standardised approach3 4 423 421 2 584 245

Corporate 4 116 391 2 490 236 Sovereign 175 17 59 6 Banks 132 13 35 3

Portfolios subject to the FIRB approach 32 425 3 080 35 853 3 406

Corporate 22 737 2 160 25 140 2 388 Sovereign 1 657 157 886 84 Banks 8 031 763 9 827 934

Portfolios subject to the AIRB approach 13 273 1 260 20 906 1 986

Corporate 6 299 598 7 209 685 Sovereign 171 16 498 47 Banks 6 803 646 13 199 1 254

Equity risk in the banking book 15 961 1 516 16 343 1 552

Portfolios subject to the standardised approach3 422 40 805 76

Unlisted 422 40 805 76

Portfolios subject to the market-based approach 9 057 860 6 219 591

Listed 1 085 103 127 12 Unlisted 7 972 757 6 092 579

Portfolios subject to the probability of default (PD)/loss given default (LGD) approach 6 482 616 9 319 885

Market risk 69 964 6 647 69 244 6 578

Portfolios subject to the standardised approach3 30 354 2 884 32 293 3 068

Interest rate risk 26 079 2 478 22 979 2 183 Equity position risk 109 10 312 30 Foreign exchange risk 3 245 308 4 863 462 Commodities risk 921 88 4 139 393

Portfolios subject to the internal models approach 39 610 3 763 36 951 3 510

VaR-based 26 084 2 478 27 564 2 619

Interest rate risk 9 381 891 25 222 2 396 Equity position risk 8 025 762 16 704 1 587 Foreign exchange risk 18 711 1 778 7 566 719 Commodities risk 12 108 1 150 9 233 877 Diversification benefit (22 141) (2 103) (31 161) (2 960)

Non-VaR-based 13 526 1 285 9 387 891

Operational risk 115 489 10 971 112 689 10 705

Portfolios subject to the standardised approach3 65 404 6 213 112 689 10 705 Portfolios subject to the AMA 50 085 4 758

Risk-weighted assets for investments in financial entities 24 503 2 328 20 954 1 991

Total risk-weighted assets/capital requirement 841 272 79 920 841 835 79 974 1 Pro forma Basel III basis.2 Capital requirement at 9.5% excludes bank specific add-ons.3 Portfolios on the standardised approach relate to low volume structured products, interest rate specific risk and new products recently traded for which application to adopt

the internal models approach has not been submitted, and entities not on the internal models approach.4 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending exposures.


Risk and capital management report Capital management > Regulatory capital continued

Capital adequacy ratios

2013 SARB minimum

regulatory requirement

%

Internal target ratios

%

Including unappropriated profits

Excluding unappropriated profits

2013%

20121,2

%2013

%20121,2

%

Total capital adequacy ratio 9.5 12.5 – 15.0 16.2 14.3 15.1 12.8Tier I capital adequacy ratio 6.0 10.5 – 12.5 13.2 11.2 12.1 9.8CET I capital adequacy ratio 4.5 9.0 – 10.5 12.6 10.6 11.5 9.2

1 Pro forma Basel III basis.2 Restated. Refer to page 91.

Capital adequacy ratios of banking subsidiaries

Host tier I regulatory

requirements%

Host total regulatory

requirements%

2013 2012

Tier I capital%

Total capital%

Tier I capital%

Total capital%

Standard Bank Group1 6.02 9.52 13.2 16.2 11.2 14.3The Standard Bank of

South Africa Group1 6.02 9.52 12.8 16.5 10.6 13.8Rest of Africa

CfC Stanbic Bank (Kenya) 8.0 12.0 16.0 18.8 21.0 30.0Stanbic Bank Botswana 7.5 15.0 11.3 16.2 8.9 17.3Stanbic Bank Ghana 6.7 10.0 18.0 19.2 17.1 18.6Stanbic Bank Tanzania 10.0 12.0 14.9 16.9 13.4 15.4Stanbic Bank Uganda 8.0 12.0 17.1 21.2 15.7 20.0Stanbic Bank Zambia 5.0 10.0 19.3 21.8 18.1 20.7Stanbic Bank Zimbabwe 8.0 12.0 18.6 21.4 15.5 16.9Stanbic IBTC Bank (Nigeria) 5.0 10.0 14.0 16.9 15.7 16.7Standard Bank de Angola 5.0 10.0 9.3 14.0 15.6 15.6Standard Bank Malawi 6.0 10.0 14.4 16.0 17.2 21.9Standard Bank Mauritius 5.0 10.0 11.1 16.5 6.9 10.8Standard Bank Mozambique 4.0 8.0 12.4 13.3 16.6 17.7Standard Bank Namibia 7.0 10.0 10.8 12.1 10.2 11.8Standard Bank RDC (Democratic Republic of Congo) 5.0 10.0 25.6 37.7 25.4 30.7

Standard Bank Swaziland 4.0 8.0 10.7 14.3 10.6 15.0Standard Lesotho Bank 4.0 8.0 8.2 9.0 9.0 10.3Standard International

Holdings, consolidated3 15.0 19.1 15.1 21.7Standard Bank Isle of Man 10.0 10.8 12.9 9.6 11.8Standard Bank Jersey 11.0 9.2 13.4 11.2 15.8

1 December 2012 presented on a pro forma Basel III basis.2 Represents 2013 SARB Basel III minimum capital requirements.3 Incorporating: – Standard Bank Plc (UK) – Standard Merchant Bank (Asia) (Singapore).

21




Liberty* CAR coverage ratio

2013 2012

Statutory CAR1 Rm 4 548 2 791Available statutory capital Rm 11 695 7 558 Target CAR coverage ratio (times) 1.5 1.7Actual CAR coverage ratio (times) 2.6 2.7

1 Based on termination CAR.* Liberty Holdings Limited and its subsidiaries.

Insurance operationsThe quarterly and annual returns submitted to the Financial Services Board (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 minimum capital adequacy requirements (CAR) were met throughout 2013.

Standard Insurance Limited (SIL) regulatory capital adequacy

2013Rm

2012Rm

SIL solvency capital requirements (SCR) 475 450

SIL assets 1 679 1 312

SIL liabilities 604 378

SIL net assets (assets – liabilities) 1 075 934

SIL capital coverage ratio (net assets/SCR) 2.26 2.08

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 organisation’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.


Risk and capital management report Capital management > Economic capital continued

Banking operations

Economic capital by risk type at end of the period

2013Rm

20121

Rm

Credit risk 50 015 49 102 Equity risk 5 542 4 816 Market risk 1 439 1 973 Operational risk 8 590 7 455 Business risk 5 981 5 156 Interest rate risk in the banking book (IRRBB) 3 924 2 423

Economic capital requirement 75 491 70 925

Available financial resources 123 421 106 426

Economical capital

coverage ratio (times) 1,63 1,50

1 Restated. Refer to page 91.

Economic capital of R75,5 billion (2012: R70,9 billion) is the amount of permanent capital that is required to support the group 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 the group’s target rating of A- translating to a confidence level of 99.92%.

Available financial resources refers to capital supply as defined by the group for economic capital purposes. It represents permanent capital (ordinary shareholders’ equity and perpetual preference shares) adjusted for items such as future dividend payments and insurance-related reserves.

The available financial resources exceed the minimum economic capital requirement.

Insurance operationsInsurance operations are in the process of developing economic capital models to meet the future SAM requirements. These models will continue to change as the requirements of SAM are clarified. Liberty is currently participating in the third South African quantitative impact study (QIS). As part of QIS 3, Liberty will submit the solo and group entity requirements to the regulator in April and May 2014 respectively. Based on the results of the QIS 2 exercise, Liberty is satisfied that it is sufficiently capitalised to meet board, policyholder and regulator expectations.

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 industry standard capital asset pricing model. CoE is recalibrated twice a year using the latest estimates of risk-free rate, beta and equity risk premium.

The group applied a CoE of 13.4% in 2013 (2012:13.7%).

23




Risk appetite and stress testing activities areundertaken by teams at the centre, inbusiness lines and at a legal entity levelwithin the risk appetite and stress testinggovernance frameworks.

The group operated within board-approved risk tolerance throughout 2013.

Approach to risk appetite

DefinitionsThe 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 of risk an entity is generally willing to take in pursuit of its financial and strategic objectives, reflecting its capacity to sustain losses and continueto meet its obligations as they fall due, under both normal anda range of stress conditions. The metric is referred to as therisk appetite trigger.

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

Risk capacity: The maximum amount of risk the entity is ableto support within its available financial resources.

RAS: The documented expression of risk appetite and risk tolerance which has been approved by the entity’s relevant governance committee.

Risk profile: The amount or type of risk the entity is currently exposed to (current risk profile) or will be exposed to under both expected and stressed economic conditions (forward risk profile).

ProcessThe group’s risk appetite governance framework provides guidanceon the following:

the approach to setting risk appetite triggers and risk tolerance limits

responsibilities for monitoring risk profile

the escalation and resolution process where breaches occur.

Executive management is responsible for recommending the RAS, which is then approved by the GRCMC on behalf of the board. In developing the RAS, executive management considers group 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 at a minimum on an annual basis.

RASs at business line and legal entity level are congruent with the group RAS.

Risk appetite statement dimensionsEach RAS is made up of RAS dimensions. These dimensions maybe either qualitative or quantitative and include stressed earnings, liquidity, regulatory capital and economic capital.

The quantitative dimensions are translated into portfolio limits,for example, concentrations, credit loss ratios and VaR, andoperational limits, for example, facilities by borrower or counterparty.

Approach to risk appetite 23

Definitions 23

Process 23

Risk appetite statement dimensions 23

Approach to stress testing 24

Governance committee 24

Risk appetite and stress testing


Risk and capital management report Risk appetite and stress testing continued

Approach to stress testing

The group’s stress-testing governance framework sets out the responsibilities for and approach to stress-testing activities. Stress tests are conducted at group, business line and material legal entity level. The output supports a number of business processes, including:

the ICAAP

the strategic planning and budgeting process

capital planning and management

the setting of risk appetite and risk tolerance

the assessment of the impact of stress conditions on the current and forward risk profile

the development of risk mitigation or contingency plans across a range of stressed conditions

the assessment of the plausibility and adequacy of recovery actions in the group’s recovery and resolution plan.

Groupwide stress testing is conducted across all major risk types using a number of common scenarios. This groupwide stress testing is augmented by portfolio-specific stress testing and sensitivity analyses to identify the drivers of the group’s risk profile.

The appropriateness of the macroeconomic stress scenarios and the impact of these scenarios on the RAS dimensions are confirmed and approved by the GRCMC for use in the ICAAP and the broader capital planning process.

In addition to the stress tests conducted internally, the group has participated in a stress testing exercises conducted by the SARB on an industrywide basis.

Governance committee

The primary 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.

25




Definition

Credit risk is the risk of loss arising outof failure of client counterparties to meettheir financial or contractual obligationswhen due. Credit risk is composed ofcounterparty risk (including primary,pre-settlement, issuer and settlement risk)and concentration risk.

Banking operations

Approach to managing credit riskThe group’s credit risk comprises mainly wholesale and retail loansand advances, together with the counterparty credit risk arising from derivative contracts entered into with our clients and market counterparties.

The group manages credit risk through:

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

identifying, assessing and measuring credit risk clearly and accurately 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 stress conditions

monitoring the group’s credit risk relative to limits

ensuring that there is expert scrutiny and independent approvalof credit risks and their mitigation.

Primary responsibility for credit risk management resides with the group’s business lines. This is complemented with an independent

credit risk function embedded within the business units, which is in turn supported by the overarching group risk function.

Governance committees The primary governance committees overseeing credit risk are the SBSA large exposure committee (a board subcommittee), the GRCMC, the CIB and PBB credit governance committees, the group equity risk committee and the intragroup exposure committee (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 that is independent of the credit risk function.

Approved regulatory capital approachesThe group has approval from the SARB to adopt the AIRB approach for its credit portfolios in SBSA and the FIRB approach for Standard Bank Plc. The group has approval from the SARB to adopt the market-based approach for certain equity portfolios in SBSA while the risk-weighted IRB approach is used for Standard Bank Plc equity portfolios. The group has adopted the standardised approach for the rest of Africa portfolios and for some of its less material subsidiaries and portfolios.

Basel: 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.

Definition 25


Approach to managing credit risk 25


Approved regulatory capital approaches 25

Credit portfolio characteristics and metrics in terms of the Basel reporting framework 30

Credit portfolio characteristics and metrics in terms of the IFRS reporting framework 44


Reinsurance 53

Consolidated mutual funds 53

Credit exposure to debt instruments 54

Impairments 56

Credit risk


Risk and capital management report Credit risk > Banking operations continued

Basel: Standardised approachThe calculation of regulatory capital is based on net counterparty exposures after recognising a limited set of qualifying collateral, and applying rules specified according to the exposures’ characteristics and external agency credit ratings. The standardised approach differentiates between listed and unlisted equities.

External credit assessment institutions

Moody’s Investor Services

Standard&

Poor’s Fitch

Asset classCorporate ü üSovereign ü ü üBanks ü üSmall and medium enterprises ü ü

Probability of defaultThe group uses a 25-point master rating scale to quantify the credit risk for each borrower, as illustrated in the table on the following 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-makingand in managing credit risk exposures.

Basel: Exposure subject to the standardised approach per risk weighting

201320121

Exposure after mitigation

RmExposure

RmMitigation

Rm

Exposure after mitigation

Rm

Based on risk weights0% – 35% 18 590 201 18 389 2 121 50% 53 495 90 53 405 38 342

Rated 1 484 1 484 353 Unrated 52 011 90 51 921 37 989

75% 34 037 34 037 22 610100% and above 185 404 5 623 179 781 151 806

Rated 36 36 941 Unrated 185 368 5 623 179 745 150 865

Total 291 526 5 914 285 612 214 879


Basel: Internal ratings-based approachAll 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.

27




Relationship between the group master rating scale and external ratings

1 – 4 AAA to AA- Aaa, Aa1, Aa2, Aa3 AAA, AA+, AA, AA- AAA, AA+, AA, AA- Investment grade Normal monitoring

5 – 7 A+ to A- A1, A2, A3 A+, A, A- A+, A, A-

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

13 – 21 BB+ to B- Ba1, Ba2, Ba3, B1, B2, B3

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

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

Sub-investment grade

22 – 25 Below B- Caa1, Caa2,Caa3, Ca

CCC+, CCC, CCC- CCC+, CCC, CCC- Close monitoring

Default Default C D D Default Default

Group master rating scale

SARB risk bucket

Moody’s Investor Services

Standard & Poor’s Fitch Grading Credit quality

Loss given defaultLoss given default (LGD) 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 estimationof the capital charge and reflects the anticipated recovery ratesand macroeconomic factors in a downturn period.

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

Corporate, sovereign and bank portfoliosCorporate, sovereign and bank borrowers include South African and international companies, sovereigns, local and provincial government entities, bank financial institutions, non-bank financial institutionsand public sector entities. Corporate 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. Creditworthiness is assessed based on a detailed individual assessment of the financial strength of the borrower.

Specialised lending portfolioSpecialised lending includes project, object and commodity financeas well as income-producing real estate finance. Creditworthiness is assessed on a transactional level, rather than on the financial strength of the borrower, as the group relies on repayment from the cash flows generated by the underlying asset.

Where the slotting approach is applied for certain specialised lending asset classes, slotting criteria provided by the regulator are used. There were, however, no specialised lending exposures under the slotting approach as at 31 December 2013 and 31 December 2012.

Project finance transactions are assessed using PD and LGD scorecards. The transaction LGD per facility is calculated per loan tranche,net of collateral. Since a characteristic of specialised lending is that the financed asset forms an essential component of the recovery calculation, a realisable value is first calculated for the underlying asset. Additional forms of loss mitigation may be taken into account.

Equity portfolioThe PD/LGD approach is used to model the credit risk and capital requirement for equities. The group’s approved credit risk grade models are used together with the regulatory prescribed LGD of90% and maturity factor of five years. Where no suitable PD model exists for the equity investment, the simple risk-weighted approachis adopted.

Equity exposures under the simple risk-weighted method

2013Rm

2012Rm

Listed 89 218 Unlisted 2 569 2 294

Total 2 658 2 512



Basel: Analysis of PDs, EADs and LGDs by risk grade under the IRB approach

Average PD %

Corporate Sovereign Banks

EAD Rm

LGD %

Exposure weighted

average risk weight1

%EAD Rm

LGD %

Exposure weighted


%EAD Rm

LGD %

Exposure weighted


%

2013Non-default 294 713 78 442 90 270

1 – 4 0.02 64 42.08 13.07 15 020 44.38 8.15 1 947 39.52 13.38

5 – 7 0.06 11 639 42.10 24.03 293 45.00 27.55 43 117 41.46 22.05

8 – 12 0.29 113 047 33.31 41.02 60 089 17.16 11.83 35 872 43.83 41.29

13 – 21 2.19 169 228 30.95 69.17 2 951 27.35 59.61 9 322 47.24 88.07

22 – 25 30.84 735 28.52 118.62 89 35.27 187.90 12 59.16 328.51

Default 100.00 6 190 38.41 92.51 136 43.62 70 44.80

Total 300 903 32.42 78 578 22.91 90 340 42.96

2012Non-default 285 799 98 796 138 022

1 – 4 0.02 1 142 34.18 0.72 21 433 41.84 7.41 27 345 39.47 13.10 5 – 7 0.07 7 490 42.98 24.53 57 827 15.90 7.66 73 777 40.79 13.93 8 – 12 0.33 99 600 34.80 43.79 17 372 24.85 26.04 28 821 43.66 32.40 13 – 21 2.30 175 974 33.77 76.04 2 071 26.02 64.33 8 078 46.67 97.09 22 – 25 31.25 1 593 33.54 160.58 93 35.39 192.84 1 17.59 85.28

Default 100.00 8 452 41.03 174.66 109 43.52 53 45.07

Total 294 251 34.56 98 905 23.36 138 075 41.47

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

Retail portfolioRetail mortgage exposures relate to mortgage loans to individuals and are a combination of both drawn and undrawn EADs. QRRE relate to cheque accounts, credit cards and revolving personal loans and products, and include both drawn and undrawn exposures. Retail other covers other branch lending and vehicle finance for retail, retail small and retail 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.

29




Retail mortgages QRRE Retail other Equity

EAD Rm

LGD %

Exposure weighted


%EAD Rm

LGD %

Exposure weighted


%EAD Rm

LGD %

Exposure weighted


%Exposure

RmPD %

293 945 78 751 93 323 2 498

169 12.33 1.11 1 150 63.06 1.45 2 410 38.41 4.30

1 521 13.15 2.30 3 049 62.86 2.67 3 940 41.68 8.26

103 857 12.72 8.34 10 262 62.79 10.63 15 492 40.96 23.00 247 0.44

164 998 15.37 31.65 57 830 64.76 55.55 66 374 34.40 48.59 2 251 1.35

23 400 17.46 97.61 6 460 64.54 178.37 5 107 43.51 108.29

13 484 19.29 0.98 4 353 64.21 70.03 3 614 44.24 0.06 16

307 429 14.79 83 104 64.37 96 937 2 514

286 607 73 234 89 476 3 550

134 11.80 1.15 1 150 64.45 1.49 2 583 35.94 3.78 623 10.36 1.97 2 952 64.10 2.92 3 665 37.87 6.95

60 013 10.89 7.22 8 058 64.26 9.99 9 226 40.45 20.68 1 344 0.35 200 956 13.32 26.75 55 296 65.35 59.32 68 830 33.95 47.68 2 204 1.43

24 881 15.24 85.02 5 778 65.61 183.57 5 172 43.91 107.76 2 14.48

15 283 17.13 0.39 3 335 64.96 256.89 2 913 42.63 2.71 20

301 890 13.18 76 569 65.18 92 389 35.64 3 570



Credit portfolio characteristics and metrics in terms of the Basel reporting framework

Basel: Credit portfolio analysisThe credit portfolio is analysed in the tables that follow in terms of the Basel approach and asset class, industry, geography and residualcontractual maturity.

Basel: Exposure by approach and class1

On-balance sheet Off-balance sheetReverse repurchase and

resale agreements

Standard-isedRm

FIRBRm

AIRBRm

Standard-isedRm

FIRBRm

AIRBRm

Standard-isedRm

FIRBRm

AIRBRm

2013Corporate 75 504 13 064 198 900 27 349 3 144 95 622 1 940 33 255 16 980

Sovereign 59 150 14 697 60 634 506 3 507 1 350 1 119

Banks 48 283 8 608 37 231 1 570 956 11 864 263 20 060 62 761

Retail exposure 43 925 429 429 12 611 90 454

Retail mortgages 13 658 293 391 820 31 809

QRRE 1 56 089 35 461

Other retail 30 266 79 949 11 791 23 184

Total 226 862 36 369 726 194 42 036 4 100 201 447 3 553 53 315 80 860

2012Corporate 74 024 20 943 189 309 31 681 3 964 113 710 335 27 593 15 075 Sovereign 29 690 19 128 74 880 566 10 6 052 2 549 Banks 35 244 9 848 68 149 1 076 947 10 308 114 15 090 33 593 Retail exposure 31 983 409 570 10 423 88 055

Retail mortgages3 11 357 286 235 33 257 QRRE3 3 47 009 34 155 Other retail 20 623 76 326 10 423 20 643

Total 170 941 49 919 741 908 43 746 4 921 218 125 449 42 683 51 217

1 Excludes exposure to central counterparties (CCP) as shown on page 40.2 Amount before the application of any offset, mitigation or netting.3 Restated. Refer to page 91.

31




Derivative instruments Total by approach

TotalRm

EADGross

past due but not

impaired exposures

Rm

Gross defaulted

exposures2

Rm

Impairment of exposures

Standard-isedRm

FIRBRm

AIRBRm

Standard-isedRm

FIRBRm

AIRBRm

FIRBRm

AIRBRm

SpecificRm

PortfolioRm

4 480 11 074 22 369 109 273 60 537 333 871 503 681 33 455 267 448 537 7 877 3 590

190 641 1 233 61 196 15 338 66 493 143 027 16 093 62 485 1 134 95

862 30 502 41 147 50 978 60 126 153 003 264 107 25 230 65 110 70 1

56 536 519 883 576 419 487 470 30 878 24 271 10 293

14 478 325 200 339 678 307 429 17 235 13 923 3 914

1 91 550 91 551 83 104 5 106 4 594 2 874

42 057 103 133 145 190 96 937 8 537 5 754 3 505

5 532 42 217 64 749 277 983 136 001 1 073 250 1 487 234 74 778 882 513 31 416 32 352 13 979 5 469

2 026 12 282 20 901 108 066 64 782 338 995 511 843 40 515 253 736 496 11 101 4 127 40 1 606 1 478 30 296 20 744 84 959 135 999 21 390 77 515 6 108 77

737 27 264 65 445 37 171 53 149 177 495 267 815 25 006 113 069 53 1 42 406 497 625 540 031 470 848 28 095 23 325 8 311

11 357 319 492 330 849 301 890 16 774 15 647 4 155 3 81 164 81 167 76 569 3 259 3 335 1 507

31 046 96 969 128 015 92 389 8 062 4 343 2 649

2 803 41 152 87 824 217 939 138 675 1 099 074 1 455 688 86 911 915 168 28 597 34 587 12 516 5 188



Credit exposure to retail customers grew by 6.7% (R36,4 billion) during 2013, across all product types. Credit exposure to sovereigns increased by 5.2% (R7,0 billion), while credit exposure to corporate and bank customers decreased marginally. Credit exposure to African countries, excluding South Africa, increased by 31.8% (R63,4 billion). Sector and geographic concentrations remained largely unchanged.

In South Africa, mortgage credit impairments and non-performing loans both declined due to enhanced credit collection activities and a steady recovery in the South African housing market. Within instalment sale and finance leases, deterioration in credit quality within personal markets led to an increase in both non-performing loans and credit impairments off a relatively low base in 2012. The lending portfolio grew substantially, primarily in overdraft and revolving credit plan products, following a focused approach on limit changes and

higher limit utilisation in South Africa. Higher impairments werealso recorded due to the loan book growth, but the credit loss ratio declined slightly in 2013.

CIB’s credit losses declined by R943 million in 2013 and its credit loss ratio declined to a more normalised 0.36% from the high level of 0.63% in 2012, in spite of a small number of high value credit impairments in South Africa and Africa. The non-recurrence of specific impairment provisioning mainly against Middle East exposures that were no longer aligned with current strategy, as well as a recovery received in respect of a previously written-off exposure in CIB outside Africa assisted the improvement.

Standardised 2012 FIRB 2012 AIRB 2012

Standardised 2013 FIRB 2013 AIRB 2013

Basel: Exposure by approach and asset class (Rbn)

400

350

300

250

200

150

100

50

QRRERetail mortgagesBanksSovereignCorporate Other retail

33




Basel: Exposures by type of asset and industry1

On-balance sheet

Rm

Off-balance sheet

Rm

Reverse repurchase and resale

agreementsRm

Derivativeinstruments

Rm

Total gross exposure

Rm

Gross defaulted exposures2

Rm


SpecificRm

PortfolioRm

2013Agriculture 10 302 3 058 158 16 13 534 500 251

Mining 40 054 31 649 2 699 644 75 046 833 418

Manufacturing 55 687 25 880 425 1 827 83 819 1 549 609

Electricity 12 343 5 448 232 93 18 116 16 6

Construction 8 752 11 081 68 19 901 1 280 267

Wholesale 42 509 24 911 14 790 2 964 85 174 2 366 1 751

Transport 17 860 8 247 2 794 28 901 949 314

Finance, real estate and other business services 258 103 47 799 117 397 106 496 529 795 2 954 1 455

Private households 410 649 72 236 13 482 898 20 576 8 302

Other 133 272 17 274 2 027 885 153 458 1 329 606

Total 989 531 247 583 137 728 115 800 1 490 642 32 352 13 979 5 469

2012Agriculture 13 475 8 252 22 49 21 798 590 264 Mining 37 995 37 048 983 76 026 396 137 Manufacturing 55 000 23 899 1 074 2 475 82 448 4 430 723 Electricity 7 447 11 676 5 1 191 20 319 54 34 Construction 5 995 7 746 285 14 026 901 223 Wholesale 50 629 29 145 12 789 2 706 95 269 1 081 527 Transport 16 780 12 464 386 824 30 454 309 228 Finance, real estate and other business services 277 032 49 283 80 073 121 346 527 734 5 087 3 257 Private households 385 034 71 656 456 690 20 576 6 615 Other 113 381 15 623 1 920 130 924 1 163 508

Total 962 768 266 792 94 349 131 779 1 455 688 34 587 12 516 5 188

1 The on-balance sheet and derivative instruments exposures include exposures to CCPs as shown on page 40.2 Amount before the application of any offset, mitigation or netting.

Basel: Total gross exposure by type of industry (%)

36 Finance, real estate and other business services (2012: 36)31 Private households (2012: 32) 9 Other (2012: 9) 7 Wholesale (2012: 6)17 Agriculture, mining, manufacturing, electricity, construction and transport (2012: 17)



Basel: Exposures by type of asset and geographic region1

On-balance sheet

Rm

Off-balance sheet

Rm

Reverse repurchase and resale

agreementsRm

Derivativeinstruments

Rm


Rm

Gross defaulted exposures2

Rm


SpecificRm

PortfolioRm

2013South Africa 686 628 185 938 20 801 22 697 916 064 23 834 9 746

Other African countries 214 691 39 402 5 513 3 249 262 855 5 986 2 337

Europe 40 027 10 543 81 704 64 928 197 202 465 277

Asia 27 471 5 569 23 159 3 777 59 976 1 762 1 378

North America 10 168 3 989 456 20 291 34 904 174 107

South America 7 876 1 972 6 081 568 16 497

Other 2 670 170 14 290 3 144 131 134

Total 989 531 247 583 137 728 115 800 1 490 642 32 352 13 979 5 469

2012South Africa 672 533 200 064 18 755 28 578 919 930 23 944 8 072 Other African countries 157 070 38 904 673 2 804 199 451 4 119 1 758 Europe 66 063 11 990 47 408 60 299 185 760 493 115 Asia 41 900 7 413 20 068 3 246 72 627 2 666 2 235 North America 8 700 3 985 1 643 34 912 49 240 3 183 248 South America 11 529 3 724 4 907 1 770 21 930 182 88 Other 4 973 712 895 170 6 750

Total 962 768 266 792 94 349 131 779 1 455 688 34 587 12 516 5 188

1 The on-balance sheet and derivative instruments exposures include exposures to CCPs as shown on page 40.2 Amount before the application of any offset, mitigation or netting.

Basel: Total gross exposure by geographic region (%)

61 South Africa (2012: 63)18 Rest of Africa (2012: 14)21 Outside Africa (2012: 23)

35




Basel: Exposures by residual contractual maturity1

Less than 1 year

Rm

1 to 5 years

Rm

Greater than 5 years

Rm


Rm

2013Corporate 245 093 221 783 36 805 503 681

Sovereign 94 067 36 492 12 468 143 027

Banks 200 656 49 209 14 242 264 107

Retail exposure 168 122 62 753 345 544 576 419

Retail mortgages 8 962 4 124 326 592 339 678

QRRE 91 551 91 551

Other retail 67 609 58 629 18 952 145 190

Total 707 938 370 237 409 059 1 487 234

2012Corporate 235 998 225 723 50 122 511 843 Sovereign 87 050 29 549 19 400 135 999 Banks 154 545 87 647 25 623 267 815 Retail exposure 147 888 59 229 332 914 540 031

Retail mortgages 8 393 6 075 316 381 330 849 QRRE 81 167 81 167 Other retail 58 328 53 154 16 533 128 015

Total 625 481 402 148 428 059 1 455 688

1 Exclude exposures to CCPs as shown on page 40.



Basel: Loss analysisActual lossesThe table below shows the actual losses experienced in the group’s IRB exposure classes during the year ended 31 December 2013, compared to the comparable year ended 31 December 2012. Actual losses comprise impairments as determined by IFRS, and exclude post write-off recoveries. The values displayed in the table exclude all standardised approach portfolios. Actual losses for 2013 have increased from 2012 due to higher specific impairment charges in personal unsecured lending and business lending portfolios due to loan book growth.

Basel: Analysis of actual losses1

2013Rm

20122

Rm

IRB exposure classCorporate 1 078 1 519Sovereign 128Banks 156Retail exposure 7 308 6 734

Retail mortgages 2 496 3 388 QRRE 3 079 1 540 Other retail 1 733 1 806

Total 8 386 8 537

1 Excludes post write-off recoveries and all the standardised approach portfolios.2 Restated. Refer to page 91.

Regulatory expected 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 not identical.)

Estimated PDs are determined at the beginning of the 12-month period to 31 December 2013 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. The actual PDs are the defaults experienced over the 12-month period.

LGD estimates are determined at the beginning of the 12-month cycle 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 period 2010 to 2012 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. The calculated EAD ratios are averages over the period 2010 to 2012, to enable meaningful averages to be determined.

The analysis is based only on the AIRB portfolios.

All the actual default rates are lower than the estimated default rates illustrating the general level of conservatism the group applies to its low-default portfolio models.

The zero or low level of bank and sovereign defaults, experienced in the AIRB portfolio during the current and previous years under review, did not allow for meaningful calculation of an actual sovereign LGD value or meaningful calculation of sovereign or bank EAD ratios.

37




Basel: IRB exposure class1,2

PD LGD3 EAD

Estimated%

Actual%

Estimated%

Actual%

Estimateto actual ratio

%

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

Retail mortgages 4.53 4.24 18.71 14.97 102.57 QRRE 4.87 4.92 64.71 57.45 106.29 Other retail 4.94 4.33 41.07 41.76 112.71

Total 2.83 2.27 26.56 22.27 105.07

20124

Corporate 2.24 1.54 34.40 21.58 137.42 Sovereign 1.23 16.54 Banks 0.78 39.69 Retail exposure 4.21 4.12 26.61 22.60 105.10


Total 2.64 2.11 27.16 22.53 107.40

20114

Corporate 2.41 1.52 31.82 13.02 92.87 Sovereign 1.43 20.91 Banks 0.66 33.76 Retail exposure 4.43 4.10 27.69 22.03 103.38


Total 2.73 2.05 27.90 21.58 102.85

1 Excludes all the standardised approach 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.3 Excludes FIRB portfolios.4 Restated. Refer to page 91.



Basel: Credit risk mitigationCollateral, guarantees, 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 taken are:

mortgage bonds over residential, commercial and industrial properties

cession of book debts

bonds over plant and equipment

the underlying movable assets financed under leases and instalment sales.

Reverse repurchase agreements are underpinned by the assets being financed, which are mostly liquid and tradable financial instruments. 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, the group typically uses internationally recognised and enforceable International Swaps and Derivatives Association (ISDA) agreements, with a credit support annexure, where collateral support is considered necessary. Other credit protection terms may be stipulated, such as limitations on the amount of unsecured credit exposure acceptable, collateralisation if 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 where there is a positive correlation between counterparty default and transaction exposure, and a negative correlation between transaction exposure and the value of collateral

at the point of counterparty default. This risk is addressed by taking into consideration the high correlation between the default event and exposure to the counterparty when calculating the potential exposure and security margin requirements on these transactions. The group monitors and manages its concentrations to credit risk mitigation types, for example, residential property collateral.

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.

Basel: Exposure and mitigation by asset class (Rbn)

600

500

400

300

200

100

Corporate Banks Sovereign Retail

Gross exposure 2012

Gross exposure 2013

Credit risk mitigation 2012

Credit risk mitigation 2013

A A

39




Basel: Credit risk mitigation for portfolios under the IRB approach

Eligible financial

collateralRm

Other eligible IRB

collateralRm

Guarantees and credit

derivativesRm

Effects of netting

agreementsRm

Total credit risk

mitigationRm

Total exposure1

Rm

2013Corporate 65 620 57 459 15 771 20 807 159 657 394 408

Sovereign 1 545 367 1 004 2 916 81 831

Banks 83 563 160 60 531 144 254 213 129

Retail exposures 374 862 374 862 519 883

Retail mortgages 317 383 317 383 325 200

QRRE 313 313 91 550

Other retail 57 166 57 166 103 133

Total 150 728 432 688 15 931 82 342 681 689 1 209 251

2012Corporate 61 275 47 148 17 939 22 618 148 980 403 777 Sovereign 4 349 491 287 985 6 112 105 703 Banks 43 635 2 212 73 477 119 324 230 644 Retail exposures 357 356 357 356 497 625

Retail mortgages 313 213 313 213 319 492 QRRE 333 333 81 164 Other retail 43 810 43 810 96 969

Total 109 259 404 995 20 438 97 080 631 772 1 237 749

1 Excludes exposure to CCPs as shown on page 40.

Basel: Credit risk mitigation for portfolios under the standardised approach

Eligible financial

collateralRm

Guarantees and credit

derivativesRm

Effects of netting

agreementsRm

Total credit risk

mitigationRm

Total exposure1

Rm

2013Corporate 5 659 414 2 199 8 272 109 273

Sovereign 61 196

Banks 255 1 256 50 978

Retail 56 536

Total 5 914 414 2 200 8 528 277 983

20122

Corporate 2 942 220 234 3 396 108 066 Sovereign 30 296 Banks 114 114 37 171 Retail 4 4 42 406

Total 3 060 220 234 3 514 217 939

1 Excludes exposure to CCPs as shown on page 40.2 Restated. Refer to page 91.



Basel: Concentration riskThe group maintains a portfolio of credit risk that is adequately diversified and avoids unnecessarily excessive concentration risks. Diversification is achieved through setting maximum exposure guidelines to individual counterparties and sectors.

Basel: Counterparty credit riskThe group is exposed to credit risk on derivative contracts, which arises as a result of counterparty credit risk and movements in the fair value of securities financing and OTC 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 risk is affected by the nature of the trades, the creditworthiness of the counterparty, and 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 recognised, 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 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.

The tables that follow detail the group’s exposure to securities financing transactions and derivatives. Securities financing transactions include reverse repurchase agreements, resale agreements, securities lending and securities borrowing agreements for all relevant Basel asset classes and collateral held.

Basel: Securities financing transactions

2013Rm

2012Rm

ExposureWith master netting agreement 42 459 36 523 Without master netting agreement 93 270 57 827

Total 135 729 94 350

CollateralCash 40 581 30 764 Commodities 7 880 13 852 Debt securities 93 302 35 560 Equities 6 584 5 135

Total 148 347 85 311

EAD 10 416 19 021

Following the implementation of Basel III by the SARB in January 2013, the group now holds capital against exposures to CCPs as shown in the table below.

Basel: Analysis of central counterparty trade exposure

Initial margin

Rm

Prefundeddefault fund

contributionsRm

Trade exposure

Rm

2013Qualified CCP 9 779 356 3 403

Non-qualified CCP 5

Total 9 779 356 3 408

A

41




Basel: Derivatives exposure

20131 2012

Non-centrally cleared

Rm

Centrally cleared Non-centrally cleared

Rm

On behalf of clients

Rm

Total exposure to CCPs

Rm

Notional principal amountInterest rate products 4 036 291 2 162 459 4 823 102 Forex and gold 1 905 490 71 124 1 661 683 Equities 49 352 159 041 228 040 25 609 Precious metals 45 204 3 9 046 67 340 Other commodities 193 094 18 326 109 984 181 407 Credit derivatives 176 316 196 876

Protection bought 95 201 109 434 Protection sold 81 115 87 442

Total 6 405 747 177 443 509 653 6 956 017

Netted current credit exposure (net fair value)Gross positive fair value 111 045 379 3 301 131 779

Interest rate products 51 688 744 83 534 Forex and gold 47 455 34 585 Equities 3 113 339 589 2 199 Precious metals 1 963 76 2 926 Other commodities 4 407 40 1 892 5 589 Credit derivatives 2 419 2 946

Protection bought 1 362 1 726 Protection sold 1 057 1 220

Netting benefits (86 625) (248) (333) (97 315)

Total 24 420 131 2 968 34 464

EAD 58 914 2 925 13 949 68 889

CollateralCash 14 767 10 928 Gold 3 15 Debt securities 1 525 1 118

Total 16 295 12 061

1 Basel III reporting requirement applicable from 1 January 2013 only.



Basel: SecuritisationSecuritisation is a transaction whereby the credit risk associated with an exposure, or pool of exposures, is tranched and where payments to investors 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 exposures are not removed from the balance sheet of the originator.

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 securitisation notes.

The SEs used by the group are:

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




Siyakha Fund (RF) Limited (Siyakha)

Blue Titanium Conduit (RF) Limited (BTC)

Basel: Roles fulfilled in securitising assets

Securitisation transactions Originator Investor ServicerLiquidity provider

Creditenhancement

providerSwap

counterparty

Traditional securitisations

BG 1 ü ü ü üBG 2 ü ü ü ü üBG 3 ü ü ü ü üBG 4 ü ü ü ü üSiyakha ü ü ü ü ü

Asset-backed commercial

paper programme

BTC ü ü ü ü

Third-party transactions ü ü ü ü

Basel: Securitisation transactions

Asset typeYear

initiatedExpected

close

Assets securitised

Rbn

Assets outstanding

Notes outstanding1

Retained exposure1,2

2013Rbn

2012Rbn

2013Rbn

2012Rbn

2013Rbn

2012Rbn

Traditional securitisations 17,9 10,0 11,1 11,0 12,2 5,9 5,5

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

Asset-backed commercial paper programme

BTC4 Various 2002 N/A N/A 4,3 4,4 4,3 4,5 0,3 0,3

Total 17,9 14,3 15,5 15,3 16,7 6,2 5,8

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

43




For originated and sponsored or administered securitisations consolidated under IFRS (that is, Siyakha Fund, Blue Granite and Blue Titanium Conduit) intragroup exposures to and between these securitisations have been eliminated and the underlying assets consolidated in the relevant sections (that is, primarily retail mortgages) of the risk disclosure. Only exposures to securitisations of assets originated by third parties are disclosed below and on the following page. The approach applied in the calculation of risk-weighted assets is dependent on the group’s model approval 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. For local securitisations in South Africa, Moody’s Investor Services and/or Fitch act as rating agencies. R2,3 billion securitisation activities took place during the year ended 31 December 2013 (31 December 2012: nil) (relates to the facilitation of the securitisation of third-party assets into a structured entity thatis not consolidated by the group).

The transfer of assets 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 on sales recognised in the financial statements.

Basel: Securitised on-balance sheet exposures

2013 2012

Retail mortgages

RmRetail loans

RmTotal

RmTotal

Rm

Standardised – unrated1 100 100 250IRB 1 029 523 1 552 2 979

Unrated1 141 141

Investment grade 888 523 1 411 2 918Sub-investment grade 61

Total 1 029 623 1 652 3 229

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

Basel: Securitised off-balance sheet exposures

2013 2012

Retail mortgages

Rm Retail loans

Rm Total

Rm Total

Rm

Standardised – unrated1 400 400 250 IRB 3 171 254 3 425 3 927

Unrated1 2 701 2 701 3 196 Investment grade 470 254 724 731

Total 3 171 654 3 825 4 177

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



Basel: Securitisation by approach – risk-weighted assets

2013Rm

2012Rm

IRB 473 1 000 Standardised 274 297

Total 747 1 297

Credit portfolio characteristics and metrics

in terms of the IFRS reporting framework

Analysis of loans and advancesThe tables on the pages that follow analyse the credit quality of loans and advances measured in terms of IFRS.

PG Refer to pages 11 to 12 for an understanding of the principal differences between IFRS and Basel.

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

Performing loansNeither past due nor specifically impaired loans are loans that 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 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 not expected but could occur if the adverse conditions persist.

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 discontinued 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.

45




Non-performing loans

Loans

20131 780 159

20122 750 236

Normal monitoring (Rm)

20122 20 972

20131 18 311

Close monitoring (Rm)

20131 6 343

2012 9 514

Substandard (Rm)

20131 18 128

2012 17 028

Doubtful (Rm)

20131 4 650

2012 3 917

Loss (Rm)

Performing loans

20131

798 470

20122

771 208

Neither past due nor specifically impaired loans

(Rm)

20131

31 416

20122

28 597

Early arrears but not specifically impaired loans

(Rm)

20131

978

2012

1 332

Non-performing but not specifically impaired loans

(Rm)

20131

29 121

2012

30 459

Specifically impaired loans (Rm)

1 Excluding discontinued operation.2 Restated. Refer to page 91. Portfolio credit impairments. Specific credit impairments.



IFRS: Maximum exposure to credit risk by credit quality

Gross advances

totalRm

Performing loans

Neither past due nor specifically impaired Not specifically impaired

Normalmonitoring

Rm

Close monitoring

Rm

Early arrears

Rm

Non-performing1

Rm

2013Personal & Business Banking 555 572 482 250 17 921 31 300

Mortgage loans 308 908 267 160 10 469 17 292

Instalment sale and finance leases 70 700 62 467 1 789 4 197

Card debtors 27 786 22 550 1 882 2 058

Other loans and advances 148 178 130 073 3 781 7 753

Personal unsecured lending 50 476 39 457 1 906 5 055

Business lending and other 97 702 90 616 1 875 2 698

Corporate & Investment Banking 350 880 344 376 390 116 978

Corporate loans 308 667 302 825 390 92 918

Commercial property finance 42 213 41 551 24 60

Other services (46 467) (46 467)

Gross loans and advances 859 985 780 159 18 311 31 416 978

Discontinued operations loans and advances 58 838 58 564

Less:Impairments for loans and advances (19 166)

Tutuwa2 loans and advances IFRS adjustment (1 199)

Discontinued operations loans and advances (58 838)

Net loans and advances 839 620

Add the following other banking activities exposures:Cash and balances with central banks 53 310

Derivative assets 61 657

Financial investments 104 822

Trading assets 53 982

Pledged assets 5 365

Other financial assets 10 524

Total on-balance sheet exposure of continuing operations 1 129 280

Discontinued operation – financial assets 182 206

Total on-balance sheet exposure 1 311 486

Off-balance sheet exposureLetters of credit and bankers’ acceptances 17 303

Guarantees 50 287

Irrevocable unutilised facilities 77 695

Commodities and securities lending transactions 9 365

Total exposure to credit risk 1 466 136

1 Includes loans of R42 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment (BEE) ownership initiative.

A

47





Specifically impaired loans

Total non-

performing loans

Rm

Non-performing

loans %

Sub-standard

RmDoubtful

RmLossRm

TotalRm

Securitiesand

expectedrecoveries

onspecifically

impairedloans

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

%

5 532 14 901 3 668 24 101 13 585 10 516 10 516 44 24 101 4.3

3 835 9 623 529 13 987 10 044 3 943 3 943 28 13 987 4.5

305 1 253 689 2 247 1 092 1 155 1 155 51 2 247 3.2

230 337 729 1 296 372 924 924 71 1 296 4.7

1 162 3 688 1 721 6 571 2 077 4 494 4 494 68 6 571 4.4

503 2 357 1 198 4 058 1 131 2 927 2 927 72 4 058 8.0

659 1 331 523 2 513 946 1 567 1 567 62 2 513 2.6

811 3 227 982 5 020 1 734 3 286 3 286 65 5 998 1.7

512 3 012 918 4 442 1 317 3 125 3 125 70 5 360 1.7

299 215 64 578 417 161 161 28 638 1.5

(1) 1 1

6 343 18 128 4 650 29 121 15 318 13 803 13 803 47 30 099 3.5

251 23 274 98 176 176 64 274 0.5



IFRS: Maximum exposure to credit risk by credit quality continued

Gross advances

totalRm

Performing loans

Neither past due nor specifically impaired Not specifically impaired

Normal monitoring

Rm

Closemonitoring

Rm

Early arrears

Rm

Non-performing1

Rm

20122

Personal & Business Banking 502 168 430 757 20 368 28 567

Mortgage loans 299 675 255 240 11 824 16 864 Instalment sale and finance leases 62 860 54 950 3 089 3 220 Card debtors 24 052 19 371 2 009 1 780 Other loans and advances 115 581 101 196 3 446 6 703

Personal unsecured lending 42 667 34 664 1 465 3 992 Business lending and other 72 914 66 532 1 981 2 711

Corporate & Investment Banking 358 154 348 205 604 30 1 332

Corporate loans 320 190 311 198 604 25 1 135 Commercial property finance 37 964 37 007 5 197

Other services (28 726) (28 726)

Gross loans and advances 831 596 750 236 20 972 28 597 1 332

Less:Impairments for loans and advances (17 704)Tutuwa loans and advances IFRS adjustment (2 721)


Add the following other banking activities exposures:Cash and balances with central banks 61 985 Derivative assets 118 353 Financial investments 93 474Trading assets 114 435 Pledged assets 11 640 Other financial assets 22 302

Total on-balance sheet exposure 1 233 360Off-balance sheet exposureLetters of credit and bankers’ acceptances 14 218 Guarantees 45 247 Irrevocable unutilised facilities 84 606Commodities and securities lending transactions 12 523

Total exposure to credit risk 1 389 954

1 Includes loans of R256 million that are past due but not specifically impaired. 2 Restated. Refer to page 91.

A

49





Specifically impaired loans

Total non-

performing loans

Rm

Non-performing

loans%

Sub-standard

RmDoubtful

RmLossRm

TotalRm

Securities and

expected recoveries

on specifically

impaired loans

Rm

Net after securities

and expected

recoveries on

specifically impaired

loansRm

Balance sheet

impairments for non-

performing specifically

impaired loans

Rm

Gross specific

impairment coverage

%

6 276 13 245 2 955 22 476 13 862 8 614 8 614 38 22 476 4.5

4 966 10 088 693 15 747 11 581 4 166 4 166 26 15 747 5.3 221 692 688 1 601 814 787 787 49 1 601 2.5 159 233 500 892 312 580 580 65 892 3.7 930 2 232 1 074 4 236 1 155 3 081 3 081 73 4 236 3.7

475 1 292 779 2 546 638 1 908 1 908 75 2 546 6.0 455 940 295 1 690 517 1 173 1 173 69 1 690 2.3

3 238 3 783 962 7 983 4 082 3 901 3 901 49 9 315 2.6

2 914 3 537 777 7 228 3 507 3 721 3 721 51 8 363 2.6 324 246 185 755 575 180 180 24 952 2.5

(1) 1 1

9 514 17 028 3 917 30 459 17 943 12 516 12 516 41 31 791 3.8



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

2013Personal & Business Banking 20 569 7 142 3 589 31 300

Mortgage loans 10 701 4 431 2 160 17 292

Instalment sale and finance leases 2 869 951 377 4 197

Card debtors 1 251 507 300 2 058

Other loans and advances 5 748 1 253 752 7 753

Personal unsecured lending 3 654 858 543 5 055

Business term lending and other 2 094 395 209 2 698

Corporate & Investment Banking 26 90 42 158

Corporate loans 2 90 42 134

Commercial property finance 24 24

Total 20 595 7 232 3 589 42 31 458

20121

Personal & Business Banking 18 356 6 647 3 564 28 567

Mortgage loans 10 118 4 431 2 315 16 864 Instalment sale and finance leases 2 317 695 208 3 220 Card debtors 1 138 407 235 1 780 Other loans and advances 4 783 1 114 806 6 703

Personal unsecured lending 2 692 729 571 3 992Business term lending and other 2 091 385 235 2 711

Corporate & Investment Banking 30 12 244 286

Corporate loans 25 12 244 281 Commercial property finance 5 5

Total 18 386 6 647 3 564 12 244 28 853


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 will likely continue after the restructure. Loans renegotiated in 2013 that would otherwise bepast due or impaired comprised R6,7 billion (2012: R4,7 billion). Renegotiated loans that have arisen from secured lending predominantly comprise mortgage loans amounting to 51% (2012: 71%) of this amount.

IFRS: 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.

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.

A

A

51




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, 56% (2012: 58%) is fully collateralised. The R2 703 million (2012: R6 410 million) 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 90% (2012: 90%).

Of the group’s total exposure, 36% (2012: 40%) is unsecured and mainly reflects exposures to well-rated corporate counterparties, bank counterparties and sovereign entities.

IFRS: Collateral

Total exposure

Rm

Un-secured

Rm

Secured exposure

Rm

Netting agree-ments

Rm

Secured exposure

after netting

Rm

Total collateral coverage

Greater than 0% to 50%

Rm


Rm

Greater than

100%Rm

2013Corporate 530 760 212 061 318 699 22 756 295 943 77 758 145 895 72 290

Sovereign 123 877 110 394 13 483 575 12 908 698 11 322 888

Bank 251 039 67 673 183 366 56 073 127 293 7 239 60 660 59 394

Retail 494 908 112 504 382 404 1 382 403 2 703 103 508 276 192

Retail mortgage 313 246 7 901 305 345 305 345 1 082 33 798 270 465

Other retail 181 662 104 603 77 059 1 77 058 1 621 69 710 5 727

Total 1 400 584 502 632 897 952 79 405 818 547 88 398 321 385 408 764

Add: financial assets not exposed to credit risk 85 736

Less: impairments for loans and advances (19 166)

Less: unrecognised off-balance sheet items (154 650)

Less: Tutuwa and treasury shares IFRS adjustment (1 018)

Total exposure 1 311 486

Reconciliation to balance sheetCash and balances with central banks 53 310


Financial investments 104 822



Other financial assets 10 524

Discontinued operation – financial assets 182 206


Total on – balance

sheet exposure 1 311 486

A



IFRS: Collateral continued

Total exposure

Rm

Un-secured

Rm

Secured exposure

Rm

Netting agree-ments

Rm

Secured exposure

after netting

Rm

Total collateral coverage


Rm


Rm

Greater than

100%Rm

20121

Corporate 509 487 217 679 291 808 21 576 270 232 70 928 154 957 44 347Sovereign 134 854 129 351 5 503 988 4 515 605 2 122 1 788Bank 241 386 109 334 132 052 68 209 63 843 24 834 26 519 12 490Retail 454 654 83 388 371 266 46 371 220 6 410 102 847 261 963

Retail mortgage 301 539 315 301 224 301 224 882 39 769 260 573Other retail 153 115 83 073 70 042 46 69 996 5 528 63 078 1 390

Total 1 340 381 539 752 800 629 90 819 709 810 102 777 286 445 320 588

Add: financial assets not exposed to credit risk 69 878Less: impairments for loans and advances (17 704)Less: unrecognised off-balance sheet items (156 594)Less: Tutuwa and treasury shares IFRS adjustment (2 601)

Total exposure 1 233 360

Reconciliation to balance sheetCash and balances with central banks 61 985Derivative assets 118 353Financial investments 93 474Trading assets 114 435Pledged assets 11 640Other financial assets 22 302Net loans and advances 811 171

Total on – balance

sheet exposure 1 233 360


A

53




Insurance operations

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 liability as primary insurer. In addition, reinsurance debtors are raised for specific recoveries on claims recognised.

Creditworthiness is assessed prior to the appointment of reinsurers. Financial position strength, performance, track record, relative size or ranking within the industry and credit ratings of reinsurers are taken into account when determining the allocation of business to reinsurers. Credit exposure to reinsurers is also limited through the use of several reinsurers. These reinsurers are reviewed at least annually.

To further mitigate credit exposures to reinsurers the following checks are undertaken annually as a minimum:

analyses of reports on reinsurers’ claim paying abilities as assessed by reputable ratings agencies

analyses of valuators’ certificates

audits of administration processes of reinsurers to whom Liberty has larger exposures

reviews and renegotiation of reinsurance agreements.

Consolidated mutual fundsLiberty invests in various registered mutual funds to provide for obligations under policyholders’ funds as well as to invest surplus liquidity. Liberty assesses the funds in which it has invested to determine whether such funds are controlled by Liberty, in which case the funds are consolidated into the group’s results.

Each fund has its own legal constitution and operates within a distinct mandate that is delegated to the appointed fund manager. Market and credit risks assumed within the assets held are controlled by various protection mechanisms within the mandate and in law. For example, the South African Collective Investment Schemes Control Act 45 of 2002 prescribes maximum limits to concentration risk exposures.

Each fund’s trustees or board appoints administrators who are responsible for ensuring that the fund’s mandate, and any internal and legislated control procedures, are adhered to. In the event of breach, they are obligated to immediately notify the fund trustees or board and management of the administrators for remedial action.

Liberty’s credit exposure generated through unconsolidated mutual funds is classified at fund level under pooled funds and not at the underlying asset level. Although mutual funds themselves are not rated, fund managers are, however, 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.

The mutual funds, into which Liberty and the group has invested and which are defined as subsidiaries, are managed by Stanlib Limited, a wholly-owned Liberty subsidiary, or with respect to the 2012 financial year, Ermitage Funds Limited, an internationally-based asset manager.


Risk and capital management report Credit risk > Insurance operations continued

Credit exposure to debt instrumentsThe table below provides information regarding the aggregated credit risk exposure of Liberty to debt instruments categorised by credit ratings, if available, as at 31 December 2013.

Exposure to credit risk

A and above

Rm BBB+

Rm

2013Debt instruments 4 566 39 978

Investment policiesLocal prepayments, insurance and other receivables 11

Foreign prepayments, insurance and other receivablesReinsurance assetsDerivatives and collateral deposits 1 004 2 062

Loan receivables to joint arrangementsCash and cash equivalents 1 224 1 007

Total assets bearing credit risk 6 794 43 058

Aggregated credit risk exposure by shareholder and policyholderAssets bearing credit risk exposure attributable to shareholdersAssets bearing credit risk exposure attributable to policyholdersAssets bearing credit risk exposure attributable to non-controlling interest

Total assets bearing credit risk

20121

Debt instruments 21 067 22 119 Investment policiesLocal prepayments, insurance and other receivables 22 17 Foreign prepayments, insurance and other receivablesReinsurance assets 41 Derivatives and collateral deposits 1 906 1 573 Loan receivables to joint arrangementsCash and cash equivalents 926 1 745

Total assets bearing credit risk 23 962 25 454

Aggregated credit risk exposure by shareholder and policyholderAssets bearing credit risk exposure attributable to shareholdersAssets bearing credit risk exposure attributable to policyholdersAssets bearing credit risk exposure attributable to non-controlling interest

Total assets bearing credit risk


A

55




BBB Rm

BBB- Rm

BB+Rm

BBRm

BBB and below

Rm

Not rated

Rm

Pooled funds

Rm

Total carrying

value Rm

9 475 14 582 2 160 2 971 637 2 315 14 551 91 235

25 271 1 085 26 356

24 130 51 8 3 003 3 227

614 614

35 1 026 3 29 516 1 609

1 450 128 49 4 693

4 4

1 943 105 1 383 90 729 6 481

38 198 15 971 2 160 4 408 764 8 315 14 551 134 219

56 261

59 014

18 944

134 219

11 678 366 2 884 3 490 470 3 639 19 403 85 116 23 304 23 304

8 41 61 2 897 3 046 582 582

(2) 893 2 236 1 170 375 147 138 4 139

4 4 3 020 469 1 156 7 316

15 081 405 3 838 4 106 472 8 652 42 707 124 677

51 155 53 708 19 814

124 677


Risk and capital management report Credit risk > Insurance operations continued

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

Financial assets impaired

2013 Rm

2012 Rm

Loans1

Gross carrying value 1 253 1 098 Less: accumulated impairment (39) (42)

Net carrying value 1 214 1 056

1 Loans, comprising of policy loans, are impaired when the amount of the loan exceeds the policyholder’s investment balance. The fair value of loans is R1 091 million (2012: R936 million). The loans are recoverable through offset against their respective liabilities (policy benefits) at policy maturity date.

A

57




Definition

Country risk, also referred to as cross-border transfer risk, is the uncertainty that a client or counterparty, including the relevant sovereign, will be able to fulfil its obligations to the group due to 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, with credit loan conditions and covenants linked to country risk events.

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, or sovereign risk grade, transfer and convertibility (SB) rating scale from or 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.


The primary 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.

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 rating’s impact on credit grades.

Country risk portfolio characteristicsand 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. Exposure to troubled Eurozone peripheral countries is limited and closely managed by the country risk function.

Definition 57

Approach to managing country risk 57



Country risk portfolio characteristics and metrics 57

Country risk


Risk and capital management report Country risk > Country risk portfolio characteristics and metrics continued

Country risk exposure by region and risk grade

Europe%

Asia%

North America

%

Sub-Saharan

Africa%

Latin America

%

Middle East and

North Africa%

Australasia%

2013

Risk gradeCR01-CR07 24.7 6.3 8.3 0.6 0.3 1.9

CR08-CR11 0.4 11.3 5.2 2.8 1.6

CR12-CR14 6.1 0.8 9.6 0.1 0.5

CR15-CR17 0.3 0.4 14.9 0.5 0.1

CR18-CR21 0.1 2.0 0.1 0.1

CR22+ 1.0

20121

Risk gradeCR01-CR07 28.9 7.6 12.2 0.9 0.2 1.5CR08-CR11 2.4 11.7 3.8 5.6 1.8CR12-CR14 3.6 0.5 5.1 0.1 0.4CR15-CR17 0.3 1.0 9.1 1.0 0.2CR18-CR21 0.2 1.0 0.1 0.1CR22+ 0.7


Total medium- and high-risk country risk exposures and total low-risk country risk exposures for the year ended 31 December 2013 amounted to USD18 billion and USD14 billion, respectively (31 December 2012: USD21 billion and USD19 billion, respectively).1


Medium� and high�risk country exposure by region (%)

16

14

12

10

8

6

4

2

CR22+CR18-CR21CR15-CR17CR12-CR14CR08-CR11

Europe Sub-Saharan Africa Middle East and North Africa

Asia Latin America

59




Exposure to the top five medium- and high-risk countries is shown in the graph that follows. These exposures are in line with the group’s growth strategy focused on select emerging markets.

2012 2013

Top five medium� and high�riskcountry risk EAD (USDm)

3 500

3 000

2 500

2 000

1 500

1 000

500

China Nigeria Brazil Ghana Turkey

2012 2013

Medium� and high�risk country EAD concentration by country rating (%)

20.00

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

CR08 CR22+CR09 CR10 CR11 CR12 CR13 CR14 CR15 CR16 CR17 CR18 CR19 CR20 CR21



Definition

Liquidity risk is the risk that the group cannot maintain or generate sufficient cash resources to meet its payment obligations as they fall due.

Information relating to the year ended 31 December 2013 period is based on Basel III principles, including phasing-in requirements where applicable. In preparation for the implementation of Basel III, liquidity policies and calculations were reviewed and updated. The comparative financial information was subsequently restated.

Banking operations

Approach to managing liquidity riskThe nature of banking and trading 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. 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 liquidity risk management framework differentiates between:

Tactical (shorter-term) risk management: managing intraday liquidity positions and daily cash flow requirements, and monitoring adherence to prudential and internal requirements and setting deposit rates as informed by ALCO.

Structural (long-term) liquidity risk management: ensuring a structurally sound balance sheet, a diversified funding base and prudent term funding requirements.

Contingent liquidity risk management: monitoring and managing early warning liquidity indicators while establishing and maintaining contingency funding plans, undertaking regular liquidity stress testing and scenario analysis, and setting liquidity buffers in accordance with anticipated stress events.

Governance committeesThe primary governance committee overseeing this risk is the group ALCO, which is chaired by the group financial director and is a subcommittee of GROC.

Definition 60


Approach to managing liquidity risk 60



Liquidity characteristics and metrics 61

The group’s credit ratings 64

Conduits 65

Basel III liquidity requirements 65


Liquidity in the long-term insurance operations 65

Liquidity profile of assets 66

Maturity profiles of financial instrument liabilities in long-term insurance operations 66

Liquidity risks arising from obligations to policyholders 67

Liquidity requirements associated with issuance of subordinated debt 67

Liquidity risk

61




Approved regulatory capital approachesThere are no regulatory capital requirements for liquidity risk.

Liquidity characteristics and metrics

Structural liquidity mismatchStructural requirementsWith actual cash flows typically varying significantly from the contractual position, behavioural profiling is applied to assets, liabilities and off-balance sheet commitments with an indeterminable maturity or drawdown period, 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.

Structural liquidity mismatch analyses are performed regularly to anticipate the mismatch between payment profiles of balance sheet items, in order to highlight potential risks within the group’s defined liquidity risk thresholds.

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 expressedas a percentage of the group’s total funding-related liabilities.

Expected aggregate cash outflows are subtracted from expected aggregate cash inflows. Limits 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. The behaviourally adjusted cumulative liquidity mismatch remains within the group’s liquidity risk appetite.

2012 2013 Internal limit

Behaviourally adjusted cumulativeliquidity mismatch (%)1,2

15

10

5

0

(5)

(10)

(15)

(20)

(25)0 – 7days

0 – 1month

0 – 3months

0 – 6months

0 – 12months

1 December 2012 numbers have been restated in accordance with SBSA’s updated profiling policy, effective 1 January 2013. Refer to page 92.

2 Positive/(negative) represents net inflows/(net outflows).

Maturity analysis of financial liabilities by contractual maturityThe table that follows 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) and will, therefore, not agree directly to the balances disclosed in the consolidated statement of financial position.

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.

A


Risk and capital management report Liquidity risk > Banking operations continued

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

20131,2

Financial liabilitiesDerivative financial instruments 66 457 326 181 234 104 67 302

Instruments settled on a net basis 46 343 301 87 62 46 793

Instruments settled on a gross basis 20 114 25 181 147 42 20 509

Trading liabilities 36 988 36 988

Deposit and current accounts 552 360 47 801 118 458 44 824 518 282 1 281 725

Subordinated debt 124 2 566 459 18 424 21 573

Other 18 710 18 710

Total 655 929 66 837 121 205 45 517 536 810 1 426 298

Unrecognised financial

instrumentsLetters of credit and bankers’ acceptances 17 303 17 303

Guarantees 50 287 50 287

Irrevocable unutilised facilities 77 695 77 695

Commodities and securities borrowing transactions 5 635 322 442 6 399

Total 150 920 322 442 151 684

2012

Financial liabilitiesDerivative financial instruments 120 805 1 235 21 206 121 268

Instruments settled on a net basis 98 004 15 16 69 98 104 Instruments settled on a gross basis 22 801 1 220 5 137 23 164

Trading liabilities3 45 373 45 373Deposit and current accounts3 466 019 88 691 157 850 50 567 153 683 916 810Subordinated debt 74 3 609 627 27 565 31 875 Other 24 599 24 599

Total 632 271 113 291 161 694 51 215 181 454 1 139 925

Unrecognised financial

instrumentsLetters of credit and bankers’ acceptances 14 218 14 218 Guarantees 45 247 45 247 Irrevocable unutilised facilities3 84 606 84 606Commodities and securities borrowing transactions 5 849 193 709 106 6 857

Total 149 920 193 709 106 150 928

1 The 2013 amounts presented exclude the discontinued operation. 2 Excludes amounts relating to our outside Africa global market operations which, for 2013 financial reporting purposes, have been classified as non-current assets/liabilities

held for sale in terms of IFRS 5. 3 Restated. Refer to page 92.

Refer to the annual financial statements for the contractual discounted maturities of the financial assets and liabilities.

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Foreign currency liquidity managementWhilst following a consistent approach to liquidity risk management in respect of the foreign currency component of the balance sheet, 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.

Funding strategyFunding 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 employs a diversified funding strategy, sourcing liquidity in both domestic and offshore markets, and incorporates a coordinated approach to accessing loan and debt capital markets across the group.

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

Depositor concentrations

2013%

2012%

Single depositor 1.9 1.9Top 10 depositors 8.3 7.1

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.

Funding-related liabilities composition

2013Rbn

20121

Rbn

Corporate funding 294 273Retail deposits 245 211 Institutional funding 208 173Deposits from banks 110 124 Government and parastatals 98 101 Senior debt issued 31 31 Subordinated debt issued 29 29Other liabilities to the public 14 13

Total funding-related liabilities 1 029 955


A component of the 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 limits and guidelines. The long-term funding ratio is defined as those funding-related liabilities with a remaining maturity of greater than six months as a percentage of total funding-related liabilities. This definitionis derived from the SARB regulations in the South African market, and is different from the Basel III net stable funding ratio (NSFR), which defines long-term as greater than one year. The following graph illustrates the group’s long-term funding ratio for the period 31 December 2007 to 31 December 2013. The group’s long-term funding ratio was 19.4% at 31 December 2013 (2012: 24.3%).

The group’s long-term funding ratio has declined during 2013. This is in alignment with reduced long-dated asset hold positions, particularly in CIB, and the adoption of a more active term asset distribution strategy. This strategy has been adopted to position the group for Basel III regulations and to better utilise scarce and expensive capital and term funding resources. Notwithstanding the reduction of the long-term funding, the overall balance sheet liquidity mismatch position has improved slightly, as evidenced in the cumulative liquidity mismatch graph.

Long�term funding ratio1 (%)

30

25

20

15

10

5

December 2007 December 2013

1 Observations are at six-month intervals.


Risk and capital management report Liquidity risk > Banking operations continued

Contingency 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.

Liquidity stress testing and scenario analysisStress testing and scenario analysis are based on 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, however, adapted to meet different regulatory 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.

Liquidity bufferPortfolios of highly marketable liquid securities over and above prudential and regulatory 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 below provides a breakdown of the group’s liquid and marketable securities as at 31 December 2013 and 31 December 2012.

Total liquidity

2013Rbn

20121

Rbn

Contingent liquidity2 154,2 151,5Prudential and/or regulatory requirements3 68,6 60,6

Total liquidity 222,8 212,1

Contingent liquidity as a %

of funding-related liabilities 15% 16%

1 Restated. Refer to page 92.2 At a 30 calendar day time horizon period or relevant regulatory requirement period. 3 Includes notes and coins qualifying as liquid assets.

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

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 detailed table representing the major credit ratings for the group’s significant banking subsidiaries can be found on the group’s website, www.standardbank.com/reporting.

The following table provides a summary of the major credit ratings for SBSA.

Credit ratings – SBSA1

Long-term Fitch

Foreign currency issuer default rating BBB

RSA sovereign ratings: foreign currency BBB

Moody’s

Foreign currency deposit rating Baa1

RSA sovereign ratings: foreign currency A3

1 SBSA is the largest operating entity within the group.

Credit ratings for the group are dependent on multiple factors, including the 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 reduction 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.

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. The potential cumulative impact on additional collateral requirements is as follows:

Rating downgrade

2013Rm

2012Rm

One notch 645 554Two notches 1 066 931Three notches 1 091 971

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ConduitsThe group provides standby liquidity facilities to two conduits, namely Blue Titanium Conduit and Thekwini Warehouse Conduit. These facilities, which totalled R6,8 billion as at 31 December 2013 (2012: R7,6 billion), have 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 SBSA’s total funding (31 December 2012: 2%). The liquidity facilities are included in both the group’s structural liquidity mismatch as well as in liquidity risk stress testing.

Basel III liquidity requirementsFrom 2015, the group will be required to comply with the LCR, 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 and dividing it by net cash outflows. The minimum LCR requirement effective January 2015 is 60%, increasing by 10% annually to reach 100% in January 2019.

The group is on track to meet the minimum phased-in Basel III LCR standards.

From 2018, the group will also be required to comply with the NSFR, a metric designed to ensure that the majority of term assets are funded by stable sources, such as capital, term borrowings or funds from stable sources. The NSFR requirements are still being finalised by the BCBS.

Basel III implementation timeline

NSF

RLC

R

Liq

uid

ity

100%

100%

60%minimum standard

70%minimum standard

80%minimum standard

90%minimum standard

100%

Bank disclosure

starts

Bank disclosure

starts

2013 2014 2015 2016 2017 2018 2019


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 reviewed on a monthly basis. These requirements are also monitored on an ongoing basis as part of normal operating activities.

Liquidity in the long-term insurance operations

Financial asset liquidity

2013 20121

% Rm % Rm

Liquid2 75 249 114 74 208 715 Medium3 15 49 223 16 48 587Illiquid4 10 31 637 10 27 445

100 329 974 100 284 747

1 Restated. Refer to page 91. 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).

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Risk and capital management report Liquidity risk > Insurance operations continued

Liquidity profile of assetsAssets held are highly liquid. However, given the quantum of investments held 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. It is considered highly unlikely, however, that a short-term realisation of that magnitude would occur.

As is the case with all insurance companies, no maturity profile can be reliably given for investments in mutual funds, equities and non-term financial debt instruments given the volatility of equity markets and uncertain policyholder behaviour.

Maturity profiles of financial instrument liabilities

in long-term insurance operationsThe table below summarises the maturity profile of the financial

instrument liabilities in the long-term insurance operations on the

remaining undiscounted contractual obligations. This will, therefore,

not equal to the balances disclosed in the consolidated statement

of financial position. 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.

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Maturity profile of liabilities – contractual cash flows

0 – 3months1

Rm

4 – 12months

Rm

1 – 5 years

Rm

6 – 10 years

RmVariable

RmTotal

Rm

2013

At amortised costCallable capital bond 85 160 2 865 1 183 4 293

Redeemable preference shares2 5 5

Non-controlling interests’ loan 93 93

Third-party financial liabilities arising on consolidation of mutual funds 39 983 39 983

Insurance and other payables 9 261 350 69 36 9 716

Total 49 422 510 2 934 1 219 5 54 090

20123

Held for tradingCollateral deposits 679 679

At amortised costCallable capital bond 77 76 2 613 2 766 Non-controlling interests’ loan 93 93 Third-party financial liabilities arising on consolidation of mutual funds 30 015 30 015 Other loans 39 17 56 Insurance and other payables 8 119 75 36 8 230

Total 38 890 190 2 759 41 839

1 0 – 3 months are either due within the timeframe or are payable on demand.2 No fixed maturity date, however, redeemable with a two-year notice period at the instance of the company or the holder.3 Restated. Refer to page 91.

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Liquidity risks arising from obligations to policyholdersThe following table indicates liquidity needs with respect to cash flows required to meet obligations arising under investment contracts, investment contracts with DPFs and insurance contracts. All the cash flows are shown gross of reinsurance on an undiscounted basis.

Expected cashflows – investment and insurance contracts

Within 1 year

Rm

1 – 5 years

Rm

5 – 10 years

Rm

11 – 20 years

Rm

Over 20 years

Rm

Effect of discounting

cash flowsRm

TotalRm

2013Investment contracts 4 843 11 319 9 314 17 112 31 938 (380) 74 146

Investment contracts with DPF 386 357 1 132 2 452 4 729 9 056

Insurance contracts 15 289 64 335 17 503 55 135 87 176 (58 696) 180 742

Total 20 518 76 011 27 949 74 699 123 843 (59 076) 263 944

20121

Investment contracts 7 033 10 348 8 608 14 799 27 700 (325) 68 163 Investment contracts with DPF 230 219 536 1 331 1 537 2 3 855 Insurance contracts 17 833 55 871 20 208 49 267 70 507 (49 020) 164 666

Total 25 096 66 438 29 352 65 397 99 744 (49 343) 236 684


The table below shows the cash surrender value for policyholders’ liabilities. The contractual worst-case cash flows for investment contracts would be an immediate cash flow amounting to the surrender value of investment contracts at the financial position date.

Cash surrender value for policyholders’ liabilities

2013 2012

Carryingvalue

Rm

Surrendervalue

Rm

Carryingvalue

Rm

Surrendervalue

Rm

Investment contracts 74 146 73 295 68 163 67 552 Investment contracts with DPF 9 056 8 316 3 855 3 432 Insurance contracts 180 742 154 148 164 666 137 739

Total policyholders’ liabilities 263 944 235 759 236 684 208 723

Liquidity requirements associated with issuance of subordinated debtThe FSB’s approval of Liberty’s issuance of subordinated debt, namely R3 billion callable capital bonds, includes a requirement to hold qualifying liquid assets in a manner prescribed by the FSB. As at 31 December 2013 and 2012, this requirement has been met and attested to by the statutory actuary of Liberty.

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Definition

Market risk is the risk of a change in themarket value, actual or effective earnings,or future cashflows of a portfolio of financialinstruments, including commodities, causedby adverse movements in market variablessuch as equity, bond and commodity prices,currency exchange and interest rates, creditspreads, recovery rates, correlations andimplied volatilities in all of these variables.

The group’s key market risks are:

trading book market risk

IRRBB

equity risk in the banking book

foreign currency risk.

Banking operations

Governance committeesThe governance 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.

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.

For equity portfolios, the group has approval from the SARB to adopt the market-based approach for certain equity portfolios in SBSA while the risk-weighted IRB approach is used for Standard Bank Plc equity portfolios.

There are no regulatory capital requirements for IRRBB or on structural foreign exchange exposures. However, the translation effect on the group’s structural foreign exchange exposure may give rise to capital impairments.

Trading book market risk

DefinitionTrading book market risk is represented by financial instruments held on the trading book, arising out of normal global markets’ 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 trading operations.

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

All VaR and stressed VaR (SVaR) limits require prior approval from the respective entity ALCOs. The market risk functions have the authority to set 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.

Exposures and excesses are monitored and reported daily. Where breaches in limits and triggers occur, actions are taken by market risk

Definition 68




Trading book market risk 68

Interest rate risk in the banking book 72

Equity risk in the banking book 73

Foreign currency risk 74


Long-term insurance 75

Short-term insurance 78

Market risk

69




functions to move 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 conditions and under 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 10-day holding period and a 99% confidence interval.

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 10-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 may 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.

VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intraday exposures.

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

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 a 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 the year ended 31 December 2013 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.

Refer to the graph below for the results of the group’s backtesting during 2013. The increased volatility in VaR of June reflects market volatility following the announcement by the US Federal Reserve of an earlier than expected end to the fiscal stimulus.

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. All the group’s approved models were assigned green status for the year ended 31 December 2013 (2012: green).

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Risk and capital management report Market risk > Banking operations continued

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

Hypothetical income and VaR (Rm)

100

50

0

(50)

(100)

(150)

(200)January 2013 December 2013

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 period 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 low levels of market risk throughout the year ended 31 December 2013.

Trading book normal VaR analysis by market variable

Normal VaR

Maximum1

RmMinimum1

RmAverage

RmClosing

Rm

2013

Commodities risk 28,4 7,7 14,4 9,5

Foreign exchange risk 20,3 6,9 10,9 10,9

Equity position risk 21,7 7,5 15,7 9,8

Debt securities 61,7 32,3 42,8 37,3

Diversification benefits2 (37,9) (29,6)

Aggregate 64,7 32,8 45,8 37,8

20123 Commodities risk 27,4 13,1 19,1 16,7 Foreign exchange risk 25,9 6,4 12,4 10,6 Equity position risk 29,2 10,1 17,8 12,8 Debt securities 46,8 26,5 36,4 26,8 Diversification benefits2 (36,6) (30,3)

Aggregate 63,6 36,6 49,1 36,6

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.


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Trading book SVaR analysis by market variable

SVaR

MaximumRm

MinimumRm

AverageRm

ClosingRm

2013

Aggregate 642,7 268,5 396,7 475,7

2012 Aggregate 530,0 293,1 389,5 447,8

Analysis of trading profitThe graph to the right shows the distribution of daily profit and losses for the period. 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. The tail loss followed the Federal Reserve’s announcement of an earlier than expected end to the fiscal stimulus as referred to in the backtesting section.

For the year ended 31 December 2013, trading profit was positive for 245 out of 259 days (2012: 248 out of 260 days).

2012 2013

Distribution of daily P&L for trading units

130120110100

908070605040302010

<30 (30) – 0 0 – 30 30 – 60 60 – 90 >90Rm

Freq

uenc

y of

day

s



Interest rate risk in the banking book

DefinitionThese are risks that have an impact on net interest income that arise from structural interest rate risk caused by the differing repricing characteristics of banking 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 adverse effects 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/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, interest rate insensitive liabilities such as non-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 TCM team monitors banking book interest rate risk operating under the oversight of group ALCO.

MeasurementThe analytical techniques used to quantify IRRBB include both earnings- and valuation-based measures. The analysis takes account of 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. 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 effect of non-rate sensitive assets less non-rate sensitive liabilities and equity.

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

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

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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. Hedging transactions are taken into account while other variables are kept constant.

Assuming no management intervention, a downward 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 decrease the forecast 12-month net interest income on 31 December 2013 by R2,7 billion (2012: R2,7 billion).

Interest rate sensitivity analysis1

ZAR USD GBP EUR Other Total

2013Increase in basis points 200 100 100 100 100

Sensitivity of annual net interest income Rm 1 969 122 (1) 336 2 426

Sensitivity of OCI Rm (5) 9 (8) (172) (176)

Decrease in basis points 200 100 100 100 100

Sensitivity of annual net interest income Rm (2 136) (199) 1 (368) (2 702)

Sensitivity of OCI Rm 5 (9) 8 172 176

2012Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 148 152 2 (14) 99 2 387 Sensitivity of OCI Rm 40 10 (2) (134) (86)Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 376) (174) (2) 14 (164) (2 702)Sensitivity of OCI Rm (41) (10) 2 134 85

1 Before tax.

The group is favourably positioned for rate tightening cycles, and from a net income perspective, stands to benefit from the expected repo rate increases in South Africa over the course of 2014.

Equity risk in the banking book

DefinitionEquity risk is the risk of loss arising from a decline in the value of any equity instrument held on the banking book, whether caused by deterioration in the performance, net asset, or enterprise value of the issuing entity, or by a decline in the market price of the instrument itself.

Approach to managing equity risk in the banking bookThe equity risk committee approves investments in listed and unlisted entities in accordance with delegated authority limits. Periodic reviews of the performance of these investments are undertaken.

The risk on equity investments is managed in accordance with the purpose and strategic benefits of such investments rather than purely on mark-to-market considerations.

Equity banking book price risk sensitivity analysisThe table to the right 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

2013

Equity securities listed and unlisted 2 753 3 059 3 365

Impact on profit or loss (284) 284

Impact on OCI (22) 22

2012 Equity securities listed and unlisted 3 369 3 743 4 117 Impact on profit or loss (354) 354

Impact on OCI (20) 20

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Banking book equity portfolio characteristics

Basel equity positions in the banking book

2013Rm

2012Rm

Fair valueListed 148 488 Unlisted 2 704 3 004

Total1 2 852 3 492

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.

Cumulative realised gains from the sale or liquidation of equity positions in the banking book were R24 million as at 31 December 2013 (2012: R778 million gain). This decrease can be attributed to the sale of a listed equity investment in the prior period which was held as an equity investment for five years prior to the sale.

Unrealised gains or losses recognised in OCI were R11 million (2012: R5 million).

Foreign currency risk

DefinitionThe group’s primary 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 net asset value currency risk 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.

Hedging is undertaken in such a way that it does not constrain normal operational 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 currency profile, which is coordinated at group level, is a controlled process based on underlying economic views of the relative strength of currencies. The group does not ordinarily hold open exposures of any significance with respect to the banking book.

Gains or losses on derivatives that have been designated as either net investment or cash flow hedging relationships are reported directly in OCI, with all other gains and losses on derivatives being reported in profit or loss.

Foreign currency risk sensitivity analysisThe foreign currency risk sensitivity analysis below reflects the expected financial impact, in rand equivalent, resulting from a 10% (2012: 5%) shock to foreign currency risk exposures, with respect to 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.

As indicated below, the impact of a 10% (2012: 5%) depreciation in foreign currency rates on the OCI and profit or loss of the group before tax is a R414 million gain (2012: R274 million loss). Offsets to this sensitivity include changes in foreign currency rates as applied to the group’s net assets in foreign operations.

Foreign currency risk sensitivity in ZAR equivalents

USD EUR GBP NGN Other Total

2013Sensitivity % 10 10 10 10 10 10

Total net long/(short) position Rm 1 361 (5 267) 2 617 (244) (2 388) (3 921)

Impact on OCI Rm 524 (260) 24 272 560

Impact on profit or loss Rm (136) 3 (1) (12) (146)

2012Sensitivity % 5 5 5 5 5 5 Total net long/(short) position Rm 83 (3 827) 884 (835) (1 919) (5 614)

Impact on OCI Rm (198) 46 (40) (73) (265)Impact on profit or loss Rm 4 7 (1) (19) (9)

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Long-term insuranceMarket risk management and reporting processes continue to mature. For management purposes, Liberty’s market risk remains split into two main 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 as well as from a 90/10 fee exposure. In aggregate, this is referred to as the shareholder investment portfolio and 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 adequate return on economic capital

over time: This includes the asset-liability mismatch risk arising from Liberty’s interest rate exposure to annuity business, and the mismatch risk arising from embedded derivatives, including policyholders’ investment guarantees. It also includes market risk arising from negative rand reserves, which represents the present value of future charges less the present value of future expenses and risk claims. In aggregate, this is referred to as the asset liability management portfolio and is managed by LibFin Markets.

LibFin is responsible for managing Liberty’s aggregate market risks, including exposures arising from shareholder funds and asset-liability mismatches, in terms of its delegated authority and within set limits. Stanlib, Liberty Properties and other external asset managers remain responsible for managing the investment risks within their investment mandates. An independent market risk team provides oversight of the effectiveness of market risk management processes and reports on the status of market risk management to the relevant governance committees.

Shareholder investment portfolioLiberty recognises the importance of investing its capital base in a diversified portfolio of financial assets. In addition to this, Liberty has a strategic long-only exposure to a defined portion of the assets backing unit-linked policyholders’ liabilities through the 90/10 fee exposure. For this defined portion of assets, Liberty participates in 10% of the portfolio performance in lieu of management fees. The total market risk arising from these consolidated exposures is modelled and managed together as a single portfolio.

LibFin Investments determines the long-term asset mix of this investment portfolio by applying a strategic asset allocation methodology with a long-term investment horizon. The typical asset classes included in this portfolio are equity, fixed income, property and cash, in both local and foreign currency. Stanlib is mandated by LibFin Investments to manage the underlying assets in this portfolio.

Tactical asset allocation is performed by Stanlib within their mandate. This is similar to the way in which an asset manager would invest on behalf of a client with a long-term investment horizon.

On a through-the-cycle basis, this conservative, diversified portfolio was constructed to maximise after-tax returns for a level of risk consistent with Liberty’s risk appetite.

In the short term, market movements will contribute to some earnings volatility. The diversified nature of the portfolio should, however, shield against significant earnings volatility.

Market risk exposure from management fee revenues, other than exposure to the 90/10 fee exposure, is not currently managed as part of the shareholder investment portfolio.

Asset liability management portfolioLiberty has 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. As a result, it has chosen to mitigate these risks through a dedicated ongoing hedging programme.

The decision to hedge these risks is based on the following factors:

The assumption that these market risks would result in Liberty operating outside its risk appetite.

The capital-intensive nature of these market risks, particularly in an economic capital framework, which over time could potentially reduce shareholders’ returns on capital unless actively managed.

Some of the market risks, for example, those that arise from selling investment guarantees, are asymmetric in nature and could compromise Liberty’s solvency under severe market conditions. This is due to current regulatory capital rules requiring available capital to be impaired for IFRS mark-to-market changes on such instruments.

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 annuities and guaranteed capital bonds. However, credit risk on the backing assets is not hedged and serves as a diversified source of revenue for Liberty.

Guaranteed index trackers.

Negative rand reserves.

The table on the next page summarises Liberty’s exposure to financial and property assets. This exposure has been split into the relevant market risk categories and then attributed to the effective holders of the risk.


Risk and capital management report Market risk > Insurance operations continued

Exposure to financial and property assets by risk category

Totalfinancial,

property andinsurance

assetsRm

Attributable to

Policyholdermarket-related

liabilitiesRm

Otherpolicyholder

liabilities1

Rm

Ordinaryshareholders

of Liberty2

Rm

Minorityshareholders

of LibertyRm

Third-partyfinancial

liabilities onmutual funds

Rm

2013Equity price 135 972 120 401 (6 126) 3 602 18 095

Interest rate 121 623 61 022 24 112 30 206 199 6 084

Property price 31 771 24 379 (1 100) 1 982 3 503 3 007

Mixed portfolios3 56 512 42 827 (2 732) 3 620 12 797

Reinsurance assets 1 609 1 161 448

Total 347 487 248 629 15 315 39 858 3 702 39 983

Percentage (%) 100 72 4 11 1 12

20124

Equity price 117 367 110 489 (6 219) 1 316 11 781Interest rate 119 413 47 957 28 838 28 715 149 13 754Property price 29 113 22 147 (1 016) 1 198 2 952 3 832Mixed portfolios3 38 212 36 142 (2 632) 4 054 648Reinsurance assets 1 170 978 192

Total 305 275 216 735 19 949 35 475 3 101 30 015

Percentage (%) 100 71 7 11 1 10

1 Negative exposure to the various risk categories can occur in ’Other policyholder liabilities’ since the present value of future charges 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. Hence, shareholders bear all the risks of shorting assets backing the policyholder market-related liabilities by the amount of these negative liabilities.

2 Standard Bank Group has a 54% interest in Liberty and, therefore, shares in 54% of this exposure.3 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.


Interest rate riskThe table on the right gives additional detail on financial instrument assets and liabilities and their specific interest rate exposure. Data from non-subsidiary mutual funds is not available and is, therefore, excluded from these tables. 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 exposure

2013Rm

20121

Rm

Financial instrument

liabilitiesCarrying value 3 162 2 856

Exposed to cash flow interest rate risk 93 819 Exposed to fair value interest rate risk 3 069 2 037

Financial instrument

assetsCarrying value 83 774 73 713

Exposed to cash flow interest rate risk 36 049 28 602 Exposed to fair value interest rate risk 47 725 45 111


A

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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.

Property market riskLiberty is exposed to tenant default. Unlet space within its investment property portfolio will affect property values and rental income. This risk is mainly attributable to the matching of policyholders’ liabilities. The shareholder exposure is mainly limited to management fees and profit margins. The managed diversity of the property portfolio and the existence of multi-tenanted buildings significantly reduce the exposure to this risk. At 31 December 2013, the proportion of unlet space in the property portfolio was 6% (2012: 7%).

Property market risk also arises with respect to shareholder exposures to investment guarantees and negative rand reserves, and this risk is managed as part of the dedicated hedging programme.

Liberty’s exposure to property market risk at 31 December 2013 is shown to the right.

Exposure to property market risk

2013 20121

Investment properties 28 614 25 380 Owner-occupied properties 1 410 1 378 Properties under development 13 Mutual funds with >80% property exposure 1 747 2 342

31 771 29 113Attributable to minority interests (3 503) (2 952)

Net exposure 28 268 26 161

Concentration use risk

within properties is

summarised below: Shopping malls 23 767 20 750 Office buildings 2 826 2 696 Hotels 2 455 2 536 South African listed property securities held via mutual fund investments 1 747 2 342Convention centre and residential property 976 789

31 771 29 113


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The total exposure to financial instruments expressed in rand (converted at closing rates) at 31 December 2013 is R57 billion (2012: R41 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. This exposure to mutual funds and investment policies, however, is not material to Liberty.

The table below segregates the currency exposure by major currency at 31 December 2013.

Currency exposure by major currency

GBP USD EUR JPY AUD Other

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

Foreign currency risk 4 367 2 695 35 602 27 042 4 832 2 944 3 409 1 663 867 617 7 240 5 510 Foreign currency amounts1 237 205 2 662 3 142 303 258 35 255 18 498 67 46

1 Certain currency exposures are reduced by means of forward exchange contracts.


Risk and capital management report Market risk > Insurance operations continued

Derivative financial instruments and risk mitigationCertain Liberty entities are parties to contracts for derivative financial instruments, mainly entered into as part of the dedicated hedging strategy. 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 are either traded on a regulated exchange or negotiated OTC as a direct arrangement between two counterparties. Exchange instruments are margined in accordance with the exchange or clearing member’s requirements and the clearing house is the counterparty to each trade. OTC instruments are only entered into with appropriately approved counterparties. Signed ISDA agreements are held with all counterparties.

Sensitivity analysisThe table to the right provides a description of risk sensitivities to various market variables. The interest rate yield curve and implied option volatility sensitivities reflect the financial impact of an instantaneous event at the financial position date. In determining the financial impact of such an event, new asset levels are applied to both the measurement of policyholders’ liabilities and to long-term assumptions dependent on interest rate yield curves and implied option volatilities.

The equity price and rand currency sensitivities also reflect the impact of an instantaneous event at the financial position date. However, in

the calculation of the financial impact of such an event, new asset levels are only applied to the measurement of policyholders’ liabilities. No changes are made to long-term assumptions used in the measurement of policyholders’ liabilities.

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

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

Market variable Description of sensitivity

The table below summarises the impact of the change in the

aforementioned risk variables on policyholders’ liabilities, shareholders’

equity and attributable profit after taxation.

Sensitivity analysis of risk variables

2013 2012

Change invariable

%

Impact onpolicyholders’

liabilitiesRm

Impact onequity and

attributableprofit after

taxationRm

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Market assumptions

Interest rate yield curve 12 (3 022) (213) 12 (2 892) (194) (12) 3 558 135 (12) 3 430 106

Option price volatilities 20 106 (55) 20 241 (149) (20) (74) 33 (20) (198) 119

Equity prices 15 18 470 1 258 15 15 545 1 144 (15) (18 460) (1 256) (15) (15 451) (1 170)

Rand exchange rates 121 (3 862) (627) 121 (3 061) (621) (12)2 3 873 624 (12)2 3 079 629

1 Strengthening of the rand.2 Weakening of the rand.

Short-term insuranceMarket risk arises from investments in cash, corporate money market and collective investment schemes. It is not material in the group context.

Management of the investment portfolio is outsourced with target returns specified in the mandate.

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Definition

Insurance risk is the risk that futuredemographic and related expenseexperience will exceed the allowance forexpected demographic and relatedexpense experience, as determined through measuring policyholders’ liabilities and ultimately against the product pricing basis.

Insurance risk arises due to uncertainty regarding the timing and amount of future cash flows from insurance contracts. This could be due to variations in mortality, morbidity, policyholder behaviour or expense experience in the case of life products, or claims incidence and severity assumptions in the case of short-term insurance products.

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 statutory actuaries, the group insurance risk committee (GIRC) and the Liberty CRO provide independent oversight of compliance with Liberty’s risk management policies and procedures and the effectiveness of the group’s insurance risk management processes.

Insurance risks arise due to the uncertainty of the timing and amount of future cash flows under insurance contracts.

The timing is specifically influenced by assumptions on future mortality, longevity, morbidity, withdrawal and expenses made in the measurement of policyholders’ liabilities and in product pricing.

Deviations from assumptions will result in actual cash flows being different from those expected. As such, each assumption represents a source of uncertainty.

Experience investigations are conducted on all insurance risks over a number of years to identify trends and the reasons for deviations in experience. The results of these analyses are used as an input into the assumption setting process for expected future experience used in measuring policyholders’ liabilities.

Insurance risks are assessed and reviewed against thresholds. To reduce the level of risk, mitigating actions are developed for any insurance risks that fall outside management’s assessment of risk appetite.

Approach to managing insurance riskInsurance risks are managed through processes applied prior to and on acceptance of risks and those applied once the risks are contracted.

Prior to acceptance of risks in new products, inherent risks are identified, quantified and priced. Sensitivity tests are performed to obtain an understanding of the risk types and appropriateness of mitigating actions. Product design also 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. Where applicable, an underwriting assessment is conducted to assess a new individual’s risk at the point of sale. Furthermore, the Liberty group makes use of reinsurance to reduce its exposures to some business risks. Post implementation reviews are performed to ensure that intended outcomes are realised and to determine if any further action is required.

The ongoing management of insurance risk, once the risk is contracted, is effectively the management of deviations of actual experience from the assumed best estimate of future experience, on which product pricing is based. On the published reporting basis, in addition to the technical provisions for future claims, compulsory and discretionary margins are added to the best estimate assumption. Future earnings are consequently expected to arise from the release of these margins. The risk is that these earnings are less than expected due to adverse actual experience.

Definition 79

Long-term insurance risk 79

Overview 79

Approach to managing insurance risk 79

Long-term insurance risk sub-types 80

Sensitivity analysis 82

Short-term insurance risk 84

Overview 84

Approach to management of short-term insurance risks 84

Short-term insurance risk types 84

Insurance risk


Risk and capital management report Insurance risk > Long-term insurance risk continued

The statutory actuaries provide oversight of Liberty’s insurance risk in that they are required to:

report at least annually on the financial soundness of the life companies within Liberty

set the policy for assumptions used to provide best estimates, including compulsory and discretionary margins as required

oversee the setting of these assumptions

report on the actuarial soundness of premium rates in use for new business and the profitability of the business, taking into consideration the reasonable benefit expectations of policyholders and the associated insurance and market risks.

All new products and premium rates are approved through the product approval process and signed-off by the relevant statutory actuary.

Second line oversight is provided by the GIRC that reports into Liberty’s group control and risk oversight committee (GCROC). The following are the main duties and responsibilities of the GIRC:

recommend for approval insurance risk-related policies to GCROC and ensure compliance therewith

ensure that insurance risk is appropriately controlled by monitoring insurance risk triggers against agreed limits and/or procedures

gain assurance that material insurance risks are being monitored and that the level of risk taken is satisfactorily in line with the RAS at all times

consider any new insurance risks introduced through new product development or strategic development and how they should be managed

monitor, ratify and/or escalate to GCROC all material insurance risk-related breaches or excesses highlighting the corrective action undertaken to resolve the issue

monitor insurance risk regulatory requirements as they apply to the management of the group and its subsidiaries’ balance sheets.

Reinsurance arrangements are put in place to reduce the mortality and morbidity exposure per individual and provide cover in catastrophic events. The group performs an annual review of the reinsurance cover in line with the stated risk appetite and reinsurance strategy.

Long-term insurance risk subtypes

Policyholder 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

changes in economic conditions

sales practices

competitor behaviour

policy conditions and practices

policyholders’ perceptions.

The primary policyholder behaviour risk is persistency risk. This arises when policyholders discontinue or reduce contributions, or withdraw benefits at a rate that is not in line with expectations. This behaviour results in a loss of future charges that are designed to recoup expenses and commission incurred early in the life of the contract, and to provide a return on capital. A deterioration in persistency generally gives rise to a loss.

The business has continued to focus on a broad programme of initiatives to manage persistency risk and these initiatives have continued to improve in 2013, with withdrawal rates on major product lines broadly in line with expectations.

Mortality and morbidity riskMortality risk is the risk of loss arising due to actual death claims on life assurance business being higher than expected. Morbidity risk is the risk of loss arising due to policyholders’ 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.

The Liberty Group views mortality and morbidity risks as risks that are core to the business. These risks will be retained if they cannot be mitigated or transferred on risk-adjusted value enhancing terms. 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, such as epidemics on reasonable terms, the mortality and morbidity economic capital requirements are likely to remain.

The table on the following page summarises the profiles of the sums assured at risk per life in terms of mortality benefits before and after reinsurance for individual and group risk business.

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Profile for amounts at risk for individual and group business – retail and corporate

Before reinsurance After reinsurance

Rm % Rm %

2013 0 – 1 499 999 552 690 46 535 661 51

1 500 000 – 2 999 999 238 771 20 218 018 21

3 000 000 – 7 499 999 263 565 22 223 097 21

7 500 000 and above 141 282 12 66 987 7

Total 1 196 308 100 1 043 763 100

2012 0 – 1 499 999 515 109 47 497 987 52 1 500 000 – 2 999 999 221 552 20 201 146 21 3 000 000 – 7 499 999 236 770 22 200 945 21 7 500 000 and above 120 177 11 56 316 6

Total 1 093 608 100 956 394 100

The table above demonstrates that the sums assured are spread over many lives and that the exposure to individual lives has been reduced by means of surplus 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.

Catastrophe reinsuranceCatastrophe reinsurance is consolidated across Liberty’s life licences and is in place to reduce the risk of many claims arising from the same event. Various events are excluded from the catastrophe reinsurance (for example epidemics and radioactive contamination).

For corporate risk business, the exposure per industry class is monitored to maintain a diversified portfolio of risks and manage concentration exposure to a particular industry class. The following table splits the annual corporate risk business by industry class.

Annual corporate business by industry class

2013%

2012%

Administrative/professional 34 34Retail 21 23Light manufacturing 27 28Heavy manufacturing 15 13Heavy industrial and other high risk 3 2

Total 100 100

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Risk and capital management report Insurance risk > Long-term insurance risk continued

Longevity riskLongevity risk is the risk of loss arising due to annuitants living longer than expected. For life annuities, the loss arises as a result of Liberty’s undertaking to make regular payments to policyholders for their remaining lives, and possibly to the policyholders’ spouses for their remaining lives. The most significant risk on these liabilities is continued medical advances and improvement in social conditions that lead to longevity improvements being better than expected.

Liberty manages longevity risk by monitoring the actual longevity experience and identifying trends over time, and allowing for future mortality improvements in the pricing of new business and the measurement of policyholders’ liabilities.

Expense assumption and new business riskExpense assumption risk is the risk of adverse financial impact due to the timing or amount incurred, or both differing from those expected in the administration of policies, for example, the actual cost per policy differing from that assumed in the pricing or reserving basis.

New business risk is the risk of adverse financial impact due to the actual volume, mix and/or quality of new business deviating from that expected in calculating expected financial outcomes.

Allowance is made for expected future maintenance expenses in the measurement of policyholders’ liabilities utilising 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 and the number of in-force and new business policies being less than expected.

Liberty manages the expense assumption and new business risk by regularly monitoring actual expenses against the budgeted expenses, new business volumes and mix, withdrawal rates, including lapses, and by implementing cost control measures in the event of expenses exceeding budget or of significant unplanned reductions in in-force policies. Even though expense risk does not give rise to large capital requirements, the measurement of expense risk is core to the business. The expenses that Liberty 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 ability of Liberty to sell business on a profitable basis will be impaired. This not only has capital implications, but can also affect Liberty’s ability to function as a going concern in the long term.

Sensitivity analysisThe table below provides a description of the sensitivities that are provided on insurance risk assumptions.

Assurance mortality A level percentage change in the expected future mortality rates on assurance contracts

Annuitant mortality A level percentage change in the expected future mortality rates on annuity contracts

Morbidity A level percentage change in the expected future morbidity rates

Withdrawals A level percentage change in the policyholder withdrawal rates

Expense per policy A level percentage change in the expected maintenance expenses

Insurance risk variables

Description of sensitivity

Sensitivities on expected taxation have not been provided.

Insurance risk sensitivities are applied as a proportional percentage change to the assumptions made in measuring policyholders’ liabilities. Over a reporting period, assets are expected to earn a return consistent with the long-term assumptions used in measuring policyholders’ liabilities. The market sensitivities are applied to all assets held by Liberty, not just assets backing the policyholders’ liabilities. Each sensitivity is applied in isolation with all other assumptions left unchanged.

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The table below summarises the impact of the change in the aforementioned risk variables on policyholders’ liabilities and on shareholders’ equity and attributable profit after taxation.

Sensitivity analysis of risk variables

2013 2012

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Insurance assumptionsMortality– assured lives 2 227 (164) 2 320 (230)

(2) (228) 164 (2) (321) 231 – annuitant longevity 41 226 (162) 41 233 (162)

(4)2 (217) 156 (4)2 (223) 154 Morbidity 5 361 (260) 5 419 (294)

(5) (360) 259 (5) (419) 295 Withdrawals 83 471 (339) 83 229 (166)

(8) (533) 384 (8) (238) 172 Expense per policy 5 260 (187) 5 273 (196)

(5) (260) 187 (5) 234 196

1 Annuitant life expectancy increases, that is, annuitant mortality reduces.2 Annuitant life expectancy reduces, that is, annuitant mortality increases.3 Withdrawal rates on all classes of business increase. In some cases an increase in withdrawal reduces the overall impact.

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Risk and capital management report Insurance risk continued

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 management of short-term

insurance risksInsurance risk is managed primarily through pricing, product design, investment strategy, risk rating and reinsurance.

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 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.

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.

Policyholder behaviour and operational risksPolicyholder behaviour risk is the risk of adverse financial impact caused by actual policyholders’ behaviour deviating from expected policyholders’ behaviour, mainly due to:

fraudulent behaviour

regulatory and law changes

changes in economic conditions

sales practices of insurance brokers

competitor behaviour

policy conditions and practices, such as policy wordings

policyholder perceptions.

Short-term insurance operations have lower policyholder behaviour risks than those associated with long-term insurance products due to the shorter tenor of their obligations. However, the potential for fraudulent behaviour is higher.

New business and lapse rates are budgeted each year and monitored on a monthly basis. These rates are reported and compared to budget figures.

Expense riskExpense risk is the risk of loss arising due to expenses incurred, in the administration of policies, being higher than expected. SIL has financial processes and levels of authority in place to monitor expense outlay for the business.

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Definition

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Operational risk subtypes are managed and overseen by specialist functions. These subtypes include:

model risk

tax risk

legal risk

compliance risk

environmental and social risk

business continuity management (BCM)

technology risk management

information risk management

financial crime control

occupational health and safety.

Approach to managing operational risk

Operational risk exists in the natural course of business activity. 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.

Definition 85

Approach to managing operational risk 85

Insurance cover 85


Approved regulatory capital approach 86

Operational risk subtypes 86

Operational risk subtype: Model risk 86

Operational risk subtype: Tax risk 86

Operational risk subtype: Legal risk 86

Operational risk subtype: Compliance risk 86

Operational risk subtype: Environmental and social risk 87

The operational risk management function is independent from business line management and is part of the second line of defence. It is responsible for the development and maintenance of the operational risk governance framework, facilitating business’s adoption of the framework, oversight and reporting, as well as for 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.

Individual teams are dedicated to each business line and enabling functions such as finance, information technology 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 of their operational risk profile.

A central function, based at a group level, provides groupwide oversight and reporting. It is also responsible for developing and maintaining the operational risk governance framework.

Insurance coverThe group buys insurance to mitigate operational risk. This cover is reviewed on an annual basis. The group insurance committee (GIC) oversees a substantial insurance programme.

The primary insurance policies in place are the group crime, professional indemnity, and group directors’ and officers’ liability insurance policies.

Operational risk subtype: Business continuity management and resilience 87

Operational risk subtype: Technology risk management 88

Operational risk subtype: Information risk management 88

Operational risk subtype: Financial crime control 88

Operational risk subtype: Occupational health and safety 88

Physical commodities 88

Areas of special focus 88

Operational risk


Risk and capital management report Operational risk continued


The primary governance committees overseeing operational risk, including the various subtypes, are:

group compliance committee

group internal financial control governance committee

group operational risk committee

group regulatory and legislative oversight committee

group sanctions review committee

group and business line model approval committees

group IT steering committee and the IT architecture governance committee.

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 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, flawed 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:

a three-lines-of-defence governance structure comprising independent model development, model validation and audit oversight functions

committees with board and executive management membership based on model materiality and regulatory requirements

policies that define minimum standards, materiality, validation criteria, approval criteria, 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

independent model validation in accordance with both regulatory and internal materiality assessments

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.

Credit IRB models and operational risk AMA models are validated at initial development and at least annually thereafter by the central validation function. Other models are validated at initial development and reviewed at intervals determined by materiality and performance criteria. Validation techniques test the appropriateness and effectiveness of the models, and indicateif the model is fit-for-purpose.

Models are recommended by the relevant technical committee for approval or ongoing use to the relevant model approval committee.

Operational risk subtype: Tax riskTax risk is defined as any event, action or inaction in tax strategy, operations, financial reporting, or compliance that either adversely affects the group’s tax or business objectives or results in an unanticipated or unacceptable level of monetary, financial statement or reputational exposure.

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 the adverse consequences of judgements or private settlements, including punitive damages resulting from inaccurately drafted contracts, their execution, the absence of written agreements or inadequate agreements. This includes exceeding authority as contained in the contract. It 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 manage its legal risks. Failure to manage these risks effectively could result in legal proceedings impacting the group adversely, both financially and reputationally.

Operational risk subtype: Compliance riskThis is the risk of legal or regulatory sanctions, financial loss or loss 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 business activities.

This includes the exposure to new laws as well as changes in interpretations of existing laws by appropriate authorities.

Approach to the management of compliance risk

General approachThe compliance function operates independently of business in terms of its mandate, which is approved annually by the GAC and is drawn primarily from Regulation 49 of the Banks Act. All compliance teams report through compliance executives to the GCCO.

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

Compliance risk management is a core risk management activity overseen by the GCCO. The GCCO has unrestricted access to the joint group chief executives and to the chairman of the GAC, thereby ensuring 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. There is a key focus on treating customers fairly as the South African regulatory framework moves towards a twin peaks model of supervision.

Employees, including their senior management, are made aware of their statutory compliance responsibilities through ongoing training and awareness initiatives.

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.

Group minimum standards are required to be implemented throughout the group, taking into account local jurisdictional requirements where these may be more stringent.

Approach to sanctions managementThe group actively manages the legal, regulatory, reputational and operational risks associated with doing business in jurisdictions or with clients that are subject to embargoes or sanctions imposed by competent authorities. 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 our operations in a way that balances the interests of various stakeholders, while supporting the long-term stability and growth in the markets where we have a presence.

The group’s regulatory advocacy unit assesses 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 and regulators in a constructive manner.

The group regulatory and legislative oversight committee enhances regulatory risk management by proactively considering the impacts of regulatory developments on the group.

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 does not have control but which have potential to impact on our operations and those of the group’s clients.

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.

The group sustainability management unit 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. 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, deal makers and other key individuals.

Operational risk subtype: Business continuity

management and resilienceBCM 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 the group and its stakeholders. The group BCM 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.


Risk and capital management report Operational risk > Operational risk subtypes continued

Operational risk subtype: Technology risk

managementTechnology risk encompasses both IT risk and IT change risk. 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 risk arising from changes, updates or alterations made to the IT infrastructure, systems or applications that could affect service reliability and availability. The group relies heavily on technology to support complex business processes and handle large volumes of critical information. As a result, a technology failure can have a crippling impact on the group’s brand and reputation. The operational risk IT risk function oversees compliance with the IT risk and IT change risk governance standard.

Operational risk subtype: Information risk

managementInformation risk encompasses all the challenges that result from the need to control and protect the group’s information. These risks can culminate from accidental or intentional unauthorised use, modification, disclosure or destruction of information resources, which would compromise the confidentiality, integrity or availability of information.

The group has adopted a risk-based approach to managing information risks. The IOR management function oversees the information security management system, policies and practices across the group.

The execution of these policies and practices is driven through a network of information security officers embedded within the business lines. The group chief information security officer functionally oversees this network.

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 is disclosed in terms of applicable regulations:

From January 2013 to December 2013, the group processed 16 (January 2012 to December 2012: 24) requests for access to information, of which four were granted, six were denied, two were partly granted, and four were withdrawn.

The reasons for the denial of access were that the owners of the personal information declined to give consent for access to be given to the requestor and some requests did not comply with the requirements of the abovementioned act.

Operational risk subtype: Financial

crime controlThe group defines financial crime control as the prevention, detection and response to all financial crime to mitigate economic loss, reputational risk and regulatory sanction. Financial crime includes fraud, bribery and corruption and misconduct by staff, customers, suppliers, business partners and stakeholders. The financial crime risk control function forms part of the IOR function, which reports to the group CRO. As is the case with the other functions within operational risk, financial crime risk management maintains close working relationships with other risk functions, specifically compliance, legal risk and credit risk, and with other group functions such as information technology, human resources, and finance.

Operational risk subtype: Occupational health

and safetyAny risks to the health and safety of employees resulting from hazards in the workplace or potential exposure to occupational illness are managed by the occupational health and safety team. Training of health and safety officers and employee awareness is an ongoing endeavour and the results are evident in a declining trend in reportable incidents and declining cost to company for workmen’s compensation coverage.

Physical commodities

A physical commodities specialist function based in Johannesburg, London and Singapore manages physical commodities transactions executed within the group. The role of the team is to focus on the risks embedded in each trade, on a pre- and post-trade basis, and to ensure they are understood, tracked, controlled and escalated if appropriate. The team works with approved third parties who play a key role in the process and the provision of related control functions such as shipbrokers, insurers, warehouse providers and security companies.

Areas of special focus

In addition to the specialist operational subtypes above, the group also has areas of special focus based on the organisation’s evolving needs. These focus areas are:

Supporting increased innovation and the use of new technology in the banking industry to provide solutions to customers.

Compliance with increased scope of monitoring and reporting required by regulators.

Ensuring robust control over balance sheet substantiation and other key financial controls.

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Business risk is the risk of loss due to operating revenues not covering operating costs. 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:

extensive due diligence during the investment appraisal process is performed, 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; contingency plans are built into the budget that allow for costs to be significantly reduced in the event that expected revenue generation does not materialise

increasing the ratio of variable costs to fixed costs which creates flexibility to reduce costs during an economic downturn.

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.

Post�retirement obligation risk

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 provider 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.

The primary governance committee for overseeing this risk is the group ALCO which is chaired by the group financial director.

As post-retirement obligation risk is accounted for under International Accounting Standards (IAS) 19 Employee Benefits (2011 revised) (IAS 19R), the consequence of this risk is already recognised in the group’s equity for accounting purposes. However, any surplus recognised under IAS 19R relating to defined benefit funds is excluded from core equity for the purposes of capital adequacy.

Business risk



Reputational risk results from damage to the group’s image which may impair its ability to retain and generate business through the loss of trust and confidence or a breakdown in business relationships.

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 group’s crisis management processes are designed to minimise the reputational impact of the event. Crisis management teams are in place both at executive and business line level to ensure the effective management of any such events. This includes ensuring that the group’s perspective is fairly represented in the media.

The group’s code of ethics is an important reference point for all staff. The group ethics officer and joint chief executives are the formal custodians of the code of ethics.

For more information on the group’s code of ethics

go to www.standardbank.com

Reputational risk

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Capital management

The adoption of the new and amended IAS 19R and IFRS 10 Consolidated Financial Statements, respectively, resulted in the restatement of the group’s previously reported financial results for 31 December 2012. Due to this restatement, certain capital management information was restated.

PGRefer to pages 18 and 20.

Economic capital

The methodology for the calculation of credit and equity risk was amended in 2013 to more accurately allocate the underlying risk. The comparative financial information was subsequently restated.

PGRefer to page 22.

Credit risk – Basel: Exposure subject to the standardised approach per risk weighting and Basel: Credit risk mitigation for portfolios under the standardised approach tables

This restatement is to align the disclosure tables to capital adequacy methodologies which currently do not consider any credit risk mitigation for rest of Africa legal entities. In the prior year the credit mitigation for the rest of Africa legal entities was considered.

PGRefer to pages 26 and 39.

Credit risk – Basel: Exposure by approach and class table, IFRS: Maximum exposure to credit risk and ageing of loans and advances past due but not impaired

An early arrears restatement in credit card QRRE has been performed to reflect the consistent application of the credit quality of loans and advances measured in terms of IFRS. The restatement was performed to align the prior year disclosure to more accurately comply with the definition of early arrears/past due but not specifically impaired credit card portfolio exposures in terms of IFRS and the group’s financial statement.

PGRefer to pages 30 – 31, 45, 48 – 50.

Credit risk – Basel: Analysis of actual losses and IRB exposure class

The 2012 and 2011 numbers have been revised based on updated LGD and EAD calculations to improve comparability. The LGD and EAD values are determined on the defaulted assets only to ensure that the portfolio mix does not impact comparability of expected and actual values, and all PD values are determined on current default definitions.

PGRefer to pages 36 – 37.

Liberty tables

Certain of the risk management tables have been restated due to the adoption of IFRS 10 Consolidated Financial Statements (IFRS 10) and IAS 28 Investment in Associates and Joint Ventures (2011 revised) (IAS 28R). This resulted in reclassifications of mutual funds for the year ended 31 December 2012.

PGRefer to pages 54 – 55, 65 – 67 and 76-77.

Restatements


Risk and capital management report Restatements continued

Country risk exposure by region and grade

The total medium- and high-risk country risk and total low-risk country risk comparative exposures were erroneously transposed. The comparative results have accordingly been restated.

Certain forms of exposure were erroneously omitted from the country risk exposure by region and risk grade table in 2012. This has now been corrected to ensure a consistent comparison with the 2013 exposure.

PGRefer to page 58.

Behaviourally adjusted cumulative liquidity mismatch

Restated due to change in methodology as a result of the proposed Basel III liquidity ratios.

PGRefer to page 61.

Funding�related liabilities composition

The December 2012 funding-related liabilities were restated to add more granularity and to be in line with the updated 2013 funding sources classifications.

PGRefer to pages 63.

Total liquidity

Information relating to the year ended 31 December 2013 period is supplied on a Basel III basis, including phasing-in requirements where applicable. In preparation for the implementation of Basel III, liquidity policies and calculations were reviewed and updated. The comparative information was subsequently restated.

PGRefer to page 64.

Trading book VaR analysis by market variable

The commodities and debt securities VaR amounts were erroneously transposed. The comparative results have been restated.

PGRefer to page 70.

Financial information

During the year, the group revised certain financial information.

PGRefer to pages 48, 49, 52 and 62.

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Annexure A

Regulatory and legislative developments

Impacting the group’s banking operations

GlobalBasel IIISouth Africa is one of the 11 BCBS member countries that adopted Basel III on 1 January 2013. In January 2013, the BCBS published significant changes to the LCR requirements. These changes resulted in a material reduction of the group’s LCR requirements. It also eased global concerns about the potential negative impact of the proposed Basel III liquidity requirements on economic growth and development.

The key changes announced were the following:

Instead of a comprehensive adoption on January 2015, the LCR rule will be phased in from 2015 over four years up to January 2019.

The range of assets banks can recognise as high quality liquid assets has been widened to include corporate debt, mortgage-backed securities and equity assets.

The LCR stress scenario for calculating the amount of liquid assets banks must hold was eased, resulting in lower outflows to be covered.

The BCBS and Group of Twenty Financial Stability Board (G20 FSB) released a number of consultative papers on key topics for comment during the past year. The group participated in quantitative impact studies and on industry forums to inform authorities on the potential impact of proposed regulatory guidance. The following categories have received significant focus during the past year:

International consistency – this comprised feedback on the three levels of the BCBS Regulatory Consistency Assessment Programme, that is:

monitoring the implementation of Basel III regulatory reforms

peer reviews of member country adoption of Basel III guidelines

analysis of risk-weighted assets consistency of market risk and credit risk.

Subsequently, a discussion paper called ’Balancing risk sensitivity, simplicity and comparability’ was released for comment. The concepts contained within this paper are expected to set the tone for future prudential regulatory regimes.

Frameworks for systemically important banks (SIBs) – in order to enhance the stability of the global financial system, guidelines for global-SIBs (G-SIBs) and D-SIBs were released such as various papers on Recovery and Resolution Planning for both banks and insurance entities, ’Principles for an effective risk appetite framework’ and ’Principles for effective risk data aggregation and risk reporting’.

Enhancements to current Basel III capital and leverage

requirements – including setting out capital requirements for exposures to CCPs, equity investments in funds, securitisation and a new standardised model for OTC derivatives.

Changes to large exposure rules – proposed framework to strengthen the BCBS’s 1991 large exposure guidance and introduces a hard limit that serves as a consistent minimum across BCBS member jurisdictions.

Shadow banking – G20 FSB guidelines for shadow banking regulation such as described within a ’Policy framework for strengthening oversight and regulation of shadow banking entities’.

Topics finalised during the past year include:

Basel III liquidity – The BCBS finalised the ’Monitoring Tools for Intraday Liquidity Management’ guidelines in April 2013. The document seeks to enable banking supervisors to better monitor the group’s management of intraday liquidity risk and the group’s timely meeting of payment and settlement obligations. The use of these monitoring tools is to commence on a monthly basis from 1 January 2015 to coincide with the implementation of the LCR requirements.

Margining for non-centrally cleared OTC derivatives – In September 2013, the BCBS and the International Organisation of Security Commissions published the final framework for margin requirements for non-centrally cleared derivatives. The framework has been designed to reduce systemic risks related to OTC derivatives markets, as well as to provide firms with appropriate incentives for central clearing while managing the overall liquidity impact of the requirements. Specific aspects start to become effective on 1 December 2015 and the requirements are to be phased in up to 1 December 2019.

Capital requirements for banks’ equity investments in funds – A revised policy framework was released in December 2013 which takes into account a fund’s leverage when determining the capital requirements of a bank with investments in such funds.

Basel III developments anticipated in the short term include:

finalisation of the NSFR liquidity requirements, leverage ratio and capital requirements for securitisations by the BCBS

alignment of the CVA application across jurisdictions

finalisation of the Bank for International Settlements fundamental review of the trading book regulations.

OTC derivativesGlobally there has been a focus on increasing the transparency and regulation of OTC derivatives and to reduce the systemic risk posed by OTC derivative transactions, markets and practices. The G20’s reform programme and subsequent agreements resulted in various principles being defined for use of exchanges or electronic platforms, clearing through central counterparties, reporting to trade repositories and higher capital and margin requirements for derivatives that are not cleared centrally.

Recovery and Resolution PlanningRecovery and Resolution Planning is an important tool used by regulators to reduce the systemic risk of systemically important financial institutions (SIFIs). The recovery plan focuses on plausible management or recovery actions that can be taken to reduce risk and strengthen the capital base during times of severe stress. Resolution plans are typically developed by the supervisor with the objective of ensuring that SIFIs are resolvable and will not become a burden to taxpayers.


Risk and capital management report Annexure A > Regulatory and legislative developments continued

The group has submitted its IRP to the SARB in July 2013. The SARB and National Treasury are in the process of defining the South African Resolution Framework which is anticipated to include aspects such as the resolution strategy, powers of the resolution authority and the legal framework to support the Resolution Framework. Other aspects being discussed with the relevant regulators include the protection of bank depositors and insurance policyholders in the event of failure of a South African financial institution.

IFRSThe International Accounting Standards Board (IASB) has finalised and issued a number of new accounting requirements as well as issued a number of proposed accounting changes. The most significant of these being as follows:

IFRS 9 Financial InstrumentsThe IASB is currently replacing IAS 39 Financial Instruments: Recognition and Measurement (IAS 39) with IFRS 9 Financial Instruments (IFRS 9). The replacement of IAS 39 with IFRS 9 will be achieved through a number of phases as follows:

Classification and measurement of financial assets: This phase has, subject to a further proposed amendment issued by the IASB during 2012, been finalised. The amendment requires financial assets to be categorised based on the group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. The financial assets will be measured at either amortised cost or fair value according to its classification. The effective date of the amendment will be 1 January 2018.

Credit risk in financial liability measurement: The amendment requires changes in the fair value of financial liabilities (that are designated at fair value) due to changes in own credit risk to be recognised in OCI as opposed to the income statement. Whilstthe effective date of the amendment will be 1 January 2018,the IASB issued an amendment in November 2013 permitting early adoption without adopting IFRS 9’s other requirements.

Expected loss impairment model proposals: The IASBhas proposed the replacement of IAS 39’s incurred loss impairment requirements with an expected loss impairmentmodel requirement. The requirements are expected to befinalised and issued by the IASB during the first half of 2014.The effective date of the proposals is 1 January 2018.

Hedge accounting requirements: During December 2013, the IASB issued revised hedge accounting requirements. IFRS 9 simplifies the existing hedge accounting requirements and will allow the group to better reflect its risk management activities in its financial statements and will provide more opportunities to apply hedge accounting. The effective date of the requirementsis 1 January 2018.

LeasesIFRS currently requires an entity to classify its lease arrangements as either finance or operating leases based on the terms of the underlying contract and the risks and rewards incidental to ownership of the leased assets. The IASB has released proposed changes to the accounting for leases. The proposals include changes in the manner in which leases are identified and classified. The core principle of the proposed requirements is that the lessee and lessor should recognise all rights and obligations arising from leasing arrangements on balance sheet. The most significant proposed change pertaining to the accounting treatment of operating leases is from the lessees’ perspective where a right of use (ROU) asset together with a liability for the future payments is to be recognised. From a South African regulatory perspective, the increase in both assets and liabilities will have an impact on the group’s prudential requirements as follows:

The ROU assets will attract a risk weighting of 100% for purposes of determining capital requirements in support of these assets.

Given the long-term nature of the ROU assets, the ROU assets are expected to be categorised under Basel III as ’Other Assets’ and will attract a 100% stable funding requirement.

Liabilities arising from the lease agreement will increase the group’s total liabilities, resulting in a reserving requirement of 2.5% of the balance, as well as a liquid asset requirement of 5% of the balance. The liability does not contribute to the stable funding Basel III requirement.

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.

With respect to all of the abovementioned accounting developments, the group continues to participate in industry body discussions on the proposed changes and continues to develop its adoption framework to ensure that the group is positioned to adopt the requirements as and when they become effective.

South AfricaProtection of Personal Information ActThe PoPI provides for conditions of privacy and protection of personal information. This act has an extensive impact on the group, particularly in relation to the manner in which it uses information, both within South Africa and internationally. We take care to protect the personal information of our customers and will be strengthening our controls to align to the act’s requirements. A group data privacy officer has been appointed and the group’s PoPI project is progressing satisfactorily. BASA is drafting a Banking Code on PoPI which, if approved by the new Information Regulator (when established), will govern thebanking industry.

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Financial Markets ActThe Financial Markets Act 19 of 2012 has been finalised and will impact a number of activities within CIB. This act regulates the functioning of the stock exchange, as well as market abuse such as insider trading and price manipulation. It introduces a regulatory framework for derivatives trading.

Regulations are being drafted by the National Treasury for OTC derivatives with specific requirements in terms of reporting, clearing, and OTC product providers. An appropriate and cost-effective approach for the South African market for central clearing is in the process of being defined.

Treating customers fairlyThe SA FSB published a roadmap in March 2011 for the implementation of a programme for regulating the market conduct of financial services firms, titled TCF. TCF comprises six fairness outcomes and seeks to ensure that the fair treatment of customers is embedded within the culture of financial services firms. The target implementation date is the first quarter of 2014.

In order to meet the outcomes, the group has initiated a TCF implementation programme, put governance structures in place and is developing suitable measures and implementing control mechanisms. While the various boards of directors of affected group entities will ensure that TCF is central to the entities’ ethics, values, culture and strategy, senior management owns TCF.

Consumer creditProposed changes in the regulation of consumer credit have implications for several of the group’s models, systems and processes. These changes include amendments to the conditions of registration to empower the Minister of Trade and Industry to prescribe codes of conduct and verify, review or remove consumer credit information.

These amendments pave the way for the proposed Affordability Assessment Guidelines and Code of Conduct to Combat Over-indebtedness published for comment in October 2013. The guidelines propose specific steps to assess customers’ ability to afford credit, a cap on credit life insurance, and specific guidance on the functioning of the debt review system.

The credit information amnesty comes into effect 1 April 2014 and involves the removal of certain adverse credit information from credit records at the credit bureaus.

These proposed changes to the regulation of consumer credit will result in enhancements to SBSA’s business and risk models to ensure the continuation of sound credit extension within its risk appetite. SBSA is engaging with the relevant stakeholders.

Twin peaks regulatory frameworkThe Financial Sector Regulation Bill was released by National Treasury on 11 December 2013. Its aim is to make the financial sector safer and better serve South Africa by providing the legislative framework for the adoption of a ’twin peaks system’ of regulating the financial sector. The twin peaks system will comprise of a Prudential Authority focused on the safety and soundness of financial institutions

(prudential supervision), and a Market Conduct Authority focused on the manner in which financial institutions conduct their business and the fair treatment of financial customers (market conduct supervision). The Bill also takes steps to strengthen financial stability and crisis resolution. Once enacted the Bill will be adopted in two phases –1) to establish the two regulatory authorities and 2) to harmonise the various sub-sectoral legislation and align prudential and/or market conduct standards across the sector.

United Kingdom, Europe and the United StatesOn 1 April 2013, the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks in the UK. Prudential supervision was transferred to the new PRA under the Bank of England and the remaining functions of the Financial Services Authority have been transferred to a new Consumer Protection and Markets Authority. A new Serious Economic Crime Agency will police economic crime.

In June 2013, the European Parliament and the Council of Europe reached agreement on the new Basel III rules coming into effect 1 January 2014. Other key regulatory developments in the group’s international jurisdictions include the following:

Europian Union (EU) reform of the Markets in Financial

Instruments Directive – the European Commission published its proposed Markets in Financial Instruments recast Directive and new Regulation in October 2011 which includes measures to address developments in market structures and inconsistencies in transparency requirements.

The European Market Infrastructure Regulation – in force since August 2012 with further details still being phased in. Specifies requirements for central clearing, reporting to trade repositories and risk mitigation for non-centrally cleared OTC derivatives.

EU Financial Crime Reform Proposals – a number of key directives were released such as the fourth Money Laundering Directive, the Revision of the EU Market Abuse Directive and proposed EU Benchmark Regulation.

Dodd Frank Wall Street Reform and Consumer Protection Act –

came into force in July 2010 in the US and is being implemented in a phased approach. It was designed to promote the financial stability of the US economy by improving accountability and transparency in the financial system, specifically the derivative markets where US persons are the counterparty.

Rest of AfricaDuring 2013, the Standard Bank entities within Africa experienced an increase in regulatory developments, amongst others, in the areas of anti-money laundering (AML), consumer protection, exchange control and balance of payments legislation.

A number of countries have enhanced their AML legislation, with Mozambique, Uganda and Zimbabwe promulgating new AML legislation establishing regulatory bodies and the requirements for robust systems to prevent and combat money laundering activity. The acts aim to prevent the abuse of financial systems and assist in the identification of unlawful proceeds of serious criminal activity and terrorist acts. Enhanced AML regulatory directives have also been issued by various regulators across the continent (Ghana, Botswana,


Kenya, Lesotho, Nigeria and Swaziland). The enhanced developments extend regulatory and supervisory powers and reporting obligations.

Consumer protection legislation has been promulgated in various countries, aiming to protect consumers through the prevention of unfair trade practices in consumer transactions. In Kenya the promulgation of the Consumer Protection Act 46 of 2012 supplements the consumer protection guidelines issued by the Central Bank.

An increased focus with regards to both Exchange Control and Balance of Payment reporting has been observed in Africa. Five countries (Angola, DRC, Ghana, Tanzania, Zambia and Zimbabwe) have either published or enhanced Exchange Control and Balance of Payments legislation. The enhancements include increased authority to monitor imports, exports, international transactions and foreign currency flows. Tanzania has issued draft regulations to remove restrictions on the free movement of capital within the Common Market; in terms of the proposed amendments a number of restrictions on currency flows in the region will be lifted by the end of December 2013.

In addition to these developments, there has been increased advancement in the adoption of the more sophisticated Basel regulatory regimes. Priorities of regulators in Africa in adopting Basel II and/or III aligned regulations differ substantially from the international agenda, but many of the group’s host regulators have indicated their intent to adopt Basel II or III or components thereof. Pillar 2 requirements such as internal capital adequacy planning, stress testing and internal governance have also been a focus of many regulators during the past year. The SARB hosted a Regulatory College for the group’s regulators from the rest of Africa in May 2013, where their regulatory roadmaps were discussed.

Impacting the group’s short- and long-term

insurance operations

South AfricaSolvency Assessment and ManagementThe SA FSB is developing a risk-based regulatory requirement for South African insurance and reinsurance organisations, known as SAM. This new regulatory standard aims to address the adequacy of capital allocation and risk management to protect policyholders. This initiative will align the South African insurance industry with international standards. A two phase SAM parallel run will facilitate a smooth transition to this new regulatory standard. A ’light’ phase will be conducted during the second half of 2014, and a ’comprehensive’ phase to be conducted during 2015. Insurers will need to be in a position to comply with most of the SAM requirements by 2015, however, full implementation of the SAM framework will only be effective from 1 January 2016.

SAM requires organisations to integrate risk and capital management within the organisation. Liberty can derive certain business benefits from implementing SAM principles.

Increased risk transparency: Improved measurement and management of risk across all processes in the organisation, creating more detailed information. Transparency of risk reporting enables the avoidance of risks before they result in losses by taking mitigating action.

Reduced capital requirements: Adoption of a sophisticated risk management approach could be rewarded by lower regulatory capital requirements. Investment to improve the risk management could, therefore, be recovered through long-term capital savings.

Greater diversification of investments: Reduced capital requirements will release funds for alternative investment opportunities. Improved risk management processes allow for investment in assets with higher risk and return, depending on risk appetite.

Higher profit potential: Sophisticated capital management enables improved capital allocation between business units to focus on higher return opportunities. Advanced risk management processes support sensible engagement in high margin business. Communicating enhanced risk management and capital allocation arrangements as part of brand creates greater demand from customers and shareholders.

Improved credit rating: This will entail increased market disclosure of risk management practices to both investors and analysts. Evidence of sophisticated risk management processes will lead to improved analyst ratings driving down capital costs.

The new SAM regime will drive key changes to Liberty’s business applications. These changes will predominantly lead to enhanced business capability in respect of risk-adjusted decision-making processes within Liberty.

Liberty is well-represented at all levels of the SA FSB’s SAM industry forums through participation in the task groups and working groups, the SAM steering committee and its subcommittees.

Insurance Laws Amendment BillThe Insurance Laws Amendment Bill proposes amendments to the Long-term Insurance Act and the Short-term Insurance Act that are aimed at addressing interim measures relating to the governance, risk management and internal controls of insurers, as well as insurance group supervision pending the finalisation of the broader review of the Insurance Laws and the SAM project.

Risk and capital management report Annexure A > Regulatory and legislative developments continued

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Financial Services Laws General Amendment ActThe Financial Services Laws General Amendment Act 45 of 2013 was proclaimed on 28 February 2014.

Most provisions of this act commenced on 28 February 2014.The minister has, however, for certain provisions of the act, selected different commencement dates. Most notable sections with suspended implementation dates are:

Section 61 of the act inserts a new section 18 into the Financial Services Board Act 97 of 1990 and deals with a code of norms and standards relating to consultation. In order for this code to be finalised, section 61 will only come into operation on a later date (not yet determined).

Section 95 amends section 49 of the Long-term Insurance Act (relates to remuneration/commission with potential impact on the payment of advice fees) – this section will also only come into operation on a later date (which should tie in with the imminent retail distribution review changes).

Section 264 and the schedule to the act effects amendments to the definition of ‘business of a medical scheme’. In order to allow for the finalisation of the Demarcation Regulations this amendment will also only come into operation on a later date. Note that the media statement states that the second draft of the Demarcation Regulations will probably be released for further comment by end March with a proposed implementation date before end 2014.

The act addresses several areas, including:

closing gaps identified by the Financial Sector Assessment Program conducted by the IMF and World Bank

aligning financial sector legislation with the South African Companies Act 71 of 2008

eliminating overlaps caused by the Consumer Protection Act, Companies Act and Competition Amendment Act 1 of 2009

making the FSB the lead regulator where there is concurrent jurisdiction

giving the Minister of Finance appropriate emergency powers to deal with systemic risks to the financial system

strengthening the SARB’s powers to intervene in the event of a banking crisis.

The act also provides for:

the repeal of numerous advisory committees as part of the process to rationalise and improve the quality of consultation processes as we move towards the twin peaks model of regulation

an amendment of the Co-operatives Banks Act 40 of 2007 to transfer the supervisory function of the Co-operatives Banks Development Agency to the SARB

an amendment of the definition of ’business of a medical scheme’ in the Medical Schemes Act 131 of 1998, required to support regulations released by the National Treasury and the Department of Health.



Composition of capital1

2013

Basel III Rm

Amounts subject to

pre-Basel II treatment

Rm Reference2

CET I capital 96 506

Instruments and reservesCET I capital before regulatory adjustments 119 608

Directly issued qualifying common share capital plus related stock surplus 18 126 (c)Retained earnings 93 834 (d)Accumulated OCI (and other reserves) 7 648 (d)Directly issued capital subject to phase out from CET I (only applicable to non-joint stock companies)Public sector capital injections grandfathered until 1 January 2018Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET I) 4 196 (f)

Regulatory adjustmentsLess: total regulatory adjustments to CET I (27 298)

Prudential valuation adjustmentsGoodwill (net of related tax liability) (3 747) (b)Other intangibles other than mortgage-servicing rights (net of related tax liability) (12 933) (b)Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) (1 054) (a)Cash-flow hedge reserve (761)Shortfall of provisions to expected losses (2 667)Securitisation gain on saleGains and losses due to changes in own credit risk on fair valued liabilities (747)Defined benefit pension fund net assets (669)Investments in own shares (if not already netted of paid-in capital on reported balance sheet)Reciprocal cross-holdings in common equityInvestments 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) (4 705)

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 financialsMortgage servicing rights

Deferred tax assets arising from temporary differences (15)

National specific regulatory adjustments

Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatmentRegulatory 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 2013.2 Reference to annexure C on page 101.

Annexure B

99




Composition of capital1 continued

2013

Basel III Rm

Amounts subject to


Rm Reference2

Additional tier I capital 5 000

InstrumentsAdditional tier I capital before regulatory adjustments 5 000

Directly issued qualifying additional tier I instruments plus related stock surplus, classified as: 4 945 (e)

Equity under applicable accounting standards 4 945 (e)

Liabilities under applicable accounting standards

Directly issued capital instruments subject to phase out from additional tier I 5 495 (e)

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:Instruments issued by subsidiaries subject to phase out

55

Regulatory adjustmentsTotal regulatory adjustments to additional tier I capitalInvestments in own additional tier I instruments

Reciprocal cross-holdings in additional tier I instrumentsInvestments 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 101 506

Capital and provisionsTier II capital before regulatory adjustments 25 250

Directly issued qualifying tier II instruments plus related stock surplusDirectly issued capital instruments subject to phase out from tier IITier 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: 24 273 (g)

Instruments issued by subsidiaries subject to phase out 27 687

Provisions 977

Regulatory adjustmentsTotal regulatory adjustments to tier II capitalInvestments in own tier II instrumentsReciprocal cross-holdings in tier II instrumentsInvestments 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 adjustmentsRegulatory adjustments applied to tier II in respect of amounts subject to pre-Basel III treatment

Tier II capital 25 250

Total capital 126 756

1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 31 December 2013.2 Reference to annexure C on page 101.


Risk and capital management report Annexure B > Composition of capital continued

Composition of capital1 continued

2013

Basel III Rm

Amounts subject to


Rm Reference

Total risk-weighted assets 841 272

Risk-weighted assets in respect of amounts subject to pre-Basel III treatment

Capital ratios and buffersCET I (as a percentage of risk-weighted assets) % 11.5

Tier I (as a percentage of risk-weighted assets) % 12.1

Total capital (as a percentage of risk-weighted assets) % 15.1

Institution-specific buffer requirement (minimum CET I requirement plus capital conservation buffer plus countercyclical buffer requirements plus G-SIBs buffer requirement, expressed as a percentage of risk-weighted assets) % 7.0

Capital conservation buffer requirement % 2.5

Bank-specific countercyclical buffer requirement %G-SIB buffer requirement %

CET I available to meet buffers (as a percentage of risk-weighted assets) % 11.5

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 % 3.5

National tier I minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 4.5

National total capital minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 8.0

Amounts below the threshold for deductions (before risk weighting)Non-significant investments in the capital of other financials 849

Significant investments in the common stock of financials 10 121

Mortgage servicing rights (net of related tax liability)Deferred tax assets arising from temporary differences (net of related tax liability) 320

Applicable caps on the inclusion of provisions in tier IIProvisions eligible for inclusion in tier II in respect of exposures subject to standardised approach (prior to application of cap) 5 469

Cap on inclusion of provisions in tier II under standardised approach 3 372

Provisions 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 3 294

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 arrangementsAmount 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 4 945

Amount excluded from additional tier I due to cap (excess over cap after redemptions and maturities) 550

Current cap on tier II instruments subject to phase-out arrangements 25 689

Amount excluded from tier II due to cap (excess over cap after redemptions and maturities) 2 356

1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 31 December 2013.

101




Reconciliation of audited statement of financial position and regulatory capital and reserves

2013

Statement of financial

position Rm

Under regulatory

scope of consolidation

Rm Reference1

AssetsCash and balances with central banks 53 310

Financial investments, trading and pledged assets 457 018

Non-current assets held for sale 183 284

Loans and advances 839 620

Current tax assets 407

Deferred tax assets 1 536 1 054 (e)

Derivatives and other assets 88 691

Interest in associates and joint ventures 4 797

Investment property 27 299

Goodwill and other intangible assets 18 085 16 680 (b)

Property and equipment 16 882

Total assets 1 690 929

Equity and liabilitiesEquity 152 648 123 804

Equity attributable to ordinary shareholders 128 936 119 608

Ordinary share capital 162 162 (c)

Ordinary share premium 17 964 17 964 (c)

Reserves 110 810 101 482 (d)

Preference share capital and premium 5 503 (e)

Non-controlling interests 18 209 4 196 (f)

Liabilities 1 538 281 24 273

Derivative, provisions, trading and other liabilities 184 672

Non-current liabilities held for sale 134 504

Deposit and current accounts 921 738

Current tax liabilities 4 912

Deferred tax liabilities 3 995

Policyholders’ liabilities 263 944

Subordinated debt 24 516 24 273 (g)

Total equity and liabilities 1 690 929

1 Reference to annexure B on pages 98 to 100.

Annexure C



Annexure D

Capital instruments: main features disclosure template1

Ordinary

share capital

(including

share premium)

Subordinated

bond – SBK7

Subordinated

bond – SBK9

Subordinated

bond – SBKi11

Subordinated

bond – SBK12

2013Issuer SBSA SBSA SBSA SBSA SBSA

Unique identifier (for example, CUSIP, ISIN or Bloomberg identifier for private placement)

ZAG000024894 ZAG000029687 ZAG000066382 ZAG000073388

Governing law(s) of the instrument SA SA SA SA SA

Regulatory treatmentTransitional Basel III rules CET I Tier II Tier II Tier II Tier II

Post-transitional Basel III rules CET I Tier II Tier II Tier II Tier II

Eligible at solo/group/group & solo Solo Group & solo Group & solo Group & solo Group & solo

Instrument type (types to be specified by each jurisdiction)

Ordinary

share capital

and premium

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date)

ZAR36 356 ZAR3 000 ZAR1 500 ZAR1 800 ZAR1 600

Par value of instrument ZAR1 ZAR3 000 ZAR1 500 ZAR1 800 ZAR1 600

Accounting classification Equity

attributable to

ordinary

shareholders

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Original date of issuance Ongoing 2005/05/24 2006/04/10 2009/04/09 2009/11/24

Perpetual or dated Perpetual Dated Dated Dated Dated

Original maturity date N/A 2020/05/24 2023/04/10 2019/04/09 2021/11/24

Issuer call subject to prior supervisory approval No Yes Yes Yes Yes

Optional call date, contingent call dates and redemption amount (currency in Rm)

N/A 2015/05/24

ZAR3 000

2018/04/10

ZAR1 500

2014/04/10

ZAR1 800

2016/11/24

ZAR1 600

Subsequent call dates, if applicable N/A 2015/05/24

or any

subsequent

interest

payment date

2018/04/10

or any

subsequent

interest

payment date

2014/04/10

or any

subsequent

interest

payment date

N/A

Coupons/dividendsFixed or floating dividend/coupon N/A Fixed Fixed Floating Fixed

Coupon rate and any related index N/A 9.63% semi-annual 8.40% semi-annual CPI* indexed2 10.82% semi-annual

Existence of a dividend stopper No No No No No

Fully discretionary, partially discretionary or mandatory

Fully discretionary Mandatory Mandatory Mandatory Mandatory

Existence of step up or other incentive to redeem No Yes Yes Yes Yes

Non-cumulative or 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

Write-down feature 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

Non-compliant transitioned features No Yes Yes Yes Yes

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)(D)

Regulation 38(14)

(a)(iv)(H)(ii)

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)(D)

Regulation 38(14)

(a)(iv)(H)(ii)

1 For related carrying values of subordinated debt, refer to note 23 in the annual financial statements on page 190.2 The amount will be inflation adjusted after call date.* Consumer price index.

103




Subordinated

bond – SBK13

Subordinated

bond – SBK14

Subordinated

bond – SBK15

Subordinated

bond – SBK16

Subordinated

bond – SBK17

Subordinated

bond – SBK18

Subordinated

bond – SBK19

Ordinary share

capital

(including

share premium)

Cumulative

preference

share capital

SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBG SBG

ZAG000073396 ZAG000091018 ZAG000092339 ZAG000093741 ZAG000097619 ZAG000100827 ZAG000100835 SBK

ZAE000109815

SBKP

ZAE000038881

SA SA SA SA SA SA SA SA SA

Tier II Tier II Tier II Tier II Tier II Tier II Tier II CET I Tier II

Tier II Tier II Tier II Tier II Tier II Tier II Tier II CET I Tier II

Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group Group

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Ordinary

share capital

and premium

Preference

share capital

and share

premium ZAR1 150 ZAR1 780 ZAR1 220 ZAR2 000 ZAR2 000 ZAR3 500 ZAR500 ZAR18 126 ZAR8

ZAR1 150 ZAR1 780 ZAR1 220 ZAR2 000 ZAR2 000 ZAR3 500 ZAR500 10c ZAR1

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Equity

attributable to

ordinary

shareholders

Preference

share capital

and share

premium2009/11/24 2011/12/01 2012/01/23 2012/03/15 2012/07/30 2012/10/24 2012/10/24 Ongoing 1969/11/25

Dated Dated Dated Dated Dated Dated Dated Perpetual Perpetual

2021/11/24 2022/12/01 2022/01/23 2023/03/15 2024/07/30 2025/10/24 2024/10/24 N/A N/A

Yes Yes Yes Yes Yes Yes Yes No No

2016/11/24

ZAR1 150

2017/12/01

ZAR1 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

N/A N/A

N/A 2017/12/01

or any

subsequent

interest

payment date

N/A N/A N/A N/A N/A N/A N/A

Floating Fixed Floating Floating Floating Floating Floating N/A Fixed

JIBAR + 2.20 9.66%

semi annual

JIBAR + 2.00 JIBAR + 2.10 JIBAR + 2.20 JIBAR + 2.35 JIBAR + 2.20 N/A 6,50%

No No No No No No No No No

Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Fully

discretionary

Fully

discretionary

Yes No No No No No No No No

Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Cumulative

Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible

N/A N/A N/A N/A N/A N/A N/A N/A N/A

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Non-cumulative

preference

shares

Subordinated

debt

Yes Yes Yes Yes Yes Yes Yes No Yes

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)(i)

Regulation 38(14)

(a)(iv)(H)(ii)

Regulation 38(14)

(a)(i)

Regulation 38(14)

(a)(iv)(H)(ii)

Regulation 38(14)

(a)(i)

Regulation 38(14)

(a)(iv)(H)(ii)

Regulation 38(14)

(a)(i)

Regulation 38(14)

(a)(iv)(H)(ii)

Regulation 38(14)

(a)(i)

Regulation 38(14)

(a)(iv)(H)(ii) N/A

No

loss-absorbancy

features at the

point of

non-viability


Risk and capital management report Annexure D > Capital instruments: main features disclosure template continued

Capital instruments: main features disclosure template continued

Non-cumulative

preference share

capital

Subordinated bond

– Standard Bank

Swaziland 1

Subordinated bond

– Standard Bank

Swaziland 2

Subordinated bond

– Stanbic Bank

Botswana 1

Subordinated bond

– Stanbic Bank

Botswana 5

2013Issuer SBG Standard Bank

Swaziland Limited

Standard Bank

Swaziland Limited

Stanbic Bank

Botswana Limited

Stanbic Bank

Botswana Limited


SBPP

ZAE000056339

SZD000551242 SZD000551242 BW0000001031 SBBL057

Governing law(s) of the instrument SA Swaziland Swaziland Botswana Botswana

Regulatory treatmentTransitional Basel III rules Additional tier I Tier II Tier II Tier II Tier II

Post-transitional Basel III rules Additional tier I Tier II Tier II Tier II Tier II

Eligible at solo/group/group & solo Group Group & solo Group &solo Group & solo Group & solo


Preference share

capital and share

premium

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt


ZAR4 945 ZAR30

E30

ZAR50

E50

ZAR60

BWP50

ZAR96

BWP80

Par value of instrument 1c ZAR30

E30

ZAR50

E50

ZAR60

BWP50

ZAR96

BWP80

Accounting classification Preference share

capital and share

premium

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Original date of issuance 2004/07/07,

2006/05/23,

2006/08/12

2009/12/14 2010/10/14 2011/06/13 2012/05/23

Perpetual or dated Perpetual Dated Dated Dated Dated

Original maturity date N/A 2019/12/14 2020/10/14 2021/06/13 2022/05/23

Issuer call subject to prior supervisory approval No Yes Yes Yes Yes


N/A 2014/12/14

E30

2015/10/14

E50

2016/06/13

BWP50

2017/05/23

BWP80

Subsequent call dates, if applicable N/A On or after

14 December 2014

On or after

14 October 2015

On or after

13 June 2016

On or after

23 May 2017

Coupons/dividendsFixed or floating dividend/coupon Floating Fixed Fixed Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Coupon rate and any related index 77% of prime

interest rate

8,7% 8,1% 91 Day BoBC

+ 130bps

91 Day BoBC

+ 150bps


Fully discretionary, partially discretionary or mandatory

Fully discretionary Mandatory Mandatory Mandatory Mandatory

Existence of step up or other incentive to redeem No Yes Yes Yes Yes




Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)

Cumulative

preference shares

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Non-compliant transitioned features Yes Yes Yes Yes Yes

If yes, specify non-compliant features No loss

absorbancy

features at the

point of on non-

viability

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)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

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)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

105




Subordinated bond

– Standard Bank

Mozambique

Subordinated

bond – CfC

Stanbic Bank

Kenya 2

Subordinated

bond – CfC

Stanbic Bank

Kenya 3

Subordinated

bond – CfC

Stanbic Bank

Kenya 3

Subordinated

bond – Stanbic

Bank Uganda

Subordinated

bond – Stanbic

Bank Ghana 1

Subordinated

loan – Stanbic

Bank Ghana 2

Subordinated

loan – Standard

Bank RDC

Subordinated

loan – Standard

Bank Mauritius

Standard Bank

Mozambique

CfC Stanbic

Bank Limited

CfC Stanbic

Bank Limited

CfC Stanbic

Bank Limited

Stanbic

Bank Uganda

Stanbic Bank

Ghana Limited

Stanbic Bank

Ghana Limited

Standard Bank

RDC

Standard

Bank MauritiusSBM-2007 KE2000002143 KE1000001684 KE1000001672 UG0000000661 IFC IFC IFC Standard Bank

South Africa

Mozambique Kenya Kenya Kenya Uganda Ghanaian law Ghana DRC Mauritius

Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II


Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Solo

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

loan

Subordinated

loan

Subordinated

loan

ZAR92

MT260

ZAR304

KES2 500

ZAR292

KES2 402

ZAR12

KES98

ZAR125

UGX30 000

ZAR31

GHS7

ZAR52

GHS12

ZAR32

CDF2 744

ZAR262

USD25

ZAR92

MT260

ZAR304

KES2 500

ZAR292

KES2 402

ZAR12

KES98

ZAR125

UGX30 000

ZAR31

GHS7

ZAR52

GHS12

ZAR32

CDF2744

ZAR262

USD25Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

loan

Subordinated

loan

Subordinated

loan

2007/06/29 2010/12/24 2009/07/07 2009/07/07 2009/08/10 2012/01/23 2010/03/29 2009/03/16 2012/12/03

Dated Dated Dated Dated Dated Dated Dated Dated Dated

2017/06/29 2014/12/22 2016/07/07 2016/07/07 2016/08/10 2022/01/23 2018/03/29 2019/03/16 2022/12/04

Yes Yes Yes Yes Yes Yes Yes Yes Yes

N/A N/A N/A N/A N/A 2017/01/23

GHS7

2015/03/29

GHS12

2014/03/16

CDF2 744

2017/12/04

USD25

N/A N/A N/A N/A N/A 23 January 2017

or any interest

payment date

thereafter

29 March 2015

or any interest

date thereafter

16 March 2014

or any interest

date thereafter

5 December 2017

or any interest

date thereafter

.

Fixed margin

linked to a floating

base rate

Fixed Fixed Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Fixed Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rateWA + 50bps 7,25% 12,5% 182 day T-bill

+ 175bps

14.5% and T-bill

+ 150bps

11,25% LIBOR + 325bps LIBOR + 375bps LIBOR + 300bps


Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

Yes No Yes Yes No Yes Yes Yes Yes

Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative



Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

debt


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)(i)

Regulation 38

(14) (a)(iv)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

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)(i)

Regulation 38

(14) (a)(iv)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

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)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

Regulation 38

(14) (a)(i)

Regulation 38

(14) (a)(iv)(D)

Regulation 38

(14) (a)(iv)(H)(ii)


Risk and capital management report Annexure D > Capital instruments: main features disclosure template continued

Capital instruments: main features disclosure template continued

Subordinated

loan – Standard

Bank Tanzania

Subordinated

loan – Stanbic

Bank Uganda

Subordinated

loan – Standard

Bank Angola

Subordinated

loan – Stanbic

Bank IBTC

Subordinated

loan – CfC Stanbic

Bank Kenya

2013Issuer Standard Bank

Tanzania

Stanbic Bank

Uganda

Standard Bank

Angola

Stanbic Bank

IBTC

CfC Stanbic

Bank Limited


Standard Bank

South Africa SAHL

Standard Bank

South Africa

Standard Bank

South Africa IFC

Governing law(s) of the instrument Tanzania Uganda Angola Nigeria Kenya

Regulatory treatmentTransitional Basel III rules Tier II Tier II Tier II Tier II Tier II

Post-transitional Basel III rules Tier II Tier II Tier II Tier II Tier II

Eligible at solo/group/group & solo Solo Solo Solo Solo Group & solo


Subordinated

loan

Subordinated

loan

Subordinated

loan

Subordinated

loan

Subordinated

loan


ZAR53

TZN7 793

ZAR73

UGX17 682

ZAR315

AOA2 929

ZAR420

NGN6 400

ZAR105

KES864

Par value of instrument ZAR53

TZN7 793

ZAR73

UGX17 682

ZAR315

AOA2 929

ZAR420

NGN6 400

ZAR105

KES864

Accounting classification Subordinated

loan

Subordinated

loan

Subordinated

loan

Subordinated

loan

Subordinated

loan

Original date of issuance 2011/12/15 2011/10/31 2013/05/23 2013/04/30 2009/06/19

Perpetual or dated Dated Dated Dated Dated Dated

Original maturity date 2021/12/15 2021/10/31 2023/04/23 2025/10/31 2019/06/19

Issuer call subject to prior supervisory approval Yes Yes Yes Yes Yes


2016/12/15

TZN7 793

2016/10/31

UGX17 682

2018/04/23

AOA2 929

2020/05/31

NGN6 400

2014/06/19

KES864

Subsequent call dates, if applicable16 December 2016

or any interest

date thereafter

1 November 2016

or any interest

date thereafter

24 April 2018

or any interest

date thereafter

1 November 2016

or any interest

date thereafter

19 June 2014

or any interest

date thereafter

Coupons/dividendsFixed or floating dividend/coupon Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Fixed margin

linked to a

floating base rate

Coupon rate and any related index

LIBOR + 395bps LIBOR + 376bps LIBOR + 360bps LIBOR + 360bps LIBOR + 400bps


Fully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

Existence of step up or other incentive to redeem Yes Yes Yes Yes Yes




Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Senior debt Senior debt Senior debt Senior debt Senior unsecured

Non-compliant transitioned features Yes Yes Yes Yes Yes

If yes, specify non-compliant features 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)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

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)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

Regulation 38

(14) (a)(i)

Regulation 38

(14) (a)(iv)(D)

Regulation 38

(14) (a)(iv)(H)(ii)

107




Subordinated

loan – Standard

Bank Zambia

Subordinated

bond –

Standard Bank

Plc (SB Plc) 1

Subordinated

bond –

SB Plc 2

Subordinated

bond –

SB Plc 4

Subordinated

loan – Standard

Bank Offshore

Group

Subordinated

loan – Standard

Bank Offshore

Group

Subordinated

loan – Standard

Bank Offshore

Group

Subordinated

loan – Standard

Bank Offshore

Group

Subordinated

loan – Standard

Bank Offshore

Group

Standard

Bank Zambia

SB Plc SB Plc SB Plc SBOG SBOG SBOG SBOG SBOG

Standard Bank

South Africa

BXS0262708554 BXS0470473231 BXS0471654409 Standard Bank

Offshore Group

Standard Bank

Offshore Group

SB Plc Standard Bank

Offshore Group

Standard Bank

Offshore Group

Zambia UK UK UK Jersey Jersey Jersey Jersey Jersey



Solo Group & solo Group & solo Group & solo Solo Solo Solo Solo Solo

Subordinated

loan

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

ZAR157

ZMK82

ZAR1 487

USD142

ZAR5 246

USD500

ZAR262

USD25

ZAR118

GBP8

ZAR42

GBP3

ZAR151

GBP10

ZAR60

GBP4

ZAR110

GBP7

ZAR157

ZMK82

ZAR1 487

USD142

ZAR5 246

USD500

ZAR262

USD25

ZAR118

GBP8

ZAR42

GBP3

ZAR151

GBP10

ZAR60

GBP4

ZAR110

GBP7

Subordinated

loan

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

Subordinated

debt

2011/12/13 2006/07/27 2009/12/02 2009/12/03 2011/06/09 2011/06/09 2010/06/10 2011/06/15 2011/06/29

Dated Perpetual Dated Dated Dated Dated Dated Dated Dated

2021/12/13 N/A 2019/12/02 2019/12/03 2021/06/30 2020/06/30 2020/06/30 2021/06/30 2021/06/30

Yes Yes N/A Yes N/A N/A N/A N/A N/A

2016/12/13

ZMK82

2016/07/27

ZAR1 487

2014/12/03

ZAR262

N/A N/A N/A N/A N/A

14 December

2016 or any

interest date

thereafter

any interest

payment date

after

27/07/2016

N/A any interest

payment date

after

03/12/2014

N/A N/A N/A N/A N/A

Fixed margin

linked to a

floating base rate

Fixed until

27/07/2016

then floating.

Fixed Fixed Floating Floating Floating Floating Floating

LIBOR + 385bps 8.012% per

annum until

27/07/2016.

Then 3 month

LIBOR + 3.25%

8.125%

per annum

8% per annum

until

3/12/2014.

Then 8.5% until

maturity.

25bps over

LIBOR, payable

6 monthly

25bps over

LIBOR, payable

3 monthly

420bps over

LIBOR, payable

3 monthly

25bps over

LIBOR, payable

3 monthly

25bps over

LIBOR, payable

6 monthly


Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

Yes Yes No Yes No No No No No

Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative



Senior debt Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured

Senior

unsecured


Regulation 38(14)

(a)(i)

Regulation 38(14)

(a)(iv)(D)

Regulation 38(14)

(a)(iv)(H)(ii)

Recital 27 of

the Capital

Requirements

Regulation

(CRR)

Recital 27

of the CRR

Recital 27

of the CRR

Non-compliant

with Basel III

post transition

Non-compliant

with Basel III

post transition

Non-compliant

with Basel III

post transition

Non-compliant

with Basel III

post transition

Non-compliant

with Basel III

post transition

Contents

Directors’ responsibility for financial reporting 109

Group secretary’s certification 109

Report of the group audit committee 110

Directors’ report 112

Independent auditors’ report 116

Statement of financial position 117

Income statement 118

Statement of other comprehensive income 120

Statement of cash flows 122

Statement of changes in equity 124

Accounting policy elections 128

Notes to the annual financial statements 130

Standard Bank Group Limited

– company annual financial statements 237

Annexure A – restatements 244

Annexure B – subsidiaries, consolidated and

unconsolidated structured entities 251

Annexure C – associates and joint ventures 266

Annexure D – group share incentive schemes 271

Annexure E – detailed accounting policies 277

Annexure F – emoluments and share incentives

of directors and prescribed officers 296

Annexure G – special resolutions 308

Annexure H – seven-year review 310

Annexure I – segmental statement of

financial position 322

Annexure J – banking activities average

statement of financial position (normalised) 324

Annexure K – third-party funds under management 326

ContentsThe consolidated and separate annual financial statements were auditedin terms of the Companies Act 71of 2008.

The preparation of the group’s consolidated and separate annual financial statements was supervised by the group financial director, Simon Ridley, BCom (Natal), CA(SA), AMP (Oxford). These results were made publicly available on 6 March 2014.


108

109




Directors’ responsibility forfinancial reporting

Group secretary’s certification

In accordance with the Companies Act the directors are responsiblefor the preparation of the annual financial statements. These annual financial statements conform to IFRS and fairly present the affairs of Standard Bank Group Limited (the company) and Standard Bank Group (the group) as at 31 December 2013, and the net income andcash flows for the year then ended.

It is the responsibility of the independent auditors to report on the fair presentation of the financial statements.

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 and implemented 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.

Accounting policies, supported by judgements, estimates and assumptions in compliance with IFRS, are applied on the basis that the company and the group shall continue as a going concern. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties.

Systems and controls are monitored throughout the company and the group. Greater detail of these systems and controls, including the operation of the group’s internal audit function, is provided in the corporate governance statement in the annual integrated report and the risk and capital management section of this report.

Based on the information and explanations given by management and the group’s internal auditors, the directors are of the opinion

Compliance with the Companies Act 71 of 2008 (Companies Act)In terms of the Companies Act and for the year ended 31 December 2013, 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 secretary

5 March 2014

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’s 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 2013 annual financial statements which appear on pages 117 to 307 and specified sections of the risk and capital management report contained within pages 3 to 107, were approved by the board on 5 March 2014 and signed on its behalf by:

Fred Phaswana

Chairman

5 March 2014

Ben Kruger Sim Tshabalala

Group chief executive Group chief executive

5 March 2014 5 March 2014



Report of the group audit committee

This report is provided by the audit committee, in respect of the 2013

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 Limited (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 Report

on Corporate Governance for South Africa 2009 (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, amongst other matters,

considered the following:

In respect of the external auditors and the external audit:

approved the reappointment of KPMG Inc. and

PricewaterhouseCoopers Inc. as joint external auditors for the

financial year ended 31 December 2013, 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 the provisions for

performing and non-performing loans and impairment of other

assets, and the formulae applied by the group 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 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

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

received assurance that proper and adequate accounting

records were maintained and that the systems safeguarded the

assets against unauthorised use or disposal thereof

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

111




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 .

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, all 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

the chairman is a member of and attended the risk and capital management committee meetings held during the year under review.

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 auditorsThe 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.

The audit committee has reviewed the annual integrated report and recommended it to the board for approval.

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 committee

5 March 2014



Directors’ reportfor the year ended 31 December 2013

Nature of businessStandard Bank Group Limited is the holding company for the interests of the group, an African banking group with South African roots. It is South Africa’s largest bank by assets and earnings and currently operates in 20 countries on the African continent, including South Africa. 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). Subsidiary entities are listed on exchanges in Kenya, Malawi, Nigeria and Uganda.

PG A simplified group organogram is shown in annexure Bon page 251.

Group results

A general review of the business and operations of major subsidiaries is provided in the chief executives’ review and operational reviews in the annual integrated report on pages 22 to 24 and 29 to 46, respectively.

AIR

A financial review of the results of the group for theyear is provided in the annual integrated report onpages 60 to 77.

AIR

Property and equipmentThere was no change in the nature of the group’s fixed assets or in the policy regarding their use during the year.

Share capital

Ordinary sharesDuring the year, 4 304 866 ordinary shares (2012: 5 347 398 ordinary shares) were issued in terms of equity compensation plans and 10 281 204 ordinary shares (2012: 12 041 298 ordinary shares) were issued as scrip distributions. Surplus capital was used to repurchase 2 877 768 ordinary shares (2012: nil) to partially counteract the impact of the shares issued under the equity compensation plans.

Non-redeemable, non-cumulative, non-participating

preference shares (second preference shares)No second preference shares were issued during the year.

Directors’ interest in shares

PG The directors’ interest in shares are listed on pages 177 to 178 of this report.

Equity compensation plans

Information on options or rights granted to executive directors under the group’s equity compensation plansis provided in the remuneration report in the annual integrated report starting on page 124 and in annexure F starting on page 296.

AIR

PG Details of options granted to all employees under equity compensation plans are given in annexure D starting on page 271.

Directors’ and prescribed officers’ emoluments

PG Directors’ and prescribed officers’ emoluments are disclosed in annexure F starting on page 296.

Information relating to the determination of directors’ and prescribed officers’ emoluments, share incentive allocations, details of prescribed officers’ interest in group shares and related matters is contained in the remuneration report in the annual integrated report starting on page 124.

AIR

Shareholder analysis

PG The analysis of ordinary shareholders is provided onpages 178 to 180.

Shareholders 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 conductedon our behalf, were as follows:

% held

2013 2012

Ordinary shares Industrial and Commercial Bank of China Limited (ICBC) 20.1 20.0Public Investment Corporation 13.8 14.6

6.5% preference shares Old Sillery Proprietary Limited 9.1 9.1L Lombard 8.5 5.6DJ Saks 7.5 7.5JW van Tonder 6.5 6.4DF Foster 6.0 6.0

113




Distributions

Ordinary

shares

6.5% cumulative

preference shares

(first preference shares)

Non-redeemable,

non-cumulative,

non-participating

preference shares

(second preference shares)

Interim

2012

Dividend per share (cents) 212,00* 3,25 345,55

2013

Dividend per share (cents) 233,00 3,25 324,56

Record date in respect of the cash dividend/ capitalisation shares

Friday,

13 September 2013

Friday,

6 September 2013

Friday,

6 September 2013

Dividend cheques posted and CSDP**/broker accounts credited/updated (payment date)

Monday,

16 September 2013

Monday,

9 September 2013

Monday,

9 September 2013

Final

2012

Dividend per share (cents) 243,00* 3,25 331,96

2013

Dividend per share (cents) 300,00 3,25 329,94

Record date in respect of the cash dividend/ capitalisation shares

Friday,

11 April 2014

Friday,

4 April 2014

Friday,

4 April 2014

Dividend cheques posted and CSDP**/broker accounts credited/updated (payment date)

Monday,

14 April 2014

Monday,

7 April 2014

Monday,

7 April 2014

* The company offered shareholders, as an alternative, shares in the form of capitalisation shares.** Central Securities Depository Participant.

Directorate

The directorate is listed in the annual integrated report on pages 104 to 107.AIR

The following changes in directorate have taken place during the financial year ended 31 December 2013:


Appointments

PD Sullivan as director 15 January 2013SK Tshabalala as group chief executive and director 7 March 2013BJ Kruger as group chief executive and director 7 March 2013PG Wharton-Hood as director 7 March 2013

Retirements

JH Maree as group chief executive 7 March 2013MC Ramaphosa as director 30 May 2013

Resignations

JH Maree as director 7 March 2013PG Wharton-Hood as director 14 August 2013


Annual financial statements Directors’ report continued

The Standard Bank of South Africa Limited

Appointments

PD Sullivan as director 15 January 2013BJ Kruger as director 7 March 2013PG Wharton-Hood as director 7 March 2013

Retirements

JH Maree as director 7 March 2013MC Ramaphosa as director 30 May 2013

Resignation

PG Wharton-Hood as director 14 August 2013

Standard Bank Plc

Appointment

GAR Joyce as director 1 May 2013

Resignations

GM Vogel as director 1 May 2013PG Wharton-Hood as director 14 August 2013

Liberty Holdings Limited

Appointments

SK Tshabalala as director 2 April 2013SL Botha as director 19 August 2013

Retirement

JH Maree as director 7 March 2013

Resignation

PG Wharton-Hood as director 14 August 2013

Stanbic IBTC Bank PLC

Appointments

D Bruynseels as director 23 January 2013SK Tshabalala as director 20 August 2013V Williams as director 18 July 2013

Resignations

JH Maree as director 7 March 2013PO Solola as director 8 February 2013BJ Kruger as director 19 September 2013

115




Group secretary and registered officeThe group secretary is Zola Stephen. The address of the group secretary is that of the registered office, 9th floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg 2001.

Management by third partiesNone of the businesses of the company or its subsidiaries had, during the financial year, been managed by a third party or a company in which a director had an interest.

A company in which Doug Band, a director of the group, has a beneficial interest provided consulting and certain management services to the private equity division of The Standard Bank of South Africa Limited for a five-year period until 31 December 2004. In terms of the agreement, in future years, he will receive a percentage of the proceeds from the sale of equity-related investments undertaken during the term of the above management services agreement.

PG Further details can be found in the directors’ emoluments in annexure F starting on page 296.

Subsidiaries, associates and joint ventures

PG The interests in subsidiary, associated and joint venture companies, where considered material in light of the group’s financial position and results, are set out in annexure B on pages 251 to 265 and annexure C on pages 266 to 270, respectively.

Special resolutions passed during 2013Refer to annexure G for special resolutions passed during the year.

ContractsSaki Macozoma, a director and deputy chairman of the company, has an effective shareholding of 28.40% (2012: 26.62%) in Safika which is a member of three different consortia thatwere party to the Andisa Capital and the Tutuwa transactions.Safika holds effective interests of 2.39% (2012: 2.39%) in Liberty Holdings Limited and 1.34% (2012: 1.34%) in the company. The group has an effective interest of 26.67% (2012: 25.00%) in Safika.

InsuranceThe group protects itself against 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.

Events subsequent to balance sheet date

Director appointments and resignationsOn 16 January 2014, Hongli Zhang, deputy chairman, and Yagan Liu resigned as non-executive directors of Standard Bank Group Limited, respectively.

Wenbin Wang was appointed to the board of Standard Bank Group Limited and Kaisheng Yang was appointed as deputy chairman, Standard Bank Group Limited on 16 January 2014.

On 4 March 2014, Koosum Kalyan resigned as non-executivedirector from the boards of Standard Bank Group Limited and The Standard Bank of South Africa Limited.

Disposal of a portion of Standard Bank PlcThe group announced on 29 January 2014 the conclusion of agreements in respect of the disposal of its controlling interests in Standard Bank’s London-based Global Markets business to ICBC. ICBC will acquire, subject to the fulfilment of conditions, 60% of Standard Bank Plc, the group’s UK subsidiary. Certain activities of Standard Bank conducted outside Africa, comprising of investment banking, transactional products and services, corporate banking and services unit, are not part of the transaction and will be transferred into new wholly-owned legal entities. ICBC has a five-year call option to purchase a further 20% of the outstanding shares of Standard Bank Plc, exercisable from the second anniversary of the date of completion. Standard Bank would have a put option exercisable after ICBC’s option is exercised, to sell its residual shareholding in Standard Bank Plc to ICBC for cash.

For more details, refer to note 7 on pages 157 to 158.PG



Independent auditors’ report

To the shareholders of


Report on the financial statementsWe have audited the consolidated group and separate company financial statements of the Standard Bank Group Limited,which comprise the statements of financial position as at31 December 2013, and the income statement 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, as set out on pages 117 to 307and specified sections marked as ’audited’ in the risk and capital management report contained within pages 3 to 107.

Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation andfair presentation of these 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 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 andseparate financial position of Standard Bank Group Limited as at 31 December 2013, its consolidated and separate financial performance and its consolidated and separate cash flowsfor the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Actof South Africa.

Other reports required by the Companies ActAs part of our audit of the financial statements for the year ended31 December 2013, we have read the directors’ report, the report of the group audit committee and the group secretary’s certificate 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.

KPMG Inc. PricewaterhouseCoopers Inc.Registered Auditor Registered Auditor

Per Peter MacDonald Per Fulvio TonelliChartered Accountant (SA) Chartered Accountant (SA)Registered Auditor Registered AuditorDirector Director5 March 2014 5 March 2014

85 Empire Road 2 Eglin RoadParktown Sunninghill2193 2157

117




Statement of financial positionas at 31 December 2013

Note

Group

2013Rm

20121

Rm20111

Rm

Assets

Cash and balances with central banks 3 53 310 61 985 31 907Derivative assets 4.7 64 474 120 190 150 046Trading assets 5.1 54 588 114 419 90 449Pledged assets 6.1 6 713 11 640 6 113Non-current assets held for sale 7 183 284 960 34 085Financial investments 8 395 717 347 157 316 871Loans and advances 9.1 839 620 811 171 801 308Current tax assets 10 407 331 443Deferred tax assets 10 1 536 1 183 1 440Other assets 11 24 217 33 725 23 393Interest in associates and joint ventures 12 4 797 3 035 1 849Investment property 13 27 299 24 133 23 470Goodwill and other intangible assets 14 18 085 14 687 12 754Property and equipment 15 16 882 15 733 14 920

Total assets 1 690 929 1 560 349 1 509 048

Equity and liabilities

Equity 152 648 130 889 117 897

Equity attributable to ordinary shareholders 128 936 111 085 99 450

Ordinary share capital 16.2 162 161 159Ordinary share premium 16.2 17 964 17 931 17 576Reserves 110 810 92 993 81 715

Preference share capital and premium 16.2 5 503 5 503 5 503Non-controlling interests 18 209 14 301 12 944

Liabilities 1 538 281 1 429 460 1 391 151

Derivative liabilities 4.7 69 244 121 998 153 142Trading liabilities 18 35 368 44 474 37 283Non-current liabilities held for sale 7 134 504 27 939Deposit and current accounts 19 921 738 910 682 868 586Current tax liabilities 20 4 912 4 230 2 353Deferred tax liabilities 20 3 995 3 692 3 892Provisions and other liabilities 21 80 060 76 152 64 637Policyholders’ liabilities 22 263 944 236 684 208 565Subordinated debt 23 24 516 31 548 24 754

Total equity and liabilities 1 690 929 1 560 349 1 509 048

1 Restated. Refer to annexure A for details of the restatements.



Income statementfor the year ended 31 December 2013

Group

Note2013

Rm20121

Rm

Continuing operationsIncome from banking activities 73 406 66 252

Net interest income 39 095 33 966

Interest income 29.1 71 869 68 232Interest expense 29.2 32 774 34 266

Non-interest revenue 34 311 32 286

Net fee and commission revenue 29.3 23 184 21 694

Fee and commission revenue 29.3 26 714 24 863Fee and commission expense 29.3 3 530 3 169

Trading revenue 29.4 7 811 6 789Other revenue 29.5 3 316 3 803

Income from investment management and life insurance activities 85 240 77 580

Net insurance premiums 29.6 34 466 29 631Investment income and gains 29.7 47 585 45 306Management and service fee income 3 189 2 643

Total income 158 646 143 832Credit impairment charges 29.8 9 158 8 714Benefits due to policyholders 63 295 58 739

Net insurance benefits and claims 29.9 45 245 43 864Fair value adjustment to policyholders’ liabilities under investment contracts 10 135 10 035Fair value adjustment on third-party fund interests 7 915 4 840

Income after credit impairment charges and policyholders’ benefits 86 193 76 379Revenue sharing agreements with group companies 142 115

Income after revenue sharing agreements 86 051 76 264Operating expenses in banking activities 42 055 37 221

Staff costs 29.10 23 087 20 419Restructuring costs 29.11 319Other operating expenses 29.13 18 968 16 483

Operating expenses in investment management and life insurance activities 14 226 12 080

Acquisition costs 29.12 4 233 3 818Other operating expenses 29.13 9 993 8 262

Net income before goodwill impairment and gains on disposal of subsidiaries 29 770 26 963Goodwill impairment 29.14 777Gains on disposal of subsidiaries 64 188

Net income before share of profits from associates and joint ventures 29 834 26 374Share of profit from associates and joint ventures 12 685 701

Net income before indirect taxation 30 519 27 075Indirect taxation 30.1 1 911 1 621

Profit before direct taxation 28 608 25 454Direct taxation 30.2 7 580 7 002

Profit for the year from continuing operations 21 028 18 452


119




Group

Note2013

Rm20121

Rm

Profit for the year from continuing operations continued 21 028 18 452

Discontinued operations (1 022) 817

Loss for the year from discontinued operation – Standard Bank Plc 29.15 (419) (1 618)Held for sale impairment – Standard Bank Plc 29.15 (603)

Profit for the year from discontinued operation – Argentina 29.15 910Profit from disposal of discontinued operation – Argentina 29.15 1 525

Profit for the year 20 006 19 269

Attributable to non-controlling interests 3 451 2 871Attributable to equity holders of the parent 16 555 16 398

Attributable to preference shareholders 349 352Attributable to ordinary shareholders 16 206 16 046

Earnings per share from continuing operations and discontinued operations

Basic earnings per ordinary share (cents) 32 1 034,4 1 054,6Diluted earnings per ordinary share (cents) 32 1 008,6 1 020,0Earnings per share from continuing operations

Basic earnings per ordinary share (cents) 32 1 099,6 1 015,9Diluted earnings per ordinary share (cents) 32 1 072,2 982,5




Statement of othercomprehensive incomefor the year ended 31 December 2013

Group

Ordinary shareholders’

equity Rm

Non-controlling

interestsand

preference shareholders

Rm

Total equity

Rm

2013

Profit for the year 16 206 3 800 20 006

Other comprehensive income after tax for the year1 6 205 1 698 7 903

Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 6 276 1 809 8 0852

Net change on hedges of net investments in foreign operations (176) (176)

Net change in fair value of cash flow hedges 259 (59) 200

Realised fair value adjustments of cash flow hedges transferred to profit or loss 39 39

Net change in fair value of available-for-sale financial assets 82 33 115

Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (13) (11) (24)

Items that may not be reclassified to profit or lossDefined benefit fund remeasurements (202) 16 (186)

Other losses (60) (90) (150)

Total comprehensive income for the year 22 411 5 498 27 909

Attributable to non-controlling interests 5 149 5 149

Attributable to equity holders of the parent 22 411 349 22 760

Attributable to preference shareholders 349 349

Attributable to ordinary shareholders 22 411 22 411

1 Income tax relating to each component of other comprehensive income is disclosed in note 30.2 Includes realised foreign currency translation gains on foreign operations of R16 million transferred to profit or loss.

121




Group

Ordinary shareholders’

equity Rm

Non-controlling

interestsand

preference shareholders

Rm

Total equity

Rm

20121

Profit for the year 16 046 3 223 19 269Other comprehensive income after tax for the year from

continuing operations2 869 201 1 070

Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 523 21 5443

Net change on hedges of net investments in foreign operations 181 181Net change in fair value of cash flow hedges 170 1 171Realised fair value adjustments of cash flow hedges transferred to profit or loss (391) (10) (401)Net change in fair value of available-for-sale financial assets 618 134 752Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (575) 17 (558)

Items that may not be reclassified to profit or lossDefined benefit fund remeasurements 346 37 383Other losses (3) 1 (2)

Other comprehensive income after tax for the year

from discontinued operation4 509 106 615

Total comprehensive income for the year 17 424 3 530 20 954

Attributable to non-controlling interests 3 178 3 178Attributable to equity holders of the parent 17 424 352 17 776

Attributable to preference shareholders 352 352Attributable to ordinary shareholders 17 424 17 424

1 Restated. Refer to annexure A for details of the restatements.2 Income tax relating to each component of other comprehensive income is disclosed in note 30.3 Includes realised foreign currency translation losses on foreign operations of R696 million transferred to profit or loss.4 The OCI relates to the disposal of Argentina. Refer to note 29.16 for details.



Statement of cash flowsfor the year ended 31 December 2013

Group

Note2013

Rm20121

Rm

Net cash flows from operating activities 24 020 42 970

Cash flows used in operations (9 659) (447)

Net income before goodwill impairment 29 770 25 510

Continuing operations 29 770 26 963Discontinued operation (1 453)

Adjusted for: (34 449) (33 760)

Amortisation of intangible assets 1 065 1 005Credit impairment charges on loans and advances 9 158 8 800Defined benefit pension fund and post-employment benefits 676 624Depreciation of property and equipment 2 795 2 595Dividends included in trading revenue and investment income (3 673) (3 519)Equity-settled share-based payments 297 328Indirect taxation (1 911) (1 766)Interest expense 32 340 34 361Interest income (79 513) (76 556)Fair value adjustment on third-party fund interests 7 915 4 840Investment gains due to policyholders (33 578) (30 998)Net fund flows after service fees on policyholder investment contracts (4 152) (1 432)Non-cash flow movements to bonds 761 729Other impairment losses 456 237Policyholders’ liability transfers 30 833 29 567Gain on sale of businesses and divisions (27) Profit on sale of property and equipment (4) (30)Net inflows/(outflows) from third-party financial liabilities arising on consolidation of mutual funds 3 561 (1 431) Distributions to third-party financial liabilities arising on consolidation of mutual funds (1 425) (1 019) Other (23) (95)

Increase in income-earning assets 34.1 (21 333) (44 555)Increase in deposits, trading and other liabilities 34.2 16 353 52 358

Dividends received 5 148 5 160Interest paid (33 187) (35 020)Interest received 77 271 74 073Direct taxation paid 34.3 (7 059) (4 134)Net cash flows (used in)/from operating activities in discontinued operation 34.4 (8 494) 3 338


123




Group

Note2013

Rm20121

Rm

Net cash flows from operating activities continued 24 020 42 970

Net cash flows used in investing activities (17 345) (14 530)

Capital expenditure on– property (880) (1 328)– equipment, furniture and vehicles (2 645) (2 356)– intangible assets (4 618) (4 108)Proceeds from sale of property, equipment, furniture and vehicles 229 186Proceeds from sale of intangible assets 46

Net investment (in)/from investment properties (561) 333Net increase in investments by insurance operations (8 917) (6 448)Net cash inflow/(outflow) resulting from the disposal of subsidiaries 34.8 310 (3 543)Net cash outflow resulting from the acquisition of subsidiaries 34.5 (9)(Increase)/decrease in investment in associates and joint ventures (274) 2 840Net cash flows used in investing activities in discontinued operation 34.4 (35) (97)

Net cash flows used in financing activities (9 238) (3 820)

Proceeds from issue of share capital to shareholders 165 125Share buy-backs (343) Equity transactions with non-controlling interests (1 019) (3 165)Proceeds from issue of share capital to minorities 184

Release of empowerment reserve 1 676

Decrease in investment in existing subsidiaries 376Subordinated debt issued 9 342Subordinated debt redeemed (1 890) (2 955)Net dividends paid 34.6 (8 011) (7 543)

Effect of exchange rate changes on cash and cash equivalents 7 987 609

Net increase in cash and cash equivalents 5 424 25 229Cash and cash equivalents at the beginning of the year 61 985 36 756

Cash and cash equivalents at the end of the year 34.7 67 409 61 985




Statement of changes in equityfor the year ended 31 December 2013

Ordinaryshare

capital and

premiumRm

Empower-ment

reserve1

Rm

Treasuryshares2

Rm

Foreigncurrency

translationreserve3

Rm

Foreigncurrency

hedgeof net

investmentreserve4

Rm

Cash flowhedgingreserve5

Rm

Balance at 1 January 2013 – restated 18 092 (3 270) (190) (2) (92) 506

Total comprehensive income/(loss) for the year 6 276 (176) 298

Profit for the yearOther comprehensive income/(loss) after tax for the year 6 276 (176) 298

Increase in statutory credit risk reserveUnincorporated property partnerships capital reductions and distributions

Transactions with shareholders,

recorded directly in equity 34 1 424 (95)

Equity-settled share-based payment transactionsTransfer of vested equity rightsIssue of share capital and share premium and capitalisation of reserves 377

Share buy-back (343)

Deferred tax on share-based payment transactionsTransactions with non-controlling shareholders 2 1

Net increase in treasury shares (96)

Redemption of preference shares 1 658

Net dividends paid (236)

Dividends paid to equity holders (294)

Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 58

Balance at 31 December 2013 18 126 (1 846) (285) 6 274 (268) 804

1 The empowerment reserve is explained in note 17 on pages 180 to 182.2 The treasury share reserve relates to group shares held by entities within the group. Refer to pages 72 to 77 of the annual integrated report for an explanation on treasury shares

held by entities within the group.3 Refer to annexure E, accounting policy 2 – Foreign currency translations on page 278.4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 279.5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 279.6 The statutory credit risk reserve represents the amount by which local regulatory authorities within the group’s rest of Africa operations requires an impairment allowance which

exceeds the IFRS impairments allowance.7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 279.8 Refer to annexure E, accounting policy 20 – Equity-linked transactions on page 292.

All balances are stated net of applicable tax.

125




Statutorycredit risk

reserve6

Rm

Available-for-sale

revaluationreserve7

Rm

Share-based

paymentreserve8

Rm

Otherreserves

Rm

Retainedearnings

Rm

Ordinaryshare-

holders’equity

Rm

Preferenceshare

capitaland

premiumRm

Non-controlling

interestsRm

Totalequity

Rm

1 002 127 1 142 232 93 538 111 085 5 503 14 301 130 889

69 13 15 931 22 411 349 5 149 27 909

16 206 16 206 349 3 451 20 006

69 13 (275) 6 205 1 698 7 903

293 (293)

(6) (6)

91 (6 014) (4 560) (349) (1 235) (6 144)

411 (169) 242 38 280

(320) 320

(212) 165 165

(343) (343)

76 76 76

(53) (50) 4 (46)

119 23 36 59

18 1 676 1 676

(6 113) (6 349) (349) (1 313) (8 011)

(6 165) (6 459) (349) (1 405) (8 213)

52 110 92 202

1 295 196 1 233 245 103 162 128 936 5 503 18 209 152 648


Annual financial statements Statement of changes in equity continued

Statement of changes in equity continuedfor the year ended 31 December 2013

Ordinaryshare

capital and

premiumRm

Empower-ment

reserve1

Rm

Treasuryshares2

Rm

Foreigncurrency

translationreserve3

Rm

Foreigncurrency

hedgeof net

investmentreserve4

Rm

Cash flowhedgingreserve5

Rm

Balance at 1 January 2012

– as previously reported 17 735 (3 079) (198) (1 058) (273) 725Restatement of opening equity balances (49)

Balance at 1 January 2012 – restated 17 735 (3 079) (247) (1 058) (273) 725Total comprehensive income/(loss) for the year 1 056 181 (219)

Profit for the yearOther comprehensive income/(loss) after tax for the year 1 056 181 (219)

Increase in statutory credit risk reserveTransfer of other reservesUnincorporated property partnerships capital reductions and distributions Disposal of property partnership Transactions with shareholders,

recorded directly in equity 357 (191) 57

Equity-settled share-based payment transactionsTransfer of vested equity rightsIssue of share capital and share premium and capitalisation of reserves 357Deferred tax on share-based payment transactionsTransactions with non-controlling shareholders (8) (4) Net decrease in treasury shares 61Net dividends paid (183)

Dividends paid to equity holders (217)Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 34

Balance at 31 December 2012 – restated 18 092 (3 270) (190) (2) (92) 506

1 The empowerment reserve is explained in note 17 on pages 180 to 182.2 The treasury share reserve relates to group shares held by entities within the group. Refer to pages 72 to 77 of the annual integrated report for an explanation on treasury shares

held by entities within the group.3 Refer to annexure E, accounting policy 2 – Foreign currency translations on page 278.4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 279.5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 279.6 The statutory credit risk reserve represents the amount by which local regulatory authorities within the group’s rest of Africa operations requires an impairment allowance which

exceeds the IFRS impairments allowance.7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 279.8 Refer to annexure E, accounting policy 20 – Equity-linked transactions on page 292.

All balances are stated net of applicable tax.

127




Statutorycredit risk

reserve6

Rm

Available-for-sale

revaluationreserve7

Rm

Share-based

paymentreserve8

Rm

Otherreserves

Rm

Retainedearnings

Rm

Ordinaryshare-

holders’equity

Rm

Preferenceshare

capitaland

premiumRm

Non-controlling

interestsRm

Totalequity

Rm

952 110 1 040 311 82 777 99 042 5 503 12 988 117 533 457 408 (44) 364

952 110 1 040 311 83 234 99 450 5 503 12 944 117 897 17 (70) 16 459 17 424 352 3 178 20 954

16 046 16 046 352 2 871 19 269

17 (70) 413 1 378 307 1 685

50 (50) (11) 11

(182) (182) (234) (234)

102 2 (6 116) (5 789) (352) (1 405) (7 546)

282 282 46 328 (181) 181

(232) 125 125 69 69 69

1 2 (65) (74) (970) (1 044) 210 271 245 516

(6 279) (6 462) (352) (726) (7 540)

(6 339) (6 556) (352) (809) (7 717)

60 94 83 177

1 002 127 1 142 232 93 538 111 085 5 503 14 301 130 889



Accounting policy elections

The principal accounting policies applied in the presentation of the group and company’s annual financial statements are set out below.

Basis of preparationThe consolidated and separate annual financial statements(annual financial statements) are prepared in accordance with IFRSas 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, Listings Requirements of the JSE, 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 at fair value through profit or loss, investment property, liabilities for cash-settled share-based payment arrangements, 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 18 – 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 4)

cumulative gains and losses recognised in 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 4)

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 4)

investment property is accounted for using the fair value model (accounting policy 5)

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 6)

intangible assets and property and equipment are accountedfor using the cost model (accounting policies 7 and 8)

intercompany transactions between the group’s continuing and discontinued operations are not eliminated but presented as part of the group’s respective continuing or discontinued results (accounting policy 16)

the portfolio exception to measure the fair value of certaingroups of financial assets and financial liabilities on a net basis (accounting policy 17).

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 IFRS 7 Disclosures – Offsetting Financial Assets and

Financial Liabilities (IFRS 7R)

IFRS 10 Consolidated Financial Statements (IFRS 10)

IFRS 11 Joint Arrangements (IFRS 11)

IFRS 12 Disclosure of Interests in Other Entities (IFRS 12)

IFRS 13 Fair Value Measurement (IFRS 13)

IAS 19 Employee Benefits (2011 revised) (IAS 19R)

IAS 27 Separate Financial Statements (2011 revised) (IAS 27R)

IAS 28 Investments in Associates and Joint Ventures(2011 revised) (IAS 28R).

129




Early adoption of revised standards IAS 36 Impairment of Assets – Recoverable Amount Disclosures

for Non-Financial Assets (2013 revised) (IAS 36)

IAS 39 Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting (2013 revised) (IAS 39).

IFRS 10 and IAS 19R resulted in the restatement of the group’s previously reported financial results. Refer to annexure A for details of the restatements.

IFRS 7R resulted in additional disclosure requirements and has been applied retrospectively.

The adoption of IFRS 11 and IAS 27R did not have any effect on the group’s previously reported financial results.

The adoption of IFRS 12 resulted in additional disclosure requirements. Whilst the standard requires prospective application, comparative disclosure has been provided.

IFRS 13 was adopted prospectively.

A consequence of adopting IFRS 10 was the classification of certain mutual fund interests as interests in associates. Whilst the adoption of IAS 28R did not have any effect on the group’s previously reported financial results, in order to achieve consistency in the disclosure and presentation of the group’s interests in associates, the group classified all of its interests in associates that are measured at fair value to its financial investments line item in the statement of the financial position.



1. Segment reporting

Operating segmentsPersonal &

Business BankingCorporate &

Investment bankingCentral

and other

2013Rm

20122

Rm 2013

Rm 20122

Rm 2013

Rm 20122

Rm

Income from banking activities 48 596 42 544 28 304 25 927 (1 006) 236Net interest income 27 558 23 458 11 441 9 550 226 1 225Interest income 48 488 44 220 19 710 30 439 4 133 (5 071)Interest expense 20 930 20 762 8 269 20 889 3 907 (6 296)Non-interest revenue 21 038 19 086 16 863 16 377 (1 232) (989)Net fee and commission revenue 19 143 17 319 4 935 5 226 (931) (1 226)Fee and commission revenue 21 852 19 632 5 298 5 506 (97) (406)Fee and commission expense 2 709 2 313 363 280 834 820Trading revenue (31) (5) 10 568 9 241 (335) (368)Other revenue 1 926 1 772 1 360 1 910 34 605

Income from investment management and life insurance activities Total income 48 596 42 544 28 304 25 927 (1 006) 236Credit impairment charges 7 817 6 658 1 397 2 340 (198)Benefits due to policyholders Income after credit impairment charges and policyholders’ benefits 40 779 35 886 26 907 23 587 (1 006) 434Revenue sharing agreements with group companies Income after revenue sharing agreements 40 779 35 886 26 907 23 587 (1 006) 434Operating expenses in banking activities 29 348 25 920 17 537 16 942 (2 023) (2 036)Staff costs 8 232 7 073 5 414 5 024 11 114 10 168Restructuring costs 758 Other operating expenses 21 116 18 847 12 123 11 160 (13 137) (12 204)Operating expenses in investment management and life insurance activities Net income before goodwill impairment, disposal of subsidiaries and equity accounted earnings 11 431 9 966 9 370 6 645 1 017 2 470Goodwill impairment 39 38 700(Losses)/gains on disposal of subsidiaries (86) 64 Share of profit from associates and joint ventures 308 562 96 109 269 4Net income before indirect taxation 11 739 10 489 9 466 6 630 1 350 1 774Indirect taxation 414 386 297 353 861 673Profit before direct taxation 11 325 10 103 9 169 6 277 489 1 101Direct taxation 2 967 2 538 1 669 1 200 (11) 595Profit for the year from continuing operations 8 358 7 565 7 500 5 077 500 506Profit/(loss) for the year from discontinued operations 2 435Profit for the year 8 358 7 565 7 500 5 077 500 2 941Attributable to non-controlling interests 87 50 976 483 83 322Attributable to preference shareholders 348 357Attributable to ordinary shareholders 8 271 7 515 6 524 4 594 69 2 262

Headline earnings 8 358 7 343 6 591 4 419 34 1 166ROE (%) 18.5 19.4 14.3 9.6 Net interest margin (%) 5.06 4.79 1.67 1.51 Credit loss ratio (%) 1.47 1.39 0.36 0.63 Cost-to-income ratio (%) 60.0 60.1 61.8 65.3 Total assets 571 583 518 458 805 814 760 428 (18 930) (4 652)Average assets – banking activities excluding trading derivatives 544 901 490 968 685 183 634 387 (11 310) (14 571)Average loans and advances (gross) 530 707 479 864 392 253 369 473 (34 234) (33 545)Average ordinary shareholders’ equity 45 104 37 842 46 172 45 872 22 035 14 518Total liabilities 522 583 474 684 758 083 713 330 (55 970) (29 572)Interest in associates and joint ventures 2 055 789 631 613 1 874 1 408Depreciation and amortisation 1 555 1 207 127 113 1 905 1 801Impairment loss on non-financial assets 118 39 143 258 47 700Number of employees 21 217 21 062 2 305 2 609 18 699 19 0651 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; and for the deemed disposal of the group’s OA GM. The normalised results reflect the basis on which management manages the group and is consistent with that reported in the group’s segment report. These adjustments are described in detail in the annual integrated report. For more information regarding the disposal of OA GM, refer to note 7.

2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly.

Notes to the annual financial statementsfor the year ended 31 December 2013

131




Bankingactivities Liberty

NormalisedStandard Bank Group

Adjustmentsto IFRS1

IFRSStandard Bank Group

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

2013Rm

2012Rm

75 894 68 707 (139) 75 894 68 568 (2 488) (2 316) 73 406 66 252 39 225 34 233 39 225 34 233 (130) (267) 39 095 33 966 72 331 69 588 72 331 69 588 (462) (1 356) 71 869 68 232 33 106 35 355 33 106 35 355 (332) (1 089) 32 774 34 266 36 669 34 474 (139) 36 669 34 335 (2 358) (2 049) 34 311 32 286 23 147 21 319 23 147 21 319 37 375 23 184 21 694 27 053 24 732 27 053 24 732 (339) 131 26 714 24 863

3 906 3 413 3 906 3 413 (376) (244) 3 530 3 169 10 202 8 868 10 202 8 868 (2 391) (2 079) 7 811 6 789

3 320 4 287 (139) 3 320 4 148 (4) (345) 3 316 3 803

85 406 77 877 85 406 77 877 (166) (297) 85 240 77 580 75 894 68 707 85 406 77 738 161 300 146 445 (2 654) (2 613) 158 646 143 832

9 214 8 800 9 214 8 800 (56) (86) 9 158 8 714 63 295 58 739 63 295 58 739 63 295 58 739

66 680 59 907 22 111 18 999 88 791 78 906 (2 598) (2 527) 86 193 76 379 (142) (115) (142) (115)

66 680 59 907 22 111 18 999 88 791 78 906 (2 740) (2 642) 86 051 76 264 44 862 40 826 44 862 40 826 (2 807) (3 605) 42 055 37 221 24 760 22 265 24 760 22 265 (1 673) (1 846) 23 087 20 419

758 758 (439) 319 20 102 17 803 20 102 17 803 (1 134) (1 320) 18 968 16 483

14 226 12 080 14 226 12 080 14 226 12 080

21 818 19 081 7 885 6 919 29 703 26 000 67 963 29 770 26 963 777 777 777

64 (86) 274 64 188 64 188 673 675 12 26 685 701 685 701

22 555 18 893 7 897 7 219 30 452 26 112 67 963 30 519 27 075 1 572 1 412 397 354 1 969 1 766 (58) (145) 1 911 1 621

20 983 17 481 7 500 6 865 28 483 24 346 125 1 108 28 608 25 454 4 625 4 333 2 968 2 685 7 593 7 018 (13) (16) 7 580 7 002

16 358 13 148 4 532 4 180 20 890 17 328 138 1 124 21 028 18 452 2 435 2 435 (1 022) (1 618) (1 022) 817

16 358 15 583 4 532 4 180 20 890 19 763 (884) (494) 20 006 19 269 1 146 855 2 379 2 151 3 525 3 006 (74) (135) 3 451 2 871

348 357 348 357 1 (5) 349 352 14 864 14 371 2 153 2 029 17 017 16 400 (811) (354) 16 206 16 046

14 983 12 928 2 211 1 990 17 194 14 918 (208) (354) 16 986 14 564 13.2 13.2 24.7 24.7 14.1 14.0 14.2 14.2 3.22 3.09 3.22 3.09 3.67 3.62 1.04 1.08 1.04 1.08 1.12 1.19 58.5 58.9 58.5 58.9 56.8 55.7

1 358 467 1 274 234 335 826 290 567 1 694 293 1 564 801 (3 364) (4 452) 1 690 929 1 560 349

1 218 774 1 110 784 1 218 774 1 110 784 (152 246) (168 846) 1 066 528 941 938 888 726 815 792 888 726 815 792 (72 433) (85 892) 816 293 729 900 113 311 98 232 8 963 8 059 122 274 106 291 (2 403) (3 718) 119 871 102 573

1 224 696 1 158 442 313 615 271 092 1 538 311 1 429 534 (30) (74) 1 538 281 1 429 460 4 560 2 810 237 225 4 797 3 035 4 797 3 035 3 587 3 121 449 479 4 036 3 600 (176) (227) 3 860 3 373

308 997 308 997 308 997 42 221 42 736 6 587 6 281 48 808 49 017 48 808 49 017


Annual financial statements Notes to the annual financial statements continued

1. Segment reporting continued 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:

Personal & Business Banking 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.

Instalment sale and finance leases – provides finance of vehicles for personal market customers and finance of vehicles and equipment in the business market.

Card products – provides credit card facilities to individuals and businesses (credit card issuing) and merchant transaction acquiring services (card acquiring).

Transactional and lending products – transactions in products associated with the various point of contact channels such as ATMs, internet, telephone banking, access points and branches. This includes deposit taking activities, electronic banking, cheque accounts and other lending products, coupled with debit card facilities to both personal and business market customers.

Bancassurance and wealth – provides short-term and long-term insurance products, financial planning and wealth services. Short-term and long-term insurance products comprise simple embedded products and complex insurance products. Simple embedded products include homeowners’ insurance, funeral cover, household contents and vehicle insurance and loan protection plans sold in conjunction with related banking products. Complex insurance products include life, disability and investment policies sold by qualified intermediaries.

Corporate &

Investment Banking

Corporate and investment banking services to governments, parastatals, larger corporates, financial institutions and international counterparties.

Global markets – includes fixed income and currency, commodity and equity trading.

Transactional products and services – includes transactional banking, trade financeand investor services.

Investment banking – includes advisory, debt products, structured finance, structured tradeand commodity finance, debt capital markets and equity capital markets.

Real estate and principal investment management – includes real estate finance, investment in real estate, principal investment and client coverage.

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 net result of centralised support functions (back office), for the South African region, including those functions that were previously embedded in the business segments. The direct costs of support functions are recharged to the business segments.

Liberty Investment management and life insurance activities of 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 and health insurance.

Stanlib includes investment-related advice and solutions.

Business unit Scope of operations

133




1. Segment reporting continued Geographic information

SouthAfrica

Rm

Restof

AfricaRm

OutsideAfrica

RmEliminations1

Rm

StandardBank

GroupRm

Adjust-ments

to IFRS2

Rm

IFRSStandard

BankGroup

Rm

2013

Total income3 137 348 20 214 6 500 (2 762) 161 300 (2 654) 158 646

Banking activities 51 942 20 214 6 500 (2 762) 75 894 (2 488) 73 406

Liberty 85 406 85 406 (166) 85 240

Total headline earnings 14 266 2 635 265 28 17 194 (208) 16 986

Banking activities 12 055 2 635 265 28 14 983 (118) 14 865

Liberty 2 211 2 211 (90) 2 121

Total assets 1 352 596 236 099 248 808 (143 210) 1 694 293 (3 364) 1 690 929

Banking activities 1 016 770 236 099 248 808 (143 210) 1 358 467 (1 628) 1 356 839

Liberty 335 826 335 826 (1 736) 334 090

Non-current assets4 51 451 10 814 690 (79) 62 876 (610) 62 266

Banking activities 21 153 10 814 690 (79) 32 578 (610) 31 968

Liberty 30 298 30 298 30 298

20125

Total income3 125 974 15 539 6 958 (2 026) 146 445 (2 613) 143 832

Banking activities 48 236 15 539 6 958 (2 026) 68 707 (2 316) 66 391Liberty 77 738 77 738 (297) 77 441

Total headline earnings 15 098 1 722 (2 549) 647 14 918 (354) 14 564

Banking activities 13 108 1 722 (2 549) 647 12 928 (196) 12 732Liberty 1 990 1 990 (158) 1 832

Total assets 1 268 278 173 126 228 826 (105 429) 1 564 801 (4 452) 1 560 349

Banking activities 977 711 173 126 228 826 (105 429) 1 274 234 (2 601) 1 271 633Liberty 290 567 290 567 (1 851) 288 716

Non-current assets4 45 742 8 129 764 (82) 54 553 54 553

Banking activities 18 520 8 129 764 (82) 27 331 27 331Liberty 27 222 27 222 27 222

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; and for the deemed disposal of the group’s OA GM. The normalised results reflect the basis on which management manages the group and is consistent with that reported in the group’s segment report. These adjustments are described in detail in the annual integrated report. For more information regarding the disposal of OA GM, refer to note 7.

3 Total income from continuing operations. Total income is attributed 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.5 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly.



2. Key management assumptions 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.

2.1 Credit impairment losses on loans and advances Portfolio loan impairments The 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 ratios, adjusted for national and 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 the following loss emergence periods:

Average lossemergence period Sensitivity1

2013Months

2012Months

2013Rm

2012Rm

Personal & Business Banking 3 3 308 264

Mortgage loans 3 3 93 58Instalment sale and finance leases 3 3 62 61Card debtors 3 3 6 32Other lending 3 3 147 113

Corporate & Investment Banking 12 7 – 12 101 106

South Africa 12 12 53 61Rest of Africa 12 12 40 32Outside Africa 12 7 8 13

409 370

1 Sensitivity is based on the effect of a one month increase in the emergence period on the value of the impairment.

Specific loan impairments Non-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. 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. Recoveries of individual loans as a percentage of the outstanding balances are estimated as follows:

135




2. Key management assumptions continued2.1 Credit impairment losses on loans and advances continued

Expected timeto recovery1

Expected recoveriesas a percentage of

impaired loansImpairment loss

sensitivity2

2013Months

2012Months

2013%

2012%

2013Rm

2012Rm

Personal & Business Banking 6 – 15 6 – 15 57 62 136 139

Mortgage loans 15 15 72 74 100 116Instalment sale and finance leases 6 6 51 51 11 8Card debtors 15 15 29 35 4 3Other lending 13 14 31 27 21 12

Corporate & Investment Banking 6 – 24 6 – 24 55 51 30 41

South Africa 6 6 75 73 24 33Rest of Africa 24 24 27 40 4 5Outside Africa 9 8 23 12 2 3

56 59 166 180

1 The expected time to recovery has been adjusted in 2013 due to changes in market conditions.2 Sensitivity is based on the effect of a one percentage point increase in the value of the estimated recovery on the value of the impairment.

2.2 Fair value of financial instruments The fair value of financial instruments, such as unlisted equity investments and equity derivatives, that are not quoted in active markets

is determined using valuation techniques. Wherever possible, models use only observable market data. Where required, these models incorporate assumptions that are not supported by prices from observable current market transactions in the same instrument and are not based on available observable market data. Such assumptions include risk premiums, liquidity discount rates, credit risk, volatilities and correlations. Changes in these assumptions could affect the reported fair values of financial instruments.

The total amount of the change in fair value estimated using valuation techniques not based on observable market data that was recognised in profit or loss for the year ended 31 December 2013 was a net loss of R3 651 million (2012: R435 million net loss*). These changes in fair value have been materially mitigated by financial instruments classified within level 2 of the fair value hierarchy.

Additional disclosures on fair value measurements of financial instruments are set out in note 25.

* Restated.

2.3 Impairment of available-for-sale equity investments The group determines that available-for-sale equity 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 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.

Had the declines of financial instruments with fair values below cost been considered significant or prolonged, the group would have suffered an additional loss attributable to ordinary shareholders of R45 million (2012: R70 million) in its financial statements, being the transfer of the negative revaluations within the available-for-sale reserve to profit or loss.

2.4 Consolidation of entities The group controls and consolidates an entity where the group has power over the entity’s related 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. Refer to annexure B for a list of the group’s subsidiaries that are controlled by the group as well as further details regarding the group’s consolidated SEs.



2. Key management assumptions continued2.5 Significant influence – investment funds The 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 (refer to accounting policy 6 – Interest in associates and joint ventures).

2.6 Securitisations and structured entities An SE is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the

entity, such as when voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. The group is required, for disclosure purposes, to determine whether it has any interests in unconsolidated SEs as well as whether it sponsors any unconsolidated SEs and, where applicable, to disclose various information for such relationships.

Interests 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 custom 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.

Refer to annexure B for further details regarding the group’s interest in unconsolidated SEs.

The group has consolidated SEs with assets of R13 975 million (2012: R16 289 million). The consolidated SEs made net losses of R10 million (2012: R47 million net profit).

2.7 Held-to-maturity investments The group follows the guidance of IAS 39 on classifying certain non-derivative financial assets with fixed or determinable payments

and fixed maturity, as held-to-maturity. This classification requires judgement of the group’s ability to hold such investments to maturity. If the group fails to keep these investments to maturity, other than in specific defined circumstances, it will be required to classify the entire category as available-for-sale. The investments would be measured at fair value and not amortised cost. If the entire class of held-to-maturity investments were tainted in this way and reclassified as available-for-sale, the carrying amount would increase by R888 million (2012: R1 523 million) to fair value, with a corresponding entry in OCI.

2.8 Computer software intangible assets 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 highly probable future economic benefit beyond one year, are capitalised and disclosed as computer software intangible assets.

Computer software intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. The assetsare reviewed for impairment at each reporting date and tested for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. The determination of the recoverable amount of each asset requires judgement. The recoverable amount is based on the value in use and calculated by estimating future cash benefits that will result from each asset and discounting these cash benefits at an appropriate pre-tax discount rate. The carrying value of computer software intangible assets capitalised at 31 December 2013 amounted to R14 040 million (2012: R10 777 million).

2.9 Goodwill impairment In 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’ (CGU) 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. IFRS requires goodwill acquired in a business combination to be allocated to each of the acquirer’s CGUs, or groups of CGUs that are expected to benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Further details regarding the group’s accounting policy for goodwill can be found in annexure E, accounting policy 7.

137




2. Key management assumptions continued2.9 Goodwill impairment continued The total goodwill of the group at 31 December 2013 amounted to R3 786 million (2012: R3 124 million), the majority of which relates

to Stanbic IBTC Holdings PLC (Nigeria) and CfC Stanbic Holdings Limited (Kenya). The respective goodwill balances were allocated between the CGUs, assumed to be at an operating segment level, based on the nature of the business as at acquisition, and then tested for impairment. Note 14 lists the composition of the goodwill by legal entity.

The review and testing of goodwill for impairment inherently requires significant management judgement as it requires managementto derive the best estimates of the identified CGUs’ future cash flows. The principal assumptions considered in determining an entity’s value in use include:

Future cash flows – the forecast periods adopted reflect a set of cash flows that, based on management 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 were 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 percentages were derived from an equity pricing model deemed appropriate based on the entities under review. The risk-free rate used to determine the CoE has been derived from the respective local 10-year government bonds. 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.

Methodology

Stanbic IBTC Holdings PLC CfC Stanbic Holdings Limited

2013Value in use

2012Value in use

2013Value in use

2012Value in use

Discount rate (nominal) (%) 19.7 19.0 17.7 18.2Terminal growth rate (nominal) (%) 10.0 10.0 10.3 11.5Forecast period (years) 10 10 8 8

Note 14 summarises the group’s impairment test results.

2.10 Income taxes The group is subject to direct 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. The group recognises liabilities based on objective estimates of the quantum of taxes that may be due. 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 30 and note 20, respectively, in the period in which such determination is made.



2. Key management assumptions continued2.11 Deferred tax assets 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.

Management’s judgement surrounding the probability and sufficiency of future taxable profits, future reversals of existing taxable differences and ongoing developments will determine the recognition of deferred tax. The most significant management assumption is 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.

Note 20.1 summarises the details of the carrying amount of the deferred tax assets. Accounting policy 15 in annexure E provides further detail regarding the group’s deferred tax accounting policy.

2.12 Share-based payment The group has a number of cash and equity-settled share incentive schemes which are issued to qualifying employees based on the rules

of the schemes. The group uses the Black-Scholes option pricing model 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. Refer to annexure D 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.

2.13 Provisions The accounting policy for provisions is set out in accounting policy 13 in annexure E. The principal assumptions taken into account in

determining the value at which provisions are recorded at, in the group’s statement of financial position, 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.

The probability of an event of a significant nature occurring will be assessed by management and, where applicable, 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.

139




2. Key management assumptions continued2.14 Post-retirement benefits The group’s post-retirement 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:

Standard Bank Liberty

Retirement fund Post-retirementmedical aid fund

Definedbenefitpension

fund

Post-employment medical aid

2013

Discount rate Nominal governmentbond yield curve

Nominal governmentbond yield curve

Nominal governmentbond yield curve

Return on investments 8.52% – discount rate of term equal to the

discounted mean term of the liabilities

N/A 9.84% Unfunded liability and

therefore there is no

asset backing

portfolio

Salary/benefit inflation Inflation rates plus 1% Future salaryincreasesbased on inflation

curveplus 1% pa

to eachpoint on

the curve

CPI inflation Difference betweennominal and index-linked

bond yield curves

Difference between nominal and index-linked

bond yield curves

Medical cost rate trend (applicable to members who retired before 1 January 2013)

Difference between nominal and index-linked bond yield

curves plus 1.5%

Inflationcurve

adjustedupwards

by 7% pa

Medical cost rate trend (applicable to members who retired after 1 January 2013)

Curve implied by the

differencebetween

a nominalgovernmentbond curve

and anindex-linked

gilt

Provider benefit escalation Inflation rates plus 2%

Pension increase in allowance Inflation rates

Remaining service life of employees (years) 12.70



2. Key management assumptions continued2.14 Post-retirement benefits continued

Standard Bank Liberty

Retirement fund Post-retirementmedical aid fund

Definedbenefitpension

fund

Post-employment medical aid

2012

Discount rate Nominal government bond yield curve

7.99% 7.99% 8.40%

Return on investments 8.20% – yield government bonds at term equivalent

to the discounted mean termof the liabilities

7.99% N/A

Salary/benefit inflation Inflation rates plus 1% 6.36%

CPI inflation Difference betweennominal and index-linked

bond yield curves

5.36%

Medical inflation 6.66% 7.06%

Provider benefit escalation Inflation rates plus 2%

Pension increase in allowance Inflation rates

Remaining service life of employees (years) 12.21 12.41

Refer to note 37 for further details regarding the group’s post-retirement benefits.

2.15 Valuation of investment property The valuation of investment properties within the insurance operations located in South Africa has been carried out by

Ian Mitchell Investment Property Consultants CC (Chartered Valuation Surveyor – Professional Valuer) and Asset Valuation Services CC (Professional Associate Valuer) as at 31 December 2013. The Kenyan located properties were independently valued as at 31 December 2013 by various registered professional valuers in Kenya.

The valuation of the South African properties is prepared in accordance with the guidelines of the South African Institute of Valuers for valuation reports and in accordance with the appraisal and valuation manual of the Royal Institution of Chartered Surveyors, adapted for South African law and conditions. The valuation assumes that there will be no change in the social, economic or political circumstances between the date of the valuation and the financial year end of the company.

The basis of value is market value which is defined as an opinion of the best price at which the sale of an interest in property, taking into account existing tenant lease terms, would have been completed unconditionally for a cash consideration on the date of valuation assuming:

a willing seller

that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as at the date of valuation

that no account is taken of any additional bid by a prospective purchaser with a special interest

that both parties to the transaction had acted knowledgeably, prudently and without compulsion.

141




2. Key management assumptions continued2.15 Valuation of investment property continued 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 2013. 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 give a market-related rental value for each property as at 31 December 2013. 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 cash flows for each property to reflect the relative investment risk associated with the particular building, tenant, covenant and the projected income flow. Extensive market research has been conducted to ascertain the most appropriate market-related discount rate to apply, with regard to the current South African long-term bond yield (R204 risk-free rate) and the relative attractiveness that an investor may place on property as an asset class.

Primary discount rates used to value the South African properties range from 7% to 11% (2012: 7% to 12%) on a property by property basis. Exit capitalisation rates generally range from 7% to 11% (2012: 7% to 12%).

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% (2012: 1% and 6%) has been added to the discount rate and to the exit capitalisation rate, to reflect the greater investment risk associated with the variable rental element on a property by property basis.

A 1% absolute change to the capitalisation rate assumption would increase the total fair value by R4,1 billion (2012: R3,7 billion) if the assumption decreased, and decrease the total fair value by R3,1 billion (2012: R2,8 billion) if the assumption increased.

2.16 Long-term insurance contracts Policyholder 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.

Process used to decide on assumptions and changes in assumptions Mortality An 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. Company-specific tables, based on graduated industry standard tables modified to reflect the company-specific experience, are used for larger classes.

Investigations into mortality experience are performed every half year for the large classes of business and annually for all other classes of business. The period of investigation extends over at least the latest three full years.

The results of the investigation are used to set the valuation assumptions, which are applied as an adjustment to the respectivebase table.

In setting the assumptions, provision is made for the expected increase in Aids-related claims. Allowance for Aids-related deaths is made in the base mortality rates at rates consistent with the requirements of Advisory Practice Note (APN) 105 issued by the Actuarial Society of South Africa (ASSA). The rates are defined using the appropriate ASSA models calibrated to reflect Liberty’s assurance lives.

For contracts insuring survivorship, an allowance is made for future mortality improvements based on trends identified in the data and in the continuous mortality investigations performed by independent actuarial bodies.

Morbidity The 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.



2. Key management assumptions continued2.16 Long-term insurance contracts continued Withdrawal The withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future

trends. The withdrawal investigations are performed every half year for the large lines of business and annually for the smaller classes and incorporate two years’ experience. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates vary considerably by duration, policy term and product type. Typically the assumptions are higher for risk type products than for investment type products, and are higher at early durations.

Investment return Future investment returns are set for the main asset classes as follows:

Gilt rate – Effective 10-year yield curve rate at the reporting date, 8.14% (2012: 6.89%).

Equity rate – Gilt rate plus 3.5 percentage points as an adjustment for risk, 11.64% (2012: 10.39%).

Property rate – Gilt rate plus 1 percentage point as an adjustment for risk, 9.14% (2012: 7.89%).

Cash – Gilt rate less 1.5 percentage points, 6.64% (2012: 5.39%).

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. The rate averaged across the blocks of business (excluding annuity and guaranteed capital bond business) is 10.5% per annum in 2013 (2012: 9.2% per annum). Where appropriate the investment return assumption will be adjusted to make allowance for investment expenses, taxation and the relevant prescribed margins in accordance with Standard of Actuarial Practice (SAP) 104 issued by the ASSA.

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.

Expenses An 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.

Expense inflation The 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 5.15% at 31 December 2013 (2012 assumption: 4.15%). 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.

Taxation Future taxation and taxation relief are allowed for at the rates and on the bases applicable to section 29A of the South African Income

Tax Act 68 of 1962 (Income Tax Act) at the statement of financial position date. Each company’s current tax position is taken into account. Taxation 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.

Correlations No correlations between assumptions are allowed for.

Contribution increases In 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 SAP 104.

143




2. Key management assumptions continued2.16 Long-term insurance contracts continued Embedded investment derivative assumptions The 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 FTSE/JSE Top 40 index, is 35.85% (2012: 30.22%). Correlations between asset classes are set based on historical data. Twenty thousand simulations are performed in calculating the liability.

Using the simulated investment returns, but based on 2 000 simulations, the prices and implied volatilities of the followinginstruments are:

2013 2012

Instrument Price

% Volatility

% Price

% Volatility

%

A one-year at-the-money (spot) put on the FTSE/JSE Top 40 index 6.01 18.91 9.41 27.08 A one-year put on the FTSE/JSE Top 40 index, with a strike price equal to 80% of spot 1.49 23.57 2.23 26.65 A one-year at-the-money (forward) put on the FTSE/JSE Top 40 index 7.10 18.34 10.47 27.10 A five-year at-the-money (spot) put on the FTSE/JSE Top 40 index 8.76 23.64 12.25 24.68 A five-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,045# of spot 15.40 22.36 21.99 25.19 A five-year (forward) put on the FTSE/JSE Top 40 index 17.02 22.14 19.10 25.03 A 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% AII Bond Index with rebalancing of the underlying index back to these weights taking place annually 6.66 N/A 11.94 N/A

A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 2.67 28.60 4.76 25.84 A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,0420# of spot 12.26 29.61 21.46 26.96 A 20-year at-the-money (forward) put on the FTSE/JSE Top 40 index 29.37 30.51 26.31 27.20 A 20-year put option based on an interest rate with a strike equal to the present five-year forward rate as atmaturity of the put option, which pays out if the five-year interest rate at the time of maturity (in 20 years) islower than the strike 0.41 N/A 0.54 N/A

# Exponent.

The TOP 40 index above is a capital index whereas the All Bond Index is a total return index.

Spot refers to the value of the index at market close at the relevant date.

At-the-money (spot) means that the strike price of the option is equal to the current market value of the underlying.

At-the-money (forward) means that the strike price of the option is equal to the market’s expectation of the capital index at thematurity date of the option.



2. Key management assumptions continued2.16 Long-term insurance contracts continued Embedded investment derivative assumptions continued The zero coupon yield curve used in the projection is as follows (rates calculated on the nominal annualised compounded

continuously method):

Model output yield curve

Maturity 2013

%2012

%

1 year 5.51 4.94 2 years 6.12 5.01 3 years 6.64 5.26 4 years 7.06 5.53 5 years 7.41 5.79 10 years 8.45 6.87 15 years 9.21 7.31 20 years 9.28 7.29 25 years 9.17 7.28 30 years 8.97 7.12 35 years 9.00 7.18 40 years 9.02 7.25 45 years 8.94 7.28 50 years 8.86 7.27

Process used to decide on assumptions and changes in assumptions for non-South African life companies Assumptions used in the valuation of policyholder liabilities are set by reference to local guidance and where applicable to the

ASSA guidance. Economic assumptions are set by reference to local economic conditions at the valuation date. Margins are allowed for as prescribed by local guidance and regulations.

Changes in assumptions Modelling 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 R216 million in 2013 compared to a net decrease of R529 million in 2012.

The primary items were:

a change in the assumptions to allow for expected future withdrawals, resulting in an increase in the liability of R98 million(2012: increase of R183 million)

a change in future mortality and morbidity assumptions to reflect expected future experience, amounting to a decrease in theliability of R6 million (2012: decrease of R223 million)

a change in the economic valuation assumptions to realign these with expected future experience, resulting in an increase in the liability of R286 million (2012: decrease of R330 million)

weakening of the annuitant longevity assumptions resulted in a decrease in the liability of R56 million (2012: decrease ofR90 million)

a change in the expense valuation assumptions resulted in a decrease in the liability of R74 million (2012: decrease of R5 million)

a change in the tax relief on expenses assumptions resulted in a decrease in the liability of R16 million (2012: decrease ofR156 million)

a change in the modelling and assumptions resulted in a decrease in liabilities of R16 million (2012: increase of R92 million).

145




3. Cash and balances with central banks 2013

Rm2012

Rm

Coins and bank notes 14 557 14 592

Balances with central banks 38 753 47 393

53 310 61 985

Cash and balances with central banks include R27 645 million (2012: R22 233 million) that is not available for use by the group. These balances primarily comprise of reserving requirements held with central banks.

4. Derivative instruments All derivatives are classified as either derivatives held-for-trading or derivatives held-for-hedging.

4.1 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.

The fair value of all derivatives is recognised in the statement of financial position and is only netted to the extent that there is both a legal right of set-off and an intention to settle on a net basis, or the intention to realise the derivative asset and settle the derivative liability simultaneously.

Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period.

The major types of swap transactions undertaken by the group are as follows:

interest rate swap contracts which generally entail the contractual exchange of fixed and floating interest payments in a single currency, based on a notional amount and an interest reference rate

credit default swaps which are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection during the life of the swap in exchange for an undertaking by the seller to make a payment to the buyer following a credit event, as defined in the contract, with respect to a third-party reference asset

total return swaps which are contracts in which one party (the total return payer) transfers the economic risks and rewards associated with an underlying asset to another counterparty (the total return receiver). The transfer of risk and reward is affected by way of an exchange of cash flows that mirror changes in the value of the underlying asset and any income derived therefrom.

Options are contractual agreements under which the seller grants the purchaser the right, but not the obligation, either to buy (call option) or to sell (put option) by or at a set date, a specified amount of a financial instrument or commodity at a predetermined price. The seller receives a premium from the purchaser for this right. Options may be traded OTC or on a regulated exchange.

Forwards and futures are contractual obligations to buy or sell financial instruments or commodities on a future date at a specified price. Forward contracts are tailor-made agreements that are transacted between counterparties in the OTC market, whereas futures are standardised contracts transacted on regulated exchanges.



4. Derivative instruments continued4.2 Derivatives held-for-trading The group transacts derivative contracts to address client demand both as a market maker in the wholesale markets and in structuring

tailored derivatives for clients. The group also takes proprietary positions for its own account. Trading derivative products include the following derivative instruments:

4.2.1 Foreign exchange derivatives Foreign exchange derivatives are primarily used to economically hedge foreign currency risks on behalf of clients and for the group’s own

positions. Foreign exchange derivatives primarily consist of foreign exchange forwards and swaps, foreign exchange futures and foreign exchange options.

4.2.2 Interest rate derivatives Interest rate derivatives are primarily used to modify the volatility and interest rate characteristics of interest-earning assets and

interest-bearing liabilities on behalf of clients and for the group’s own positions. Interest rate derivatives primarily consist of bond options, caps and floors, forwards, options, swaps and swaptions.

4.2.3 Commodity derivatives Commodity derivatives are used to address client commodity demands and to take proprietary positions for the group’s own position.

Commodity derivatives primarily consist of commodity forwards, commodity futures and commodity options.

4.2.4 Credit derivatives Credit derivatives are used to hedge the credit risk of a reference asset or liability on behalf of clients and for the group’s own positions.

Credit derivatives primarily consist of credit default swaps, credit-linked notes and total return swaps.

4.2.5 Equity derivatives Equity derivatives are used to address client equity demands and to take proprietary positions for the group’s own position. Equity

derivatives primarily consist of forwards, futures, index options, options, swaps and other equity-related derivative instruments.

4.3 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:

4.3.1 Derivatives designated in fair value hedge relationships 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.

4.3.2 Derivatives designated in cash flow hedge relationships The group and company use currency forwards and swaps and options to mitigate against the risk of changes in future cash flows on its

foreign-denominated exposures. The group primarily uses interest rate swaps to hedge, by major currency, its 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 currency forwards to mitigate against the changes in cash flows arising from changes in foreign currency rates on the forecasted placement of funds between group entities. The group applies hedge accounting where the forecasted intragroup placement of funds is both denominated in a currency other than the functional currency of the entity providing the funds and where the placement of funds will affect consolidated profit or loss in the future.

147




4. Derivative instruments continued4.3 Derivatives held-for-hedging continued4.3.3 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 currency option contracts and forward exchange contracts where considered appropriate.

4.4 Day one profit or loss Where the fair value of an instrument differs from the transaction price, and the fair value of the instrument is evidenced by comparison

with other observable current market transactions in the same instrument, or based on a valuation model whose variables include only data from observable markets, the difference, commonly referred to as day one profit or loss, is recognised in profit or loss immediately. If 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 non-observable market data is used as part of the input to the valuation models, any resulting difference between the transaction price and the valuation model is deferred and subsequently recognised in accordance with the group’s accounting policies (refer to accounting policy 4 – Financial instruments in annexure E).

4.5 Fair values The fair value of a derivative financial instrument represents, for quoted instruments in an active market, the quoted market price and,

for an unquoted instrument, the present value of the positive and/or negative cash flows which would have occurred if the rights and obligations arising from that instrument were closed out in an orderly marketplace transaction at the reporting date.

4.6 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 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.



4. Derivative instruments continued4.7 Derivative assets and liabilities

Maturity analysis of net fair value

Within1 year

Rm

After1 year but

within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fair valueof assets

Rm

Fair valueof

liabilitiesRm

Contract/notionalamount

Rm

2013

Derivatives

held-for-trading

Foreign exchange

derivatives (840) 59 84 (697) 19 125 (19 822) 1 467 089

Forwards (883) 41 97 (745) 18 640 (19 385) 1 019 814

Futures 32 32 36 (4) 29 843

Swaps (1) (2) (13) (16) (16) 146

Options 12 20 32 449 (417) 417 286

Interest rate derivatives (271) (2 961) (1 635) (4 867) 38 263 (43 130) 3 764 255

Bond options 224 (36) 188 281 (93) 3 816

Caps and floors (2) (27) (1) (30) 27 (57) 10 186

Forwards 62 (17) 45 893 (848) 1 919 547

Options 1 1 16 (15) 102 157

Swaps (549) (3 062) (1 723) (5 334) 36 730 (42 064) 1 709 994

Swaptions (7) 181 89 263 316 (53) 18 555

Commodity derivatives (410) (84) (494) 98 (592) 5 717

Forwards (308) (79) (387) 55 (442) 3 955

Futures (2) (2) 10 (12) 301

Options (100) (5) (105) 33 (138) 1 461

Credit derivatives (87) 117 (328) (298) 889 (1 187) 58 232

Credit default swaps (97) 117 (328) (308) 877 (1 185) 58 075

Credit linked notes 10 10 12 (2) 157

Equity derivatives 275 1 153 328 1 756 4 463 (2 707) 153 971

Forwards (218) (39) (257) 39 (296) 2 868

Futures 24 1 25 102 (77) 30 820

Index options 97 (188) (27) (118) 1 240 (1 358) 42 092

Options 283 172 271 726 1 497 (771) 72 043

Swaps (11) 102 96 187 306 (119) 5 014

Other 100 1 105 (12) 1 193 1 279 (86) 1 134

Total derivative

(liabilities)/assets

held-for-trading (1 333) (1 716) (1 551) (4 600) 62 838 (67 438) 5 449 264

149




4. Derivative instruments continued4.7 Derivative assets and liabilities continued


Within1 year

Rm

After1 year but

within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fair valueof assets

Rm

Fair valueof

liabilitiesRm


Rm

2013

Derivatives

held-for-hedging

Derivatives designated

as fair value hedges

Interest rate swaps 1 058 (625) (248) 185 1 150 (965) 30 925


as cash flow hedges 368 (321) (405) (358) 479 (837) 10 744

Currency forwards and swaps 368 (328) (405) (365) 472 (837) 10 397

Equity forwards 7 7 7 347


as hedges of net

investments in foreign

operations

Forward exchange contracts 3 3 7 (4) 2 150

Total derivative

assets/(liabilities)

held-for-hedging 1 429 (946) (653) (170) 1 636 (1 806) 43 819

Total derivative

assets/(liabilities) 96 (2 662) (2 204) (4 770) 64 474 (69 244) 5 493 083





Within1 year

Rm

After1 year but

within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fair valueof assets

Rm

Fair valueof liabilities

Rm


Rm

2012

Derivatives

held-for-trading

Foreign exchange

derivatives (1 301) (387) 240 (1 448) 18 859 (20 307) 5 414 170

Forwards (493) (333) 206 (620) 14 038 (14 658) 5 317 141Futures 2 22 24 45 (21) 46 465Swaps (8) (121) 32 (97) (97) 2 281Options (802) 45 2 (755) 4 776 (5 531) 48 283

Interest rate derivatives (334) 230 931 827 81 869 (81 042) 7 506 413

Bond options (348) (82) (430) 2 150 (2 580) 115 174Caps and floors (22) 4 17 (1) 44 (45) 20 099Forwards (19) 53 34 1 051 (1 017) 1 101 424Options 11 283 3 297 581 (284) 3 154 345Swaps 149 (51) 721 819 77 744 (76 925) 3 098 275Swaptions (105) 23 190 108 299 (191) 17 096

Commodity derivatives 294 (581) 29 (258) 13 490 (13 748) 3 133 677

Forwards 806 (318) 14 502 3 130 (2 628) 101 967Futures (215) (73) (288) 9 426 (9 714) 2 943 453Options (297) (190) 15 (472) 934 (1 406) 88 257

Credit derivatives (1 194) 326 (310) (1 178) 2 371 (3 549) 213 248

Credit default swaps (526) 548 (310) (288) 2 362 (2 650) 210 982Credit linked notes 7 7 9 (2) 127Total return swaps (675) (222) (897) (897) 2 139

Equity derivatives (962) 204 2 (756) 2 281 (3 037) 148 712

Forwards (367) (19) (386) 110 (496) 3 269Futures 131 (1) 130 172 (42) 10 795Index options (83) (166) (249) 1 016 (1 265) 121 427Options (152) 155 2 5 573 (568) 8 498Swaps (412) 235 (177) 399 (576) 2 234Other (79) (79) 11 (90) 2 489

Total derivative

(liabilities)/assets

held-for-trading (3 497) (208) 892 (2 813) 118 870 (121 683) 16 416 220

151






Within1 year

Rm

After1 year but

within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fair valueof assets

Rm

Fair valueof liabilities

Rm


Rm

2012

Derivatives held-for-hedging


as fair value hedges 189 107 638 934 1 013 (79) 87 403

Interest rate swaps 189 (55) 638 772 851 (79) 86 565Currency forwards and swaps 162 162 162 838


as cash flow hedges 204 (103) 12 113 282 (169) 11 496

Currency forwards and swaps 184 (72) 12 124 219 (95) 9 075Currency options 13 22 35 52 (17) 520Equity forwards (4) (6) (10) (10) 433Interest rate swaps 11 (47) (36) 11 (47) 1 468


as hedges of net investments

in foreign operations

Forward exchange contracts (42) (42) 25 (67) 25 274

Total derivative

assets/(liabilities)

held-for-hedging 351 4 650 1 005 1 320 (315) 124 173

Total derivative

(liabilities)/assets (3 146) (204) 1 542 (1 808) 120 190 (121 998) 16 540 393



4. Derivative instruments continued4.8 Derivatives held-for-hedging4.8.1 Derivatives designated as fair value hedges Gains or losses arising from fair value hedges

2013Rm

2012Rm

Gains/(losses)

on hedging instruments 171 480on the hedged items attributable to the hedged risk (269) (405)

4.8.2 Derivatives designated as cash flow hedges The forecasted timing of the release of net cash flows from the cash flow hedging reserve into profit or loss at 31 December is

as follows:

3 monthsor less

Rm

More than3 months

but lessthan 1 year

Rm

More than1 year but

less than5 years

Rm

More than5 years

Rm

2013

Net cash inflow 49 141 257 669

2012

Net cash (outflow)/inflow (10) (24) (5) 742

Reconciliation of movements in the cash flow hedging reserve

2013Rm

2012Rm

Balance at the beginning of the year 506 725Amounts recognised directly in OCI before tax 179 204Less: amounts released to profit or loss before tax– net interest income 23 (34)– trading revenue 6 (17)– other operating expenses 100 (392)Less: deferred tax (10) 20

Balance at the end of the year 804 506

Ineffectiveness that arises from cash flow hedges is recognised immediately in profit or loss. A loss of R6 million (2012: R17 million gain) due to ineffectiveness was recognised in profit or loss.

There were no transactions for which cash flow hedge accounting had to be discontinued in 2013 or 2012 as a result of highly probable cash flows no longer being expected to occur.

4.8.3 Derivatives designated as hedges of net investments in foreign operations No ineffectiveness was recognised in profit or loss for the year ended 31 December 2013 that arose from hedges of net investments in

foreign operations (2012: Rnil).

153




4. Derivative instruments continued4.9 Day one profit or loss – derivatives held-for-trading and held-for-hedging The table below sets out the aggregate net day one profits yet 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:

2013Rm

2012Rm

Unrecognised net profit at the beginning of the year 384 438Additional net profit on new transactions 13 90Recognised in profit or loss during the year (153) (144)

Unrecognised net profit at the end of the year 244 384

5. Trading assets

5.1 Classification

Listed 36 069 77 446Unlisted 18 519 36 973

54 588 114 419

Comprising:

Government, municipality, utility bonds and treasury bills 19 094 41 675Corporate bonds and floating rate notes 4 653 17 002Listed equities 13 041 10 697Collateral 3 400 3 305Reverse repurchase and other collateralised agreements 12 317 24 815Commodities 47 10 382Other instruments 2 036 6 543

54 588 114 419

Maturity analysis

The maturities represent periods to contractual redemption of the trading assets recorded.

Redeemable on demand 1 932 2 263Maturing within 1 month 9 102 15 849Maturing after 1 month but within 6 months 5 233 24 394Maturing after 6 months but within 12 months 3 306 8 322Maturing after 12 months 20 452 41 983Undated assets 14 563 21 608

54 588 114 419

5.2 Day one profit or loss

The table below sets out the aggregate net day one profits yet to be recognised in profit or loss atthe beginning and end of the year with a reconciliation of changes in the balance during the year:

Unrecognised net profit at the beginning of the year 13 2Additional net profit on new transactions 7Recognised in profit or loss during the year 1Exchange differences 3 3

Unrecognised net profit at the end of the year 16 13



6. Pledged assets2013

Rm2012

Rm

6.1 Pledged assets

Financial assets that may be repledged or resold by counterparties

Government, municipality and utility bonds 6 366 5 025Corporate bonds 347 872Commodities 5 743

6 713 11 640

Maturity analysis

The maturities represent periods to contractual redemption of the pledged assets recorded.

Maturing within 1 month 2 730 353Maturing after 1 month but within 6 months 26 2 904Maturing after 6 months but within 12 months 128 137Maturing after 12 months 3 607 2 503Undated assets 222 5 743

6 713 11 640

6.2 Total assets pledged The total amount of financial assets that have been pledged as collateral for liabilities at 31 December 2013 was R7 828 million

(2012: R7 336 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 and/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.

6.3 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 R67 233 million (2012: R78 911 million1).

The fair value of financial assets accepted as collateral that have been sold or repledged is R7 306 million (2012: R12 421 million).The group is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to reverse repurchase and securities borrowing activities.

1 As a result of the review of the group’s bond repurchase transactions, it was noted that R22 725 million relating to a triparty reverse repurchase agreement enteredinto by the group was previously not taken into account in reporting the total collateral accepted as security for assets. As a result, the number disclosed in 2012was understated. This restatement better reflects the nature of the underlying transactions. The restatement has no impact on the statement of financial positionand on the group’s reserves.

155




6. Pledged assets continued6.4 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 the conditions in IAS 39. 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 table below analyses the carrying amount of securitised financial assets that did not qualify for derecognition, and their associated liabilities:

Carryingamount of

transferredassets

Rm

Carryingamount ofassociated

liabilitiesRm

Fairvalue of

transferredassets

Rm

Fairvalue of

associatedliabilities

Rm

Netfair value

Rm

Nature of transaction

2013

Mortgage loans 9 937 5 626 9 755 5 642 4 113

2012

Mortgage loans 11 113 7 193 10 985 7 193 3 792

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.



6. Pledged assets continued6.4 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, and financial assets leased out to third parties. Risks to which the group remains exposed include credit and interest rate risk.

The following table presents 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.

Carryingamount of

transferredassets

Rm

Carryingamount ofassociated

liabilitiesRm

Fairvalue of

transferredassets1

Rm

Fairvalue of

associatedliabilities1

Rm

Netfair

value1

Rm

2013

Bonds 6 713 4 506 6 713 4 405 2 308

Pledged assets 6 713 4 506 6 713 4 405 2 308

2012

Bonds 4 233 4 132 4 233 4 132 101Commodities 5 743

Pledged assets 9 976 4 132 4 233 4 132 101

1 Where the counterparty has recourse to the transfer asset.

There were no instances during the year of assets sold or otherwise transferred, but which were partially derecognised.

6.5 Assets transferred and derecognised There were no instances during the year of assets transferred and derecognised for which the group had continuing involvement.

157




7. Non-current assets and liabilities held for sale Standard Bank Plc Standard Bank London Holdings Limited (SBLH), a wholly-owned subsidiary of Standard Bank Group Limited, announced that it

had entered into an agreement on 29 January 2014 in terms of which ICBC, a 20.1% shareholder of the group, will upon completion acquire a controlling interest in the group’s London-based global markets business outside Africa, focusing on commodities, fixed income, currencies, credit and equities products (OA GM).

As Standard Bank Plc (SB Plc) is the primary legal entity used by OA GM, ICBC will acquire 60% of SB Plc from SBLH for cash. Completion is subject to the implementation of a series of steps to be undertaken to constitute SB Plc and relevant subsidiaries and operations in the US and Singapore (SB Plc Group) as a focused global markets platform. Completion is expected to be after the third quarter of 2014.

In order to achieve this, the group will, prior to completion, remove from the SB Plc entity and other entities in any relevant international locations within the SB Plc Group, all activities that it currently performs and any previously discontinued activities and legacy assets, which do not form part of OA GM. These activities include investment banking, transactional products and services, principal investment management, and the group’s London-based services unit, which provides key skills and services to the group (together, the excluded business). The excluded business will be moved to a new entity, such that these activities can be continued post completion.

ICBC has also been granted a five-year option to purchase from SBLH a further 20% of the outstanding ordinary shares of SB Plc for cash, exercisable from two years post completion. Contingent upon ICBC exercising its call option and from six months after such exercise, SBLH will have a five-year option to require ICBC to acquire its residual shareholding for cash.

The purchase price shall be an amount in cash determined by multiplying the audited consolidated net asset value of the SB Plc Group at completion by 60%, and deducting USD80 million from the result. In determining the agreed purchase price, the group considered two valuation methodologies, being the excess equity return method and a multiples-based valuation approach which was based on comparable peer entities’ multiples. Internal financial and operating information, including management forecasts, were used in the valuation of OA GM. Furthermore, the group considered the valuation’s sensitivity by adjusting different value drivers and assumptions. The most significant inputs used in the valuation techniques to determine the agreed purchase price, being forecasts and the CoE, are unobservable since market data is not available for the valuation technique’s specific inputs. The inputs were developed using the best information available about the assumptions that market participants would use when determining the value of the SB Plc Group. As a result, the fair value less cost to sell of the SB Plc disposal group is classified as level 3 in the fair value hierarchy.

The agreed disposal resulted in the group classifying its investment in the SB Plc Group as a discontinued operation in line with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5). The assets and liabilities, classified as held for sale, have been separately disclosed in the statement of financial position. The investment qualifies as a discontinued operation as it is a component of the group that has been classified as held for sale and represents a separate major geographical area of business. In line with the requirements of IFRS 5, the income and expenses relating to the disposal group have been presented in the income statement and statement of other comprehensive income as a single amount relating to the after-tax loss and other comprehensive income relating to the discontinued operation. The group’s previously reported statement of comprehensive income results have, in accordance with the requirements of IFRS, been restated to present OA GM as a discontinued operation as a result of the requirements of IFRS 5 being met in the current year. The restated discontinued operation results have been determined based on an assessment of the attribution of both direct and support-related costs. Support-related costs have been allocated using cost allocation methodologies for each support function. SB Plc Group’s operating results will continue to be consolidated within the group’s CIB segment up to the completion date.

The disposal group has been remeasured to its fair value less cost to sell, with the difference between its fair value less cost to sell and its carrying value being recognised in the income statement and as part of the group’s Central and other segment. This loss has in terms of IFRS, been limited to SB Plc Group’s carrying value of its non-financial assets, being its property and equipment and intangible assets. Any further loss on disposal (together with the release of the FCTR and other OCI releases), in addition to that recognised on classification of SB Plc Group as held for sale, will be recognised in the income statement and in the Central and other segment on the date of completion of the transaction.

The discrepancy between the net asset value on the next page and the net asset value reported in the terms announcement dated 29 January 2014, (determined off a 30 June 2013 net asset value for pro forma accounting purposes at the time of that announcement), is reflective of group funding to SB Plc which is eliminated on consolidation. This group funding would, on a post-sale basis, be reflected as a loan and advance, being lending to SB Plc.



7. Non-current assets and liabilities held for sale continued RCS Investment Holdings Proprietary Limited The group has been a significant shareholder in RCS Investment Holdings Proprietary Limited (RCS) alongside The Foschini Group (TFG)

since 2005. The group’s current shareholding in RCS is 45% with TFG holding 55%. During the latter part of 2012, the group and TFG jointly initiated a process to dispose of their investments in RCS. As at 31 December 2012 the group accordingly classified its investment in RCS of R960 million as a non-current asset held for sale in its statement of financial position.

In the first quarter of 2013, the group and TFG reconsidered its alternatives with respect to disposing of their interests in RCS. As a result of the deteriorating state of the consumer credit market and sentiment surrounding consumer lending businesses, the group and TFG were no longer committed to disposing of RCS and a sale was no longer expected to occur within the next year. The interest in RCS was accordingly reclassified to interests in associates.

Where an associate was previously classified as held for sale and no longer meets the criteria for classification as held for sale, the associate should be equity accounted from the date of classification as held for sale. Since the group’s interest in RCS was classified as held for sale as at 31 December 2012, all 2012 equity accounted earnings for RCS were booked in the group’s 2012 financial year and, therefore, no income statement amendment is required for the group’s 2012 reporting period.

Details of non-current assets and liabilities held for sale:

2013SB Plc

Rm

2012RCSRm

Assets held for sale

Cash and balances with central banks 14 099




Financial investments 29

Loans and advances 58 556

Deferred tax assets 254

Other assets 3 040

Interest in associates and joint ventures 960

Total assets held for sale 183 284 960

Liabilities held for sale

Derivative liabilities 39 221

Trading liabilities 17 973

Deposit and current accounts 65 043

Current tax liabilities 49

Provisions and other liabilities 4 771

Subordinated debt 7 447

Total liabilities held for sale 134 504

159




8. Financial investments 2013

Rm20121

Rm

Financial investments held in banking activities (note 8.1) 103 636 92 733Financial investments held by investment management and life insurance activities (note 8.2) 276 284 237 987Interest in associates held at fair value (annexure C) 15 797 16 437

395 717 347 157

8.1 Financial investments held in banking activities

Short-term negotiable securities 66 921 58 922

Listed 13 534 4 211Unlisted2 53 387 54 711

Other financial investments 36 715 33 811

Listed 30 097 29 200Unlisted 6 618 4 611

103 636 92 733

Comprising:

Government, municipality, utility bonds and treasury bills 79 021 72 741Corporate bonds 15 238 13 462Listed equities 195 632Unlisted equities 2 857 2 360Mutual funds and unit-linked investments 4 282 750Other instruments 2 043 2 788

103 636 92 733

Maturity analysis

The maturities represent periods to contractual redemption of the financial investments recorded.

Redeemable on demand 1 878 1 290Maturing within 1 month 12 473 9 968Maturing after 1 month but within 6 months 37 819 33 500Maturing after 6 months but within 12 months 15 844 14 619Maturing after 12 months 29 918 29 103Undated 5 704 4 253

103 636 92 733

1 Restated. Refer to annexure A for details of the restatements.2 Included in unlisted short-term negotiable securities are SARB debentures, negotiable certificates of deposit and treasury bills.



8. Financial investments continued2013

Rm20121

Rm

8.2 Financial investments held by investment management

and life insurance activities

Quoted in an active market – listed 182 757 148 202

Equities 110 725 90 496Preference shares 1 928 2 133Commercial term deposits 26 067 16 951Mutual funds 11 703 9 365Government, municipal and utility bonds 32 334 29 257

Quoted in an active market – unlisted 57 796 56 192

Commercial term deposits 14 360 17 965Mutual funds 43 366 38 184Government, municipal and utility bonds 70 43

Unquoted and unlisted 27 779 24 168

Equities 173 194Preference shares 1 250 670Investment policies 26 356 23 304

Loans and receivables 7 952 9 425

Mortgages and loans 1 214 1 056Cash held with banks 6 738 8 369

276 284 237 987

Maturity analysis

The maturities represent periods to contractual redemption of the financial investments recorded.

Maturing within 1 year 25 059 20 608Maturing after 1 year but within 5 years 17 344 14 118Maturing after 5 years but within 10 years 16 057 13 283Maturing after 10 years but within 20 years 10 994 11 974Maturing after 20 years 5 071 4 376Open ended2 977 913Undated3 200 782 172 715

276 284 237 987

1 Restated. Refer to annexure A for details of the restatements.2 Open ended represents certain loans which are secured against policyholder contracts. The maturity profile is not determinable as the holder has the option to settle

at any time prior to the contract maturity date.3 There is no maturity profile for listed and unlisted equities and other non-term instruments.

161




9. Loans and advances 2013

Rm2012

Rm

9.1 Loans and advances net of impairments

Loans and advances to banks 94 904 102 610

Call loans 3 207 22 328Loans granted under resale agreements1 45 572 30 331Balances with banks1 46 125 49 951

Loans and advances to customers 744 716 708 561

Gross loans and advances to customers 763 882 726 265

Mortgage loans 308 916 299 791Instalment sale and finance leases (note 9.2) 73 502 66 053Card debtors 27 786 24 052Overdrafts and other demand loans 77 174 65 008Other term loans 225 738 211 040Loans granted under resale agreements1 4 896 17 148Commercial property finance 45 858 41 393Other loans and advances 12 1 780

Credit impairments for loans and advances (note 9.3) (19 166) (17 704)

Specific credit impairments (13 802) (12 516)Portfolio credit impairments (5 364) (5 188)

Net loans and advances 839 620 811 171

Comprising:

Gross loans and advances 858 786 828 875Less: credit impairments (19 166) (17 704)

Net loans and advances 839 620 811 171

1 A balance of R22 141 million was reclassified from balances with banks. This comprised a reclassification of R16 555 million within loans and advances to banks into loans granted under resale agreements to banks to provide additional information on the underlying transaction, and an amount of R5 586 million to loans and advances to customers to align an amount placed under a resale agreement with a non-bank subsidiary of a banking holding company.



9. Loans and advances continued9.1 Loans and advances net of impairments continued

2013Rm

2012Rm

Maturity analysis

The maturity analysis is based on the remaining periods to contractual maturity from year end.

Redeemable on demand 105 130 116 435Maturing within 1 month 80 430 90 175Maturing after 1 month but within 6 months 68 199 62 596Maturing after 6 months but within 12 months 41 948 52 081Maturing after 12 months 563 079 507 588

Gross loans and advances 858 786 828 875

Segmental analysis – industry

Agriculture 22 937 19 657Construction 20 306 19 806Electricity 6 852 3 989Finance, real estate and other business services 185 899 206 760Individuals 405 191 378 620Manufacturing 42 207 40 566Mining 40 262 37 601Other services 57 301 51 145Transport 13 717 14 023Wholesale 64 114 56 708

Gross loans and advances 858 786 828 875

163




9. Loans and advances continued9.1 Loans and advances net of impairments continued The following table sets out the distribution of the group’s loans and advances by geographic area where the loans are recorded.

2013 2012

% Rm % Rm

Segmental analysis – geographic area


Gross loans and advances 100 858 786 100 828 875

2013

Rm

2012Rm

9.2 Instalment sale and finance leases

Gross investment in instalment sale and finance leases 86 055 77 284

Receivable within 1 year 25 022 22 662Receivable after 1 year but within 5 years 60 485 53 577Receivable after 5 years 548 1 045

Unearned finance charges deducted (12 553) (11 231)

Net investment in instalment sale and finance leases 73 502 66 053

Receivable within 1 year 20 518 18 629Receivable after 1 year but within 5 years 52 488 46 547Receivable after 5 years 496 877

Leases entered into are at market-related terms.

9.3 Credit impairments for loans and advances

A reconciliation of the allowance for impairment losses for loans and advances, by class:

Total impairments

Mortgage loans 4 697 4 882Instalment sale and finance leases 1 678 1 307Card debtors 1 510 1 074Personal unsecured lending 4 409 3 255Business lending and other 2 449 1 970Corporate lending 4 165 4 933Commercial property finance 258 283

19 166 17 704



9. Loans and advances continued9.3 Credit impairments for loans and advances continued A reconciliation of the allowance for impairment losses for loans and advances, by class:

Mortgageloans

Rm

Instalmentsale andfinance

leasesRm

Carddebtors

Rm

Personalunsecured

lendingRm

Businesslending

andother

Rm

Corporatelending

Rm

Commercialproperty

financeRm

TotalRm

2013

Specific impairments

Balance at the beginning of the year 4 166 787 580 1 908 1 174 3 721 180 12 516

Net impairments raised1 2 565 1 050 1 107 2 819 1 207 1 459 52 10 259

Impaired accounts written off (2 546) (803) (718) (1 623) (784) (2 699) (71) (9 244)

Discount element recognised in interest income (304) (29) (51) (123) (51) (558)

Exchange and other movements 62 153 6 (54) 21 641 829

Balance at the end

of the year 3 943 1 158 924 2 927 1 567 3 122 161 13 802

Portfolio impairments

Balance at the beginning of the year 716 520 494 1 347 796 1 212 103 5 188

Net impairments raised/(released)1 9 (31) 91 245 (50) (149) (6) 109

Exchange and other movements 29 31 1 (110) 136 (20) 67

Balance at the end

of the year 754 520 586 1 482 882 1 043 97 5 364

Total 4 697 1 678 1 510 4 409 2 449 4 165 258 19 166

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 29.8).

165




9. Loans and advances continued9.3 Credit impairments for loans and advances continued

Mortgageloans

Rm

Instalmentsale andfinanceleases

Rm

Carddebtors

Rm

Personalunsecured

lendingRm

Businesslending

andother

Rm

Corporatelending

Rm

Commercialpropertyfinance

RmTotal

Rm

2012

Specific impairments

Balance at the beginning of the year 3 772 1 005 824 1 113 863 2 076 122 9 775Net impairments raised1 3 462 750 672 2 129 836 2 256 97 10 202Impaired accounts written off (2 589) (895) (864) (1 240) (484) (1 572) (39) (7 683)Discount element recognised ininterest income (540) (39) (57) (43) (47) (7) (733)

Exchange and other movements 61 (34) 5 (51) 6 968 955

Balance at the end

of the year 4 166 787 580 1 908 1 174 3 721 180 12 516

Portfolio impairments

Balance at the beginning of the year 1 414 489 438 789 980 1 136 164 5 410Net impairments (released)/raised1 (697) 39 60 463 (125) 62 (42) (240)Exchange and other movements (1) (8) (4) 95 (59) 14 (19) 18

Balance at the end

of the year 716 520 494 1 347 796 1 212 103 5 188

Total 4 882 1 307 1 074 3 255 1 970 4 933 283 17 704

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 29.8).



9. Loans and advances continued9.3 Credit impairments for loans and advances continued

2013Rm

2012Rm

Segmental analysis of specific impairments – industry

Agriculture 511 1 059Construction 564 600Electricity 6 34Finance, real estate and other business services 561 1 607Individuals 7 880 6 521Manufacturing 605 633Mining 370 90Transport 327 167Wholesale 1 166 743Other services 1 812 1 062

13 802 12 516

Segmental analysis of specific impairments – geographic area The following table sets out the distribution of the group’s specific impairments by geographic area where the loans are recorded.

2013 2012

% Rm % Rm

South Africa 77 10 637 64 7 969Rest of Africa 20 2 705 14 1 753Outside Africa 3 460 22 2 794

100 13 802 100 12 516

2013Rm

2012Rm

10. Current and deferred tax assets Current tax assets 407 331Deferred tax assets (note 20.1) 1 536 1 183

1 943 1 514

167




11. Other assets 2013

Rm20121

Rm

Trading settlement assets 8 715 16 503Items in the course of collection 743 1 083Operating leases – accrued income (note 13) 1 315 1 277Deferred acquisition costs (DAC) 527 449Retirement funds and post-employment healthcare benefits (note 37) 1 795 2 121Insurance prepayments and reinsurance assets2 3 905 3 194Accounts receivable 389 2 761Prepayments 1 974 2 436Properties in possession 398 521Property developments 1 465 1 009Other debtors 2 991 2 371

24 217 33 725

1 Restated. Refer to annexure A for details of the restatements.2 Includes reinsurance assets. Refer to note 22.1.



12. Interest in associates and joint ventures 2013

Rm20121

Rm

Associates and joint ventures accounted for under the equity method 4 797 3 035

Equity accounted associates and joint ventures

Carrying value at the beginning of the year 3 035 1 849Share of profits – continuing operations 684 500Reversal of impairments of associates2 1 201Reversal of impairments of equity accounted private equity associates included in non-interest revenue 21 27Acquisitions 361 1 604Disposals (84) (77)Share of direct reserve movements (152) (84)Distribution of profit (29) (25)Reclassified as (held for sale)/an interest in associate (note 7) 960 (960)

Carrying value at the end of the year 4 797 3 035

Comprising:

Cost of investments 3 799 2 617Share of reserves 1 913 1 108Cumulative impairment (915) (690)

4 797 3 035

Share of profits from associates and joint ventures

Share of profits 684 500Reversal of impairments of associates 1 201

Share of profits – continuing operations 685 701

1 Restated. Refer to annexure A for details of the restatements. Following the reclassification of the group’s fair value measured interests in associates to financial investments, the reconciliation of the equity accounted associates and joint venture’s carrying value has been restated to only include those adjustments relating to equity accounted interests in associates and joint ventures.

2 The recoverable amount utilised to calculate the impairment was based on a price-earnings valuation. The average price-earnings ratio of comparable entities was utilised with an adjustment made for the liquidity of the entity’s shares.

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.

169




13. Investment property2013

Rm2012

Rm

Fair value at the beginning of the year 24 133 23 470Revaluations net of lease straight-lining 2 530 1 188

Revaluations 2 598 1 443Net movement on straight-lining operating leases (68) (255)

Additions – capitalised subsequent expenditure 546 46Additions – property acquired1 42 32Disposals (35) (651)Transfers from property and equipment 69 37Other transfers1 11Exchange movements 14

Fair value at the end of the year 27 299 24 133

Investment property and related operating lease balances comprise the following:

Investment properties at fair value 27 299 24 133Operating leases – accrued income (note 11) 1 315 1 277Operating leases – accrued expense (note 21.1) (30)

Total investment property 28 614 25 380

Located in:

South Africa 28 452 25 298Kenya 142 70Nigeria 20 12


At the end of the year investment property comprised the following property types:

Office buildings 1 416 1 305Shopping malls 23 772 20 750Hotels 2 455 2 536Other 971 789


1 Included in other transfers in previously reported periods were amounts related to property acquired. The previously reported information has been restated to reflect the property acquired separately from other transfers.

The South African located investment properties were independently valued as at 31 December 2013 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 note 2.15.

The Kenyan and Nigerian located properties were independently valued as at 31 December 2013 by various registered professional valuers in each territory.

At 31 December 2013, unlet space amounted to 6.0% (2012: 7.1%) of available lease area in the investment properties held by the group. The average net rental growth is 2.3% (2012: 2.5%).

The property rental income earned by the group from its investment property, all of which is leased out under operating leases, amounted to R2 210 million (2012: R2 290 million), including straight-lining operating leases or R2 110 million (2012: R1 987 million) excluding straight-lining operating leases. Direct operating expenses arising on the investment property amounted to R633 million (2012: R558 million).



14. Goodwill and other intangible assets2013

Rm2012

Rm

Goodwill (note 14.1) 3 786 3 124Other intangible assets (note 14.2) 14 299 11 563

18 085 14 687

14.1 Goodwill

Goodwill on subsidiaries

Cost at the beginning of the year 4 544 4 468Acquisitions 4Disposals (7) (163)Exchange movements 836 235

Cost at the end of the year 5 373 4 544

Accumulated impairment at the beginning of the year (1 420) (735)Goodwill impairment charge (note 29.14) (777)Disposals 7 31Exchange movements (174) 61

Accumulated impairment at the end of the year (1 587) (1 420)

Carrying amount 3 786 3 124

2013 2012

Grossgoodwill

Rm

Accumulatedimpairment

Rm

Netgoodwill

Rm

Grossgoodwill

Rm

Accumulatedimpairment

Rm

Netgoodwill

Rm

Goodwill comprises:

Standard Bank s.a.r.l. (Mozambique) 128 128 104 104Capital Alliance Holdings Limited 397 397 397 397 Neil Harvey and Associates 114 114 114 114 Melville Douglas Investment Management Proprietary Limited 44 22 22 44 22 22Stanbic Bank Botswana Limited 20 20 18 18 Standard Bank Limited (Malawi) 15 15 17 17 Stanbic Bank Uganda Limited 11 3 8 9 3 6Standard Bank Asia Limited (Hong Kong) 71 71 57 57 Triskelion Trust Company Limited 71 71 56 56 Stanbic IBTC Holdings PLC (Nigeria) 3 487 835 2 652 2 888 690 2 198CfC Stanbic Holdings Limited (Kenya) 936 936 754 754Ecentric Payment Systems Proprietary Limited 36 36 36 36Halberg Guss South Africa Proprietary Limited 7 7 MTN Mobile Money 39 39 39 39 LC Golf SA Proprietary Limited 4 4 4 4

5 373 1 587 3 786 4 544 1 420 3 124

171




14. Goodwill and other intangible assets continued14.1 Goodwill continued Stanbic IBTC Holdings PLC Based on the impairment testing performed, no impairment was identified (2012: R700 million).

CfC Stanbic Holdings Limited Based on the impairment testing performed, no impairment was identified (2012: nil).

Goodwill relating to other entities The remaining aggregated carrying amount of the goodwill of R198 million (2012: R172 million) has been allocated to CGUs that are

not considered to be individually significant. These entities were tested for impairment during the year, and no impairment was recognised (2012: R77 million).

14.2 Other intangible assets14.2.1 Summary

2013 2012

CostRm

Accumulatedamortisation

andimpairment

Rm

Net bookvalue

Rm CostRm

Accumulatedamortisation

andimpairment

Rm

Net bookvalue

Rm

Computer software 18 470 4 553 13 917 14 274 3 235 11 039Other intangible assets 702 553 149 708 527 181Present value of in-force life insurance1 1 688 1 455 233 1 724 1 381 343

20 860 6 561 14 299 16 706 5 143 11 563

1 Represents the present value (at acquisition date) of future profits before taxation, on policyholder contracts acquired from business acquisitions, less amortisation. No internally generated value of in-force life insurance has been recognised, since it does not meet the recognition criteria in IFRS.



14. Goodwill and other intangible assets continued14.2 Other intangible assets continued14.2.2 Movement

2012 net book

valueRm

Reclassi-fied

as heldfor sale

Rm Additions1

Rm Disposals2

Rm

Impair-ments

Rm

Amorti-sation

Rm

Exchangemove-ments

Rm

2013net book

value3

Rm

Computer software 11 039 (339) 4 606 (70) (440) (911) 32 13 917

Other intangible assets 181 12 3 (37) (39) 29 149

Present value of in-force life insurance 343 (115) 5 233

11 563 (339) 4 618 (67) (477) (1 065) 66 14 299

2011 net book

valueRm

Additions1

Rm

Dis-posals2

Rm

Impair-ments

Rm

Amorti-sation– con-tinuing

operationsRm

Amorti-sation

– discon-tinued

operationsRm

Exchangemove-ments

Rm

2012 net book

value3

Rm

Computer software 7 940 4 287 (182) (263) (611) (159) 27 11 039Other intangible assets 586 86 (415) (1) (82) 7 181Present value of in-force life insurance 495 (153) 1 343

9 021 4 373 (597) (264) (846) (159) 35 11 563

1 During 2013, R204 million (2012: R186 million) of interest was capitalised.2 Included in the disposal balance is an amount of R21 million (2012: R21 million) relating to transfers to property and equipment.3 Includes work in progress of R6 602 million (2012: R5 216 million) for which amortisation has not yet commenced.

There are no significant intangible assets pledged as security for liabilities.

173




15. Property and equipment 2013 2012

CostRm

Accumulateddepreciation

andimpairment

Rm

Net bookvalue

Rm CostRm

Accumulateddepreciation

andimpairment

Rm

Net bookvalue

Rm

15.1 Summary

Property

Freehold 6 903 653 6 250 6 250 564 5 686Leasehold 3 585 1 396 2 189 3 206 1 106 2 100Property under development 13 13

10 488 2 049 8 439 9 469 1 670 7 799

Equipment

Computer equipment 10 069 6 020 4 049 9 983 6 325 3 658Motor vehicles 619 344 275 608 322 286Office equipment 1 451 774 677 1 261 655 606Furniture and fittings 6 808 3 366 3 442 6 241 2 857 3 384

18 947 10 504 8 443 18 093 10 159 7 934

Total 29 435 12 553 16 882 27 562 11 829 15 733

2012 net book

valueRm

Reclassi-fied

as heldfor sale

Rm Additions1,2

Rm Disposals

Rm

Depre-ciation

Rm Transfers3

Rm

Exchangemovements

Rm

2013 net book

value4

Rm

15.2 Movement

Property Freehold 5 686 563 (45) (91) (22) 159 6 250

Leasehold 2 100 (115) 319 (24) (426) 335 2 189

Property under development 13 34 (47)

7 799 (115) 916 (69) (517) (69) 494 8 439

Equipment

Computer equipment 3 658 (98) 1 729 (19) (1 436) 215 4 049

Motor vehicles 286 (1) 112 (41) (95) 14 275

Office equipment 606 (36) 193 (65) (118) 97 677

Furniture and fittings 3 384 (21) 632 (30) (629) 106 3 442

7 934 (156) 2 666 (155) (2 278) 432 8 443

Total 15 733 (271) 3 582 (224) (2 795) (69) 926 16 882

1 During 2013, R43 million (2012: R79 million) of interest was capitalised. Includes additions arising from business acquisitions of Rnil million (2012: R6 million).2 Included in additions is an amount of R21 million (2012: R21 million) that has been transferred from intangible assets.3 Refer to note 13 – Investment property.4 Includes work in progress of R1 035 million (2012: R1 875 million) for which depreciation has not yet commenced.



15. Property and equipment continued15.2 Movement continued

2011 net book

valueRm

Additions1,2

RmDisposals

Rm

Depre-ciation –

continuingoperations

Rm

Depre-ciation – discon-

tinuedoperations

Rm Transfers3

Rm

Exchangemove-ments

Rm

2012 net book

value4

Rm

Property

Freehold 5 153 664 (9) (28) (33) (37) (24) 5 686Leasehold 1 954 459 (19) (364) 70 2 100Property under development 13 13

7 107 1 136 (28) (392) (33) (37) 46 7 799

Equipment

Computer equipment 3 424 1 614 (52) (1 334) (22) 28 3 658Motor vehicles 288 117 (33) (92) (1) 7 286Office equipment 573 157 (4) (115) (7) 2 606Furniture and fittings 3 528 481 (43) (594) (5) 17 3 384

7 813 2 369 (132) (2 135) (35) 54 7 934

Total 14 920 3 505 (160) (2 527) (68) (37) 100 15 733

1 During 2013, R43 million (2012: R79 million) of interest was capitalised. Includes additions arising from business acquisitions of Rnil million (2012: R6 million).2 Included in additions is an amount of R21 million (2012: R21 million) that has been transferred from intangible assets.3 Refer to note 13 – Investment property.4 Includes work in progress of R1 035 million (2012: R1 875 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.

15.3 Valuation The fair value of completed freehold property, based on valuations undertaken for the period 2011 to 2013, was estimated at

R7 936 million (2012: R5 579 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.

175




16. Share capital 2013

Rm2012

Rm

16.1 Authorised

2 000 000 000 (2012: 2 000 000 000) ordinary shares of 10 cents each 200 2008 000 000 (2012: 8 000 000) 6.5% first cumulative preference shares of R1 each 8 81 000 000 000 (2012: 1 000 000 000) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each 10 10

218 218

16.2 Issued

Ordinary share capital

1 617 844 128 (2012: 1 606 135 826) ordinary shares of 10 cents each 162 161

Ordinary share premium 17 964 17 931A premium of R377 million (2012: R357 million) was raised on the allotment and issue during the year of 4 304 866 ordinary shares (2012: 5 347 398 ordinary shares).

During 2013 and 2012, the group declared a scrip distribution with a cash alternative. The scrip distribution was financed from share premium and 10 281 204 (2012: 12 041 298) ordinary shares were issued. R1,0 million (2012: R1,2 million) was transferred to ordinary share capital.

During 2013, a premium of R343 million was utilised on the buy-back of 2 877 768 ordinary shares.

Preference share capital and premium 5 503 5 503

8 000 000 (2012: 8 000 000) 6.5% first cumulative preference shares of R1 each – first preference shares 8 852 982 248 (2012: 52 982 248) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each – second preference shares 1 1Preference share premium – non-redeemable, non-cumulative, non-participating preference shares – second preference shares 5 494 5 494

The non-redeemable, non-cumulative, non-participating 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.

All classes of preference shares in issue are non-redeemable.

23 629 23 595



16. Share capital continued16.2 Issued continued

Numberof ordinary

shares

Numberof first

preferenceshares

Numberof second

preferenceshares

Reconciliation of shares issued

Shares in issue at 1 January 2012 1 588 747 130 8 000 000 52 982 248Shares issued during 2012 in terms of the group’s equity compensation plans 5 347 398 Shares issued in terms of the interim scrip distribution declared in respect of 2012 and distributed on 17 September 2012 12 041 298

Shares in issue at 31 December 2012 1 606 135 826 8 000 000 52 982 248

Net shares held in terms of the group’s Tutuwa initiative 63 478 810

Total number of shares held initially by Tutuwa SEs (note 17) 99 190 197Less: portion of shares financed directly by third parties (note 17) (24 691 358)Less: number of shares sold in terms of the ICBC transaction (note 17) (11 020 029)

Shares held by entities within the group1 6 740 125Shares held by other shareholders1 1 535 916 891 8 000 000 52 982 248

Shares issued during 2013 in terms of the group’s equity compensation plans 4 304 866

Share buy-back (2 877 768)

Shares issued in terms of the final scrip distribution declared in respect of 2012 and distributed on 22 April 2013 10 281 204

Shares in issue at 31 December 2013 1 617 844 128 8 000 000 52 982 248

Net shares held in terms of the group’s Tutuwa initiative 27 725 901

Total number of shares held initially by Tutuwa SEs (note 17) 99 190 197

Less: portion of shares financed directly by third parties (note 17) (60 444 267)

Less: number of shares sold in terms of the ICBC transaction (note 17) (11 020 029)

Shares held by entities within the group 5 669 530

Shares held by other shareholders 1 584 448 697 8 000 000 52 982 248

All issued shares are fully paid up.

1 Restated due to the adoption of IFRS 10.

177




16. Share capital continued 2013

Number 2012

Number

16.3 Unissued shares Ordinary shares of 10 cents each, of which 80 306 791 (2012: 79 437 357) are under the general authority of the directors which authority expires at the annual general meeting tobe held on 29 May 2014 242 078 223 249 481 659

Ordinary shares of 10 cents per share reserved to meet the requirements of the EGS and GSIS 140 077 649 144 382 515

Ordinary shares of 10 cents each reserved in terms of the rules of the EGS and GSIS as approved by members’ resolution dated 27 May 2010 155 825 715 155 825 715Less: issued in terms of the above resolution for the EGS and GSIS schemes (15 748 066) (11 443 200)

Total ordinary unissued shares 382 155 872 393 864 174

The group has resolved to buy back ordinary shares to prevent shareholder dilution arising on the exercise of equity-settled share-based payment awards.

At the end of the year, the group would need to issue 17 093 357 (2012: 20 418 529) SBG ordinary shares to settle the outstanding options in GSIS and rights in EGS awarded to participants historically.

Non-redeemable, non-cumulative, non-participating preference shares of 1 cent each of which 947 017 752 (2012: 947 017 752) are under the general authority of the directors which authority expires at the annual general meeting to be held on 29 May 2014 947 017 752 947 017 752

Total non-redeemable, non-cumulative, non-participating unissued shares 947 017 752 947 017 752

PG The group share incentive scheme (GSIS) and equity growth scheme (EGS) reconciliations are disclosed in annexure D on pages 271 to 276.

16.4 Interest of directors in the capital of the company The directors held, directly and indirectly, interests in the company’s ordinary issued share capital and preference share capital, as

reflected in the tables.Direct beneficial1 Indirect beneficial1

2013Number

2012Number

2013Number

2012Number

Ordinary sharesDDB Band 9 742 12 742 RMW Dunne 28 000 28 000TS Gcabashe2 111 112 111 112KP Kalyan2 125 000 125 000BJ Kruger3 148 004 130 146 1 273SJ Macozoma4 5 711 527 5 711 527JH Maree5 50 000 650 000KD Moroka2 515 515 111 112 111 112AC Nissen2 111 112 111 112MC Ramaphosa5 2 327 4 237 848SP Ridley 10 328 85MJD Ruck 175 000 175 000SK Tshablalala3 15 900 698 339 698 339EM Woods 52 450 52 450

411 939 423 265 6 896 202 11 785 3231 As per Listings Requirements of the JSE.2 Qualifying black non-executive directors received an allocation of 125 000 shares in terms of the Tutuwa Management Trust – special conditions apply for qualifying

black non-executive directors. Certain of these directors, that were shareholders at the time, sold shares to ICBC through the scheme of arrangement with all shareholders.

3 BJ Kruger and SK Tshabalala appointed to the board on 7 March 2013.4 SJ Macozoma holds an effective 28.40% (2012: 26.62%) interest in Safika which acquired 24 132 911 shares in terms of the black ownership initiative of which

2 681 166 were sold to ICBC. 5 JH Maree resigned as director during 2013. MC Ramaphosa retired as director during 2013.



16. Share capital continued 16.4 Interest of directors in the capital of the company continued

Direct beneficial1

2013Number

2012Number

Second preference shares

DDB Band 16 958 27 167KP Kalyan 3 214 3 214BJ Kruger 26 791 26 791SJ Macozoma 1 140JH Maree2 10 331

46 963 68 643

2013

Number

2012Number

Shares as at 31 December

Share incentives 3 454 661 2 410 648

2013 20123

Numberof shares

(million)%

holding

Numberof shares

(million)%

holding

16.5 Shareholder analysis 16.5.1 10 major shareholders4

ICBC 325,0 20.1 322,0 20.0Public Investment Corporation 222,8 13.8 233,7 14.6Tutuwa participants 88,2 5.5 88,2 5.4

Staff 34,5 2.2 34,5 2.1Strategic partners 35,8 2.2 35,8 2.2Communities and regional businesses 17,9 1.1 17,9 1.1

Dodge & Cox 28,2 1.7 25,9 1.6Investment Solutions 23,7 1.5 25,2 1.6Vanguard Emerging Markets Fund 23,5 1.5 23,9 1.5Allan Gray Balanced Fund 23,4 1.4 12,3 0.8Government Singapore Investment Corp 22,4 1.4 14,9 0.9Allan Gray Equity Fund 21,7 1.3 14,1 0.9Old Mutual Life Assurance 20,5 1.2 38,6 2.4

799,4 49.4 798,8 49.7

1 As per Listings Requirements of the JSE.2 JH Maree resigned as director during 2013. 3 Comparative information has been restated to align with current year representation.4 Beneficial holdings determined from the share register and enquiries conducted on our behalf in terms of section 56 of the Companies Act.

179




16. Share capital continued16.5 Shareholder analysis continued

2013 20121

Numberof shares

(million)%

holding

Numberof shares

(million)%

holding

16.5.2 Geographic spread of shareholders

South Africa 859,4 53.1 864,6 53.8Foreign shareholders 758,6 46.9 741,5 46.2

China 326,9 20.2 323,5 20.1US 217,8 13.5 217,5 13.5UK 73,7 4.5 49,9 3.1Singapore 25,1 1.6 17,6 1.1Ireland 16,0 1.0 12,1 0.8Australia 13,6 0.8 11,1 0.7Namibia 11,8 0.7 16,7 1.0Saudi Arabia 9,1 0.6 10,0 0.6Netherlands 8,7 0.5 10,4 0.6Canada 8,4 0.5 9,6 0.6Norway 8,0 0.5 12,3 0.8Luxembourg 7,5 0.5 11,1 0.7United Arab Emirates 5,0 0.3 12,8 0.8Other 27,0 1.7 26,9 1.8

1 618,0 100.0 1 606,1 100.0

16.5.3 Spread of ordinary shareholdersPublic2 978,4 60.5 957,8 59.6Non-public2 639,6 39.5 648,3 40.4

Directors and prescribed officers of Standard Bank Group, and its subsidiaries3 1,3 0.1 2,3 0.2ICBC 325,0 20.1 322,0 20.0Public Investment Corporation 222,8 13.7 233,7 14.6Standard Bank Group retirement funds 2,2 0.1 1,4 0.1Tutuwa participants4 88,2 5.5 88,2 5.5Associates of directors 0,1 0,7

1 618,0 100.0 1 606,1 100.0

1 Comparative information has been restated to align with current year representation.2 As per Listings requirements of the JSE.3 Excludes indirect holdings of strategic partners which are included in Tutuwa participants.4 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust.



16. Share capital continued16.5 Shareholder analysis continued

2013 2012

Numberof shares

(million)%

holding

Numberof shares

(million)%

holding

16.5.4 Spread of 6.5% cumulativepreference shareholdersPublic1 8 000 000 100.0 8 000 000 100.0

8 000 000 100.0 8 000 000 100.0

16.5.5 Spread of non-redeemable, non-cumulative, non-participating preference shareholders Public1 52 908 285 99.9 52 743 071 99.6Non-public1 73 963 0.1 239 177 0.4

Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 72 963 0.1 234 643 0.4Associates of directors 1 000 4 534

52 982 248 100.0 52 982 248 100.0

1 As per Listings Requirements of the JSE.2 Excludes indirect holdings of strategic partners which are included in Tutuwa participants.

16.6 Purchased equity securities Subsidiaries of the group purchased equity securities in Standard Bank Group Limited during the financial year to be held for the benefit

of the group’s policyholders and to facilitate client trading activities. The total number of equity securities purchased during the financial year was 39 012 666 (2012: 36 708 205) for which the average share price was R116,20 (2012: R110,96). The total number of treasury shares held at the end of the year was 5 669 530 (2012: 6 740 125)1.

1 The total purchases of shares incorrectly included sales of shares. The total share purchases has been restated together with the adjustments required for theadoption of IFRS 10.

17. 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 from the issue of the cumulative redeemable preference shares were used by the BEE entities to purchase SBG and Liberty shares. The BEE entities initially purchased and owned 99 190 197 ordinary shares of SBG.

The preference shares owned by the group do not meet the definition of a financial asset in terms of IFRS and therefore the preference shares are treated as a reduction of equity and are stated in the statement of changes in equity as a negative empowerment reserve. The empowerment reserve represents SBG shares held by the SEs that are deemed to be treasury shares in terms of accounting conventions.

Refer to pages 72 to 77 in the annual integrated report for a detailed explanation of the accounting treatment of the group’sTutuwa initiative.

AIR

On 20 December 2007, the group obtained financing external to the group for a portion of the financing provided to the SEs. As a result, the negative empowerment reserve has been reduced by the value of the external financing obtained of R1 billion and a proportion of the SBG shares held by the SEs (24 691 358 shares) were no longer deemed to be treasury shares for accounting purposes.

181




17. Empowerment reserve continued On 3 March 2008, the BEE entities sold 11.1% or 11 020 029 of their ordinary shares in SBG to ICBC, partly using the proceeds

towards the repayment of their preference share liability, amounting to R986 million.

On 3 March 2010, the contractual terms of the preference share agreements with the BEE entities of SBG were amended. These amendments permit dividends paid on SBG ordinary shares and received by the BEE entities to flow through to the participants in those entities and not to be paid as a preference dividend to settle the preference share obligation, subject to specific conditions. To the extent that preference dividends are received from the BEE entities, these are credited directly to reserves and disclosed as a reduction in the ordinary dividends paid on SBG shares. Preference dividends accrued but not received due to cash distributions being made to participants, has the effect of increasing the negative empowerment reserve. The legal accrual of the preference dividend does not result in an accounting entry but rather lengthens the repayment period.

In May and June 2013, Tutuwa Strategic Holdings 1 Proprietary Limited (Tutuwa 1) and Tutuwa Strategic Holdings 2 Proprietary Limited (Tutuwa 2), respectively, obtained third-party financing and repaid in full their outstanding preference share funding and accrued dividends thereon of R668,3 million and R1 007,2 million, respectively, to the group. This resulted in a release of R1 675,5 million of the group’s negative empowerment reserve relating to Tutuwa 1 and Tutuwa 2 and resulted in 35 752 909 ordinary shares no longer being deemed to be treasury shares for accounting purposes.

At year end the accumulated unrecognised asset, including accrued dividends (the maximum exposure to credit risk), was R1 199 million (2012: R2 721 million) for SBG and R922 million (2012: R1 031 million) for Liberty. The group would be exposed to losses if the market value of the shares held within the BEE entities drops below the preference share debt outstanding.

The investments in the cumulative redeemable preference shares of the BEE entities are set out below.

2013Number ofpreference

shares

2012Number ofpreference

shares

Issueprice

per share(R)

2013Rm

2012Rm

Standard Bank Group 1 802 3 031

Shanduka – Tutuwa Strategic Holdings 1 Proprietary Limited1 491 682 1 000 492Safika – Tutuwa Strategic Holdings 2 Proprietary Limited1 737 523 1 000 737Black Managers’ Trust – Tutuwa Staff Holdings 1 – 3 Proprietary Limited1 1 187 532 1 187 532 1 000 1 187 1 187The Community Trust – Tutuwa Community Holdings Proprietary Limited1 614 603 614 603 1 000 615 615

Liberty 905 1 012

Shanduka 144 000 161 000 1 000 144 161Safika 215 000 245 000 1 000 215 245Black Managers’ Trust 365 000 404 000 1 000 365 404The Community Trust 181 000 202 000 1 000 181 202

Total investment 2 707 4 043Financing by parties external to the group (1 000) (1 000)Preference dividends accrued but not received due to dividends distributed 555 690Attributable to non-controlling interests of Liberty (416) (463)

Standard Bank Group empowerment reserve 1 846 3 270

1 The SEs above owned 88 170 168 (2012: 88 170 168) ordinary shares of SBG at 31 December 2013, of which 60 444 267 (2012: 24 691 358) ordinary shares are funded by third-party financing.



17. Empowerment reserve continued Standard

BankGroup

Rm Liberty

Rm Total

Rm

Reconciliation of investment in preference shares

Original amount invested in 2004 4 017 1 251 5 268Redemption – 20061 (92) (92)Financing by external parties (1 000) (1 000)Redemption – 20082 (986) (986)Redemption – 20101 (40) (40)Redemption – 20111 (44) (44)Redemption – 20121 (63) (63)

Redemption – 20131,3 (1 229) (107) (1 336)

Attributable to non-controlling interests of Liberty (416) (416)

Preference dividends accrued but not received due to dividends distributed 555 555

Remaining amounts invested at 31 December 2013 1 357 489 1 846

1 Redemption of cumulative preference shares. 2 On 3 March 2008, Tutuwa participants sold 11.1% or 11 020 029 of their ordinary shares in the group to ICBC, partly using the proceeds for the repayment of their

preference share liability, amounting to R986 million.3 In May and June 2013, Tutuwa 1 and Tutuwa 2 obtained third-party financing and repaid in full their outstanding preference share funding of R1,7 billion. This resulted

in 35 752 909 ordinary shares being recognised as issued shares.

The cumulative redeemable preference shares owned by the group attract dividends at 8.5% per annum, whilst those of Liberty accrue dividends at 67% of the Standard Bank prime lending rate (2012: 67%). 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 32).

183




18. Trading liabilities 2013

Rm20121

Rm

Classification

Listed 18 882 20 533Unlisted 16 486 23 941

35 368 44 474

Comprising:

Government, municipality and utility bonds 1 456 4 417Corporate bonds 42 1 154Listed equities 16 041 9 995Unlisted equities 520Collateral 211 2 267Repurchase and other collateralised agreements 9 501 13 174Credit-linked notes 2 702 7 585Other instruments 5 415 5 362

35 368 44 474

Maturity analysis

The maturities represent periods to contractual redemption of trading liabilities recorded. Repayable on demand 212 1 854Maturing within 1 month 10 696 14 294Maturing after 1 month but within 6 months 1 691 2 030Maturing after 6 months but within 12 months 1 116 4 228Maturing after 12 months 5 056 11 605Undated 16 597 10 463

35 368 44 474




19. Deposit and current accounts

2013Rm

20121

Rm

Deposits from banks 68 650 124 275

Deposits from banks and central banks 67 963 117 577Deposits from banks under repurchase agreements 687 6 698

Deposits from customers 853 088 786 407

Current accounts 168 457 124 515Cash management deposits 123 932 106 968Call deposits 214 353 182 221Savings accounts 19 369 24 382Term deposits 196 926 237 801Negotiable certificates of deposit 94 979 79 966Repurchase agreements 432 1 596Securitisation issuances 4 699 6 002Other funding 29 941 22 956

Total deposit and current accounts 921 738 910 682

Maturity analysis

The maturity analysis is based on the remaining periods to contractual maturity from year end.Repayable on demand 571 519 472 742Maturing within 1 month 78 504 102 637Maturing after 1 month but within 6 months 114 192 148 424Maturing after 6 months but within 12 months 38 600 51 697Maturing after 12 months 118 923 135 182

921 738 910 682

Segmental analysis – geographic area The following table sets out the distribution of the group’s deposit and current accounts by geographic area where recorded.

2013 20121

% Rm % Rm


100 921 738 100 910 682


185




20. Current and deferred tax liabilities 2013

Rm20121

Rm

Current tax liabilities 4 912 4 230Deferred tax liabilities 3 995 3 692

8 907 7 922

20.1 Deferred tax analysis

Accrued interest receivable 25 (4)Assessed losses (1 054) (696)Assets on lease 300 384CGT 1 461 831Credit impairment charges (809) (858)DAC 144 123Deferred revenue liability (DRL) (53) (47)Property and equipment 1 249 363Derivatives 843 2 451Fair value adjustments on financial instruments 351 300Intangible asset – present value of in-force (PVIF) life insurance 59 111Policyholder change in valuation basis 1 997 1 715Post-employment benefits 218 288Share-based payments (512) (635)Special transfer to life fund (379) (311)Provisions and other items (1 381) (1 506)

Deferred tax closing balance 2 459 2 509

Deferred tax liabilities 3 995 3 692Deferred tax assets (note 10) (1 536) (1 183)




20. Current and deferred tax liabilities continued2013

Rm20121

Rm

20.2 Deferred tax reconciliation

Deferred tax at the beginning of the year 2 509 2 452(Reversing)/originating temporary differences for the year: (50) 57

Accrued interest receivable 29 Assessed losses (358) (270)Assets on lease (84) (173)CGT 630 (421)Credit impairment charges 49 (145)DAC 21 10DRL (6) (1)Property and equipment 886 266Derivatives (1 608) 789Fair value adjustments on financial instruments 51 80Intangible asset – PVIF (52) (31)Policyholder change in valuation basis 282 201Post-employment benefits (70) 134Secondary tax on companies (STC) 122Share-based payments 123 (205)Special transfer to life fund (68) 62Provisions and other differences 125 (361)

Deferred tax at the end of the year 2 459 2 509

Temporary differences for the year comprise:

Recognised in OCI from continuing operations Recognised in OCI (48) (6)

Fair value adjustments on financial instruments 30 (167)Defined benefit fund remeasurements (78) 161

Recognised in equity – deferred tax on share-based payments (76) (69)Recognised in the income statement (101) 112Translation movement 175 20

Recognised in OCI 5 2Recognised in the income statement 170 18

(50) 57


STC which is a South African tax on defined distributions to shareholders, was abolished with effect from 1 April 2012 and replaced by a dividend withholding tax. Dividend withholding tax is a tax on the shareholder.

187




21. Provisions and other liabilities 2013

Rm20121

Rm

21.1 Summary

Trading settlement liabilities 20 134 13 454Items in the course of transmission 1 992 1 684Post-employment benefits (note 37) 1 258 1 265Third-party liabilities arising on consolidation of mutual funds (note 21.2) 41 817 31 974Operating leases – accrued expense (note 13) 30Cash-settled share-based payment liability (annexure D) 1 394 1 446Insurance payables 6 104 5 311Staff-related accruals 4 126 4 186DRL 194 174Accounts payable 2 461 1 336Deemed disposal taxation liability 544 918Other liabilities 36 14 374

80 060 76 152


21.2 Third-party liabilities arising on consolidation of mutual fundsBalance at the beginning of the year 31 974 30 096Additional mutual funds classified as subsidiaries 1 054 352Repayments through withdrawal or change in effective ownership 3 146 (2 186)Mutual funds no longer classified as subsidiaries (847) (109)Distributions (1 425) (1 019)Fair value adjustment 7 915 4 840

Balance at the end of the year 41 817 31 974

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. A maturity analysis is not possible as it is dependent on external unit holders’ behaviour outside of the group’s control.

2013

Rm

2012Rm

22. Policyholders’ liabilities Policyholders’ liabilities under insurance contracts 189 798 168 521

Insurance contracts (note 22.1) 180 742 164 666Investment contracts with discretionary participation features (DPF) (note 22.1) 9 056 3 855

Policyholders’ liabilities under investment contracts (note 22.2) 74 146 68 163

263 944 236 684



22. Policyholders’ liabilities continued

2013 20121

Insurancecontracts

Rm

Investmentcontractswith DPF2

Rm

Reinsuranceassets3

Rm

Insurancecontracts

Rm

Investmentcontractswith DPF2

Rm

Reinsuranceassets3

Rm

22.1 Policyholders’ liabilities

under insurance contracts

and reinsurance assetsBalance at the beginning

of the year 164 666 3 855 (978) 145 558 3 447 (902)Inflows 57 926 2 716 (1 031) 55 993 1 194 (919)

Insurance premiums 32 756 1 745 (965) 29 061 659 (845)Investment returns 25 170 971 (66) 26 932 535 (74)

Unwinding of discount rate 947 1 (67) 1 144 1 (73)Investments 24 223 970 1 25 788 534 (1)

Outflows (39 158) 2 239 801 (34 453) (858) 679

Claims and policyholders’ benefits (27 223) 2 472 763 (23 680) (824) 599

Claims and policyholders’ benefits under insurance contracts (27 223) (741) 763 (23 680) (529) 599Switches between investment contracts with DPF from/(to) investment contracts without DPF 3 213 (295)

Acquisition costs associated with insurance contracts (3 473) (122) 6 (3 173) (6) 1General marketing and administration expenses (4 581) (104) 10 (4 259) (48) 5Preference dividend (971) (794)Finance costs (209) (46)Taxation (2 701) (7) 22 (2 501) 20 74

Net income from insurance

operations (2 809) (14) 50 (2 443) 44 164

Changes in estimates 218 (2) (501) (28)Planned margins and other variances (4 667) (21) 69 (3 625) 52 260New business 59 275 2Shareholder taxation on transfer of net income 1 581 7 (17) 1 408 (8) (70)

Foreign currency translation 117 260 (3) 11 28

Balance at the end of the year 180 742 9 056 (1 161) 164 666 3 855 (978)

Liquidity profile Current 15 289 386 (215) 17 833 230 (163)Non-current 165 453 8 670 (946) 146 833 3 625 (815)

180 742 9 056 (1 161) 164 666 3 855 (978)

1 Restated to align with current year disclosure.2 The group cannot reliably measure the fair value of the investment contracts with DPF. The DPF is a contractual right that gives investors in these contracts the right

to receive supplemental 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.

3 Reinsurance assets are included in insurance prepayments and reinsurance assets under other assets in note 11 on page 167.

189




22. Policyholders’ liabilities continued

2013Rm

20121

Rm

22.2 Policyholders’ liabilities under investment contracts

Balance at the beginning of the year 68 163 59 560Fund inflows from investment contracts (excluding switches) 13 379 11 724Net fair value adjustment including the change in deferred taxation on investment property 10 135 10 035Fund outflows from investment contracts (excluding switches) (13 398) (12 556)Switches between investments with DPF (from)/to investments without DPF (3 213) 295Service fee income (920) (895)


Liquidity profile

Current 4 843 7 033Non-current 69 303 61 130

74 146 68 163

Net income from investment contracts2 (31) (17)

Service fee income 920 895Expenses (951) (912)

Property expenses applied to investment returns 369 464Shareholder taxation on transfer of net income 13 (5)Acquisition costs (239) (269)General marketing and administration expenses (1 026) (1 068)Finance costs (68) (34)

1 Restated to align with current year disclosure.2 Prior to DAC and DRL adjustments.



23. Subordinated debt

Redeemable/repayable date Date issued Rate %

Subordinated bonds2

The Standard Bank of South Africa

SBK 7 24 May 2020 24 May 2005 9.633

SBK 86 10 April 2018 10 April 2006 8.203

SBK 9 10 April 2023 10 April 2006 8.403

SBKi 11 9 April 2019 9 April 2009 CPI indexed7

SBK 12 24 November 2021 24 November 2009 10.823

SBK 13 24 November 2021 24 November 2009 JIBAR5 + 2.20SBK 14 1 December 2022 1 December 2011 9.663

SBK 15 23 January 2022 23 January 2012 JIBAR5 + 2.00SBK 16 15 March 2023 15 March 2012 JIBAR5 + 2.10SBK 17 30 July 2024 30 July 2012 JIBAR5 + 2.20SBK 18 24 October 2025 24 October 2012 JIBAR5 + 2.35SBK 19 24 October 2024 24 October 2012 JIBAR5 + 2.20

Standard Bank Swaziland December 2019– October 2020

December 2009– October 2010 8.10 – 8.70

Stanbic Bank Botswana June 2018 – May 2022 June 2008 – May 2012 BWC9 + (0.05 to 1.50)Standard Bank Mozambique 29 June 2017 29 June 2007 WA10 + 0.5011

CfC Stanbic Bank Kenya December 2014 – July 2016 July 2009 – December 2010 T-Bill12 + 1.75 and7.25 to 12.50

Stanbic Bank Uganda 10 August 2016 10 August 2009 14.50 and T-Bill13 + 1.5014

Stanbic Bank Ghana 23 January 2022 23 January 2012 11.253

Standard Bank Plc15

27 July 2016 27 July 2006 8.0122 December 2019 2 December 2009 8 1253 December 201917 3 December 200918 8.0019

Subordinated bonds issued

to group companies

Total bonds qualifying as regulatory

banking capital

LibertyQualifying as regulatory insurance capital

Redeemable – 13 August 2017 13 August 2017 13 August 2012 7.673

Redeemable – 3 April 2018 3 April 2018 3 October 2012 7.643

Redeemable – 14 August 2020 14 August 2020 14 August 2013 9.173

Total subordinated bonds

Subordinated loans issued within

the rest of Africa

March 2018– June 2019

September 2008– March 2010 LIBOR16 + (0.75 to 4.00)

Total subordinated debt

1 The difference between the carrying and notional value represents, foreign exchange movements, accrued interest and the unamortised fair value adjustments relating to bonds hedged for interest rate risk.

2 Tier II. 3 Fixed semi-annual coupon. 4 The issuer may redeem on this date, or any subsequent interest payment date. 5 JIBAR is the three-month floating Johannesburg interbank agreed rate. 6 Redeemed during 2013. 7 The interest rate is calculated in terms of the pricing supplement using the base rate as defined adjusted for changes in the CPI as published by Statistics South Africa. 8 RY is the real yield, which is the return from an investment adjusted for the effects of inflation, compounded semi-annually. 9 BWC is the rate for three-month Botswana certificates.10 WA is the rate on bonds which carry a floating rate equal to the weighted average of the last six treasury bills maturing at 60 or more days.11 The interest is payable quarterly.

191




Callable date Rate after call date %

Notionalvalue2013LCm

Carryingvalue20131

Rm

Notionalvalue2013

Rm

Carryingvalue20121

Rm

Notionalvalue2012

Rm

20 815 20 050 22 400 21 550

24 May 20154 JIBAR5 + 1.97 ZAR3 000 3 031 3 000 3 033 3 00010 April 20134 JIBAR5 + 1.50 1 528 1 50010 April 20184 JIBAR5 + 1.68 ZAR1 500 1 528 1 500 1 529 1 50010 April 20144 RY8 of 7.25 ZAR1 800 2 357 1 800 2 414 1 80024 November 2016 JIBAR5 + 3.90 ZAR1 600 1 618 1 600 1 618 1 60024 November 2016 JIBAR5 + 4.20 ZAR1 150 1 159 1 150 1 159 1 1501 December 20174 CPI indexed7 + 2.69 ZAR1 780 1 795 1 780 1 795 1 78023 January 2017 CPI indexed7 + 2.36 ZAR1 220 1 237 1 220 1 236 1 22015 March 2018 CPI indexed7 + 2.42 ZAR2 000 2 006 2 000 2 005 2 00030 July 2019 JIBAR5 + 2.20 ZAR2 000 2 025 2 000 2 024 2 00024 October 2020 JIBAR5 + 2.35 ZAR3 500 3 552 3 500 3 552 3 50024 October 2019 JIBAR5 + 2.20 ZAR500 507 500 507 500

December 2014– October 2015 JIBAR5 + 1.00 E80 80 80 80 80June 2013 – May 2017 BWC9 + (0.80 to 2.25) BWP130 156 156 306 30629 June 2012 WA10 + 0.5011 MT260 92 92 74 74

KES5 000 608 608 492 49210 August 2014 UGX30 000 125 125 95 9523 January 2017 15.753 GHS7 31 31 34 34

6 307 5 652

27 July 20164 LIBOR16 + 3.25 1 246 1 201 4 849 4 239 212 212

(649) (639) (603) (592)

21 258 20 503 29 185 27 691

3 069 3 000 2 037 2 000

7.673 ZAR1 000 1 025 1 000 1 024 1 0007.643 ZAR1 000 1 014 1 000 1 013 1 0009.173 ZAR1 000 1 030 1 000

24 327 23 503 31 222 29 691

September 2013– March 2015 LIBOR6 + (1.75 to 5.00)

USD3

to 10 189 189 326 326

24 516 23 692 31 548 30 017

12 T-Bill refers to the yield on the latest 91-day or 180-day Kenyan Treasury Bill.13 T-Bill refers to the yield on the latest 182-day Uganda Treasury Bill.14 Up to 50% of the notes may be issued at a floating rate. The fixed rate is 14.50% and the floating rate is the weighted average of the most recent published 182-day Uganda

Government Treasury Bill plus a margin of 150 basis points.15 Transferred to non-current liabilities held for sale.16 LIBOR is the London interbank offer rate for three-month US dollar deposits.17 The bonds may be redeemed at the option of the issuer on each interest payment date from 3 December 2014 to 2 December 2019 and at any time following a capital

disqualification event.18 Regulatory approval was received in 2010 on which date these balances qualified as subordinated bonds.19 A rate of 8.00% is applicable during the initial interest period up to 3 December 2014, thereafter a rate of 8.50% applies. Interest is payable semi-annually in arrears.



24. Classification of assets and liabilities

Accounting classifications and fair values of assets and liabilities The table below categorises the group’s assets and liabilities as at 31 December 2013 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 those items.

Held-for-trading1

Rm

Designatedat fair value

RmHeld-to-maturity

Rm

2013

Assets

Cash and balances with central banksDerivative assets 64 474


Pledged assets 3 324 1 348

Non-current assets held for sale 107 306

Financial investments 506 342 896 13 264

Loans and advances to banks 668

Loans and advances to customers 1 074 181 4

Interest in associates and joint venturesInvestment property

Other financial assetsOther non-financial assets

231 272 345 093 13 268

Liabilities

Derivative liabilities 69 244

Trading liabilities 35 368

Deposits from banks 961

Deposits from customers 24 377

Policyholders’ liabilities 74 146

Subordinated debtNon-current liabilities held for sale 57 194 294

Other financial liabilities 39 983

Other non-financial liabilities

161 806 139 761

1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.3.2 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.3 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 – Financial instruments for a description on how fair values are determined.4 The fair value of the other financial assets and liabilities approximates the carrying value due to their short-term nature.

193




Loans andreceivables2

RmAvailable-for-sale

Rm

Otheramortised cost2

Rm

Other non-financialassets/liabilities

Rm

Totalcarrying amount

RmFair value3

Rm

53 310 53 310 53 310

64 474 64 474

54 588 54 588

2 041 6 713 6 713

74 871 29 1 078 183 284 180 051

11 162 27 889 395 717 396 243

94 236 94 904 95 034

743 457 744 716 736 389

4 797 4 797

27 299 27 299 27 299

8 365 8 3654

52 762 52 762

985 401 29 959 85 936 1 690 929

69 244 69 244

35 368 35 368

67 689 68 650 68 877

828 711 853 088 858 875

189 798 263 944 74 146

24 516 24 516 22 096

75 505 1 511 134 504 130 031

31 347 71 3304

17 637 17 637

1 027 768 208 946 1 538 281



24. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued The table below categorises the group’s assets and liabilities as at 31 December 2012 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 those items.

Held-for-trading1

Rm

Designatedat fair value

RmHeld-to-maturity

Rm

20124

Assets

Cash and balances with central banksDerivative assets 120 190 Trading assets 114 419 Pledged assets 9 977 Non-current asset held for saleFinancial investments 46 313 573 13 744Loans and advances to banks 3 166 245Loans and advances to customers 10 862 4 882Interest in associates and joint ventures Investment property Other financial assetsOther non-financial assets

244 642 317 601 18 871

Liabilities

Derivative liabilities 121 998Trading liabilities 44 474Deposits from banks 1 737 Deposits from customers 44 37 459 Policyholders’ liabilities 68 163Subordinated debtOther financial liabilities 30 015Other non-financial liabilities

166 516 137 374

1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.3.2 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.3 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 – Financial instruments for a description on how fair values are determined.4 The comparative information was restated to reflect the presentation consequences of the restatements in annexure A – restatements.5 The fair value of other financial assets and liabilities approximates the carrying value due to their short-term nature.

195




Loans andreceivables2

RmAvailable-for-sale

Rm

Otheramortised cost2

Rm

Other non-financialassets/liabilities

Rm

Totalcarrying amount

RmFair value3

Rm

61 985 61 985 61 985 120 190 120 190 114 419 114 419 1 663 11 640 11 640

960 960 4 070 15 724 347 157 387 165

99 199 102 610 107 776 702 807 708 561 708 561

3 035 3 035 24 133 24 133 24 133

24 581 24 5815

41 078 41 078

892 642 17 387 69 206 1 560 349

121 998 121 998

44 474 44 474 122 538 124 275 124 275 748 904 786 407 805 422

168 521 236 684 68 163 31 548 31 548 37 890 35 777 65 7925

18 282 18 282

938 767 186 803 1 429 460



25. Assets and liabilities at fair value

Fair value hierarchy of instruments measured at fair value Valuation process All financial instruments carried at fair value, regardless of classification, are marked to market using models that have been validated

independently by the group’s model validation unit 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 and company. Further, all inputs into the valuation models are subject to independent price validation procedures carried out by the market risk unit. Such price validation is performed on at least a monthly basis, and daily where possible given the liquidity of the underlying price inputs. Less liquid risk drivers, which are typically used to mark level 3 assets and liabilities to market, are carefully validated and tabled at the monthly price validation forum to ensure 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 to the market risk committee and ALCO.

Level hierarchy The table that follows analyses financial instruments carried at fair value, by level of fair value hierarchy. The different levels are based on

the extent that available market data is used in the calculation of the fair value of the financial instruments. The levels have been defined as follows:

Level 1 – fair value is based on quoted market prices (unadjusted) in active markets for identical instruments.

Level 2 – fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as 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 assets and liabilities.

Significant unobservable inputs The fair value of level 3 assets and liabilities is determined using valuation techniques that include reference to recent arm’s length

transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market participants. However, such techniques typically have unobservable inputs that are subject to management judgement. These inputs include credit spreads on illiquid issuers, implied volatilities on thinly traded stocks, correlation between risk factors, prepayment rates and other illiquid risk drivers. Exposure to such illiquid risk drivers is typically managed by:

using bid-offer spreads that are reflective of the relatively low liquidity of the underlying risk driver

raising day one profit provisions in accordance with IFRS

quantifying and reporting the sensitivity to each risk driver

limiting exposure to such risk drivers and analysing this exposure on a regular basis.

Recurring fair value measurements of assets or liabilities are those that other IFRSs require or permit in the statement of financial position at the end of each reporting period. Non-recurring fair value measurements of assets or liabilities are those that other IFRSs require or permit in the statement of financial position in particular circumstances.

197




25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

2013

Assets

Measured on a recurring basis Derivative assets 91 62 293 2 090 64 474

Trading assets 19 477 33 001 2 110 54 588

Pledged assets 3 525 3 180 8 6 713

Financial investments 178 044 189 066 4 181 371 291

Loans and advances to banks 668 668

Loans and advances to customers 7 1 205 43 1 255

Investment property 27 299 27 299

Measured on a non-recurring basis Non-current assets held for sale1 24 942 76 780 5 613 107 335

226 754 365 525 41 344 633 623

Comprising:

Held-for-trading 231 272

Designated at fair value 345 093

Available-for-sale 29 959

Other non-financial assets measured at fair value 27 299

633 623

2013

Liabilities

Measured on a recurring basis Derivative liabilities 162 61 207 7 875 69 244

Trading liabilities 18 384 16 552 432 35 368

Deposits from banks 961 961

Deposits from customers 389 23 988 24 377

Policyholders’ liabilities 74 146 74 146

Other financial liabilities 39 983 39 983

Measured on a non-recurring basis Non-current liabilities held for sale1 7 981 42 579 6 928 57 488

26 916 259 416 15 235 301 567

Comprising:

Held-for-trading 161 806

Designated at fair value 139 761

301 567

1 Whilst the disposal group has been classified as held for sale and has been measured to its fair value less costs to sell, the disposal group’s fair value measured assets and liabilities have been categorised within the fair value hierarchy in the table above. For further details regarding the disposal group, refer to note 7.



25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

2012

Assets

Measured on a recurring basis Derivative assets 8 286 108 507 3 397 120 190Trading assets 45 172 62 903 6 344 114 419Pledged assets 9 105 2 535 11 640Financial investments 143 184 180 631 5 528 329 343Loans and advances to banks 655 2 511 3 166Loans and advances to customers 3 654 215 872Investment property 24 133 24 133

206 405 357 741 39 617 603 763

Comprising:

Held-for-trading 244 642Designated at fair value 317 601Available-for-sale 17 387Other non-financial assets measured at fair value 24 133

603 763

2012

Liabilities

Measured on a recurring basis Derivative liabilities 8 365 111 298 2 335 121 998Trading liabilities 13 256 26 197 5 021 44 474Deposits from banks 9 1 728 1 737Deposits from customers 4 335 33 168 37 503Policyholders’ liabilities 68 153 10 68 163Other financial liabilities 30 015 30 015

25 965 270 559 7 366 303 890

Comprising:

Held-for-trading 166 516Designated at fair value 137 374

303 890

Sensitivity of fair value of level 2 and level 3 financial instruments The fair value of level 2 and level 3 financial instruments is determined using valuation techniques which incorporate assumptions

that are not supported by prices from observable current market transactions in the same instruments and are not based on available observable market data. Such assumptions include risk premiums, liquidity discount rates, credit risk, volatilities and correlations. Changes in these assumptions could affect the reported fair values of these financial instruments.

199




25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued Level 2 financial assets and financial liabilities

Valuation basis/technique Main assumptions1

20132 Derivative instruments Discounted cash flow model

Black-Scholes modelMultiple valuation technique

Discount rateRisk-free rate, volatility rateValuation multiples

Trading assets Discounted cash flow modelBlack-Scholes model

Discount rate, liquidity discount rate Risk-free rate, volatility rate

Pledged assets Discounted cash flow model Discount rate, liquidity discount rate

Financial investments Discounted cash flow modelMultiple valuation techniqueQuoted exit price adjusted for notice period

Discount rate, liquidity discount rateValuation multiplesDiscount rate

Loans and advances to customers Discounted cash flow model Discount rate, liquidity discount rate

Trading liabilities Discounted cash flow model Discount rate, liquidity discount rate

Deposits from banks Discounted cash flow model Discount rate, liquidity discount rate

Deposits from customers Discounted cash flow model Discount rate, liquidity discount rate

Policyholders’ liabilities Discounted cash flow model Discount rate, liquidity discount rate

Other financial liabilities Discounted cash flow model Discount rate, liquidity discount rate

1 The main assumptions for all instruments include applicable credit spreads.2 Level 2 fair valued assets and liabilities disclosed within non-current assets and liabilities held for sale have valuation bases and main assumptions consistent with that

of the items disclosed in the table above.

Level 3 financial assets and financial liabilities The fair value of level 3 financial instruments is determined using valuation techniques which incorporate assumptions based on

unobservable inputs and are subject to management judgement. Although the group believes that its estimates of fair values are appropriate, changing one or more of these assumptions to reasonably possible alternative values could impact the fair value of the financial instruments. The table on the next page indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 3 financial instruments.



25. Assets and liabilities at fair value continued25.1 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

Measuredon a non-recurring

basis

TotalRm

Derivativeassets

Rm

Tradingassets

Rm

Loans andadvances

tocustomers

Rm

Financialinvest-ments1

Rm

Invest-ment

property2

Rm

Non-current

assets heldfor sale3

Rm

Balance at 1 January 2012 – restated 3 850 5 866 916 6 728 23 470 20 40 850Disposed4 (20) (20)Total (losses)/gains included in profit or loss (872) 83 126 510 1 188 1 035

Trading revenue (872) 83 17 (772)Other revenue 126 285 411Investment gains 208 1 188 1 396

Total gains included in OCI 8 8Originations and purchases 33 1 813 37 1 799 89 3 771Sales (338) (4 150) (473) (3 057) (651) (8 669)Settlements5 597 (271) (63) 263Transfers into level 36 39 2 459 2 498Transfers out of level 37 (180) (256) (436)Reclassifications 37 37Exchange movements 88 273 60 (141) 280

Balance at 31 December 2012 3 397 6 344 215 5 528 24 133 39 617

1 Restated due to the adoption of IAS 28R.2 Disclosure has been aligned to IFRS 13 amendments.3 Relates to financial assets within the disposal group that have been classified as level 3.4 SBA was disposed of during the year. Refer to note 7 on pages 157 to 158.5 Derivative fair values represent the net present value of positive and/or negative future cash flows. Settlements may increase or decrease the carrying value

of derivative assets and liabilities.6 During 2013, the valuation inputs of certain financial assets became unobservable. The fair value of these assets was transferred into level 3.7 Transfers of financial assets between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. There were no significant

transfers of financial assets between level 1 and 2 during the period under review. During 2013, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial assets was transferred into level 2.

201




25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued Reconciliation of level 3 assets continued



basis

TotalRm

Derivativeassets

Rm

Tradingassets

Rm

Pledgedassets

Rm

Loans andadvances

tocustomers

Rm

Financialinvest-ments1

Rm

Invest-ment

property2

Rm

Non-current

assets heldfor sale3

Rm

Balance at 1 January 2013 3 397 6 344 215 5 528 24 133 39 617

Classified as held for sale (1 914) (5 992) (5) 7 911

Total gains/(losses) included in profit or loss 1 282 (60) 132 207 2 530 (1 589) 2 502

Interest income (2) (2)

Trading revenue 1 282 (60) 132 (22) (1 589) (257)

Other revenue 225 225

Investment losses 6 2 530 2 536

Total gains/(losses) included in OCI 1 (1)

Originations and purchases 499 3 087 6 1 325 588 961 6 466

Sales (1 068) (2 019) (89) (3 207) (35) (2 748) (9 166)

Settlements4 (114) (202) (60) (376)

Transfers into level 35 12 798 118 928

Transfers out of level 36 (7) (13) (21) (36) (77)

Reclassifications 69 69

Exchange movements 2 (35) 2 8 312 14 1 078 1 381

Balance at 31 December 2013 2 090 2 110 8 43 4 181 27 299 5 613 41 344

1 Restated due to the adoption of IAS 28R.2 Disclosure has been aligned to IFRS 13 amendments.3 Relates to financial assets within the disposal group that have been classified as level 3.4 Derivative fair values represent the net present value of positive and/or negative future cash flows. Settlements may increase or decrease the carrying value

of derivative assets and liabilities.5 During 2013, the valuation inputs of certain financial assets became unobservable. The fair value of these assets was transferred into level 3.6 Transfers of financial assets between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. There were no significant

transfers of financial assets between level 1 and 2 during the period under review. During 2013, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial assets was transferred into level 2.



25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued Assets transferred between level 1 and level 2 During the year, R60 million of assets were transferred into level 1 from level 2 as the quoted price became readily and regularly available.

Unrealised gains/(losses) for the period included in profit or loss for level 3 assets held at the end of the reporting period



basis

TotalRm

Derivativeassets

Rm

Tradingassets

Rm

Financialinvestments

Rm

Loans andadvances

to customersRm

Investmentproperty

Rm

Non-currentassets held

for sale1

Rm

2013

Trading revenue 1 271 (35) 913 2 149Other revenue 76 76Investment gains 2 598 2 598

1 271 (35) 76 2 598 913 4 823

2012

Trading revenue (506) (115) 17 (604)Other revenue 6 213 219Investment gains 223 1 443 1 666

(506) (115) 246 213 1 443 1 281

1 The unrealised gains relate to those financial assets classified as level 3 in the fair value hierarchy and not the disposal group as a whole.

203




25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued The following table provides a reconciliation of the opening to closing balance for all liabilities that are measured at fair value based on

inputs that are not based on observable market data (level 3).

Reconciliation of level 3 liabilities



basis

TotalRm

Derivativeliabilities

Rm

Tradingliabilities

Rm

Depositsfrom

customersRm

Policy-holders’

liabilitiesRm

Non-current

liabilitiesheld for sale1

Rm

Balance at 1 January 2012 2 710 6 093 106 28 8 937Total losses included in profit or loss – trading revenue 137 145 282Originations and purchases 126 489 615Sales (114) (47) (161)Settlements2 (608) (1 990) 143 (2 455)Transfers into level 33 40 39 79Net change in policyholders’ liabilities (18) (18)Exchange movements 44 245 (202) 87

Balance at 31 December 2012 2 335 5 021 10 7 366

Balance at 1 January 2013 2 335 5 021 10 7 366

Classified as held for sale (898) (5 021) 5 919

Total losses/(gains) included in profit or loss – trading revenue 4 084 (27) (434) 3 623

Originations and purchases 3 050 458 590 4 098

Sales (856) (856)

Settlements2 (633) (633)

Transfers into level 33 58 378 436

Transfers out of level 34 (8) (8)

Net change in policyholders’ liabilities (10) (10)

Exchange movements (113) 1 1 331 1 219

Balance at 31 December 2013 7 875 432 6 928 15 235

1 Relates to financial liabilities within the disposal group that have been classified as level 3.2 Derivative fair values represent the net present value of positive and/or negative future cash flows. Settlements may increase or decrease the carrying value

of derivative assets and derivative liabilities.3 During 2012 and 2013, the valuation inputs of certain financial liabilities became unobservable. The fair value of these liabilities was transferred into level 3.4 Transfers of financial liabilities between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. There were no significant

transfers of financial liabilities between level 1 and 2 during the period under review. During 2013, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial liabilities was transferred into level 2.



25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued Unrealised losses/(gains) for the period included in profit or loss for level 3 liabilities held at the end of the

reporting period



basis

TotalRm

Derivativeliabilities

Rm

Tradingliabilities

Rm

Non-current

liabilitiesheld for

saleRm

2013

Trading revenue 3 862 (32) 436 4 266

2012

Trading revenue 396 77 473

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 at fair value on a recurring basis. 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 OCI (where viable) at the reporting date (where the change in the input would change the fair value of the asset or liability significantly). The changes in the inputs that have been used in the analysis on the next page have been determined taking into account several considerations such as the natureof the asset or liability and the market within which the asset or liability is transacted.

205




25. Assets and liabilities at fair value continued25.1 Assets and liabilities measured at fair value continued The valuation techniques used in determining the fair value of assets and liabilities classified

within level 31

Valuationbasis/technique

Mainassumptions2

Variancein fair value

measurement3

Effect on profitor loss

FavourableRm

(Unfavourable)Rm

20134

Derivative instruments Discounted cash flow model, Discount rate, (1%) – 1% 142 (142)

Black-Scholes model risk-free rate, volatility rate (1%) – 1% 56 (58)

Multiple valuation technique Valuation multiples (1) – 1 9 (9)

Trading assets Discounted cash flow model Discount rate, liquiditydiscount rate (1%) – 1% 548 (548)

Financial investments Discounted cash flow model Discount rate, liquidity discount rate (1%) – 1% 134 (116)

Multiple valuation technique Valuation multiples (1) – 1 98 (86)

Liquidity discount rate (1%) – 1% 3 (3)

Loans and advances to customers

Discounted cash flow model Discount rate(1%) – 1% 1 (1)

Trading liabilities Discounted cash flow model Discount rate (1%) – 1% 126 (126)

1 117 (1 089)

2012

Derivative instruments Discounted cash flow model, Black-Scholes model

Discount rate, liquidity discount rate, risk-free rate, volatility rates 192

Trading assets Discounted cash flow model Discount rate, liquidity discount rate 182 (182)

Financial investments Discounted cash flow model, earnings multiple, sustainable earnings

Discount rate, liquiditydiscount rate, earnings multiple 245 (261)

Loans and advances to customers

Discounted cash flow model Discount rate1 (1)

Trading liabilities Discounted cash flow model Discount rate 140 (140)

760 (584)

1 The effect on profit or loss for reasonably possible assumptions on associates held at fair value is negligible.2 The main assumptions for all instruments include applicable credit spreads.3 IFRS 13 has been prospectively applied from 1 January 2013. Comparable information, in accordance with the transitional provisions of the standard, has not, in all

instances, been provided.4 Level 3 non-current assets and liabilities are included in the asset classes and inputs and changes in assumptions in the table above.



25. Assets and liabilities at fair value continued25.2 Assets and liabilities not measured at fair value for which fair value is disclosed1

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

2013

Assets

Cash and balances with central banks 53 310 53 310

Financial investments 21 999 2 046 907 24 952

Non-current assets held for sale 23 308 36 155 13 253 72 716

Loans and advances to banks 29 968 58 935 5 463 94 366

Loans and advances to customers 21 438 119 732 593 964 735 134

150 023 216 868 613 587 980 478

Liabilities

Deposits from banks 32 785 33 724 1 407 67 916

Deposits from customers 430 746 361 691 42 061 834 498

Subordinated debt 21 261 835 22 096

Non-current liabilities held for sale 8 984 12 212 51 347 72 543

472 515 428 888 95 650 997 053

1 IFRS 13 has been prospectively applied from 1 January 2013. Comparable information, in accordance with the transitional provisions of the standard has not, in all instances, been provided.

The valuation techniques used in determining the fair value of financial assets and liabilities classified within level 2

The table below indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 2 assets and liabilities not measured at fair value but for which fair value is disclosed1:

Valuation basis/technique Main assumptions

2013

Financial investments Discounted cash flow model, Black-Scholes model

Discount rate, volatility rate

Loans and advances to banks Discounted cash flow model Discount rate, liquidity discount rateLoans and advances to customers Discounted cash flow model Discount rate, liquidity discount rateDeposits from banks Discounted cash flow model Discount rate, liquidity discount rateDeposits from customers Discounted cash flow model Discount rate, liquidity discount rateSubordinated debt Discounted cash flow model Discount rate, liquidity discount rate

1 Level 2 non-current assets and liabilities held for sale are included in the valuation basis and main assumptions above.

The valuation techniques used in determining the fair value of financial assets and liabilities classified within level 3

The table below indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 3 assets and liabilities not measured at fair value but for which fair value is disclosed1:

Valuation basis/technique Main assumptions

2013

Financial investments Discounted cash flow model Discount rate, liquidity discount rateLoans and advances to banks Discounted cash flow model Discount rate, liquidity discount rateLoans and advances to customers Discounted cash flow model Discount rate, liquidity discount rateDeposits from banks Discounted cash flow model Discount rate, liquidity discount rateDeposits from customers Discounted cash flow model Discount rate, liquidity discount rateSubordinated debt Discounted cash flow model Discount rate, liquidity discount rate

1 Level 3 non-current assets and liabilities held for sale are included in the valuation basis and main assumptions above.

207




25. Assets and liabilities at fair value continued25.3 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.

26. Financial assets and financial liabilities designated at fair value through profit or loss26.1 Loans and advances The group’s maximum exposure to credit risk for loans and advances designated at fair value through profit or loss is R849 million

(2012: R4 028 million).

The maximum exposure to credit risk is mitigated by R115 million decrease (2012: R73 million decrease) through using credit derivatives and similar instruments. Fair value changes attributable to changes in credit risk on loans and advances designated at fair value through profit or loss amounted to a gain of R127 million (2012: R147 million gain).

The change for the year in fair value of the designated loans and advances, that is attributable to changes in credit risk, is determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market risk.

26.2 Financial liabilities Fair value changes attributable to changes in credit risk on financial liabilities designated at fair value through profit or loss amounted

to a loss of R33 million (2012: R112 million gain).

The changes in the 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 bank’s senior notes.

The amount the group would contractually be required to pay at maturity of the financial liabilities designated at fair value through profit or loss amounts to R34 028 million (2012: R44 441 million), R8 396 million higher (2012: R5 245 million higher) than the carrying amount.

This does not include policyholders’ liabilities with a carrying value of R74 146 million (2012: R68 163 million) and third-party liabilities arising on consolidation of mutual funds with a carrying value of R39 983 million (2012: R30 015 million)1.

1 2012 figures have been restated due to the adoption of IFRS 10.

27. Financial instruments subject to offsetting, enforceable master netting arrangements

or similar agreements IAS 32 Financial Instruments: Presentation (IAS 32) requires financial assets and financial liabilities 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 simultaneously1.

Accordingly, the following table sets out the impact of offset, as well as financial assets and financial liabilities that are subject to enforceable master netting arrangement or similar agreement, irrespective of whether they have been offset in accordance with IAS 32, as required by IFRS 7R disclosure requirements.

1 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.




or similar agreements continued It should be noted that the information below is not intended to represent the group’s actual credit exposure.

Grossamount ofrecognised

financialassets1

Rm

Grossamounts ofrecognised

financialliabilities

offset in thestatement

of financialposition2

Rm

Net amountsof financial

assetspresented

in thestatement


Rm

Financialinstruments,

financialcollateral and

cash collateralreceived4,5

Rm

Netamount

Rm

2013

Assets*

Derivative assets 104 088 (16 236) 87 852 (73 437) 14 415

Trading assets 19 079 19 079 (18 506) 573

Loans and advances6 116 322 (33 743) 82 579 (79 294) 3 285

239 489 (49 979) 189 510 (171 237) 18 273


financialliabilities1

Rm


financialassets



Rm


liabilitiespresented

in thestatement


Rm



cash collateral pledged4,7

Rm

Netamount

Rm

2013

Liabilities*

Derivative liabilities 107 339 (16 236) 91 103 (72 749) 18 354

Trading liabilities 7 879 7 879 (7 879)

Deposit and current accounts6 47 696 (33 743) 13 953 (3 932) 10 021

162 914 (49 979) 112 935 (84 560) 28 375

Refer to footnotes on page 209.

209





or similar agreements continued


financialassets1

Rm


financialliabilities



Rm


assetspresented

in thestatement


Rm



cash collateralreceived4,5

Rm

Netamount

Rm

2012

Assets*

Derivative assets 116 668 (31 573) 85 095 (69 794) 15 301Trading assets 18 511 18 511 (17 275) 1 236Loans and advances6 73 415 (27 943) 45 472 (43 350) 2 122

208 594 (59 516) 149 078 (130 419) 18 659


financialliabilities1

Rm


financialassets



Rm


liabilitiespresented

in thestatement


Rm



cash collateral pledged4,7

Rm

Netamount

Rm

2012

Liabilities*

Derivative liabilities 115 155 (31 573) 83 582 (71 547) 12 035Trading liabilities 8 649 8 649 (8 649)Deposit and current accounts6 44 730 (27 943) 16 787 (6 511) 10 276

168 534 (59 516) 109 018 (86 707) 22 311

1 Gross amounts are disclosed for recognised assets and 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 The amounts that qualify for offset in accordance with the criteria per IAS 32.3 Refer to reconciliation on page 210.4 Recognised financial instruments that do not qualify for offset in terms of the criteria per IAS 32, but that are subject to an enforceable master netting arrangement

or similar agreement, including financial collateral (whether recognised or unrecongised).5 In most instances, the group is allowed to sell or re-pledge collateral received.6 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 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.

7 In most instances, the counterparty may not sell or re-pledge collateral pledged by the group.* All items in the tables’ respective line items have been measured on a consistent basis.




or similar agreements continued Reconciliation of net amounts included in the statement of financial position

Netamounts

presented in the statement

of financial position

Rm

Amountsnot subject

to offsetRm

TotalRm

Held for sale

Rm

Amountsdisclosed per

the statementof financial

positionRm

2013

Assets

Cash and balances with central banks 67 409 67 409 14 099 53 310

Derivative assets 87 852 16 042 103 894 39 420 64 474

Trading assets 19 079 96 856 115 935 61 347 54 588

Pledged assets 13 252 13 252 6 539 6 713

Financial investments 395 746 395 746 29 395 717

Loans and advances 82 579 815 597 898 176 58 556 839 620

Non-current assets held for sale (183 284) 183 284

Other financial and non-financial assets 96 517 96 517 3 294 93 223

189 510 1 501 419 1 690 929 1 690 929

Liabilities

Derivative liabilities 91 103 17 362 108 465 39 221 69 244

Trading liabilities 7 879 45 462 53 341 17 973 35 368

Deposit and current accounts 13 953 972 828 986 781 65 043 921 738

Subordinated debt 31 963 31 963 7 447 24 516

Policyholders’ liabilities 263 944 263 944 263 944

Non-current liabilities held for sale (134 504) 134 504

Other financial and non-financial liabilities 93 787 93 787 4 820 88 967

112 935 1 425 346 1 538 281 1 538 281

2012

Assets

Cash and balances with central banks 61 985 61 985 61 985Derivative assets 85 095 35 095 120 190 120 190Trading assets 18 511 95 908 114 419 114 419Pledged assets 11 640 11 640 11 640Financial investments 347 157 347 157 347 157Loans and advances 45 472 765 699 811 171 811 171Non-current assets held for sale (960) 960Other financial and non-financial assets 93 787 93 787 960 92 827

149 078 1 411 271 1 560 349 1 560 349

Liabilities

Derivative liabilities 83 582 38 416 121 998 121 998Trading liabilities 8 649 35 825 44 474 44 474Deposit and current accounts 16 787 893 895 910 682 910 682Subordinated debt 31 548 31 548 31 548Policyholders’ liabilities 236 684 236 684 236 684Other financial and non-financial liabilities 84 074 84 074 84 074

109 018 1 320 442 1 429 460 1 429 460

211





or similar agreements continued The table below sets out the nature of agreement, 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 ISDAs The agreement allows for offsetin the event of default.

Trading assets and trading liabilities Global master repurchase agreements The agreement allows for offset in the event of default.

Loans and advances to banks Banks Act In the event of liquidation or bankruptcy, offset shall be enforceable subject to meeting Banks Act requirements.

Deposits and current accounts Banks Act In the event of liquidation or bankruptcy, offset shall be enforceable subject to meetingBanks Act requirements.

2013Rm

2012Rm

28. Contingent liabilities and commitments 28.1 Contingent liabilities

Letters of credit and bankers’ acceptances 17 303 14 218Guarantees 50 287 45 247

67 590 59 465

Loan commitments of R77 695 million (2012: R84 606 million)1 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.

1 Loan commitments of R12 556 million at 31 December 2012 that were previously included as irrevocable have been reclassified, based on the underlying contractual terms as revocable.

28.2 Capital commitments Contracted capital expenditure1 1 315 2 153Capital expenditure authorised but not yet contracted2 11 411 8 832

12 726 10 985

1 Includes an amount of R418 million (2012: R770 million) relating to investment property.2 Includes an amount of R3 124 million (2012: R1 150 million) relating to investment property.

The expenditure will be funded from the group’s internal resources.

28.3 Operating lease commitments The future minimum payments under non-cancellable operating leases are as follows:Properties Within 1 year 1 099 1 267After 1 year but within 5 years 3 425 2 218After 5 years 1 287 900

5 811 4 385

Equipment Within 1 year 43 29After 1 year but within 5 years 11 31After 5 years 58

112 60

The operating lease commitments comprise a number of separate operating leases in relation to properties and equipment, none of which is individually significant to the group.



28. Contingent liabilities and commitments continued28.4 Legal proceedings In the conduct of its ordinary course of business, the group is exposed to various actual and potential claims, lawsuits and other

proceedings relating to alleged errors and omissions, or non-compliance with laws and regulations. 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.

2013Rm

20121

Rm

29. Supplementary income statement information 29.1 Interest income

Interest on loans and advances 66 186 62 502Interest on investments 3 441 3 247Unwinding of discount element of credit impairments for loans and advances (note 9.3) 558 733Fair value adjustments on debt financial instruments 238 153Dividends on dated securities 1 446 1 597

71 869 68 232

All interest income reported above with the exception of R3 802 million (20121: R3 197 million) relates to financial assets not carried at fair value through profit or loss.

29.2 Interest expense Current accounts 347 274Savings and deposit accounts 9 410 11 903Foreign finance creditors 773 851Subordinated debt 2 043 2 243Other interest-bearing liabilities 20 201 18 995

32 774 34 266

All interest expense reported above with the exception of R1 592 million (20121: R706 million) relates to financial liabilities not carried at fair value through profit or loss.

29.3 Net fee and commission revenueFee and commission revenue 26 714 24 863

Account transaction fees 9 568 9 497Card-based commission 4 769 4 131Knowledge-based fees and commission 2 016 2 159Electronic banking 2 407 2 082Insurance – fees and commission 1 670 1 381Foreign currency service fees 1 572 1 386Documentation and administration fees 1 497 1 222Other 3 215 3 005

Fee and commission expense (3 530) (3 169)

23 184 21 694

All net fee and commission revenue reported above relates to financial assets or liabilities not carried at fair value through profit or loss.

29.4 Trading revenueForeign exchange 3 912 3 532Debt securities 3 342 3 603Commodities (121) 231Equities 1 138 (21)Other (460) (556)

7 811 6 789


213




29. Supplementary income statement information continued 2013

Rm 20121

Rm

29.5 Other revenue

Banking and other 1 515 1 582Property-related revenue 322 524Insurance – bancassurance profit 1 490 1 371Net (loss)/gains on undated financial instruments designated at fair value through profit or loss (11) 326

3 316 3 803

29.6 Net insurance premiums

Insurance premiums 35 782 30 720Reinsurance premiums (1 316) (1 089)

34 466 29 631

29.7 Investment income and gains

Investment income 14 021 14 285Investment gains 33 564 31 021

47 585 45 306

Comprising:

Investment income 14 021 14 285

Interest income2 7 648 7 694Dividends received 3 262 3 476

Listed shares 2 790 2 872Unlisted instruments 472 604

Rental income from investment property 2 210 2 290Hotel operations sales 809 720Adjustment to surplus recognised on defined benefit pension fund 14 17Sundry income 78 88

Investment gains 33 564 31 021

Investment property 2 530 1 188Financial instruments held at fair value through profit or loss 27 200 27 306Financial instruments held for trading through profit or loss (2 581) (831)Foreign exchange differences on intercompany monetary items 1 (13)Foreign currency translation reserve recycled through profit or loss 18 (2)Joint ventures measured at fair value 26

Adjustment to joint venture purchase price 1Mutual funds 6 370 3 372

47 585 45 306

1 Restated. Refer to annexure A for details of the restatements.2 Interest of R7 556 million (2012: R7 609 million)1 relates to financial assets held at fair value through profit or loss.




Rm 20121

Rm

29.8 Credit impairment charges

Net credit impairments raised and released for loans and advances 10 368 9 962Recoveries on loans and advances previously written off (1 210) (1 248)

9 158 8 714

Comprising:

Net specific credit impairment charges 9 049 8 954

Specific credit impairment charges (note 9.3) 10 259 10 202Recoveries on loans and advances previously written off (1 210) (1 248)

Portfolio credit impairment charges/(reversal) (note 9.3) 109 (240)

9 158 8 714

29.9 Net insurance benefits and claims

Claims and policyholders’ benefits under insurance contracts 25 904 25 004Insurance claims recovered from reinsurers (1 357) (672)

24 547 24 332Change in policyholder liabilities under insurance contracts 20 698 19 532

Insurance contracts 15 937 19 219Investment contracts with DPF 4 941 380Reinsurance assets (180) (67)

45 245 43 864

29.10 Staff costs – banking activities

Salaries and allowances 21 966 19 337Equity-linked transactions – group equity compensation plans (annexure D) 1 121 1 082

23 087 20 419

29.11 Restructuring costs – banking activities

Redundancy and related costs 319

29.12 Acquisition costs – investment management and life insurance activities

Insurance contracts 3 589 3 178Investment contracts 165 219Short-term insurance 74 90Asset management 405 331

4 233 3 818

Comprising:

Incurred during the year 4 309 3 864DAC (304) (259)Amortisation and impairment of DAC 228 213

4 233 3 818


215





Rm 20121

Rm

29.13 Other operating expenses

Banking activities 18 968 16 483

Information technology 4 257 3 392Communication 1 303 1 239Premises 3 170 2 959Other 10 238 8 893

Investment management and life insurance activities 9 993 8 262

Staff costs 3 675 3 159Office costs 2 931 2 168Training and development costs 542 401Other 2 845 2 534

28 961 24 745

The following disclosable items are included in other operating expenses:

Amortisation – intangible assets (note 14.2) 1 065 846Auditors’ remuneration 273 259

Audit fees 212 175

Current year 211 182Prior year 1 (7)

Fees for other services2 61 84

Depreciation (note 15.2) 2 795 2 527

Property – freehold 91 28– leasehold 426 364Equipment – computer equipment 1 436 1 334– motor vehicles 95 92– office equipment 118 115– furniture and fittings 629 594

Impairments

Intangible assets – computer software (note 14.2) 477 264

Computer software 440 263Other intangible assets 37 1

Operating lease charges 2 054 2 071

Properties 2 043 2 058Equipment 11 13

Premises – other expenses 2 517 2 366Professional fees 2 182 2 178

Managerial 50 40Technical and other 2 132 2 138

Profit on sale of property and equipment (4) (30)

1 Restated. Refer to annexure A for details of the restatements.2 All fees for other services paid to the group’s auditors were considered and approved by the group’s audit committee in terms of its non-audit services policy.




Rm 2012

Rm

29.14 Goodwill impairment

Goodwill impairment charge on subsidiaries (note 14.1) 777

29.15 (Loss)/profit for the year from discontinued operations

Standard Bank PlcThe agreed disposal resulted in the group classifying its investment in the SB Plc Groupas a discontinued operation in the current 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 current and prior year. Refer to note 7 on page 157 for further details.

Standard Bank ArgentinaThe disposal of the group’s investment in Standard Bank Argentina and its affiliates (SBA) resulted in the group classifying its investment in SBA as a discontinued operation in the prior year. The profit for the prior year from the discontinued operation includes the group’s share of the profits and losses from SBA until the date of disposal, as well as the profit on disposal of the business.

Net interest income (23) 3 054

Interest income 309 4 787Interest expense 332 1 733

Non-interest revenue 2 412 4 037

Net fee and commission revenue (37) 891

Fee and commission revenue 340 1 720Fee and commission expense 377 829

Trading revenue 2 445 2 756Other revenue 4 390

Total income 2 389 7 091Credit impairment charges 56 462

Income after credit impairment charges 2 333 6 629Revenue sharing agreements with group companies 142 115

Income after revenue sharing agreements 2 475 6 744Operating expenses in banking activities 2 807 6 320

Staff costs 1 673 3 581Other operating expenses (including restructuring costs) 1 134 2 739

Net income before associates and joint ventures (332) 424 Share of profits from associates and joint ventures 21

Net income before indirect taxation (332) 445Indirect taxation 58 652

Profit before direct taxation (390) (207)Direct taxation 29 501

Loss for the year from discontinued operations (419) (708)

Attributable to non-controlling interests 227Attributable to ordinary shareholders (419) (935)

Held for sale impairment – Standard Bank Plc (603)Profit from disposal of discontinued operation – Argentina 1 525

Discontinued operations (1 022) 817

Standard Bank Plc (1 022) (1 618)Argentina 2 435

217




29. Supplementary income statement information continued 29.16 Other comprehensive income after tax for the year from discontinued operation

Standard Bank Argentina

Ordinaryshareholders’

equityRm

Non-controlling

interestsRm

Totalequity

Rm

2012

Profit for the year from discontinued operation 683 227 910Other comprehensive income after tax for the year

from discontinued operation 509 106 615

Items that may be reclassified subsequently to profit or loss:Exchange differences on translating foreign operations 533 114 647

Net change in fair value of cash flow hedges 12 4 16 Realised fair value adjustments of cash flow hedges transferred to profit or loss (10) (3) (13)Net change in fair value of available-for-sale financial assets (11) (4) (15)Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (15) (5) (20)

Total comprehensive income for the year from discontinued operation 1 192 333 1 525

2013Rm

2012Rm

30. Taxation Indirect taxation (note 30.1) 1 911 1 621Direct taxation (note 30.2) 7 580 7 002

9 491 8 623

30.1 Indirect taxation

Regional services council levies VAT 1 724 1 425Duties 4 7Financial services levy 32 27Skills development levy 126 115Other indirect taxes 25 47

1 911 1 621



30. Taxation continued

2013Rm

20121

Rm

30.2 Direct taxation

Current year 7 623 8 279

South African normal tax 5 413 5 736South African withholding tax 132 72South African deferred tax (625) 130STC – deferred tax 122Foreign normal and withholding tax 1 909 1 741Foreign deferred tax (157) (568)CGT current 322 1 402CGT deferred 629 (446)Deferred tax adjustment attributable to decrease in tax rate 90

Prior years (162) (1 208)

South African normal tax (115) (1 666)South African deferred tax (17) (3)Foreign normal and withholding tax (12) (75)Foreign deferred tax (18) 536

7 461 7 071Income tax recognised in OCI 43 (138)

Deferred tax 43 4Current tax (142)

Deferred tax recognised directly in equity 76 69

Direct taxation per the income statement 7 580 7 002


219




30. Taxation continued 30.2 Direct taxation continued Income tax recognised in other comprehensive income from continuing operations The table below sets out the amount of income tax relating to each component within OCI:

BeforetaxRm

Tax(expense)/

benefitRm

Netof tax

Rm

2013

Items that may be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations 8 085 8 085

Net change on hedges of net investments in foreign operations (176) (176)

Net change in fair value of cash flow hedges 179 21 200

Realised fair value adjustments of cash flow hedges transferred to profit or loss 70 (31) 39

Net change in fair value of available-for-sale financial assets 138 (23) 115

Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (22) (2) (24)

Items that may not be reclassified to profit or loss

Defined benefit fund remeasurements (264) 78 (186)

Other losses (150) (150)

7 860 43 7 903

2012

Items that may be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations 544 544Net change on hedges of net investments in foreign operations 181 181Net change in fair value of cash flow hedges 204 (33) 171Realised fair value adjustments of cash flow hedges transferred to profit or loss (454) 53 (401)Net change in fair value of available-for-sale financial assets 806 (54) 752Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (568) 10 (558)

Items that may not be reclassified to profit or loss

Defined benefit fund remeasurements 544 (161) 383Other losses (49) 47 (2)

1 208 (138) 1 070



30. Taxation continued30.2 Direct taxation continued Future tax relief The group has estimated tax losses of R3 815 million (2012: R1 532 million) which are available for set-off against future taxable

income and for which a deferred tax asset was recognised. These deferred tax asset balances were offset against deferred tax liabilities. Refer to accounting policy 15 – Taxation in annexure E.

2013%

20121

%

Rate reconciliation including indirect and direct tax

The total tax charge for the year as a percentage of net income before indirect tax 31 32VAT (6) (5)Duties, skills development levy and other indirect taxes (1) (1)Policyholder funds – normal tax (1) (1)CGT (3) (4)

The corporate tax charge for the year as a percentage of profit before indirect tax 20 21Tax relating to prior years 1 4

Net tax charge 21 25The charge for the year has been reduced/(increased) as a consequence of: Dividends received 3 4Other non-taxable income 2 4Other permanent differences 2 (5)

Standard rate of South African tax 28 28

Direct taxation rate reconciliation

The direct taxation charge for the year as a percentage of profit before direct taxation 26 28Policyholder funds – normal tax (1) (1)CGT (3) (4)Tax relating to prior years 1 4

Net tax charge 23 27The charge for the year has been reduced/(increased) as a consequence of: Dividends received 3 4Other non-taxable income 2 4Other permanent differences (7)



221




31. Headline earnings2013 20121

GrossRm

DirecttaxRm

Non-controlling

interestsand

preferenceshare-

holdersRm

Profitattributableto ordinary

share-holders

Rm Gross

Rm

DirecttaxRm

Non-controlling

interestsand

preferenceshare-

holdersRm

Profitattributableto ordinary

share-holders

Rm

Profit for the year from continuing operations 28 608 (7 580) (3 800) 17 228 25 454 (7 002) (2 996) 15 456Headline adjustable items added/(reversed) 350 (88) (85) 177 21 13 19 53

Goodwill impairment – IAS 36 777 777

Profit on sale of property and equipment – IAS 16 (4) 2 (2) (31) (3) (34)Realised foreign currency translation profit on foreign operations – IAS 21 (16) 7 (9) (119) (119)Gains on the disposal of businesses and divisions – IAS 27 (91) (91) (188) 38 54 (96)Transactions with associates – IAS 28/IFRS 3 (217) (217)Impairment of intangible assets – IAS 36 477 (86) (102) 289 264 (20) 244Realised gains on available-for-sale assets – IAS 39 (16) (4) 10 (10) (595) 11 (15) (599)Loss on net investment hedge reclassification on disposal of associate – IAS 39 130 (33) 97

Standard Bank Group headline earnings from continuing operations 28 958 (7 668) (3 885) 17 405 25 475 (6 989) (2 977) 15 509

(Loss)/profit for the year from discontinued operations (1 022) (1 022) 837 (20) (227) 590Headline adjustable items reversed 603 603 (1 547) 10 2 (1 535)

Profit on sale of property and equipment – IAS 16 1 (1)Realised gains on available-for-sale assets – IAS 39 (23) 10 3 (10)Gain on the disposal of discontinued operation – IAS 27 (1 525) (1 525)Impairment of non-current assets held for sale – IFRS 5 603 603

Standard Bank Group headline earnings from discontinued operations (419) (419) (710) (10) (225) (945)

Standard Bank Group headline earnings 28 539 (7 668) (3 885) 16 986 24 765 (6 999) (3 202) 14 564

1 Restated as a result of the adoption of IAS 19R and IFRS 10. Refer to annexure A for details of the restatements.

Headline earnings is calculated in accordance with Circular 3/2012 Headline Earnings issued by SAICA at the request of the JSE. The circular allows the inclusion in headline earnings of any gains or losses recognised by life insurers on the remeasurement of investment properties. The circular also allows the inclusion in headline earnings of the sale of ring-fenced private equity joint ventures or associates that are held by a banking institution. Refer to annexure C on page 270 for the required disclosurein terms of the circular.



32. Earnings per ordinary share2013 20121

The calculations of basic earnings and headline earnings per ordinary share and dilutedearnings and diluted headline earnings per ordinary share are as follows:

Earnings based on weighted average shares in issue (Rm)

Headline earnings 16 986 14 564

Continuing operations 17 405 15 509Discontinued operations (419) (945)

Earnings attributable to ordinary shareholders 16 206 16 046

Continuing operations 17 228 15 456Discontinued operations (1 022) 590

Weighted average number of ordinary shares in issue (number of shares)

Weighted average number of ordinary shares in issue before adjustments 1 614 674 078 1 595 600 440Adjusted for shares held pursuant to Tutuwa initiative2 (42 908 643) (63 478 810)Adjusted for deemed treasury shares held by entities within the group3 (5 071 049) (10 610 923)

1 566 694 386 1 521 510 707

Headline earnings per ordinary share (cents) 1 084,2 957,2

Continuing operations 1 110,9 1 019,3Discontinued operation (26,7) (62,1)

Basic earnings per ordinary share (cents) 1 034,4 1 054,6

Continuing operations 1 099,6 1 015,9Discontinued operation (65,2) 38,7

Diluted earnings per ordinary share

Weighted average number of ordinary shares in issue (number of shares) 1 566 694 386 1 521 510 707Adjusted for the following potential dilution:Standard Bank GSIS 1 218 600 1 874 419Standard Bank EGS 9 649 326 9 258 203Deferred Bonus Scheme (DBS) post 2011 4 665 805 1 773 450Tutuwa initiative4 24 554 812 38 752 182

Tutuwa consortium and Community Trust 14 278 209 27 088 996Black Managers’ Trust 10 276 603 11 663 186

Diluted weighted average number of ordinary shares in issue (number of shares) 1 606 782 929 1 573 168 961

Diluted headline earnings per ordinary share (cents) 1 057,1 925,8

Continuing operations 1 083,2 985,8Discontinued operations (26,1) (60,0)

Diluted earnings per ordinary share (cents) 1 008,6 1 020,0

Continuing operations 1 072,2 982,5Discontinued operations (63,6) 37,5

1 Restated. Refer to annexure A for details on the restatements.2 The number of shares held by the Tutuwa participants are deducted as they are deemed not to be issued in terms of IFRS.3 The number of shares held by entities within the group are deemed to be treasury shares for IFRS purposes, restated for IFRS 10.4 Dilutive effect of shares held pursuant to Tutuwa initiative.

Refer to pages 72 to 77 of the annual integrated report for further details on the Tutuwa initiative and the group shares held by entities within the group.

223




32. Earnings per ordinary share continued No (2012: 1 890 700) share options were outstanding at the end of the year in terms of the Standard Bank GSIS. The shares outstanding

at 31 December 2012 were not included in the calculation of diluted earnings per ordinary shares because they were non-dilutive.

1 084 828 (2012: 8 513 226) rights outstanding at the end of the year in terms of the Standard Bank EGS, convertible into 116 053 (2012: 492 477) 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.

Dilutive impact of shares issued during the year 1 106 570 (2012: 976 476) rights were issued during the year in terms of the Standard Bank EGS. In 2012, of those rights 907 649

rights were convertible into 83 696 ordinary shares which were included in the calculation of diluted earnings per ordinary share because they were dilutive.

5 482 534 (2012: 5 269 318) units were issued to individuals in employment of the group entity domiciled in South Africa during the year in terms of the DBS post 2011, of which 4 204 612 (2012: 4 077 427) were included in the calculation of diluted earnings per ordinary share because they were dilutive. 981 078 (2012: 1 482 222) of these issued units were hedged by entering into a forward contract, and 103 960 (2012: 984 098) were included in the calculation of diluted earnings per ordinary share because they were dilutive.

Refer to annexure D on page 271 for further details on the group’s share incentive schemes.

2013Rm

2012Rm

33. Distributions Ordinary shares Cash distribution elected by shareholders 2 687 4 520

Distribution No. 87 of 243,0 cents per share (2012: 284,0 cents per share), paid on 22 April 2013 to shareholders registered on 19 April 2013 2 688 4 520Less: scrip taken up by shareholders in respect of the cash dividend/capitalisation issue (1)

Cash distribution elected by shareholders 3 772 2 036

Dividend No. 88 of 233,0 cents per share (2012: 212,0 cents per share), paid on 16 September 2013 to shareholders registered on 13 September 2013 3 772 2 037Less: scrip taken up by shareholders in respect of the cash dividend/capitalisation issue (1)

6 459 6 556

A final dividend No. 89 of 300 cents per share was declared on 6 March 2014, payable on 14 April 2014 to all shareholders registered on 11 April 2014, bringing the total dividends declared in respect of 2013 to 533,0 cents per share (2012: 455,0).Preference shares6.5% first cumulative preference shares:Dividend No. 87 of 3,25 cents per share (2012: 3,25 cents) paid on 15 April 2013 to shareholders registered on 12 April 2013 – –Dividend No. 88 of 3,25 cents per share (2012: 3,25 cents) paid on 9 September 2013 to shareholders registered on 6 September 2013 – –Non-redeemable, non-cumulative, non-participating preference sharesDividend No. 17 of 331,96 cents per share (2012: 317,59 cents) paid on 15 April 2013 to shareholders registered on 12 April 2013 176 168Dividend No. 18 of 324,56 cents per share (2012: 345,55 cents) paid on 9 September 2013 to shareholders registered on 6 September 2013 173 184

349 352

6.5% first cumulative preference shares dividend No. 89 of 3,25 cents per share (2012: 3,25 cents) was declared on 6 March 2014, payable on 7 April 2014 to all shareholders registered on 4 April 2014.

Non-redeemable, non-cumulative, non-participating preference shares dividend No. 19 of 329,94 cents per share (2012: 331,96 cents), payable on 7 April 2014, was declared to shareholders registered on 4 April 2014.



34. Statement of cash flows notes

2013Rm

20121

Rm

34.1 Decrease/(increase) in income-earning assets

Net derivative assets 4 118 (1 374)Trading assets 9 549 (20 962)Pledged assets 2 583 (5 361)Financial investments (4 315) 3 186Loans and advances (41 909) (12 775)Other assets 8 641 (7 269)

(21 333) (44 555)

34.2 Increase/(decrease) in deposits, trading and other liabilities

Deposit and current accounts 18 485 33 873Trading liabilities 1 488 8 039Other liabilities and provisions (3 620) 10 446

16 353 52 358

34.3 Direct taxation paid

Taxation payable and deferred taxation at the beginning of the year (6 408) (4 362)Reclassified as held for sale (167)

Net disposal/(addition) through business acquisition 13 (6)Direct taxation (7 461) (6 950)

Recognised directly in equity and OCI 119 104Recognised in profit or loss (7 580) (7 054)

Taxation payable and deferred taxation at the end of the year 6 964 7 184

Current and deferred taxation at the end of the year 6 964 6 408Deemed disposal taxation liability 776

(7 059) (4 134)

34.4 Net cash flows from/(used in) discontinued operations

2013 discontinued operations

Cash and cash equivalents at the beginning of the year 18 890 Net cash flows (used in)/from operating activities (8 494) 18 350Net cash flows used in investing activities (35) (74)Effect of exchange rate changes on cash and cash equivalents 3 738 614

Cash and cash equivalents at the end of the year 14 099 18 890

2012 discontinued operations

Cash and cash equivalents at the beginning of the year 4 849Net cash flows from operating activities 3 338Net cash flows used in investing activities (97)Disposal of subsidiary (7 961)Effect of exchange rate changes on cash and cash equivalents (129)

Cash and cash equivalents at the end of the year


225




34. Statement of cash flows notes continued2013

Rm 2012

Rm

34.5 Net cash outflow resulting from the acquisition of subsidiaries

Net cash outflow resulting from the acquisition of subsidiaries 9

Comprising:

Loans and advances (205)Other assets 256Goodwill and other intangible assets 40Property and equipment 13Investment property 11Current and deferred taxation (6)Other liabilities (41)

Net asset acquired 68Non-controlling interests (33)Goodwill 4Less: fair value of joint venture previously held (30)

Fair value of net assets acquired 9

Net cash outflow resulting from acquisition of subsidiaries 9

34.6 Net dividends paid

Dividends to ordinary shareholders (6 459) (6 556)Dividends to preference shareholders (349) (352)Dividends received in terms of the Tutuwa initiative and on deemed treasury shares 202 174Dividends to non-controlling shareholders in subsidiaries (1 405) (809)

(8 011) (7 543)

34.7 Cash and cash equivalents

Cash and balances with central banks (note 3) 53 310 61 985Cash and balances with central banks held for sale (note 7) 14 099

67 409 61 985



34. Statement of cash flows notes continued2013

Rm 2012

Rm

34.8 Disposal of subsidiaries

Net cash (inflow)/outflow resulting from the disposal of subsidiaries (310) 3 543

Derivative assets (1)Trading assets (9)Financial investments (18)Loans and advances (605)Current and deferred tax assets (17)Other assets (481) (70)Non-current assets held for sale (37 556)Goodwill and other intangible assets (132)Property and equipment (4)Deposit and current accounts 39 280Current and deferred tax liabilities 13 17Other liabilities 217 77Non-current liabilities held for sale 33 296

Net asset value disposed of (212) (4 742)Non-controlling interest 38 1 076

Share of subsidiary disposed of (174) (3 666)Profit on disposal (91) (1 713)Loan repaid (45) (765)

Sale consideration (310) (6 144)Deferred non-cash consideration 231Investment in associates 1 495

Cash consideration received (310) (4 418)Less: cash held within subsidiary disposed 7 961

Net cash (inflow)/outflow resulting from disposal of subsidiaries (310) 3 543

35. Reclassification of financial assets Following the amendments to IFRS, the group reclassified assets from held-for-trading to loans and receivables for which there was a

clear change of intent to hold the assets for the foreseeable future rather than to exit or trade in the short term. The group did not reclassify any such assets during the current and previous year.

2013Rm

2012Rm

Carrying value of reclassified financial assets at the end of the year 510 935Fair value of reclassified financial assets at the end of the year 441 922

A fair value loss of R112 million (2012: R10 million gain) after tax and foreign currency translation losses of Rnil million (2012: R2 million loss) would have been recognised in 2013 had all reclassifications not been effected. The table below sets out the amounts actually recognised in profit or loss:

Period after reclassification

Net interest income 46 88Credit impairment reversal 41

227




36. Related party transactions36.1 Parent Standard Bank Group Limited is the ultimate holding company of the Standard Bank Group of companies.

36.2 Subsidiaries Details of effective interests, investments in and loans to subsidiaries are disclosed in annexure B.

36.3 Associates and joint ventures Details of effective interests, investments in and loans to associates and joint ventures are disclosed in annexure C.

36.4 Key management personnel Key management personnel include: the members of the Standard Bank Group Limited board of directors and prescribed officers

effective for 2013 and 2012. Non-executive directors are included in the definition of key management personnel as requiredby IAS 24 Related Party Disclosures. The definition of key management includes the close family members of key management personnel and any entity over which key management exercise control or joint control. Close members of family are those family members who may be expected to influence, or be influenced by that person in their dealings with SBG. They 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.

2013Rm

2012Rm

Key management compensationSalaries and other short-term benefits paid 133 93Post-employment benefits 5 4IFRS 2 value of share options, rights and units expensed 24 37

162 134

The transactions below are entered into in the normal course of business.

Loans and advancesLoans outstanding at the beginning of the year 20 27Change in key management structures (1) (3)Loans granted during the year 22 22Loans repaid during the year (32) (26)

Loans outstanding at the end of the year 9 20

Net interest earned 1 2

Loans include mortgage loans, instalment sale and finance leases and credit cards. No specific credit impairments have been recognised in respect of loans granted to key management (2012: Rnil). The mortgage loans and instalment sale and finance leases are secured by the underlying assets. All other loans are unsecured.

Deposit and current accountsDeposits outstanding at the beginning of the year 113 129Change in key management structures 12 9Net deposits received during the year (25)

Deposits outstanding at the end of the year 125 113

Net interest expense 2 3Deposits includes cheque, current and savings accounts.

Investment productsBalance at the beginning of the year 258 219Change in key management structures 69 (4)Investments placed during the year 234 114Investments repaid during the year (131) (71)




36. Related party transactions continued2013

Rm 2012

Rm

36.4 Key management personnel continuedThird-party funds under management

Fund value at the beginning of the year 500 386Change in key management structures 96 3Net deposits including commission and other transaction fees 152 111

Fund value at the end of the year 748 500

Other fees

Financial consulting fees and commission 7 6

Shares and share options held

Aggregate details of Standard Bank Group Limited shares and share options held by key management personnel.Shares beneficially owned (number) 8 481 211 12 890 450Share options held (number) 6 581 189 6 578 371

36.5 Transactions with a shareholder

The following transactions took place between the group and ICBC, a 20.1% shareholder of Standard Bank Group Limited:

Revenue

Trading revenue 33 42Net interest income 17 30

Total revenue earned 50 72

Deposits

Deposits outstanding at beginning of the year 455 1 276Net deposits repaid during the year (455) (821)

Deposits outstanding at the end of the year 455

36.6 Other contracts

Saki Macozoma, a director and deputy chairman of the company, has an effective shareholding of 28.40% (2012: 26.62%) in Safika which is a member of three different consortia that were party to the Andisa Capital and the Tutuwa transactions. Safika holds effective interests of 2.39% (2012: 2.39%) in Liberty Holdings and 1.34% (2012: 1.34%) in Standard Bank Group Limited. The group has an effective interest of 26.67% (2012: 25.00%) in Safika.

A company in which Doug Band, a director of the group, has a beneficial interest provided consulting and certain management services to the private equity division of SBSA for a five-year period until 31 December 2004. In terms of the agreement, in future years, he will receive a percentage of the proceeds from the sale of equity-related investments undertaken during the term of the above management services agreement for the 2013 year, he received Rnil (2012: R0,5 million) from these agreements.

2013Rm

2012Rm

36.7 Post-employment benefit plans

Details of balances with SBG and transactions between SBG and the group’s post-employment benefit plans are listed below:Fee income 33 22Deposits held with the group 363 247Interest paid 47 32Value of assets under management 11 276 8 690Investments held in bonds and money market 797 1 020Value of ordinary SBG shares held 7 281 4 744

229




36. Related party transactions continued 36.8 Tutuwa initiative refinancing The group concluded its Tutuwa initiative in October 2004 when it sold an effective 10% interest in its South African banking

operations to a broad-based grouping of black-owned entities. The group subscribed for 8.5% redeemable, cumulative preference shares that were issued by SEs, including Tutuwa 1 and Tutuwa 2 that used the funds to acquire shares in the group. These two vehicles were in turn acquired by Shanduka Group Proprietary Limited and Safika Holdings Proprietary Limited, respectively. From an IFRS perspective, all of the preference shares subscribed for by the group were accounted for as a negative empowerment reserve.

In May and June, Tutuwa 1 and Tutuwa 2, respectively, obtained third-party financing and repaid in full their outstanding preference share funding and accrued dividends thereon of R668,3 million and R1 007,2 million, respectively, to the group. This resultedin a release of R1 675,5 million of the group’s negative empowerment reserve relating to Tutuwa 1 and Tutuwa 2 and resulted in35 752 909 ordinary shares, no longer deemed to be treasury shares for accounting purposes.

2013Rm

20121

Rm

37. Pensions and other post-employment benefits Amount recognised as assets in the statement of financial position (note 11)

Standard Bank banking activities

Retirement funds (note 37.1) 1 585 1 935

Liberty

Retirement funds (note 37.1) 210 186

1 795 2 121

Amounts recognised as liabilities in the statement of financial position (note 21.1)

Standard Bank banking activities

Retirement funds (note 37.1) 119 147Post-employment healthcare benefits – other funds (note 37.2) 764 747

Liberty

Post-employment healthcare benefits (note 37.3) 375 371

1 258 1 265

1 Restated due to the adoption of IAS 19R. Refer to annexure A for details of the restatements.

The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R1 146 million (2012: R930 million).



37. Pensions and other post-employment benefits continued37.1 Retirement funds37.1.1 Standard Bank 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 10 largest in South Africa, is a defined contribution fund 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. The latest 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 2015.

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.

Standard Bank Jersey Standard Bank Jersey Limited has commenced an incentive exercise offering enhanced transfer values to the active and deferred

membership of both defined benefit schemes. The offer window ends on 31 March 2014. As at the date of approval of these financial statements it is uncertain as to the take up of the offer and the resulting overall financial impact thereof.

37.1.2 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.

1 This includes the Liberty Group defined benefit pension fund. The ACA defined benefit fund and Rentmeester defined benefit fund are not deemed to be material.

231




37. Pensions and other post-employment benefits continued37.1 Retirement funds continued

2013Rm

2012Rm

The amounts recognised in the statement of financial position in respect of the

retirement funds are determined as follows: Present value of funded obligations 29 067 25 645Fair value of plan assets (30 987) (27 723)

Surplus (1 920) (2 078)Asset ceiling 244 104

Included in the statement of financial position (1 676) (1 974)

Comprising: SBGRF (1 585) (1 935)Liberty retirement funds (210) (186)Other retirement funds 119 147

(1 676) (1 974)

Unrecognised actuarial gains or losses are deferred and recognised in profit or loss over a period not exceeding the estimated service lives of employees, except in the case of retired employees in which case it is recognised immediately.

Movement in the present value of funded obligations Balance at the beginning of the year 25 645 22 484Current service cost 767 635Interest cost 2 060 2 016Employee contributions 565 511Actuarial losses 2 020 1 246Exchange differences 162 41Benefits paid (2 143) (2 098)Settlement costs (9) (51)Transfer of Provider Fund liability1 861


Movement in the fair value of plan assets Balance at the beginning of the year 27 723 23 750Interest on assets 17 16Expected return on plan assets 2 224 2 118Contributions received 1 188 1 090Actuarial losses 1 857 1 626Acquisitions/assets acquired in a business combination 16Reduction in employer surplus account (14) (15)Exchange differences 130 31Benefits paid (2 144) (2 097)Settlement costs (10) (60)Transfer in of Provider Fund assets1 1 264


Plan assets consist of the following:Cash 1 559 1 699Equities 13 499 13 004Bonds 8 925 8 361Property and other 7 004 4 659

30 987 27 723

Plan assets include R32 million (2012: R15 million) of property occupied by the group.

The group expects to pay R617 million in contributions to the Standard Bank retirement funds in 2014 (2013: R590 million).

1 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Funds Act, as amended, into the SBGRF.



37. Pensions and other post-employment benefits continued37.1 Retirement funds continued

2013Rm

2012Rm

The amounts recognised in profit or loss are determined as follows:

Current service cost 767 634Net interest costs (153) (77)

Included in staff costs 614 557

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 other comprehensive income

Net return on assets (1 886) (1 656)Actuarial gains 2 020 1 244

Loss from changes in demographic assumptions 2 468 425(Gain)/loss from changes in financial assumptions (464) 871Loss/(gain) from changes in experience adjustments 16 (52)

Asset ceiling 141 (6)

Remeasurements recognised in statement of other comprehensive income 275 (418)

Reconciliation of net defined benefit asset

Net defined benefit asset at the beginning of the year (1 974) (1 157)Net income recognised 614 557Amounts recognised in statement of other comprehensive income 275 (418)Company contributions (609) (563)Acquisitions/assets acquired in a business combination (14) (403)Exchange differences 32 10

Net defined benefit asset at the end of the year (1 676) (1 974)

Historical information

Present value of funded obligation 29 067 25 645Fair value of plan assets (30 987) (27 723)

Surplus (1 920) (2 078)Excess not recognised 244 104

Surplus obligation (1 676) (1 974)

Defined benefit pension fund employer surplus included in other assets

in the statement of financial position 210 186

Experience adjustments arising on plan liabilities 2 020 1 244Experience adjustments arising on plan assets 1 857 1 626

233




37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits The group provides the following post-employment healthcare benefits to its employees:

Provider fund A post-employment healthcare benefit fund provides eligible employees, who were in service on 29 February 2000, with a lump sum

benefit on retirement or withdrawal enabling them to purchase an annuity to be applied towards their post-employment healthcare costs. This benefit is prefunded in a provident fund and replaced the subsidy arrangement that was in place prior to this. Any shortfall in the payment to be made by these employees towards their healthcare costs subsequent to retirement is the responsibility of the employee. The last statutory valuation was performed on 1 April 2010 and reflected an excess in the fund. The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Funds Act, as amended, into the SBGRF and are no longer disclosed separately.

Other 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 creditmethod. The latest full actuarial valuation was performed at 31 December 2013. The next actuarial valuation is to be performed on 31 December 2014.

2013Rm

2012Rm

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 764 747

Included in the statement of financial position 764 747

Comprising:

Other funds 764 747

Movement in the present value of defined benefit obligations

Balance at the beginning of the year 747 1 604Current service cost and interest cost 62 68Exchange differences (9)Actuarial gains 12

Settlement costs (3)Benefits paid (57) (52)Transfer of Provider Fund liability1 (861)


Movement in the fair value of plan assets

Balance at the beginning of the year 1 264Transfer out of Provider Fund assets1 (1 264)

Balance at the end of the year

1 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Funds Act, as amended, into the SBGRF.



37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits continued

2013Rm

2012Rm


Current service cost 4 7Net interest cost 58 61


Components of statement of other comprehensive income

Actuarial losses arising from changes in financial assumptions 11 5Actuarial losses/(gains) arising from experience adjustments 1 (7)

Remeasurements recognised in statement of other comprehensive income 12 (2)

Reconciliation of net defined benefit asset

Net defined benefit asset at the beginning of the year 747 331Net income recognised 62 68Amounts recognised in statement of other comprehensive income 12 (2)Company contributions (57) (53)Transfer of Provider Fund 403

764 747

235




37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits continued 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:

2013 2012

1% increaseRm

1% decreaseRm

1% increaseRm

1% decreaseRm

Effect on the aggregate of the current service cost and interest cost 2 (4) 10 (7)Effect on the defined benefit obligation 25 (21) 89 (69)

Historical information2013

Rm 2012

Rm

Unfunded obligation 764 747

Experience adjustments arising on plan liabilities 12 (2)

37.3 Liberty post-employment healthcare benefits

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.

Movement in the liability recognised in the statement of financial position

Present value of unfunded defined benefit obligations at the beginning of the year 371 459Interest cost on projected benefit obligation 30 40Benefits paid (10) (10)Service cost benefit earned during the year 8 9Actuarial gain included in OCI (24) (127)

Present value of unfunded defined benefit obligations at the end of the year 375 371


Current service cost 8 9Net interest cost 30 40


A one percentage point change in medical inflation rates would have the following effect on the post-employment medical aid liability recognised:

2013 2012

1% increaseRm

1% decreaseRm

1% increaseRm

1% decreaseRm

Increase/(decrease) in liability 43 (52) 57 (46)



38. Business acquisitions 38.1 Business acquisitions

Fair value

LC Golf SAProprietary

Limited(LC Golf)

Rm

THTLimited

Rm

2012

Other assets 5 46Property developments 205Property and equipment 6 7Intangible assets 40Investment property 11Deposit and current accounts (205)Provisions and other liabilities (10) (31)Current and deferred tax (6)

Net asset value 1 67Non-controlling interest (33)Goodwill1 (note 14.1) 4

Total purchase consideration paid 5 34

Cost of acquisition 5 34Less: fair value of joint venture previously held (30)

Cash consideration paid 5 4Less: cash and cash equivalents in subsidiary acquired

Cash outflow on acquisition 5 4

1 Goodwill represents the premium paid for control.

LC Golf SA Proprietary Limited With effect from 19 December 2012, SBSA acquired 100% of LC Golf and its subsidiaries, Pearl Valley Golf Estates Proprietary Limited

(Pearl Valley) and Novelway Investments Proprietary Limited. Pearl Valley is a golf estate which also offers rental accommodationand residential sales. Novelway Investments Proprietary Limited is a non-operating company that holds undeveloped property assetsthat formed part of SBSA’s total security package in respect of a term loan previously granted to Pearl Valley. The primary reason forthe business combination was to recoup financing previously extended to the group of companies acquired. For the year ended31 December 2012, LC Golf did not contribute any revenue or net profit before taxation since the acquisition date. Had the business combination occurred on 1 January 2012, LC Golf would have contributed R50 million to other revenue and a loss of R246 millionbefore tax. The fair value of the assets and liabilities acquired, total purchase consideration and resultant goodwill acquired has been presented above.

THT Limited With effect from 1 January 2012, Liberty acquired a 51.2% controlling stake in THT Limited. THT Limited is a Nigerian health expenses

insurance group servicing both government employees and corporate customers. THT Limited was previously accounted for as a joint venture of the group and the transaction to acquire control was in terms of a staggered purchase agreement, with the final tranche of 5% to increase the shareholding to 51.2% being completed on 1 January 2012 at a cost of R4 million. THT Limited contributed R14 million and R6 million to the group’s 2012 revenue and profit before tax and non-controlling interests respectively.

237




Standard Bank Group Limited – company annual financial statementsfor the year ended 31 December 2013

Statement of financial position

as at 31 December 2013

Note

Company

2013Rm

2012Rm

Assets

Current tax 13 8Deferred tax 39 26

Other assets 332 867Interest in subsidiaries 40 64 582 62 288Interest in associates 41 313 142

Total assets 65 266 63 305


Equity 65 249 63 284

Share capital and premium 16 23 629 23 595Reserves 41 620 39 689

Liabilities

Other liabilities 17 21

Total equity and liabilities 65 266 63 305

Statement of comprehensive income

for the year ended 31 December 2013

Note

Company

2013Rm

2012Rm

Dividends from subsidiaries 7 341 12 677Interest income 27 75Interest expense 89

Other income 42 (225) (90)

Total income 7 054 12 662Operating expenses 53 8

Net income before share of profits from associates and joint ventures 7 001 12 654Gain on disposal 64

Impairment on investment (30)

Profit before direct taxation 7 035 12 654Direct taxation 43 13 45

Profit for the year 7 022 12 609

Other comprehensive income

Release of fair value adjustments on cash flow hedges 85

Total comprehensive income 7 022 12 694


Annual financial statements Standard Bank Group Limited – company annual financial statements continued

Statement of cash flows


Note

Company

2013Rm

2012Rm

Operating activities

Profit before direct taxation 7 035 12 654Adjusted for:Dividends received (7 341) (12 677)Interest income (27) (75)Interest expense 89

Gain on disposal of subsidiary (64)

Impairment on investment 30

Mark-to-market adjustments on derivatives 225 46

Net cash flows used in operating activities (53) (52)Interest received 27 75Interest expense (89)

Dividends received 7 341 12 677Taxation (paid)/received 44.1 (26) 17Net cash flows generated from/(used in) operating activities 44.2 287 (330)Net cash flows used in investing activities (2 388) (5 836)

Increase in interest in associates (169)

Increase in investment in subsidiaries 44.3 (2 219) (5 836)


Proceeds from issue of share capital 377 357Share buy-backs (343)

Preference share redemption 1 675

Net dividends paid 44.4 (6 808) (6 908)

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

239




Statement of changes in equity


Note

Sharecapital

andpremium

Rm

Share-based

paymentreserve

Rm

Revalu-ation

reserveRm

Cash flowhedgingreserve

Rm

Empower-ment

reserveRm

Retainedearnings

RmTotal

Rm

Company

Balance at 1 January 2012 23 238 117 3 100 884 (2 503) 32 278 57 114Issue of share capital and share premium 16.2 357 357Equity-settled share-based payment transactions 27 27Total comprehensive income 85 12 609 12 694Dividends paid1 33 (217) (6 691) (6 908)

Balance at 31 December 2012 23 595 144 3 100 969 (2 720) 38 196 63 284

Balance at 1 January 2013 23 595 144 3 100 969 (2 720) 38 196 63 284

Issue of share capital and share premium 16.2 377 377

Repurchase of share capital and share premium (343) (343)

Equity-settled share-based payment transactions 42 42

Total comprehensive income 7 022 7 022

Dividends paid 33 (294) (6 514) (6 808)

Preference share redemption 1 657 18 1 675

Balance at 31 December 2013 23 629 186 3 100 969 (1 357) 38 722 65 249

1 Restated.



Company

2013Rm

2012Rm

39. Deferred taxDeferred tax on assessed loss 26

39.1 Deferred tax reconciliation

Deferred tax liability at the beginning of the year (6)Originating temporary difference for the year 26 6

Secondary tax on companies 39Deferred tax on assessed loss 26

Deferred tax on cash flow hedge reserve recognised in OCI (33)

Deferred tax asset at the end of the year 26

40. Interest in subsidiariesShares at cost 64 040 61 981Net indebtedness by the company (308) (501)

Indebtedness to the company 1 278 766Indebtedness by the company (1 586) (1 267)

Investment through equity-settled share incentives 850 808

64 582 62 288

Subsidiaries and investments and loans therein are listed in annexure B on pages 251 to 265.

Indebtness to the company are all current assets and not impaired and have been classified asloans and advances which are measured on an amortised cost basis and are classified as level 3in the fair value hierarchy. Changes in the indebtedness during the year include repayments,new loans, interest accruals and exchange rate differences.

Indebtness by the company are all liabilities repayable on demand, measured at amortised costand 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.

41. Interest in associatesCarrying value at the beginning of the year 142 142Acquisition of associate 171

Carrying value at the end of the year 313 142

The associates include an investment in South African Home Loans Proprietary Limited and Ünlü Finansal Yatirimlar A.S., refer to annexure C on page 266.

241




Company

2013Rm

2012Rm

42. Other incomeLosses on derivatives (225) (90)

43. Direct taxationCurrent year

South African normal tax (16) 10Deferred tax charge (26)

Foreign and withholding taxes 40 39Secondary tax on companies – deferred tax (4)Prior years

South African normal tax 15

Direct taxation 13 45Deferred tax on cash flow hedge reserve recognised in OCI (33)

Total direct taxation recognised in statement of comprehensive income 13 12

South African tax rate reconciliation (%)

Effective tax rateSecondary tax on companies

Net tax charge

The charge for the year has been reduced as a consequence of:Withholding tax (1)

Dividends received 29 28


There are unutilised tax losses amounting to R93 million (2012: Rnil) for which a deferred tax asset of R26 million (2012: Rnil) was recognised. There are no other deductible temporary differences or unused tax credits for which no deferred tax asset was recognised. It is probable that there will be future taxable profits against which the tax losses, in respect of which a deferred tax asset has been recognised, can be utilised.

Secondary tax on companies which is a South African tax on defined distributions to shareholders, was abolished with effect from 1 April 2012 and replaced by a dividend withholding tax. Dividend withholding tax is a tax on shareholder.



Company

2013Rm

2012Rm

44. Cash flow statement notes

44.1 Taxation (paid)/received

Current and deferred taxation receivable at the beginning of the year 8 31Direct taxation (13) (12)

Recognised in profit or loss (13) (45)Deferred tax on cash flow hedge reserve recognised in OCI 33

Withholding taxes realised 39Prior year tax adjustment 18

Tax on cash flow hedge (33)Current taxation receivable at the end of the year (13) (8)Deferred taxation payable at the end of the year (26)

(26) 17

44.2 Net cash flows generated from/(used in) operating activities

Increase in other assets 516 (260)Increase in other liabilities (229) (70)

287 (330)

44.3 Increase in investment in subsidiaries

Cost of investment in subsidiaries net of disposal (2 026) (8 114)Movement in net indebtedness (193) 2 278

(2 219) (5 836)

44.4 Net dividends paid

Amounts unpaid at the beginning of the yearDividends paid to ordinary shareholders (6 459) (6 556)Dividends paid to preference shareholders (349) (352)Amounts unpaid at the end of the year

(6 808) (6 908)

243




45. 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.

46. Related party transactions During 2013, the company:

increased its shareholding in its subsidiary, Standard International Holdings

acquired 100% of the issued share capital in Standard Bank London Holdings Limited, Banco Standard de Investmentos S.A. and Standard Advisory China

acquired an interest in an associate – Ünlü Finansal Yatirimlar A.S.

These investments were acquired from other group companies. These investments were acquired as part of the group’s restructure of its international legal entity structure.

These transactions were accounted for in terms of its accounting policy for common control transactions (refer to annexure E – accounting policy 1 on page 278). The investments were recognised at cost, being the acquiree’s original recorded carrying value. Where the purchase price was greater (less) than the original cost, that difference has been recognised as an additional investment in the company’s investment in the transferor of that investment (dividend income). No other profit or loss or fair value adjustments were recognised as a result of these transactions.

During the current and prior year, the company entered into transactions with its subsidiaries and received dividend and interest income.

A list of subsidiaries is detailed within annexure B on pages 251 to 255.



Annexure A

RestatementsGroup statement of financial position restatements

December 2012

As previouslyreported

RmIFRS 101

RmIAS 19R2

RmIAS 28R3

Rm

Customer depositreclassification4

RmRestated

Rm

Assets Cash and balances with central banks 61 985 61 985Derivative assets 120 190 120 190Trading assets 114 419 114 419Pledged assets 11 640 11 640Non-current assets held for sale 960 960Financial investments 318 158 13 303 15 696 347 157Loans and advances 811 171 811 171Current tax assets 331 331Deferred tax assets 1 183 1 183Other assets 32 384 190 1 151 33 725Interest in associates and joint ventures 17 246 1 485 (15 696) 3 035Investment property 24 133 24 133Goodwill and other intangible assets 14 687 14 687Property and equipment 15 733 15 733

Total assets 1 544 220 14 978 1 151 1 560 349

Equity and liabilitiesEquity 130 173 716 130 889

Equity attributable to ordinary shareholders 110 370 715 111 085

Ordinary share capital 161 161Ordinary share premium 17 931 17 931Reserves 92 278 715 92 993

Preference share capital and premium 5 503 5 503Non-controlling interests 14 300 1 14 301

Liabilities 1 414 047 14 978 435 1 429 460

Derivative liabilities 121 998 121 998Trading liabilities 39 206 5 268 44 474Non-current liabilities held for saleDeposit and current accounts 918 533 (2 583) (5 268) 910 682Current tax liabilities 4 230 4 230Deferred tax liabilities 3 374 318 3 692Provisions and other liabilities 58 474 17 561 117 76 152Policyholders’ liabilities 236 684 236 684Subordinated debt 31 548 31 548

Total equity and liabilities 1 544 220 14 978 1 151 1 560 349

1 The group adopted IFRS 10 on 1 January 2013. The adoption of IFRS 10 resulted in the group consolidating additional mutual funds and consequently recognising additional treasury shares. Certain financial investments were also classified as interests in associates. As a further consequence of adopting IFRS 10, the group classified certain mutual fund interests, for which the group is the fund manager in terms of an irrevocable fund management agreement, as interests in associates.

2 On 1 January 2013, the group adopted IAS 19R. The most significant change as a result of the adoption of IAS 19R is the elimination of the ‘corridor’ method under which the recognition of actuarial gains or losses was deferred. In IAS 19R all unrecognised actuarial gains have to be recognised in OCI on transition to the new requirements. The adoption of IAS 19R resulted in the group restating its previously reported financial results.

3 The group adopted IAS 28R on 1 January 2013. As noted above, a consequence of adopting IFRS 10 was the classification of certain mutual fund interests as interests in associates. Following the adoption of IAS 28R, in order to achieve consistency in the presentation for associates that are measured at fair value and those that are equity accounted, the group reclassified all of its interests in associates that are measured at fair value (refer to the group’s accounting policy 4 – Financial instruments and 6 – Interests in associates and joint ventures) to its financial investments line item in the statement of financial position. Following the reclassification, the group’s line item ’interests in associates and joint ventures’ in its statement of financial position includes only those associates and joint ventures that are equity accounted.

4 Liabilities of R5 268 million (2011: R7 019 million), were previously classified as designated at fair value through profit or loss within deposits from customers. In accordance with IFRS and the group’s accounting policies, these liabilities have been reclassified to trading liabilities. The restatement had no impact on the group’s reserves or profit and loss.

245




December 2011

As previouslyreported

RmIFRS 101

RmIAS 19R2

RmIAS 28R3

Rm

Customer depositreclassification4

RmRestated

Rm

31 907 31 907150 046 150 046

90 449 90 4496 113 6 113

34 085 34 085289 319 14 602 12 950 316 871801 308 801 308

443 4431 440 1 440

22 640 81 672 23 39313 935 864 (12 950) 1 84923 470 23 47012 754 12 75414 920 14 920

1 492 829 15 547 672 1 509 048

117 533 (99) 463 117 897

99 042 (53) 461 99 450

159 15917 576 17 57681 307 (53) 461 81 715

5 503 5 50312 988 (46) 2 12 944

1 375 296 15 646 209 1 391 151

153 142 153 14230 264 7 019 37 28327 939 27 939

878 922 (3 317) (7 019) 868 5862 353 2 3533 683 209 3 892

45 674 18 963 64 637208 565 208 565

24 754 24 754

1 492 829 15 547 672 1 509 048


Annual financial statements Annexure A – restatements continued

Group income statement restatementAs

previouslyreported

RmIFRS 101

RmIAS 19R2

RmIFRS 53

RmRestated

Rm

2012

Continuing operations

Income from banking activities 68 375 (2 123) 66 252

Net interest income 34 015 (49) 33 966

Interest income 68 862 (630) 68 232Interest expense 34 847 (581) 34 266

Non-interest revenue 34 360 (2 074) 32 286

Net fee and commission revenue 21 319 375 21 694

Fee and commission revenue 24 732 131 24 863Fee and commission expense 3 413 (244) 3 169

Trading revenue 8 893 (2 104) 6 789Other revenue 4 148 (345) 3 803

Income from investment management

and life insurance activities 75 716 1 849 15 77 580

Net insurance premiums 29 631 29 631Investment income and gains 43 372 1 964 (30) 45 306Management and service fee income 2 713 (115) 45 2 643

Total income 144 091 1 849 15 (2 123) 143 832Credit impairment charges 8 800 (86) 8 714Benefits due to policyholders 56 878 1 861 58 739

Net insurance benefits and claims 43 864 43 864Fair value adjustment to policyholders’ liabilities under investment contracts 10 035 10 035Fair value adjustment on third-party fund interests 2 979 1 861 4 840

Income after credit impairment charges and

policyholders’ benefits 78 413 (12) 15 (2 037) 76 379Revenue sharing agreements with group companies 115 115

Income after revenue sharing agreements 78 413 (12) 15 (2 152) 76 264Operating expenses in banking activities 40 756 70 (3 605) 37 221

Staff costs 22 195 70 (1 846) 20 419Restructuring costs 758 (439) 319Other operating expenses 17 803 (1 320) 16 483

Operating expenses in investment

management and life insurance activities 11 952 1 127 12 080

Acquisition costs 3 818 3 818Other operating expenses 8 134 1 127 8 262

Net income before goodwill impairment

and gains on disposal of subsidiaries 25 705 (13) (182) 1 453 26 963

247




Group income statement restatement continuedAs

previouslyreported

RmIFRS 101

RmIAS 19R2

RmIFRS 53

RmRestated

Rm

2012

Net income before goodwill impairment

and gains on disposal of subsidiaries continued 25 705 (13) (182) 1 453 26 963Goodwill impairment 777 777Gains on disposal of subsidiaries 188 188

Net income before share of profits

from associates and joint ventures 25 116 (13) (182) 1 453 26 374Share of profit from associates and joint ventures 701 701

Net income before indirect taxation 25 817 (13) (182) 1 453 27 075Indirect taxation 1 766 (145) 1 621

Profit before direct taxation 24 051 (13) (182) 1 598 25 454Direct taxation 7 075 (53) (20) 7 002

Profit for the year from continuing

operations 16 976 (13) (129) 1 618 18 452Discontinued operations 2 435 (1 618) 817

Profit/(loss) for the year from discontinued operations 910 (1 618) (708)Profit from disposal of discontinued operation 1 525 1 525

Profit for the year 19 411 (13) (129) 19 269

Attributable to non-controlling interests 2 913 (5) (37) 2 871

Continuing operations 2 686 (5) (37) 2 644Discontinued operation 227 227

Attributable to equity holders of the parent 16 498 (8) (92) 16 398

Attributable to preference shareholders 352 352Attributable to ordinary shareholders 16 146 (8) (92) 16 046

Basic earnings per share (cents) 1 060,7 (0,1) (6,0) 1 054,6

Continuing operations 915,7 (0,1) (6,0) 106,3 1 015,9Discontinued operation 145,0 (106,3) 38,7

Diluted earnings per share (cents) 1 025,9 (0,1) (5,8) 1 020,0

Continuing operations 885,6 (0,1) (5,8) 102,8 982,5Discontinued operation 140,3 (102,8) 37,5


2 On 1 January 2013, the group adopted IAS 19R. The most significant change as a result of the adoption of IAS 19R is the elimination of the ‘corridor’ method under which the recognition of actuarial gains or losses was deferred. In IAS 19R all unrecognised actuarial gains and losses have to be recognised in OCI on transition to the new requirements.The adoption of IAS 19R resulted in the group restating its previously reported financial results.

3 The agreed disposal resulted in the group classifying its investment in the SB Plc Group as a discontinued operation in the current 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.



Group statement of other comprehensive incomeAs

previouslyreported

RmIFRS 101

RmIAS 19R2

RmRestated

Rm

2012

Profit for the year 19 411 (13) (129) 19 269Other comprehensive income after tax for the year

from continuing operations 687 383 1 070

Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 544 544Net change on hedges of net investments in foreign operations 181 181Net change in fair value of cash flow hedges 171 171Realised fair value adjustments of cash flow hedges transferred to profit or loss (401) (401)Net change in fair value of available-for-sale financial assets 752 752Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (558) (558)

Items that may not be reclassified to profit or lossDefined benefit fund remeasurements 383 383Other losses (2) (2)

Other comprehensive income after tax for the year

from discontinued operation 615 615

Total comprehensive income for the year 20 713 (13) 254 20 954

Attributable to non-controlling interests 3 183 (5) 3 178Attributable to equity holders of the parent 17 530 (8) 254 17 776

Attributable to preference shareholders 352 352Attributable to ordinary shareholders 17 178 (8) 254 17 424


2 On 1 January 2013, the group adopted IAS 19R. The most significant change as a result of the adoption of IAS 19R is the elimination of the ‘corridor’ method under which the recognition of actuarial gains or losses was deferred. In IAS 19R all unrecognised actuarial gains and losses have to be recognised in OCI on transition to the new requirements. The adoption of IAS 19R resulted in the group restating its previously reported financial results.

249




Group statement of cash flowsAs

previouslyreported

RmRestatements1

RmRestated

Rm

2012

Net cash flows from operating activities 42 954 16 42 970

Cash flows used in operations 482 (929) (447)

Net income before goodwill impairment 25 705 (195) 25 510

Continuing operations 25 705 1 258 26 963Discontinued operation (1 453) (1 453)

Adjusted for: (32 005) (1 755) (33 760)

Amortisation of intangible assets 1 005 1 005Credit impairment charges on loans and advances 8 800 8 800Defined benefit pension fund and post-employment benefits (18) 642 624Depreciation of property and equipment 2 595 2 595Dividends included in trading revenue and investment income (3 473) (46) (3 519)Equity-settled share-based payments 328 328Indirect taxation (1 766) (1 766)Interest expense 34 361 34 361Interest income (75 657) (899) (76 556)Fair value adjustment on third-party fund interests 2 979 1 861 4 840Investment gains due to policyholders (30 017) (981) (30 998)Net fund flows after service fees on policyholder investment contracts (1 432) (1 432)Non-cash flow movements to bonds 729 729Other impairment losses 237 237Policyholders’ liability transfers 29 567 29 567Profit on sale of property and equipment (30) (30)Provision for defined benefit pension funds and post-employment benefits (118) 118Net outflows from third-party financial liabilities arising on consolidation of mutual funds (1 431) (1 431)Distributions to third-party financial liabilities arising on consolidation of mutual funds (1 019) (1 019)Other (95) (95)

Increase in income-earning assets (45 678) 1 123 (44 555)Increase in deposits, trading and other liabilities 52 460 (102) 52 358

Dividends received 5 114 46 5 160Interest paid (35 020) (35 020)Interest received 73 174 899 74 073Direct taxation paid (4 134) (4 134)Net cash flows from operating activities in discontinued operation 3 338 3 338

Refer to footnote on page 250.



Group statement of cash flows continuedAs

previouslyreported

RmRestatements1

RmRestated

Rm

2012

Net cash flows from operating activities continued 42 954 16 42 970Net cash flows used in investing activities (14 514) (16) (14 530)

Capital expenditure on – property (1 328) (1 328)– equipment, furniture and vehicles (2 356) (2 356)– intangible assets (4 108) (4 108)Proceeds from sale of property, equipment, furniture and vehicles 186 186Net investment in investment properties 333 333Net increase in investments by insurance operations (6 432) (16) (6 448)Net cash outflow resulting from the disposal of subsidiaries (3 543) (3 543)Net cash outflow resulting from the acquisition of subsidiaries (9) (9)Decrease in investment in associates and joint ventures 2 840 2 840Net cash flows used in investing activities in discontinued operation (97) (97)


Proceeds from issue of share capital to shareholders 125 125Equity transactions with non-controlling interests (3 165) (3 165)Decrease in investment in existing subsidiaries 376 376Subordinated debt issued 9 342 9 342Subordinated debt redeemed (2 955) (2 955)Net dividends paid (7 543) (7 543)

Effect of exchange rate changes on cash and cash equivalents 609 609

Net increase in cash and cash equivalents 25 229 25 229Cash and cash equivalents at the beginning of the year 36 756 36 756

Cash and cash equivalents at the end of the year 61 985 61 985


On 1 January 2013, the group adopted IAS 19R. The most significant change as a result of the adoption of IAS 19R is the elimination of the ‘corridor’ method under which the recognition of actuarial gains or losses was deferred. In IAS 19R all unrecognised actuarial gains have to be recognised in OCI on transition to the new requirements. The adoption of IAS 19R resulted in the group restating its previously reported financial results.

The agreed disposal resulted in the group classifying its investment in the SB Plc Group as a discontinued operation in the current 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.

251




Subsidiaries, consolidated and unconsolidated structured entities

Standard Bank Group1

The Standard Bank of

South Africa1Liberty Group1

Standard International

Holdings Luxembourg*

Stanbic Africa Holdings

UK

Stanlib1

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 BankOffshore

Group Jersey

Standard Bank Jersey

Standard Bank Offshore Trust Company Jersey

Standard Bank International Investments, Jersey

Standard Bank Isle of Man

Standard Bank Trust Company (Mauritius)

Diners Club (SA)1

Blue Bond Investments1

Standard Bank Insurance Brokers 1

CfC Stanbic Holdings, Kenya (60%)

Stanbic Bank Botswana

Stanbic Bank Ghana (99.5%)

Stanbic Bank Tanzania (99.9%)

Stanbic Bank Uganda (80%)

Stanbic Bank Zambia

Stanbic IBTC Holdings, Nigeria (53.2%)

Stanbic IBTC Bank, Nigeria (53.1%)

Standard Bank Limited, Malawi (60.2%)

Standard Bank Mauritius

Standard Bank, Mozambique (98%)

Standard Bank RDC, Democratic Republic of Congo (99.99%)

Stanbic Bank Zimbabwe

Standard Bank, UK

SBIC Investments, Luxembourg*

Standard Bank London Holdings

Standard Resources (China)

Standard Merchant Bank (Asia), Singapore

Standard Americas, US

Standard New York, US

Standard New York Securities, US

Standard Securities Asia (Hong Kong)

Stanlib Collective Investments1

Stanlib Multi-Manager1

Stanlib Wealth Management1

Stanlib Asset Management1

Stanlib Fund Managers Jersey

Liberty Active1

1 Incorporated in South Africa.* This company is in liquidation in

terms of a restructure of the group’s international interests.

This diagram depicts principal subsidiaries only.The holding in subsidiaries is 100% unless otherwise indicated.The country of incorporation is stated where not obvious from the entity’s name.

Melville Douglas Investment Management1

Standard Insurance1

Standard Trust1

Stanvest1

SBG Securities1

Standard Bank Properties

Banco Standard de Investimentos, Brazil

Standard Advisory (China)

Standard Lesotho Bank (80%)

Standard Bank Namibia

Standard Bank Swaziland (65%)

Standard Bank de Angola (51%)

Liberty Holdings1

(53.6%)

Capital Alliance Holdings1

Liberty Kenya Holdings (56.8%)

Neil Harvey and Associates1 (74.9%)

Liberty Group Properties1

Annexure B


Annual financial statements Annexure B – subsidiaries, consolidated and unconsolidated structured entities continued

Subsidiaries

Nature of operation

Nominal sharecapital issued

Rm

Standard Bank Group will ensure that, except in the case of political risk, its subsidiaries denoted by # are able to meet their contractual liabilities while they remain subsidiaries of Standard Bank Group.

Banking subsidiaries

Banco Standard de Investimentos S.A. (Brazil)# Investment bank 563CfC Stanbic Bank Limited (Kenya)1# Commercial bank 418Stanbic Bank Botswana Limited (Botswana)1#¤ Commercial bank 174Stanbic Bank Ghana Limited (Ghana)1# Commercial bank 630Standard Bank RDC s.a.r.l. (Democratic Republic of Congo)1#† Commercial bank 85Stanbic Bank Tanzania Limited (Tanzania)1#† Commercial bank 44Stanbic Bank Uganda Limited (Uganda)1# Commercial bank 227Stanbic Bank Zambia Limited (Zambia)1# Commercial bank 660Stanbic Bank Zimbabwe Limited (Zimbabwe)1 Commercial bank **Stanbic IBTC Bank PLC (Nigeria)1#† Commercial bank 103Standard Bank de Angola S.A. (Angola)# Commercial bank 768Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25Standard Bank Jersey Limited (Jersey)1# Merchant bank 222Standard Bank Limited (Malawi)1# Commercial bank 22Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342Standard Bank Namibia Limited (Namibia)1# Commercial bank 2Standard Bank Plc (UK)2,3 Investment bank 3 926Standard Bank s.a.r.l. (Mozambique)1# Commercial bank 309Standard Bank Swaziland Limited (Swaziland)# Commercial bank 15Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21Standard Merchant Bank (Asia) Limited (Singapore)1# Investment bank 214The Standard Bank of South Africa Limited# Commercial bank 60

Non-banking subsidiaries

Accelerator Fund 1 Proprietary Limited5 Securitisation vehicleAccelerator Fund 2 Proprietary Limited5 Securitisation vehicleAlisier Investments Proprietary Limited2 Investment holding company **Blue Banner Securitisation Vehicle RC1 Proprietary Limited5 Mortgage financingBlue Bond Investments (RF) Limited1 Participation mortgage bond finance **Blue Granite Investments No 1 (RF) Limited5 Securitisation vehicleBlue Granite Investments No 2 (RF) Limited5 Securitisation vehicleBlue Granite Investments No 3 (RF) Limited5 Securitisation vehicleBlue Granite Investments No 4 (RF) Limited5 Securitisation vehicleBlue Titanium Conduit (RF) Limited5,6 Securitisation vehicleCfC Stanbic Holdings Limited (Kenya) Bank holding company 232Diners Club (SA) Proprietary Limited1 Travel and entertainment card **Ecentric Payment Systems Proprietary Limited7 Development and marketing transactions –

switching software and services **Erf 224 Edenburg Proprietary Limited8 Property holding and development **Liberty Group Limited1 Insurance company 28Liberty Holdings Limited9 Insurance holding company 26Melville Douglas Investment Management Proprietary Limited# Asset and portfolio management **Rapitrade 584 Proprietary Limited5 Securitisation vehicleStandard Bank International Investments Limited (Jersey)1# Portfolio management **SBG Securities Proprietary Limited# Stockbrokers **SBIC Finance Limited (Isle of Man)1 Project finance **


253




Effective holding Non-controlling interest Book value of shares Net indebtedness

2013%

2012%

2013%

2012%

2013Rm

2012Rm

2013Rm

2012Rm

100 100 496

60 60 40 40100 100

99 99 1 1100 100100 100

80 80 20 20100 100100 100 135 135

53 53 47 4751 51 49 49 359 359

100 100100 100

60 60 40 40100 100100 100 444 444100 100 2 024 2 024

98 98 2 265 65 35 35 33 3380 80 20 20 13 13

100 100100 100 36 163 35 063 4734 (73)4

100 100

100 100

60 60 40 40100 100

80 80 20 20100 100

54 54 46 4654 54 46 46 7 668 7 668

100 100 53 53

100 100100 100 320 320100 100



Subsidiaries continued

Nature of operation

Nominal sharecapital issued

Rm

Non-banking subsidiaries continuedSBIC Investments S.A. (Luxembourg)2,10# Investment holding company 542Stanbic IBTC Holdings PLC (Nigeria)1 Bank holding company 275SBN Holdings Limited (Namibia) Bank holding company **Siyakha Fund (RF) Limited5 Securitisation vehicleSML Limited (Isle of Man)1 Investment holding company **SMT Limited (Isle of Man)1 Investment holding company **Stanbic Africa Holdings Limited (UK)2 Investment holding company 385Stanbic International Insurance Limited (Isle of Man)1 Insurance company 1Standard Americas, Inc. (US)1#r Trading company **Standard Bank Fleet Management Proprietary Limited8 Fleet management **Standard Bank Fund Administration Jersey Limited (Jersey)1 Portfolio management 34Standard Bank Group International Limited (Isle of Man) Investment holding company **Standard Bank Insurance Brokers Proprietary Limited1 Insurance broking **Standard Bank London Holdings Limited1# Investment holding company 1 869Standard Bank Manx Holdings Limited (Isle of Man)1 Investment holding company 1Standard Bank Offshore Group Limited (Jersey)4 Investment holding company 17Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 4Standard Bank Properties Proprietary Limited Properties and financial services **SBTCIOM Limited (Isle of Man)1,11# Trust company 1Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company **Standard Trust Limited12# Trust company **Standard Finance (IOM) Limited (Isle of Man)1# Finance company **Standard Insurance Limited Short-term insurance 15Standard International Holdings S.A. (Luxembourg)2,10# Investment holding company 157Standard New York, Inc. (US)1#r Investment holding company 37Standard New York Securities, Inc. (US)1#r Securities broker/dealer 82Standard Resources (China) Limited (China)1 Trading company 116Standard Advisory (China) Limited (China)1 Trading company 8Standard Securities (Asia) Limited (Hong Kong)1 Securities company 117Stanlib Limited1 Wealth and asset management **Stanvest Proprietary Limited Investment holding company **TTC Limited (Isle of Man)1,13 Trust company **Miscellaneous Finance companies

1 Held indirectly, no book value in Standard Bank Group Limited. 2 Effective holding company comprises direct and indirect holdings. 3 On 29 January 2014, the group announced that it had concluded an agreement with ICBC in terms of which ICBC would, subject to shareholder and regulatory approvals, acquire

60% of the ordinary share capital of Standard Bank Plc. 4 Represents mainly cash held in current and call accounts. 5 Consolidated SE, no shareholding. 6 Name changed from Blue Titanium Conduit Limited. 7 Name changed from eCentric Switch Proprietary Limited in the current year. 8 This company is in liquidation. 9 Listed on the exchange operated by the JSE.10 This company is in liquidation in terms of a restructure of the group’s international interests. 11 Name changed from Standard Bank Trust Company Limited (Isle of Man) in the current year.12 Name changed from Standard Executors and Trustees Limited in the current year.13 Name changed from Triskelion Trust Company Limited (Isle of Man) in the current year.¤ Minorities hold 0.5% of this company.† Minorities hold 0.01% of this company.** Issued share capital less than R1 million.r These entities are expected to be transferred to Standard Bank Plc prior to the completion of the sale of 60% of the ordinary share capital of Standard Bank Plc to ICBC.

The nominal share capital issued 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. Detailed information is not given in respect of subsidiaries which are not material to the financial position of the group. The country of incorporation is South Africa unless otherwise indicated.

255




Effective holding Non-controlling interest Book value of shares Net indebtedness

2013%

2012%

2013%

2012%

2013Rm

2012Rm

2013Rm

2012Rm

100 10053 53 47 47

100 100

100 100100 100100 100 2 161 2 161100 100100 100100 100100 100100 100 5 588 13 435100 100100 100 3 101 (750) (434)100 100100 100 49 49100 100100 100100 100100 100100 100100 100100 100 30 30100 100 5 298 99100 100100 100100 100100 100 10

100 10054 54 46 46

100 100100 100

95 95 (31) 6

64 040 61 981 (308) (501)



Details of group companies with material non-controlling interests

Summarised financial informationon an IFRS basis before

intercompany eliminations

Totalassets1

Rm

Totalliabilities1

Rm

Subsidiaries with non-controlling interests

2013

The following material subsidiaries are not wholly-owned by the group:

CfC Stanbic Bank Limited (Kenya) 20 813 17 980

Liberty Group Limited 350 639 329 283

Stanbic IBTC Bank PLC (Nigeria) 50 029 43 597

2012

The following material subsidiaries are not wholly-owned by the group:

CfC Stanbic Bank Limited (Kenya) 13 207 11 417Liberty Group Limited 308 337 289 826Stanbic IBTC Bank PLC (Nigeria) 36 760 32 108

1 Translated using the closing exchange rate.2 Translated using the average cumulative exchange rate.

The place of business and country of incorporation is South Africa unless otherwise indicated.

257




Summarised financial informationon an IFRS basis before

intercompany eliminations

Non-controlling

interests%

Profitattributable

to non-controlling

interestsafter inter-

companyeliminations2

Rm

Dividendspaid to

non-controlling

interests2

Rm

Totalincome2

Rm

Profit forthe year2

Rm

Changein cash

balanceswith central

banks2

Rm

1 729 570 (1 557) 40 228 11

85 273 4 470 (661) 46 2 360 908

5 164 1 286 337 47 674 296

1 308 289 1 581 40 116 877 746 4 118 (2 053) 46 2 121 658

3 487 525 2 424 47 282 90



Consolidated structured entities

The group has an interest in the following material consolidated structured entities:

Name of entity Nature of operations

Amount of support provided as at1,2

Type ofsupport3

2013Rm

2012 Rm

2013 2012

Blue Granite Investments

No 1 (RF) Limited (BG1)

Facilitates mortgage backed securitisations. The group is the primary liquidity facility providerto BG1.

145 120 Subordinated

loan4

Subordinated loan4

1 605 1 170 Mortgage

backed notes4

Mortgage backed notes4



Facilitates mortgage backed securitisations. The group is the primary liquidity facility providerto BG2.

88 93 Subordinated

loan4

Subordinatedloan4


backed notes4

Mortgagebacked notes4



Facilitates mortgage backed securitisations. The group is the primary liquidity facility provider to BG3.

94 92 Subordinated

loan4

Subordinatedloan4


backed notes4



259




Terms of contractual arrangements that requirethe group to provide financial support to the SE

Events/circumstances that could expose the groupto a loss as a result of the contractual arrangement

The subordinated loan does not have a fixed term or repaymentdate. All the profits in BG1 are paid out to the group as intereston the loan granted.

Should BG1’s customers be unable to meet their contractual obligations under the mortgage loan agreement and the loans are classified as non-performing.

The group holds class A4, A6, B, C, D, E and F notes. Interest forthe different classes of notes accrues at the following rates:

class A4 notes – three-month JIBAR plus 0.55% class A6 notes – three-month JIBAR plus 1.60% class B notes – three-month JIBAR plus 0.57% class C notes – three-month JIBAR plus 0.90% class D notes – three-month JIBAR plus 1.50% class E notes – three-month JIBAR plus 4.00% class F notes – three-month JIBAR plus 8.00%.

Interest is payable quarterly. The notes’ maturity date is21 November 2032.

The loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.50% and is only payable when BG2 has sufficient cash reserves.


The group holds class A1, A2, A3, B, C, D and Y notes. Interest for the different classes of notes accrues at the following rates:

class A1 notes – three-month JIBAR plus 1.40% class A2 notes – three-month JIBAR plus 1.45% class A3 notes – three-month JIBAR plus 1.60% class B notes – three-month JIBAR plus 2.10% class C notes – three-month JIBAR plus 2.60% class D notes – three-month JIBAR plus 4.00% class Y notes – prime plus 3.00%.

Interest is payable quarterly. The notes’ maturity date is 21 July 2041.

The subordinated loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.50% and is only payable when BG3 has sufficient cash reserves.


The group holds class A1, A2, A3, A4, B, C, D and Y notes.Interest for the different classes of notes accrues at thefollowing rates:

class A1 notes – three-month JIBAR plus 1.15% class A2 notes – three-month JIBAR plus 1.50% class A3 notes – three-month JIBAR plus 1.65% class A4 notes – three-month JIBAR plus 1.70% class B notes – three-month JIBAR plus 2.30% class C notes – three-month JIBAR plus 3.10% class D notes – prime plus 1.00% class Y notes – prime plus 3.00%.

Interest is payable quarterly. The notes’ maturity date is30 October 2031.



Consolidated structured entities continued



Type ofsupport3

2013Rm

2012 Rm

2013 2012



Facilitates mortgage backed securitisations. The group is the primary liquidity facility provider to BG4.


loan4

Subordinatedloan4


backed notes4


Siyakha Fund (RF) Limited

(Siyakha)

Facilitates mortgage backed securitisations. The group is theprimary liquidity facility provider to Siyakha.

82 332 Subordinated

loan4

Subordinatedloan4


backed notes4


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.

238 272 Bridging

finance4

Bridgingfinance4

Out of the Blue Originator (RF)

Proprietary Limited (OTB)

OTB originates loans on behalfof Blue Titanium Conduit (RF)Limited (BTC). BTC is consolidated by the group.

Overdraft

facility4

Overdraftfacility4

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.

3 597 3 690 Liquidity

facility4

Liquidity facility4


261






The subordinated loan does not have a fixed term or repayment date. Interest is charged at prime plus 5.50% and is only payable when BG4has sufficient cash reserves.


The group holds class A1, A3, A4, B, C, D and Y notes. Interestfor the different classes of notes accrues at the following rates:

class A1 – three-month JIBAR plus 1.15%



class B notes – three-month JIBAR plus 2.30%

class C notes – three-month JIBAR plus 3.10%

class D notes – prime plus 1.00%

class Y notes – prime plus 3.00%.

Interest is payable quarterly. The notes’ maturity date is 15 June 2037.

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.

The group holds class A1, A2, B, C, and D notes. Interest for the different classes of notes accrues at the following rates:

class A1 notes – three-month JIBAR plus 1.10% class A2 notes – prime less 2.10% class B notes – prime less 1.00% class C notes – prime plus 1.00% class D notes – prime plus 2.00%.

Interest is payable quarterly. The notes’ maturity date is11 February 2045.

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.

OTB applies for the necessary overdraft facility as and when itoriginates loans. The amount drawn down is settled on the sameday of the draw down. The terms are negotiated and agreed uponat the time of the grant of the overdraft facility. OTB applied forand was granted an overdraft facility of R250 million in 2013 and R1,1 billion in 2012. OTB drew down on the overdraft facility in both 2012 and 2013. The facility had been repaid by 31 December 2012 and 2013, respectively.

OTB does not expose the group to a risk of loss as it acts as a conduit between SBSA 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.

The liquidity facility is limited to the value of the underlying assetsin BTC. As at 31 December 2013 and 2012, the liquidity facility limitis R4 297,6 million and R4 436 million respectively. BTC had not drawn down on the liquidity facility as at 31 December 2013.

In the event that the underlying assets are classified as non-performing loans.



Consolidated structured entities continued



Type ofsupport3

2013Rm

2012 Rm

2013 2012

BTC Purchases eligible term assetsand funds such investments through the issuance ofcommercial paper. The group is the primary liquidity facility provider to BTC.

271 302 Commercial

paper4

Commercialpaper4

430 444 Credit

enhancement

facility4

Credit enhancement

facility4

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 Loan4 Loan4

Main Street Facilitates financing to BG1, BG2, BG3, BG4 and Siyakha. SB-Debtors provides the fundingto Main Street to enableMain Street to originatethese loans.


loan4

Subordinatedloan4

1 The amount of support provided includes loans and advances and undrawn credit facilities provided to SEs.2 During the reporting period, SBSA did not provide any financial or other support to any subsidiary without having a contractual obligation to do so. 3 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 current accounts and derivatives.4 This is the amount as reported on the balance sheet as at 31 December 2013 and 2012, respectively. For credit facilities, the amount shown is the undrawn balance as at the

reporting date.

263






The commercial paper is short term in nature, the term of the loans is normally three months or less. At maturity the group can acquire new commercial paper issued by BTC. The commercial paper was acquired during different months in 2012 and 2013. The rate of interest differs depending on when the notes were acquired. The interest rate ranged from JIBAR to JIBAR plus 0.375% during the reporting period.

In the event that the underlying assets are classified asnon-performing loans.

The credit enhancement facility is limited to 10% of the outstanding commercial paper issued in the market. BTC had not drawn downon the credit enhancement facility as at 31 December 2013.

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.

The loan is only repayable to the extent that Main Street receives payment from the BG1, BG2, BG3, BG4 and Siyakha. Interestis charged at the higher of JIBAR plus 10% and the cash availablein terms of Main Street’s priority of payments 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.


Unconsolidated structured entities

The group has an interest in the following unconsolidated structured entities:

Name of entity Nature and purpose of entity Principal nature of funding

Principal nature of assets

Blue Diamond Investments

No 1 (RF) Limited


No 2 (RF) Limited


No 3 (RF) Limited

The group purchases credit protection from these entities in the form of credit-linked notes on single or multiple corporate names. These entities then purchase credit protection from third-party investors on single or multiple corporate names. The group purchases high quality collateral with maturities that match the entities’ obligations in respect of its issued credit-linked notes. The collateral is sold to the entities and is held by the entities to compensate the group, as the protection buyer, for credit losses suffered on the protected names and to repay investors on maturity of the notes.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 give investors indirect exposure to corporate names, and in doing so, reducing the group’s exposureto credit risk.

The unconsolidatedentities issuecredit-linkednotes to third-partyinvestors

Credit-linkednotes

2013Rm

2012Rm

The following represents the group’s interests in these entities:

Balance sheet

Financial investments 402 457Deposit and current accounts from customers (1 919) (2 190)

Net carrying amount (1 517) (1 733)

Irrevocable unutilised facility 352 352


265




Weighted average remaining useful life of assets Terms of contractual arrangements

Events/circumstances that could expose the group to a loss

Types of income received by the group

2013 2012

14 years The group compensates these entities to provide it with credit protection over single or multiple corporate names. The group also settles these entities’ operating expenses as and when necessary and typically where the entities have liquidity constraints. Any payment for such amounts is to be refunded by these entities to the group.

In the event that there is a credit event and the entities are unable to pay, the group will be exposedto a credit loss – this risk is, however, considered to be remote given the collateral that is held by these entities. The group is further exposed to therisk of loss should these entities have unexpected expenses for which the entities are unable to pay the group.

Once off

fee and

commission

income earned

for structuring

the SE.

Once offfee and

commission income earned for structuring

the SE.



Associates and joint ventures

Safika Holdings Proprietary Limited

Standard Bank Argentina S.A.

RCS Investment Holdings

Proprietary Limited

Ownership structure Associate Associate Associate

Nature of business Investment holding company Banking Finance

Principal place of business and

country of incorporation South Africa Argentina South Africa

Year end February December March

Accounting treatment Equity accounted Equity accounted Equity accounted

Date to which equity accounted 31 December 2013 31 December 2013 31 December 2013

2013 2012 2013 2012 2013 2012

Effective holding (%) 26.67 25 20 20 45

Rm Rm Rm Rm Rm Rm

Carrying value 643 595 1 616 1 340 1 117 *

Income statement

Revenue 449 626 10 621 5 552 1 300

Interest incomeIncome tax expense

Total profit for the year 307 82 1 244 858 351

Other comprehensive income/(loss) 17 (41) 14

Total comprehensive income 324 82 1 203 872 351

Dividends received from associates/ joint ventures 26

Statement of financial position1

Cash and cash equivalents 88 100 1 269 897 571

Non-current assets 2 619 2 957 14 566 9 949 162

Current assets 157 472 27 954 26 218 6 205

Non-current liabilities (248) (620) (1 073) (368) (4 198)

Current liabilities (120) (430) (36 306) (32 230) (367)

Net asset value 2 408 2 379 5 141 3 569 1 802

Proportion of net asset value based on effective holding 643 595 1 028 712 811

Goodwill 588 628 366

Fair valueCumulative impairment (60)

Carrying value 643 595 1 616 1 340 1 117

Loans to group entities2 Share of profits from associates

and joint ventures 73 105 248 1 158

1 Summarised financial information of the associates and joint ventures is provided based on the latest available financial information.2 These loans are provided on an arm’s length basis.* RCS Investment Holdings Proprietary Limited was classified as a non-current asset held for sale as at 31 December 2012, but reclassified as an associate during 2013. Refer to note 7

for further information.

Annexure C

267




South African Home Loans Proprietary Limited

Otherjoint ventures

Other associates

Total associates and joint ventures– equity accounted

Joint venture Joint ventures Associates Associates and joint ventures

Finance Various Various Various

South Africa Various Various Various

February Various Various Various

Equity accounted Equity accounted Equity accounted Equity accounted

31 December 2013 31 December 2013 31 December 2013 Various

2013 2012 2013 2012 2013 2012 2013 2012

44 44 Various Various Various Various Various Various

Rm Rm Rm Rm Rm Rm Rm Rm

673 569 63 58 685 473 4 797 3 035

612 593

36 38(83) (81)

217 194

217 194

581 327

946 7661 080 888(405) (320)(106) (52)

1 515 1 282

673 569

673 569

2 2 2 2

101 81 7 7 97 306 684 500


Annual financial statements Annexure C – associates and joint ventures continued

Associates and joint ventures continued

The Cullinan HotelProprietary Limited

StanlibIncome Fund

SA InfrastructureFund

Stanlib MoneyMarket Fund

Ownership structure Joint venture Associate Associate Associate

Nature of business Leisure Fund Fund Fund

Principal place of business South Africa South Africa South Africa South Africa

Year end March

Accounting treatment Fair value accounted Fair value accounted Fair value accounted Fair value accounted

2013 2012 2013 2012 2013 2012 2013 2012

Effective holding (%) 50 50 14 12 31 37 6 4


Fair value 400 374 3 532 3 005 1 869 1 695 1 894 1 355

Income statement

Revenue 215 163 1 662 1 237 312 560 1 914 2 035

Total profit for the year1 52 20 1 752 1 172 270 524 1 724 1 836

Total comprehensive

income 52 20 1 752 1 172 270 524 1 724 1 836

Dividends received from associate/joint venture 15 231 146 10 57 139 166

Statement of

financial position2

Cash and cash equivalents 18 6

Non-current assets 714 712 25 504 20 420 8 150 3 981 28 595 28 630Current assets 132 93 352 271 339 164 3 641 7 222Non-current liabilities Current liabilities (64) (62) (12) (11) (2) (18) (16) (17)

Net asset value 782 743 25 844 20 680 8 487 4 127 32 220 35 835

1 Included in the total profit for the year of The Cullinan Hotel is interest income of R6 million (2012: R5 million) and income tax expenses of R17 million (2012: R15 million).2 Summarised financial information of the associates and joint ventures provided is based on the latest available financial information.

Disclosure has been aligned to IFRS 12's requirements and the necessary changes due to IAS 28R.

269




Stanlib BalancedFund

Stanlib Corporate MoneyMarket Fund

Other associatesand joint ventures –fair value accounted

Total associatesand joint ventures –fair value accounted

Associate Associate Associates and joint ventures

Associates and joint ventures

Fund Fund Various Various

South Africa South Africa Various Various

Fair value accounted Fair value accounted Fair value accounted Fair value accounted

2013 2012 2013 2012 2013 2012 2013 2012

26 26 2 9 Various Various Various Various


1 169 777 569 2 548 6 364 6 683 15 797 16 437

745 101 2 036 1 859

695 69 1 966 1 793

695 69 1 966 1 793

20 16 87 106

4 533 2 979 28 064 25 761 68 37 2 712 1 887

(5) (16) (6) (6)

4 596 3 000 30 770 27 642


Annual financial statements Annexure C – associates and joint ventures continued

Private equity/venture capital associates and joint ventures1

2013Rm

20122

Rm

Cost 150 162Carrying value 631 543

Statement of financial position3

Non-current assets 3 981 4 039Current assets 962 573Non-current liabilities (866) (1 305)Current liabilities (1 070) (745)

Income statement

Attributable income before impairment 92 94Other income 26 11Fair value 579 454

1 Included in associates and joint ventures on pages 266 to 269.2 Restated to reflect comparability with the current period.3 Summarised financial information of the associates and joint ventures provided is based on the latest available financial information.

The investments in associates and joint ventures were made by the group’s private equity operations and have been ringfenced 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 3/2012 Headline Earnings, issued by SAICA at the request of the JSE.

271




Annexure D

Share-based paymentsThe group’s share incentive schemes enable key management personnel and senior employees to benefit from the performance of Standard Bank Group Limited and Liberty Holdings Limited shares.

2013Rm

2012Rm

Expenses recognised in staff costs:

Banking activities 1 121 1 082

Share options and appreciation rights 202 236Standard International Holdings S.A. (SIH) long-term incentive scheme (21)Quanto stock scheme 489 606DBS 39 74DBS post 2011 391 187

Liberty

Share options 108 76

Total expenses recognised in staff costs 1 229 1 158

Expenses recognised in restructuring costs – banking activities

Quanto stock scheme 29

Liabilities recognised in other liabilities

SIH long-term incentive scheme 6Quanto stock scheme 1 219 1 233DBS 137 188DBS post 2011 38 19

Total liability recognised in other liabilities 1 394 1 446

Further details on the group’s share incentive schemes are provided below.

Share options and appreciations rightsSBG has two equity-settled schemes, namely the GSIS and the EGS. The GSIS confers rights to employees to acquire ordinary shares at the value of the SBG share price at the date the option is granted. The EGS was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is effectively settled by the issue of shares equivalent in value to the value of the rights.

The two schemes have five different subtypes of vesting categories as illustrated by the table below:

Vesting categories Year % vesting Expiry (years)

Type 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 E1 3, 4, 5 33, 67, 100 10

1 New vesting category. Awards under category E are similar in vesting to category A but with a longer average duration over the cumulative vesting period.

PG Refer to annexure F on pages 296 to 307 for a detailed schedule of movements in share options issued to the executive directors during the year.

A reconciliation of the movement of all share options and appreciation rights is detailed in the table on the following page.

Group share incentive schemes


Annual financial statements Annexure D – group share incentive schemes continued

Equity-settled share-based paymentsA reconciliation of the movement of share options is detailed below:

GSIS

Option pricerange (rand)

Number of options

2013 2013 2012

Reconciliation

Options outstanding at the beginning of the year 10 039 475 14 230 100 Exercised1 27,81 – 111,94 (2 459 844) (3 496 166)Lapsed 27,90 – 111,94 (705 388) (694 459)

Options outstanding at the end of the year2 6 874 243 10 039 475

1 During the year, 2 459 844 (2012: 3 496 166) SBG shares were issued to settle the GSIS awards.2 At the end of the year, the group would need to issue 6 874 243 (2012: 10 039 475) shares to settle the outstanding share options.

Share options were exercised regularly throughout the year. The weighted average share price for the year was R115,39 (2012: R110,03).

The following options granted to employees, including executive directors, had not been exercised at 31 December 2013:

Number of ordinary shares

Option price range (rand)

Weighted average price (rand) Option expiry period

441 300 39,90 – 48,00 40,97 Year to 31 December 2014

39 200 65,60 65,60 Year to 31 December 2015

236 700 76,40 – 85,80 79,64 Year to 31 December 2016

391 013 97,95 – 105,00 98,57 Year to 31 December 2017

1 013 600 89,00 – 92,00 91,89 Year to 31 December 2018

1 209 230 62,39 – 98,20 62,92 Year to 31 December 2019

1 791 450 102,00 – 114,60 110,87 Year to 31 December 2020

1 751 750 93,74 – 107,55 98,94 Year to 31 December 2021

6 874 243

The following options granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number of ordinary shares

Option price range (rand)


153 900 27,81 – 32,19 28,17 Year to 31 December 20131 174 600 39,90 – 48,00 40,78 Year to 31 December 2014

83 300 64,27 – 65,60 65,36 Year to 31 December 2015482 800 76,40 – 85,80 79,56 Year to 31 December 2016626 075 97,95 – 107,91 98,61 Year to 31 December 2017

1 596 700 89,00 – 92,00 91,92 Year to 31 December 20181 671 400 62,39 – 98,20 63,11 Year to 31 December 20192 185 700 102,00 – 114,60 110,86 Year to 31 December 20202 065 000 93,74 – 107,55 98,92 Year to 31 December 2021

10 039 475

273




Equity-settled share-based payments continuedA reconciliation of the movement of appreciation rights is detailed below:

EGS

Average pricerange (rand) Number of rights

2013 2013 2012

Reconciliation

Rights outstanding at the beginning of the year 44 434 341 51 382 167Granted 1 106 570 976 476Exercised¹ 60,35 – 116,21 (6 465 842) (5 310 654)Lapsed 62,39 – 115,51 (2 894 077) (2 613 648)

Rights outstanding at the end of the year² 36 180 992 44 434 341

1 During the year 1 257 606 (2012: 1 104 534) SBG shares were issued to settle the appreciated rights value.2 At the end of the year, the group would need to issue 10 219 114 (2012: 10 379 054) 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 587 416 (2012: 714 331) 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.

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2013:

Number of rights

Option price range(rand)

Weighted averageprice (rand) Option expiry period

1 240 035 60,35 – 65,60 65,36 Year to 31 December 2015

2 823 345 77,83 – 87,00 79,68 Year to 31 December 2016

2 700 145 98,00 – 117,30 98,55 Year to 31 December 2017

5 496 215 69,99 – 100,08 91,83 Year to 31 December 2018

5 951 878 62,39 – 98,20 64,54 Year to 31 December 2019

7 681 979 102,00 – 116,80 111,60 Year to 31 December 2020

8 400 546 90,50 – 107,55 98,79 Year to 31 December 2021

851 021 98,75 – 110,56 108,25 Year to 31 December 2022

1 035 828 115,51 115,51 Year to 31 December 2023

36 180 992

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number of rights

Option price range(rand)


1 875 871 60,35 – 65,60 65,35 Year to 31 December 20153 946 641 76,40 – 87,00 79,64 Year to 31 December 20163 590 587 94,50 – 117,30 98,53 Year to 31 December 20177 615 679 69,99 – 92,00 91,83 Year to 31 December 20187 921 502 62,39 – 98,20 64,36 Year to 31 December 20199 087 866 102,00 – 116,80 111,44 Year to 31 December 20209 448 546 90,50 – 107,55 98,79 Year to 31 December 2021

947 649 98,75 – 113,50 108,06 Year to 31 December 2022

44 434 341



Equity-settled share-based payments 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 A Type B Type D Type E

20131 2012 20131 2012 2013 2012 2013

Number of appreciation rights granted 503 048 72 750 682 117 400 678 424 453

Weighted average fair value at grant

date (rand) 32,82 33,37 29,07 28,14 27,00

The principal inputs are as follows:Weighted average share price (rand) 108,11 103,43 115,51 108,9 115,51

Weighted average exercise price (rand) 108,11 103,43 115,51 108,9 115,51

Expected life (years) 5,9 6,9 7,0 7,0 5,9

Expected volatility (%) 32.83 –33.33

32.83 –33.33 25.40 32.87 25.40

Risk-free interest rate (%) 7.08 –7.29

7.30 –7.53 6.42 6.63 6.14

Dividend yield (%) 3.8 3.8 3.9 3.8 3.9

1 No A or B rights were granted during the year.

The appreciation rights granted during the year which are estimated to vest have a fair value of R31,3 million (2012: R30,2 million) at grant date.

Liberty has similar share-based payment transactions and has recognised a total expense of R108 million (2012: R76 million) relating to the share-based payments, comprising of R107 million (2012: R74 million) for share options and R1 million (2012: R2 million) relating to the Standard Bank Group employee scheme.

SIH long-term incentive scheme

SIH has a long-term incentive scheme that was set up in 1998, whereby certain employees, including certain executive directors of SB Plc Group, were granted notional ’shadow’ share options. The scheme provided for eligible employees to be rewarded in cash, the value of which is derived from current and future performance of SIH. In 2012, all shadow share options had vested and in November 2012, the SB Plc remuneration committee agreed to close the scheme with all remaining options being exercised at a price of USD2,31. Therefore, as of 31 December 2012, the scheme was closed with all options having been exercised or lapsed.

Restrictions in terms of settlement of certain vested options remain, and a provision is still recognised. The current year provision in respect of liabilities under the scheme at 31 December 2013 was USD0,33 million (2012: USD0,68 million), and there was no (2012: USD2,6 million)release to the income statement in the current period.

SIH shadow share schemeNumber

2012

Reconciliation

Options outstanding at the beginning of the year 9 158 057 Lapsed (2 059 001)Exercised1 (7 099 056)

Options outstanding at the end of the year

1 During the year, no (2012: 32 400) SBG shares were issued to settle the underpinning SIH shadow share scheme liability.

275




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. Special terms apply to employees designated by the PRA as code staff. For these employees the deferred portion of the incentive is delivered in Quanto stock units with three years vesting and an additional six-month 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 provision in respect of liabilities under the scheme amounts to USD116,2 million as at 31 December 2013 (2012: USD145,5 million), and the charge for the year is USD50,5 million (2012: USD73,8 million). 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.

Quanto stock scheme

Units (’000)

2013 2012

Reconciliation

Units outstanding at the beginning of the year 1 328 1 308 Transfers (48) 6 Granted 389 578 Lapsed (107) (30)Exercised (645) (534)

Units outstanding at the end of the year 917 1 328

Quanto stock units granted but not yet exercised at 31 December 2013:

Number of units (’000) Unit expiry period

58 Year to 31 December 2014








917

Quanto stock units granted but not yet exercised at 31 December 2012:

Number of units (’000) Unit expiry period

393 Year to 31 December 2015504 Year to 31 December 2016

31 Year to 31 December 2018164 Year to 31 December 2019236 Year to 31 December 2020

1 328



Equity participation plans

Deferred bonus schemeThe group implemented a share scheme to defer a portion of incentive bonuses over a minimum threshold for key management and executives. This improves the alignment of shareholder and management interests by creating a closer linkage between risk and reward, and also facilitates the retention of key employees. All employees who were awarded short-term incentives over a certain threshold, were subject to a mandatory deferral of a percentage of their cash incentive into the DBS. Vesting of the deferred bonus occurs after three years, conditional on continued employment at that time. The final payment of the deferred bonus is calculated with reference to the SBG share price at payment date. To enhance the retention component of the scheme, additional increments on the deferred bonus become payable at vesting and one year thereafter. The DBS was replaced in 2012 by the DBS post 2011.

The provision in respect of liabilities under the scheme amounts to R137 million at 31 December 2013 (2012: R188 million) and the charge to the income statement for the year was R39 million (2012: R74 million). The change in liability due to the change in the SBG share price, is partially hedged through the use of equity forwards and are designated as cash flow hedges.

Deferred bonus scheme

Units

20131 20121

Reconciliation

Units outstanding at the beginning of the year 2 022 529 2 666 847 Exercised (749 883) (511 585)Lapsed (103 919) (132 733)

Units outstanding at the end of the year 1 168 727 2 022 529

1 No units were granted during the year.

Deferred bonus scheme post 2011In 2012, changes were made to the existing DBS to provide for a single global incentive deferral scheme across the regions. The purpose of the DBS post 2011 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. The 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.

Awards issued to individuals in employment of a group entity domiciled in South Africa are equity-settled. The expense recognised during 2013 with regards to these awards was R353 million (2012: R168 million). These awards have been partially hedged through the use of equity forwards.

Awards issued to individuals in employment of group entities domiciled outside South Africa are cash-settled. The provision in respect of these awards are recognised in liabilities at 31 December 2013 and the amount charged for the year under the scheme amounts to R38 million (2012: R19 million).

DBS post 2011

Units

2013 2012

Reconciliation

Units outstanding at the beginning of the year 5 547 893

Units granted during the year 5 538 441 5 751 687 Exercised (1 654 768)

Lapsed (661 422) (203 794)

Units outstanding at the end of the year 8 770 144 5 547 893

Weighted average fair value at grant date (R) 115,99 109,01Expected life (years) 2,51 2,51 Risk-free interest rate (%) 5.50 5.02

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Annexure E

1. Basis of consolidation

SubsidiariesThe group1 controls an investee when it:

has power over the investee

has exposure or rights to variable returns from its involvement with the investee, and

has the ability to use its power to affect the returns from its involvement with the investee.

Investees that the group controls 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.

Intragroup transactions, balances and unrealised gains and 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 interests are determined on the basis of the group’s present ownership interest in the subsidiary.

The accounting policies of subsidiaries that are consolidated by the group conform to the group’s accounting policies.

Investments 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 and impaired (limited to initial cost) when necessary.

Business combinations 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 for business combinations on or after 1 January 2010 are recognised within profit or loss as and when they are incurred.

Where the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, 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.

Basis of consolidation 277

Foreign currency translations 278

Cash and cash equivalents 279

Financial instruments 279

Investment property 283

Interest in associates and

joint ventures 283

Intangible assets 284

Property and equipment 285

Property developments and properties

in possession 285

Capitalisation of borrowing costs 285

Impairment of non-financial assets 285

Leases 286

Provisions, contingent assets and

contingent liabilities 286

Employee benefits 286

Taxation 287

Non-current assets held for sale,

disposal groups and discontinued operations 288

Fair value 288

Policyholder insurance and investment contracts 289

Equity 291

Equity-linked transactions 292

Revenue and expenditure 292

Segment reporting 294

Fiduciary activities 294

Comparative figures 294

New standards and interpretations not

yet adopted 295

1 For the purposes of this annexure, all references to group include the company, unless indicated otherwise.

Detailed accounting policies


Annual financial statements Annexure E – detailed accounting policies continued

The group elects on each acquisition to initially measure non-controlling interests on the acquisition date at either fair value or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets.

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 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 and accounted for in terms of accounting policy 7 – Intangible assets.

If 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 is less than the fair value of the identifiable net assets acquired, the difference, referred to as a gain from a bargain purchase, is recognised directly in profit or loss.

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 profit or loss.

Transactions with non-controlling interests Transactions with non-controlling interests that do not result in the gain or loss of control, are accounted for as transactions with equity holders of the group. For purchases of additional interests from non-controlling interests, 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. Gains or losses on the partial disposal (where control is not lost) of the group’s interest in a subsidiary to non-controlling interests are computed as the difference between the sales consideration and the group’s proportionate share of the subsidiary’s net asset value disposed of, is also accounted for directly in equity.

Common control transactions Common control transactions, in which the company is the ultimate parent entity both before and after the transaction, are accounted for at the predecessors carrying values. Any difference between that carrying value and the acquisition price is recognised as either a dividend income or increase (as applicable) in the value of the company’s investment in the subsidiary that sold the investment to the company. Common control transactions result in no gain or loss being recognised in the company’s financial statements.

2. Foreign currency translations

Functional and presentation currency Items included in the annual financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency).

These annual financial statements are presented in South African rand, which is the functional and presentation currency of the company.

Group companies The results and financial position of all foreign operations that have a functional currency 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 for the month, to the extent that such average rates approximate actual rates for the transactions, and

all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the foreign currency translation reserve.

These gains and losses are recognised in profit or loss either on disposal (loss of control of a subsidiary, loss of significant influence over an associate or the loss of joint control over a joint venture that includes a foreign operation) or partial disposal (a reduction in ownership interest in a foreign operation other than a disposal) of an associate or joint venture that includes a foreign operation. In the case of a partial disposal of a subsidiary that includes a foreign operation, the proportionate share of the cumulative amount of the exchange differences recognised in OCI is reclassified to the non-controlling interests in that foreign operation.

Transactions and balances Foreign currency transactions are translated into the respective functional currencies of group entities 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 yearend 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 (profit or loss) whereas the exchange differences on equities and debt that are classified as held at fair value through profit or loss are reported as part of the fair value gain or loss in profit or loss.

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 foreign currency translation reserve. These gains and losses

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are accounted for similarly to the exchange gains and losses as described in this accounting policy for group companies.

3. Cash and cash equivalents Cash and cash equivalents presented in the statement of cash flows consist of cash and balances with central banks.

Cash and balances with central banks comprise coins and bank notes, and balances with central banks.

4. Financial instruments

Initial recognition and measurement Financial instruments include all financial assets and liabilities. These instruments are typically held for liquidity, investment, trading or hedging purposes. All financial instruments are initially recognised at fair value plus directly attributable transaction costs, except those carried at fair value through profit or loss where transaction costs are recognised immediately in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting).

Subsequent measurement Subsequent to initial measurement, financial instruments are measured either at fair value or amortised cost, depending on their classifications as follows:

Held-to-maturityHeld-to-maturity investments are 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. 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.

Held-to-maturity investments are carried at amortised cost, using the effective interest rate method, less any impairment losses.

Held-for-trading assets and liabilities Held-for-trading assets and liabilities include those financial assets and liabilities acquired or incurred principally for the purpose of selling or repurchasing in the near term, those forming 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 profittaking, and commodities that are acquired principally by the group for the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin. Derivatives are always categorised as held-for-trading.

Subsequent to initial recognition, the financial instruments’ fair values are remeasured at each reporting date. All gains and losses, including interest and dividends arising from changes in fair value are recognised in profit or loss as trading revenue within non-interest revenue with the exception of derivatives that are designated and effective as hedging instruments (refer to ‘Derivative financial instruments and hedge accounting’ within this accounting policy for further details).

Financial assets and liabilities designated at fair value through profit or loss The group designates certain financial assets and liabilities, other than those classified as held-for-trading, as at fair value through profit or loss when:

this designation eliminates or significantly reduces an accounting mismatch that would otherwise arise. Under this criterion, the main classes of financial instruments designated by the group are loans and advances to banks and customers and financial investments. The designation significantly reduces measurement inconsistencies that would have otherwise arisen. For example, where the related derivatives were treated as held-for-trading and the underlying financial instruments were carried at amortised cost. This category also includes financial assets used to match investment contracts or insurance contract liabilities

groups of financial assets, financial liabilities or both are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and reported to the group’s key management personnel on a fair value basis. Under this criterion, certain private equity, short-term insurance and other investment portfolios have been designated at fair value through profit or loss, or

financial instruments containing one or more embedded derivatives that significantly modify the instruments’ cash flows.

The fair value designation is made on initial recognition and is irrevocable. Subsequent to initial recognition, the fair values are remeasured at each reporting date. Gains and losses arising from changes in fair value are recognised in interest income (interest expense) for all debt financial assets (financial liabilities) and in other revenue within non-interest revenue for all equity instruments.

Private equity and property equity investments designated at fair value through profit or loss in terms of IAS 28R, are accounted for in the designated at fair value through profit or loss category. Mutual funds held by investment-linked insurance funds in which the group has significant influence are classified as interests in associates and are also designated at fair value through profit or loss.

Available-for-saleFinancial assets classified by the group as available-for-sale are generally strategic capital investments held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, or non-derivative financial assets that are not classified within another category of financial assets.

Available-for-sale financial assets are subsequently measured at fair value. Unrealised gains or losses are recognised directly in the available-for-sale reserve until the financial asset is derecognised or impaired. 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).



Interest income, calculated using the effective interest rate method, is recognised in profit or loss. Dividends received on debt (equity) available-for-sale instruments are recognised in interest income (other revenue) within profit or loss when the group’s right to receive payment has been established.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified by the group as at fair value through profit or loss or available-for-sale.

Loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment losses. Origination transaction costs and origination fees received that are integral to the effective rate are capitalised to the value of the loan and amortised through interest income as part of the effective interest rate. The majority of the group’s loans and advances are included in the loans and receivables category.

Financial liabilities at amortised costFinancial liabilities that are neither held for trading nor designated at fair value are measured at amortised cost.

Reclassification of financial assetsThe group may choose to reclassify non-derivative trading assets out of the held-for-trading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets that would not otherwise have met the definition of loans and receivables are permitted to be reclassified out of the held-for-trading category only in rare circumstances. In addition, the group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories 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.

Derivatives or any financial instrument designated at fair value through profit or loss shall not be reclassified out of their respective categories.

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.

Impairment of financial assetsAssets carried at amortised cost The group assesses at each reporting date whether there is objective evidence that a loan or group of loans is impaired. A loan or group of loans 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 loan or group of loans that can be estimated reliably.

Criteria that are used by the group in determining whether there is objective evidence of impairment include:

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 becoming probable that the borrower will enter bankruptcy or other financial reorganisation, and

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 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 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.

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 trigger events 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.

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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. 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. Any subsequent reductions in amounts previously impaired are reversed by adjusting the allowance account with the amount of the reversal recognised as a reduction in impairment for credit losses in profit or loss.

Subsequent to impairment, the effects of discounting unwind over time as interest income.

Renegotiated loans Loans that would otherwise be past due or impaired and whose terms have been renegotiated and exhibit the characteristics of a performing loan are reset to performing loan status. Loans, whose terms have been renegotiated, are subject to ongoing review to determine whether they are considered to be impaired or past due.

The effective interest rate of renegotiated loans that have not been derecognised (described under the heading ’Derecognition of financial instruments’), is redetermined based on the loan’s renegotiated terms.

Available-for-sale financial assetsAvailable-for-sale financial assets are impaired if there is objective evidence of impairment, resulting from one or more loss events that occurred after initial recognition but before the reporting date, that have a negative impact on the future cash flows of the asset. In addition, an available-for-sale equity instrument is considered to be impaired if a significant or prolonged decline in the fair value of the instrument below its cost has occurred. In that instance, 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.

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 in profit or loss, the impairment loss is reversed through profit or loss 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.

Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set-off the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions.

Derivative financial instruments and hedge accountingA derivative is a financial instrument whose fair value changes in response to an underlying variable, requires no initial net investment or an initial net investment that is smaller than would

be required for other types of contracts that would be expected to have a similar response to changes in market factors and is settled at a future date. Derivatives are initially recognised at fair value on the date on which the derivatives are entered into and subsequently remeasured at fair value as described under accounting policy 17 – Fair value.

All derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative, subject to offsetting principles as described under the heading Offsetting financial instruments.

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 financial host contracts are accounted for and measured applying the rules of the relevant financial instrument category.

The method of recognising fair value gains and losses depends on whether the derivatives are designated as hedging instruments, and if so, the nature of the hedge relationship, or if they are classified as held-for-trading.

Derivatives that qualify for hedge accountingWhen derivatives are designated in a hedge relationship, the group designates them as either:

hedges of the fair value of recognised financial assets or liabilities or firm commitments (fair value hedges)

hedges of highly probable future cash flows attributable to a recognised asset or liability, a forecast transaction, or a highly probable forecast intragroup transaction in the consolidated annual financial statements (cash flow hedges), or

hedges of net investments in a foreign operation (net investment hedges).

Hedge accounting is applied to derivatives designated in this way provided certain criteria are met. The group documents, at the inception of the hedge relationship, the relationship between hedged items and hedging instruments, as well as its risk management objective and strategy for undertaking various hedging relationships. The group also documents its assessment, both at the inception of the hedge and on an ongoing basis, of whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of hedged items.

Fair value hedges 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 in profit or loss as 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 rate 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.

Cash flow hedges

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

Where considered appropriate, the group hedges net investments

in foreign operations using derivative instruments. These hedges

are accounted for in the consolidated annual financial statements.

For such hedges, 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. On the partial disposal of an associate or a joint venture

that includes a foreign operation, the hedged component of the gains

and losses recognised in OCI is reclassified to profit or loss. On the

partial disposal of a foreign operation that includes a subsidiary,

the group reattributes a proportionate share of the cumulative

amounts recognised previously in the foreign currency hedge of net

investment reserve to non-controlling interests. For all other partial

disposals, a proportionate share of the foreign currency hedge

of net investment reserve is reattributed to profit or loss.

Derivatives that do not qualify for hedge accounting

All gains and losses from changes in the fair values of derivatives that

do not qualify for hedge accounting are recognised immediately in

profit or loss as trading revenue.

BorrowingsBorrowings are recognised initially at fair value, generally being their issue proceeds, net of directly attributable transaction costs incurred. Borrowings are subsequently measured at amortised cost and interest is recognised using the effective interest rate method.

Preference shares, which carry a mandatory coupon and/or redemption, or are redeemable on a specific date, at the occurrence of a contingent future event, or at the option of the shareholder are classified as financial liabilities or compound financial instruments (instruments with debt and equity components). All other preference shares are classified as equity instruments. Dividends on preference shares classified as financial liabilities are accounted for as interest on an amortised cost basis using the effective interest rate method. Dividends on preference shares classified as equity instruments are recognised within equity as a dividend payment when dividends are declared.

Financial 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. Subsequent to initial recognition, the financial guarantee liability is measured at the higher of the present value of any expected payment, when a payment under the guarantee has become probable, and the unamortised premium.

Derecognition of financial instrumentsFinancial 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 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.

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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.

Financial liabilities are derecognised when they are extinguished, that is, when the obligation is discharged, cancelled or expires.

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.

Sale 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 loans and advances or trading assets, 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 rate 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.

CommoditiesCommodities that are acquired principally by the group for the purpose of selling in the near future or generating a profit from fluctuations in price or broker-traders’ margin are measured at fair value less cost to sell and are reported as trading assets. All changes in fair value less cost to sell are recognised in trading revenue in the period of the change.

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, are recognised as derivative financial instruments and measured at fair value. All changes in fair value are recognised in trading revenue in the period of the change.

5. Investment propertyProperty held to earn rental income and/or for capital appreciation that is not owner-occupied is classified as investment property. Investment property includes property under construction or development for future use as investment property.

Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value with fair value changes recognised in profit or loss as investment gains or losses.

The fair value of investment property 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 on investment property recognised in profit or loss 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.

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 purposes.

6. Interest in associates and joint ventures

Associates and joint venturesThose entities in which the group has significant influence, but not control or joint control, over the financial and operating policies are classified as associates.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement which only exists when decisions about the relevant activities of the joint arrangement require unanimous consent of the parties sharing control.

Interests in associates and joint ventures are accounted for using the equity method and are measured in the consolidated statement of financial position at an amount that reflects the group’s share of the net assets of the associate or joint venture (including goodwill).

Equity accounting involves recognising the investment initially at fair value, including goodwill, and subsequently adjusting the carrying value for the group’s share of the associates’ and joint ventures’ income and expenses and OCI. Equity accounting of losses in associates and joint ventures 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 ’upstream’ and ’downstream’ 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.

Equity accounting is applied from the date on which the entity becomes an associate or joint venture up to the date on which it ceases to be an associate or joint venture. The accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies of the group.

Where a mutual fund investment is acquired and held for the purposes of investment-linked insurance activities within investment management and life insurance activities, it is not accounted for under the equity method but is designated on initial recognition at fair value through profit or loss and is accounted for on the basis set out in accounting policy 4 – Financial instruments. Private equity and property equity investments, which are associates, are either designated on initial recognition at fair value through profit or loss, or equity accounted.

Investments in associates and joint ventures are accounted for at cost less impairment losses in the company’s annual financial statements.

Joint operationsA joint operation is a joint arrangement whereby the joint operators, who have joint control, have rights to the assets and obligations for the liabilities relating to the arrangement. The joint operator recognises:

assets it controls, including the 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.

7. Intangible assets

GoodwillGoodwill represents the excess of the consideration transferred and the acquisition date fair value of any previously held equity interest (including transaction costs for acquisitions prior to 1 January 2010) 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 (refer to accounting policy 1 – Basis of consolidation).

Goodwill arising on the acquisition of subsidiaries is reported in the statement of financial position as part of goodwill and other intangible assets. Goodwill arising on the acquisition of associates or joint ventures are included in interest in associates and joint ventures in the statement of financial position (refer to accounting policy 6 – Interest in associates and joint ventures). Goodwill is allocated to cash-generating units (CGUs) (not larger than operating segments of the group as defined) and is tested annually for impairment. An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to a CGU and then to reduce the carrying amount of 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.

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. Capitalisation is further limited to

development costs where the group is able to demonstrate its intention

and ability to complete and use the software, the technical feasibility

of the development, the availability of resources to complete the

development, how the development will generate probable future

economic benefits and the ability to reliably measure costs relating

to the development. Direct costs include software development

employee costs and an appropriate portion of relevant overheads.

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.

Direct computer software development costs recognised as intangible

assets are amortised on the straight-line basis at rates appropriate to

the expected useful lives of the assets (two to 10 years) from the

date that the assets are available for use, and are carried at cost less

accumulated amortisation and accumulated impairment losses. The

carrying amount of capitalised computer software is reviewed annually

and is written down when impaired.

Amortisation methods, useful lives and residual values are reviewed

at each financial year end and adjusted, if necessary.

There have been no significant changes in the estimated useful lives

from those applied in the previous financial year.

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 profit or loss 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 profit or loss on a straight-line basis over the estimated

useful lives of intangible assets, not exceeding 20 years, from the

date that they are available for use.

Amortisation methods, useful lives and residual values are reviewed at

each financial year end and adjusted, if necessary. There have been no

changes in the estimated useful lives from those applied in the

previous financial year.

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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 and amortised on a basis consistent with the settlement of the relevant liability in respect of the purchased contracts (four to 12 years). The estimated life is re-evaluated annually. The PVIF intangible asset is carried in the statement of financial position at cost less accumulated amortisation and accumulated impairment losses.

8. Property and equipmentEquipment and owner-occupied properties, furniture, vehicles and other tangible assets are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Where significant parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

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 profit or loss as incurred. Depreciation, impairment losses and gains and losses on disposal of assets are included in profit or loss.

Owner-occupied properties are held for use in the supply of services or for administrative purposes.

Property and equipment are depreciated on the straight-line basis over the estimated useful lives of the assets to their residual values. Land is not depreciated. Leasehold buildings are depreciated over the period of the lease or over a lesser period, as is considered appropriate.

The assets’ residual values, useful lives and the depreciation method applied are reviewed, and adjusted if appropriate, at each financial year end.

The estimated useful lives of tangible assets are typically as follows:

Buildings 40 years

Computer equipment 3 to 5 years

Motor vehicles 4 to 5 years

Office equipment 5 to 10 years

Furniture and fittings 5 to 13 years

Capitalised leased assets over the shorter of the lease term or its useful life

There has been no significant changes to the estimated useful lives and depreciation methods from those applied in the previous financial year.

Items of property and equipment 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 item.

9. Property developments and properties

in possession 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. When development is completed, borrowing costs and other charges are expensed as incurred.

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 property is recognised at the time at which the risks and rewards of the properties are transferred to the group. 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 increase in the net realisable value, to the extent that it does not exceed its original cost, is also recognised within operating expenses.

10. Capitalisation of borrowing costsBorrowing costs that relate to 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 capitalised. All other borrowing costs are recognised in profit or loss.

11. Impairment of non-financial assetsIntangible assets that have an indefinite useful life and goodwill are tested annually for impairment and additionally when an indicator of impairment exists. Intangible assets that are subject to amortisation and other non-financial 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 profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. 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 levelsfor 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 units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, 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 profit or loss 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.

12. LeasesA lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. A lease of assets is either classified as a finance lease or operating lease.

Group as lessee Leases, where the group assumes substantially all the risks and rewards incidental to ownership, are classified as finance leases. All other leases are classified as operating leases.

Finance leases are 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. Lease payments are calculated using the interest rate implicit in the lease, or the group’s incremental borrowing rate to identify the finance cost, which is recognised in profit or loss over the lease period, and the capital repayment, which reduces the liability to the lessor.

Payments made under operating leases, net of any incentives received from the lessor, are recognised in profit or loss 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 penalty is recognised as an expense in the period in which termination takes place.

Group as lessor Leases, where the group transfers substantially all the risks and rewards incidental to ownership, are classified as finance leases. All other leases are classified as operating leases.

Lease and instalment sale contracts are primarily financing transactions in banking activities, with rentals and instalments receivable, less unearned finance charges, being included in loans and advances in the statement of financial position.

Finance charges earned are computed using the effective interest rate method, which reflects a constant periodic rate of return

on the investment in the finance lease. Initial direct costs and fees are capitalised to the value of the lease receivable and accounted for over the lease term as an adjustment to the effective rate of return. The tax benefits arising from investment allowances on assets leased to clients are accounted for in the direct taxation line.

Operating lease income from properties held as investment properties, 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. 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.

13. Provisions, contingent assets and

contingent liabilitiesProvisions 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.

A 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.

A 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.

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 include certain guarantees, other than financial guarantees, and letters of credit. Contingent liabilities are not recognised in the annual financial statements but are disclosed in the notes to the annual financial statements unless they are remote.

14. Employee benefits

Post-employment benefits

Defined contribution plansThe group operates a number of defined contribution plans, based on a percentage of pensionable earnings funded by both employer

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companies and employees, the assets of which are generally held in separate trustee-administered funds.

Contributions to these plans are recognised as an expense in profit or loss in the periods during which services are rendered by employees.

Defined benefit plansThe group also operates a number of defined benefit plans, with membership generally limited to employees who were in the employment of the various companies at specified dates. Employer companies contribute to the cost of benefits taking account of the recommendations of the actuaries. Statutory actuarial valuations are required every three years using the projected unit credit method. Interim valuations are also performed annually at the financialyear end. Within the defined benefit plans, the group operates a number of funded and unfunded post-employment medical aid schemes, with membership limited to employees who were retired or in the employment of the various companies at specified dates and complying with specific criteria.

The assets or liabilities recognised in the statement of financial position in respect of defined benefit plans are measured at the present value of the estimated future cash outflows, using interest rates of government bonds with maturity dates that approximate the expected maturity of the obligations, less the fair value of plan assets. A 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.

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). The net interest income/(expense) is recognised in profit or loss. Other expenses related to the defined benefit plans are also recognised in profit or loss.

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.

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 profit or loss. The group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Termination benefitsTermination benefits are recognised as an expense 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. Termination benefits for voluntary redundancies are recognised as an expense 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.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus plans or accumulated leave if the group hasa 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.

15. Taxation

Direct taxation Direct taxation includes all domestic and foreign taxes based on taxable profits and CGT. Current tax is determined for current period transactions and events and deferred tax is determined for future tax consequences. Current and deferred tax are recognised in profit or loss 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.

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, and

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.

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.



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.

Dividends taxTaxes 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 trade and other payables in the statement of financial position.

Indirect taxationIndirect taxes, including non-recoverable VAT, skills development levies and other duties for banking activities, are recognised in profit or loss and disclosed separately in the income statement.

16. Non-current assets held for sale, disposal

groups and discontinued operationsNon-current assets, or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than continuing use, are classified as held for sale and are accounted for as follows:

Non-current assets held as investments for the benefit of policyholders as part of the group’s investment management and life insurance activities are not classified as held for sale as ongoing investment management implies regular purchases and sales in the ordinary course of business.

Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the group’s accounting policies and tested for impairment (refer accounting policy 11 – Impairment of non-financial assets). Thereafter, the assets are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised in profit or loss.

Assets (or components of a disposal group) are presented separately in the statement of financial position.

Property and equipment and intangible assets, once classified as held for sale, are not depreciated or amortised.

Once an interest in an associate or joint venture is classified as held for sale, equity accounting is suspended.

In presenting the group’s non-current assets and liabilities as held for sale, intercompany balances are eliminated in full.

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, 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.

Discontinued operations are presented separately within the income statement and the cash flow statement.

Intercompany income and expense transactions between the group’s continuing and discontinued operations are not eliminated.

17. Fair value 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.

When a price for an identical asset or liability is not observable, fair value is measured using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs.

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.

For 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 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.

Subsequent to initial recognition, fair value is measured based on quoted market prices or dealer price quotations for the assets and liabilities that are traded in active markets and where those quoted prices represent fair value at the measurement date. If the market for an asset or liability is not active or the instrument is unlisted, the fair value is determined using other applicable valuation techniques. 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.

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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.

The 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. This election is applied where the group:

manages the group of financial assets and financial liabilities on the basis of the group’s net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the group’s documented risk management or investment strategy

provides information on that basis about the group of financial assets and financial liabilities to the group’s key management personnel, and

is required to or has elected to measure those financial assets and financial liabilities at fair value at the end of each reporting period.

Where 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.

Fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement.

18. Policyholder insurance and investment

contracts Policyholder contracts are classified into four categories, depending on the duration of or type of investment benefit or insurance risks, namely, short-term insurance, long-term insurance, investment contracts with DPF and investment contracts without DPF.

Insurance 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.

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.

Discretionary participation featuresA 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 FSB. 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.

Short-term insuranceShort-term insurance provides benefits under short-term policies, which include engineering, fire, personal liability, marine and aviation, motor, personal accident, medical expenses, theft and the Workmen’s Compensation Act 30 of 1941, or a contract comprising a combination of any of those policies.

Recognition and measurement

Gross written premiums

Gross premiums exclude 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 claims incurred

but not reported

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, being incurred

but not reported (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 in respect

of short-term contracts

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 when incurred.

Deferred revenue liability in respect

of short-term contracts

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.

Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include

amounts due to and from agents, intermediaries and insurance

contract holders and are included under prepayments, insurance

and other receivables and insurance and other payables.

Professional Guidance issued by the Actuarial Society

of South Africa

In terms of IFRS 4 Insurance Contracts (IFRS 4), insurance liabilities

are measured under existing local practice at the date of adoption of

IFRS 4. The group had, prior to the adoption of IFRS 4, adopted the

Professional Guidance Notes (PGNs) issued by the ASSA 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 the PGNs.

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 ASSA’s 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.

Long-term insurance contracts and investment

contracts with DPF

MeasurementThese 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 and 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).

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’

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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.

Incurred but not reported claimsProvision is made in policyholders’ liabilities for the estimated cost at the end of the year of claims incurred but not reported at that date.

Liability adequacy testAt 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 light of the estimated future cash flows,then the deficiency is recognised in profit or loss.

Long-term investment contracts without DPF The group issues investment contracts without fixed benefits (unit linked and structured products) and investment contracts with fixed and guaranteed benefits (term certain annuity). These investment contracts are accounted for as financial liabilities and are designated at fair value through profit or loss. Refer to accounting policy 4 – Financial instruments.

Investment contracts with a DPF switching optionOn 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 policyholders’ investment in the investment portfolio at the valuation date.

Receivables and payables related to insurance contracts

and investment contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and policyholders. Outstanding claims and benefit payments are stated gross of reinsurance.

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.

19. Equity

Reacquired equity instrumentsWhere subsidiaries purchase/(short) the holding entity’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.

Tutuwa initiativeThe group concluded its Tutuwa initiative in October 2004 when it

sold an effective 10% interest in its South African banking operations

to a broad-based grouping of black entities. 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 SEs 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.

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.

Distributions on ordinary shares 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.

20. Equity-linked transactions

Equity compensation plansThe group operates both equity-settled and cash-settled share-based compensation plans.

The fair value of equity-settled share options is determined on the grant date and accounted for as staff costs over the vesting period of the share options, with a corresponding increase in the share-based payment reserve. Non-market vesting conditions, such as the resignation of employees and staff retrenchments, 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 profit or loss and equity over the remaining vesting period.

On vesting of share options, amounts previously credited to the share-based payment reserve are transferred to retained earnings through an equity transfer. On exercise of equity-settled share options, proceeds received are credited to share capital and premium.

Share-based payments settled in cash are accounted for as liabilities at fair value until settled. The liability is recognised over the vesting period and is revalued at every reporting date and on settlement. Any changes in the liability are recognised in profit or loss.

21. Revenue and expenditure

Banking activities Revenue is derived substantially from the business of banking and related activities and comprises interest income, fee and commission revenue, trading revenue and other non-interest revenue.

Net interest income Interest income and expense (with the exception of those borrowing costs that are capitalised – refer to accounting policy 10 – Capitalisation of borrowing costs) are recognised in profit or loss

on an accrual basis using the effective interest rate method for all interest-bearing financial instruments, except for those classified at fair value through profit or loss. In terms of the effective interest rate 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, refer to accounting policy 4 – Financial instruments) 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 estimated 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, and excluding those classified as held-for-trading, 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.

Non-interest revenue

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 feesthat do not meet these criteria are capitalised as origination fees and amortised 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 expense included in net fee and commission revenue are mainly transaction and service fees relating to financial

293




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 revenueTrading 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 revenueOther 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 profit or loss on derecognition or impairment of the investments. Dividends on these instruments are recognised in profit or loss.

Dividend income Dividends are recognised in profit or loss when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative.

Short-term insurance incomeShort-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.

Revenue sharing agreements with group companiesRevenue sharing agreements with group companies include the allocation of revenue from transfer pricing agreements between the group’s continuing and discontinuing operations. 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 agreements 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.

Customer loyalty programmesThe group’s banking operations 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 recognised over the period in which the customer utilises the reward credits.

Expenses relating to the provision of the reward credits are recognised as an expense as and when they are incurred.

Investment management and life insurance activitiesRevenue comprises premium income, investment income, and management and service fee income.

Insurance contracts and investment contracts with DPFPremium incomePremiums 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) and 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.

Reinsurance premiumsReinsurance premiums are recognised when due for payment, in accordance with the terms of each reinsurance contract.

ClaimsClaims on insurance contracts, which include death, disability, maturity, surrender and annuity payments, are recognised in profit or loss 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 profit or loss.

Reinsurance recoveries are accounted for in the same period as the related claims.

Acquisition costsAcquisition costs for insurance contracts represent commission and other costs that relate to the securing of new contractsand the renewing of existing contracts. These costs are expensedas incurred.



Investment contracts without DPF

Amounts received and claims incurred on investment

contractsAmounts 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.

Service fees on investment management contracts

and deferred revenue liability on investment

management contractsService fee income on investment management contracts is recognised on an accrual basis as and when the services are rendered.

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 revenue 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.

Deferred acquisition costs in respect

of investment contractsCommissions 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 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.

Investment incomeInvestment 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 rate method.

Hotel operation’s 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 managementFee 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.

22. Segment reportingAn 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 Tutuwa initiative and 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 that is deducted from equity and reduces the shares in issue in terms of IFRS.

Group shares held for the benefit of Liberty policyholders that result in a reduction of the number of shares in issue and the exclusion of fair value adjustments and dividends on these shares. The IFRS requirement causes an accounting mismatch between income from investments and changes in policyholders’ liabilities, and

The group’s transactions in its own shares to facilitate client trading activities. As part of the normal trading operations, a group subsidiary offers to its clients trading positions of listed shares, including its own shares. In order to hedge the risk on these shares the subsidiary buys or sells short group shares in the market. Although the share exposure on the group’s own shares is deducted from or added to equity and the related fair value movements are reversed in the income statement on consolidation, the client trading position and fair value movements are not eliminated, resulting in an accounting mismatch.

23. 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.

24. Comparative figures Where necessary, comparative figures within notes have been restated to either conform to changes in presentation in the current year or for the adoption of new IFRS requirements.

295




New standards and interpretations not yet adopted The following new or revised standards and amendments are not yet effective for the year ended 31 December 2013 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 accounting for financial assets differs in various other areas to existing requirements such as embedded derivatives and the recognition of fair value adjustments in OCI.

All changes 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 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.

Annual periods beginning on or after 1 January 2018.

IAS 19 Defined Benefit Plans: Employee ContributionsIAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans where such contributions are linked to service.

The amendment requires contributions that are dependent on the number of years of service, to be attributed to periods of service based on the plan’s contribution formula or a straight-line basis.

The amendment permits contributions that are independent of the number of years of service to be recognised as a reduction in service cost in the period in which the related service is rendered instead of attributing the contributions to the periods of service.

The amendment will be applied retrospectively and is not expected to have a material impact on the group’s financial statements.

Annual periods beginning on or after 1 July 2014.

IAS 32 (amendments) Offsetting Financial Assets and Financial LiabilitiesThe amendment to IAS 32 clarifies the requirements for offsetting of financial assets and liabilities.

The amendment will be applied retrospectively and is not expected to have a material impact on the group’s financial statements.


IFRIC 21 IFRIC 21 prescribes when to recognise government imposed levies, both for levies whose timing and amount are certain, as well as levies accounted for in terms of IAS 37. The levy liability in accordance with this interpretation should be recognised in conjunction with an obligating event either progressively or at a point in time.

IFRIC 21 will be applied retrospectively and is not expected to have a material impact on the group’s financial statements.


Annual improvements

2010 – 2012 cycle

2011 – 2013 cycle

The IASB has issued various amendments and clarifications to existing IFRS, none of which is expected to have a significant impact on the group’s financial statements.

Various effective dates, the earliest being for the group’s 2014 financial year.



Annexure F

Directors’ and prescribed officers’ emoluments 2013

Fixed remuneration

Servicesas directorsof Standard

BankGroupR’000

StandardBank

Groupcommittee

feesR’000

Servicesas directors

of groupsubsidiaries

R’000

Cashportion of

packageR’000

Otherbenefits

R’000

Non-executive directorsDDB Band 204 442 379RMW Dunne 204 806 204TS Gcabashe 204 318 243KP Kalyan 204 91 204Dr Y Liu 669 176SJ Macozoma 204 626 2 462Adv KD Moroka 204 52 204AC Nissen 204 91 204TMF Phaswana 4 750 3521

MJD Ruck 204 576 1 401Lord Smith of Kelvin, KT 669 230 669PD Sullivan 643 378 662EM Woods 204 775 282H Zhang 669 318

Subtotal 9 236 4 879 6 914 352

Former non-executive directorsMC Ramaphosa 2 85 37 84

Subtotal 85 37 84

Executive directorsBJ Kruger* 6 559 315SK Tshabalala* 6 384 274SP Ridley* 4 900 286

Subtotal 17 843 875

Former executive directorsJH Maree5 ** 1 119 90PG Wharton-Hood6 ** 4 558 225

Subtotal 5 677 315

Subtotal board 9 321 4 916 6 998 23 520 1 542

Prescribed officersJB Hemphill 4 657 160DC Munro 4 596 200PL Schlebusch 4 476 199

Subtotal 13 729 559

Total 9 321 4 916 6 998 37 249 2 101

1 Use of motor vehicle and club subscriptions.2 Retired on 30 May 2013.3 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.4 The DBS post 2011, described on page 276, 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.5 Resigned as an executive director on 7 March 2013.6 Resigned as an executive director from the board on 14 August 2013.7 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report.8 Awards granted to key senior executives in March 2013 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition as set out in the

annual integrated report, over and above the duration of service.* BJ Kruger, SK Tshabalala and SP Ridley were also prescribed officers for 2013.** JH Maree and PG Wharton-Hood were also prescribed officers of the group until their respective dates of resignation.

Emoluments and share incentives of directors and prescribed officers

297




Variable remuneration

Pensioncontributions

R’000

Otherwise in connection

with theaffairs ofStandard

Bank Groupand its

subsidiariesR’000

Totalfixed

remunerationR’000

CashawardR’000

Incremental payments

and notional dividends on DBS awards

R’000

DeferredawardR’000

Value ofoptions/

rightsgranted EGS

R’000

Totalremuneration

for theyear

R’000

1 025 1 0251 214 1 214

765 765 499 499 845 845

3 292 3 292 460 460 499 499

5 102 5 1022 181 2 1811 568 1 5681 683 1 6831 261 1 261

987 987

21 381 21 381

206 206

206 206

1 088 7 962 9 4003 344 11 1004 28 806 990 7 648 9 4003 534 11 1004 28 682 624 5 810 6 1503 429 7 8504 20 239

2 702 21 420 24 950 1 307 30 050 77 727

185 1 394 7903 658 2 842 767 5 550 551 6 101

952 6 944 790 551 658 8 943

3 654 49 951 25 740 1 858 30 708 108 257

295 5 112 8 3503 4 1507 9 4007,8,9 27 012 641 5 437 15 1503 1 167 14 8504 36 604 595 5 270 10 1503 392 10 8504 26 662

1 531 15 819 33 650 1 559 29 850 9 400 90 278

5 185 65 770 59 390 3 417 60 558 9 400 198 535

9 Black-Scholes value of conditional awards forfeited.

Name Value (R’000)

BJ Kruger (4 758)SK Tshabalala (2 774)SP Ridley (2 537)JB Hemphill (395)JH Maree (9 919)DC Munro (1 585)

(21 968)


Annual financial statements Annexure F – emoluments and share incentives of directors and prescribed officers continued

Directors’ and prescribed officers’ emoluments 2012Fixed remuneration

Servicesas directorsof Standard

BankGroupR’000

StandardBank

Groupcommittee

feesR’000

Servicesas directors

of groupsubsidiaries

R’000

Cashportion of

packageR’000

Otherbenefits

R’000

Non-executive directorsDDB Band 189 410 315RMW Dunne 189 746 189TS Gcabashe 189 280 225KP Kalyan 189 84 189Dr Y Liu 533 180SJ Macozoma 189 580 2 287Adv KD Moroka 189 189AC Nissen 189 84 189TMF Phaswana 4 400 4162

MC Ramaphosa 189 82 189MJD Ruck 189 533 1 352Lord Smith of Kelvin, KT 533 213 533EM Woods 189 679 207H Zhang 533 295

Subtotal 7 889 4 166 5 864 416

Former non-executive directorsSE Jonah KBE3 78 78Sir PR Judge3 222 221

Subtotal 300 299

Executive directorsJH Maree* 6 345 470SP Ridley* 4 617 246

Subtotal 10 962 716

Subtotal board 8 189 4 166 6 163 10 962 1 132

Prescribed officersBJ Kruger 6 014 132PG Wharton-Hood 6 008 191SK Tshabalala 5 098 270JB Hemphill 4 424 387

Subtotal 21 544 980

Total 8 189 4 166 6 163 32 506 2 112

1 This amount was payable to DDB Band by Gymnogene Investments, a company in which he is a 33% shareholder and which had a contractual relationship with the group. The payment arises from a share of the profit on disposal of private equity investments in a portfolio sourced and arranged by Gymnogene Investments on behalf of the group. Although the contractual relationship expired on 31 December 2004, payments of this nature are likely to recur if and when the remaining investments in this portfolio are realised on a profitable basis to the group.

2 Use of motor vehicle and club subscriptions.3 Retired on 31 May 2012. 4 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.5 The DBS post 2011, described on page 276, 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.6 Awards granted to key senior executives in March 2013 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition as set out

in the annual integrated report, over and above the duration of service.* JH Maree and SP Ridley were also prescribed officers for 2012.

299




Variable remuneration

Pensioncontributions

R’000

Otherwise in connection

with theaffairs ofStandard

Bank Groupand its

subsidiariesR’000

Totalfixed

remunerationR’000

CashawardR’000

DeferredawardR’000

Value ofoptions/

rightsgranted EGS

R’000

Totalremuneration

for theyear

R’000

4731 1 387 1 3871 124 1 124

694 694462 462713 713

3 056 3 056378 378462 462

4 816 4 816460 460

2 074 2 0741 279 1 2791 075 1 075

828 828

473 18 808 18 808

156 156443 443

599 599

997 7 812 4 5004 3 7005 2 0006,7 18 012572 5 435 5 5004 4 7005 1 5006,7 17 135

1 569 13 247 10 000 8 400 3 500 35 147

1 569 473 32 654 10 000 8 400 3 500 54 554

963 7 109 5 9004 5 1005 2 0006,7 20 109966 7 165 7 5004 6 7005 2 5006,7 23 865482 5 850 8 2504 7 4505 2 5006,7 24 050132 4 943 7 9004 3 8508 7 0007,8 23 693

2 543 25 067 29 550 23 100 14 000 91 717

4 112 473 57 721 39 550 31 500 17 500 146 271

7 Black-Scholes value of conditional awards forfeited.

Name Value (R’000)

JH Maree (5 748)SP Ridley (2 128)BJ Kruger (3 697)PG Wharton-Hood (3 697)SK Tshabalala (2 547)JB Hemphill (699)

(18 516)

8 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report.



Share incentives

Director’s name

Opening balance

1 January

Number of share

incentives allocated

Issue oroffer date

Number of participation

rights forfeited

Black-Scholesvalue of

participationrights

forfeited1

(R)

Number of share

incentives exercised

or accepted during

the year

SK Tshabalala2 GSIS

2013 25 000

2012 25 000

EGS

2013 1 019 305 302 109 2013/03/07 (56 250) (2 774 438)

2012 795 000 274 305 2012/03/08 (50 000) (2 547 250)

BJ Kruger EGS

2013 1 186 471 56 594 2013/03/07 (100 000) (4 758 250)

2012 1 231 500 61 471 2012/03/08 (75 000) (3 696 750) (31 500)

1 Forfeiture as a result of the underlying EGS award’s performance conditions not being met.2 SK Tshabalala has a right to 698 339 (2012: 698 339) shares as a beneficiary of the Tutuwa Managers’ Trusts. There is a current liability of R48,21 (2012: R44,36) per share.

Special conditions apply to the shares.3 Conditional awards.

301




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 2013

Issuedate

Issue oroffer price

(R)Vesting

categoryExpiry

date

25 000 25 000 2004/03/11 40,65 A 2014/03/11

25 000

115,51 1 265 164 50 000 2005/03/10 65,60 B 2015/03/10

108,90 1 019 305 22 500 2006/03/10 79,50 A 2016/03/10

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

25 0003 2008/03/06 92,00 B 2018/03/06

18 7503 2009/03/06 62,39 A 2019/03/06

75 0003 2009/03/06 62,39 B 2019/03/06

62 5003 2010/03/05 111,94 A 2020/03/05

62 5003 2010/03/05 111,94 B 2020/03/05

100 0003 2011/03/04 98,80 A 2021/03/04

100 0003 2011/03/04 98,80 B 2021/03/04

61 4713 2012/03/08 108,90 A 2022/03/08

212 834 2012/03/08 108,90 D 2022/03/08

70 7423 2013/03/07 115,51 E 2023/03/07

231 367 2013/03/07 115,51 D 2023/03/07

1 143 065 300 000 2006/03/10 79,50 B 2016/03/10

7 990 1 441 440 1 186 471 150 000 2007/03/07 98,00 B 2017/03/07

50 0003 2008/03/06 92,00 B 2018/03/06

25 0003 2009/03/06 62,39 A 2019/03/06

100 0003 2009/03/06 62,39 B 2019/03/06

100 0003 2010/03/05 111,94 A 2020/03/05

100 0003 2010/03/05 111,94 B 2020/03/05

100 0003 2011/03/04 98,80 A 2021/03/04

100 0003 2011/03/04 98,80 B 2021/03/04

61 4713 2012/03/08 108,90 A 2022/03/08

56 5943 2013/03/07 115,51 E 2023/03/07



Share incentives continued

Director’s name

Opening balance

1 January

Number of share


Issue oroffer date

Number ofparticipation

rightsforfeited


participationrights

forfeited1

(R)

Number of share


or accepted during

the year

SP Ridley EGS

2013 669 383 42 445 2013/03/07 (52 500) (2 537 250) (75 000)

2012 725 000 36 883 2012/03/08 (42 500) (2 127 925) (50 000)

JB Hemphill EGS

2013 237 500 (6 250) (395 312)

2012 250 000 (12 500) (698 875)

DC Munro EGS

2013 765 221 131 690 2013/03/07 (31 250) (1 584 875)

1 Forfeiture as a result of the underlying EGS award’s performance conditions not being met.2 Conditional awards.

303





shares


price and closing

price on date of

delivery(R)

Balance of share


Number of share

incentives as at

31 December 2013

Issuedate

Issue oroffer price

(R)Vesting

categoryExpiry

date

20 358 2 962 500 584 328 75 000 2006/03/10 79,50 B 2016/03/10

12 175 2 170 000 669 383 15 000 2007/03/07 98,00 A 2017/03/07

15 000 2007/03/07 98,00 B 2017/03/07

25 0002 2008/03/06 92,00 B 2018/03/06

15 0002 2009/03/06 62,39 A 2019/03/06

60 0002 2009/03/06 62,39 B 2019/03/06

100 0002 2010/03/05 111,94 A 2020/03/05

100 0002 2011/03/04 98,80 A 2021/03/04

100 0002 2011/03/04 98,80 B 2021/03/04

36 8832 2012/03/08 108,90 A 2022/03/08

42 4452 2013/03/07 115,51 E 2023/03/07

231 250 5 000 2005/04/21 60,35 A 2015/04/21

237 500 20 000 2005/04/21 60,35 B 2015/04/21

6 2502 2009/03/06 62,39 A 2019/03/06

25 0002 2009/03/06 62,39 B 2019/03/06

75 0002 2010/03/05 111,94 A 2020/03/05

75 0002 2010/03/05 111,94 B 2020/03/05

12 5002 2011/03/04 98,80 A 2021/03/04

12 5002 2011/03/04 98,80 B 2021/03/04

115,51 865 661 50 000 2005/03/10 65,60 B 2015/03/10

250 000 2006/03/10 79,50 B 2016/03/10

23 750 2007/03/07 98,00 A 2017/03/07

23 750 2007/03/07 98,00 B 2017/03/07

12 5002 2008/03/06 92,00 B 2018/03/06

50 000 2008/03/06 92,00 B 2018/03/06

12 5002 2009/03/06 62,39 A 2019/03/06

50 0002 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 0002 2011/03/04 98,80 A 2021/03/04

50 0002 2011/03/04 98,80 B 2021/03/04

61 4712 2012/03/08 108,90 A 2022/03/08

60 948 2013/03/07 115,51 D 2023/03/07

70 7422 2013/03/07 115,51 E 2023/03/07



Share incentives continued

Director’s name

Opening balance

1 January

Number of share


Issue oroffer date

Number of participation

rights forfeited


participationrights

forfeited1

(R)

Number of share


or accepted during

the year

PL Schlebusch EGS

2013 411 258 56 594 2013/03/07

JH Maree EGS

2013 1 561 471 56 594 2013/03/07 (218 750) (9 919 063)

2012 1 625 000 61 471 2012/03/08 (125 000) (5 747 500)

PG Wharton-Hood GSIS

2013 125 000 (125 000)

2012 250 000 (125 000)

EGS

2013 1 236 471 70 742 2013/03/07 (738 463)3 (50 000)

(125 000)

(300 000)

(93 750)

2012 1 250 000 61 471 2012/03/08 (75 000) (3 696 750)

1 Forfeiture as a result of the underlying EGS award’s performance conditions not being met.2 Conditional awards.3 Forfeiture as a result of resignation from the group on 15 September 2013.

305





shares


price and closing

price on date of delivery

(R)

Balance of share


Number of share

incentives as at

31 December 2013

Issuedate

Issue oroffer price

(R)Vesting

categoryExpiry

date

115,51 467 852 20 000 2007/03/07 98,00 A 2017/03/07

20 000 2007/03/07 98,00 B 2017/03/07

9 375 2008/03/06 92,00 A 2018/03/06

37 500 2008/03/06 92,00 B 2018/03/06

25 000 2008/03/06 92,00 B 2018/03/06

12 500 2009/03/06 62,39 A 2019/03/06

50 000 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 0002 2011/03/04 98,80 A 2021/03/04

50 0002 2011/03/04 98,80 B 2021/03/04

36 8832 2012/03/08 108,90 A 2022/03/08

56 5942 2013/03/07 115,51 E 2023/03/07

115,51 1 399 315 375 000 2006/03/10 79,50 A 2016/03/10

108,90 1 561 471 125 000 2006/03/10 79,50 B 2016/03/10

125 0002 2008/03/06 92,00 B 2018/03/06

31 2502 2009/03/06 62,39 A 2019/03/06

125 0002 2009/03/06 62,39 B 2019/03/06

500 0002 2010/03/05 111,94 A 2020/03/05

61 4712 2012/03/08 108,90 A 2022/03/08

56 5942 2013/03/07 115,51 E 2023/03/08

40,65 9 322 500

27,90 10 641 250 125 000

242 100 500

34 544 6 043 750

63 270 10 335 000

8 966 1 495 312

108,90 1 236 471



Deferred bonus schemeThe table below reflects bonus awards issued in the 2013 and prior financial years. The awards will only vest in future in terms of the rules of the DBS and DBS post 2011. The deferred bonus awards for the 2013 performance year are only issued in the 2014 financial year, arestill subject to choice and are reflected in the table below.

Performanceyear

Issuedate

Amountdeferred

(R)

Award price

(R)Units

awarded

SK Tshabalala 2008 2009/03/061 1 750 000 62,39 28 0502009 2010/03/051 1 930 000 111,94 17 2412013 2014/03/062 11 100 000

BJ Kruger 2009 2010/03/051 1 075 000 111,94 9 6032010 2011/03/041 2 310 000 98,80 23 3812011 2012/03/083 9 762 558 108,90 89 6472012 2013/03/073 5 100 000 115,51 44 1532013 2014/03/062 11 100 000

SP Ridley 2008 2009/03/061 887 500 62,39 14 2262009 2010/03/051 817 500 111,94 7 3032010 2011/03/041 552 875 98,80 5 5962011 2012/03/083 5 600 074 108,90 51 4242012 2013/03/073 4 700 000 115,51 40 6902013 2014/03/062 7 850 000

DC Munro 2008 2009/03/061 2 852 500 62,39 45 7212009 2010/03/051 2 936 500 111,94 26 2332010 2011/03/041 3 850 000 98,80 38 9682011 2012/03/083 10 334 000 108,90 94 8952012 2013/03/073 5 887 500 115,51 50 9702013 2014/03/062 14 850 000

PL Schlebusch 2008 2009/03/061 675 000 62,39 10 8202009 2010/03/051 990 000 111,94 8 8442010 2011/03/041 1 962 000 98,80 19 8582011 2012/03/083 5 850 000 108,90 53 7202012 2013/03/073 6 225 000 115,51 53 8922013 2014/03/062 10 850 000

JH Maree 2008 2009/03/061 2 593 000 62,39 41 5612011 2012/03/083 9 043 512 108,90 83 0352012 2013/03/073 3 700 000 115,51 32 032

PG Wharton-Hood 2008 2009/03/063 967 500 62,39 15 5082009 2010/03/053 887 500 111,94 7 928

2010 2011/03/041 5 184 600 98,80 52 4762011 2012/03/083 8 887 547 108,90 81 612

2012 2013/03/073 6 700 000 115,51 58 004

1 Units are granted in DBS and vest after three years from date of award. 2 Deferred bonus amounts awarded in March 2014 are still subject to choice. Participants can elect to have the value of the deferred award, or 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 6 March 2014. This award will be updated in the group’s 2014 annual financial statements to reflect the choices made and units/rights awarded.

3 Units are granted in DBS post 2011 and vest in three equal tranches at 18, 30 and 42 months from date of award.# The units were exercised to settle taxes due on vesting date.* Forfeited.

JB Hemphill was awarded a deferred bonus, issued in Liberty Holdings Limited. Full details are available in the Liberty Holdings Limited annual financial statements.

307




Expiry date/finalvesting date

Balance of units

1 January

Number of unitsexercised during

the year

Shareprice

(R)

Value of unitsexercised

(R)

Balanceof units

31 December

2013/11/30 16 830 16 830 119,32 2 008 156

2014/11/30 17 241 6 897 118,39 816 536 10 344#

2017/09/30

2014/11/30 9 603 3 842 118,39 454 854 5 761#

2015/11/30 23 381 23 381

2015/09/30 89 647 29 882 120,80 3 609 746 59 765

2016/09/30 44 153

2017/09/30

2013/11/30 8 535 8 535 122,00 1 041 270

2014/11/30 7 303 2 922 118,39 345 936 4 381

2015/11/30 5 596 5 596

2015/09/30 51 424 17 141 120,80 2 070 633 34 283

2016/09/30 40 690

2017/09/30

2013/11/30 27 432 27 432 122,00 3 346 704

2014/11/30 26 233 10 494 118,39 1 242 385 15 739#

2015/11/30 38 968 38 968

2015/09/30 94 895 31 631 120,80 3 821 025 63 264

2016/09/30 50 970

2017/09/30

2013/11/30 6 492 6 492 118,39 768 588

2014/11/30 8 844 3 538 118,39 418 864 5 306#

2015/11/30 19 858 19 858

2015/09/30 53 720 17 906 120,80 2 163 045 35 814

2016/09/30 53 892

2017/09/30

2013/11/30 41 561 41 561 112,90 4 692 237

2015/09/30 83 035 27 678 120,80 3 343 502 55 357

2016/09/30 32 032

2013/11/30 9 304 9 304 113,95 1 060 191

2014/11/30 7 928 3 172 118,39 375 533

4 756 113,95 541 946

2015/11/30 52 476 52 476*

2015/09/08 81 612 27 204 120,80 3 286 243

54 408*

2016/09/30 58 004*



Annexure G

Group companies passed the following special resolutions during the year for the purposes indicated:

Amendment to the Articles of Association/

Memorandum of Incorporation (MOI)

Existing articles substituted with new Articles of

Association/MOI Aileron Investments Proprietary Limited

Alisier Investments Proprietary Limited

Allied Investment Corporation Limited

Blue Granite Investments No 1 (RF) Limited



Blue Granite Investments No 4 (RF)Limited

Blue Titanium Conduit (RF) Limited

Blue Waves Properties 78 Proprietary Limited

Diners Club (S.A.) Proprietary Limited

Exridge Investments Proprietary Limited

East London Development Corporation Limited

Elderberry Investments 49 Proprietary Limited

FHP Managers Proprietary Limited

Frank Financial Services Proprietary Limited

Frank Life Limited

Friedshelf 940 Proprietary Limited

Greenfield Newgate Proprietary Limited

Gloster Farm Proprietary Limited

Hesinca Proprietary Limited

Inani Realty Asset Management Proprietary Limited

Insurance Computer Systems Proprietary Limited

John Platter SA Wine Guide Proprietary Limited

Managed Direct Response Proprietary Limited

Melville Douglas Investment Management Proprietary Limited

Mountain Homes Proprietary Limited

Mogale’s Gate Proprietary Limited

LC Golf SA Proprietary Limited

Lodestone Holdings Proprietary Limited

Liberty Holdings Limited

Liberty Nominees Proprietary Limited

Liberty Group Property Management Proprietary Limited

LPH Properties Limited

Liberty Group Properties Proprietary Limited

Liberty Group Property Development Proprietary Limited

Liberty Group Limited

Lexshell 622 Investments Proprietary Limited

Lexshell 623 Investments Proprietary Limited

Novelway Investments Proprietary Limited

Pearl Valley Golf Estates Proprietary Limited

Stanvest Proprietary Limited

Sandton Hotels Proprietary Limited

Standard Insurance Limited

SMBL Nominees Proprietary Limited

Standard Bank Insurance Brokers Proprietary Limited

Standard Bank Nominees (Transvaal) (RF) Proprietary Limited

SB-Debtors Discounting No 1 Proprietary Limited

Standard Trust Limited

SBG Securities Proprietary Limited

SBS Nominees Limited

SBTCIOM Limited

S.E Nominees (RF) Proprietary Limited

Sortor Investments Proprietary Limited

Standard Merchant Bank Limited

Stanhold Investments Proprietary Limited

Standard Bank Financial Services Holdings Proprietary Limited

Standard Bank Properties Proprietary Limited

Stannic Fleet Management Proprietary Limited

Siyakha Fund (RF) Limited

Stanlib Limited

Stanlib Collective Investments Limited

Stanlib Asset Management Limited

Stanlib Wealth Management Limited

Stanlib Wealth Management Nominees Proprietary Limited

Stanlib Multi-Manager Limited

Scenic Streams Sendirian Berhard (Malaysia)

Standard Debt Finance Limited

Standard Advisory (China) Limited (China)

The Unisec Group Limited

Tutuwa Community Holdings Proprietary Limited

Unisec Management Services Proprietary Limited

Unisec Securities Limited

Special resolutions

309




The dispensation of the requirement

to hold an AGM Cotillion Trust Company Limited

Lumbro Nominees (Jersey) Limited

SBS Nominees Limited

Standard Bank Nominees (Offshore) Limited

Standard Bank Fund Administration Jersey Limited

Standard Bank Isle of Man Limited

Standard Bank Jersey Limited

Standard Bank Offshore Trust Company Jersey Limited

Standard Bank Trust Company (Mauritius) Limited

Standard Bank Offshore Group Limited

Standard Bank International Investments Limited

Worff Securities Limited

Amendment to the Articles of Association SBTC Limited

Standard Resources (China) Limited

Amendment to the By-Laws of the company Standard Americas, Inc. (USA)

Standard New York, Inc. (USA)

Standard New York Securities, Inc. (USA)

Increase in the authorised share capital Liberty Group Limited

Standard Bank International Investments Limited

Authorise the acquisition of shares

by the company Standard Bank Group Limited

Conversion from private to public company Blue Granite Investments No 1 Proprietary Limited converted

to Blue Granite Investments No 1 (RF) Limited

Blue Granite Investments No 2 Proprietary Limited converted to Blue Granite Investments No 2 (RF) Limited



Siyakha Fund Proprietary Limited converted to Siyakha Fund (RF) Limited

Re-registration of the company

as a private company Standard Bank London Holdings Limited

Standard Debt Finance Limited (UK)

Authorised name change Blue Titanium Conduit Limited changed its name to Blue Titanium

Conduit (RF) Limited

Blue Granite Investments No 1 Proprietary Limited changed its name to Blue Granite Investments No 1 (RF) Limited




Standard Executors and Trustees Limited changed its name to Standard Trust Limited

S.E Nominees Proprietary Limited changed its name to S.E Nominees (RF) Proprietary Limited

Standard Debt Finance PLC changed its name to Standard Debt Finance Limited

Standard Bank Asia Limited changed its name to SBA Hong Kong Limited

Standard Bank Manx Nominees Limited changed its name to SBMN Limited

Standard Bank Nominees (Mannin) Limited changed its name to SBN (M) Limited

Standard Bank Trust Company (Isle of Man) Limited changed its name to SBTCIOM Limited

Triskelion Trust Company Limited changed its name to TTC Limited

Authorised dissolution and liquidation

of the company Star Three (SPV-AMC) Inc.

Standard Ukraine LLP

Standard International Holdings S.A.

SBIC Investments S.A.

Star Properties (SPV-AMC) Phillipines Inc.



Annexure H

Consolidated normalised statement of financial position1

2013USDm*

2013GBPm*

2013EURm*

CAGR%

Assets

Banking activities 129 501 78 253 94 076 6

Cash and balances with central banks 6 426 3 883 4 668 22

Financial investments, trading and pledged assets 22 107 13 359 16 060 6

Loans and advances 85 736 51 807 62 284 6

Current and deferred taxation assets 176 106 128 10

Derivative and other assets 11 515 6 958 8 364 1

Non-current assets held for sale (100)

Interest in associates and joint ventures 435 263 316 18

Goodwill and other intangible assets 1 711 1 034 1 243 21

Property and equipment 1 395 843 1 013 18

Liberty 32 014 19 345 23 257 7

Total assets 161 515 97 598 117 333 6


Equity 14 870 8 985 10 802 12

Equity attributable to ordinary shareholders 12 533 7 573 9 105 14

Preference share capital and premium 525 317 381

Non-controlling interests 1 812 1 095 1 316 6

Liabilities 146 645 88 613 106 531 6

Banking activities 116 748 70 547 84 813 6

Deposit and current accounts 95 315 57 595 69 242 7

Derivative and other liabilities 12 956 7 829 9 412 2

Trading liabilities 5 239 3 166 3 806 (4)

Current and deferred taxation liabilities 422 255 307 (3)

Non-current liabilities held for sale (100)

Subordinated debt 2 816 1 702 2 046 8

Liberty 29 897 18 066 21 718 7

Total equity and liabilities 161 515 97 598 117 333 6

1 Figures included in the seven-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 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 2013 statement of financial position:

USD – 10,49 (2012: 8,48)GBP – 17,36 (2012: 13,71)EUR – 14,44 (2012: 11,18)

Seven-year review

311




2013Rm

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

1 358 467 1 274 234 1 258 033 1 107 986 1 077 637 1 245 704 950 203

67 409 61 985 31 907 28 675 24 983 25 697 20 618231 904 220 670 193 770 178 567 171 972 174 230 165 873899 375 813 892 803 811 713 025 723 507 790 087 637 868

1 844 1 261 1 700 1 492 1 329 1 197 1 058120 797 145 325 167 005 160 437 134 025 236 554 112 046

960 34 0854 560 2 810 1 881 4 388 4 265 2 057 1 660

17 949 13 928 11 449 8 965 7 827 8 364 5 65914 629 13 403 12 425 12 437 9 729 7 518 5 421

335 826 290 567 255 714 229 535 220 151 212 640 222 083

1 694 293 1 564 801 1 513 747 1 337 521 1 297 788 1 458 344 1 172 286

155 982 135 267 122 485 108 210 104 498 105 143 77 489

131 475 114 619 102 982 90 755 87 454 85 902 58 4065 503 5 503 5 503 5 503 5 503 5 503 5 503

19 004 15 145 14 000 11 952 11 541 13 738 13 580

1 538 311 1 429 534 1 391 262 1 229 311 1 193 290 1 353 201 1 094 797

1 224 696 1 158 442 1 152 870 1 015 119 987 151 1 155 479 887 042

999 854 924 885 881 949 787 151 761 436 836 305 672 347135 906 153 579 178 590 166 480 138 509 238 819 122 325

54 961 45 373 38 164 36 586 58 230 55 665 68 2954 432 4 491 2 862 3 137 4 374 5 213 5 161

27 93929 543 30 114 23 366 21 765 24 602 19 477 18 914

313 615 271 092 238 392 214 192 206 139 197 722 207 755

1 694 293 1 564 801 1 513 747 1 337 521 1 297 788 1 458 344 1 172 286


Annual financial statements Annexure H – seven-year review continued

Consolidated normalised income statement1

2013USDm*

2013GBPm*

2013EURm*

CAGR**%

Banking activitiesNet interest income 4 069 2 599 3 062 10Non-interest revenue 3 803 2 430 2 863 7

Net fee and commission revenue 2 401 1 534 1 808 9Trading revenue 1 058 676 796 6Other revenue 344 220 259 2

Total income 7 872 5 029 5 925 9Credit impairment charges 956 611 720 13

Net specific credit impairment charges 945 604 711 16Portfolio credit impairment charges/(reversal) 11 7 9

Income after credit impairment charges 6 916 4 418 5 205 8Operating expenses 4 653 2 973 3 502 11

Staff costs 2 568 1 641 1 933 10Restructuring costsOther operating expenses 2 085 1 332 1 569 13

Net income before goodwill and gains and losses

on disposal of subsidiaries 2 263 1 445 1 703 3Goodwill impairment/(gain) (100)(Gain)/loss on disposal of subsidiaries (7) (4) (5)

Net income before associates and joint ventures 2 270 1 449 1 708 3Share of profit/(loss) from associates and joint ventures 70 45 53 16

Net income before indirect taxation 2 340 1 494 1 761 3Indirect taxation 163 104 123 11

Profit before direct taxation 2 177 1 390 1 638 3Direct taxation 480 306 361 2

Profit for the year from continuing operations 1 697 1 084 1 277 3Profit for the year from discontinued operation2

Profit for the year 1 697 1 084 1 277 3Attributable to non-controlling interests and preference shareholders 155 99 117 11

Continuing operations 155 99 117 12Discontinued operation

Banking activities profit attributable

to ordinary shareholders 1 542 985 1 160 2

LibertyProfit for the year 470 300 354 5 Attributable to non-controlling interests 247 159 186 (1)

Liberty profit attributable to ordinary shareholders 223 143 168 14

Attributable to group ordinary shareholders 1 765 1 128 1 328 3

Headline earnings 1 784 1 139 1 342 5

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.2 The income and expenses relating to SBA, which qualified as a discounted operation in 2012, was presented as a single amount relating to its after tax profit. The profit for 2012 from

the discontinued operation includes the group’s share of the profits and losses from SBA, as well as the profit on disposal of the business.* 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.

** Compound annual growth rate.

313




2013Rm

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

39 225 34 233 29 027 27 028 29 438 30 329 22 06836 669 34 474 29 724 28 720 29 906 28 324 24 201

23 147 21 319 19 782 17 883 17 395 16 896 14 08310 202 8 868 7 895 8 032 10 032 9 046 7 098

3 320 4 287 2 047 2 805 2 479 2 382 3 020

75 894 68 707 58 751 55 748 59 344 58 653 46 2699 214 8 800 6 436 7 394 11 719 11 081 4 538

9 105 9 040 5 849 8 032 11 433 9 207 3 726109 (240) 587 (638) 286 1 874 812

66 680 59 907 52 315 48 354 47 625 47 572 41 73144 862 40 826 34 725 34 579 30 757 28 441 23 755

24 760 22 265 19 141 18 440 16 636 15 762 13 939758 781

20 102 17 803 15 584 15 358 14 121 12 679 9 816

21 818 19 081 17 590 13 775 16 868 19 131 17 976777 61 30 42 5 (376)

(64) 86

21 882 18 218 17 529 13 745 16 826 19 126 18 352673 675 257 572 (53) 136 283

22 555 18 893 17 786 14 317 16 773 19 262 18 6351 572 1 412 1 085 947 1 191 922 819

20 983 17 481 16 701 13 370 15 582 18 340 17 8164 625 4 333 4 312 3 040 3 534 3 917 4 121

16 358 13 148 12 389 10 330 12 048 14 423 13 6952 435 641 428 430 410 230

16 358 15 583 13 030 10 758 12 478 14 833 13 925

1 494 1 212 1 033 993 1 031 1 409 817

1 494 985 873 913 925 1 313 763227 160 80 106 96 54

14 864 14 371 11 997 9 765 11 447 13 424 13 108

4 532 4 180 2 942 2 704 320 1 892 3 4802 379 2 151 1 514 1 381 248 1 251 2 505

2 153 2 029 1 428 1 323 72 641 975

17 017 16 400 13 425 11 088 11 519 14 065 14 083

17 194 14 918 13 599 11 283 11 718 14 150 13 153

Exchange rates utilised to convert the 31 December 2013 income statement:USD – 9,64 (2012: 8,21)GBP – 15,09 (2012: 13,01)EUR – 12,81 (2012: 10,55)



Share statistics and market indicators – normalised1

CAGR% 2013

Share statistics

Dividend cover times (4) 2,0

Dividend yield % 1 4.1

Earnings yield % (3) 8.2

Price earnings ratio times 3 12,2

Price-to-book times (7) 1,6

Number of shares traded millions (1) 1 012,2

Turnover in shares traded % (3) 62.7

Market capitalisation Rm 7 209 381

Market indicators at 31 December

Standard Bank Group Limited share price – high for the year cents 1 13 054

– low for the year cents 2 10 316

– closing cents 4 12 942

Prime overdraft rate (closing) % (9) 8.5

JSE All Share Index – (closing) 8 46 256

JSE Banks Index – (closing) 8 57 745

ZAR exchange rates – (closing)– USD 7 10,49

– GBP 4 17,36

– EUR 6 14,44

ZAR exchange rates – (average)– USD 5 9,64

– GBP 1 15,09

– EUR 5 12,81

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

315




2012 2011 2010 2009 2008 2007

2,1 2,0 1,9 2,0 2,4 2,53.8 4.3 3.6 3.8 4.7 3.97.9 8.7 6.7 7.4 11.4 9.6

12,7 11,5 15,0 13,5 8,8 10,41,7 1,5 1,9 1,8 1,5 2,4

938,2 959,4 1 169,9 1 490,0 1 383,5 1056,858.8 60.5 74.2 96.2 92.2 77.2

190 937 156 889 170 471 158 942 126 576 137 370

12 030 11 000 11 800 10 500 10 250 11 9509 876 8 775 10 075 5 915 6 602 9 000

11 888 9 875 10 755 10 200 8 300 10 0088.5 9.0 9.0 10.5 15.0 14.5

39 250 31 986 32 119 27 666 21 509 28 95853 362 41 178 40 985 36 675 30 566 35 876

8,48 8,09 6,64 7,37 9,31 6,8113,71 12,48 10,29 11,88 13,64 13,6411,18 10,46 8,87 10,61 13,02 10,00

8,21 7,25 7,32 8,42 8,24 7,0513,01 11,62 11,30 13,09 15,00 14,1010,55 10,08 9,71 11,67 12,00 9,65



Capital adequacy, employee and other relevant statistics1*

CAGR% 2013

Capital adequacy2

Risk-weighted assets Rm 7 841 272

Tier I capital3 Rm 15 110 834

Total capital3 Rm 13 136 084

Tier I capital to risk-weighted assets3 % 7 13.2

Total capital to risk-weighted assets3 % 6 16.2

Employee statistics

Number of employeesBanking activities4 (1) 42 221

Group (0) 48 808

Employee turnover rate % 13.2

Normalised headline earnings per employee6 Rm 4 354 871

Points of representation6

ATMs and ANAs7 9 7 861

Banking branches and service centres7 4 1 283

Customer service

Customer evaluation of branch service rating6 (out of ten) 1 8,8

Social investment and environment

Corporate social investment spend8,9,10 Rm 8 104,0

Carbon footprint6,11 (metric tons CO2) 21 392 159

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. 2 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. 3 Capital includes unappropriated profit. 4 Includes the discontinued operation relating to Argentina. 5 953 permanent employees received notice of retrenchment prior to 31 December 2010, most of whom had not left the group at this date as their consultative period ended in 2011. 6 South African banking activities only. 7 Excludes the discontinued operation relating to Argentina. 8 Excludes the rest of Africa. 9 2012 Liberty CSI spend has been restated.10 2011 and 2012 information has been restated as a result of the enterprise development spend, previously included as part of the CSI spend now being allocated

to the enterprise development business unit.11 Significant increase in 2012 due to the measurement scope of CO2 emissions adapted to include all Standard Bank occupied premises in South Africa.* Excludes the discontinued operation relating to SB Plc.

317




2012 2011 2010 2009 2008 2007

841 835 710 725 620 064 599 822 614 960 554 47394 420 85 547 79 996 71 354 67 726 48 336

120 173 101 978 94 805 90 712 81 597 64 30111.2 12.0 12.9 11.9 11.0 8.7 14.3 14.3 15.3 15.1 13.3 11.6

42 736 45 904 48 1255 45 937 45 315 44 30149 017 51 656 53 3515 51 411 50 321 48 905

10.2 11.6 10.1 10 12.1 13.0302 508 265 140 205 506 253 521 298 113 274 937

7 841 6 770 6 473 5 580 4 864 4 6991 249 1 217 1 159 1 012 1 013 1 015

9,5 9,4 8,9 8,7 8,6 8,5

106,4 119,5 139,7 104,4 92,4 64,9 412 089 180 403 177 289 154 538 168 824 122 884



Results and ratios – normalised1*

CAGR%

2013Rm

Standard Bank Group

Share statistics

Number of ordinary shares listed on JSE (millions) – weighted average 3 1 614,7

– end of period 3 1 617,8

Share statistics per ordinary share

Basic earnings cents 0 1 053,9

Continuing operations cents 1 1 053,9

Discontinued operation cents

Headline earnings cents 2 1 064,9


Discontinued operation cents

Dividends cents 6 533,0

Net asset value cents 11 8 126,6

ROE % (9) 14.1

Normalised headline earnings per business unit

Personal & Business Banking Rm 7 8 358

Corporate & Investment Banking Rm 0 6 591

Central and other Rm 34

Liberty Rm 15 2 211

Rm 5 17 194

Banking activities normalised

Selected returns and ratios

Headline earnings contribution Rm 4 14 983

Continuing operations Rm 4 14 983

Discontinued operation Rm

ROE % (10) 13.2


Net interest margin % 2 3.22

Non-interest income to total income % (1) 48.3

Cost-to-income ratio % 2 58.5

Credit loss ratio % 4 1.04

Effective taxation rate % 1 27.5

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.* Excludes the discontinued operation relating to SB Plc.

319




2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

1 595,6 1 587,1 1 576,1 1 548,2 1 501,1 1 369,21 606,1 1 588,7 1 585,0 1 558,3 1 525,0 1 372,6

1 027,8 845,9 703,5 744,0 937,0 1 028,5

889,4 815,6 681,4 723,1 916,0 1 015,7138,4 30,3 22,1 20,9 21,0 12,8

934,9 856,9 715,9 756,9 942,6 960,6

892,7 828,1 695,0 736,3 921,8 951,242,2 28,8 20,9 20,6 20,8 9,4

455,0 425,0 386,0 386,0 386,0 386,07 136,3 6 482,0 5 725,7 5 612,3 5 632,9 4 255,1

14.0 14.3 12.5 13.6 18.2 24.8

7 343 5 872 4 364 3 866 4 777 5 6654 419 5 521 5 252 7 156 7 597 6 5361 166 778 274 624 1 135 (21)1 990 1 428 1 393 72 641 973

14 918 13 599 11 283 11 718 14 150 13 153

12 928 12 171 9 890 11 646 13 509 12 180

12 255 11 714 9 561 11 327 13 196 12 051673 457 329 319 313 129

13.2 13.8 11.8 14.5 18.6 24.7

3.09 2.92 2.87 3.06 3.23 2.9150.2 50.6 51.5 50.4 48.3 52.358.9 58.8 61.4 51.9 48.4 51.01.08 0.87 1.04 1.57 1.53 0.8030.4 30.3 27.8 28.2 25.1 26.5



Results and ratios – IFRS1*

CAGR%

2013Rm

Standard Bank Group

Share statistics

Number of ordinary shares in issue in terms of IFRS (millions)– weighted average 4 1 566,7

– end of period 4 1 584,4

Share statistics per ordinary share (cents)

Basic earnings cents (1) 1 034,4


Discontinued operation cents (65,2)

Headline earnings cents 1 1 084,2


Discontinued operation cents (26,7)

Dividends cents 6 533,0

Net asset value cents 11 8 137,6

ROE % (10) 14.2

Normalised headline earnings per business unit

Personal & Business Banking Rm 7 8 358

Corporate & Investment Banking Rm 0 6 591

Central and other Rm (84)

Liberty Rm 16 2 121

Total IFRS headline earnings Rm 5 16 986

Banking activities IFRS

Selected returns and ratios

Headline earnings contribution Rm 4 14 865

Continuing operations Rm 5 15 284

Discontinued operation Rm (419)

ROE % (11) 13.3


Net interest margin % 4 3.67

Non-interest income to total income % (2) 46.7

Cost-to-income ratio % 2 56.8

Credit loss ratio % 6 1.12

Effective taxation rate % (0) 26.9

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.* Includes the discontinued operation relating to SB Plc for the 2013 and 2012 financial years. The discontinued portion of SBA has been reflected above for the 2012 to 2007

financial years.

321




2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

1 521,5 1 510,4 1 492,0 1 459,3 1 398,9 1 231,01 535,9 1 514,1 1 505,1 1 474,3 1 430,6 1 256,9

1 054,6 875,7 722,1 757,5 995,9 1 109,0

1 015,8 843,9 698,8 735,3 973,5 1 094,738,8 31,8 23,3 22,2 22,4 14,3

957,2 887,2 735,2 771,1 1 002,0 1 033,4

1 019,3 857,0 713,2 749,2 979,7 1 022,9(62,1) 30,2 22,0 21,9 22,3 10,5

455,0 425,0 386,0 386,0 386,0 386,07 232,5 6 568,3 5 785,2 5 698,9 5 728,5 4 270,1

14.2 14.6 12.7 13.7 19.1 26.7

7 343 5 872 4 364 3 866 4 777 5 6654 419 5 521 5 252 7 156 7 597 6 536

970 572 135 607 955 (347)1 832 1 435 1 218 (376) 688 867

14 564 13 400 10 969 11 253 14 017 12 721

12 732 11 965 9 751 11 629 13 329 11 854

13 677 11 508 9 422 11 310 13 016 11 725(945) 457 329 319 313 129

13.3 13.9 11.9 14.9 19.0 26.1

3.62 2.91 2.86 3.05 3.21 2.8848.6 50.8 51.8 50.8 48.5 52.755.7 59.0 61.5 51.8 48.5 51.41.19 0.87 1.04 1.58 1.54 0.8027.7 30.7 28.2 28.5 25.4 27.0



Annexure I

Personal &

Business Banking

Corporate &

Investment Banking

Central and

other

Change%

2013

Rm

2012Rm

Change%

2013

Rm

2012Rm

Change%

2013

Rm

2012Rm

AssetsCash and balances with central banks 20 4 766 3 988 4 49 831 47 907 27 12 812 10 090

Financial investments, trading and pledged assets 14 5 798 5 100 5 228 763 217 183 (65) (2 657) (1 613)

Loans and advances 10 541 062 489 909 15 405 009 352 938 (61) (46 696) (28 955)

Loans and advances to banks 50 40 678 27 063 24 124 833 100 763 (58) (39 952) (25 216)

Loans and advances to customers 8 500 384 462 846 11 280 176 252 175 (80) (6 744) (3 739)

Investment property

Derivative and other assets (54) 2 828 6 087 (15) 118 872 139 394 (15) 941 1 105

Non-current assets held for sale2 (100) 960

Interest in associates and joint ventures >100 2 055 789 3 631 613 33 1 874 1 408

Goodwill and other intangible assets 37 9 350 6 814 20 1 233 1 025 21 7 366 6 089

Property and equipment 19 5 724 4 811 8 1 475 1 368 3 7 430 7 224

Total assets 10 571 583 518 458 6 805 814 760 428 (>100) (18 930) (4 652)

Equity and liabilitiesEquity 12 49 000 43 774 1 47 731 47 098 49 37 040 24 920

Equity attributable to ordinary shareholders 12 47 829 42 866 (1) 44 638 45 040 63 29 009 17 827

Preference share capital and premium 5 503 5 503

Non-controlling interest 29 1 171 908 50 3 093 2 058 59 2 528 1 590

Liabilities 10 522 583 474 684 6 758 083 713 330 89 (55 970) (29 572)

Deposit and current accounts 12 515 292 461 343 7 498 941 466 563 (>100) (14 379) (3 021)

Deposits from banks (19) 1 374 1 705 (10) 111 127 123 052 (>100) (2 095) (482)

Deposits from customers 12 513 918 459 638 13 387 814 343 511 (>100) (12 284) (2 539)

Derivative, trading and other liabilities (67) 1 887 5 643 7 246 416 229 760 (66) (53 004) (31 960)

Non-current liabilities held for sale2

Policyholders’ liabilities

Subordinated debt (30) 5 404 7 698 (25) 12 726 17 007 >100 11 413 5 409

Total equity and liabilities 10 571 583 518 458 6 805 814 760 428 (>100) (18 930) (4 652)

Average assets – banking activities excluding

trading derivatives 544 901 490 968 685 183 634 387 (11 310) (14 571)

Average loans and advances (gross) 530 707 479 864 392 253 369 473 (34 234) (33 545)

Average ordinary shareholders’ equity 45 104 37 842 46 172 45 872 22 035 14 518

1 Includes elimination of balances between Liberty and banking activities.2 Standard Bank Plc’s assets and liabilities are each presented as single line items held for sale in 2013 in accordance with IFRS. Refer to pages 157 to 158.

Segmental statement of financial position

323




Banking activities Liberty1

Normalised

Standard Bank Group

IFRS

adjustments

IFRS

Standard Bank Group

Change%

2013

Rm

2012Rm

Change%

2013

Rm

2012Rm

Change%

2013

Rm

2012Rm

2013

Rm

2012Rm

Change%

2013

Rm

2012Rm

9 67 409 61 985 9 67 409 61 985 (14 099) (14) 53 310 61 985

5 231 904 220 670 16 294 584 254 277 11 526 488 474 947 (69 470) (1 731) (3) 457 018 473 216

11 899 375 813 892 11 899 375 813 892 (59 755) (2 721) 4 839 620 811 171

22 125 559 102 610 22 125 559 102 610 (30 655) (8) 94 904 102 610

9 773 816 711 282 9 773 816 711 282 (29 100) (2 721) 5 744 716 708 561

13 27 299 24 133 13 27 299 24 133 13 27 299 24 133

(16) 122 641 146 586 21 10 707 8 843 (14) 133 348 155 429 (42 714) (42) 90 634 155 429

(100) 960 (100) 960 183 284 >100 183 284 960

62 4 560 2 810 5 237 225 58 4 797 3 035 58 4 797 3 035

29 17 949 13 928 (37) 475 759 25 18 424 14 687 (339) 23 18 085 14 687

9 14 629 13 403 8 2 524 2 330 9 17 153 15 733 (271) 7 16 882 15 733

7 1 358 467 1 274 234 16 335 826 290 567 8 1 694 293 1 564 801 (3 364) (4 452) 8 1 690 929 1 560 349

16 133 771 115 792 14 22 211 19 475 15 155 982 135 267 (3 334) (4 378) 17 152 648 130 889

15 121 476 105 733 13 9 999 8 886 15 131 475 114 619 (2 539) (3 534) 16 128 936 111 085

5 503 5 503 5 503 5 503 5 503 5 503

49 6 792 4 556 15 12 212 10 589 25 19 004 15 145 (795) (844) 27 18 209 14 301

6 1 224 696 1 158 442 16 313 615 271 092 8 1 538 311 1 429 534 (30) (74) 8 1 538 281 1 429 460

8 999 854 924 885 8 (13 073) (14 203) 8 986 781 910 682 (65 043) 1 921 738 910 682

(11) 110 406 124 275 (11) 110 406 124 275 (41 756) (45) 68 650 124 275

11 889 448 800 610 8 (13 073) (14 203) 11 876 375 786 407 (23 287) 8 853 088 786 407

(4) 195 299 203 443 28 60 324 47 177 2 255 623 250 620 (62 044) (74) (23) 193 579 250 546

134 504 134 504

12 263 944 236 684 12 263 944 236 684 12 263 944 236 684

(2) 29 543 30 114 69 2 420 1 434 1 31 963 31 548 (7 447) (22) 24 516 31 548

7 1 358 467 1 274 234 16 335 826 290 567 8 1 694 293 1564 801 (3 364) (4 452) 8 1 690 929 1560 349

1 218 774 1 110 784 1 218 774 1 110 784 (152 246) (168 846) 1 066 528 941 938

888 726 815 792 888 726 815 792 (72 433) (85 892) 816 293 729 900

113 311 98 232 8 963 8 059 122 274 106 291 (2 403) (3 718) 119 871 102 573



Annexure J

2013

Trading book

Rm

Non-interest earning

Rm

Interest earning

Rm

Total average balance

Rm

Assets Cash and balances with central banks2 514 12 378 30 619 43 511Trading assets 99 201 14 588 113 789Financial investments 99 520 99 520Net loans and advances 24 292 846 660 870 952

Loans and advances to banks 24 135 78 969 103 104Loans and advances to customers 157 785 465 785 622

Mortgage loans 307 884 307 884Instalment sale and finance leases 70 157 70 157Card debtors 25 779 25 779Overdrafts and other demand loans 157 92 637 92 794Term loans 246 609 246 609Commercial property finance 42 399 42 399

Gross loans and advances 24 292 864 434 888 726Credit impairment for loans and advances (17 774) (17 774)

Investment property 3 844 3 844Other assets 26 164 18 927 45 091Interest in associates and joint ventures 11 759 11 759Goodwill and other intangible assets 14 939 14 939Property and equipment 15 369 15 369

Total average assets and interest excluding

trading derivative assets 150 171 91 804 976 799 1 218 774Trading derivative assets 159 640 159 640

Total average assets and interest 309 811 91 804 976 799 1 378 414

Equity and liabilitiesEquity 2 344 110 967 113 311Liabilities 140 302 55 311 907 672 1 103 285

Trading liabilities 53 730 53 730Deposit and current accounts 76 159 878 286 954 445

Deposits from banks 70 024 27 523 97 547Deposits from customers 6 135 850 763 856 898

Current accounts 152 781 152 781Cash management deposits 93 190 93 190Call deposits 171 076 171 076Savings accounts 19 597 19 597Term deposits 6 135 314 726 320 861Negotiable certificates of deposit 99 393 99 393

Other liabilities 9 525 55 311 64 836Subordinated bonds 888 29 386 30 274

Total average equity, liabilities and interest excluding

trading derivative liabilities 142 646 166 278 907 672 1 216 596Trading derivative liabilities 161 818 161 818

Total average equity, liabilities and interest 304 464 166 278 907 672 1 378 414

Margin on total average assets excluding trading derivatives 150 171 91 804 976 799 1 218 774Margin on total average loans and advances 24 292 846 660 870 952Margin on average interest earning assets 976 799 976 799

1 Interest received and paid on trading derivative instruments has been netted with interest received on derivative asset instruments used for hedging purposes allocated to the instrument being hedged, thus the interest split between assets and liabilities will not equate to interest income and interest expense per the income statement.

2 Included within interest-earning cash and balances with central banks is the SARB interest-free deposit. This is utilised to meet liquidity requirements and is reflected in the margin as part of interest earning assets to reflect the cost of liquidity.

Banking activities average statement of financial position(normalised)

325




2012

Interest1

RmAverage rate

%

Trading book

Rm

Non-interest earning

Rm

Interest earning

Rm

Total average balance

RmInterest1

Rm

Average rate

%

886 10 729 24 349 35 964 109 320 5 046 114 366

7 198 7.23 92 494 92 494 7 087 7.68 66 435 7.63 28 090 773 180 801 270 61 444 7.69

1 231 1.19 27 278 84 825 112 103 1 570 1.40 65 204 8.30 812 702 877 703 689 59 874 8.53

24 490 7.95 295 148 295 148 23 963 8.14 6 766 9.64 61 619 61 619 6 184 10.06 3 590 13.93 22 169 22 169 3 095 14.00 7 125 7.68 812 77 941 78 753 6 199 7.89

19 431 7.88 207 465 207 465 16 915 8.18 3 802 8.97 38 535 38 535 3 518 9.15

66 435 7.48 28 090 787 702 815 792 61 444 7.55(14 522) (14 522)

4 382 4 38218 493 9 470 27 963

8 854 8 85411 396 11 39614 095 14 095

73 633 6.04 156 789 63 972 890 023 1110 784 68 531 6.19184 496 184 496

73 633 5.34 341 285 63 972 890 023 1 295 280 68 531 5.31

5 254 92 978 98 232 34 408 3.12 139 082 33 388 835 469 1 007 939 34 298 3.41

41 934 41 934 32 051 3.36 87 911 809 716 897 627 32 092 3.58

1 590 1.63 81 912 47 833 129 745 2 723 2.10 30 461 3.55 5 999 761 883 767 882 29 369 3.84

385 0.25 119 315 119 315 253 0.21 3 382 3.63 84 299 84 299 3 409 4.06 6 735 3.94 155 104 155 104 6 792 4.39

264 1.35 22 400 22 400 254 1.14 14 043 4.38 5 999 300 391 306 390 14 351 4.70

5 652 5.69 80 374 80 374 4 310 5.38

7 705 33 388 41 093 2 357 7.79 1 532 25 753 27 285 2 206 8.11

34 408 2.83 144 336 126 366 835 469 1 106 171 34 298 3.11189 109 189 109

34 408 2.50 333 445 126 366 835 469 1 295 280 34 298 2.66

39 225 3.22 156 789 63 972 890 023 1 110 784 34 233 3.09 39 225 4.50 28 090 773 180 801 270 34 233 4.28 41 888 4.29 890 023 890 023 36 856 4.15



Annexure K

2013Rbn

20121

Rbn

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:

Banking activities

Asset management

Trusts and estates 69 57Unit trusts/collective investments 5 4Portfolio management 127 85Other 13 2

214 148

Fund administration

Trusts and estates1 9 8Unit trusts/collective investments 30 25Segregated funds Portfolio management 51 44Other 93 77

183 154

Geographical area

Africa 307 231International 90 71

397 302

Liberty

Asset management 47 42

Segregated funds 43 38Properties 4 4

Wealth management – funds under administration 276 236

Single manager unit trust 91 100Institutional marketing 53 48Linked and structured life products 84 43Multi-manager 10 9Rest of Africa 38 36

Total Liberty 323 278

Total assets under management and funds under administration 720 580

1 2012 figures have been restated.

Included in the balances above are funds for which the fund value is determined using directors’ valuations.

Third-party funds under management

327




Financial and other definitions

Basic earnings per share (cents) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue.

Board Standard Bank Group board of directors.

CAGR (%) Compound annual growth rate.

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 is calculated using the cash component of any distribution where an election to receive scrip was available.

Dividend yield (%) Dividend per share as a percentage of the closing share price.

Earnings yield (%) Headline earnings as a percentage of the closing share price.

Headline earnings (Rm) Determined, in terms of the circular issued by the South Africa 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.

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.

Standard Bank Group


Annual financial statements Financial and other definitions continued

Cost-to-income ratio (%) Operating expenses as a percentage of total income, including share of profit from associates and joint ventures and gains of the disposal of subsidiaries.

Credit loss ratio (%) 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 and indirect 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. Liberty’s headline earnings and capital are excluded.

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.

Banking activities

329




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.

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.

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.

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).

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 – refer to pages 72 to 77 of the annual integrated report.

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.

Tutuwa initiative The Tutuwa initiative is the group’s black economic empowerment ownership initiative entered into in terms of the Financial Sector Charter.

Other definitions



A

AGM Annual general meeting

Aids Acquired immune deficiency syndrome

AIRB Advanced internal ratings-based

ALBI All Bond Index

ALCO Asset and liability committee

AMA Advanced measurement approach

AML Anti-money laundering

ANA Automated notes acceptor

AOA Angolan kwanza

APN Advisory Practice Note

ASSA Actuarial Society of South Africa

ATM Automated teller machine

AUD Australian dollar

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

BCM Business continuity management

BEE Black economic empowerment

BG1 Blue Granite No 1 (RF) Limited




Blue Banner Blue Banner Securitisation Vehicle RC1 Proprietary Limited

Board Standard Bank Group Board of Directors

BTC Blue Titanium Conduit Limited

BWC The rate for three-month Botswana certificates

BWP Botswana pula

C

CAGR Compound annual growth rate

CAR Capital adequacy requirement

CCP Central counterparties

CDF Congolese franc

CET I Common equity tier I

CGT Capital gains tax

CGU Cash-generating unit

CIB Corporate & Investment Banking

CoE Cost of equity

Companies Act

South African Companies Act 71 of 2008

Consumer Protection Act

South African Consumer Protection Act 68 of 2008

CR Country risk grade

CRO Chief risk officer

CSDP Central Securities Depository Participant

CVA Credit valuation adjustment

The company Standard Bank Group Limited

CPI Consumer price index

D

DAC Deferred acquisition costs

DBS Deferred bonus scheme

DPF Discretionary participation feature

DRL Deferred revenue liability

D-SIB Domestic systemically important bank

E

E Swazi emalangeni

EAD Exposure at default

EGS Equity growth scheme

EU European Union

EUR Euro

F

FCA Financial Conduct Authority

FIRB Foundation internal ratings-based

FSB Financial Services Board

FSV Financial Soundness Valuation

FTSE/JSE Top 40 Index

Capitalisation weighted index, including 40 largest companies by market capitalisation

G

G20 FSB Group of Twenty Financial Stability Board

GAC Group audit committee

GBP British pound sterling

GCCO Group chief compliance officer

GCROC Group control and risk oversight committee

GFCC Group financial crime control

GHS Ghanaian cedi

GIRC Group insurance risk committee

GRCMC Group risk and capital management committee

GROC Group risk oversight committee

G-SIB Global systemically important bank

GSIS Group share incentive scheme

The group Standard Bank Group

Acronyms and abbreviations

331

I

IA Internal audit

IAS International Accounting Standards

IASB International Accounting Standards Board

ICAAP Internal capital adequacy assessment process

ICBC Industrial and Commercial Bank of China Limited

ICR Individual capital requirement

IFRS International Financial Reporting Standards

Income Tax Act

South African Income Tax Act 68 of 1962

IBNR Incurred but not reported

IOR Integrated operational risk

IRB Internal ratings-based

IRP Integrated recovery plan

IRRBB Interest rate risk in the banking book

ISDA International Swaps and Derivatives Association

IT Information technology

J

JIBAR Johannesburg Interbank Agreed Rate

JPY Japanese yen

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

L

LCm Millions of local currency

LCR Liquidity coverage ratio

LC Golf LC Golf SA Proprietary Limited

LGD Loss given default

LibFin Liberty Financial Solutions

Liberty/Liberty Group

Liberty Holdings Limited and its subsidiaries

LIBOR London Interbank Offered Rate

Long-term Insurance Act

South African Long-term Insurance Act 52 of 1998

M

Main Street Main Street 367 (RF) Proprietary Limited

MOI Memorandum of Incorporation

MT Mozambican metical

N

NGN Nigerian naira

NSFR Net stable funding ratio

NSX Namibian Stock Exchange

O

OA GM The group’s London-based global markets business outside Africa

OCI Other comprehensive income

OTB Out of the Blue Originator (RF) Proprietary Limited

OTC Over-the-counter

P

PBB Personal & Business Banking

PD Probability of default

Pearl Valley Pearl Valley Golf Estates Proprietary Limited

Pension Funds Act

Pension Funds Act 24 of 1956

PGN Professional Guidance Note

PoPI Protection of Personal Information Act

PRA Prudential Regulatory Authority

Prime The prime interest rate

PVIF Present value in-force

Q

QIS Quantitative impact study

QRRE Qualifying revolving retail exposures

R

R South African rand

RAPM Risk-adjusted performance measurement

RAS Risk appetite statement

Rbn Billions of rand

RCCM Group risk, compliance and capital management

RCS RCS Investment Holdings Proprietary Limited

Rm Millions of rand

ROE Return on equity

ROU Right of use

RSA Republic of South Africa

RY Real yield





Annual financial statements Acronyms and abbreviations continued

S

SAICA South African Institute of Chartered Accountants

SAM Solvency assessment management

SAP Standard of Actuarial Practice

SARB South African Reserve Bank

SB Sovereign risk grade, transfer and convertibility

SB-Debtors SB-Debtors Discounting No 1 Proprietary Limited

SB Plc Standard Bank Plc

SB Plc Group SB Plc and relevant subsidiaries and operations in the US and Singapore

SBA Collectively refers to the group’s shareholding in Standard Bank Argentina S.A. and Standard Bank Argentina’s affiliates namely, Standard Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión (SI) and Inversora Diagonal S.A. (ID)

SBG Standard Bank Group

SBGRF Standard Bank Group Retirement Fund

SBLH Standard Bank London Holdings Limited

SBSA The Standard Bank of South Africa Limited

SCR Solvency capital requirements

SE Structured entity

Short-term Insurance Act

South African Short-term Insurance Act 53 of 1998

SIB Systemically important bank

SIFI Systemically important financial institution

SIH Standard International Holdings

SIL Standard Insurance Limited

Siyakha Siyakha Fund (RF) Limited

STC Secondary tax on companies

SVaR Stressed value-at-risk

T

TCF Treating customers fairly

TCM Treasury and capital management

TFG The Foschini Group

Tier I Primary capital

Tier II Secondary capital

Tier III Tertiary capital

Tutuwa initiative

Black economic empowerment ownership initiative

TZN 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

W

WA The rate on Mozambican bonds which carry a floating rate equal to the weighted average of the last six treasury bills maturing at 60 or more days

Z

ZAR South African rand

ZMK Zambian kwacha

Contact details

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.

Head: Investor relations

David Kinsey Tel: +27 11 631 3931

Group secretary

Zola StephenTel: +27 11 631 9106

Group financial director

Simon RidleyTel: +27 11 636 3756

Registered address9th FloorStandard Bank Centre5 Simmonds StreetJohannesburg 2001PO Box 7725Johannesburg, 2000

Contact detailsTel: +27 11 636 9111Fax: +27 11 636 4207




Please direct all annual report queries and comments to:

[email protected]

Please direct all customer-related queries and comments to:

[email protected]

Please direct all investor relations queries and comments to:

[email protected]

Website: www.standardbank.com

www.standardbank.com

Facilitating stronger African economies

Our network of on-the-ground operations across sub-Saharan Africa is positioned to serve the

anticipated growth in demand for banking and non-banking financial services. Our customer

acquisition strategy is focused on profitable customers with primary transaction accounts.

Our branch infrastructure remains strategically important in servicing this market in tandem with

providing access to electronic banking channels. It is also necessary for attracting corporate clients

requiring transactional banking services. By facilitating access to financial services we enable

socioeconomic development and personal wealth creation in the countries in which we operate.

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