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Standard Bank Group

Risk and capital management report and annual financial statements 2012

Our reportsWe produce a full suite of reporting publications

to cater for the needs of our diverse stakeholders.

The following reports, which support our primary

annual integrated report, are tailored to readers

requiring specific information.

¡ Financial results presentation and booklet Provides management’s analysis of financial

results for the period and the performance

of the group’s divisions.

www.standardbank.com/reporting

¡ Sustainability report Presents a balanced and comprehensive

analysis of the group’s sustainability

performance in relation to issues material

to the group and stakeholders.

www.standardbank.com/sustainability

¡ Risk and capital management report Provides a detailed discussion of the

management of strategic risks related to the

group’s banking and insurance operations,

including capital and liquidity management

and regulatory developments.


¡ Annual financial statements Sets out the full audited annual financial

statements for the Standard Bank Group

(the group), including the report of the

group audit committee (GAC).


¡ The Standard Bank of South Africa Limited annual report The Standard Bank of South Africa is the group’s largest subsidiary. The group’s other subsidiaries, including Standard Bank Plc, also produce their own annual reports. These reports are available at www.standardbank.com/reporting

¡ As a separate listed entity, Liberty Holdings

Limited (Liberty) prepares its own annual

integrated report which is available at www.libertyholdings.co.za

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Contents

Risk and capital management reportOverview 1

Capital management 19

Credit risk 25

Country risk 55

Liquidity risk 57

Market risk 66

Insurance risk 79

Operational risk 84

Business risk 91

Reputational risk 92

Restatements 93

Cross-referencing tools

Indicates that additional

information is

available online.

The following icons refer

readers to information

relevant to a specific

section elsewhere in this

report, or in other reports

that form part of the

group’s suite of reporting

publications:

AIR

Annual integrated report

SR

Sustainability report

RCMAFS

Risk and capital management report and annual financial

statements (this report)

Aud

ited

Denotes text in the risk and capital management report

that forms part of the group’s audited annual

financial statements

Annual financial statementsDirectors’ responsibility for financial reporting

95

Group secretary’s certification 95

Report of the group audit committee 96

Directors’ report 98

Independent auditors’ report 103

Statement of financial position 104

Income statement 105

Statement of other comprehensive income 106

Statement of cash flows 107

Statement of changes in equity 108

Accounting policy elections 110

Notes to the annual financial statements 112

Standard Bank Group Limited – company annual financial statements

206

Annexure A – restatements 212

Annexure B – subsidiaries 213

Annexure C – associates and joint ventures

218

Annexure D – group share incentive schemes

221

Annexure E – detailed accounting policies 229

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

252

Annexure G – special resolutions 264

Annexure H – third-party funds under management

265

Annexure I – seven-year review 266

Annexure J – segmental statement of financial position

278

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

280

Additional informationFinancial and other definitions 282

Acronyms and abbreviations 285

Contact details 287

1

Standard Bank Group Risk and capital management report 2012 > Overview

Risk and capital management reportOverview

IntroductionEffective risk and capital management continues to be fundamental to the business activities of the group.

Risks are controlled at individual exposure level as well as in aggregate within and across all three business lines, legal entities and risk types.

Capital is managed using regulatory and economic capital metrics at both business line and legal entity level.

The group’s three business lines are:

¢ Personal & Business Banking (PBB)

¢ Corporate & Investment Banking (CIB)

¢ Liberty.

Board responsibilityThe Standard Bank Group board of directors (board) has ultimate responsibility for risk and capital management. Various committees within the governance structure enable the board to evaluate the risks faced by the group and the effectiveness of the group’s management of these risks.

The board relies on quarterly reports from these committees, as well as periodic attestations by senior risk managers and group internal audit (GIA), to satisfy itself that the group’s risk management processes are fit for purpose and are operating effectively.

During the year under review, the business activities of the group and its subsidiaries have been managed within the board-approved risk appetite.

The board is satisfied that the group’s risk management processes operated effectively in the period under review.

Introduction 1

Board responsibility 1

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

2

The year in brief 4

Focus areas for 2013 5

Regulatory developments 7

Reporting framework 10

Risk types 12

Risk management framework 13

Risk governance committees 14

Risk governance process 14

The group’s approach to risk appetite 17

The group’s approach to stress testing 18

Basel II approaches adopted 18

2

Statement from the chairmanof the group risk and capital management committee

AIRAttendance of each member at meetings of the GRCMC in 2012 can be found in the corporate governance statement on page 108

Richard Dunne is also the chairman of GAC, and Ted Woods

is chairman of the remuneration committee. This common

membership enables effective oversight of all finance and risk

issues, and that relevant finance and risk matters are considered

in the determination of appropriate levels of compensation.

The main purpose of the GRCMC is to provide independent and

objective oversight of risk and capital management in the group.

The committee also reviews and assesses the adequacy and

effectiveness of risk governance standards and the integrity of

risk controls and systems.

AIRThe key terms of reference of the GRCMC can be found in the corporate governance statement on page 104 and these are considered annually by the GRCMC and approved by the board

A total of six meetings of the GRCMC were held during 2012:

four scheduled quarterly meetings, a special meeting on the

group’s recovery and resolution plan and one to approve the

interim risk and capital management report.

The GRCMC is responsible for:

¢ determining the group’s risk appetite

¢ monitoring the risk profile and potential future risk exposures

of the group to ensure that the group is managed within risk

appetite

¢ approving macroeconomic scenarios used for stress testing,

and evaluating the results of stress tests

¢ providing oversight and advice to the group, including The

Standard Bank of South Africa Limited (SBSA) and other

material subsidiary boards, in relation to current and potential

future risk exposures of the group

¢ reviewing and providing oversight in respect of the adequacy

and effectiveness of the group’s risk management framework

¢ approving risk and capital management governance

standards, frameworks and policies

¢ reviewing the impact of significant transactions entered into

by the group on capital

¢ overseeing the implementation of an IT governance

framework and monitoring significant IT investments

¢ evaluating and approving significant outsourcing

arrangements

¢ assisting on such other matters as may be referred to it by

the group risk oversight committee (GROC)

Myles RuckChairman of the GRCMC6 March 2013

I have been chairman of the group risk and capital management committee (GRCMC) since July 2010. Other members of the committee during 2012 were Doug Band, Richard Dunne, Saki Macozoma, Fred Phaswana, Ted Woods (who became a member in March 2012) and Hongli Zhang (alternate: Yagan Liu). With the exception of Hongli Zhang and Saki Macozoma, all members of the GRCMC are independent non-executive directors.

Overview continued

Risk and capital management

report

Annual financial statements

Additionalinformation

3


¢ promoting a risk awareness culture within the group

¢ reporting to the board any matters within its remit in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.

The GRCMC considered the group’s risk profile relative to the group’s strategy. The committee reported to the board following each meeting on its consideration of the risk profile of the group and any longer-term macro or perceived strategic threats to the group, and made recommendations as appropriate. Through this oversight, the GRCMC was satisfied that there were no material risks that presently threaten the sustainability of the group.

The committee also considered the group’s exposure to country, single name obligor and sector concentration risk and ensured that rigorous stress testing of the group’s business was undertaken, supplemented by forward-looking strategic risk threat analyses. The output of this testing was reviewed by the GRCMC throughout 2012, with a view to ensuring appropriate actions were taken where necessary.

In relation to capital adequacy, the committee approved the internal capital adequacy assessment process (ICAAP) and submission to the South African Reserve Bank (SARB). Capital adequacy was also assessed in light of Basel Capital Accord (Basel) III requirements.

Reports on the South African unsecured lending portfolio and debt counselling regulatory and industry developments were considered.

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 the individual group risk type heads on the specific issues of group-level significance as well as other relevant items in their respective areas of responsibility.

The group risk framework provides a basis for ongoing self-assessment of appropriate risk appetite and compliance

with the group’s minimum control requirements, as articulated in the group’s risk governance standards.

The GRCMC received regular reports on the development of the group’s risk appetite, and potential future risk exposures of the group, thereby making recommendations to the board on risk appetite as part of an ongoing process.

During 2012, an internal self assessment on the effectiveness of the GRCMC was conducted. This assessment concluded that the committee was operating effectively. In addition, the externally facilitated board evaluation, which included board committees, concluded that the GRCMC was operating effectively.

Myles RuckChairman, GRCMC

4

The year in briefCredit riskIn 2012, the South African retail portfolio grew steadily

across all product types, particularly in the lending asset class.

The quality of the portfolio also improved, continuing the

positive trend experienced in 2011, albeit at a slower pace.

Corporate demand remained weak and the impact of low

economic growth in European markets, the moderate slowing

down in demand from China, and relatively subdued capital

and investment flows were evident. The portfolios outside

South Africa were particularly impacted by the tough

economic conditions, high inflation and volatile exchange

rates. Credit quality deteriorated and impairments increased.

Unsecured exposure to customers earning less than

R8 000 per month, referred to as the group’s inclusive

banking loan book grew to R3,7 billion (2011: R2,0 billion).

Country riskDuring 2012, the relative concentration of cross-border

exposure to the sub-Saharan region continued to increase,

consistent with the group’s strategic focus. The group’s direct

exposure to troubled European periphery economies remained

limited and tightly managed.

Market riskThe group’s banking book interest rate risk remained

within approved limits, with the largest exposure on the

SBSA balance sheet.

Trading book market risk remained within approved limits.

Average value-at-risk (VaR) was low and largely unchanged

from the prior year. The daily profit and loss results for the

year showed a profit for 248 of 260 trading days, which is

reflective of the group’s client flow business model.

Operational riskThe operational risk management framework, previously

deployed in SBSA, was embedded throughout the group’s

banking operations. This framework forms the basis of

SBSA’s compliance with the advanced measurement

approach (AMA) criteria under Basel II.

As required by the SARB, SBSA ran the AMA capital model

for the calculation of regulatory capital for operational risk in

parallel with the existing standardised approach capital

calculation method for the past year. Following the submission

of an AMA application to the SARB in 2011, SBSA engaged

with the SARB throughout the year in respect of the AMA

approval process. The group expects this approval process

to conclude in 2013.

The operational risk function within Liberty was strengthened

during 2012 with the creation of a head of operational risk

role. In addition, the Liberty operational risk management

framework is being aligned to the group’s banking

operations framework.

Financial crime controlIndependent reports published by forensic firms continued to

reflect an international trend of increased levels of fraud and

corruption involving staff. The group recorded an overall

decrease of net fraud losses of 18% compared to 2011.

The increased global staff awareness campaigns and the

publication of staff dismissals produced good results. The

increased utilisation of FraudStop and the whistle-blowing

hotline, resulted in fraud prevention and recovery

improvements of 32% from 2011 to 2012.

The money laundering surveillance capability was enhanced in

the group’s South African operations and is being rolled out to

the group’s operations in the rest of Africa.

The introduction of new minimum technology standards in our

ATM safes resulted in the reduction of ATM attacks during the

latter part of 2012.

SustainabilitySignificant 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.

Soft regulation, linked to central banks and other

stakeholders, is increasing and builds on expectations

from funding organisations and other stakeholders relating

to their environmental and social risk management.

The group contributed to the development of a Banking

Association of South Africa (BASA) code to address

environmental and social risk. This code has been

incorporated into the group’s policies.

Legal riskDuring 2012, there was a significant increase in litigation

against certain of our African businesses, all of which were

defended and none of which are expected to have a material

adverse impact on the group. In South Africa, the curator of a

pension fund has instituted legal proceedings, in which he

claims return of various listed securities delivered to SBSA in

2002 on the grounds that the applicable contract was void.

In February 2013 a competent tribunal ruled that the contract

was not void but only voidable. The dispute is scheduled to

proceed to arbitration in April 2013.

Overview continued


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5


Insurance riskThe governance structure for insurance risk was aligned with the other risk types through the creation of a head of insurance risk role. Additionally, the group insurance risk committee (GIRC), a subcommittee of GROC, was established and an insurance risk governance standard was introduced, supported by policies on reinsurance and product development.

Capital managementThe group has successfully maintained its strong capital position, meeting or exceeding all target ratios. The group spent significant time and effort in 2012 to ensure that it will be Basel III compliant from January 2013. These actions included:

¢ interpretation of the capital framework for South Africa and assessing the impact on the group

¢ participation in the quantitative impact assessments and Basel III parallel run tests initiated by the SARB

¢ contribution to the discussions held in the meetings conducted by BASA together with the SARB and providing input into the finalisation of various Basel III interpretation papers submitted to the SARB

¢ setting internal capital adequacy target ratios for 2013 to 2019 in line with the final capital framework issued by the SARB

¢ revised capital allocations to business in line with the revised capital adequacy target ratios

¢ incorporation of the Basel III interpretations into the group’s capital forecasts

¢ enhancements to regulatory reporting systems.

Liquidity managementDuring 2012, 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.

The group’s liquidity contingency recovery plan was comprehensively reviewed and updated in 2012. The updates were completed in conjunction with the construction of a recovery plan for the group.

During the year, the group undertook a liquidity stress-testing exercise, where a crisis was simulated for its impact on the group and the viability of various legal entity contingent liquidity plans. The simulation exercise provided valuable

learnings and supported the enhancement of the group’s existing recovery planning, while illustrating the robust nature of existing plans and sufficient contingent liquidity supporting the group.

Focus areas for 2013The group will focus on the following areas during 2013.

Credit riskThe 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 be placed on standardising credit risk methodologies and processes across the group, with particular focus on operations in the rest of Africa and Liberty. This will further enhance the integrated management of credit risk across the group.

Another key focus area will include refining the credit risk framework and supporting tools to manage risk against credit risk appetite and tolerance.

Country riskFocus will be placed on proactively managing country risk appetite and mitigating country specific risks in response to a challenging global economic and political risk environment. A revised risk appetite setting framework will be implemented, which will take account of a more geographically focused strategy.

The group will be implementing a revised country risk modeling suite that takes account of structural changes in the global economy, especially in developed markets, and this will provide more targeted measurement of transfer and convertibility risk.

Operational riskThe group will make use of the AMA framework to further advance business decision-making and ensure capital optimisation. Levels of sophistication will be increased by making use of quantitative methodologies to manage operational risk appetite and tolerance. The group aims to implement increasingly risk-based quantitative methodologies into the group’s banking operations across the rest of Africa, as these entities progress towards AMA implementation.

The operational risk framework for Liberty will be enhanced in line with the solvency assessment management (SAM) requirements and will leverage off the group’s banking operations.

The group also plans to introduce a groupwide IT system to support the minimum standards for business continuity management.

6

Focus areas for 2013 continued

Financial crime controlDuring 2013, the group will focus on the facilitation of customer migration out of the branches by promoting the usage of the self-service channels. This will be done without compromising customer safety and security.

Group physical security will explore sustainable and cost-effective operational solutions to ensure the reduction of the value of losses and number of incidents. Financial crime risk assessments will be conducted across the group which will be aligned to the group’s policies. Additionally, money laundering surveillance system rollouts will continue to be implemented across Africa.

SustainabilityGroup sustainability aims to further reduce our sustainability risk, which includes occupational health and safety, and environmental and social risk. This will be achieved by improving 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.

Compliance riskLegislative change continues to be driven mainly by consumer protection and reforms to support increasing supervisory expectations. With this in mind, the compliance function will place particular emphasis on initiatives relating to treating customers fairly, customer confidentiality, anti-money laundering and combating the financing of terrorism, conflicts management and surveillance systems to support both customers and supervisory expectations.

A key strategic enabler to support our compliance risk management objectives will be the attention given to our regulatory surveillance, reporting systems and staff training.

Legal riskThe capacity of the legal resources in South Africa will be enhanced to better service the transactions originated outside of South Africa but 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.

Market riskThe 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. Stress-testing methodologies will be adapted to reflect the low interest rate levels.

Capital and liquidity managementThe group will be Basel III compliant with effect from

1 January 2013. Taking this into consideration, the specific

focus areas include:

¢ ensuring that the group is adequately positioned to

respond to regulatory capital rules under the Basel III

phase-in requirements, and considering different Basel III

adoption timelines by regulators in the different

jurisdictions that the group operates in

¢ ensuring that capital management practices in the

group’s rest of Africa banks are consistent with the

group’s standards

¢ further embedding risk-adjusted performance

measurement into the group’s performance measurement

and reporting processes

¢ optimising capital and liquidity allocation between product

lines, trading desks, industry sectors and legal entities

that result in financial resources being allocated in a

manner that enhances the overall group economic profit

and return on equity (ROE)

¢ implementing updated funds transfer pricing

methodologies to more accurately price and measure the

internal cost of funding

¢ concluding discussions with the SARB regarding the

committed liquidity facility to be made available to

South African banks

¢ continually extending SBSA’s asset and liability

management system to include the group’s rest

of Africa banking entities while materially automating

reporting.

The updates to the South African Banks Act 94 of 1990

(Banks Act) which is being implemented in 2013, in line

with Basel III, require a number of changes to our liquidity

reporting, which include:

¢ additional tenor buckets in business-as-usual and

bank-specific stress regulatory submissions

¢ providing additional information on off-balance sheet

exposures

¢ providing group LCR and net stable funding ratio (NSFR)

calculations on a quarterly basis.

Insurance riskThe group will focus on developing the insurance risk

component of the SAM programme and will continue to

develop policies that support the insurance risk governance

standard. In an effort to reduce insurance risk, the group will

continue to develop insights into the insurance risk profile of

the insurance businesses through the group insurance risk

oversight function.

Overview continued


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Regulatory developmentsImpacting the group’s banking operationsGlobalBasel IIISouth Africa is one of the 11 Basel Committee on Banking Supervision (BCBS) member countries that adopted Basel III on 1 January 2013.

Subsequent to this, the BCBS published significant changes to the LCR requirements. These changes result 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.

Anticipated future developments on Basel III include:

¢ finalisation of the NSFR liquidity requirements by the BCBS

¢ alignment of the credit valuation adjustment (CVA) application across jurisdictions

¢ changes to the standardised approaches for credit and operational risk

¢ development of a more consistent and effective framework for measuring and controlling large credit exposures

¢ other changes resulting from the BCBS monitoring exercises.

Systemically important financial institutions (SIFIs)It is anticipated that the guidance developed by the BCBS and the Financial Stability Board (International FSB) will form the basis for the future requirements of domestic systemically important banks in South Africa.

These South African banks are currently in the process of developing their recovery and resolution plans in line with global standards.

The recovery plan focuses on plausible management or recovery actions that can be taken to reduce risk and conserve capital 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 tax payers.

Implementation of IFRS 9 Financial Instruments (IFRS 9)The International Accounting Standards Board (IASB) is currently replacing International Accounting Standards (IAS) 39 Financial Instruments: Recognition and Measurement (IAS 39) with International Financial Reporting Standards (IFRS) 9 Financial Instruments (IFRS 9). The replacement of IAS 39 with IFRS 9 will be achieved through three distinct phases. The first of these phases, being the classification and measurement of financial assets and financial liabilities, has been completed (subject to further proposed amendments that were issued by the IASB during 2012). Both phase two, which encompasses the proposed expected loss impairment model that will replace IAS 39’s incurred loss model, and phase three, which encompasses proposed simplifications to IAS 39’s hedge accounting requirements, are yet to be finalised by the IASB. The group continues to participate in industry body discussions on the proposed changes.

While phase one is available for early adoption, IFRS 9 as a standard will only require mandatory adoption by the group for its financial year commencing 1 January 2015. The group expects to adopt all the requirements of IFRS 9 simultaneously, in line with IFRS 9’s effective date requirements and this will be a key accounting standard in the measurement and reporting of financial risks.

Over�the�counter (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.

Other key regulatory topicsOther key papers that were released during the past year, which are expected to set the tone for global regulatory developments during 2013, include:

¢ fundamental review of the trading book

¢ principles for effective risk data aggregation and reporting

¢ oversight and regulation of shadow banking

¢ revisions to the Basel securitisation framework.

8

Regulatory developments continued

South AfricaProtection of Personal Information Bill The Protection of Personal Information Bill which provides for conditions of privacy and protection of personal information is near completion and needs to be approved by the National Council of Provinces in order to be finalised. This bill 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 bill’s requirements. A group data privacy officer has also been appointed.

Financial Markets BillThe Financial Markets Bill has been finalised and will impact a number of activities within CIB. This bill 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, including a centralised clearing house for derivative trades. The bill is expected to be enacted in 2013.

Financial Services General Laws Amendment BillThe Financial Services General Laws Amendment Bill was tabled in Parliament in 2012 and seeks to amend 10 statutes, including the Financial Services Board Act 97 of 1990 and the Long-term Insurance Act 52 of 1998 (Long-term Insurance Act) and Short-term Insurance Act 53 of 1998 (Short-term Insurance Act). These amendments will impact the provision of specific products and services by the group. National Treasury also published proposals to reform the retirement and savings industry, which will provide opportunities for the group to develop new savings products for customers.

Treating Customers Fairly (TCF)The Financial Services Board (FSB) published a roadmap in March 2011 for the implementation of a programme for regulating the market conduct of financial services firms, entitled 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 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.

OtherAmendments to other statutes were proposed in 2012 that impact the group. Examples include the Broad-based Black Economic Empowerment Amendment Bill, the Sectional Title Amendment Bill, the Employment Equity Amendment Bill, and the Electronic Communications and Transactions Amendment Bill. The group is assessing these proposals and responding where appropriate.

United Kingdom, Europe and the United StatesIn the United Kingdom (UK), reforms to the way that financial institutions will be regulated are underway and are expected to take effect by April 2013. Prudential supervision will be transferred to the new Prudential Regulation Authority under the Bank of England and the remaining functions of the Financial Services Authority (FSA) will be transferred to a new Consumer Protection and Markets Authority. A new Serious Economic Crime Agency will police economic crime. A law requiring ring-fencing of entities which accept deposits from individuals and from small- and medium-sized enterprises continues to develop in the UK, and a draft is currently being considered by the legislature.

In Europe, new regulations on short selling came into effect in 2012. The Dodd-Frank Wall Street Reform and the South African Consumer Protection Act 68 of 2008 (Consumer Protection Act) aims to regulate the financial markets in the United States (US). The group is impacted as a result of our derivatives dealings with US counterparties, particularly with regards to OTC derivatives. New developments are continuously monitored and adopted as required.

Rest of AfricaA number of jurisdictions promulgated new or enhanced legislation focused on anti-money laundering and terrorist financing control to meet international standards. Other regulatory focus areas include consumer protection and treating customers fairly legislation. In Nigeria, the Sustainable Banking Principles for banks, discount houses and development finance institutions came into effect during the year. The principles are intended to serve as a common baseline and framework to deliver positive development impacts to the society, while protecting the communities and environments in which financial institutions and their clients operate. The group actively engages with regulators and provides input during the commentary phase of the administrative legislative procedure.

Overview continued


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9


Impacting the group’s short- and long-term insurance operationsSouth AfricaSolvency assessment managementThe 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. An industrywide adoption of SAM is expected by January 2015 with the implementation of interim measures for long-term insurers and short-term insurers expected during 2013.

SAM is likely to have a significant impact on the South African insurance industry. The key issues are:

¢ Capital requirements: Although there is still uncertainty as to the quantitative impact of SAM, it is expected to be far greater in the smaller (unlisted) niche insurance business, which may result in further consolidation within the industry.

¢ Product profitability: Generally, it is expected that the quality of earnings will improve due to more accurate pricing of risk and the withdrawal of higher-risk products.

¢ Assets and investment preferences: The relative attractiveness of asset classes will shift, with assets reallocated towards SAM-optimised investments.

¢ Risks and risk transfer: As SAM is likely to recognise correlation within a group and between risk types, the quantification of risk diversification could prompt the realisation of benefits through rationalisation or organisational structures or transfer of risk between structures.

¢ Costs: SAM will result in higher costs of compliance, resulting in higher costs for providing insurance services. With capital constraints, insurers will be more focused on reducing costs and increasing efficiencies. This may result in further industry-level consolidations to improve advantages of scale.

¢ Industry structure: The supervision by regulators will be split between prudential supervision of re-insurers and banks, while market conduct will be subject to separate supervision by the FSB.

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 FSB’s SAM industry forums through participation in the 12 task groups, the SAM steering committee and its subcommittees.

Treating customers fairlyThe TCF focus continues to be developed by Liberty, through means of various initiatives within the Liberty group.

Social security and retirement reformNational Treasury has announced its intention to reform the pension and retirement savings industry, including steps to deal with certain preservation, portability and governance aspects involving retirement funds. There will also be a focus on fees and commissions with respect to annuity products in particular. Other National Treasury focus areas will be non-retirement savings and further tax incentives around retirement funding.

During 2012, draft regulations were issued by National Treasury relating to the demarcation between long- and short-term insurance products and medical schemes which may have implications for the group.

Pension Funds Act amendments relating to fund member investment restrictionsAmendments to Regulation 28 of the Pension Funds Act were implemented during 2012, relating to limitations on individual fund member policyholder investment portfolios. Various projects to facilitate communications to fund members, as well as reports being provided to the FSB have been initiated.

The Financial Advisory and Intermediary Services Act’s fit�and�proper requirements for financial advisersAll the group’s registered financial advisers were required to pass examinations during 2012. The majority of these financial advisers have passed the examinations. Where financial advisers did not pass the exams, they have been removed from the representative registers and their customers have been re-intermediated to other advisers.

Insurance act reviewThe Long-term Insurance Act and Short-term Insurance Act are being reviewed by the regulators as part of the SAM implementation process.

Other regulatory developmentsA directive was issued by the FSB during 2012 requiring compliance with certain minimum requirements for outsourcing arrangements where third parties conduct

policyholder-related activities on behalf of insurers.

10

Reporting frameworkThe risk and capital information disclosed within these sections is in accordance with two frameworks, namely IFRS and Basel II.

All tables, diagrams, quantitative information and commentary in this risk and capital management report are unaudited unless stated as audited.

RCMAFS

Restatement of 2011 financial information is set out in annexure A on page 212

Sections forming part of the audited annual financial statementsSpecific information on risk and capital management integral to the audited annual financial statements can be found under the following sections of this risk and capital management report:

¢ capital management, starting on page 19

¢ credit risk, starting on page 25

¢ liquidity risk, starting on page 57

¢ market risk, starting on page 66

¢ insurance risk, starting on page 79.

Reporting framework differencesWhile the overarching aim of both the IFRS and Basel II reporting frameworks is transparency and accountability, there are some fundamental differences in underlying principles, with the Basel II principles being more conservative.

Asset class differencesUnder IFRS, the reporting of exposures is categorised by class of financial instrument while Basel II requires classification by Basel II asset class. Classes are determined for IFRS purposes by taking into account the nature of the information to be disclosed and the characteristics of the underlying financial instruments. Basel II asset classes, under the internal ratings-based (IRB) approach, are based on their homogeneous risk characteristics and aligned to the risk mitigation factors applied in the Basel II calculations.

Fair value instrumentsIFRS permits any financial asset or financial liability, on meeting specific criteria, to be designated at fair value with all changes in fair value being recognised in profit or loss.

RCMAFS

Refer to page 177 for the changes in fair value attributable to changes in own credit risk on such liabilities which are required to be disclosed in the financial statements

Basel II requires that fair value gains and losses attributable to own credit risk be excluded when calculating regulatory capital.

Available-for-sale instrumentsIFRS permits certain financial assets such as non-trading debt and equity instruments to be classified as available-for-sale. These are measured at fair value with all fair value adjustments recognised in other comprehensive income (OCI).

Basel II pillar 3 (pillar 3) requires these fair value adjustments to be reversed when determining regulatory capital as they may be transient and, therefore, not permanently available.

ImpairmentsIn terms of IFRS, assets 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.

While IFRS impairment is based on an incurred loss approach, Basel II 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.

Unexpected losses are accounted for through holding regulatory capital in relation to the size and nature of the exposure held. Basel II requires statistical modeling of expected losses whereas IFRS, although it allows for statistical models, requires a trigger event to have occurred before an impairment loss can be recognised.

DefaultThe difference between default under Basel II and impairment under IFRS relates to timing. Basel II defines default as the obligor being 90 days past due on the obligation (extended to 180 days for some products) whereas IFRS defines default as actual breach of contract (including a missed capital or interest payment) or changes in macroeconomic variables before the reporting date that have a correlation with default on assets.

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Treatment of differences between the impairment valuesThe difference between the two impairment values produces a shortfall if the expected loss amount under Basel II exceeds total impairments under IFRS, or an excess if total impairments exceed the expected loss amount. Basel II requires shortfall amounts, if any, to be deducted from capital in the ratio of 50% from tier I capital and 50% from tier II capital.

Basis of consolidationThe differences relating to consolidation methods under Basel II and IFRS are explained in the table below.

Reporting framework differences

Basel ll pillar 3 IFRS

Basis for determining treatment The key basis is the nature of the underlying activity of the entity. There are different treatments for entities which conduct banking, securities or financial activities as defined, and those which do not.

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 has on those entities. The principles of control and the consequential reporting requirements are governed by the accounting standard IAS 27, which will be superceded by IFRS 10 from January 2013.

Subsidiaries conducting banking, securities or financial activities as defined1

Consolidated2 Consolidated

Other subsidiaries Deducted3 Consolidated

Significant influence or joint control of entities conducting banking, securities or financial activities, as defined1

Proportionally consolidated4 Equity accounted

Significant influence or joint control of entities conducting other activities

Deducted3 Equity accounted

1 Refer to the definitions shown in the table on the next page.2 Includes the full risk-weighted exposure amounts of the subsidiary in the group’s consolidated risk-weighted exposures.3 The investment in the entity is deducted from the group’s consolidated regulatory capital and reserve funds and the related assets are removed

from the consolidated balance sheet.4 Includes the pro rata portion (based on the group’s share in the entity) of the risk-weighted exposure amounts of the entity in the group’s

consolidated risk-weighted exposure.

Group and individual bank disclosureBasel II disclosures apply at a group level only and not at an individual bank level. Banking regulations require the consolidation of group companies (subsidiaries, joint ventures and voluntarily consolidated minority-owned entities) that conduct banking, securities and financial activities. These include credit institutions, securities firms and financial entities, but no other companies.

12

Reporting framework continued

Treatment of legal entities under the Basel II consolidation

Banks1

Securitiesfirms2

Financialentities3

Commercialentities4

Insuranceentities5

2012Consolidated6 23 5 83 Proportionately consolidated7 4 Deducted8 1 22 106 3

Total 24 5 109 106 3

2011Consolidated6 24 5 88Proportionately consolidated7 4Deducted8 1 21 105 3

Total 25 5 113 105 3

1 Banks – public companies registered as banks in terms of the Banks Act or the relevant legislation if the entity is registered outside of the Republic of South Africa.

2 Securities firms – entities that provide securities services as envisaged in the Securities Services Act 36 of 2004 or the relevant legislation if the entity is registered outside the Republic of South Africa.

3 Financial entities – entities that conduct financial activities, for example, lending, financial leasing, consumer credit, mortgage credit, money transmission, portfolio management or money broking.

4 Commercial entities – entities primarily involved in the production of goods or non-financial services.5 Insurance entities – entities that conduct insurance business including any entity registered as an insurer in terms of the Short-term Insurance Act

or Long-term Insurance Act or the relevant legislation if the entity is registered outside the Republic of South Africa.6 Consolidated – includes the full risk-weighted exposure amounts of the subsidiary in the group’s consolidated risk-weighted exposures.7 Proportionally consolidated – includes the pro rata portion (based on the group’s share in the entity) of the risk-weighted exposure amounts of the

entity in the group’s consolidated risk-weighted exposures.8 Deducted – the investment in the entity is deducted from the group’s consolidated regulatory capital and reserve funds and the related assets are

removed from the consolidated balance sheet.

Risk typesThe risk types that the group is exposed to are defined below. The definitions are consistent with those used in the risk taxonomy, a key component of the risk framework.

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

Credit risk comprises counterparty risk, settlement risk and concentration risk. These risk types are defined as follows:

¢ Counterparty risk: The risk of credit loss to the group as a result of the failure by a counterparty to meet its financial and/or contractual obligations to the group as they fall due. This risk type has three components:

¢ Primary credit risk: The exposure at default (EAD) arising from lending and related banking product activities, including their underwriting.

¢ Pre-settlement credit risk: The EAD arising from unsettled forward and derivative transactions where the group is acting in a principal capacity or as a clearer. This risk arises from the default of the counterparty to the transaction and is measured as the cost of replacing the transaction at current market rates.

¢ Issuer risk: The EAD arising from traded credit and equity products, including underwriting the issue of these products in the primary market.

¢ Settlement risk: The risk of loss to the group from settling a transaction where value is exchanged, but where the group may not receive all or part of the counter value.

¢ Credit concentration risk: The risk of loss to the group as a result of excessive build-up of exposure to a specific counterparty or counterparty group, an industry, market, product, financial instrument or type of security, a country or geography, or a maturity. This concentration typically exists where a number of counterparties are engaged in similar activities and have similar characteristics, which could result in their ability to meet contractual obligations being similarly affected by changes in economic or other conditions.

Country riskCountry risk is the risk of loss arising when political or economic conditions or events in a particular country inhibit the ability of counterparties in that country to meet their financial obligations. Country risk events may include sovereign defaults, banking or currency crises, social instability and governmental policy changes or interventions such as expropriation, nationalisation and asset confiscation. Transfer and convertibility risk is an important element of cross-border country risk. Examples of

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13


transfer and convertibility events are exchange controls and foreign debt moratoria.

Liquidity riskLiquidity risk arises when the group is unable to maintain or generate sufficient cash resources to meet its payment obligations as they fall due, or can only do so on materially disadvantageous terms.

This inability to maintain or generate sufficient cash resources occurs when counterparties who provide the group with funding withdraw or do not roll over that funding, or as a result of a general disruption in asset markets that renders normally liquid assets illiquid.

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

Insurance riskInsurance risk is the risk that future demographic and related expense experience will exceed the allowance for expected demographic experience and expenses, as determined through measuring policyholder 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.

Operational riskOperational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Reputational risk and strategic risk are, in line with general market convention, excluded from the definition of operational risk. Reputational risk is defined separately alongside. Strategic risk is included in the definition of business risk alongside.

Business riskBusiness risk is the risk of loss, due to operating revenues not covering operating costs and 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.

It includes strategic risk and post-retirement obligation risk.

Strategic riskStrategic 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.

Post-retirement obligation riskThe risk arises because the estimated value of the pension or medical liabilities might increase, the market value of the fund’s assets might decline or their investment returns might reduce.

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

Risk management frameworkThe group’s risk management framework comprises the following components:

¢ risk governance committees at a board and management level as described on the next page

¢ management organisation structure to support the three lines of defence model as described on page 16

¢ risk governance standards as described on page 17

¢ policies to support the risk governance standards.

14

Risk governance committees

Group executive committee

Group chief executive1

Jacko Maree2

Standard Bank

Group board

Management committees Board committees

Group audit committee

Group risk and capital

management committee

SBSA large exposure credit

committee3

Group strategic technology and

operations forumDeputy

chief executive Peter Wharton-Hood1

Group risk oversight

committeeGroup chief risk officer Paul Smith1

PBB model approval

committeeChief risk

officer PBBKeith Fuller1

Group model approval

committee

CIB modelapproval

committeeChief riskofficer CIB

Roselyne Renel1

1 Chairman of management committee.2 Group chief executive as at 31 December 2012. 3 A subcommittee of SBSA.

Risk governance processThe group’s risk governance process relies on both individual

responsibility and collective oversight, supported by

comprehensive and independent reporting. This approach

balances strong corporate oversight at group level with

participation by the senior executives of the group in all

significant risk matters.

The governance committees are a key component of the risk

management framework. They have clearly defined mandates

and delegated authorities, which are reviewed regularly.

RCMAFS

As a general principle, risk management issues are dealt with at the appropriate GROC subcommittee, refer to page 16

Material issues are escalated to GROC, as are decisions requiring GROC approval. GROC evaluates reports provided to it by the GROC subcommittees and the CROs, together with specific deep drill reports. Material issues are escalated to the GRCMC, as are decisions requiring the GRCMC approval. The GRCMC accounts to the board in the same manner.

The primary communication up the hierarchy is undertaken by the relevant committee chairman. Wherever regulations require noting or approval by the board committee the regulations overrule any internal processes.

A similar process is adopted in relation to the GAC where the reporting process commences at the level of the head of GIA and the head of governance and assurance.

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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.

Group audit committeeThe GAC reviews the group’s financial position and makes recommendations to the board on all financial matters, risks, internal financial controls, fraud and IT risks relevant to financial reporting. In relation to risk and capital management, the GAC plays a crucial role in ensuring that the group’s internal financial controls are adequate to effectively and efficiently mitigate risks.

Minutes of the GRCMC meetings are tabled at the GAC meetings on a quarterly basis. In addition, the CRO provides quarterly strategic risk overviews to the GAC on significant matters relating to risk and capital management discussed at the GRCMC and GROC meetings. Furthermore, on a quarterly basis, the chairman of the GAC meets with the group chief compliance officer and chief audit officer, in the absence of management, to discuss the adequacy and effectiveness of the management of risks to which the group is exposed.

AIRFurther details on the GAC’s roles, responsibilities and membership can be found in the corporate governance statement on pages 102 and 103 of the group’s 2012 annual integrated report

Group risk and capital management committeeThe GRCMC provides independent and objective oversight of risk and capital management across the group by:

¢ reviewing and providing oversight in respect of the adequacy and effectiveness of the group’s risk management framework

¢ approving risk and capital management governance standards and policies

¢ approving the group’s risk appetite statements and monitoring the group’s risk profile

¢ monitoring and evaluating significant IT investment and expenditure.

SBSA large exposure credit committeeThis committee is designated by the SBSA board to discharge the responsibility of ensuring compliance with the Banks Act regulations in respect of large exposures. It meets as required, with the requirements for a quorum being mandatory in terms of guidance from the SARB, and reports quarterly to the SBSA board through its chairman on all large exposures as defined in the regulations.

Group model approval committeeThe group model approval committee was established, effective 1 January 2012, in line with the Banks Act regulations. This committee is responsible for assisting the board in reviewing and approving all aspects of the group’s material credit rating models. This committee reports to the board and the GRCMC through its chairman. This committee is supported by the PBB and CIB model approval subcommittees.

Management committeesGroup risk oversight committeeExecutive management oversight for all risk types has been delegated by the group executive committee to GROC which, in turn, assists the GRCMC to fulfil its mandate. GROC considers and, to the extent required, recommends for approval by the relevant board committees for the following:

¢ risk appetite statements

¢ approval of macroeconomic scenarios for stress testing, stress-testing results and scenario analyses

¢ risk governance standards for each risk type

¢ actions on the risk profile and/or risk tendency

¢ risk strategy and key risk controls across the group

¢ ICAAP.

16

Risk governance process continued

GROC subcommitteesThere are 14 GROC subcommittees, as detailed in the committee structure below.

Subcommittee Chairman

CIB credit governance committee Roselyne Renel, chief risk officer, CIB

Group asset and liability committeeSubcommittee: group capital management committee

Simon Ridley, group financial director

Group compliance committee Isabel Lawrence, group chief compliance officer

Group country risk management committee Roselyne Renel, chief risk officer, CIB

Group credit portfolio management committee1 Paul Smith, group chief risk officer

Group equity risk committee1 Roselyne Renel, chief risk officer, CIB

Group insurance risk committee1 Calvin Quan, group head insurance risk

Group internal financial control governance committee Simon Ridley, group financial director

Group operational risk committee Paul Rew, group head operational risk

Group regulatory and legislative oversight committee Sim Tshabalala, deputy group chief executive

Group sanctions review committee Sim Tshabalala, deputy group chief executive

Group stress testing committee Richard Pantcheff, group chief credit officer

Intragroup exposure committee Simon Ridley, group financial director

PBB credit governance committee Keith Fuller, chief risk officer, PBB

1 Established in 2012.

Three lines of defence modelThe group adopts the three lines of defence model which reinforces segregation of duties between and independence of various control functions. The three lines of defence are described below.

First line of defence Second line of defence Third line of defence

Co

nsi

sts

of

¢ management of business lines and legal entities.

¢ finance function

¢ risk management function

¢ legal function

¢ governance and assurance function excluding GIA.

¢ GIA function (administratively part of governance and assurance).

Res

po

nsi

bil

itie

s ¢ measures, assesses and controls risks through the day-to-day activities of the business within the governance framework.

¢ supports the governance framework

¢ provides independent oversight of the first line of defence

¢ reports to management and board governance committees.

¢ supports the governance framework

¢ provides independent assessment of first and second lines of defence

¢ reports to GAC.

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17


Second line of defence functionsThe second line of defence functions comprise various specialist functions which are set out below.

Finance functionRisk management function Legal function

Governance and assurance function

Co

nsi

sts

of

¢ treasury and capital management (TCM) function:

¢ capital management

¢ liquidity risk

¢ banking book interest rate risk

¢ business risk

¢ portfolio management

¢ group tax function

¢ group financial control function.

¢ credit risk

¢ country risk

¢ market risk

¢ operational risk, including business continuity and resilience

¢ information risk management

¢ long- and short-term insurance risk

¢ integrated risk.

¢ prudential, by geographic region

¢ transactional, by product type.

¢ governance office

¢ financial crime control

¢ sustainability management

¢ compliance

¢ occupational health and safety

¢ physical security.

Each of these four functions has resources at both the centre and embedded within the business lines. The central resources provide a groupwide governance framework for the specific function. The resources dedicated to the business lines support business line management in ensuring that business line specific risks are effectively managed as close to the source as possible. Centre and embedded resources jointly address risk management at a legal entity level.

Third line of defenceThe GIA function, under the stewardship of the chief audit officer, reports to and operates under a mandate from the GAC. In terms of this mandate, the GIA’s role is to provide independent and objective assurance, designed to add value and improve group operations. The GIA has the authority to independently determine the scope and extent of work to be performed. All internal audit employees in the group report operationally to the chief audit officer and administratively to management in their country of residence.

Risk governance standardsThe specialist second line of defence functions maintain risk governance standards for each major risk type to which the group is exposed. The risk governance standards set out minimum control requirements and ensure alignment and consistency in the manner in which the major risk types and capital management metrics across the group are dealt with.

All risk governance standards are applied consistently across the group and are approved by the GRCMC. Supporting policies and procedures are implemented by the management team and monitored by the embedded risk resources.

Compliance with risk governance standards is controlled through annual self-assessments by the second line of defence and reviews by the GIA.

The group’s approach to risk appetiteThe following terms have specific meanings within the group.

¢ Risk appetite: An expression of the amount or type of risk an entity is generally willing to take in pursuit of its financial and strategic objectives, reflecting its capacity to sustain losses and continue to meet its obligations as they fall due, under both normal and a range of stress conditions. Risk appetite could be exceeded either as a result of an adverse economic event more severe than that envisaged under the range of stress conditions (passive), or as a result of a decision to increase the risk profile to accommodate market, client or portfolio requirements (active).

¢ Risk tolerance: The maximum amount or type of risk the group is prepared to tolerate above risk appetite for short periods of time on the understanding that management action is taken to get back within risk appetite.

¢ Risk capacity: The maximum amount of risk the group is able to support within its available financial resources.

¢ Risk profile: The amount or type of risk the group holds at a specified point in time.

¢ Risk tendency: The forward-looking view of how the group’s risk profile may change as a result of portfolio effects and/or changes in economic conditions. The changes in economic conditions may either be in the form of formally approved macroeconomic stress scenarios as part of the budgeting process or ad-hoc stress scenarios.

18

The group’s approach to risk appetite continued

The board establishes parameters for risk appetite by:

¢ providing strategic leadership and guidance

¢ reviewing and approving annual budgets and forecasts, under normal and stressed conditions, for the group, each business line and material legal entity

¢ regularly reviewing and monitoring performance in relation to risk through quarterly board reports

¢ analysing risk tendency against risk appetite.

The board delegates the determination of risk appetite to the GRCMC, which in turn ensures that risk appetite is in line with group strategy and the desired balance between risk and return. GROC recommends the level of risk appetite to both the GRCMC and the board.

Risk appetite at a group level is described by the following metrics which are supplemented by qualitative criteria:

¢ earnings at risk

¢ liquidity

¢ regulatory capital

¢ economic capital.

These metrics are converted into:

¢ portfolio limits, for example, concentrations, credit loss ratios and VaR

¢ operational limits, for example, facilities by name

¢ desk-specific limits across the relevant risk types.

The group’s approach to stress testingStress testing is a key management tool within the group and facilitates a forward-looking perspective of the organisation’s risk profile or risk tendency.

Stress testing supports a number of business processes including:

¢ strategic planning and budgeting

¢ the ICAAP process, including capital planning and management, and the setting of capital buffers

¢ liquidity planning and management

¢ informing the setting of risk tolerance

¢ providing a forward looking assessment of the impact of stress conditions on the risk profile

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

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

¢ communicating with internal and external stakeholders.

Stress-testing results inform decision-making at the appropriate management levels including strategic business decisions of the board and senior management.

Stress tests are conducted at group, business line and material legal entity level.

Groupwide macroeconomic stress testing is conducted regularly across all major risk types for a range of common scenarios. This allows the group to monitor its risk profile and risk tendency against its risk appetite. This groupwide stress testing is augmented by portfolio-specific stress testing and sensitivity analyses to identify the drivers of risk tendency and necessary actions to constrain risk.

The appropriateness of the macroeconomic stress scenarios and the severity of the relevant scenarios used for capital planning are approved by the GRCMC.

Basel II approaches adoptedCredit riskThe group has approval from the SARB to adopt the advanced internal ratings-based (AIRB) approach for its credit portfolios in SBSA and the foundation internal ratings-based (FIRB) approach for Standard Bank Plc. For internal management purposes, the group utilises internal measures and principles wherever possible.

Equity riskThe 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.

Operational riskThe group currently applies the standardised approach for operational risk. During 2012, the group calculated capital based on the AMA model for SBSA. This has been used for SBSA economic capital purposes, and for the parallel run for regulatory capital purposes. Provided that the necessary approval is obtained from the SARB, the group will adopt a partial approach, that is, SBSA will make use of the AMA for regulatory capital purposes, while the other entities will remain on the standardised approach for regulatory capital until they are ready to migrate to the AMA under home and host regulatory requirements.

Market riskThe group has approval from the SARB to adopt the internal models approach for most trading product groups and across most market risk types for SBSA and Standard Bank Plc.

Overview continued


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19

Standard Bank Group Risk and capital management report 2012 > Capital management

ObjectivesThe group’s capital management framework is designed to ensure that regulatory requirements are met at all times and that the group and its principal subsidiaries are capitalised in line with the risk profile, economic capital standards and target ratios approved by the board.

The capital management functional pillar of TCM is structured into the following key functions:

¢ Strategic capital management function: Key responsibilities are capital raising, advising on the dividend policy, facilitating capital allocation, risk-adjusted performance measurement (RAPM), ICAAP and capital planning.

¢ Portfolio analysis and reporting function: Key responsibilities are to own and manage the regulatory and economic capital results (and the systems used to produce the results), capital budgeting, reporting and analysis, and standardising data management processes across functions within TCM.

¢ CIB and PBB capital management functions: Key responsibilities are to provide support on capital management matters such as deal pricing, key return measures and management of capital consumption against budgets.

¢ Regional capital management function: Key responsibilities are to own and manage the regulatory and economic capital results, capital budgeting and reporting, and the analysis of the group’s operations in the rest of Africa and outside Africa.

These functions work collectively to achieve the objectives of capital management, which are to:

¢ Maintain sufficient capital resources to support:

¢ the group’s risk appetite and economic capital requirements

¢ the group’s internal target capital adequacy ratios

¢ the SARB’s minimum ratios set in accordance with Basel II and future Basel III requirements as well as minimum requirements set by foreign regulators for the group’s foreign-regulated subsidiaries.

¢ Allocate capital to businesses using risk-based capital allocation to support the group’s strategic objectives, including optimising returns on economic and regulatory capital.

¢ Maintain the group’s dividend policy and dividend declarations while taking into consideration shareholder and regulatory expectations.

¢ Develop, review and approve ICAAP including short- to medium-term capital planning and stress testing.

Capital transferabilitySubject to appropriate motivation and approval by exchange control authorities, no significant restrictions exist on the transfer of funds and regulatory capital within the banking group.

Aud

ited

Capital management

Objectives 19

Capital transferability 19

Regulatory capital 20

Banking operations 20

Insurance operations 24

Economic capital 24



Risk-adjusted performance measurement 24

Cost of equity 24

20

Regulatory capitalThe group manages its capital base to achieve a prudent balance between maintaining capital levels to support business growth, maintaining depositor and creditor confidence, and providing competitive returns to shareholders, while ensuring regulatory capital targets are maintained.

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

¢ core tier I

¢ tier I

¢ total capital adequacy.

Core tier I capital represents ordinary share capital, share premium and appropriated retained earnings. Tier I capital comprises core tier I and perpetual, non-cumulative preference shares. Total capital includes other items such as subordinated debt and the general allowance for credit impairments.

These ratios represent a measure of the capital supply relative to the total risk-weighted assets and are measured against internal targets and regulatory minimum requirements.

20

15

10

5

2006

Capital adequacy (%)

¢ Tier I ¢ Tier II ¢ Tier III — Total required capital

2007 2008 2009 2010 2011 2012

The majority of risk-weighted assets are determined on a granular basis by using the internal ratings-based approach and applying risk weights calculated from internally derived risk parameters. A portion of the group’s risk-weighted assets are calculated using the standardised regulatory approach. Risk-weighted assets take the following into consideration:

¢ Both on- and off-balance sheet exposures are included in the group’s overall credit risk-weighted assets.

¢ Risk-weighted assets for equity risk are modelled on the standardised, market-based and probability of default (PD)/loss given default (LGD) approaches.

¢ Capital requirements for market risk and operational risk are converted into risk-weighted assets for the purpose of determining total risk-weighted assets.

¢ Other assets are risk weighted in accordance with prescribed regulatory requirements.

During the year ended 31 December 2012 and the comparative year ended 31 December 2011, the group complied with all externally imposed capital requirements on its banking operations.

The main requirements for the group are those specified in the Banks Act of South Africa and related regulations which are broadly consistent with the Basel II and Basel 2.5 guidelines issued by the Bank for International Settlements.

The group’s core tier I capital, including unappropriated profit, was R86,8 billion at 31 December 2012 (2011: R80,1 billion).The group’s tier I capital, including unappropriated profit, was R92,3 billion at 31 December 2012 (2011: R85,5 billion) and total capital, including unappropriated profit was R115,2 billion at 31 December 2012 (2011: R102,0 billion). The change in the group’s qualifying capital was primarily due to an increase in retained earnings and the issuance of Basel II compliant tier II capital instruments.

RCMAFS

The group maintained a well-capitalised position based on core tier I, tier I and total capital adequacy ratios as set out on page 23

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

SBG tier II instrument maturity profile (Rm)

¢ Callable date

2013 2014 2015 2016 2017 2018 2019 2020

The group has a balanced tier II subordinated debt maturity profile. Ongoing focus on capital raising opportunities resulted in the successful issue of R9,2 billion of Basel II compliant tier II instruments in 2012, further bolstering the group’s capital position and extending its debt maturity profile.

Aud

ited

Capital management continued


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21


Basel II regulatory capital

2012Rm

2011Rm

Tier IIssued primary capital and unimpaired reserve funds 124 670 112 030

Ordinary share capital and premium 18 093 17 735Ordinary shareholders’ reserves 92 277 81 307Non-controlling interest 14 300 12 988

Less: Regulatory deductions (21 239) (20 698)

Goodwill and other intangible assets (13 924) (11 449)Investment in banks (1 543) (3 099)Less: Regulatory deductions – 50% deducted from tier I and tier II respectively (5 772) (6 150)

Future expected loss exceeding eligible provisions on an incurred loss basis1 (1 054) (1 452)Investment in insurance and financial entities not consolidated (4 716) (4 660)Loans to special purpose entities (SPEs) (first loss credit enhancement) (2) (38)

Less: Regulatory exclusions (22 118) (16 687)

Non-qualifying entities’ ordinary shareholders’ reserves2 (6 663) (4 440)Unappropriated profit (5 491) (5 407)Non-qualifying, non-controlling interest (7 848) (5 928)Other reserves3 (2 116) (912)

Preference share capital and premium 5 495 5 495

86 808 80 140

Tier IIIssued secondary capital and reserves 28 947 22 543

Preference share capital and premium 8 8Subordinated debt 27 204 20 983General allowance for credit impairments 1 735 1 552

Less: Regulatory deductions – 50% deducted from tier I and tier II respectively (5 772) (6 150)

Future expected loss exceeding eligible provisions on an incurred loss basis1 (1 054) (1 452)Investment in insurance and financial entities not consolidated (4 716) (4 660)Loans to SPEs (first loss credit enhancement) (2) (38)

Investment in banks’ tier II subordinated debt instruments (288) (262)

22 887 16 131

Tier IIISubordinated debt 300

Total regulatory capital (excluding unappropriated profits) 109 695 96 571

Total capital requirement 75 013 67 519

Total risk-weighted assets 789 613 710 725

1 Unaudited. 2 Mainly insurance and commercial entities.3 Mainly the share-based payment reserve, cash flow hedging reserve, available-for-sale revaluation reserve and foreign currency translation

reserve, (where applicable). Also included in other reserves is the statutory credit risk reserve which is included in tier II qualifying capital.

Aud

ited

22

Regulatory capital continued

Basel II risk-weighted assets and associated capital requirements

2012 2011

Risk-weighted assets

Rm

Capital requirement1

Rm

Risk-weightedassets

Rm

Capital requirement1

Rm

Credit risk 583 949 55 475 521 838 49 575

Portfolios subject to the standardised approach2 166 242 15 793 146 475 13 916

Corporate 109 814 10 432 84 469 8 025Sovereign 25 801 2 451 25 111 2 385Banks 5 274 501 7 134 678Retail mortgages 6 961 661 6 282 597Retail other3 17 968 1 707 22 978 2 183Securitisation exposure 424 41 501 48

Portfolios subject to the FIRB approach 32 271 3 066 49 938 4 744

Corporate 20 536 1 951 35 117 3 336Sovereign 2 602 247 1 286 122Banks 9 133 868 13 535 1 286

Portfolios subject to the AIRB approach 358 816 34 087 292 625 27 799

Corporate 155 695 14 791 121 767 11 568Sovereign 9 426 895 9 857 935Banks 20 886 1 984 15 927 1 513Retail mortgages 77 234 7 337 70 670 6 714Qualifying retail revolving exposure (QRRE) 52 179 4 957 37 632 3 575Retail other3 40 490 3 847 32 407 3 079Securitisation exposure 2 906 276 4 365 415

Other assets 26 620 2 529 32 800 3 116

Equity risk in the banking book 20 682 1 964 20 904 1 986

Portfolios subject to the standardised approach2 7 316 695 3 986 379

Listed 4 339 412 3 385 322Unlisted 2 977 283 601 57

Portfolios subject to the market-based approach 4 047 384 6 508 618

Listed 127 12 310 29Unlisted 3 920 372 6 198 589

Portfolios subject to the PD/LGD approach 9 319 885 10 410 989

Market risk 69 244 6 579 59 244 5 628

Portfolios subject to the standardised approach2,4 32 293 3 068 33 540 3 186

Interest rate risk 22 979 2 183 25 685 2 440Equity position risk 312 30 1 161 110Foreign exchange risk 4 863 462 2 951 280Commodities risk 4 139 393 3 743 356

Portfolios subject to the internal models approach5 36 951 3 511 25 704 2 442

VaR-based 27 564 2 619 14 824 1 408

Commodities 9 233 877 5 640 536Forex 7 566 719 1 909 181Interest rates 25 222 2 396 14 853 1 411Equities 16 704 1 587 5 333 507Diversification (31 161) (2 960) (12 911) (1 227)

Non-VaR-based 9 387 892 10 880 1 034

Operational RiskPortfolios subject to the standardised approach1 115 738 10 995 108 739 10 330

Total risk-weighted assets/capital requirement 789 613 75 013 710 725 67 519

1 Capital requirement at 9.5% excludes bank specific add-ons and capital floor.2 Portfolios on the standardised approach relate to the rest of Africa operations and, in addition, portfolios for which the application to adopt the internal

models approach has not yet been submitted, or for which an application has been submitted but approval has not yet been granted.3 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending exposures.4 Instruments on the standardised approach for general market risk relate to low-volume structured products and new products recently traded for which the

SARB approval to adopt the internal model approach has not been granted. The standardised approach for interest rate risk incorporates all specific risk.5 Portfolios subject to the internal models approach are all VaR-based portfolios.



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23


Capital adequacy ratios

Basel II minimum

regulatory requirement

%

Basel IItarget

ratio%

Including unappropriatedprofits

Excluding unappropriatedprofits

2012 %

2011%

2012%

2011%

Total capital adequacy ratio 9.5 11 – 12 14.6 14.3 13.9 13.6Tier I capital adequacy ratio 7.0 9.0 11.7 12.0 11.0 11.3Core tier I capital adequacy ratio 5.25 11.0 11.3 10.3 10.5

Capital adequacy ratios of banking subsidiaries

Host tier I regulatory

requirements%

Host total regulatory

requirements%

2012 2011

Tier Icapital

%

Totalcapital

%

Tier Icapital

%

Totalcapital

%

Standard Bank Group 7.0 9.5 11.7 14.6 12.0 14.3The Standard Bank of South Africa 7.0 9.5 11.3 14.8 10.7 13.5Rest of AfricaCfC Stanbic Bank (Kenya) 8.0 12.0 21.0 30.0 11.2 16.9Stanbic Bank Botswana 7.5 15.0 8.9 17.3 10.6 18.3Stanbic Bank Ghana 6.7 10.0 17.1 18.6 19.1 21.4Stanbic Bank Tanzania 10.0 12.0 13.4 15.4 12.7 14.7Stanbic Bank Uganda 8.0 12.0 15.7 20.0 12.8 14.6Stanbic Bank Zambia 5.0 10.0 18.1 20.7 9.8 12.9Stanbic Bank Zimbabwe 8.0 12.0 15.5 16.9 15.2 16.4Stanbic IBTC Bank (Nigeria) 5.0 10.0 15.7 16.7 18.6 18.7Standard Bank de Angola 5.0 10.0 15.6 15.6 47.4 47.6Standard Bank Malawi 6.0 10.0 17.2 21.9 17.5 23.2Standard Bank Mauritius 5.0 10.0 6.9 10.8 11.7 15.9Standard Bank Mozambique 4.0 8.0 16.6 17.7 17.5 19.0Standard Bank Namibia 7.0 10.0 10.2 11.8 10.8 12.8Standard Bank RDC (DR Congo) 5.0 10.0 25.4 30.7 27.8 34.8Standard Bank Swaziland 4.0 8.0 10.6 15.0 9.3 13.4Standard Lesotho Bank 4.0 8.0 9.0 10.3 10.7 11.4Standard International Holdings, consolidated1 12.3 15.1 21.7 10.9 15.9Standard Bank Isle of Man 10.0 9.6 11.8 9.3 12.0Standard Bank Jersey 10.0 11.2 15.8 10.1 14.7

1 Incorporating: – Banco Standard de Investimentos (Brazil). – Standard Bank Argentina (for 2011 comparative only). – Standard Bank Plc (UK). – Standard Merchant Bank (Asia) (Singapore).

Pro forma Basel III regulatory capital (including unappropriated profit)

Basel III2013 minimum

regulatory requirement

%

Basel III2013 – 2015

targetratio

%

Pro formaBasel III

%

Total capital adequacy ratio 9.5 11.5 – 15.0 14.1Tier I capital adequacy ratio 6.1875 9.5 – 12.0 11.0Common equity tier I capital adequacy ratio 4.625 8.0 – 10.5 10.4

24

Regulatory capital continued

Insurance operationsThe quarterly and annual returns submitted to the FSB in terms of the Long-term Insurance Act and the Short-term Insurance Act indicated that the minimum capital requirements were met throughout 2012.

Liberty capital adequacy requirement (CAR)

2012 2011

Statutory CAR Rm 2 7911 2 4952

Available statutory capital Rm 7 558 7 200Target CAR coverage ratio (times) 1.7 1.7Actual CAR coverage ratio (times) 2.7 2.9

1 Based on termination (CAR).2 Based on ordinary CAR (OCAR).

Standard Insurance Limited (SIL) CAR

20121 2011

Regulatory solvency requirement % 29.0 25.0Actual solvency margin % 40.4 54.9CAR cover (times) 1.4

1 The 2012 numbers are based on the SAM (Solvency II) interim measures effective 1 January 2012.

Economic capitalEconomic capital is the basis for measuring and reporting all quantifiable risks faced by the group on a consistent risk-adjusted basis. The group assesses its economic capital requirements by measuring its risk profile using both internally and externally developed models which are independently validated by the central validation function. Economic capital is used for risk management, capital management, capital planning, capital allocation, and evaluation of new business and performance measurement.

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.

Economic capital of R71,1 billion (2011: R67,0 billion) is the amount of permanent capital that is required to support the group’s 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%.

Stress testing confirmed the availability of financial resources to meet the increased economic capital requirements in a stress scenario.

Banking operationsEconomic capital by risk type at end of the year

2012Rm

20111

Rm

Credit risk 47 311 44 975Equity risk 6 738 6 992Market risk 1 973 1 489Operational risk 7 455 6 770Business risk 5 157 4 946Interest rate risk in the banking book 2 422 1 836

Total economic capital 71 056 67 008

Available financial resources 106 426 95 844

Capital coverage ratio (times) 1.50 1.43

1 Restated. Refer to page 93.

The available financial resources of R106,4 billion (2011: R95,8 billion) cover the minimum economic capital requirement of R71,1 billion (2011: R67,0 billion) by a factor of 1.50 times (2011: 1.43 times), indicating that sufficient resources are available to cover all quantifiable risks.

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 participated in the second South African quantitative impact study as part of the SAM implementation process in 2012. This confirmed that the work carried out on the capital models adequately positions the group, in terms of both preparedness and capitalisation levels.

Risk-adjusted performance measurementOne of the objectives of the RAPM policy is to maximise shareholder value through optimal financial resource management within the agreed 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 to achieve their RAPM targets, ensuring that the interests of shareholders and management are aligned.

RAPM is calculated on both regulatory and economic capital measures. RAPM is based on allocated capital on a tier I equivalent basis including buffers.

Cost of equityThe 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 parameter estimates. The group’s CoE is 13.7% (2011: 13.6%), derived as follows:

CoE = Risk-free rate + (Beta x equity risk premium) 13.7% = 7.5% + (0.88 x 7%).

The group strives to add positive economic value by generating returns in excess of CoE on a consistent basis.



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25

Standard Bank Group Risk and capital management report 2012 > Credit risk

IntroductionThe group’s credit risk comprises mainly wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with our clients and market counterparties. Other sources of credit risk arise from trading activities, including debt securities, settlement balances with market counterparties, available for sale assets and reverse repurchase lending arrangements.

Credit risk management objectives are to:

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

¢ identify, assess and measure credit risk clearly and accurately across the group, from the level of individual facilities up to the total portfolio

¢ define, implement and continually re-evaluate our risk appetite under actual and scenario conditions

¢ monitor credit risk and adherence to agreed controls

¢ ensure that there is independent, expert scrutiny of credit risks, and their mitigation.

Primary responsibility for credit risk management for banking operations resides within the group’s business lines, supported by an independent group credit risk function operationally embedded in business units. The GRCMC is the principal board committee responsible for the oversight of credit risk, with the GAC having oversight responsibility for reviewing credit impairment adequacy.

The principal management committee responsible for the oversight of credit risk is GROC. The primary credit governance committees for both PBB and CIB report directly to GROC. These committees are responsible for credit risk and credit concentration risk decision-making, and delegation thereof to credit officers and forums within defined parameters. Key aspects of rating systems and credit risk models are approved by the PBB, CIB and group model approval committees, all of which are mandated by the board as designated committees. Regular model validation and reporting to these committees is undertaken by the independent central validation function.

Liberty’s credit risk exposure is relatively small when measured in terms of economic capital consumption. Under Liberty’s credit risk management framework, credit exposures are either directly managed through business units or indirectly managed through outsourced asset managers. Each asset manager is required to manage credit risk portfolios in line with investment guidelines specified in the asset manager’s mandate. These investment guidelines specify Liberty’s required asset characteristics for the particular credit portfolio. Liberty mandates responsibility for credit assessment and decision-making, as well as ongoing management and reporting of the credit assets, to the asset manager.

The group dedicates considerable resources to gaining a clear and accurate understanding of credit risk across the business and ensuring that its balance sheet correctly reflects the value of the assets in accordance with IFRS.

Credit risk

Introduction 25


Basel II: Use of internal estimates 26

Basel II: Standardised approach 26

Basel II: Internal ratings-based approach 27

Basel II: Credit portfolio analysis 30

Basel II: Loss analysis 35

Basel II: Credit risk mitigation 36

Basel II: Concentration risk 38

Basel II: Counterparty credit risk 38

Basel II: Securitisation 40

IFRS: Analysis of loans and advances 43

IFRS: Maximum exposure to credit risk 43

IFRS: Renegotiated loans and advances 49

IFRS: Collateral 49


Consolidated mutual funds 52

Credit exposure 53

Impairments 54

26

Banking operationsBasel II: Use of internal estimatesThe group’s credit risk rating systems and processes differentiate exposures in order to highlight those with greater risk factors according to potential severity of loss. The group uses its own estimates of risk parameters for the calculation of risk-weighted assets for the SBSA and Standard Bank Plc portfolios, under the AIRB and FIRB approaches respectively. Internal risk parameters are also used extensively in other 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 regulatory capital

¢ calculating economic capital.

All exposures are measured in such a way as to ensure that both actual current exposure and potential future exposure are captured. Primary credit risk arising from debt exposure is measured in accordance with the accounting value for drawn down exposures, including accrued interest and gross of specific credit impairments and a measure of the expectation of additional exposure which may arise at default. Pre-settlement risk is measured on a potential future exposure basis, taking into account implicitly the liquidity and explicitly the volatility of the reference asset or price of the instrument or product and the tenor of the exposure. To the extent that credit instruments giving rise to issuer risk are held on the banking book, they are

Basel II exposure subject to the standardised approach per risk weighting

2012 2011

ExposureRm

MitigationRm

Exposureafter

mitigationRm

Exposureafter

mitigationRm

Based on risk weights0% – 35% 2 217 96 2 121 4 728 50% 38 416 2 439 35 977 37 330

Rated 353 353 4 566 Unrated 38 063 2 439 35 624 32 764

75% 22 614 4 103 18 511 50 631 100% and above 154 692 3 357 151 335 119 473

Rated 941 941 7 891 Unrated 153 751 3 357 150 394 111 582

Total 217 939 9 995 207 944 212 162

measured as primary credit risk. Settlement risk is measured on a notional basis, assuming that the counter value will not be received. The daily settlement profile for the counterparty concerned should be the aggregate of all settlements due by the counterparty on that date, either on a gross or net basis, depending on whether the underlying agreements include netting or not.

Basel II: Standardised approachThe group has adopted the Basel II standardised approach for some of its less material subsidiaries and portfolios.

The 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.

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

The standardised approach differentiates between unlisted and listed equity.

Credit risk continued


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27


Basel II: 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.

Probability of defaultThe group uses a 25-point master rating scale to quantify the credit risk for each borrower. The mapping of the master rating scale to the SARB risk buckets and external credit assessment institutions’ alphanumerical rating scales and grading categories is shown 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-making and in managing credit risk exposures.

Relationship between the group master rating scale and external ratings

Group master rating scale

SARB risk bucket

Moody’s Investor Services

Standard & Poor’s Fitch Grading

Credit quality

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

Loss given defaultLGD measures are related to customer type, product type, seniority of loan, country of risk and level of collateralisation. LGDs are estimated based on historic recovery data per category of LGD. A downturn LGD is used in the estimation of the capital charge and reflects the anticipated recovery rates and macroeconomic factors in a downturn period.

Exposure at defaultEAD 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.

Model validationIRB models are validated at initial development and at least annually thereafter by the central validation function. Validation techniques test the appropriateness and effectiveness of the models, and indicate if the model is fit for purpose.

In order for a model to be approved for implementation or ongoing use, model validation results are regularly presented to the model approval committees.

Corporates, sovereigns and banks portfoliosCorporate, sovereign and bank borrowers include South African and international companies, sovereigns, local and provincial government entities, pure bank financial institutions, non-bank financial institutions and 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 finance as 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.

28

Banking operations continued

The slotting approach has been adopted for certain specialised lending asset classes, and slotting criteria provided by the regulator are applied. As at 31 December 2012 there were no specialised lending exposures under the slotting approach (2011: R204 million within the 70% to 95% risk weight category).

Project, object and commodity 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 (project, commodity or object) forms an essential component of the recovery calculation, a realisable value is first calculated for the underlying asset. Additional forms of loss mitigation are taken into account.

Equity portfolioThe PD/LGD approach is used to model the credit risk and capital requirement for equities, excluding strategic investments in the banking portfolio. The group’s approved credit risk grade models are used together with the regulatory prescribed LGD of 90% and maturity factor of five years. Where no suitable model exists for the equity investment, the simple risk-weighted approach is adopted.

Equity exposures under the simple risk-weighted method1

2012Rm

2011Rm

Listed 218 242Unlisted 2 294 2 628

Total 2 512 2 870

1 Incorporates the equity exposures reported under the standardised approach.

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

Average PD

%

Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity

EADRm

LGD%

Exposureweighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight1

%EADRm

LGD%

Exposure weighted

average risk

weight1

%EADRm

LGD%

Exposure weighted

average risk

weight1

%Exposure

RmPD%

2012Non-default 285 799 98 796 138 022 286 607 73 234 89 476 3 550

1 – 4 0.02 1 142 34.18 0.72 21 433 41.84 7.41 27 345 39.47 13.10 134 11.80 1.15 1 150 64.45 1.49 2 583 35.94 3.78 5 – 7 0.07 7 490 42.98 24.53 57 827 15.90 7.66 73 777 40.79 13.93 623 10.36 1.97 2 952 64.10 2.92 3 665 37.87 6.95 8 – 12 0.33 99 600 34.80 43.79 17 372 24.85 26.04 28 821 43.66 32.40 60 013 10.89 7.22 8 058 64.26 9.99 9 226 40.45 20.68 1 344 0.35 13 – 21 2.30 175 974 33.77 76.04 2 071 26.02 64.33 8 078 46.67 97.09 200 956 13.32 26.75 55 296 65.35 59.32 68 830 33.95 47.68 2 204 1.43 22 – 25 31.25 1 593 33.54 160.58 93 35.39 192.84 1 17.59 85.28 24 881 15.24 85.02 5 778 65.61 183.57 5 172 43.91 107.76 2 14.48

Default 100 8 452 41.03 174.66 109 43.52 53 45.07 15 283 17.13 0.39 3 335 64.96 256.89 2 913 42.63 2.71 20

Total 294 251 34.56 98 905 23.36 138 075 41.47 301 890 13.18 76 569 65.18 92 389 35.64 3 570

2011Non-default 269 185 76 600 137 575 269 789 52 835 79 494 3 641

1 – 4 0.03 422 44.63 14.13 2 749 25.96 3.00 39 570 40.12 10.30 37 10.03 1.01 281 64.03 1.46 3 417 37.70 3.745 – 7 0.07 9 486 41.84 22.39 53 982 15.91 7.54 51 994 40.93 14.50 222 10.23 2.14 2 076 64.36 2.47 2 682 40.31 7.268 – 12 0.30 89 272 35.04 38.72 14 755 29.15 28.56 37 791 42.88 28.41 55 993 11.09 6.84 5 938 65.01 9.84 10 161 40.42 19.85 552 0.4113 – 21 2.16 167 451 35.13 73.51 4 938 23.94 52.32 8 218 40.85 91.08 190 494 13.09 24.60 40 753 66.20 56.94 59 356 36.26 44.61 3 089 1.8422 – 25 29.61 2 554 16.71 78.76 176 41.14 199.09 2 30.79 163.73 23 043 15.01 80.16 3 787 66.32 174.25 3 878 42.47 96.11

Default 100.00 8 018 42.95 43.58 485 44.48 0.01 50 44.67 18 409 17.52 20.61 3 053 66.31 251.63 2 586 39.21 4.72 83

Total 277 203 35.40 77 085 19.56 137 625 41.23 288 198 13.13 55 888 66.01 82 080 37.35 3 724



report



29


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

Average PD

%

Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity

EADRm

LGD%

Exposureweighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight%

EADRm

LGD%

Exposure weighted

average risk

weight1

%EADRm

LGD%

Exposure weighted

average risk

weight1

%EADRm

LGD%

Exposure weighted

average risk

weight1

%Exposure

RmPD%

2012Non-default 285 799 98 796 138 022 286 607 73 234 89 476 3 550

1 – 4 0.02 1 142 34.18 0.72 21 433 41.84 7.41 27 345 39.47 13.10 134 11.80 1.15 1 150 64.45 1.49 2 583 35.94 3.78 5 – 7 0.07 7 490 42.98 24.53 57 827 15.90 7.66 73 777 40.79 13.93 623 10.36 1.97 2 952 64.10 2.92 3 665 37.87 6.95 8 – 12 0.33 99 600 34.80 43.79 17 372 24.85 26.04 28 821 43.66 32.40 60 013 10.89 7.22 8 058 64.26 9.99 9 226 40.45 20.68 1 344 0.35 13 – 21 2.30 175 974 33.77 76.04 2 071 26.02 64.33 8 078 46.67 97.09 200 956 13.32 26.75 55 296 65.35 59.32 68 830 33.95 47.68 2 204 1.43 22 – 25 31.25 1 593 33.54 160.58 93 35.39 192.84 1 17.59 85.28 24 881 15.24 85.02 5 778 65.61 183.57 5 172 43.91 107.76 2 14.48

Default 100 8 452 41.03 174.66 109 43.52 53 45.07 15 283 17.13 0.39 3 335 64.96 256.89 2 913 42.63 2.71 20

Total 294 251 34.56 98 905 23.36 138 075 41.47 301 890 13.18 76 569 65.18 92 389 35.64 3 570

2011Non-default 269 185 76 600 137 575 269 789 52 835 79 494 3 641

1 – 4 0.03 422 44.63 14.13 2 749 25.96 3.00 39 570 40.12 10.30 37 10.03 1.01 281 64.03 1.46 3 417 37.70 3.745 – 7 0.07 9 486 41.84 22.39 53 982 15.91 7.54 51 994 40.93 14.50 222 10.23 2.14 2 076 64.36 2.47 2 682 40.31 7.268 – 12 0.30 89 272 35.04 38.72 14 755 29.15 28.56 37 791 42.88 28.41 55 993 11.09 6.84 5 938 65.01 9.84 10 161 40.42 19.85 552 0.4113 – 21 2.16 167 451 35.13 73.51 4 938 23.94 52.32 8 218 40.85 91.08 190 494 13.09 24.60 40 753 66.20 56.94 59 356 36.26 44.61 3 089 1.8422 – 25 29.61 2 554 16.71 78.76 176 41.14 199.09 2 30.79 163.73 23 043 15.01 80.16 3 787 66.32 174.25 3 878 42.47 96.11

Default 100.00 8 018 42.95 43.58 485 44.48 0.01 50 44.67 18 409 17.52 20.61 3 053 66.31 251.63 2 586 39.21 4.72 83

Total 277 203 35.40 77 085 19.56 137 625 41.23 288 198 13.13 55 888 66.01 82 080 37.35 3 724

Retail portfolioRetail mortgage exposures relate to mortgage loans to individuals and are a combination of both drawn and undrawn EADs. QRRE relates to cheque accounts, credit cards and revolving personal loans. These products 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 for retail accounts and loans 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.

30


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

Basel II: Exposure by approach and class

On-balance sheet Off-balance sheetReverse repurchase and

resale agreements Derivative instruments Total by approach EADGross

past duebut not

impaired exposures1

Rm

Impairment of exposures

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

TotalRm

FIRBRm

AIRBRm

Gross defaulted

exposures2

RmSpecific

RmPortfolio

Rm

2012Corporate 74 024 20 943 189 309 31 681 3 964 113 710 335 27 593 15 075 2 026 12 282 20 901 108 066 64 782 338 995 511 843 40 515 253 736 496 11 101 4 127 Sovereign 29 690 19 128 74 880 566 10 6 052 2 549 40 1 606 1 478 30 296 20 744 84 959 135 999 21 390 77 515 6 108 77 Banks 35 244 9 848 68 149 1 076 947 10 308 114 15 090 33 593 737 27 264 65 445 37 171 53 149 177 495 267 815 25 006 113 069 53 1 Retail exposure 31 983 409 570 10 423 88 055 42 406 497 625 540 031 470 848 27 789 23 325 8 311

Retail mortgages 11 357 286 235 33 257 11 357 319 492 330 849 301 890 16 774 15 647 4 155 QRRE 3 47 009 34 155 3 81 164 81 167 76 569 2 953 3 335 1 507 Other retail 20 623 76 326 10 423 20 643 31 046 96 969 128 015 92 389 8 062 4 343 2 649

Total 170 941 49 919 741 908 43 746 4 921 218 125 449 42 683 51 217 2 803 41 152 87 824 217 939 138 675 1 099 074 1 455 688 86 911 915 168 28 291 34 587 12 516 5 188

2011Corporate 65 812 28 742 167 061 33 676 5 095 82 110 897 33 457 18 343 1 223 19 856 25 225 101 608 87 150 292 739 481 497 52 499 224 908 1 409 9 778 2 332Sovereign 24 444 929 68 546 1 076 43 7 233 1 661 3 998 1 570 2 376 27 181 2 542 82 153 111 876 3 175 73 910 3 486 242Banks 32 398 17 175 64 139 422 1 519 4 944 233 40 479 18 721 316 42 655 77 319 33 369 101 828 165 123 300 320 41 591 96 034 50 1Retail exposure 37 649 374 889 16 381 84 198 1 54 031 459 087 513 118 426 166 22 550 25 261 7 396

Retail mortgages 11 613 274 022 33 304 11 613 307 326 318 939 288 198 13 096 18 634 3 768QRRE 2 893 35 656 6 417 30 323 9 310 65 979 75 289 55 888 2 443 3 143 1 572Other retail 23 143 65 211 9 964 20 571 1 33 108 85 782 118 890 82 080 7 011 3 484 2 056

Total 160 303 46 846 674 635 51 555 6 657 178 485 2 791 73 936 41 062 1 540 64 081 104 920 216 189 191 520 999 102 1 406 811 97 265 821 018 23 962 35 575 9 971 5 684

1 Restated. Refer to page 93. 2 Amount before the application of any offset, mitigation or netting.

Exposures to corporate, retail and sovereign customers grew most significantly over the period, by R30 billion, R27 billion and R24 billion respectively. Exposure to bank customers decreased by 10% (R32 billion), largely due to the reduced placement of liquidity in banks. Exposure to derivative instruments reduced by R39 billion, following global trends of muted market activity in light of widespread economic uncertainty. Exposure to other African countries increased by 29% over the period, reflecting the group’s strategy for expansion into the African continent. Gross defaulted exposures in the retail portfolio reduced by R1,9 billion over the period, driven by a 16% reduction in defaulted mortgage exposures. This was offset by increased defaults among corporate customers, emanating from geographies outside South Africa.

Retail exposure grew by 5% during the period. This growth was predominantly due to retail mortgages growth of 4% to R331 billion as we took the opportunity to favourably price new business and optimise our mortgage loan portfolio. QRRE and other retail both increased 8% to R81 billion and R128 billion, respectively. This was due to strong balance growth in overdrafts

and revolving credit facilities. Loans to inclusive banking customers grew off a low base but slowed towards the end of the year as we reduced our risk appetite for this lending. Term loans to our business banking customers grew 9% with more customers using structured working capital facilities. The number of credit card accounts in South Africa and the overall credit card debtors’ book increased during the year, partly attributable to new account growth and improved limit utilisation on existing accounts.

The impairment charge in personal unsecured lending (excluding card) increased during the year. This was a result of the increased incidence of default in the R3,7 billion domestic personal term loans book (loans to lower-income customers known as the inclusive banking book) and strong growth in the middle market segment in South Africa and workplace banking in the rest of Africa. Consequently the personal unsecured lending credit loss ratio rose from 5.31% to 6.47%. Scorecard thresholds for this type of lending have been raised and there has consequently been very little growth in the book since June 2012.



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

Basel II: Exposure by approach and class

On-balance sheet Off-balance sheetReverse repurchase and

resale agreements Derivative instruments Total by approach EADGross

past duebut not

impaired exposures1

Rm

Impairment of exposures

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

StandardisedRm

FIRBRm

AIRBRm

TotalRm

FIRBRm

AIRBRm

Gross defaulted

exposures2

RmSpecific

RmPortfolio

Rm

2012Corporate 74 024 20 943 189 309 31 681 3 964 113 710 335 27 593 15 075 2 026 12 282 20 901 108 066 64 782 338 995 511 843 40 515 253 736 496 11 101 4 127 Sovereign 29 690 19 128 74 880 566 10 6 052 2 549 40 1 606 1 478 30 296 20 744 84 959 135 999 21 390 77 515 6 108 77 Banks 35 244 9 848 68 149 1 076 947 10 308 114 15 090 33 593 737 27 264 65 445 37 171 53 149 177 495 267 815 25 006 113 069 53 1 Retail exposure 31 983 409 570 10 423 88 055 42 406 497 625 540 031 470 848 27 789 23 325 8 311

Retail mortgages 11 357 286 235 33 257 11 357 319 492 330 849 301 890 16 774 15 647 4 155 QRRE 3 47 009 34 155 3 81 164 81 167 76 569 2 953 3 335 1 507 Other retail 20 623 76 326 10 423 20 643 31 046 96 969 128 015 92 389 8 062 4 343 2 649

Total 170 941 49 919 741 908 43 746 4 921 218 125 449 42 683 51 217 2 803 41 152 87 824 217 939 138 675 1 099 074 1 455 688 86 911 915 168 28 291 34 587 12 516 5 188

2011Corporate 65 812 28 742 167 061 33 676 5 095 82 110 897 33 457 18 343 1 223 19 856 25 225 101 608 87 150 292 739 481 497 52 499 224 908 1 409 9 778 2 332Sovereign 24 444 929 68 546 1 076 43 7 233 1 661 3 998 1 570 2 376 27 181 2 542 82 153 111 876 3 175 73 910 3 486 242Banks 32 398 17 175 64 139 422 1 519 4 944 233 40 479 18 721 316 42 655 77 319 33 369 101 828 165 123 300 320 41 591 96 034 50 1Retail exposure 37 649 374 889 16 381 84 198 1 54 031 459 087 513 118 426 166 22 550 25 261 7 396

Retail mortgages 11 613 274 022 33 304 11 613 307 326 318 939 288 198 13 096 18 634 3 768QRRE 2 893 35 656 6 417 30 323 9 310 65 979 75 289 55 888 2 443 3 143 1 572Other retail 23 143 65 211 9 964 20 571 1 33 108 85 782 118 890 82 080 7 011 3 484 2 056

Total 160 303 46 846 674 635 51 555 6 657 178 485 2 791 73 936 41 062 1 540 64 081 104 920 216 189 191 520 999 102 1 406 811 97 265 821 018 23 962 35 575 9 971 5 684

1 Restated. Refer to page 93. 2 Amount before the application of any offset, mitigation or netting.

350

300

250

200

150

100

50

Basel II: Exposure by approach and asset class (Rbn)

¢ Standardised 2012 ¢ FIRB 2012 ¢ AIRB 2012

¢ Standardised 2011 ¢ FIRB 2011 ¢ AIRB 2011

QRRECorporate BanksSovereign Retail mortgages Other retail

RCMAFS

Accounting definitions of past due and impaired exposures as well as the credit impairment approaches adopted in terms of IFRS are set out in detail on page 43

32


Analysis by industry

Basel II: Exposures by type of asset and industry

On-balance

sheetRm

Off-balance

sheetRm

Reverse repurchase and resale

agreementsRm

Derivativeinstruments

Rm

Totalgross

exposureRm

Gross defaulted

exposures1

Rm

Impairment ofexposures

SpecificRm

PortfolioRm

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

2011Agriculture 14 216 7 845 887 57 23 005 597 327Mining 38 383 28 412 244 2 329 69 368 1 674 73Manufacturing 40 483 28 141 802 5 706 75 132 1 013 411Electricity 10 629 2 334 196 560 13 719 248 32Construction 8 757 6 979 971 16 707 173 84Wholesale 40 347 23 960 13 727 4 440 82 474 500 246Transport 20 860 11 656 1 875 34 391 205 89Finance, real estate and other business services 268 325 37 114 100 124 153 513 559 076 7 467 2 325

Private households 352 785 68 708 10 421 503 22 647 5 784Other 86 999 21 548 1 809 1 080 111 436 1 051 600

Total 881 784 236 697 117 789 170 541 1 406 811 35 575 9 971 5 684

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

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

¢ Finance, real estate and other business services (2011: 40)

¢ Private households (2011: 30)

¢ Other (2011: 8)

¢ Wholesale (2011: 6)

¢ Agriculture, mining, manufacturing, electricity, construction and transport (2011: 16)

36

32

9

6

17



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33


Analysis by geographic region

Basel II: Exposures by type of asset and geographic region

On-balance

sheetRm

Off-balance

sheetRm

Reverserepurchase and resale

agreementsRm

Derivativeinstruments

Rm

Totalgross

exposureRm

Gross defaulted

exposures1

Rm

Impairment ofexposures

SpecificRm

PortfolioRm

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 235North America 8 700 3 985 1 643 34 912 49 240 3 183 248South 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

2011South Africa 613 798 175 328 21 519 38 812 849 457 26 236 7 462Other African countries 123 069 27 173 1 309 3 088 154 639 3 481 1 045Europe 53 335 5 806 57 754 82 711 199 606 2 647 232Asia 42 774 3 906 25 567 5 063 77 310 2 711 893North America 11 286 2 070 2 076 38 210 53 642 58 40South America 35 532 22 328 9 558 2 445 69 863 442 299Other 1 990 86 6 212 2 294

Total 881 784 236 697 117 789 170 541 1 406 811 35 575 9 971 5 684

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

Basel II: Total gross exposure by geographic region (%)

¢ South Africa (2011: 60)

¢ Rest of Africa (2011: 11)

¢ Outside Africa (2011: 29)6314

23

34


Analysis by residual contractual maturity

Basel II: Exposures by residual contractual maturity

Less than1 year

Rm

1 to 5years

Rm

Greater than5 years

Rm

Total gross exposure

Rm

2012Corporate 235 998 225 723 50 122 511 843Sovereign 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

2011Corporate 209 751 221 240 50 506 481 497Sovereign 62 097 31 101 18 678 111 876Banks 192 719 80 583 27 018 300 320Retail exposure 132 378 64 755 315 985 513 118

Retail mortgages 5 407 6 682 306 850 318 939QRRE 66 125 9 164 75 289Other retail 60 846 48 909 9 135 118 890

Total 596 945 397 679 412 187 1 406 811



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35


Basel II: Loss analysisRegulatory expected loss versus actual lossesThe table below shows the actual losses experienced in the group‘s IRB exposure classes during 2012, compared to 2011. Actual losses comprise impairments as determined by IFRS. Actual losses for 2012 have increased from the same period in 2011 due to growth in the higher risk, higher margin unsecured personal term loan book and sizeable losses for a small number of large corporate counterparty exposures. Actual losses for 2012 have increased from the same period in 2011 due to growth in the higher risk, higher margin unsecured personal term loan book and sizeable losses for a small number of corporate counterparty exposures. In addition, the specific impairment charge on the retail mortgage portfolio has increased due to the introduction of a revised impairment estimation model during 2012. This has resulted in a reallocation of additional impairment held on the performing loans portfolio to the impairment loans portfolio.

Analysis of actual losses1

2012Rm

2011Rm

IRB exposure class2

Corporate 1 549 689 Sovereign (100) 212 Banks 157 (34)Retail exposure 6 734 5 047

Retail mortgages 3 388 2 599 QRRE 1 540 1 537 Other retail 1 806 911

Total 8 340 5 914

1 Excludes recoveries after write-off.2 Excludes all the standardised approach portfolios.

The table on the following page provides the comparison of the 12-month period ended December 2012 actual PDs, LGDs and EADs to the estimated through-the-cycle PDs, LGDs and EADs at the beginning of the 12-month period determined for regulatory capital calculations. Note that this comparison is an approximation as the PD, LGD and EAD actual and estimated parameters are not identical. The parameters are:

¢ PDs and LGDs estimated at the end of December 2011, to determine the regulatory expected loss for the following 12-month period. PDs are calibrated to long-run default experience to ensure stable regulatory models over an entire credit cycle. These models would tend to underestimate at the top of the credit cycle and overestimate actual defaults at the bottom of the credit cycle.

¢ Actual LGDs have been determined based on write-offs in 2012, and are thus reflective of write-offs as opposed to losses from exposures defaulting in the period. Accurate actual LGDs can only be determined when exposures that have defaulted in 2012 have reached a write-off stage which can be several years in the case of corporate, sovereign, bank or mortgage exposures. Accurate actual LGD comparisons are thus only feasible several years after the default has taken place.

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 for 2012. The analysis is conducted on all accounts that defaulted during the period under review. A ratio above 100% indicates an overestimation of EAD.

Estimated values are based on regulatory capital models applied as at 31 December 2011. For PDs, these are applied to the total performing book as at 31 December 2011. For the corporate, sovereign and bank asset classes, the actual default rates for 2012 and 2011 were lower than the estimated default rates. This illustrates the general level of conservatism the group applies to its low-default portfolio models. Actual PDs for the retail exposures for the 12-month period ended 31 December 2012 are below the estimated through-the-cycle PDs indicating lower average defaults than through-the-cycle default expectations.

Estimated LGDs and EADs are determined by applying regulatory capital models to all facilities.

Actual values are based on realised outcomes over the same period.

The LGD analysis is based only on the South African portfolio, as entities outside South Africa are under the FIRB or standardised approach. The actual LGD experienced for the corporate asset class during 2012 and 2011 was significantly lower than the estimated LGD. This difference can be attributed to the application of downturn parameters when estimating LGD, even when market conditions are improving or positive, and to the general conservatism of the LGD models the group applies to low-default portfolios.

No bank or sovereign defaults were experienced in the AIRB portfolio during the current and previous periods under review, hence actual LGDs and EADs are not applicable in 2012 and 2011. Actual LGDs for mortgage exposures were higher than estimates as write-offs, mostly from exposures defaulting during the downturn.

36


Basel II: IRB exposure class1

PD LGD2 EAD

Estimated%

Actual%

Estimated%

Actual%

Estimate to actual ratio

%

2012Corporate 2.24 1.66 33.82 21.24 146.09 Sovereign 1.23 16.54 Banks 0.78 0.14 39.69 Retail exposure 4.21 4.11 24.96 22.64 103.44

Retail mortgages 4.42 4.28 12.90 16.27 102.53 QRRE 4.64 4.40 66.24 54.86 100.76 Other retail 3.23 3.32 37.33 35.54 110.60

Total 3.01 2.71 26.84 21.53 104.93

2011Corporate 2.40 1.72 31.82 13.02 92.87Sovereign 1.43 20.91Banks 0.66 0.15 33.76Retail exposure 4.43 4.09 23.91 25.61 109.86

Retail mortgages 4.56 4.27 13.80 16.61 104.26QRRE 5.13 4.55 64.19 65.19 118.22Other retail 3.51 3.23 31.31 40.27 124.45

Total 3.08 2.42 26.20 15.94 107.38

1 Excludes all the standardised approach portfolios.2 Excludes FIRB portfolios.

Basel II: 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.

Aud

ited

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/or 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.

Aud

ited



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37


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.

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.

Aud

ited

600

500

400

300

200

100

Corporate

Basel II: Exposure and mitigation by asset class (Rbn)

¢ Gross exposure 2012 ¢ Credit risk mitigation 2012

¢ Gross exposure 2011 ¢ Credit risk mitigation 2011

Banks Sovereign Retail

Basel II: Credit risk mitigation for portfolios under the IRB approach

Eligiblefinancial

collateralRm

Othereligible IRB

collateralRm

Guaranteesand credit

derivativesRm

Effects of netting

agreementsRm

Totalcredit risk

mitigationRm

Totalexposure

Rm

2012Corporate 61 275 47 148 17 939 22 618 148 980 403 777Sovereign 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

2011Corporate 73 364 44 025 58 214 28 215 203 818 379 889 Sovereign 4 108 654 897 1 041 6 700 84 695 Banks 59 924 5 601 105 374 170 899 266 951 Retail exposures 2 342 864 342 866 459 087

Retail mortgages 303 577 303 577 307 326 QRRE 335 335 65 979 Other retail 2 38 952 38 954 85 782

Total 137 398 387 543 64 712 134 630 724 283 1 190 622

38


Basel II: Credit risk mitigation for portfolios under the standardised approach

Effects of netting

agreementsRm

Eligible financial

collateralRm

Guaranteesand credit

derivativesRm

Totalcredit risk

mitigationRm

Totalexposure

Rm

2012Corporate 234 3 331 4 206 7 771 108 066 Sovereign 32 32 30 296 Banks 114 236 350 37 171 Retail exposure 6 550 903 7 453 42 406

Total 234 9 995 5 377 15 606 217 939

2011Corporate 170 3 266 2 006 5 442 101 608Sovereign 27 181Banks 9 22 12 43 33 369Retail exposure 739 295 1 034 54 031

Total 179 4 027 2 313 6 519 216 189

Basel II: Concentration riskCredit concentration risk is the risk of loss to the group arising from an excessive concentration of exposure to a single counterparty, industry, market, product, financial instrument or type of security, country or region, or maturity. This concentration typically exists when a number of counterparties are engaged in similar activities and have similar characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

The 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. The group constantly reviews its concentration levels and sets maximum exposure guidelines to these. Excesses are reported to GROC and the GRCMC.

Aud

ited

Basel II: Counterparty credit riskCounterparty credit risk is managed according to the group credit risk governance standard, which also covers any other type of credit risk. All such credit risk limits are subject to annual review. Counterparty exposures are monitored against limits by the risk functions on a daily basis, and included in the calculation of economic capital demand.

The 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.



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39


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 in risk systems on a net basis where netting agreements are in place and are legally recognised, or on a gross basis otherwise. 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 OTC derivatives. Securities financing transactions include reverse repurchase agreements, resale agreements, securities lending and securities borrowing agreements for all relevant Basel II asset classes and collateral held.

Basel II: Securities financing transactions

2012Rm

2011Rm

ExposureWith master netting agreement 36 523 66 272Without master netting agreement 57 827 51 519

Total 94 350 117 791

CollateralCash 30 764 27 783Commodities 13 852 14 241Debt securities 35 560 66 156Equities 5 135 2 577

Total 85 311 110 757

EAD 19 021 19 095

Basel II: OTC derivatives exposure

2012Rm

2011Rm

Notional principal amountInterest rate products 4 823 102 5 469 420Forex and gold 1 661 683 2 090 012Equities 25 609 49 311Precious metals 67 340 78 637Other commodities 181 407 237 375Credit derivatives 196 876 264 811

Protection bought 109 434 131 735Protection sold 87 442 133 076

Total 6 956 017 8 189 566

Netted current credit exposure (net fair value)Gross positive fair value 131 779 170 541

Interest rate products 83 534 90 264Forex and gold 34 585 53 479Equities 2 199 4 482Precious metals 2 926 4 488Other commodities 5 589 10 613Credit derivatives 2 946 7 215

Protection bought 1 726 6 531Protection sold 1 220 684

Netting benefits (97 315) (134 811)

Total 34 464 35 730

EAD 68 889 77 461

CollateralCash 10 928 14 698Gold 15 Debt securities 1 118 174

Total 12 061 14 872

Derivative transactions traded on a recognised exchange or with a central counterparty, for example a clearing house, have been excluded as such exposures are currently not subject to capital requirements in respect of counterparty credit risk, though this treatment is the subject of regulatory review internationally.

40


Basel II: 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 special purpose entity (SPE) 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 SPEs to securitise customer loans and advances that it has originated in order to diversify its sources of funding for asset origination and for capital efficiency purposes. In addition, the group plays a secondary role as an investor in certain securitisation notes.

Roles fulfilled in securitising assets

Securitisation transactions Originator Investor ServicerLiquidityprovider

Creditenhancement

providerSwap

counterparty

Traditional securitisationsBlue Granite 1 ü ü ü ü üBlue Granite 2 ü ü ü ü üBlue Granite 3 ü ü ü ü üBlue Granite 4 ü ü ü ü üSiyakha Fund ü ü ü ü

Asset-backed commercial paper programmeBlue Titanium Conduit ü ü ü ü

Third party transactions ü ü ü ü

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 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 presence 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 were appointed as rating agencies. For securitisation issues outside Africa, Standard & Poor’s was previously appointed. There were no securitisation activities during 2012 (2011: R1 363 million).



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41


Securitisation transactions

Asset typeYearinitiated

Expectedclose

Ratingagency

Assetssecuritised

Rbn

Assetsoutstanding

Notesoutstanding1

Retainedexposure1,2

2012Rbn

2011Rbn

2012Rbn

2011Rbn

2012Rbn

2011Rbn

Traditional securitisations 17,9 11,1 12,2 12,2 13,0 5,5 5,2

Blue Granite 1

Retail mortgages 2005 2032

Moody’s and Fitch 4,6 1,6 1,9 1,7 2,1 1,4 1,6

Blue Granite 2

Retail mortgages 2006 2041 Moody’s 2,8 2,1 2,1 2,3 2,3 1,2 1,2

Blue Granite 3


Blue Granite 4


Siyakha Fund

Retail mortgages 2007 2043 Fitch 2,4 2,0 2,1 2,1 2,2 0,1

Asset-backed commercial paper programmeBlue Titanium Conduit Various 2002 N/A Fitch N/A 4,4 4,9 4,5 4,9 0,3 0,3

Total 17,9 15,5 17,1 16,7 17,9 5,8 5,5

1 Capital plus accrued interest.2 Includes notes, 1st and 2nd loss sub-loans and notes held by BTC.

The transfer of assets to an SPE 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.

RCMAFS

For further information on assets transferred but not derecognised, refer to note 6.4 in the annual financial statements on page 134

Basel II: Securitised on-balance sheet exposures

2012 2011

Retail mortgages

Rm

Retailloans

RmTotal

RmTotal

Rm

Standardised – unrated1 250 250 204

IRB 2 240 739 2 979 4 738

Unrated1 121Investment grade 2 179 739 2 918 4 415Sub-investment grade 61 61 202

Total 2 240 989 3 229 4 942

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

42


Basel II: Securitised off-balance sheet exposures

2012 2011

Retail mortgages

Rm

Retailloans

RmTotal

RmTotal

Rm

Standardised – unrated1 250 250 296

IRB 3 621 306 3 927 3 413

Unrated1 3 196 3 196 3 129Investment grade 425 306 731 284

Total 3 621 556 4 177 3 709

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

Basel II: Securitisation by approach – risk-weighted assets

2012Rm

2011Rm

IRB 1 000 1 770 Standardised 297 349

Total 1 297 2 119



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43


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

RCMAFS

Refer to page 10 for an understanding of the differences between IFRS and Basel II

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.

Loans

Performing loans Non-performing loans

Non-performing but not specifically impaired loans (Rm)

2012: 1 33220111: 1 183

Neither past due nor specifically

impaired loans (Rm)2012: 771 51420111: 763 339

Early arrears but not specifically impaired loans (Rm)

2012: 28 29120111: 22 249

Normal monitoring (Rm)

2012: 749 8572011: 744 128

Close monitoring (Rm)

2012: 21 6572011: 19 211

1 Excluding discontinued operation. Portfolio credit impairments Specific credit impairments

Sub-standard (Rm)

2012: 9 5142011: 10 163

Doubtful (Rm)

2012: 17 028 2011: 18 949

Loss (Rm)

2012: 3 917 2011: 3 113

Specifically impaired loans (Rm)

2012: 30 45920111: 32 225

44

IFRS: Maximum exposure to credit risk by credit quality

Gross advances

totalRm


Neither past due nor specifically impaired

Not specificallyimpaired Specifically impaired loans

Total non-

performing loans

Rm

Non-performing

loans%

Normal monitoring

Rm

Close monitoring

Rm

Earlyarrears

Rm

Non-performing1

Rm

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

impair-ments

for non-performing specifically

impaired loans

Rm

Gross specific

impairmentcoverage

%

2012Personal & Business Banking 502 154 430 364 21 053 28 261 6 276 13 245 2 955 22 476 13 862 8 614 8 614 38 22 476 4.5

Mortgage loans 299 675 255 240 11 824 16 864 4 966 10 088 693 15 747 11 581 4 166 4 166 26 15 747 5.3Instalment sale and finance leases 62 860 54 950 3 089 3 220 221 692 688 1 601 814 787 787 49 1 601 2.5Card debtors 24 052 19 881 2 721 558 159 233 500 892 312 580 580 65 892 3.7Other loans and advances 115 567 100 293 3 419 7 619 930 2 232 1 074 4 236 1 155 3 081 3 081 73 4 236 3.7

Personal unsecured lending 42 633 33 741 1 438 4 908 475 1 292 779 2 546 638 1 908 1 908 75 2 546 6.0Business lending and other 72 934 66 552 1 981 2 711 455 940 295 1 690 517 1 173 1 173 69 1 690 2.3

Corporate & Investment Banking 358 168 348 219 604 30 1 332 3 238 3 783 962 7 983 4 082 3 901 3 901 49 9 315 2.6

Corporate loans 320 204 311 212 604 25 1 135 2 914 3 537 777 7 228 3 507 3 721 3 721 51 8 363 2.6Commercial property finance 37 964 37 007 5 197 324 246 185 755 575 180 180 24 952 2.5

Other services (28 726) (28 726) (1) 1 1

Gross loans and advances 831 596 749 857 21 657 28 291 1 332 9 514 17 028 3 917 30 459 17 943 12 516 12 516 41 31 791 3.8

Less:Impairments for loans and advances (17 704)Tutuwa2 loans and advances IFRS adjustment (2 721)

Net loans and advances 811 171Add the following other banking activities’ exposures:Cash and balances with central banks 61 985 Derivative assets 118 353Financial investments 94 715Trading assets 114 435Pledged assets 11 640Other financial assets 21 100

Total on-balance sheet exposure 1 233 399Off-balance sheet exposuresLetters of credit and bankers’ acceptances 14 218Guarantees 45 247Irrevocable unutilised facilities 97 162Commodities and securities lending transactions 12 523

Total exposure to credit risk 1 402 549

1 Includes loans of R256 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.

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45


IFRS: Maximum exposure to credit risk by credit quality

Gross advances

totalRm




Total non-

performing loans

Rm

Non-performing

loans%

Normal monitoring

Rm

Close monitoring

Rm

Earlyarrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLossRm

TotalRm

Securities and

expected recoveries

on specifically

impaired loans

Rm


and expected

recoveries on


loansRm

Balance sheet

impair-ments

for non-performing specifically

impaired loans

Rm

Gross specific

impairmentcoverage

%


Mortgage loans 299 675 255 240 11 824 16 864 4 966 10 088 693 15 747 11 581 4 166 4 166 26 15 747 5.3Instalment sale and finance leases 62 860 54 950 3 089 3 220 221 692 688 1 601 814 787 787 49 1 601 2.5Card debtors 24 052 19 881 2 721 558 159 233 500 892 312 580 580 65 892 3.7Other loans and advances 115 567 100 293 3 419 7 619 930 2 232 1 074 4 236 1 155 3 081 3 081 73 4 236 3.7

Personal unsecured lending 42 633 33 741 1 438 4 908 475 1 292 779 2 546 638 1 908 1 908 75 2 546 6.0Business lending and other 72 934 66 552 1 981 2 711 455 940 295 1 690 517 1 173 1 173 69 1 690 2.3

Corporate & Investment Banking 358 168 348 219 604 30 1 332 3 238 3 783 962 7 983 4 082 3 901 3 901 49 9 315 2.6

Corporate loans 320 204 311 212 604 25 1 135 2 914 3 537 777 7 228 3 507 3 721 3 721 51 8 363 2.6Commercial property finance 37 964 37 007 5 197 324 246 185 755 575 180 180 24 952 2.5

Other services (28 726) (28 726) (1) 1 1


Less:Impairments for loans and advances (17 704)Tutuwa2 loans and advances IFRS adjustment (2 721)

Net loans and advances 811 171Add the following other banking activities’ exposures:Cash and balances with central banks 61 985 Derivative assets 118 353Financial investments 94 715Trading assets 114 435Pledged assets 11 640Other financial assets 21 100



1 Includes loans of R256 million that are past due but not specifically impaired.2 Tutuwa is the group’s black economic empowerment ownership initiative.

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46

IFRS: Maximum exposure to credit risk by credit quality continued

Gross advances

totalRm




Normal monitoring

Rm

Close monitoring

Rm

Earlyarrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLossRm

TotalRm

Securities and expected

recoveries on


loansRm


and expected recoveries

on specifically

impaired loans

Rm

Balance sheet

impairments for non-

performing specifically

impaired loans

Rm

Gross specific

impairmentcoverage

%

Total non-

performing loans

Rm

Non-performing

loans%


Mortgage loans 286 100 241 342 12 451 13 142 6 332 12 232 601 19 165 15 393 3 772 3 772 20 19 165 6.7Instalment sale and finance leases 53 741 48 168 1 117 2 706 136 633 981 1 750 745 1 005 1 005 57 1 750 3.3Card debtors 20 726 17 450 1 935 205 137 229 770 1 136 312 824 824 73 1 136 5.5Other loans and advances 97 264 86 446 1 985 5 837 627 1 839 530 2 996 1 020 1 976 1 976 66 2 996 3.1

Personal unsecured lending 28 824 23 654 694 2 953 249 945 329 1 523 410 1 113 1 113 73 1 523 5.3Business lending and other 68 440 62 792 1 291 2 884 378 894 201 1 473 610 863 863 59 1 473 2.2

Corporate & Investment Banking 383 531 373 088 1 723 359 1 183 2 931 4 016 231 7 178 4 980 2 198 2 198 31 8 361 2.2

Corporate loans 345 756 336 347 1 688 178 919 2 765 3 638 221 6 624 4 548 2 076 2 076 31 7 543 2.2Commercial property finance2 37 775 36 741 35 181 264 166 378 10 554 432 122 122 22 818 2.2

Other services (22 366) (22 366)


Discontinued operation’s loans and advances 21 173 18 916 269 1 713 85 94 96 275 79 196 196 71 275 1.3

Gross loans and advances including discontinued operation 840 169

Less:Impairments for loans and advances – continuing operations (15 185)Tutuwa loans and advances IFRS adjustment (2 503)Discontinued operations loans and advances (21 173)

Net loans and advances 801 308Add the following other banking activities’ exposures:Cash and balances with central banks 31 907Derivative assets 149 130Financial investments 97 360Trading assets 90 392Pledged assets 6 113Other financial assets 9 048

Total on-balance sheet exposure of continuing operations 1 185 258Discontinued operation – financial assets 29 230



1 Includes loans of R781 million that are past due but not specifically impaired.2 Restated. Refer to page 93.

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IFRS: Maximum exposure to credit risk by credit quality continued

Gross advances

totalRm




Normal monitoring

Rm

Close monitoring

Rm

Earlyarrears

Rm

Non-performing1

Rm

Sub-standard

RmDoubtful

RmLossRm

TotalRm

Securities and expected

recoveries on


loansRm


and expected recoveries

on specifically

impaired loans

Rm

Balance sheet

impairments for non-

performing specifically

impaired loans

Rm

Gross specific

impairmentcoverage

%

Total non-

performing loans

Rm

Non-performing

loans%


Mortgage loans 286 100 241 342 12 451 13 142 6 332 12 232 601 19 165 15 393 3 772 3 772 20 19 165 6.7Instalment sale and finance leases 53 741 48 168 1 117 2 706 136 633 981 1 750 745 1 005 1 005 57 1 750 3.3Card debtors 20 726 17 450 1 935 205 137 229 770 1 136 312 824 824 73 1 136 5.5Other loans and advances 97 264 86 446 1 985 5 837 627 1 839 530 2 996 1 020 1 976 1 976 66 2 996 3.1

Personal unsecured lending 28 824 23 654 694 2 953 249 945 329 1 523 410 1 113 1 113 73 1 523 5.3Business lending and other 68 440 62 792 1 291 2 884 378 894 201 1 473 610 863 863 59 1 473 2.2

Corporate & Investment Banking 383 531 373 088 1 723 359 1 183 2 931 4 016 231 7 178 4 980 2 198 2 198 31 8 361 2.2

Corporate loans 345 756 336 347 1 688 178 919 2 765 3 638 221 6 624 4 548 2 076 2 076 31 7 543 2.2Commercial property finance2 37 775 36 741 35 181 264 166 378 10 554 432 122 122 22 818 2.2

Other services (22 366) (22 366)


Discontinued operation’s loans and advances 21 173 18 916 269 1 713 85 94 96 275 79 196 196 71 275 1.3

Gross loans and advances including discontinued operation 840 169

Less:Impairments for loans and advances – continuing operations (15 185)Tutuwa loans and advances IFRS adjustment (2 503)Discontinued operations loans and advances (21 173)

Net loans and advances 801 308Add the following other banking activities’ exposures:Cash and balances with central banks 31 907Derivative assets 149 130Financial investments 97 360Trading assets 90 392Pledged assets 6 113Other financial assets 9 048

Total on-balance sheet exposure of continuing operations 1 185 258Discontinued operation – financial assets 29 230



1 Includes loans of R781 million that are past due but not specifically impaired.2 Restated. Refer to page 93.

48

IFRS: Ageing of loans and advances past due but not specifically impaired

Less than31 days

Rm

31 to 60days

Rm

61 to 90days

Rm

91 to 180days

Rm

More than180 days

RmTotal

Rm

2012Personal & Business Banking 18 152 6 570 3 539 28 261

Mortgage loans 10 118 4 431 2 315 16 864 Instalment sale and finance leases 2 317 695 208 3 220 Card debtors 18 330 210 558 Other loans and advances 5 699 1 114 806 7 619

Personal unsecured lending 3 608 729 571 4 908 Business 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 18 182 6 570 3 539 12 244 28 547

2011Personal & Business Banking 15 250 4 255 2 385 21 890

Mortgage loans 8 527 2 906 1 709 13 142 Instalment sale and finance leases 1 953 542 211 2 706 Card debtors 17 128 60 205 Other loans and advances 4 753 679 405 5 837

Personal unsecured lending 2 284 409 260 2 953Business lending and other 2 469 270 145 2 884

Corporate & Investment Banking 136 106 117 101 680 1 140

Corporate loans 49 15 114 101 680 959 Commercial property finance 87 91 3 181

Discontinued operation’s loans and advances 1 560 110 43 1 713

Total 16 946 4 471 2 545 101 680 24 743

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IFRS: 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 2012 that would otherwise be past due or impaired comprised R4,7 billion (2011: R4,7 billion). Renegotiated loans that have arisen from secured lending predominantly comprise mortgage loans amounting to 71% (2011: 80%) of this amount. Prior year amounts have been restated. Refer to page 93.

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 II asset categories and includes collateral that may not be eligible for recognition under Basel II but that management takes into consideration in the management of the group’s exposures to credit risk. All on- and off-balance sheet exposures which are exposed to credit risk, including non-performing assets, have been included.

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Collateral includes:

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

¢ physical items, such as property, plant and equipment

¢ financial guarantees, suretyships and intangible assets.

Netting agreements, which do not qualify for offset under IFRS but which are nevertheless enforceable, are included as part of the group’s collateral. All exposures are presented before the effect of any impairment provisions.

In the retail portfolio, 58% (2011: 60%) is fully collateralised. The R6 410 million (2011: R2 961 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%.

Of the group’s total exposure, 40% (2011: 43%) is unsecured and mainly reflects exposures to well-rated corporate counterparties, bank counterparties and sovereign entities.

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IFRS: Collateral

Collateral coverage

Total exposure

Rm

Un-secured

Rm

Secured exposure

Rm

Netting agree-ments

Rm

Secured exposure

afternetting

Rm

Greaterthan 0%to 50%

Rm

Greaterthan 50% to 100%

Rm

Greaterthan

100%Rm

2012Corporate 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 82 473Less: Impairments for loans and advances (17 704)Less: Unrecognised off-balance sheet items (169 150)Less: Tutuwa and treasury shares IFRS adjustment (2 601)

Total exposure 1 233 399

Reconciliation to balance sheetCash and balances with central banks 61 985Derivative assets 118 353Financial investments 94 715Trading assets 114 435Pledged assets 11 640Other financial assets 21 100Net loans and advances 811 171


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IFRS: Collateral continued

Collateral coverage

Total exposure

Rm

Un-secured

Rm

Secured exposure

Rm

Netting agree-ments

Rm

Secured exposure

afternetting

Rm

Greaterthan 0%to 50%

Rm

Greaterthan 50% to 100%

Rm

Greaterthan

100%Rm

2011Corporate 429 470 201 930 227 540 12 382 215 158 39 708 96 525 78 925Sovereign 132 827 130 363 2 464 290 2 174 1 070 1 095 9Bank 321 871 151 099 170 772 90 483 80 289 28 628 34 081 17 580Retail1 416 551 67 972 348 579 1 236 347 343 2 961 93 735 250 647

Retail Mortgage1 288 139 288 139 288 139 897 38 932 248 310Other retail 128 412 67 972 60 440 1 236 59 204 2 064 54 803 2 337

Total1 1 300 719 551 364 749 355 104 391 644 964 72 367 225 436 347 161

Discontinued operation’s loans and advances 25 638 20 617 5 021 5 021 1 5 020

Total including discontinued operation1 1 326 357 571 981 754 376 104 391 649 985 72 367 225 437 352 181

Add: Financial assets not exposed to credit risk 47 698Less: Impairments for loans and advances (15 185)Less: Discontinued operation’s loans and

advances impairments (471)Less: Unrecognised off-balance sheet items (141 503)Less: Tutuwa and treasury shares IFRS

adjustment (2 408)


Reconciliation to balance sheetCash and balances with central banks 31 907Derivative assets 149 130Financial investments 97 360Trading assets 90 392Pledged assets 6 113Other financial assets 9 048Discontinued operation – financial assets 29 230Net loans and advances 801 308



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

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, assurance management performs the following annual checks on reinsurers:

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

¢ analyses valuators’ certificates

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

¢ reviews and renegotiates reinsurance agreements.

Consolidated mutual fundsLiberty invests in various registered mutual funds to provide for obligations under policyholders’ contracts. Several of the investments in mutual funds exceed 50% of the total value of the underlying net assets of that fund. These funds are consequently defined as subsidiaries in terms of Liberty’s accounting policies and are consolidated into its results, and that of the group.

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 its investment in 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 has invested and which are defined as subsidiaries, are managed by Stanlib Limited, a wholly owned Liberty subsidiary, or Ermitage Funds Limited, an internationally-based asset manager.



report



53


Credit exposureThe 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 2012.

Exposure to credit risk

A and above

RmBBB+

RmBBBRm

BBB-Rm BB+ BB

BBB andbelow

Rm

Notrated

Rm

Pooledfunds

Rm

Totalcarrying

valueRm

2012Debt instruments 21 067 17 817 366 3 490 470 2 073 18 857 64 140Investment policies 23 304 23 304Local prepayments, insurance and other receivables 22 17 41 2 750 2 830Foreign prepayments, insurance and other receivables 590 590

Reinsurance assets 41 (2) 2 236 277Derivatives and collateral deposits 1 906 1 575 147 138 3 766Loan receivables to joint ventures 4 4Cash and cash equivalents 1 016 660 13 812 2 501

Total assets bearing credit risk 24 052 20 069 405 3 650 472 6 603 42 161 97 412

Aggregated credit risk exposure by shareholder and policyholder

Assets bearing credit risk exposure attributable to shareholders 48 197

Assets bearing credit risk exposure attributable to policyholders 47 365

Assets bearing credit risk exposure attributable to non-controlling interest 1 850

Total assets bearing credit risk 97 412

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54

Exposure to credit risk continued

A and above

RmBBB+

RmBBBRm

BBB-Rm BB+ BB

BBB andbelow

Rm

Notrated

Rm

Pooledfunds

Rm

Totalcarrying

valueRm

20111

Debt instruments 20 692 22 406 10 625 1 043 2 199 2 392 49 1 771 12 827 74 004 Investment policies 17 183 17 183 Local prepayments, insurance and other receivables 44 18 55 90 23 1 987 2 217 Foreign prepayments, insurance and other receivables 15 388 403

Reinsurance assets 56 ( 3) 828 2 221 1 104 Derivatives and collateral deposits 874 2 330 494 13 69 10 3 790 Loan receivables to joint ventures 168 168 Cash and cash equivalents 972 3 406 1 979 25 114 55 114 6 665

Total assets bearing credit risk 22 638 28 142 13 131 1 133 3 117 2 575 129 4 659 30 010 105 534

Aggregated credit risk exposure by shareholder and policyholder

Assets bearing credit risk exposure attributable to shareholders 52 216

Assets bearing credit risk exposure attributable to policyholders 51 314

Assets bearing credit risk exposure attributable to non-controlling interest 2 004

Total assets bearing credit risk 105 534


ImpairmentsThe table below indicates the impairments raised against financial assets.

Financial assets impaired

2012Rm

2011Rm

Mortgages and loans1

Gross carrying value 1 098 1 043Less: accumulated impairment (42) (36)

Net carrying value 1 056 1 007

1 Mortgages and loans, consisting of policy loans, included in unlisted term deposits are impaired when the amount of the loan exceeds the policyholder’s investment balance. The fair value of mortgages and loans after such impairment was R936 million (2011: R921 million).

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Insurance operations continued


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55

Standard Bank Group Risk and capital management report 2012 > Country risk

Country risk

Country risk is the risk of loss arising when political or economic conditions or events in a particular country inhibit the ability of counterparties in that country to meet their financial obligations to the group. Country risk events may include sovereign defaults, banking or currency crises, social instability and governmental policy changes or interventions such as expropriation, nationalisation and asset confiscation. Transfer and convertibility risk is an important element of cross-border country risk. Examples of transfer and convertibility events are exchange controls and foreign debt moratoria.

The management of country risk is delegated by the GRCMC to GROC and then to the group country risk management committee. This committee is a subcommittee of GROC and recommends the country risk appetite for individual countries and ensures, through compliance with the country risk governance standard, that country risk exposures are effectively managed in the group.

An internal rating model is used to determine the rating of each country in which the group has an exposure. These ratings are also a key input into the group’s credit rating models. The model inputs are continuously updated to reflect economic and political changes in countries. The country risk model output provides an internal risk grade which is calibrated to a country risk grade (CR) rating scale, from CR1 to CR25. All countries to which the group is exposed are reviewed at least annually. In determining the

ratings, extensive use is made of the group’s network of operations, country visits and external information sources. The country risk function also rates sovereigns. Credit loan conditions and covenants are linked to country risk events.

Countries rated eight (CR08) and higher, referred to as medium- and high-risk countries, are subject to increased analysis and monitoring. For countries with an internal risk grade of seven (CR07) and lower, referred to as low-risk countries, a lesser degree of analysis is generally performed. Total medium- and high-risk country risk exposures and total low-risk country risk exposures for the year ended 31 December 2012 amounted to USD19 billion and USD21 billion, respectively (2011: USD19 billion and USD20 billion, respectively).

14

12

10

8

6

4

2

CR08 – CR11

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

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

CR12 – CR14 CR15 – CR17 CR18 – CR21 CR22+

56

Country risk exposure by region and risk grade

Europe%

Asia%

NorthAmerica

%

Sub-Saharan

Africa%

LatinAmerica

%

Middle East and North

Africa%

Australasia%

2012Risk gradeCR01-CR07 24.1 7.4 7.1 1.1 0.5 2.9 CR08-CR11 2.6 10.3 2.7 4.3 2.6 CR12-CR14 5.8 0.6 8.5 0.3 CR15-CR17 0.2 2.1 13.2 0.5 0.3 CR18-CR21 0.1 1.9 0.1 CR22+ 0.8

2011Risk gradeCR01-CR07 30.7 6.3 14.4 1.1 0.8CR08-CR11 3.1 10.0 3.7 4.2 1.7CR12-CR14 3.4 0.9 3.8 0.7CR15-CR17 0.3 1.7 8.3 1.1CR18-CR21 0.2 2.9 0.1CR22+ 0.6

Where appropriate, 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 risk distribution of country risk cross-border exposures is weighted towards European and North American low-risk countries. Exposure to troubled Eurozone peripheral countries is limited and closely managed by the country risk function.

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

3 500

3 000

2 500

2 000

1 500

1 000

500

Top five medium- and high-risk country risk EAD (USDm)

¢ 2012 ¢ 2011

China Nigeria Brazil India Ghana

20

18

16

14

12

10

8

6

4

2

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

¢ 2012 ¢ 2011

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

Country risk continued


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57

Standard Bank Group Risk and capital management report 2012 > Liquidity risk

3 500

3 000

2 500

2 000

1 500

1 000

500

Top five medium- and high-risk country risk EAD (USDm)

¢ 2012 ¢ 2011

China Nigeria Brazil India Ghana

IntroductionThe nature of banking and trading gives rise to continuous exposure to liquidity risk. The group’s liquidity risk management framework is designed to measure and manage 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.

Banking liquidity risk can be distinguished by two risk categories which are strictly managed by the group:

¢ Market liquidity risk: The risk that the group cannot easily offset or eliminate a position without significantly affecting market prices because of inadequate market depth or market disruption.

¢ Funding liquidity risk: The risk that the group will not be able to effectively meet both expected and unexpected current and future cash flow and collateral requirements without negatively affecting the group’s daily operations or financial condition.

The principal liquidity risk relating to insurance activities is the group’s exposure to policyholder behaviour in respect of redemption rates. Policyholder behaviour is reviewed on a continuous basis as part of Liberty’s normal operating activities.

Basel III liquidity impactFrom 2015, the group will be required to comply with the LCR, a metric designed by the BCBS to measure a bank’s ability to manage a sustained outflow of customer funds over the course of 30 days. The ratio is ‘high quality liquid assets divided by net cash outflows’ and a bank is expected to achieve a result of greater than 100% once LCR is fully implemented. The BCBS has outlined a staged approach towards implementation of LCR from 2015 to 2019.

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 such as operational and retail customers.

The group continues to take several steps to ensure compliance with the two liquidity metrics (namely the LCR and NSFR) within the Basel III specified timelines. Liquid asset buffers have been increased and liability products developed to reduce net cash outflows, where possible, to address the LCR requirement.

In May 2012, the SARB approved the provision of a committed liquidity facility available to banks to meet the LCR in terms of the Basel III liquidity framework. Recent updates to the LCR framework issued by Basel mean that the requirement for this facility will likely be later than originally envisaged.

The group continues to promote product development and initiatives that will extend the group’s funding base and ensure compliance with the NSFR and awaits finalisation of that requirement.

Banks are required to submit semi-annual Quantitative Impact Study reports to the Basel Secretariat under the Basel liquidity framework which will continue through 2013.

Introduction 57

Basel III liquidity impact 57


Organisational structure and governance 58

Liquidity and funding management 58

Credit ratings 62

Conduits 63


Liquidity profile of assets 63

Maturity profiles of financial instrument liabilities

64

Liquidity risks arising from obligations to policyholders

65

Liquidity requirements associated with issuance of subordinated debt

65

Liquidity risk

58

Banking operationsOrganisational structure and governanceGROC and the board review and set the liquidity risk governance standard annually in accordance with regulatory requirements, international best practice and the group’s stated risk appetite. This ensures that a comprehensive and consistent governance framework for liquidity risk management is followed across the group. Each banking entity in the group has an asset and liability committee (ALCO) responsible for ensuring compliance with liquidity risk policies.

Liquidity and funding managementThe group manages liquidity in accordance with applicable regulations within the group’s risk appetite for liquidity risk.

As part of a comprehensive liquidity management process, the group distinguishes between tactical, structural and contingent liquidity risk. These three risk management categories are governed by a comprehensive internal governance framework to identify, measure and manage exposure to liquidity risk. Combining each of these risk management categories allows for effective liquidity risk monitoring.

Liquidity management categories

Tactical (shorter-term) liquidity risk management:

¢ manage intra-day liquidity positions

¢ monitor interbank and repo shortage levels

¢ monitor daily cash flow requirements

¢ manage short-term cash flows

¢ manage daily foreign currency liquidity

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

Structural (long-term) liquidity risk management:

¢ ensure a structurally sound balance sheet

¢ identify and manage structural liquidity mismatches

¢ determine and apply behavioural profiling

¢ manage long-term cash flows

¢ preserve a diversified funding base

¢ inform term funding requirements

¢ assess foreign currency liquidity exposures

¢ establish liquidity risk appetite

¢ ensure appropriate transfer pricing of liquidity costs.

Contingency liquidity risk management:

¢ monitor and manage early warning liquidity indicators

¢ establish and maintain contingency funding plans

¢ undertake regular liquidity stress testing and scenario analysis

¢ convene liquidity crisis management committees, if needed

¢ set liquidity buffer levels in accordance with anticipated stress events

¢ advise diversification of liquidity buffer portfolios.

Tools used to manage liquidity across all risk management categories:

¢ liquidity ratios

¢ market ratios.

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The liquidity management process is independently reviewed on a regular basis. In periods of stable market conditions, the group’s consolidated liquidity risk position is monitored on at least a quarterly basis by group ALCO while the liquidity risk position within the individual legal entities of the group is monitored on a monthly basis by the relevant ALCO body. In periods of increased volatility, the frequency of meetings is increased as required to facilitate appropriate and timely management action.

Tactical liquidity risk managementActive liquidity and funding management is an integrated effort across a number of functional areas. Short-term cash flow projections are used to plan for and meet the day-to-day requirements of the business, including adherence to prudential and internal requirements.

The group’s wholesale funding strategy is assessed for each legal entity and derived from projected net asset growth which includes consideration of PBB and CIB asset growth, capital requirements, the maturity profile of existing wholesale funding and anticipated changes in the retail deposit base. Funding requirements and initiatives are assessed in accordance with ALCO requirements for diversification, tenor and currency exposure, as well as the availability and pricing of alternative liquidity sources.

An active presence is maintained in professional markets, supported by relationship management efforts among corporate and institutional clients.

Structural liquidity risk managementStructural 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 liquid assets and 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 that follows shows the group’s cumulative maturity mismatch between assets and liabilities for the 0 to 12 months bucket, after applying behavioural profiling.

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. In order to ensure ongoing compliance with statutory and internal risk management guidelines, certain short-term assets are profiled as long dated.

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Behaviourally adjusted cumulative liquidity mismatch (%)

¢ 2012 ¢ 2011 Internal limit

0 – 7 days 0 – 1 month 0 – 3 months 0 – 6 months 0 – 12 months

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 trading derivatives) 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 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.

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Maturity analysis of financial liabilities by contractual maturity

Redeemable on demand

Rm

Maturing within

1 monthRm

Maturing between

1 – 6months

Rm

Maturing between

6 – 12 months

Rm

Maturing after

12 monthsRm

TotalRm

2012Financial 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 liabilities 40 105 40 105 Deposit and current accounts 471 287 88 691 157 850 50 567 153 683 922 078Subordinated 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

Off-balance sheet liabilities Letters of credit and bankers’ acceptances 14 218 14 218Guarantees 45 247 45 247Irrevocable unutilised facilities 97 162 97 162Commodities and securities borrowing transactions 5 849 193 709 106 6 857

Total 162 476 193 709 106 163 484

2011Financial liabilitiesDerivative financial instruments 152 364 31 270 74 464 153 203

Instruments settled on a net basis 111 094 12 12 25 111 143Instruments settled on a gross basis 41 270 31 258 62 439 42 060

Trading liabilities1 31 145 31 145Deposit and current accounts1 459 827 100 562 154 086 85 937 139 471 939 883Subordinated debt 65 540 3 717 25 030 29 352Other 19 860 19 860

Total 643 401 120 453 154 896 89 728 164 965 1 173 443

Off-balance sheet liabilitiesLetters of credit and bankers’ acceptances 15 345 15 345Guarantees 36 307 36 307Irrevocable unutilised facilities 75 929 75 929Commodities and securities borrowing transactions 5 274 215 568 100 6 157

Total 132 855 215 568 100 133 738


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

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Foreign currency liquidity managementA number of indicators are observed to monitor changes in either market liquidity or exchange rates. Foreign currency loans and advances are restricted to the availability of foreign currency deposits.

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 capital and loan 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.

Primary funding sources are in the form of deposits across a spectrum of retail and wholesale clients, as well as long-term capital and loan markets. The group remains committed to increasing its core deposits and accessing domestic and foreign capital markets when appropriate to meet its anticipated funding requirements.

Depositor concentrations

2012%

2011%

Single depositor 1.9 2.1Top 10 depositors 7.1 9.6

Funding-related liabilities composition

2012Rbn

2011Rbn

Corporate funding 253 234Financial institutions 192 198Government and parastatals 99 100Interbank funding 107 102Retail deposits 204 198Senior and subordinated debt issued 66 48Other liabilities to the public 125 118

Total funding-related liabilities 1 046 998

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Funding-related liabilities composition (% of total)

¢ 2012 ¢ 2011

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A component of the funding strategy is to ensure 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 definition is derived from the SARB filings in the South African market, not to be confused with NSFR which is greater than one year. The graph below illustrates the group’s long-term funding ratio for the period 31 December 2007 to 31 December 2012. The group’s long-term funding ratio was 24.3% (2011: 25.3%).

30

25

20

15

10

Long-term funding ratio (%)

December 2007 December 2012

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Contingency liquidity risk managementContingency funding plansContingency funding plans are designed to protect stakeholder interests and maintain market confidence to ensure a positive outcome in the event of a liquidity crisis. The plans incorporate an early warning indicator methodology 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, liquidity generation management actions and operations, heightened and supplementary information requirements as well as various management actions available to address the crisis event. Detailed work around the contingency funding plans was completed and will continue in 2013 under the recovery plan required to be submitted by the board to the SARB.

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 two-month period, as this is considered the most crucial time horizon for a liquidity event. This may, however, vary depending on the severity of the stress scenario and local in-country regulations (for example, the FSA in the UK regulations require monitoring over a two-week to three-month period rather than a two-month period). From January 2013 the SARB returns will include measurement over a three-month period.

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. Under each scenario, loan portfolios are assumed to roll over. However, the rollover of liabilities will be partially impaired resulting in a funding shortfall.

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. The results also inform target liquidity buffer positions. The group’s internal stress tests continue to be updated to align with pending Basel III requirements and also reflect new reporting requirements and annual review amendments.

Liquidity bufferPortfolios of highly marketable securities over and above prudential, regulatory and internal stress-testing requirements are maintained as protection against unforeseen disruptions in cash flows. These portfolios are managed within ALCO-defined limits on the basis of diversification and liquidity.

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The table below provides a breakdown of the group’s liquid marketable securities and foreign currency placements as at 31 December 2012 compared to the 31 December 2011 closing position. These portfolios are highly liquid and can be readily sold to meet liquidity requirements.

Total liquidity

2012Rbn

2011Rbn

Total marketable assets 140,1 143,9Other readily accessible liquidity 3,4 4,2

Total liquidity (in excess of prudential requirements) 143,5 148,1Prudential requirements 42,5 39,4

Total liquidity 186,0 187,5

In addition to minimum requirements, total contingent liquidity holdings are informed by the results from liquidity stress testing as per Basel principles and, in certain instances, in-country regulations. Total liquidity (in excess of prudential requirements) decreased marginally to R143,5 billion as at 31 December 2012 (2011: R148,1 billion).

The total amount of liquidity held remains adequate to meet all internal stress tests as well as various legal entity and group regulatory and prudential requirements.

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.

Credit ratings

SBSA1

Long term Fitch

Foreign currency issuer default rating BBBRSA Sovereign ratings: foreign currency BBB

Moody’s

Foreign currency deposit rating Baa1RSA Sovereign ratings: foreign currency Baa1

1 SBSA is the largest operating entity within the group.

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

Rating downgrades as a result of collateralisation or termination events are generally conceded only to highly rated counterparties and, almost always, on a bilateral reciprocal basis. In exceptional cases, the group might concede such rating downgrade events to unrated counterparties when their size, credit strength and business potential are deemed acceptable.

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 through the reduction of the threshold above which the group’s negative mark-to-market must be collateralised, or lead to activation of downgrade clauses and early termination associated with certain structured deposits.

The impact on the group’s liquidity of a collateral call linked to downgrading is taken into account in model stress testing. A one notch rating downgrade will reduce thresholds above which collateral must be posted with counterparties to cover the group’s negative mark-to-market on derivative contracts by R554 million (2011: R489 million). A two and three notch rating downgrade will reduce such thresholds by a further R377 million and R40 million respectively.

ConduitsThe group provides standby liquidity facilities to two conduits, namely Blue Titanium Conduit and Thekwini Warehouse Conduit. These facilities, which totalled R7,6 billion as at 31 December 2012 (2011: R8,3 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. The liquidity facilities are included in both the group’s static structural liquidity mismatch, which is managed against ALCO-imposed limits and guidelines, as well as in dynamic liquidity risk stress testing.

Insurance operationsThe principal risk relating to liquidity comprises the group’s exposure to policyholder behaviour. Liquidity requirements are reviewed on a monthly basis. These requirements are also monitored on an ongoing basis as part of Liberty’s normal operating activities.

Liquidity profile of assetsLiberty’s assets 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 Liberty’s investments in mutual funds, equities and non-term financial debt instruments given the volatility of equity markets and uncertain policyholder behaviour.

Financial asset liquidity

2012 2011

% Rm % Rm

Liquid1 74 201 881 73 172 767Medium2 16 42 364 15 35 797Illiquid3 10 27 445 12 27 164

100 271 690 100 235 728

1 Liquid assets are those that are considered to be realisable within one month (for example, cash, listed equities and term deposits).2 Medium assets are those that are considered to be realisable within six months (for example, unlisted equities and certain unlisted term deposits).3 Illiquid assets are those that are considered to be realisable in excess of six months (for example, investment properties).

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Maturity profiles of financial instrument liabilitiesThe table below summarises the maturity profile of the financial instrument liabilities of Liberty based on the remaining undiscounted contractual obligations and will therefore not agree directly 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.

Maturity profile of liabilities – contractual cash flows

0 – 3months1

Rm

3 – 12months

Rm

1 – 5years

RmTotal

Rm

2012Held for tradingCollateral deposits 679 679

At amortised costCallable capital bond 77 76 2 613 2 766Non-controlling interests’ loan 93 93Third party financial liabilities arising on consolidation of mutual funds 14 465 14 465Other loans 39 17 56Insurance and other payables 8 089 75 36 8 200

Total 23 310 190 2 759 26 259

2011Held for tradingCollateral deposits 381 381

At amortised costCallable capital bond 54 2 124 2 178Non-controlling interests’ loan 103 103Third party financial liabilities arising on consolidation of mutual funds 11 164 11 164Other loans 59 59Insurance and other payables 6 304 6 304

Total 17 903 2 183 103 20 189

1 0 – 3 months are either due within the timeframe or are payable on demand.

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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

Within1 year

Rm

1 – 5years

Rm

5 – 10years

Rm

10 – 20 years

Rm

Over20 years

Rm

Effect of discounting cash flows

RmTotal

Rm

2012Investment contracts 6 921 10 460 8 608 14 799 27 700 (325) 68 163Investment contracts with DPF 230 219 536 1 331 1 537 2 3 855Insurance contracts 17 833 55 871 20 208 49 267 70 507 (49 020) 164 666

Total 24 984 66 550 29 352 65 397 99 744 (49 343) 236 684

2011Investment contracts 5 689 8 273 6 349 12 736 26 925 (412) 59 560Investment contracts with DPF 326 374 399 529 1 817 2 3 447Insurance contracts 14 664 47 501 18 420 44 824 66 489 (46 340) 145 558

Total 20 679 56 148 25 168 58 089 95 231 (46 750) 208 565

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

2012 2011

Carryingvalue

Rm

Surrendervalue

Rm

Carryingvalue

Rm

Surrendervalue

Rm

Investment contracts 68 163 67 552 59 560 59 028Investment contracts with DPF 3 855 3 432 3 447 3 238Insurance contracts 164 666 137 739 145 558 120 171

Total policyholders’ liabilities 236 684 208 723 208 565 182 437

Liquidity requirements associated with issuance of subordinated debtThe FSB’s approval of Liberty’s issuance of subordinated debt, namely R2 billion callable capital bonds, includes a requirement to hold qualifying liquid assets equal to at least the amount of the outstanding debt issued. As at 31 December 2012 and 2011 this requirement has been met and attested to by the statutory actuary of Liberty.

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IntroductionThe group’s key market risks are categorised as follows:

¢ Market risk in the trading book: These risks result from two principal sources, namely the trading activities of the group’s banking operations where the primary focus is client facilitation in chosen markets and Liberty’s investment activities in various capital market instruments. All trading activities are carried out within the group’s CIB division. Trading activities comprise market making, arbitrage and proprietary trading, with the latter constituting a small proportion of trading revenues.

¢ Interest rate risk in the banking book: These risks result from the different repricing characteristics of banking book assets and liabilities. They include endowment risk associated with a downturn in the economic cycle, repricing risk, basis risk, optionality risk and yield curve risk.

¢ Equity investments in the banking book: These risks result from price changes in listed and unlisted equity investments.

¢ Foreign currency risk: The 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, intra-group foreign-denominated debt and foreign-denominated cash exposures and accruals.

¢ Policyholder asset-liability mismatch in the insurance operations: The risk arises where Liberty’s property and financial assets do not move in the same direction and magnitude as the obligations arising under its insurance and investment contracts. This includes annuity mismatches, embedded derivative mismatches and the market risk arising from negative rand reserves (present value of future charges less the present value of future expenses and risk claims).

¢ Insurer shareholder investment portfolio: These risks result from price changes to financial assets and liabilities utilised to support Liberty’s capital base, also referred to as shareholder funds. Price changes are typically driven by a change in market variables for example interest rates and foreign exchange rates.

Banking operationsOrganisational structure and governanceGROC and the board review and set the market risk governance standard annually in accordance with the group’s stated risk appetite. This standard ensures that the measurement, reporting, monitoring and management of market risk across the group’s banking entities follows a common governance framework. Each banking entity in the group has an ALCO responsible for ensuring compliance with market risk standards pertaining to the trading book and interest rate risk in the banking book. The SBSA ALCO, rest of Africa ALCO and international capital committee report into group ALCO.

The market risk functions embedded in the business lines are independent of trading operations and accountable to sub-ALCOs. They are responsible for identifying, measuring, managing, controlling and reporting market risk as outlined in the market risk governance standard, with support from the central market risk function. All VaR limits require prior approval from the respective ALCOs. The market risk functions also have the ability to set individual trader mandates. The central market risk function is accountable to group ALCO.

Introduction 66


Organisational structure and governance 66

Trading book market risk management 67

Interest rate risk in the banking book 70

Equity investments 72

Foreign currency risk 72


Shareholder investment portfolio 74

Asset liability management portfolio 74

Interest rate risk 76

Foreign currency risk 76

Property market risk 77

Derivative financial instruments and risk mitigation

77

Sensitivity analysis 77

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Standard Bank Group Risk and capital management report 2012 > Market risk

Exposures and excesses are monitored and reported daily to

business line and group management, monthly to sub-ALCOs

and quarterly to group ALCO, GROC and the GRCMC. Where

breaches in limits and triggers occur, actions are taken by

market risk functions to move exposures back in line with

approved market risk appetite, with such breaches being

reported to management and sub-ALCOs.

Trading book market risk managementMeasurementThe techniques used to measure and control trading book

market risk and trading volatility include:

¢ VaR

¢ stop-loss triggers

¢ stress tests

¢ backtesting

¢ specific business unit and product controls.

VaRThe group uses the historical VaR simulation approach to

derive quantitative measures, specifically for market risk under

normal conditions. The following detailed disclosure is required

in terms of amended Basel II.

VaR is based on 251 days of unweighted 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.

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.

VaR models have been approved by the regulators for all South

African trading units except for the structured product desk

and specific risk on interest rates. Standard Bank Plc has

general market risk regulatory model approval for certain

products in its commodity trading, local markets (rates and

foreign exchange), equity and credit trading businesses.

Specific risk regulatory approval has also been granted for an

incremental default risk charge model for certain significant

credit risk products of Standard Bank Plc. Where the group has

received internal model approval, a VaR using a confidence

level of 99% and a 10-day holding period for both recent

market conditions and a stress period is used to determine

market risk regulatory capital.

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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 intra-day exposures.

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

The Basel consultative paper on fundamental trading book review proposes further changes to counteract these limitations in addition to regulatory stress VaR which was implemented at the beginning of 2012.

Stop�loss triggersStop-loss triggers are used to protect the profitability of the global markets trading desks, and refer to cumulative or daily trading losses that prompt a review or close-out of positions in the trading book. These are monitored by market risk on a daily basis.

Stress testsIn recognition of the limitations of VaR, stress testing provides an indication of the potential losses that could occur under extreme market conditions and where longer holding periods may be required to exit positions. The stress tests carried out by the group include individual market risk factor testing, combinations of market factors per trading desk and combinations of trading desks. Stress tests include a combination of historical, hypothetical and Monte Carlo-type simulations and provide senior management with an assessment of the financial impact that such events would have on the group’s profit. The daily losses experienced during the year ended 31 December 2012 were within the stress-loss scenarios.

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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 previously referred to. Backtesting compares the daily hypothetical profit and losses under the one-day buy and hold assumption to the prior day’s VaR. In addition, VaR is tested by changing various parameters, such as confidence intervals and observation periods used in the model.

In this manner, characteristics of the VaR model are captured to ensure the accuracy of the VaR measurement and the effectiveness of hedges and risk-mitigation instruments, again within the limitations previously referred to. 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 2012.

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Backtesting: Hypothetical profit/loss and VaR (Rm)

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

January 2012 December 2012Rm

Days

Specific business unit and product controlsOther market risk 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. In addition, only approved products that can be independently priced and properly processed are permitted to be traded.

The independent central validation function validates all new pricing models and performs an annual review of existing models to ensure they are still relevant and behaving within expectations.

VaR for the period under reviewTrading book market risk exposures arise mainly from residual exposures from client transactions with limited trading for the group’s own account. The table on the following page shows the aggregated historical VaR for the group’s trading positions by market variable. The maximum and minimum VaR amounts show the bands in which the values at risk fluctuated during the periods specified.

In general, the group’s trading desks have run low levels of market risk throughout the year ended 31 December 2012, with average VaR being largely unchanged.

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Trading book VaR analysis by market variable

Normal VaR

Maximum1

RmMinimum1

RmAverage

RmClosing

Rm

2012Commodities 46,8 26,5 36,4 26,8 Forex 25,9 6,4 12,4 10,6 Equities 29,2 10,1 17,8 12,8 Debt securities 27,4 13,1 19,1 16,7 Diversification benefit2 (36,6) (30,3)

Aggregate 63,6 36,4 49,1 36,6

2011Commodities 45,0 19,3 26,6 19,8Forex 17,8 3,6 10,2 10,9Equities 26,0 10,2 17,3 20,6Debt securities 55,8 19,1 30,3 36,4Diversification benefit2 (33,4) (35,5)

Aggregate 67,7 41,0 51,0 52,2

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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Analysis of trading profitThe graph below shows the distribution of daily profit and losses for 2012 and 2011. 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 with no material negative outliers. For the year ended 31 December 2012, trading profit was positive for 248 out of 260 days (2011: 238 out of 259 days).

120

100

80

60

40

20

Distribution of daily trading profit or loss of trading units(frequency days)

¢ 2012 ¢ 2011

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

Days

70


Interest rate risk in the banking bookBanking 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 interest rate risk is governed by applicable laws and regulations, and is guided by the competitive environment in which the group operates. Banking book interest rate risk is monitored centrally by the group’s TCM team with oversight by group ALCO. Each banking entity in the group manages this risk on a stand-alone basis and also calculates and maintains economic capital in support thereof.

Interest rate risk measurementThe analytical techniques used to quantify banking book interest rate risk include both earnings- and valuation-based measures. Results are monitored on at least a monthly basis by the relevant ALCOs. The analysis takes cognisance 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 and/or maturity profiles and, where appropriate, the use of derivative instruments.

Interest rate risk limitsInterest rate risk limits are set with respect to changes in forecast banking book earnings (net interest income and banking book mark-to-market profit or loss) 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.

The repricing gaps for the group’s non-trading portfolios before tax are shown in the table below.

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 (obtained through statistical analysis and, if required, expert judgement).

The interest rate sensitivity gap is lower in 2012 when compared to 2011. This implies 2012 is less asset sensitive, however the 2012 balance sheet is more asset sensitive than the prior year, partially due to low rand interest rate environment causing an increase in the endowment base.

Interest rate sensitivity gap

0 – 3months

3 – 6months

6 – 12months

> 12months

2012 Interest rate sensitivity gap Rm 50 342 6 024 2 510 (58 876)Cumulative interest rate sensitivity gap Rm 50 342 56 366 58 876Cumulative interest rate sensitivity gap as a percentage of total assets % 3.9 4.4 4.6

2011 Interest rate sensitivity gap Rm 64 134 16 177 3 535 (83 846)Cumulative interest rate sensitivity gap Rm 64 134 80 311 83 846 Cumulative interest rate sensitivity gap as a percentage of total assets % 5.1 6.4 6.7



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Hedging of endowment riskInterest rate risk in the banking book 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 emanating from the anticipated downturn in the economic cycle is hedged as and when it is considered opportune, using liquid instruments in each legal entity’s market. Depending on each market, eligible instruments include fixed rate bonds, fixed rate loans and derivative instruments such as swaps and interest rate swaptions. Per legal entity, the interest rate view is formulated through each ALCO process, following meetings of the monetary policy committees, or notable market developments. A significant component of the group’s endowment risk resides within SBSA.

Outside the endowment exposure, all other banking book interest rate risk (basis, repricing, optionality and yield curve) is managed within the treasury and the global markets portfolios.

Analysis of banking book interest rate sensitivityThe 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 OCI in response to a parallel yield curve shock, before tax. 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 2012 by R2,7 billion (2011: R1,9 billion).

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Interest rate sensitivity analysis

ZAR USD GBP Euro Other Total

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

2011Increase in basis points 200 100 100 100 100Sensitivity of annual net interest income Rm 1 482 10 10 7 129 1 638Sensitivity of OCI Rm 115 (12) (129) (26)Decrease in basis points 200 100 100 100 100Sensitivity of annual net interest income Rm (1 688) (33) (10) (7) (140) (1 878)Sensitivity of OCI Rm (115) 12 129 26

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Equity investmentsThe equity risk committee approves investments in listed and unlisted entities in accordance with delegated authority limits. Periodic reviews and reassessments are undertaken on the performance of these investments.

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

Market risk sensitivity of non-trading equity investments

10%reduction

Rm

Fair value

Rm

10%increase

Rm

2012 Equity securities listed and unlisted 3 369 3 743 4 117 Impact on profit or loss (354) 354 Impact on OCI (20) 20

2011 Equity securities listed and unlisted 3 807 4 230 4 653Impact on profit or loss (401) 401 Impact on OCI (22) 22

Banking book equity exposuresMarket 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. Reviews and reassessments on the performance of the investments are undertaken periodically.

Basel II equity positions in the banking book

2012Rm

2011Rm

Fair valueListed 488 1 042 Unlisted 3 004 3 077

Total1 3 492 4 119

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.

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Cumulative realised gains from the sale or liquidation of equity positions in the banking book were R778 million (2011: R32 million loss). This increase can be attributed to the sale of a listed equity investment which has been held as an equity investment for five years prior to the sale.

No unrealised gains or losses were recognised in OCI (2011: R32 million loss).

Foreign currency riskFramework and governanceThe 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, intra-group foreign-denominated debt, foreign-denominated cash exposures and foreign-denominated accruals.

The group capital management committee delegates the management of this risk to the net asset value currency risk management committee. This 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 interfere with or constrain normal operational activities. In particular, cognisance is taken of the need for capital held in banking entities outside of the South African common monetary area to fluctuate in accordance with risk-weighted assets, thereby preserving the capital adequacy in-country. The net asset value currency risk management committee meets regularly to reassess the hedging or diversification strategy in the event of changes in currency views.

Hedging of rand or foreign currency exposure is permitted only for planned, specific future investment-related cash flows and hedging of translation risk arising from consolidation of the group’s foreign subsidiaries and operations.

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. In terms of the foreign currency risk governance process outlined previously, the group does not ordinarily hold open exposures of any significance with respect to the banking book.




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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 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.

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Foreign currency risk sensitivity in ZAR equivalents

USD Euro GBP Naira Other Total

2012Sensitivity % 5 5 5 5 5 5Total 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)

20111

Sensitivity % 5 5 5 5 5 5 Total net (short)/long position Rm (56) (3 576) 1 010 (540) (1 341) (4 503)

Impact on OCI Rm (180) 51 (26) (48) (203) Impact on profit or loss Rm (3) (17) (20)

1 The sensitivities represented in the table above have changed to represent a 5% depreciation in foreign currency rates rather than an absolute change as reported in the 2011 risk report.

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Insurance operationsThe Liberty GRCMC-approved market risk framework ensures that the measurement, reporting, monitoring and management of market risk across the insurance entities follows a common governance framework.

Market 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 risk 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.

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 5% depreciation in foreign currency rates on the OCI and/or profit or loss of the group before tax is a R274 million loss (2011: R223 million loss). Offsets to this sensitivity include changes in foreign currency rates as applied to the group’s net assets in foreign operations.

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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 modeled 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 of 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.

Negative rand reserves comprising future expected management fees and insurance profits are a negative liability on the IFRS statement of financial position. Negative rand reserves are calculated as the present value of future charges less the present value of future expenses and risk claims.

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.



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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 partyfinancialliabilities

on mutual funds

Rm

2012Equity price 111 242 107 035 (6 219) 1 316 9 110Interest rate 101 990 41 726 28 838 28 685 149 2 592Property price 30 878 25 798 (1 016) 1 198 2 952 1 946Mixed portfolios3 44 415 42 176 (2 632) 4 054 817Reinsurance assets 1 170 978 192

Total 289 695 216 735 19 949 35 445 3 101 14 465

Percentage (%) 100 75 7 12 1 5

2011Equity price 96 635 94 691 (7 413) 1 968 7 389Interest rate 87 243 34 038 29 484 22 172 84 1 465Property price 28 003 25 311 (2 491) 581 2 988 1 614Mixed portfolios3 37 077 36 102 (2 058) 2 337 696Reinsurance assets 1 104 901 203

Total 250 062 190 142 18 423 27 261 3 072 11 164

Percentage (%) 100 76 7 11 1 5

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.

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Interest rate riskThe tables below give 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

2012Rm

2011Rm

Financial liabilitiesCarrying value 2 856 2 336

Exposed to cash flow interest rate risk 819 282Exposed to fair value interest rate risk 2 037 2 054

Financial assetsCarrying value 59 387 55 958

Exposed to cash flow interest rate risk 16 798 14 099Exposed to fair value interest rate risk 42 589 41 859

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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.

The total exposure to financial instruments expressed in rand (converted at closing rates) at 31 December 2012 is R41 billion (2011: R32 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 2012.

Currency exposure by major currency

GBP USD Euro Japanese Yen AUD Other

2012Rm

2011Rm

2012Rm

2011Rm

2012Rm

2011Rm

2012Rm

2011Rm

2012Rm

2011Rm

2012Rm

2011Rm

Foreign currency risk 2 695 2 211 27 042 21 138 2 944 2 414 1 663 1 724 617 484 5 510 3 785Foreign currency amounts1 205 182 3 142 2 669 258 204 18 498 18 225 46 38

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

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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 2012 the proportion of unlet space in the property portfolio was 7.1% (2011: 7.2%).

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 2012 is shown below.

Exposure to property market risk

2012Rm

2011Rm

Investment properties 25 380 24 462 Owner-occupied properties 1 378 1 598 Properties under development 13Mutual funds with >80% property exposure 4 107 1 943

30 878 28 003 Attributable to minority interests (2 952) (2 988)

Net exposure 27 926 25 015

Concentration use riskShopping malls 20 750 20 022 Office buildings 2 696 2 803 Hotels 2 536 2 536 South African listed property securities held through mutual fund investments 4 107 1 943

Convention centre and residential property 789 699

30 878 28 003

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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 over the counter 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 below 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.

Market variable Description of sensitivity

Interest rate yield curve

A parallel shift in the interest rate yield curve

Implied option volatilities

A change in the implied short-term equity, property and interest rate option volatility assumptions

Equity prices A change in the local and foreign equity prices

Rand exchange rates A change in the ZAR exchange rate to all applicable currencies

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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

2012 2011

Change invariable

%

Impact onpolicyholders’

liabilitiesRm

Impact onequity and

attributableprofit after

taxationRm

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Market assumptionsInterest rate yield curve 12 (2 892) (194) 12 (2 933) (266)

(12) 3 430 106 (12) 3 518 160Option price volatilities 20 241 (149) 20 289 (177)

(20) (198) 119 (20) (259) 156Equity prices 15 15 545 1 144 15 13 814 927

(15) (15 451) (1 170) (15) (13 680) (952)Rand exchange rates 121 (3 061) (621) 121 (2 581) (502)

(12)2 3 079 629 (12)2 2 605 505

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

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Standard Bank Group Risk and capital management report 2012 > Insurance risk

IntroductionInsurance risk is the risk that future demographic and related expense experience will exceed the allowance for expected demographic experience and expenses, as determined through measuring policyholder 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 the Liberty business line, the short-term insurance operations housed in Liberty Africa and SIL housed in the PBB business line.

Long-term insurance riskOverviewThe statutory actuaries, the GIRC and the Liberty CRO provide independent oversight of compliance with Liberty’s risk management policies and procedures and the effectiveness of the company’s insurance risk management processes.

Risk identification, assessment and measurementInsurance 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.

Risk managementThe management of insurance risk is essentially 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 thus expected to arise from the release of these margins. The risk is that these earnings are less than expected due to adverse actual experience.

Introduction 79

Long-term insurance risk 79

Overview 79

Risk identification, assessment and measurement

79

Risk management 79

Reporting 80

Long-term insurance risk sub-types 80

Sensitivity analysis 82

Short-term insurance risk 83

Insurance risk

80

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 plus compulsory and discretionary margins, as described in the accounting policies

¢ 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.

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

The GIRC was established early in 2012. The GIRC is a subcommittee of GROC and thus a second line of defence function. The following are the main duties and responsibilities of the GIRC:

¢ recommend for approval insurance risk related policies to GROC 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 risk appetite statement 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 GROC all material insurance risk related breaches/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.

ReportingMajor insurance risks are incorporated into a report on Liberty’s overall risk by the Liberty CRO, which is submitted to the Liberty group risk committee.

Long-term insurance risk sub-typesPolicyholder 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 lapse risk, which arises due to policyholders discontinuing or reducing contributions or withdrawing benefits prior to maturity of the contract. 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 specialised customer management unit, which is now embedded in the business, addresses lapses.

Mortality and morbidity riskMortality risk is the risk of loss arising due to actual death rates on life assurance business being higher than expected. Morbidity risk is the risk of loss arising due to policyholders’ health-related 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 table that follows 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.

Insurance risk continued


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

Before reinsurance After reinsurance

Sum assured at risk Rm % Rm %

2012R0 – R1 499 999 515 109 47 497 987 52R1 500 000 – R2 999 999 221 552 20 201 146 21R3 000 000 – R7 499 999 236 770 22 200 945 21R7 500 000 and above 120 177 11 56 316 6

Total 1 093 608 100 956 394 100

2011R0 – R1 499 999 500 568 50 483 474 54R1 500 000 – R2 999 999 199 963 20 183 286 20R3 000 000 – R7 499 999 208 255 20 181 255 21R7 500 000 and above 99 134 10 46 142 5

Total 1 007 920 100 894 157 100

The table above shows 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.

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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. Liberty’s consolidated catastrophe reinsurance cover is up to a limit of R650 million (2011: R600 million) for claims in excess of R50 million (2011: R50 million) for single event disasters and R1 300 million (2011: R1 200 million) in aggregate over the treaty year subject to the payment of the reinstatement premium.

Furthermore, Liberty has additional reinsurance cover up to a limit of R47 million (2011: R47 million) for claims in excess of R3 million (2011: R3 million) for single event disasters arising from its subsidiary companies in Uganda, Botswana, Swaziland and Namibia. 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

2012%

2011%

Administrative/professional 34 31Retail 23 23Light manufacturing 28 31Heavy manufacturing 13 13Heavy industrial and other high risk 2 2

Total 100 100

RCMAFS

In measuring policyholders’ liabilities, margins, as described on page 243 in the accounting policies, are added to the best estimate mortality and morbidity rates

In addition, an allowance is made for the mortality and morbidity fluctuation risk in the OCAR calculation. No additional allowance is made for mortality or morbidity catastrophes in the capital adequacy ratio calculation.

The business 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. Since it is difficult to obtain reinsurance for certain catastrophic events (such as epidemics, radioactive contamination and war) on reasonable terms, these risks are retained.

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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 riskExpense risk is the risk of loss arising due to expenses incurred, in the administration of policies, being higher than expected. Allowance is made for expected future expenses in the measurement of policyholders’ liabilities. 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 expense risk by regularly monitoring actual expenses against the budgeted expenses, managing persistency and implementing cost control measures.

The expenses that Liberty is expected to incur on policies are accounted 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 restricted. This does not only have 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.

Insurance risk variables Description of sensitivity

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

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.

Insurance risk continued


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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

2012 2011

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Change invariable

%


liabilitiesRm

Impact onequity and


taxationRm

Insurance assumptionsMortality Assured lives 2 320 (230) 2 221 (159)

(2) (321) 231 (2) (220) 158 Annuitant longevity 41 233 (162) 41 216 (150)

(4)2 (223) 154 (4)2 (206) 143Morbidity 5 419 (294) 5 324 (227)

(5) (419) 295 (5) (323) 226Withdrawals 83 229 (166) 8 325 (235)

(8) (238) 172 (8) (358) 258Expense per policy 5 273 (196) 5 234 (167)

(5) 234 196 (5) (233) 167

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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Short-term insurance riskSIL writes mainly property, motor, accident and health insurance on a countrywide basis within South Africa. 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.

The key risks associated with this product are underwriting risk, competitive 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 very carefully.

The greatest likelihood of significant losses to the group arises from catastrophe events such as flood, storm or earthquake damage.

Insurance risk is managed primarily through sensible pricing, product design, appropriate investment strategy, rating and reinsurance.

The 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 business reinsures a portion of the risks it underwrites in order to control its exposure to losses and protect capital resources.

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Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Reputational risk and strategic risk are, in line with general market convention, excluded from the definition of operational risk.

IntroductionOperational 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 indeed 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 in line with the group’s risk tolerance, while maximising their operational performance and efficiency.

FrameworkThe group has set minimum requirements for managing operational risk through the group operational risk governance standard. These requirements have been fully implemented and embedded across the group’s banking operations. In addition to meeting the group minimum standards, the operational risk framework for the insurance businesses is also subject to development as part of the implementation of SAM.

The framework sets out a structured and consistent approach for managing operational risk across the group. The risk management approach involves identifying, assessing, measuring, managing, mitigating, and monitoring the risks associated with operations, enabling comprehensive analysis and reporting of the group’s operational risk profile.

The framework is based on the following core components:

¢ Risk identification and control methodology: Facilitates the identification of risks and the management thereof across each business and operational function. It comprises two key elements:

¢ Risk and control self-assessments: Each business unit and group enabling function is required to analyse its business activities and critical processes to identify the key operational risks to which it is exposed, and assess the adequacy and effectiveness of its controls. For any area where management concludes that the level of residual risk is beyond an acceptable level, it is required to define action plans to reduce the level of risk. The assessments are facilitated, monitored and challenged by the relevant operational risk function aligned to each business unit and group enabling function.

¢ Indicators: Based on the key risks and controls identified above, relevant indicators are used to monitor key business environment and internal control factors that may influence the group’s operational risk profile. Each indicator has trigger thresholds to provide an early-warning indicator of potential risk exposures and/or a potential breakdown of controls.

¢ Operational risk incidents: All areas are required to report operational risk incidents to their relevant operational risk function. The definition of operational risk incidents includes not only events resulting in actual loss, but those resulting in non-financial impacts and near misses. This process is intended to enable the root cause of individual incidents, or trends of

Introduction 84

Framework 84

Managing operational risk 85

Measuring operational risk 85

Specialist operational risk types 86

Model risk 86

Taxation risk 86

Legal risk 86

Compliance risk 87

Environmental and social risk 88

Business continuity management and resilience

89

Information risk management 89

Financial crime control 90

Occupational health and safety 90

Operational risk


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85

Standard Bank Group Risk and capital management report 2012 > Operational risk

incidents, to be analysed and actions taken to reduce the exposure or to enhance controls.

All incidents relating to the group’s banking operations are consolidated within a central group database, which is also integrated with risk and control self-assessments and indicators. The group’s insurance operations are implementing an equivalent incident database using the same IT application as the group’s banking operations.

¢ External data: The group analyses external industry incidents and loss data through a combination of publicly available data and the confidential loss data available from membership (since 2011) of the Operational Riskdata eXchange Association. This enhances the identification and assessment of risk exposures and provides additional data for scenario analysis purposes.

¢ Scenarios: Internal subject matter experts develop estimates of potential impact and likelihood, which support the identification and assessment of key risks and controls, and provide data for quantitative modeling purposes. Scenarios are used for capital estimation purposes by SBSA (AMA) and by Standard Bank Plc (ICAAP).

¢ Reporting: Operational risk reports are produced on both a regular and an event-driven basis. The reports include a profile of the key risks to business units’ achievement of their business objectives, relevant control issues and operational risk incidents. Specific reports are prepared on a regular basis for the relevant business unit committees and for the group operational risk committee (GORC), GROC and the GRCMC.

Managing operational riskThe primary responsibility for managing operational risk forms part of the day-to-day responsibilities of management and employees at all levels. Business line management is ultimately responsible for owning and managing risks resulting from their activities. The risks are managed where they arise.

The operational risk management function is independent from business line management and is part of the second line of defence. It is organised as follows:

¢ Individual teams are dedicated to each business unit and group enabling functions. These teams are based alongside their business areas and facilitate the business’s adoption of the operational risk framework. As part of the second line of defence, they also monitor and challenge the business units’ and group 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 management framework.

¢ The primary oversight body for operational risk is GORC, which reports to GROC, the GRCMC and ultimately the

board. GORC is chaired by the group head of operational

risk and includes representation from group specialist functions

and business units. GORC is also responsible for approving

groupwide operational risk policies and methodologies.

In addition to the operational risk management function, there

are individual focus areas on particular aspects of operational

risk, including:

¢ Specialist functions that are responsible for oversight of

specific components of operational risk including compliance,

legal, financial crime, information security and business

continuity management.

¢ A physical commodities specialist function that is based in

Johannesburg, London and Singapore, has been established

to manage physical commodities transactions executed within

the group. The key role of the team is to focus on the risks

embedded in each trade, on a pre- and post-trade basis, 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 ship brokers, insurers,

warehouse providers and security companies.

¢ An internal financial controls framework has been established

to ensure the robust control over balance sheet

substantiation and other key financial controls.

¢ Within the group’s IT and operations functions, there are

dedicated areas focused on the day to day management of

operations control and IT risk.

Measuring operational riskThe group continues to calculate capital for its banking

operations based on the standardised approach in accordance

with the SARB approval granted in 2008.

During 2011, the group developed an internal model

quantification capability. This is used to calculate capital

requirements for SBSA under the AMA in parallel with the

standardised approach calculations throughout 2012. The capital

requirement derived from the model is principally driven by data

generated from scenarios although, where available, internal loss

data is also used. This quantitative methodology is being

extended to other group banking entities.

Operational risk in the group’s insurance operations is measured

in the OCAR calculation. The methodology used has been

adopted from approaches used in the Quantitative Impact

Studies under the European Union’s Solvency II framework.

The quantification methodology for operational risk capital is

likely to change with the implementation of the new risk-based

regulatory regime introduced by the South African FSB’s

SAM project in 2014.

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Measuring operational risk continued

Further to the regulatory requirements for measuring operational

risk, Liberty also includes an allowance for operational risk in the

calculation of its economic capital requirements.

Specialist operational risk typesThe definition of operational risk is very broad. Operational risk

contains specific sub-risks that are subject to management and

oversight by dedicated specialist functions. These include:

¢ model risk

¢ taxation risk

¢ legal risk

¢ compliance risk

¢ environmental and social risk

¢ business continuity management and resilience

¢ information risk management

¢ financial crime control

¢ occupational health and safety.

Model riskThe term model refers to a quantitative method, system or

approach that applies statistical, economic, financial, or

mathematical principles and processes to translate input data

into quantitative estimates. The group uses models to measure

risk across the various risk types. Examples include credit

grading, pricing, valuation and risk appetite metrics.

Model risk is the potential for adverse consequences from

measurement, pricing and management decisions based

on incorrect or inappropriate use of models. Incorrect or

inappropriate use of models may arise from incorrect assumptions,

incomplete information, inaccurate implementation and

limited model understanding leading to incorrect conclusions

by the user.

The group’s approach to managing model risk is based on the

following principles:

¢ All new models, both internal and external, are subject to

validation and independent review in which the various

components of a model and its overall functioning are

evaluated to determine whether the model is performing as

intended.

¢ The three lines of defence governance model is adopted,

being model development, independent model validation and

internal audit oversight functions.

¢ Appropriateness and fit for purpose use of models in

technical forums is challenged.

¢ Model validation summaries that highlight model limitations

and recommend improvements.

¢ Implementation of approved models into production systems

is controlled.

¢ Model performance, including requirements for an annual

review process, is monitored on an ongoing basis.

¢ Data that is used as model inputs, which includes

independent price testing of mark to market positions is

reviewed and governed. Where this is not available, industry

consensus services are used.

¢ Governance is achieved through committees with appropriate board and executive management members for material models, and through policies which deal with minimum standards, materiality, validation criteria, approval criteria, roles and responsibilities.

¢ Auditable, skilled and experienced pool of technically competent staff is maintained.

Taxation riskIn terms of the group tax policy, the group fulfils its responsibilities under tax law in each jurisdiction in which it operates, both in terms of domestic and international taxes with specific reference to transfer pricing principles across jurisdictions, whether in relation to compliance, planning or client service matters. Tax law includes all responsibilities which the group may have in relation to company taxes, personal taxes, capital gains taxes, indirect taxes and tax administration.

Compliance with this policy is aimed at ensuring that the group pays neither more nor less tax than tax law requires. The group continually reviews its existing and planned operations in this regard and ensures that, where clients participate in group products, these clients are either aware of the probable tax implications or are advised to consult with independent professionals to assess these implications, or both.

The framework to achieve compliance with the group tax policy comprises four elements:

¢ identification and management of tax risk

¢ human resources policies, including an optimal mix of staffing and outsourcing

¢ skills development, including methods to maintain and improve managerial and technical competency

¢ communication of information affecting tax within the group.

Good corporate governance in the tax context requires that each of these elements is in place, as the absence of any one would seriously undermine the others.

Legal riskLegal risk is defined as exposure to the adverse consequences

of non-compliance with legal or statutory responsibilities and/or

inaccurately drafted contracts and their execution, as well as the

absence of written agreements or inadequate agreements. This

includes exposure to new laws as well as changes in

interpretations of existing law by appropriate authorities. This

applies to the full scope of group activities and may also include

others acting on behalf of the group.

Operational risk continued


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Legal risk arises where:

¢ the group’s businesses or functions may not be conducted in accordance with, or benefit from, applicable laws in the countries in which it operates

¢ regulatory requirements are incorrectly applied

¢ the group may be liable for damages to third parties

¢ contractual obligations may be enforced against the group in an adverse way, resulting from legal proceedings being instituted against it.

The following sub-categories of legal risk are recognised:

¢ contract non-conclusion risk

¢ contract unenforceability risk

¢ security interest failure risk

¢ netting and set-off disallowance risk

¢ adverse tax and regulatory treatment risk

¢ contract breach, damages and fines risk.

¢ copyright loss or contravention risk

¢ litigation risk

¢ anti-competitive behaviour risk.

The group has processes and controls in place to manage its legal risk. Failure to manage these risks effectively could result in legal proceedings impacting the group adversely, both financially and reputationally.

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

Approach to compliance risk managementThe group’s approach to managing compliance risk is proactive and premised on internationally accepted principles of risk management including those recommended by Basel. It is aligned with other group risk type methodologies. Group compliance supports business in complying with current and emerging regulatory developments, including money laundering and terrorist financing control, sanctions management, identifying and managing conflicts of interest and market abuse, TCF and mitigating reputational risk.

Framework and governanceCompliance risk management is a core risk management activity overseen by the group chief compliance officer (GCCO). The GCCO has unrestricted access to the group chief executive and to the chairman of the GAC, thereby ensuring the function’s independence.

The group’s compliance framework for banking operations is based on the principles of effective compliance risk management, as outlined in the Banks Act, and recommendations from international policy-making bodies.

The compliance structure for banking operations has both

decentralised and centralised components. The decentralised

business unit compliance functions are managed by heads of

compliance who report to the GCCO. The central function

includes sanctions management, monitoring, conflicts control

exchange control compliance, as well as central and business

unit anti-money laundering and terrorist financing control

functions. The regulatory services unit provides regulatory

support to business. Our business compliance model includes

dedicated compliance support and advisory services to business

which is supplemented by training.

A robust risk management reporting and escalation procedure

requires both business unit and functional area compliance

heads to report monthly and quarterly on the status of

compliance risk management in the group.

Money laundering and terrorist financing controlLegislation across the group pertaining to money laundering and

terrorist financing control imposes significant requirements in

terms of:

¢ customer identification

¢ record keeping

¢ staff training

¢ obligations to detect, prevent and report money laundering

and terrorist financing.

Group minimum standards are implemented throughout

the group, taking cognisance of jurisdictional requirements

where these may be more stringent. The group also subscribes

to the principles of the Financial Action Task Force, an

inter-governmental body developing and promoting policies

to combat money laundering and terrorist financing, of which

South Africa is a member country.

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 and/or

sanctions imposed by relevant 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 regime.

Compliance trainingEmployees are made aware of their responsibilities in

terms of current and emerging legislative and regulatory

requirements through ongoing training and awareness initiatives.

Employees, including senior management, are made aware of

their legislative responsibilities either through e-learning,

face-to-face interventions or through targeted awareness

campaigns. Training is key to embedding a culture of

compliance in the group.

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Specialist operational risk types continued

Regulatory changeThe 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 operates in a highly regulated industry across multiple jurisdictions including the need to comply with legislation with extra-territorial reach. Supervision is undertaken by both host country regulators and various regulatory bodies in South Africa. The group’s primary banking regulator is the Bank Supervision Department (BSD) of the SARB, which supervises the group on a consolidated basis. Senior management engages with both the BSD and regulators in other jurisdictions on a regular basis.

Our regulatory advocacy unit assesses the impact that emerging policy and regulation will have on the business. Our 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 organisation and a new operating model for managing regulatory change has been developed.

South African financial services supervisory bodies include the South African FSB, which currently regulates the non-banking activities of the financial services industry in South Africa, the Financial Intelligence Centre, which oversees money laundering and terrorist financing control, and various regulatory bodies relating to financial markets. The National Credit Regulator is responsible for regulating the South African credit industry. Regarding TCF, there are various ombuds serving the interests of the public, including the Consumer Commission established under the Consumer Protection Act.

Regulators of our larger non-South African operations include the UK FSA, the Hong Kong Monetary Authority, the Monetary Authority of Singapore, the China Banking Regulatory Commission, the Central Banks of Kenya and Nigeria, and the Bank of Uganda.

Regulatory developments inform the group’s business planning processes. TCF, client confidentiality, and money laundering and terrorist financing control continue to be dominant focus areas.

Liberty partners with the group’s banking operations on regulatory issues of common interest. Engagement with legislators takes place primarily through participation in the various committees of the Association for Savings and Investment in South Africa, the trade association for the South African long-term insurance sector and the South African Insurance Association, which represents the short-term insurance sector.

Environmental and social riskEnvironmental and social risk assessment and management deals with two aspects being those over which we:

¢ do not have control but which have potential to impact on our operations and those of our clients

¢ have direct control such as waste management and the use of energy and water.

The group sustainability management unit develops the strategy, policy and management frameworks which enable the identification, management, monitoring and reporting of both of these aspects.

The uncontrolled aspects include threats to the global environment result from changing global climate and its impact on weather patterns, fresh water, infrastructure, economic growth and social resilience. The group uses two approaches to screen and process projects, namely the Equator Principles for project finance loans and an internally developed appraisal system for other financial product types. These tools are designed to identify the risks associated with a transaction and the customer’s ability to manage environmental and social issues, as well as the risks associated with the transaction itself such as the nature and value of the loan, and the industry sector involved.

All project finance deals will in future be screened for climate change risk and human rights impacts. This is in addition to the more traditional environmental and social risks which include those associated with occupational health and safety, relocation of communities and the impact on livelihoods of individuals.

In relation to the controllable aspects, energy use, water use, waste production and carbon emissions resulting from our operations are recorded within an environmental management system. This is used both for improving efficiency and reporting to key stakeholders. Environmental efficiency targets have been set for SBSA, which is the group’s largest subsidiary. In Nigeria, the central bank has mandated a sustainability framework, which is applicable to all Nigerian banks.



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From a governance perspective, the group’s material issues are grouped into six broad categories which form the basis of engagement on sustainability issues with the group executive committee and the board. These are:

¢ sustainable long-term financial performance

¢ governance, regulation and stakeholder engagement

¢ sustainable and responsible financial services

¢ socioeconomic development

¢ a positive and consistent employee experience

¢ the environment.

AIRFor further information, refer to the discussion on material issues on page 13 of the integrated report

Business continuity management and resilienceBusiness continuity management is defined as a holistic management process that identifies potential impacts that threaten the group and provides a basis for planning in mitigation to these operational impacts. It further provides a framework for building resilience and the capability for an effective response that safeguards the interests of key stakeholders, reputation, brand and value-creating activities.

The group has business resiliency and continuity plans in place to ensure its ability to operate on an ongoing basis and limit losses in the event of severe business disruptions.

Crisis management is based on a command and control process for managing the business through a crisis to full recovery. These processes may also be deployed to manage non-operational crises, including business crises, at the discretion of senior management.

Contingency and recovery plans for core services, key systems and priority business activities have been developed and are revisited as part of existing management processes to ensure that continuity strategies and plans remain relevant.

The group is developing an integrated recovery plan in response to the SARB’s guidance notes issued during 2012. The integrated recovery plan comprises:

¢ a capital recovery plan

¢ a liquidity recovery plan

¢ a business recovery plan to ensure that core functions, products and services continue to operate in times of financial and operational distress.

In the case of the business recovery plan, the core functions include those which are crucial to the survival of the group’s banking and insurance entities and those necessary to avoid disruption of the financial system.

Information risk managementInformation risk is defined as the risk of accidental or intentional unauthorised use, modification, disclosure or destruction of the group’s information resources, which compromises confidentiality, integrity or availability. Information risk management deals with all aspects of information in its physical and electronic forms. It focuses on the creation, use, transmission, storage, disposal and destruction of information.

Information risk management is responsible for establishing an information security management system inclusive of an information risk management framework, and promotes information risk management policies and practices across the group.

The execution of these policies and standards is driven through a network of information security officers embedded within the business lines. This network is functionally overseen by the group chief information security officer.

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Specialist operational risk types continued

Access to informationThe Promotion of Access to Information Act 2 of 2000 was passed to give effect to the constitutional right of access to information that is held by a private or public body and that is required for the exercise or protection of any rights.

The following information is discussed in terms of applicable regulations:

¢ From January 2012 to December 2012, the group has processed 24 (2011: 21) requests for access to information, of which 17 were granted, five denied, one withdrawn and one abandoned.

¢ 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 fell outside the jurisdiction of the abovementioned act.

Financial crime controlFinancial crime includes fraud, money laundering, violent crime and misconduct by staff, customers, suppliers, business partners, stakeholders and third parties. The group will not condone any instance of financial crime and where these instances arise, the group takes timely and appropriate remedial action.

Financial crime control is defined as the prevention and detection of, and response to, all financial crime in order to mitigate economic loss, reputational risk and regulatory sanction.

The group financial crime control unit is mandated by the GAC to provide capabilities which minimise the overall impact of financial crime on the group. This ensures the safety of our people and assets, and builds trust with our stakeholders.

The group financial crime control function reports to the group head of governance and assurance. This function enables a holistic view of the status and landscape of financial crime prevention, detection and response across all geographies, including emerging threats. The group head of financial crime control has unrestricted access to executives and the chairperson of the GAC, thereby supporting the function’s independence.

Occupational health and safetyThe health and safety of all employees remains a priority. Training of health and safety officers and employee awareness is an ongoing endeavour. Group policies are being rolled out to all operations and the number of incidents being reported is reducing.



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Standard Bank Group Risk and capital management report 2012 > Business risk

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

It includes strategic risk and post-retirement obligation risk.

Business risk is governed by the group executive committee, which is ultimately responsible for managing the costs and revenues of the group.

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.

¢ New product processes per business line through which the risks and mitigating controls for new and amended products and services are tabled and discussed.

¢ Stakeholder management ensures favourable outcomes from external factors beyond the group’s control.

¢ The profitability of product lines and customer segments is consistently monitored.

¢ Tight control is maintained over the group’s cost base, including the management of its cost-to-income ratio. This allows for early intervention and management action to reduce costs where necessary.

¢ Being alert and responsive to changes in market forces.

¢ There is a strong focus in the budgeting process on achieving

headline earnings growth while containing cost growth. In

addition, 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.

¢ The group continually aims to increase the ratio of variable

costs to fixed costs, allowing for more flexibility to proactively

reduce costs during economic downturn conditions.

Strategic riskStrategic 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

debated by members of management and the board.

Post-retirement obligation riskPost-retirement obligation risk is the risk to the group’s earnings

that arises from the requirement to contribute as an employer to

an under-funded defined benefit plan. The risk arises due to

either an increase in the estimated value of pension or medical

liabilities, or a decline in the market value of the fund’s assets or

reduction in their investment returns.

The group operates both defined contribution plans and defined

benefit plans, with the majority of its employees participating in

defined contribution plans. The group maintains a number of

defined benefit pension and medical aid provider schemes for

past and certain current employees, collectively termed

post-retirement obligations.

Business risk

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Reputational risk

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

Safeguarding the group’s reputation is of paramount importance. Each business line, legal entity or support function executive is responsible for identifying, assessing and determining all reputational risks that may arise within their respective areas of business. The impact of such risks is considered alongside financial or other impacts.

Matters identified as a reputational risk to the group will be reported to the group head of governance and assurance who, if required, will escalate these matters to GROC and/or the group executive committee.

Should a risk event occur, 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.


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Standard Bank Group Risk and capital management report 2012 > Restatements

Restatements

Economic capitalThe methodology for the calculation of business risk was amended in 2012 to more accurately reflect the underlying risk and the comparative was subsequently restated.

RCMAFS Refer to page 24 for the restatement of economic capital

Asset class exposure by Basel II approach and classThe gross past due but not impaired exposures of the discontinued operations were omitted from the exposures disclosed per 2011 under this Basel II disclosure. The comparative results have accordingly been restated.

RCMAFS

Refer to page 30 for the restatement of the Basel II: Exposure by approach and class table

Credit risk – IFRSDuring the current year, the owner-occupied portion of commercial property finance was moved from CIB to PBB. Credit risk disclosures have, been restated to reflect this reclassification between business units.

RCMAFS

Refer to page 46 for the restatement of the IFRS credit risk tables

Renegotiated loansRenegotiated loans and advances have been restated to reflect the consistent application of the group’s policy across all portfolios.

RCMAFS

Refer to page 49 for the restatement of the renegotiated loans disclosure

CollateralThe source of CIB collateral data was changed during the year to better align with the group’s other pillar 3 disclosures. CIB collateral data is now extracted directly from the group’s Basel II and collateral systems, rather than from underlying trading systems.

RCMAFS

Refer to page 51 for the restatement of the collateral disclosure

Credit exposure – LibertyThe 2011 debt instruments ratings table summary presented on page 54 has been restated to a new scale to allow for better comparison. The rating scale applied is based on internal definitions, influenced by published external rating agencies including Fitch, Moody’s and Standard & Poor’s and reflects long-term local currency ratings referencing international probabilities of default rating scales.

This is a modification from the rating scale used in previous years where the local currency national rating scales of the rating agencies were used as a benchmark. The primary difference is that the national rating scales are only rank ordering scales and do not imply an actual probability of default. This change has been made to bring Liberty’s credit rating scale into line with international best practice and the expected requirements of the SAM regime.

RCMAFS

Refer to page 54 for the restatement of the Liberty credit exposure table

Financial informationDuring the year, the group revised certain financial information.

RCMAFS

Refer to page 60 for the restatement of financial information affecting liquidity risk disclosure. Refer to annexure A on page 212 of the annual financial statements for details concerning these restatements

Contents

Annual financial statementsDirectors’ responsibility for financial reporting

95

Group secretary’s certification 95

Report of the group audit committee 96

Directors’ report 98

Independent auditors’ report 103

Statement of financial position 104

Income statement 105

Statement of other comprehensive income 106

Statement of cash flows 107

Statement of changes in equity 108

Accounting policy elections 110

Notes to the annual financial statements 112


206

Annexure A – restatements 212

Annexure B – subsidiaries 213


218


221

Annexure E – detailed accounting policies 229


252

Annexure G – special resolutions 264


265

Annexure I – seven-year review 266


278


280

The consolidated and separate annual financial statements were audited in terms of the Companies Act 71 of 2008 (Companies Act).

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 7 March 2013.


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Standard Bank Group Annual financial statements 2012 > Directors’ responsibility for financial reporting / Group secretary’s certification

integrated report and the risk and capital management section of this report.

Based on the information and explanations given by management and the internal auditors, the directors are of the opinion that the internal financial controls are adequate and that the financial records may be relied upon for preparing the financial statements in accordance with IFRS and to maintain accountability for the company’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 2012 annual financial statements which appear on pages 104 to 264 and specified sections of the risk and capital management report contained within pages 1 to 93, were approved by the board of directors on 6 March 2013 and signed on its behalf by:

Fred Phaswana Jacko MareeChairman Chief executive

In accordance with the Companies Act the directors are responsible for the preparation of the annual financial statements. The annual financial statements conform with IFRS and fairly present the affairs of Standard Bank Group Limited (the company) and Standard Bank Group (the group) as at 31 December 2012, and the net income and cash 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

Directors’ responsibility for financial reporting

Compliance with the Companies Act 71 of 2008In terms of the Companies Act and for the year ended 31 December 2012, 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 secretary6 March 2013

Group secretary’s certification


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¢ 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 and non-performing loans

¢ ensured that the annual financial statements fairly present the financial position 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

¢ 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

¢ over the course of the year, met with the chief audit officer, group chief compliance officer, the group chief risk officer, the group chief credit officer, 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

¢ noted that there were no material reports or complaints received concerning accounting practices, internal audit, internal financial controls, content of the 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 mandate and audit plan and evaluated the independence, effectiveness and performance of the internal audit department and compliance with its mandate

¢ 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

This report is provided by the audit committee, in respect of the 2012 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 94 of 1990 (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 2012, 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 principle as the basis of 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

Report of the group audit committee

97

Standard Bank Group Annual financial statements 2012 > Report of the group audit committee

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 committee6 March 2013

¢ reviewed and approved the mandate of financial crime control as an independent risk function

¢ discussed significant financial crime matters and control weaknesses identified.

¢ 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.


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Nature of businessStandard Bank Group Limited is the holding company for the interests of the group, a global banking group with African roots. It is South Africa’s largest bank and currently operates in 18 countries on the African continent, including South Africa, as well as in other selected emerging markets.

Headquartered in Johannesburg, South Africa, the group’s primary listing is on the security exchange operated by the JSE and its secondary listing is on the Namibian Stock Exchange (NSX). Subsidiary banks are listed on exchanges in Kenya, Malawi, Nigeria and Uganda.

A simplified group organogram is shown on page 213.

Group resultsA general review of the business and operations of major subsidiaries is provided in the chief executive’s review and operational reviews in the annual integrated report on pages 22 and 44, respectively.

A financial review of the results of the group for the year is provided in the annual integrated report on pages 56 to 71.

Property and equipmentThere was no change in the nature of the fixed assets of the group or in the policy regarding their use during the year.

Share capitalOrdinary sharesDuring the year 5 347 398 ordinary shares (2011: 3 709 809 ordinary shares) were issued in terms of equity compensation plans and 12 041 298 ordinary shares (2011: nil) were issued as scrip distributions. There were no other changes to the ordinary share capital of the company.

Non-redeemable, non-cumulative, non-participating preference shares (second preference shares)No second preference shares were issued during the year.

Directors’ interest in sharesThe directors’ interest in shares are listed on pages 155 to 156 of this report.

Directors’ reportfor the year ended 31 December 2012

Equity compensation plansInformation on options or rights granted to executive directors under the group’s equity compensation plans is provided in the remuneration report in the annual integrated report on pages 120 to 151. Details of options granted to all employees under equity compensation plans are given in annexure D starting on page 221.

Directors’ and prescribed officers’ emolumentsDirectors’ and prescribed officers’ emoluments are disclosed on page 252. Information relating to the determination of directors’ and prescribed officers’ emoluments, share incentive allocations, details of prescribed officer’s interest in group shares and related matters is contained in the remuneration report in the annual integrated report starting on page 120.

Shareholder analysisThe analysis of ordinary shareholders is provided in the annual integrated report on page 157.

Shareholders at the close of the financial year, holding beneficial interests in excess of 5% of the issued share capital, determined from the share register and investigations conducted on our behalf, were as follows:

% held

2012 2011

Ordinary sharesIndustrial and Commercial Bank of China Limited (ICBC) 20.1 20.1Public Investment Corporation 14.6 13.4

6.5% preference sharesOld Sillery Proprietary Limited 9.1 9.1Saks, DJ 7.5 7.2Van Tonder, JW 6.4 5.7Foster, DF 6.0Lombard, L 5.6 5.5

Second preference sharesNo shareholder holds 5% or more of this class of share capital.

99

Standard Bank Group Annual financial statements 2012 > Directors’ report

Distributions to ordinary shareholdersInterimOn 16 August 2012, an interim dividend of 212,0 cents per share (2011: 141,0 cents) was declared to shareholders recorded at the close of business on 14 September 2012, and paid on 17 September 2012.

As an alternative, the company offered shareholders recorded at the close of business on 7 September 2012 shares in the form of capitalisation shares. The number of ordinary shares which shareholders participating in the distribution would be entitled to, were determined on the ratio that the cash dividend bore to the volume weighted average price of the company’s ordinary shares on the JSE during the five day trading period ending Thursday, 30 August 2012.

FinalOn 6 March 2013, the board declared a dividend of 243,0 cents per share (2011: 284,0 cents) to ordinary shareholders recorded at the close of business on 19 April 2013, to be paid on 22 April 2013.

As an alternative, the company offered shareholders recorded at the close of business on 12 April 2013 shares in the form of capitalisation shares. The number of ordinary shares which shareholders participating in the distribution would be entitled to, will be determined on the ratio that the cash dividend bears to the volume weighted average price of the company’s ordinary shares on the JSE during the five day trading period ending Thursday, 4 April 2013.

Dividends to preference shareholders6.5% first cumulative preference sharesInterimOn 16 August 2012, a dividend of 3,25 cents per share (2011: 3,25 cents) was declared to shareholders recorded at the close of business on 7 September 2012, and paid on 10 September 2012.

FinalOn 6 March 2013, a dividend of 3,25 cents per share (2011: 3,25 cents) was declared to shareholders recorded at the close of business on 12 April 2013, to be paid on 15 April 2013.

Second preference sharesInterimOn 16 August 2012, a dividend of 345,55 cents per share (2011: 312,41 cents) was declared to shareholders recorded at the close of business on 7 September 2012, and paid on 10 September 2012.

FinalOn 6 March 2012, a dividend of 331,96 cents per share (2011: 317,59 cents) was declared to shareholders recorded at the close of business on 12 April 2013 and to be paid on 15 April 2013.


report


100


Directors’ report continuedas at 31 December 2012

DirectorateThe directorate is listed in the annual integrated report on pages 114 to 117.

The following changes in directorate have taken place during the financial year ended 31 December 2012:

Standard Bank Group LimitedRetire from office by rotationSE Jonah KBE as director 31 May 2012Sir Paul Judge as director 31 May 2012

Liberty Holdings LimitedAppointmentsMW Hlahla as director 1 August 2012ResignationsL Patel as director 17 May 2012

Liberty Group Limited AppointmentsMW Hlahla as director 1 August 2012ResignationsL Patel as director 17 May 2012

Stanbic IBTC PLCAppointmentsOU Abajue as director 1 August 2012OA Adeniyi as director 1 August 2012

101

Standard Bank Group Annual financial statements 2012 > Directors’ report

Increase in the authorised share capital ¢ Standard Bank Fund Administration Jersey Limited

¢ CfC Stanbic Bank Limited.

Authorise the acquisition of shares by the company

¢ Standard Bank Group Limited

¢ Liberty Holdings Limited

¢ Standard Bank London Holdings Limited

¢ Stanbic Bank Uganda Limited

Other ¢ Standard Bank Group Limited approved the fees payable

to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 and granted the directors authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ The Standard Bank of South Africa Limited approved the fees payable to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 and granted the directors authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ Capital Alliance Australia Holdings Proprietary Limited changed its name to Own your life Rewards Proprietary Limited, the main object was changed to conducting a rewards programme.

¢ Liberty Holdings Limited granted the directors general authority to issue ordinary shares for cash.

¢ Liberty Holdings Limited approved the group restricted share plan, details of which were set out in the notice of the annual general meeting (AGM).

¢ Liberty Holdings Limited granted the directors authority to issue ordinary shares for Share Incentives Schemes.

¢ Liberty Holdings Limited approved the fees payable to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 and granted authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ Banco Standard de Investimentos S.A. approved the increase of the company’s corporate capital by issuing new ordinary and nominative shares.

¢ Gale Force SDN BHD approved the reduction of the share capital in the company.

¢ Standard Bank Argentina S.A. changed its name to Industrial and Commercial Bank of China (Argentina) S.A.

¢ Stanbic Bank Zambia Limited approved the changes to its share capital and allotment of bonus shares.

Group secretary and registered officeThe group secretary is Zola Stephen. Zola Stephen was appointed on 1 November 2012 following the resignation of Loren Wulfsohn. 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 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. Further details can be found in the directors’ emoluments disclosure on page 252.

Subsidiaries, associates and joint venturesThe interests in subsidiary, associated and joint venture companies, where considered material in the light of the group’s financial position and results, are set out in annexure B on pages 213 to 217 and annexure C on pages 218 to 220 respectively.

Special resolutions passed during 2012Group companies passed the following special resolutions during the year for the purposes indicated.

Amendment to the articles of association/memorandum of incorporation

¢ Standard Bank Group Limited’s existing memorandum and articles of association was substituted with a new memorandum of incorporation (MOI).

¢ The Standard Bank of South Africa Limited’s existing memorandum and articles of association was substituted with a new MOI.

¢ Liberty Holdings Limited’s existing memorandum and articles of association was substituted with a new MOI.

¢ Banco Standard de Investimentos S.A. approved the consolidation of the By-Laws.

¢ Standard Resources (China) Limited amended its articles of association to expand the company’s business scope.

¢ Capasia South East Asian Strategic Asset Fund (General Partner) Limited adopted new articles of association.

¢ Scenic Streams SDN BHD amended its existing articles of association and reclassified the authorised share capital of the company.


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Discontinued operation The group completed the disposal of its controlling interests in Standard Bank Argentina S.A., Standard Investments S.A., Sociedad Gerente de Fondos Comunes de Inversión (SI) and Inversora Diagonal S.A. (ID) (collectively referred to as SBA) to ICBC at the end of November 2012. ICBC acquired a 55% stake in Standard Bank Argentina S.A. and a 50% stake in each of SI and ID from the group, with the group retaining a 20% shareholding and rights to board representation in each of the companies comprising SBA. The profit realised on the disposal of the group’s controlling interest, after accounting for the reclassification of the foreign currency translation reserve and net investment hedge reserve from OCI to the income statement, the effects of the fair valuation of the group’s remaining 20% associate interest in SBA and the put option in respect of this shareholding, is R1 525 million.

Events subsequent to balance sheet dateOn 7 March 2013, Jacko Maree retired as the chief executive of Standard Bank Group Limited and resigned from Standard Bank Group Limited, The Standard Bank of South Africa Limited, Liberty Holdings, Stanbic Africa Holdings and Stanbic IBTC Bank boards of directors. On the same date Ben Kruger and Sim Tshabalala were appointed as joint group chief executives and directors of Standard Bank Group Limited. Peter David Sullivan and Peter Wharton-Hood were appointed as directors of the Standard Bank Group and The Standard Bank of South Africa Limited boards on 15 January 2013 and 7 March 2013, respectively.

¢ Integrated Processing Solutions Proprietary Limited granted authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ K2011103588 Proprietary Limited changed its name to IPS Electronic Payments Proprietary Limited.

¢ Stanbic IBTC Bank PLC approved the scheme of arrangements, the cancellation, reduction and acquisition of shares described in the scheme and for the ordinary shares of the bank to delist from the Nigerian Stock Exchange.

¢ Standard Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión changed its name to ICBC Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión.

ContractsSaki Macozoma, a director and deputy chairman of the company, has an effective shareholding of 26.62% (2011: 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% (2011: 2.50%) in Liberty Holdings Limited and 1.34% (2011: 1.40%) in the company. The group has an effective interest of 25.00% (2011: 20.33%) in Safika.

Cyril Ramaphosa, a director of the company, has an effective shareholding of 29.63% (2011: 29.63%) in Shanduka, which is a member of the Tutuwa consortium. Shanduka holds effective interests of 1.40% (2011: 1.44%) in Liberty Holdings Limited and 0.90% (2011: 1.20%) in the company. The group holds an effective interest of 12.90% (2011: 13.00%) in Shanduka.

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.

Directors’ report continuedas at 31 December 2012

103

Standard Bank Group Annual financial statements 2012 > Independent auditors’ report

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 annual financial

statements present fairly, in all material respects, the

consolidated and separate financial position of Standard Bank

Group Limited as at 31 December 2012, and its consolidated

and separate financial performance and its consolidated and

separate cash flows for the year then ended in accordance

with International Financial Reporting Standards, and the

requirements of the Companies Act of South Africa.

Other reports required by the Companies ActAs part of our audit of the consolidated and separate financial

statements for the year ended 31 December 2012, 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 consolidated and

separate 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 consolidated and

separate 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 Director6 March 2013 6 March 2013

85 Empire Road 2 Eglin Road

Parktown Sunninghill

2193 2157

To the shareholders of Standard Bank Group LimitedReport on the financial statementsWe have audited the consolidated and separate annual financial statements of Standard Bank Group Limited, which comprise the consolidated and separate statements of financial position as at 31 December 2012, and the consolidated income statement and consolidated and separate statements of comprehensive income, statements of changes in equity and statements of 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 104 to 264 and specified sections of the risk and capital management report contained within pages 1 to 93.

Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on these consolidated and separate 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 consolidated and separate 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

Independent auditors’ report


report


104


Note

Group

2012Rm

20111

Rm20101

Rm

AssetsCash and balances with central banks 3 61 985 31 907 28 675Derivative assets 4.7 120 190 150 046 149 682Trading assets 5.1 114 419 90 449 80 679Pledged assets 6.1 11 640 6 113 2 491Non-current assets held for sale 7 960 34 085Financial investments 8 318 158 289 319 283 295Loans and advances 9.1 811 171 801 308 710 722Current tax assets 10 331 443 473Deferred tax assets 10 1 183 1 440 1 166Other assets 11 32 384 22 640 17 882Interest in associates and joint ventures 12 17 246 13 935 10 533Investment property 13 24 133 23 470 21 521Goodwill and other intangible assets 14 14 687 12 754 10 383Property and equipment 15 15 733 14 920 14 907

Total assets 1 544 220 1 492 829 1 332 409

Equity and liabilitiesEquity 130 173 117 533 103 198

Equity attributable to ordinary shareholders 110 370 99 042 87 073

Ordinary share capital 16.2 161 159 159Ordinary share premium 16.2 17 931 17 576 17 363Reserves 92 278 81 307 69 551

Preference share capital and premium 16.2 5 503 5 503 5 503Non-controlling interests 14 300 12 988 10 622

Liabilities 1 414 047 1 375 296 1 229 211

Derivative liabilities 4.7 121 998 153 142 145 004Trading liabilities 18 39 206 30 264 29 482Non-current liabilities held for sale 7 27 939Deposit and current accounts 19 918 533 878 922 786 494Current tax liabilities 20 4 230 2 353 3 423Deferred tax liabilities 20 3 374 3 683 2 892Provisions and other liabilities 21 58 474 45 674 40 900Policyholders’ liabilities 22 236 684 208 565 197 878Subordinated debt 23 31 548 24 754 23 138

Total equity and liabilities 1 544 220 1 492 829 1 332 409

1 2011 and 2010 figures restated, refer to annexure A – restatements on page 212.

Statement of financial positionas at 31 December 2012

105

Standard Bank Group Annual financial statements 2012 > Statement of financial position / Income statement

Note

Group

2012Rm

2011Rm

Continuing operationsIncome from banking activities 68 375 58 552

Net interest income 34 015 28 827

Interest income 28.1 68 862 59 909Interest expense 28.2 34 847 31 082

Non-interest revenue 34 360 29 725

Net fee and commission revenue 28.3 21 319 19 782

Fee and commission revenue 28.3 24 732 22 957Fee and commission expense 28.3 3 413 3 175

Trading revenue 28.4 8 893 7 896Other revenue 28.5 4 148 2 047

Income from investment management and life insurance activities 75 716 48 835

Net insurance premiums 28.6 29 631 26 393Investment income and gains 28.7 43 372 20 023Management and service fee income 2 713 2 419

Total income 144 091 107 387Credit impairment charges 28.8 8 800 6 436Benefits due to policyholders 56 878 33 799

Net insurance benefits and claims 28.9 43 864 28 480Fair value adjustment to policyholders’ liabilities under investment contracts 10 035 4 089Fair value adjustment on third-party fund interests 2 979 1 230

Income after credit impairment charges and policyholders’ benefits 78 413 67 152Operating expenses in banking activities 40 756 34 725

Staff costs 28.10 22 195 19 141Restructuring costs 28.11 758Other operating expenses 28.13 17 803 15 584

Operating expenses in investment management and life insurance activities 11 952 10 410

Acquisition costs 28.12 3 818 3 268Other operating expenses 28.13 8 134 7 142

Net income before goodwill impairment and gains on disposal of subsidiaries 25 705 22 017Goodwill impairment 28.14 777 61Gains on disposal of subsidiaries 188

Net income before share of profits from associates and joint ventures 25 116 21 956Share of profits from associates and joint ventures 12 701 284

Net income before indirect taxation 25 817 22 240Indirect taxation 30.1 1 766 1 384

Profit before direct taxation 24 051 20 856Direct taxation 30.2 7 075 5 713

Profit for the year from continuing operations 16 976 15 143Discontinued operation 2 435 641

Profit for the year from discontinued operation 28.15 910 641Profit from disposal of discontinued operation 28.15 1 525

Profit for the year 19 411 15 784

Attributable to non-controlling interests 2 913 2 213Attributable to equity holders of the parent 16 498 13 571

Attributable to preference shareholders 352 345Attributable to ordinary shareholders 16 146 13 226

Earnings per share from continuing operations and discontinued operationBasic earnings per ordinary share (cents) 32 1 060,7 875,7Diluted earnings per ordinary share (cents) 32 1 025,9 849,2Earnings per share from continuing operationsBasic earnings per ordinary share (cents) 32 915,7 843,9Diluted earnings per ordinary share (cents) 32 885,6 818,3

Income statementfor the year ended 31 December 2012


report


106


Note

Group

Ordinaryshareholders’

equityRm

Non-controlling

interestsand

preferenceshareholders

Rm

Totalequity

Rm

2012Profit for the year 16 146 3 265 19 411Other comprehensive income after tax for the year from continuing operations1 523 164 687

Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 523 21 5442

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 lossOther losses (3) 1 (2)

Other comprehensive income after tax for the year from discontinued operation 28.16 509 106 615

Total comprehensive income for the year 17 178 3 535 20 713

Attributable to non-controlling interests 3 183 3 183Attributable to equity holders of the parent 17 178 352 17 530


2011Profit for the year 13 226 2 558 15 784Other comprehensive income after tax for the year from continuing operations1 4 080 776 4 856

Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 4 551 980 5 5312

Net change on hedges of net investments in foreign operations (279) (279)Net change in fair value of cash flow hedges 167 47 214Realised fair value adjustments of cash flow hedges transferred to profit or loss (112) (41) (153)Net change in fair value of available-for-sale financial assets (309) (257) (566)Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss 27 1 28Items that may not be reclassified to profit or lossOther gains 35 46 81

Other comprehensive income after tax for the year from discontinued operation 28.16 83 79 162

Total comprehensive income for the year 17 389 3 413 20 802

Attributable to non-controlling interests 3 068 3 068Attributable to equity holders of the parent 17 389 345 17 734


1 Income tax relating to each component of OCI is disclosed in note 30 on page 186.2 Includes realised foreign currency translation losses on foreign operations of R696 million (2011: Rnil) transferred to profit or loss.

Statement of other comprehensive incomefor the year ended 31 December 2012

107

Standard Bank Group Annual financial statements 2012 > Statement of other comprehensive income / Statement of cash flows

Note

Group

2012 Rm

2011 Rm

Net cash flows from operating activities 42 954 24 605

Cash flows used in operations 482 (6 879)

Net income before goodwill impairment 25 705 22 017Adjusted for: (32 005) (27 018)

Amortisation of intangible assets 1 005 739Credit impairment charges on loans and advances 8 800 6 436Defined benefit pension fund and post-employment benefits (18) (284)Depreciation of property and equipment 2 595 2 288Dividends included in trading revenue and investment income (3 473) (2 787)Equity-settled share-based payments 328 366Indirect taxation (1 766) (1 384)Interest expense 34 361 30 256Interest income (75 657) (66 295)Fair value adjustment on third party fund interests 2 979 1 230Investment gains due to policyholders (30 017) (8 278)Net fund flows after service fees on policyholder investment contracts (1 432) (900)Non-cash flow movements to bonds 729 1 097Other impairment losses 237 198Policyholders’ liability transfers 29 567 10 299Profit on sale of property and equipment (30) (62)Provision for defined benefit pension funds and post-employment benefits (118) 79Other (95) (16)

Increase in income-earning assets 34.1 (45 678) (72 886)Increase in deposits and other liabilities 34.2 52 460 71 008

Dividends received 5 114 4 356Interest paid (35 020) (30 776)Interest received 73 174 64 126Direct taxation paid 34.3 (4 134) (6 339)Net cash flows from operating activities in discontinued operation 34.4 3 338 117

Net cash flows used in investing activities (14 514) (10 138)

Capital expenditure on – property (1 328) (995) – equipment, furniture and vehicles (2 356) (1 918) – intangible assets (4 108) (2 571)Proceeds from sale of property, equipment, furniture and vehicles 186 333Net investment in investment properties 333 (900)Net increase in investments by insurance operations (6 432) (3 763)Net cash outflow resulting from the disposal of subsidiaries 34.8 (3 543)Net cash outflow resulting from the acquisition of subsidiaries 34.5 (9) (153)Decrease in investment in associates and joint ventures 2 840 76Net cash flows used in investing activities in discontinued operation 34.4 (97) (247)

Net cash flows used in financing activities (3 820) (8 388)

Proceeds from issue of share capital to shareholders 125 142Equity transactions with non-controlling interests (3 165) (374)Decrease/(increase) in investment in existing subsidiaries 376 (187)Subordinated debt issued 9 342 1 834Subordinated debt redeemed (2 955) (2 552)Net dividends paid 34.6 (7 543) (7 251)

Effect of exchange rate changes on cash and cash equivalents 609 2 002

Net increase in cash and cash equivalents 25 229 8 081Cash and cash equivalents at the beginning of the year 36 756 28 675

Cash and cash equivalents at the end of the year 34.7 61 985 36 756

Statement of cash flowsfor the year ended 31 December 2012


report


108


Ordinaryshare

capital and premium

Rm

Empower-ment

reserve1

Rm

Treasuryshares2

Rm

Foreigncurrency

translationreserve3

Rm

Foreigncurrency

hedgeof net

investmentreserve4

Rm

Cash flowhedgingreserve5

Rm

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

interestRm

Totalequity

Rm

Balance at 1 January 2011 17 522 (2 971) (499) (5 672) 6 673 717 382 745 273 75 897 87 073 5 503 10 622 103 198Total comprehensive income/(loss) for the year 4 627 (279) 52 (272) 39 13 222 17 389 345 3 068 20 802

Profit for the year 13 226 13 226 345 2 213 15 784Other comprehensive income/(loss) after tax for the year 4 627 (279) 52 (272) 39 (4) 4 163 855 5 018

Increase in statutory credit risk reserve 243 (243)Transfer of other reserves (1) 1Transactions with shareholders, recorded directly in equity 213 (108) 301 (13) (8) 295 (6 100) (5 420) (345) (702) (6 467)

Equity-settled share-based payment transactions 336 336 30 366Transfer of vested equity rights (41) 41Issue of share capital and share premium and capitalisation of reserves 213 (71) 142 142Deferred tax on share-based payment transactions (83) (83) (83)Transactions with non-controlling shareholders (13) (8) (68) (89) (98) (187)Net decrease in treasury shares 301 8 309 237 546Net dividends paid (108) (5 927) (6 035) (345) (871) (7 251)

Dividends paid to equity holders (132) (5 994) (6 126) (345) (950) (7 421)Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 24 67 91 79 170

Balance at 31 December 2011 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533

Balance at 1 January 2012 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533Total comprehensive income/(loss) for the year 1 056 181 (219) 17 (70) 16 213 17 178 352 3 183 20 713

Profit for the year 16 146 16 146 352 2 913 19 411Other comprehensive income/(loss) after tax for the year 1 056 181 (219) 17 (70) 67 1 032 270 1 302

Increase in statutory credit risk reserve 50 (50)Transfer of other reserves (11) 11Unincorporated property partnerships capital reductions and distributions (182) (182)Disposal of property partnership (234) (234)Transactions with shareholders, recorded directly in equity 357 (191) (1) 102 2 (6 119) (5 850) (352) (1 455) (7 657)

Equity-settled share-based payment transactions 282 282 46 328Transfer of vested equity rights (181) 181Issue of share capital and share premium and capitalisation of reserves 357 (232) 125 125Deferred tax on share-based payment transactions 69 69 69Transactions with non-controlling shareholders (8) (4) 1 2 (65) (74) (970) (1 044)Net decrease in treasury shares 3 209 212 196 408Net dividends paid (183) (6 281) (6 464) (352) (727) (7 543)


Balance at 31 December 2012 18 092 (3 270) (199) (2) (92) 506 1 002 127 1 142 232 92 832 110 370 5 503 14 300 130 173

1 The empowerment reserve is explained in note 17 on page 159.2 The treasury shares reserve relates to the group shares held by entities within the group.

Refer to pages 69 to 71 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 230.4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 235.

5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 235.6 The statutory credit risk reserve relates to reserving requirements within African countries.7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 232.8 Refer to annexure E, accounting policy 19 – Equity-linked transactions on page 245.All balances are stated net of applicable tax.

Statement of changes in equityfor the year ended 31 December 2012

109

Standard Bank Group Annual financial statements 2012 > Statement of changes in equity

Ordinaryshare

capital and premium

Rm

Empower-ment

reserve1

Rm

Treasuryshares2

Rm

Foreigncurrency

translationreserve3

Rm

Foreigncurrency

hedgeof net

investmentreserve4

Rm

Cash flowhedgingreserve5

Rm

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

interestRm

Totalequity

Rm

Balance at 1 January 2011 17 522 (2 971) (499) (5 672) 6 673 717 382 745 273 75 897 87 073 5 503 10 622 103 198Total comprehensive income/(loss) for the year 4 627 (279) 52 (272) 39 13 222 17 389 345 3 068 20 802

Profit for the year 13 226 13 226 345 2 213 15 784Other comprehensive income/(loss) after tax for the year 4 627 (279) 52 (272) 39 (4) 4 163 855 5 018

Increase in statutory credit risk reserve 243 (243)Transfer of other reserves (1) 1Transactions with shareholders, recorded directly in equity 213 (108) 301 (13) (8) 295 (6 100) (5 420) (345) (702) (6 467)

Equity-settled share-based payment transactions 336 336 30 366Transfer of vested equity rights (41) 41Issue of share capital and share premium and capitalisation of reserves 213 (71) 142 142Deferred tax on share-based payment transactions (83) (83) (83)Transactions with non-controlling shareholders (13) (8) (68) (89) (98) (187)Net decrease in treasury shares 301 8 309 237 546Net dividends paid (108) (5 927) (6 035) (345) (871) (7 251)


Balance at 31 December 2011 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533

Balance at 1 January 2012 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533Total comprehensive income/(loss) for the year 1 056 181 (219) 17 (70) 16 213 17 178 352 3 183 20 713

Profit for the year 16 146 16 146 352 2 913 19 411Other comprehensive income/(loss) after tax for the year 1 056 181 (219) 17 (70) 67 1 032 270 1 302

Increase in statutory credit risk reserve 50 (50)Transfer of other reserves (11) 11Unincorporated property partnerships capital reductions and distributions (182) (182)Disposal of property partnership (234) (234)Transactions with shareholders, recorded directly in equity 357 (191) (1) 102 2 (6 119) (5 850) (352) (1 455) (7 657)

Equity-settled share-based payment transactions 282 282 46 328Transfer of vested equity rights (181) 181Issue of share capital and share premium and capitalisation of reserves 357 (232) 125 125Deferred tax on share-based payment transactions 69 69 69Transactions with non-controlling shareholders (8) (4) 1 2 (65) (74) (970) (1 044)Net decrease in treasury shares 3 209 212 196 408Net dividends paid (183) (6 281) (6 464) (352) (727) (7 543)


Balance at 31 December 2012 18 092 (3 270) (199) (2) (92) 506 1 002 127 1 142 232 92 832 110 370 5 503 14 300 130 173

1 The empowerment reserve is explained in note 17 on page 159.2 The treasury shares reserve relates to the group shares held by entities within the group.

Refer to pages 69 to 71 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 230.4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 235.

5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 235.6 The statutory credit risk reserve relates to reserving requirements within African countries.7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 232.8 Refer to annexure E, accounting policy 19 – Equity-linked transactions on page 245.All balances are stated net of applicable tax.


report


110


¢ 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 fluctuations 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)

¢ jointly controlled entities are accounted for using the equity method (accounting policy 6)

¢ mutual fund investments held by investment-linked insurance funds, that do not meet the definition of a subsidiary, are designated on initial recognition as at fair value through profit or loss (accounting policy 6)

¢ intangible assets and property and equipment are accounted for using the cost model (accounting policy 7 and 8)

¢ unrecognised actuarial gains or losses on post-employment benefits are recognised in profit or loss over a period not exceeding the expected average remaining working life of active employees (accounting policy 14).

RCMAFS Refer to page 229 for the detailed accounting policies

Functional and presentation currencyThe annual financial statements are presented in South African rand, which is the functional and presentation currency of the company. All amounts are stated in millions of rand (Rm), unless indicated otherwise.

The principal accounting policies applied in the presentation of the group’s and company’s annual financial statements are set out as follows.

Basis of preparationThe consolidated and separate annual financial statements (annual financial statements) are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB), its interpretations adopted by the IASB, the 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 17 – Policyholder insurance and investment contracts

¢ post-employment benefit obligations that are measured in terms of the projected unit credit method.

The following principle accounting policy elections in terms of IFRS have been made, with reference to the detailed accounting policies shown in brackets:

¢ regular way purchases and sales of financial assets are recognised and derecognised using trade date accounting (accounting policy 4)

Accounting policy elections

111

Standard Bank Group Annual financial statements 2012 > Accounting policy elections

Changes in accounting policiesThe accounting policies are consistent with those adopted in the previous year, except for the following:

Adoption of revised standards effective for the current financial yearThe following revised IFRSs were adopted prospectively as of 1 January 2012:

¢ IFRS 1 First-time Adoption of International Financial Reporting Standards (revised 2010)

¢ IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets (revised 2010).

Early adoption of revised standardsThe following revised IFRSs have been early adopted as of 1 January 2012:

¢ IAS 1 Presentation of Financial Statements (2011 Improvements to IFRS)

¢ IAS 16 Property, Plant and Equipment (2011 Improvements to IFRS)

¢ IAS 32 Financial Instruments: Presentation (2011 Improvements to IFRS)

¢ IAS 34 Interim Financial Reporting (2011 Improvements to IFRS)

¢ IFRS 1 First-time Adoption of International Financial Reporting Standards (2011 Improvements to IFRS).

The revised IFRSs did not have any effect on the group’s and company’s reported earnings or financial statement position but have affected the group’s and company’s disclosures with no material impact on the accounting policies.


report


112


1. Segment reportingOperating segments

Personal & Business Banking

Corporate & Investment Banking

Central andother1 Banking activities Liberty

NormalisedStandard Bank Group

Adjustmentsto IFRS2

IFRSStandard Bank Group

2012Rm

20113

Rm2012

Rm20113

Rm2012

Rm20113

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm

Income from banking activities 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 (139) 68 568 58 751 (193) (199) 68 375 58 552

Net interest income 23 834 19 936 9 938 8 742 461 349 34 233 29 027 34 233 29 027 (218) (200) 34 015 28 827Interest income 44 132 38 382 30 528 24 529 (5 580) (2 802) 69 080 60 109 69 080 60 109 (218) (200) 68 862 59 909Interest expense 20 298 18 446 20 590 15 787 (6 041) (3 151) 34 847 31 082 34 847 31 082 34 847 31 082Non-interest revenue 18 446 17 081 17 000 13 737 (972) (1 094) 34 474 29 724 (139) 34 335 29 724 25 1 34 360 29 725Net fee and commission revenue 16 677 15 629 5 920 5 176 (1 278) (1 023) 21 319 19 782 21 319 19 782 21 319 19 782Fee and commission revenue 18 990 17 638 6 200 5 468 (458) (149) 24 732 22 957 24 732 22 957 24 732 22 957Fee and commission expense 2 313 2 009 280 292 820 874 3 413 3 175 3 413 3 175 3 413 3 175Trading revenue (5) 34 9 121 7 840 (248) 21 8 868 7 895 8 868 7 895 25 1 8 893 7 896Other revenue 1 774 1 418 1 959 721 554 (92) 4 287 2 047 (139) 4 148 2 047 4 148 2 047

Income from investment management and life insurance activities 76 000 48 806 76 000 48 806 (284) 29 75 716 48 835Total income 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 75 861 48 806 144 568 107 557 (477) (170) 144 091 107 387Credit impairment charges 6 658 5 426 2 340 1 021 (198) (11) 8 800 6 436 8 800 6 436 8 800 6 436Benefits due to policyholders 56 878 33 799 56 878 33 799 56 878 33 799Income after credit impairment charges and policyholders’ benefits 35 622 31 591 24 598 21 458 (313) (734) 59 907 52 315 18 983 15 007 78 890 67 322 (477) (170) 78 413 67 152Operating expenses in banking activities 25 620 23 224 17 152 14 000 (2 016) (2 499) 40 756 34 725 40 756 34 725 40 756 34 725Staff costs 6 900 6 106 5 234 4 522 10 061 8 513 22 195 19 141 22 195 19 141 22 195 19 141Restructuring costs 758 758 758 758Other operating expenses 18 720 17 118 11 160 9 478 (12 077) (11 012) 17 803 15 584 17 803 15 584 17 803 15 584Operating expenses in investment management and life insurance activities 11 952 10 410 11 952 10 410 11 952 10 410Net income before goodwill impairment, disposal of subsidiaries and equity accounted earnings 10 002 8 367 7 446 7 458 1 703 1 765 19 151 17 590 7 031 4 597 26 182 22 187 (477) (170) 25 705 22 017Goodwill impairment 39 47 38 14 700 777 61 777 61 777 61(Losses)/gains on disposal of subsidiaries (86) (86) 274 188 188Share of profit from associates and joint ventures 562 189 109 60 4 8 675 257 26 27 701 284 701 284Net income before indirect taxation 10 525 8 509 7 431 7 504 1 007 1 773 18 963 17 786 7 331 4 624 26 294 22 410 (477) (170) 25 817 22 240Indirect taxation 384 312 356 282 672 491 1 412 1 085 354 299 1 766 1 384 1 766 1 384Profit before direct taxation 10 141 8 197 7 075 7 222 335 1 282 17 551 16 701 6 977 4 325 24 528 21 026 (477) (170) 24 051 20 856Direct taxation 2 567 2 433 1 416 1 349 371 530 4 354 4 312 2 717 1 383 7 071 5 695 4 18 7 075 5 713Profit for the year from continuing operations 7 574 5 764 5 659 5 873 (36) 752 13 197 12 389 4 260 2 942 17 457 15 331 (481) (188) 16 976 15 143Profit for the year from discontinued operation 2 435 641 2 435 641 2 435 641 2 435 641Profit for the year 7 574 5 764 5 659 5 873 2 399 1 393 15 632 13 030 4 260 2 942 19 892 15 972 (481) (188) 19 411 15 784Attributable to non-controlling interests (74) (75) 700 536 229 233 855 694 2 188 1 514 3 043 2 208 (130) 5 2 913 2 213Attributable to preference shareholders 357 339 357 339 357 339 (5) 6 352 345Attributable to ordinary shareholders 7 648 5 839 4 959 5 337 1 813 821 14 420 11 997 2 072 1 428 16 492 13 425 (346) (199) 16 146 13 226

Headline earnings 7 476 5 872 4 784 5 521 717 778 12 977 12 171 2 033 1 428 15 010 13 599 (346) (199) 14 664 13 400Return on equity (ROE) (%) 20.0 19.2 10.4 13.0 13.3 13.8 25.2 20.2 14.2 14.3 14.4 14.6Net interest margin (%) 4.88 4.50 1.56 1.55 3.09 2.92 3.09 2.92 3.07 2.91Credit loss ratio (%) 1.39 1.24 0.63 0.31 1.08 0.87 1.08 0.87 1.08 0.87Cost-to-income ratio (%) 59.8 62.4 63.4 62.1 58.7 58.8 58.7 58.8 59.0 59.0Total assets 519 143 468 045 763 006 764 861 (9 066) 24 455 1 273 083 1 257 361 275 590 240 069 1 548 673 1 497 430 (4 453) (4 601) 1 544 220 1 492 829Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518Total liabilities 475 299 434 053 715 683 717 394 (32 975) 1 214 1 158 007 1 152 661 256 114 222 746 1 414 121 1 375 407 (74) (111) 1 414 047 1 375 296Interest in associates and joint ventures 795 1 191 615 631 1 400 59 2 810 1 881 14 436 12 054 17 246 13 935 17 246 13 935Depreciation and amortisation 1 190 817 128 101 1 803 1 648 3 121 2 566 479 461 3 600 3 027 3 600 3 027Impairment loss on non-financial assets 39 258 276 700 20 997 296 44 1 041 296 1 041 296Number of employees 20 713 20 781 3 141 3 203 18 882 21 920 42 736 45 904 6 281 5 752 49 017 51 656 49 017 51 656

1 Certain functions within the group have been transferred into Central and other pursuant to the new business architecture of the group which mandates the centralisation of group functions. These functions include: legal, human resources, finance, governance and assurance, group IT, group operations, procurement, marketing, real estate and risk management.

2 The group’s IFRS results are normalised to reflect the group’s view of the economics of its Tutuwa 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. 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 on pages 69 to 71 of the annual integrated report.

3 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 2012

113

Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

1. Segment reportingOperating segments



Central andother1 Banking activities Liberty

NormalisedStandard Bank Group

Adjustmentsto IFRS2

IFRSStandard Bank Group

2012Rm

20113

Rm2012

Rm20113

Rm2012

Rm20113

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm2012

Rm2011

Rm

Income from banking activities 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 (139) 68 568 58 751 (193) (199) 68 375 58 552

Net interest income 23 834 19 936 9 938 8 742 461 349 34 233 29 027 34 233 29 027 (218) (200) 34 015 28 827Interest income 44 132 38 382 30 528 24 529 (5 580) (2 802) 69 080 60 109 69 080 60 109 (218) (200) 68 862 59 909Interest expense 20 298 18 446 20 590 15 787 (6 041) (3 151) 34 847 31 082 34 847 31 082 34 847 31 082Non-interest revenue 18 446 17 081 17 000 13 737 (972) (1 094) 34 474 29 724 (139) 34 335 29 724 25 1 34 360 29 725Net fee and commission revenue 16 677 15 629 5 920 5 176 (1 278) (1 023) 21 319 19 782 21 319 19 782 21 319 19 782Fee and commission revenue 18 990 17 638 6 200 5 468 (458) (149) 24 732 22 957 24 732 22 957 24 732 22 957Fee and commission expense 2 313 2 009 280 292 820 874 3 413 3 175 3 413 3 175 3 413 3 175Trading revenue (5) 34 9 121 7 840 (248) 21 8 868 7 895 8 868 7 895 25 1 8 893 7 896Other revenue 1 774 1 418 1 959 721 554 (92) 4 287 2 047 (139) 4 148 2 047 4 148 2 047

Income from investment management and life insurance activities 76 000 48 806 76 000 48 806 (284) 29 75 716 48 835Total income 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 75 861 48 806 144 568 107 557 (477) (170) 144 091 107 387Credit impairment charges 6 658 5 426 2 340 1 021 (198) (11) 8 800 6 436 8 800 6 436 8 800 6 436Benefits due to policyholders 56 878 33 799 56 878 33 799 56 878 33 799Income after credit impairment charges and policyholders’ benefits 35 622 31 591 24 598 21 458 (313) (734) 59 907 52 315 18 983 15 007 78 890 67 322 (477) (170) 78 413 67 152Operating expenses in banking activities 25 620 23 224 17 152 14 000 (2 016) (2 499) 40 756 34 725 40 756 34 725 40 756 34 725Staff costs 6 900 6 106 5 234 4 522 10 061 8 513 22 195 19 141 22 195 19 141 22 195 19 141Restructuring costs 758 758 758 758Other operating expenses 18 720 17 118 11 160 9 478 (12 077) (11 012) 17 803 15 584 17 803 15 584 17 803 15 584Operating expenses in investment management and life insurance activities 11 952 10 410 11 952 10 410 11 952 10 410Net income before goodwill impairment, disposal of subsidiaries and equity accounted earnings 10 002 8 367 7 446 7 458 1 703 1 765 19 151 17 590 7 031 4 597 26 182 22 187 (477) (170) 25 705 22 017Goodwill impairment 39 47 38 14 700 777 61 777 61 777 61(Losses)/gains on disposal of subsidiaries (86) (86) 274 188 188Share of profit from associates and joint ventures 562 189 109 60 4 8 675 257 26 27 701 284 701 284Net income before indirect taxation 10 525 8 509 7 431 7 504 1 007 1 773 18 963 17 786 7 331 4 624 26 294 22 410 (477) (170) 25 817 22 240Indirect taxation 384 312 356 282 672 491 1 412 1 085 354 299 1 766 1 384 1 766 1 384Profit before direct taxation 10 141 8 197 7 075 7 222 335 1 282 17 551 16 701 6 977 4 325 24 528 21 026 (477) (170) 24 051 20 856Direct taxation 2 567 2 433 1 416 1 349 371 530 4 354 4 312 2 717 1 383 7 071 5 695 4 18 7 075 5 713Profit for the year from continuing operations 7 574 5 764 5 659 5 873 (36) 752 13 197 12 389 4 260 2 942 17 457 15 331 (481) (188) 16 976 15 143Profit for the year from discontinued operation 2 435 641 2 435 641 2 435 641 2 435 641Profit for the year 7 574 5 764 5 659 5 873 2 399 1 393 15 632 13 030 4 260 2 942 19 892 15 972 (481) (188) 19 411 15 784Attributable to non-controlling interests (74) (75) 700 536 229 233 855 694 2 188 1 514 3 043 2 208 (130) 5 2 913 2 213Attributable to preference shareholders 357 339 357 339 357 339 (5) 6 352 345Attributable to ordinary shareholders 7 648 5 839 4 959 5 337 1 813 821 14 420 11 997 2 072 1 428 16 492 13 425 (346) (199) 16 146 13 226

Headline earnings 7 476 5 872 4 784 5 521 717 778 12 977 12 171 2 033 1 428 15 010 13 599 (346) (199) 14 664 13 400Return on equity (ROE) (%) 20.0 19.2 10.4 13.0 13.3 13.8 25.2 20.2 14.2 14.3 14.4 14.6Net interest margin (%) 4.88 4.50 1.56 1.55 3.09 2.92 3.09 2.92 3.07 2.91Credit loss ratio (%) 1.39 1.24 0.63 0.31 1.08 0.87 1.08 0.87 1.08 0.87Cost-to-income ratio (%) 59.8 62.4 63.4 62.1 58.7 58.8 58.7 58.8 59.0 59.0Total assets 519 143 468 045 763 006 764 861 (9 066) 24 455 1 273 083 1 257 361 275 590 240 069 1 548 673 1 497 430 (4 453) (4 601) 1 544 220 1 492 829Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518Total liabilities 475 299 434 053 715 683 717 394 (32 975) 1 214 1 158 007 1 152 661 256 114 222 746 1 414 121 1 375 407 (74) (111) 1 414 047 1 375 296Interest in associates and joint ventures 795 1 191 615 631 1 400 59 2 810 1 881 14 436 12 054 17 246 13 935 17 246 13 935Depreciation and amortisation 1 190 817 128 101 1 803 1 648 3 121 2 566 479 461 3 600 3 027 3 600 3 027Impairment loss on non-financial assets 39 258 276 700 20 997 296 44 1 041 296 1 041 296Number of employees 20 713 20 781 3 141 3 203 18 882 21 920 42 736 45 904 6 281 5 752 49 017 51 656 49 017 51 656

1 Certain functions within the group have been transferred into Central and other pursuant to the new business architecture of the group which mandates the centralisation of group functions. These functions include: legal, human resources, finance, governance and assurance, group IT, group operations, procurement, marketing, real estate and risk management.

2 The group’s IFRS results are normalised to reflect the group’s view of the economics of its Tutuwa 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. 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 on pages 69 to 71 of the annual integrated report.

3 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures are reclassified accordingly.


report


114


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:

Business unit

Personal & Business Banking Banking and other financial services to individual customers and small- to medium-sized enterprises in South Africa, rest of Africa and 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.

Credit cards – 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 (FIC), commodity and equity trading.

Transactional products and services – includes transactional banking, trade finance and investor services.

Investment banking – includes advisory, debt products, structured finance, structured trade and commodity finance, debt capital markets and equity capital markets.

Real estate – includes real estate finance and investment in real estate.

Central and other Includes the impact of the Tutuwa initiative, group hedging activities, group capital instruments and group surplus capital, strategic acquisition costs and Argentinean discontinued operation. Includes the 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.

Notes to the annual financial statements continuedfor the year ended 31 December 2012

115


1. Segment reporting continuedGeographic information

SouthAfrica

Rm

Rest ofAfrica

Rm

OutsideAfrica

Rm

Centraland

otherRm

Standard BankGroup

Rm

Adjust-ments

to IFRSRm

IFRSStandard

BankGroup

Rm

2012Total income1 124 097 15 539 6 958 (2 026) 144 568 (477) 144 091

Banking activities 48 236 15 539 6 958 (2 026) 68 707 (193) 68 514Liberty 75 861 75 861 (284) 75 577

Total headline earnings 15 116 1 802 (2 555) 647 15 010 (346) 14 664

Banking activities 13 083 1 802 (2 555) 647 12 977 (196) 12 781Liberty 2 033 2 033 (150) 1 883

Total assets 1 252 162 173 126 228 826 (105 441) 1 548 673 (4 453) 1 544 220

Banking activities 976 572 173 126 228 826 (105 441) 1 273 083 (2 601) 1 270 482Liberty 275 590 275 590 (1 852) 273 738

Non-current assets2 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

2011Total income1 90 197 11 256 5 524 580 107 557 (170) 107 387

Banking activities 41 391 11 256 5 524 580 58 751 (199) 58 552Liberty 48 806 48 806 29 48 835

Total headline earnings 12 486 1 075 (147) 185 13 599 (199) 13 400

Banking activities 11 058 1 075 (147) 185 12 171 (206) 11 965Liberty 1 428 1 428 7 1 435

Total assets 1 162 061 139 287 273 770 (77 688) 1 497 430 (4 601) 1 492 829

Banking activities 921 992 139 287 273 770 (77 688) 1 257 361 (2 408) 1 254 953Liberty 240 069 240 069 (2 193) 237 876

Non-current assets2 42 932 7 001 1 293 (82) 51 144 51 144

Banking activities 15 662 7 001 1 293 (82) 23 874 23 874Liberty 27 270 27 270 27 270

1 Total income from continuing operations. Total income is attributed based on where the operations are located.2 Non-current assets are assets that are expected to be recovered more than twelve months after the reporting period.


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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. 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 yearend, the group applied the following loss emergence periods:

Average lossemergence period Sensitivity1

2012Months

2011Months

2012Rm

2011Rm

Personal & Business Banking 3 3 264 460

Mortgage loans 3 3 58 213Instalment sale and finance leases 3 3 61 51Card debtors 3 3 32 65Other lending 3 3 113 131

Corporate & Investment Banking 7 – 12 6 – 12 106 108

South Africa 12 6 – 12 61 53Rest of Africa 12 12 32 23Outside Africa 7 6 13 32

370 568

1 Sensitivity is based on the effect of a one month increase in the emergence period on the value of the impairment.


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2. Key management assumptions continued2.1 Credit impairment losses on loans and advances continued 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:

Expected timeto recovery1

Expected recoveriesas a percentage of

impaired loansImpairment loss

sensitivity2

2012Months

2011Months

2012%

2011%

2012Rm

2011Rm

Personal & Business Banking 6 – 15 6 – 15 62 70 139 175

Mortgage lending 15 10 74 80 116 155Instalment sale and finance leases 6 6 51 43 8 7Card debtors 15 15 35 27 3 3Other lending 14 14 27 34 12 10

Corporate & Investment Banking 6 – 24 6 – 34 51 69 41 50

South Africa 6 6 73 74 33 9Rest of Africa 24 24 40 59 5 3Outside Africa 8 34 12 69 3 38

59 70 180 225

1 The expected time to recovery has been adjusted in 2012 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

specific 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 a valuation technique not based on observable market data that was recognised in profit or loss for the year ended 31 December 2012 was a net loss of R356 million (2011: R611 million net gain).

Additional disclosures on fair value measurements of financial instruments are set out in note 25.

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 R70 million (2011: R277 million) in its financial statements, being the transfer of the negative revaluations within the available-for-sale reserve to profit or loss.


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2. Key management assumptions continued2.4 Securitisations and special purpose entities (SPEs) The group sponsors the formation of SPEs primarily for the purpose of allowing clients to hold investments, for asset

securitisation transactions, asset financing and for buying or selling credit protection. As it can sometimes be difficult to determine whether the group should consolidate an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In arriving at judgements, these factors are considered both jointly and separately. The basis of determining which SPEs are consolidated will change in future financial reporting periods in terms of the requirements of IFRS 10 – Consolidated financial statements. Refer to annexure E –accounting policies.

The group has consolidated SPEs with assets of R16 289 million (2011: R18 528 million). The consolidated SPEs made net profits of R47 million (2011: R14 million).

RCMAFS Further details regarding these SPEs can be found in annexure B on pages 214 to 217

2.5 Held-to-maturity investments The group follows the guidance of IAS 39 Financial instruments: Recognition and Measurement (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 R1 523 million (2011: R2 812 million) to fair value, with a corresponding entry in OCI.

2.6 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 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 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. 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 2012 amounted to R10 777 million (2011: R7 940 million).

2.7 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.

2.8 Financial risk management

RCMAFS

The group’s risk management policies and procedures are disclosed in the risk and capital management report starting on page 1

RCMAFS

All IFRS 7 information included in the financial risk management section as set out on page 10 forms part of the audited annual financial statements as indicated in the risk report


119


2. Key management assumptions continued2.9 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 2012. The Kenyan located properties were independently valued as at 31 December 2012 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.

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 2012. 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 2012. 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 7.0% to 12.0% (2011: 7.25% to 11.75%) on a property by property basis. Exit capitalisation rates generally range from 7.0% to 12.0% (2011: 7.25% to 11.75%).

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% 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 R3,7 billion (2011: R3,6 billion) if the assumption decreased, and decrease the total fair value by R2,8 billion (2011: R2,7 billion) if the assumption increased.

2.10 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.


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2. Key management assumptions continued2.10 Long-term insurance contracts continued 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 respective base 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 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.

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 balance sheet date, 6.89% (2011: 8.15%).

¢ Equity rate – Gilt rate plus 3.5 percentage points as an adjustment for risk, 10.39% (2011: 11.65%).

¢ Property rate – Gilt rate plus 1 percentage point as an adjustment for risk, 7.89% (2011: 9.15%).

¢ Cash – Gilt rate less 1.5 percentage points, 5.39% (2011: 6.65%).

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 9.2% per annum in 2012 (2011: 10.4% 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 SAP 104 issued by the Actuarial Society of South Africa.

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.


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2. Key management assumptions continued2.10 Long-term insurance contracts continued 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 4.15% at 31 December 2012 (2011 assumption: 5.15%). 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.

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 30.22% (2011: 28.11%). Correlations between asset classes are set based on historical data. Twenty thousand simulations are performed in calculating the liability.


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2. Key management assumptions continued2.10 Long-term insurance contracts continued Using the simulated investment returns, but based on 2 000 simulations, the prices and implied volatilities of the following

instruments are:

Instrument

2012 2011

Price%

Volatility%

Price%

Volatility%

A 1-year at-the-money (spot) put on the FTSE/JSE Top 40 index 9.41 27.08 8.44 25.31A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to 80% of spot 2.23 26.65 1.82 25.19A 1-year at-the-money (forward) put on the FTSE/JSE Top 40 index 10.47 27.10 9.77 25.26A 5-year at-the-money (spot) put on the FTSE/JSE Top 40 index 12.25 24.68 10.63 24.91A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,045# of spot 21.99 25.19 19.11 25.07A 5-year (forward) put on the FTSE/JSE Top 40 index 19.10 25.03 19.09 25.07A 5-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% Asian Local Bond Index (ALBI), with rebalancing of the underlying index back to these weights taking place annually 11.94 N/A 9.37 N/A

A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 4.76 25.84 3.65 24.63A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,0420# of spot 21.46 26.96 17.51 25.11A 20-year at-the-money (forward) put on the FTSE/JSE Top 40 index 26.31 27.20 23.84 25.19A 20-year put option based on an interest rate with a strike price equal to the present 5-year forward rate as at maturity of the put option, which pays out if the 5-year interest rate at the time of maturity (in 20 years) is lower than the strike price 0.54 N/A 0.46 N/A

# Exponent.

The Top 40 index above is a capital index whereas the All Bond Index (ALBI) 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 the maturity date of the option.


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2. Key management assumptions continued2.10 Long-term insurance contracts continued The zero coupon yield curve used in the projection is as follows (rates calculated on the nominal annualised compounded

continuously method).

Maturity

Model output yield curve

2012%

2011%

1 year 4.94 5.542 years 5.01 5.793 years 5.26 6.164 years 5.53 6.515 years 5.79 6.8210 years 6.87 7.7215 years 7.31 7.7620 years 7.29 7.7325 years 7.28 7.7430 years 7.12 7.6335 years 7.18 7.6140 years 7.25 7.5845 years 7.28 7.5850 years 7.27 7.55

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 references to local guidance and where applicable to

the Actuarial Society of South Africa 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.

Long-term policyholder liabilities held within non-South African life companies total R1 828 million or 0.8% of total group long-term policyholder liabilities (R1 365 million or 0.7% for 2011). Given the relatively low proportion, as well as low risk insurance exposures for the group, detailed descriptions of the various bases used are not considered necessary.

Changes in assumptions Modeling and other assumption changes were made to realign valuation assumptions with expected future experience.

These changes resulted in a net decrease in long-term policyholder liabilities of R529 million in 2012 compared to a decrease of R502 million in 2011.

The primary items were:

¢ a change in the assumptions to allow for expected future withdrawals, resulting in an increase in the liability of R183 million (2011: decrease of R624 million)

¢ a change in future mortality and morbidity assumptions to reflect expected future experience, amounting to a decrease in the liability of R223 million (2011: increase of R104 million)

¢ a change in the economic valuation assumptions to realign these with expected future experience, resulting in a decrease in the liability of R330 million (2011: decrease of R32 million)

¢ weakening of the annuitant longevity assumptions resulted in a decrease in the liability of R90 million (2011: increase of R435 million)

¢ a change in the expense valuation assumptions resulted in a decrease in the liability of R5 million (2011: increase of R154 million)

¢ a change in the tax relief on expenses assumptions resulted in a decrease in the liability of R156 million (2011: Rnil). ¢ a change in the modeling and assumptions for policies being made resulted in an increase in liabilities of R164 million

(2011: decrease of R108 million) ¢ the balance of other changes resulted in a decrease in liabilities of R72 million (2011: decrease of R241 million) ¢ in 2011, there was a change in the modeling for policies being made paid-up resulting in a decrease in the liabilities of

R108 million. No further changes were required for 2012 ¢ in 2011, there was a change in the life annuities and guaranteed endowments illiquidity premium methodology resulting

in a decrease in the liability of R190 million. No further changes were required for 2012.


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2. Key management assumptions continued2.11 Other The nature of the assumptions or other estimation uncertainty for pensions and other post-employment benefits and for

group share incentive schemes are disclosed in note 37 and annexure D, respectively.

2012Rm

2011Rm

3. Cash and balances with central banksCoins and bank notes 14 592 11 470Balances with central banks 47 393 20 437

61 985 31 907

Cash and balances with central banks include R22 233 million (2011: R17 365 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, 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, interest rates, credit risk 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 on 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.

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 rate 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.


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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 hedge foreign currency risks on behalf of clients and for the group’s own

positions. Foreign exchange derivatives primarily consist of foreign exchange forwards, foreign exchange futures, foreign exchange swaps 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 from one counterparty to another and manage the credit exposure to

selected counterparties 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 as fair value hedges The group’s fair value hedges principally consist of currency swaps and interest rate swaps that are used to mitigate the risk

of changes in market interest rates and currencies. The group also uses interest rate swaps for the portfolio hedge of interest rate risk.

4.3.2 Derivatives designated as cash flow hedges The group uses currency swaps, exchange traded currency options, forwards and interest rate swaps to mitigate against

changes in cash flows of certain variable rate debt. The group applies hedge accounting for its non-trading interest rate risk in major currencies by analysing expected cash flows on a group basis. The objective is 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.

4.3.3 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.


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4. Derivative instruments continued4.4 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).

4.5 Fair values The fair value of a derivative financial instrument represents, for a quoted instrument, 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 yearend.

4.6 Notional amount The gross 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.


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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

Fairvalue of

assetsRm

Fairvalue of

liabilitiesRm

Notional amount

Rm

2012Derivatives 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


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128


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

Fairvalue of

assetsRm

Fairvalue of

liabilitiesRm

Notional amount

Rm

2012Derivatives held-for-hedging

Derivatives designated as fair value hedges 189 107 638 934 1 013 (79) 87 403

Interest rate swaps 189 (55) 638 772 851 (79) 86 565Cross currency interest rate swaps 162 162 162 838

Derivatives designated as cash flow hedges 204 (103) 12 113 282 (169) 11 496

Currency 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

Derivatives designated 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


129




Within1 year

Rm

After1 year

but within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fairvalue of

assetsRm

Fairvalue of

liabilitiesRm

Notional amount

Rm

2011Derivatives held-for-trading

Foreign exchange derivatives (1 478) (1 708) 313 (2 873) 33 931 (36 804) 1 465 249

Forwards (1 743) (909) 339 (2 313) 29 108 (31 421) 1 378 635Futures (1) 5 4 343 (339) 48 995Swaps (10) (28) (38) (38) 296Options 266 (794) 2 (526) 4 480 (5 006) 37 323

Interest rate derivatives (955) 2 018 593 1 656 90 653 (88 997) 8 738 123

Bond options 34 (245) (211) 2 272 (2 483) 158 798Caps and floors (34) 17 26 9 98 (89) 84 012Forwards (339) (265) 800 196 2 664 (2 468) 1 715 659Options 107 356 (7) 456 760 (304) 3 286 927Swaps (757) 2 155 (383) 1 015 84 548 (83 533) 3 469 521Swaptions 34 157 191 311 (120) 23 206

Commodity derivatives (110) (294) 46 (358) 19 707 (20 065) 3 344 927

Forwards (171) 43 61 (67) 4 561 (4 628) 136 125Futures 622 125 747 13 324 (12 577) 3 086 073Options (561) (462) (15) (1 038) 1 822 (2 860) 122 729

Credit derivatives (1 743) 16 (102) (1 829) 2 990 (4 819) 282 531

Credit default swaps (1 254) 790 (102) (566) 2 936 (3 502) 279 634Credit linked notes (755) (755) 23 (778) 881Total return swaps (489) (19) (508) 31 (539) 2 016

Equity derivatives (479) (278) 29 (728) 1 478 (2 206) 140 889

Forwards (91) (131) (222) 85 (307) 2 427Futures (2) 4 2 53 (51) 11 695Index options (326) (199) (525) 530 (1 055) 115 625Options (35) (74) 29 (80) 528 (608) 9 075Swaps (24) 113 89 128 (39) 2 048Other (1) 9 8 154 (146) 19

Total derivative (liabilities)/assets held-for-trading (4 765) (246) 879 (4 132) 148 759 (152 891) 13 971 719


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130




Within1 year

Rm

After1 year

but within5 years

Rm

After5 years

Rm

Net fairvalue

Rm

Fairvalue of

assetsRm

Fairvalue of

liabilitiesRm

Notional amount

Rm

2011Derivatives held-for-hedging

Derivatives designated as fair value hedges 1 (1) 499 499 500 (1) 30 398

Interest rate swaps (1) (1) 499 497 498 (1) 30 381Currency futures 2 2 2 17

Derivatives designated as cash flow hedges 649 (64) 12 597 766 (169) 19 975

Currency swaps 484 (10) 12 486 522 (36) 7 490Currency options 110 (61) 49 135 (86) 878Equity forwards 11 11 11 85Interest rate swaps 44 7 51 98 (47) 11 522

Derivatives designated as hedges of net investments in foreign operations

Forward exchange contracts (60) (60) 21 (81) 1 726

Total derivative assets/(liabilities) held-for-hedging 590 (65) 511 1 036 1 287 (251) 52 099

Total derivative (liabilities)/assets (4 175) (311) 1 390 (3 096) 150 046 (153 142) 14 023 818


131


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

2012Rm

2011Rm

Gains/(losses)On hedging instruments 480 739On the hedged items attributable to the hedged risk (405) (707)

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

2012Net cash (outflow)/inflow (10) (24) (5) 742

2011Net cash inflow/(outflow) 297 (48) 9 749

Reconciliation of movements in the cash flow hedging reserve

2012Rm

2011Rm

Balance at the beginning of the year 725 673Amounts recognised directly in OCI before tax 204 189Less: amounts released to profit or loss before taxNet interest income (34) (80)Trading revenue (17) 5Other operating expenses (392) (81)Plus: deferred tax 20 19

Balance at the end of the year 506 725

Ineffectiveness that arises from cash flow hedges is recognised immediately in profit or loss. A gain of R17 million (2011: R10 million loss) due to ineffectiveness was recognised in profit or loss.

There were no transactions for which cash flow hedge accounting had to be discontinued in 2012 or 2011 as a result of highly probable cash flows that were no longer 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 2012 that arose from hedges of net

investments in foreign operations (2011: Rnil).


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4. Derivative instruments continued4.9 Day one profit or loss 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:

2012Rm

2011Rm

Unrecognised net profit at the beginning of the year 438 53Additional net profit on new transactions 90 450Recognised in profit or loss during the year (144) (65)

Unrecognised net profit at the end of the year 384 438

5. Trading assets5.1 Classification

Listed 77 446 52 409Unlisted 36 973 38 040

114 419 90 449

Comprising:Government, municipality, utility bonds and treasury bills 41 675 32 012Corporate bonds and floating rate notes 17 002 14 858Listed equities 10 697 2 761Unlisted equities 80Collateral 3 305 2 819Reverse repurchase and other collateralised agreements 24 815 23 274Commodities 10 382 8 197Other instruments 6 543 6 448

114 419 90 449

Maturity analysisThe maturities represent periods to contractual redemption of the trading assets recorded.Redeemable on demand 2 263 1 278Maturing within 1 month 15 849 10 613Maturing after 1 month but within 6 months 24 394 15 778Maturing after 6 months but within 12 months 8 322 7 330Maturing after 12 months 41 983 44 349Undated assets 21 608 11 101

114 419 90 449

5.2 Day one profit or lossThe 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.

Unrecognised net profit at the beginning of the year 2Additional net profit on new transactions 7 3Recognised in profit or loss during the year 1 (1)Exchange differences 3

Unrecognised net profit at the end of the year 13 2


133


2012Rm

2011Rm

6 Pledged assets6.1 Pledged assets

Financial assets that may be repledged or resold by counterpartiesGovernment, municipality and utility bonds 5 025 1 349Corporate bonds 872 25Commodities 5 743 4 739

11 640 6 113

Maturity analysisThe maturities represent periods to contractual redemption of the pledged assets recorded.Maturing within 1 month 353 26Maturing after 1 month but within 6 months 2 904 653Maturing after 6 months but within 12 months 137 192Maturing after 12 months 2 503 503Undated assets 5 743 4 739

11 640 6 113

6.2 Total assets pledged The total amount of financial assets that have been pledged as collateral for liabilities at 31 December 2012 was

R7 336 million (2011: R21 848 million)1.

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 R56 186 million (2011: R95 737 million).

The fair value of financial assets accepted as collateral that have been sold or repledged is R12 421 million (2011: R7 202 million2). 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 Following a review of the group’s bond repurchase transactions in terms of IFRS and the group accounting policies, R3 900 million relating to bond repurchase transactions with the SARB had not previously been taken into account in determining the total financial assets that have been pledged as collateral for liabilities. As a result, the number disclosed in 2011 was understated. The group believes that this restatement better reflects the nature of the underlying transactions. The restatement had no impact on the statement of financial position.

2 As a result of the review of the group’s bond repurchase transactions, it was determined that R10 624 million had been incorrectly included in the prior year disclosure. To ensure consistency across the group’s financial statements, this amount has been restated.


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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 SPEs. 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 following table 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

2012Mortgage loans 11 113 7 193 10 985 7 193 3 792

2011Mortgage loans 12 175 8 184 12 215 8 184 4 031

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.

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.


135


6. Pledged assets continued6.4 Assets transferred not derecognised continued 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.

Financial assets not derecognised

Carryingamount of

transferredassets

Rm

Carryingamount ofassociated

liabilitiesRm

Fairvalue of

transferredassets1

Rm

Fairvalue of

associatedliabilities1

Rm

Net fairvalue1

Rm

2012Pledged assets 9 976 4 132 4 233 4 132 101

Bonds 4 233 4 132 4 233 4 132 101Commodities 5 743

9 976 4 132 4 233 4 132 101

2011Pledged assets 4 773 1 206 1 036 1 206 (170)

Bonds 34 33 34 33 1Commodities 4 739 1 173 1 002 1 173 (171)

4 773 1 206 1 036 1 206 (170)

1 Where the counterparty has recourse only to the transferred 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.


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7. Non-current assets and liabilities held for sale Disposal groups held for sale and discontinued operation relating to the disposal of the

controlling interests in Standard Bank Argentina S.A. Standard Bank Argentina S.A. The group completed the disposal of its controlling interests in SBA to ICBC at the end of November 2012.

ICBC acquired a 55% stake in Standard Bank Argentina S.A. and a 50% stake in each of SI and ID from the group, with the group retaining a 20% shareholding and rights to board representation in each of the companies comprising SBA.

The profit realised on the disposal of the group’s controlling interest, after accounting for the reclassification of the foreign translation reserve and net investment hedge losses from OCI to the income statement and the effects of the fair valuation of the group’s remaining 20% associate interest in SBA, is R1 525 million. The group recognised a gain of R645 million in respect of the revaluation of this remaining associate interest from its previous carrying value to fair value.

The group continued to classify its investment in SBA as a discontinued operation in line with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) up to the disposal date. The group retains significant influence over the financial and operating policies of SBA and hence, following the disposal date, SBA was accounted for as an associate in terms of IAS 28 Investments in Associates.

The group’s shareholder relationship with ICBC in respect of SBA is regulated by a shareholders’ agreement that provides, inter alia, the right for the group to require ICBC to acquire its remaining shares in SBA at the final transaction value, adjusted for the USD20 million capital injection made post balance sheet date in February 2013, between 30 November 2014 and 30 November 2019.

Troika Dialog Group Limited (Troika) In March 2011, the disposal of Troika was agreed upon and announced by TDM Limited Partnership (TDMP), the 63.6%

controlling shareholder of Troika, Sberbank of Russia (Sberbank) and SBG. After the receipt of all necessary approvals this transaction was successfully closed on 26 January 2012. Under the agreed terms, Sberbank acquired the entire shareholding of Troika (comprising TDMP’s 63.6% and Standard Bank Group’s 36.4% shareholding) for an upfront cash consideration of USD1 billion plus an earn-out payment at the end of 2013. The group sold all of its shareholding in Troika for an initial cash amount equal to its carrying value at 31 December 2010 of USD372 million, and will receive an earn-out payment of approximately 8% of any increase in the value of Troika above USD1 billion determined over a three-year earn-out period to 2013. This enables the group to participate in the growth of the value of the business over time and provides a platform for enhanced cooperation with the leading banking group in Russia.

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%. The group has initiated a process to dispose of its investment in RCS during the course of the 2013 financial year. The group has accordingly classified its investment in RCS as a non-current asset held for sale in the statement of financial position in terms of IFRS 5. The investment’s carrying value is measured in accordance with the group’s accounting policies, which is the lower of carrying value and the fair value less costs to sell.


137


7. Non-current assets and liabilities held for sale continued Details of non-current assets and liabilities held for sale

2012 2011

RCS Investment

Holdings Proprietary

LimitedRm

TotalRm

StandardBank

ArgentinaS.A.Rm

TroikaDialogGroup

LimitedRm

TotalRm

Assets held for saleCash and balances with central banks 4 849 4 849Derivative assets 50 50Trading assets 413 413Pledged assets 34 34Financial investments 3 182 3 182Loans and advances 20 702 20 702Current tax assets 3 3Deferred tax assets 164 164Other assets 543 543Interest in associates and joint ventures 960 960 8 3 010 3 018Goodwill and other intangible assets 75 75Property and equipment 1 052 1 052

Total assets held for sale 960 960 31 075 3 010 34 085

Liabilities held for saleDerivative liabilities 37 37Deposit and current accounts 24 342 24 342Current tax liabilities 268 268Other liabilities 3 292 3 292

Total liabilities held for sale 27 939 27 939


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138


2012Rm

2011Rm

8. Financial investmentsFinancial investments held in banking activities (note 8.1) 94 715 97 360Financial investments held by investment management and life insurance activities (note 8.2) 223 443 191 959

318 158 289 319

8.1 Financial investments held in banking activitiesShort-term negotiable securities 58 922 60 781

Listed 4 211 5 100Unlisted1 54 711 55 681

Other financial investments 35 793 36 579

Listed 29 200 29 241Unlisted 6 593 7 338

94 715 97 360

1 Included in unlisted short term negotiable securities are SARB debentures and negotiable certificates of deposit.

Comprising:Government, municipality, utility bonds and treasury bills 72 741 70 995Corporate bonds 13 462 17 736Listed equities 632 1 133Unlisted equities 3 101 3 086Mutual funds and unit-linked investments 1 991 2 495Other instruments 2 788 1 915

94 715 97 360

Maturity analysisThe maturities represent periods to contractual redemption of the financial investments recorded.Redeemable on demand 1 290 1 088Maturing within 1 month 9 968 11 626Maturing after 1 month but within 6 months 33 500 24 944Maturing after 6 months but within 12 months 14 619 21 103Maturing after 12 months 29 103 30 894Undated 6 235 7 705

94 715 97 360


139


2012Rm

2011Rm

8. Financial investments continued8.2 Financial investments held by investment management

and life insurance activitiesQuoted in an active market – listed 128 309 116 616

Equities 84 960 77 424Preference shares 2 115 1 728Commercial term deposits 11 567 9 107Mutual funds 410 816Government, municipality and utility bonds 29 257 27 541

Quoted in an active market – unlisted 65 555 50 308

Commercial term deposits 11 583 11 453Mutual funds 53 929 38 824Government, municipality and utility bonds 43 31

Unquoted and unlisted 25 299 19 676

Equities 1 325 1 210Preference shares 670 1 283Investment policies 23 304 17 183

Loans and receivables 4 280 5 359

Mortgages and loans 1 056 1 007Cash held with banks 3 224 4 352

223 443 191 959

Maturity analysisThe maturities represent periods to contractual redemption of the financial investments recorded.Maturing within 1 year 8 842 6 279Maturing after 1 year but within 5 years 14 118 14 561Maturing after 5 years but within 10 years 13 283 14 606Maturing after 10 years but within 20 years 11 974 9 544Maturing after 20 years 4 376 3 287Open ended1 913 862Undated2 169 937 142 820

223 443 191 959

1 Open ended represent certain financial investments 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.

2 There is no maturity profile for listed and unlisted equities and other non-term instruments.


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140


2012Rm

20111

Rm

9. Loans and advances9.1 Loans and advances net of impairments

Loans and advances to banks 108 196 130 257

Call loans 22 328 17 488Loans granted under resale agreements 13 776 41 358Balances with banks 72 092 71 411

Loans and advances to customers 702 975 671 051

Gross loans and advances to customers 720 679 686 236

Mortgage loans 299 791 287 597Instalment sale and finance leases (note 9.2) 66 053 57 373Card debtors 24 052 20 726Overdrafts and other demand loans 65 008 56 522Other term loans 159 725 159 296Loans granted under resale agreements 11 562 20 222Commercial property finance 41 393 40 710Foreign currency loans 51 315 37 663Other loans and advances 1 780 6 127

Credit impairments for loans and advances (note 9.3) (17 704) (15 185)

Specific credit impairments (12 516) (9 775)Portfolio credit impairments (5 188) (5 410)

Net loans and advances 811 171 801 308

Comprising:Gross loans and advances 828 875 816 493Less: Credit impairments (17 704) (15 185)

Net loans and advances 811 171 801 308

The carrying value of loans and advances increased by R407 million (2011: decreased by R467 million) for fair value adjustments arising from risks subject to fair value hedging relationships.

Maturity analysisThe maturity analysis is based on the remaining periods to contractual maturity from yearend.Redeemable on demand 116 435 116 387Maturing within 1 month 90 175 111 061Maturing after 1 month but within 6 months 62 596 79 998Maturing after 6 months but within 12 months 52 081 62 989Maturing after 12 months 507 588 446 058

Gross loans and advances 828 875 816 493

Segmental analysis – industryAgriculture 19 657 17 741Construction 19 806 21 356Electricity 3 989 3 034Finance, real estate and other business services 206 760 244 706Individuals 378 620 346 304Manufacturing 40 566 35 540Mining 37 601 35 580Other services 51 145 56 504Transport 14 023 15 144Wholesale 56 708 40 584

Gross loans and advances 828 875 816 493

1 2011 balance of R898 million was reclassified from loans and advances to banks to loans and advances to customers in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year.


141


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.

2012%

2012Rm

2011%

2011Rm

Segmental analysis – geographic areaSouth Africa 79 651 390 74 603 950Rest of Africa 11 88 911 9 71 553Outside Africa 10 88 574 17 140 990

Gross loans and advances 100 828 875 100 816 493

2012Rm

2011Rm

9.2 Instalment sale and finance leasesGross investment in instalment sale and finance leases 77 284 66 502

Receivable within 1 year 22 662 21 766Receivable after 1 year but within 5 years 53 577 44 573Receivable after 5 years 1 045 163

Unearned finance charges deducted (11 231) (9 129)

Net investment in instalment sale and finance leases 66 053 57 373

Receivable within 1 year 18 629 18 475Receivable after 1 year but within 5 years 46 547 38 767Receivable after 5 years 877 131

9.3 Credit impairments for loans and advancesA reconciliation of the allowance for impairment losses for loans and advances, by class:

Total impairmentsMortgage loans 4 882 5 186Instalment sale and finance leases 1 307 1 494Card debtors 1 074 1 262Other loans and advances 5 225 3 745Corporate lending 4 933 3 212Commercial property finance 283 286

17 704 15 185


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142


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

Otherloans andadvances

Rm

Corporatelending

Rm

Commercialproperty

financeRm

TotalRm

2012Specific impairmentsBalance at the beginning of the year 3 772 1 005 824 1 976 2 076 122 9 775Net impairments raised1 3 462 750 672 2 965 2 256 97 10 202Impaired accounts written off (2 589) (895) (864) (1 724) (1 572) (39) (7 683)Discount element recognised in

interest income (540) (39) (57) (90) (7) (733)Exchange and other movements 61 (34) 5 (45) 968 955

Balance at the end of the year 4 166 787 580 3 082 3 721 180 12 516

Portfolio impairmentsBalance at the beginning of the year 1 414 489 438 1 769 1 136 164 5 410Net impairments (released)/raised1 (697) 39 60 338 62 (42) (240)Exchange and other movements (1) (8) (4) 36 14 (19) 18

Balance at the end of the year 716 520 494 2 143 1 212 103 5 188

Total 4 882 1 307 1 074 5 225 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 28.8 on page 181).


143


9. Loans and advances continued9.3 Credit impairments for loans and advances continued

Mortgageloans

Rm

Instalmentsale andfinanceleases

Rm

Carddebtors

Rm

Other loansand advances

Rm

Corporatelending

Rm

Commercialproperty

financeRm

TotalRm

2011Specific impairmentsBalance at the beginning of the year 4 399 1 534 1 170 2 562 2 394 163 12 222Reclassified as held for sale (2) (11) (57) (100) (35) (205)Net impairments raised1 2 672 728 761 1 670 1 339 92 7 262Impaired accounts written off (2 633) (1 197) (961) (2 096) (1 901) (133) (8 921)Discount element recognised in

interest income (686) (65) (89) (102) (2) (944)Exchange and other movements 22 16 42 281 361

Balance at the end of the year 3 772 1 005 824 1 976 2 076 122 9 775

Portfolio impairmentsBalance at the beginning of the year 994 626 581 1 449 1 224 10 4 884Reclassified as held for sale (5) (66) (60) (60) (191)Net impairments raised/(released)1 420 (132) (77) 330 68 (22) 587Exchange and other movements 50 (96) 176 130

Balance at the end of the year 1 414 489 438 1 769 1 136 164 5 410

Total 5 186 1 494 1 262 3 745 3 212 286 15 185

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 28.8 on page 181).


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144


2012Rm

2 011Rm

9. Loans and advances continued9.3 Credit impairments for loans and advances continued

Segmental analysis of specific impairments – industryAgriculture 1 059 317Construction 600 119Electricity 34 36Finance, real estate and other business services 1 607 1 851Individuals 6 521 6 010Manufacturing 633 278Mining 90 94Other services 1 062 762Transport 167 86Wholesale 743 222

12 516 9 775

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.

2012%

2012Rm

2011%

2011Rm

South Africa 64 7 969 75 7 312Rest of Africa 14 1 753 8 776Outside Africa 22 2 794 17 1 687

100 12 516 100 9 775

2012Rm

2011Rm

10. Current and deferred tax assetsCurrent tax assets 331 443Deferred tax assets (note 20.1) 1 183 1 440

1 514 1 883

11. Other assetsTrading settlement assets1 16 503 9 741Items in the course of collection 1 083 691Operating leases – accrued income (note 13) 1 277 1 085Deferred acquisition costs (DAC) 449 403Retirement funds and post-employment healthcare benefits (note 37) 970 952Insurance prepayments and reinsurance assets2 3 004 2 490Accounts receivable 2 761 1 233Prepayments 2 436 2 164Properties in possession 521 571Property developments3 1 009 628Other debtors1,3 2 371 2 682

32 384 22 640

1 Trading settlement assets and other debtors were reclassified by R3 447 million, to conform with the basis of disclosure used in the current financial year.

2 Refer to note 22.1 on page 166 for further detail on reinsurance assets.3 Property developments previously disclosed in other debtors have now been separately disclosed.


145


2012Rm

2011Rm

12. Interest in associates and joint venturesAssociates and joint ventures accounted for under the equity method 3 409 2 238Associates held at fair value 13 837 11 697

17 246 13 935

Equity accounted associates and joint venturesCarrying value at the beginning of the year 2 238 4 719Share of profits – continuing operations 500 343Total reversal of impairments/(impairments) of associates 201 (37)

Reversal of impairments of associates1 201Impairment of associate reclassified to held for sale2 (37)

Reversal of impairments/(impairments) of private equity associates included in non-interest revenue 27 (60)Deemed disposal of associate – carrying value (130)

Loss on deemed disposal of associate (22)Deemed disposal of associate – fair value (108)

Acquisitions 1 604 13Disposals (77) (124)Share of direct reserve movements (99) 557Distribution of profit (25) (25)Reclassified as held for sale (note 7) (960) (3 018)

Carrying value at the end of the year 3 409 2 238

Comprising:Cost of investments 2 521 1 799Share of reserves 1 578 1 233Cumulative impairment (690) (794)

3 409 2 238

Share of profits from associates and joint venturesShare of profits 500 343Reversal of impairments/(impairments) of associates 201 (37)Loss on deemed disposal of associate (22)

Share of profits – continuing operations 701 284

1 The recoverable amount utilised to calculate the reversal of 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.

2 The recoverable amount was based on the agreed minimum disposal proceeds.

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.


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146


2012Rm

2011Rm

12. Interest in associates and joint ventures continuedKey financial information of associates and joint ventures accounted for under the equity methodStatement of financial positionNon-current assets 17 722 5 943Current assets 31 788 7 002Non-current liabilities (3 334) (4 726)Current liabilities (36 588) (2 073)

Income statementTotal income 9 863 6 088Total expense (8 675) (5 604)Total profit or loss 1 164 475

Equity accounted associates and joint ventures and the group’s interests therein are listed in annexure C on pages 218 to 220.

Key financial information of associates held at fair valueTotal financial investments 37 656 31 362Current assets 4 842 7 078Current liabilities (101) (37)Total revenue 2 092 1 848

Associates held at fair value include units or shares held in mutual funds held by Liberty. The units or shares are by their nature demand deposits and are held at fair value. The net income or loss is capitalised to unit values within each fund and is equivalent to the fair value adjustments. Associates held at fair value also includes associates held by the group’s private equity division.

13. Investment propertyFair value at the beginning of the year 23 470 21 521Revaluations net of lease straight-lining 1 188 904

Revaluations 1 443 933Net movement on straight-lining operating leases (255) (29)

Additions – capitalised subsequent expenditure 46 900Disposals (651)Transfers from property and equipment 37 93Other transfers 43 43Foreign currency translation 9

Fair value at the end of the year 24 133 23 470

Investment property and related operating lease balances comprise the following:Investment properties at fair value 24 133 23 470Operating leases – accrued income (note 11) 1 277 1 085Operating leases – accrued expense (note 21.1) (30) (93)

Total investment property 25 380 24 462

Located in:South Africa 25 298 24 403Kenya 70 59Nigeria 12



147


2012Rm

2011Rm

13. Investment property continuedAt the end of the year investment property comprised the following property types:Office buildings 1 305 1 205Shopping malls 20 750 20 022Hotels 2 536 2 536Other 789 699


The investment properties located in South Africa were independently valued as at 31 December 2012 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 more fully described in note 2.9.

The Kenyan and Nigerian located properties were independently valued as at 31 December 2012 by various registered professional valuers in each territory.

At 31 December 2012, unlet space amounted to 7.1% (2011: 7.2%) of available lease area in the investment properties held by the group. The average net rental growth is 2.5% (2011: 6.9%).

The property rental income earned by the group from its investment property, all of which is leased out under operating leases, amounted to R2 290 million (2011: R1 902 million), including straight-lining operating leases of R1 987 million (2011: R1 823 million) excluding straight-lining operating leases. Direct operating expenses arising on the investment property amounted to R558 million (2011: R516 million).

2012Rm

2011Rm

14. Goodwill and other intangible assetsGoodwill (note 14.1) 3 124 3 733Other intangible assets (note 14.2) 11 563 9 021

14 687 12 754

14.1 GoodwillGoodwill on subsidiariesCost at the beginning of the year 4 468 3 920Reclassified as held for sale (10)Acquisitions 4 46Disposals (163)Exchange movements 235 512

Cost at the end of the year 4 544 4 468

Accumulated impairment at the beginning of the year (735) (664)Reclassified as held for sale 10Goodwill impairment charge (note 28.14) (777) (61)Disposals 31Exchange movements 61 (20)

Accumulated impairment at the end of the year (1 420) (735)

Carrying amount 3 124 3 733


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14. Goodwill and other intangible assets continued14.1 Goodwill continued

2012 2011

Grossgoodwill

Rm

Accumu-lated

impair-ment

Rm

Netgoodwill

Rm

Grossgoodwill

Rm

Accumu-lated

impair-ment

Rm

Netgoodwill

Rm

Goodwill comprises:Standard Bank s.a.r.l. (Mozambique) 104 104 110 110Capital Alliance Holdings Limited 397 397 397 397Neil Harvey and Associates 114 114 114 114Melville Douglas Investment Management Proprietary Limited 44 22 22 44 22 22Stanbic Bank Botswana Limited 18 18 18 15 3Standard Bank Limited (Malawi) 17 17 32 32Stanbic Bank Uganda Limited 9 3 6 9 9Standard Bank Asia Limited (Hong Kong) 57 57 54 54Triskelion Trust Company Limited 56 56 56 56Stanbic IBTC Holdings PLC (Nigeria) 2 888 690 2 198 2 659 2 659Standard Ünlü Menkul Degerler A.S. (Turkey) 163 31 132CfC Stanbic Holdings Limited (Kenya) 754 754 730 730eCentric Switch Proprietary Limited 36 36 36 36Halberg Guss South Africa Proprietary Limited 7 7 7 7MTN Mobile Money 39 39 39 39LC Golf SA Pty Ltd 4 4

4 544 1 420 3 124 4 468 735 3 733

Impairment testing IAS 36 Impairment of assets (IAS 36) clarifies that goodwill acquired in a business combination shall, from the acquisition

date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units 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. Where applicable and material, this has been taken into account for the purposes of allocating goodwill to affected units.

Impairment testing in respect of goodwill is performed annually by comparing the recoverable amounts of cash-generating units 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 and is determined on an entity by entity basis.

Goodwill relating to Stanbic IBTC Holdings PLC (Nigeria) and CfC Stanbic Holdings Limited (Kenya) makes up the majority of the group’s goodwill amount. The respective goodwill balances were allocated between their cash-generating units, assumed to be operating segment level, based on the nature of the business as at acquisition, and then tested for impairment.


149


14. Goodwill and other intangible assets continued14.1 Goodwill continued The recoverable amount was determined to be the value in use in both cases for 2012. Key assumptions relating to these

valuations include the discount rates and cash flows used to determine the value in use. 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 5 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 in 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 in the perpetuity value. The cost of equity (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 CoE assigned to the appropriate cash-generating units and used to discount their future cash flows can have a significant effect on their valuations.

The following table summarises the impairment test methodology applied, including key inputs used, to the group’s material goodwill.

Stanbic IBTCHoldings PLC

CfC StanbicHoldings Limited

Methodology

2012

Valuein use

2011Fair value less cost

to sell

2012

Valuein use

2011

Value in use

Discount rate (nominal) % 19.0 N/A 18.2 20.3Terminal growth rate (nominal) % 10.0 N/A 11.5 16.0Forecast period years 10 N/A 8 8

Stanbic IBTC Holdings PLC Based on the testing performed, an impairment of R700 million (2011: nil) was identified. The cash-generating unit

recoverable amount estimates take into account the market, regulatory and fiscal developments in the Nigerian banking industry in general and the particular circumstances of the cash-generating units themselves. As at 31 December 2012, a reduced share price for Stanbic IBTC (an entity listed on the Nigerian Stock Exchange) indicated that the value in use methodology should be applied in determining whether an impairment was required for Stanbic IBTC’s cash generating units. The cash-generating unit carrying values were assessed to be in excess of the recoverable amounts, and thus, an impairment has been recognised.

2011Allocated goodwill

RmImpairment

Rm

Exchangemovements1

Rm

2012Net

goodwillRm

Corporate & Investment Banking 2 393 520 215 2 088Personal & Business Banking 266 180 24 110

2 659 700 239 2 198

1 Includes an amount of R10 million relating to foreign currency translation reserve movements on the accumulated impairment.

CfC Stanbic Holdings Limited Based on the testing performed, no impairment was identified.

Goodwill relating to other entities The remaining aggregated carrying amount of the goodwill of R172 million (2011: R344 million) has been allocated to

cash-generating units that are not considered to be individually significant. These entities were tested for impairment during the year, and an impairment of R77 million (2011: R61 million) was recognised.


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14. Goodwill and other intangible assets continued14.2 Other intangible assets14.2.1 Summary

2012 2011

CostRm

Accumulatedamortisation

andimpairment

Rm

Net bookvalue

RmCostRm

Accumulatedamortisation

andimpairment

Rm

Net bookvalue

Rm

Computer software 14 274 3 235 11 039 10 169 2 229 7 940Other intangible assets1 708 527 181 984 398 586Present value of in-force life insurance2 1 724 1 381 343 1 722 1 227 495

16 706 5 143 11 563 12 875 3 854 9 021

1 Included in 2011 under other intangible assets is a property trust that has a right to an indefinite stream of management revenues created by the trust deed of the property trust with a carrying amount of R372 million. The stream of revenue is dependent on the life and activity of the trust and therefore no useful life can be determined. The intangible asset is tested annually for impairment and whenever there is an indication of impairment. At 31 December 2011 there was no indication of impairment.

2 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 has been recognised, since it does not meet the recognition criteria in IAS 38 Intangible Assets (IAS 38).

14.2.2 Movement

2011Net book

valueRm

Reclassi-fied

as heldfor sale

Rm

Addi-tions1

Rm

Dis-posals2

Rm

Impair-ments

Rm

Amorti-sation

Rm

Exchangemove-ments

Rm

2012Net book

value3

Rm

Computer software 7 940 4 287 (182) (263) (770) 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) (1 005) 35 11 563

2010Net book

valueRm

Reclassi-fied

as heldfor sale

Rm

Addi-tions1

RmDisposals

Rm

Impair-ments

Rm

Amorti-sation

Rm

Exchangemove-ments

Rm

2011Net book

value3

Rm

Computer software 5 763 (2) 2 604 (27) (109) (476) 187 7 940Other intangible assets 722 (25) (34) (84) 7 586Present value of in-force life insurance 642 28 (179) 4 495

7 127 (27) 2 632 (61) (109) (739) 198 9 021

1 During 2012, R186 million (2011: R126 million) of interest was capitalised.2 Included in the 2012 disposal balance is an amount of R21 million relating to transfers to property and equipment.3 Includes work in progress of R5 216 million (2011: R4 116 million) for which amortisation has not yet commenced.

There are no significant intangible assets for which title is restricted or which is pledged as security for liabilities.


151


2012 2011

CostRm

Accumulateddepreciation

andimpairment

Rm

Net bookvalue

RmCostRm

Accumulateddepreciation

andimpairment

Rm

Net bookvalue

Rm

15. Property and equipment15.1 Summary

PropertyFreehold 6 250 564 5 686 5 673 520 5 153Leasehold 3 206 1 106 2 100 2 711 757 1 954Property under development 13 13

9 469 1 670 7 799 8 384 1 277 7 107

EquipmentComputer equipment 9 983 6 325 3 658 8 999 5 575 3 424Motor vehicles 608 322 286 604 316 288Office equipment 1 261 655 606 1 171 598 573Furniture and fittings 6 241 2 857 3 384 5 961 2 433 3 528

18 093 10 159 7 934 16 735 8 922 7 813

Total 27 562 11 829 15 733 25 119 10 199 14 920

2011Net book

valueRm

Additions1,2

RmDisposals

RmDepreciation

RmTransfers3

Rm

Exchangemovements

Rm

2012Net book

value4

Rm

15.2 MovementPropertyFreehold 5 153 664 (9) (61) (37) (24) 5 686Leasehold 1 954 459 (19) (364) 70 2 100Property under development 13 13

7 107 1 136 (28) (425) (37) 46 7 799

EquipmentComputer equipment 3 424 1 614 (52) (1 356) 28 3 658Motor vehicles 288 117 (33) (93) 7 286Office equipment 573 157 (4) (122) 2 606Furniture and fittings 3 528 481 (43) (599) 17 3 384

7 813 2 369 (132) (2 170) 54 7 934

Total 14 920 3 505 (160) (2 595) (37) 100 15 733

1 During 2012, R79 million (2011: R42 million) of interest was capitalised. Includes additions arising from business acquisitions of R6 million (2011: R101 million).

2 Included in additions is an amount of R21 million that has been transferred from intangible assets.3 Refer to note 13 – Investment property on page 146.4 Includes work in progress of R1 875 million (2011: R1 282 million) for which depreciation has not yet commenced.


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15. Property and equipment continued 15.2 Movement continued

2010Net book

valueRm

Re-classified

as held for sale

Rm

Addi-tions1

Rm

Dis-posals

Rm

Impair-ments

Rm

Depre-ciation

Rm

Trans-fers2

Rm

Ex-changemove-ments

Rm

2011Net

bookvalue3

Rm

PropertyFreehold 5 199 (497) 570 (36) (54) (93) 64 5 153Leasehold 1 697 (87) 564 (4) (29) (301) 114 1 954

6 896 (584) 1 134 (40) (29) (355) (93) 178 7 107

EquipmentComputer equipment 3 371 1 182 (35) (1 179) 85 3 424Motor vehicles 397 (2) 155 (175) (97) 10 288Office equipment 665 (101) 98 (5) (111) 27 573Furniture and fittings 3 578 (80) 517 (16) (546) 75 3 528

8 011 (183) 1 952 (231) (1 933) 197 7 813

Total 14 907 (767) 3 086 (271) (29) (2 288) (93) 375 14 920

1 During 2012, R79 million (2011: R42 million) of interest was capitalised. Includes additions arising from business acquisitions of R6 million (2011: R101 million).

2 Refer to note 13 – Investment property on page 146.3 Includes work in progress of R1 875 million (2011: R1 282 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 during 2012 and 2011, was estimated at

R5 579 million (2011: R5 866 million). Registers of 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.


153


2012Rm

2011Rm

16. Share capital16.1 Authorised

2 000 000 000 (2011: 2 000 000 000) ordinary shares of 10 cents each 200 2008 000 000 (2011: 8 000 000) 6.5% first cumulative preference shares of R1 each 8 81 000 000 000 (2011: 1 000 000 000) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each 10 10

218 218

16.2 IssuedOrdinary share capital1 606 135 826 (2011: 1 588 747 130) ordinary shares of 10 cents each 161 159

Ordinary share premium 17 931 17 576A premium of R357 million (2011: R213 million) was raised on the allotment and issue during the year of 5 347 398 ordinary shares (2011: 3 709 809).

During 2012 the group declared a scrip distribution with a cash alternative. The scrip distribution was financed from share premium and 12 041 298 ordinary shares were issued. R1,2 million was transferred to ordinary share capital.

Preference share capital and premium 5 503 5 503

8 000 000 (2011: 8 000 000) 6.5% first cumulative preference shares of R1 each – first preference shares 8 852 982 248 (2011: 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 70% of the prime interest rate multiplied by the subscription price of R100 per share.

All classes of preference shares in issue are non-redeemable.

23 595 23 238

The number of shares in terms of options and appreciation rights available to be granted under the terms of the group’s equity compensation plans as at the end of the year was 108 780 918 (2011: 109 073 781).

The group share incentive scheme (GSIS) and equity growth scheme (EGS) reconciliations are disclosed in annexure D on pages 221 to 228.


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154


Numberof ordinary

shares

Numberof first

preference shares

Numberof second

preference shares

16. Share capital continued16.2 Issued continued

Reconciliation of shares issuedShares in issue at 1 January 2011 1 585 037 321 8 000 000 52 982 248Shares issued during 2011 in terms of the group’s equity compensation plans 3 709 809

Shares in issue at 31 December 2011 1 588 747 130 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 SPEs (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 group 11 170 972Shares held by other shareholders 1 514 097 348 8 000 000 52 982 248

Shares issued during 2012 in terms of the group’s equity compensation plans 5 347 398

Shares issued in terms of the final 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 SPEs (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 group 6 739 938Shares held by other shareholders 1 535 917 078 8 000 000 52 982 248

All issued shares are fully paid up.


155


2012Rm

2011Rm

16. Share capital continued16.3 Unissued shares

238 038 458 (2011: 255 427 154) ordinary shares of 10 cents each, of which 79 437 357 (2011: 79 251 866) are under the general authority of the directors which authority expires at the AGM to be held on 30 May 2013 24 26

155 825 716 (2011: 155 825 716) ordinary shares of 10 cents each are reserved to meet the requirements of the group’s share incentive schemes in terms of the authority vested in the directors by members’ resolution dated 31 May 2012 16 16

947 017 752 (2011: 947 017 752) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each are under the general authority of the directors which authority expires at the AGM to be held on 30 May 2013 9 9

49 51

16.4 Interest of directors in the capital of the companyThe directors held, directly and indirectly, interests in the company’s ordinary issued share capital and preference share capital, as reflected in the following tables.

Ordinary shares

Direct beneficial1 Indirect beneficial1

2012Number

2011Number

2012Number

2011Number

DDB Band 12 742 12 742RMW Dunne 28 000 42 000TS Gcabashe2 111 112 111 112KP Kalyan2 125 000 125 000SJ Macozoma3 5 711 527 5 711 527JH Maree 50 000 50 000 650 000 650 000KD Moroka2 515 505 111 112 111 112AC Nissen2 111 112 111 112MC Ramaphosa4 2 327 2 327 4 237 848 4 237 848SP Ridley 85 85MJD Ruck 175 000 175 000EM Woods 52 450 52 450

293 119 293 109 11 085 711 11 099 711

1 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 SJ Macozoma holds an effective 26.62% (2011: 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.

4 MC Ramaphosa holds an effective 29.63% (2011: 29.63%) interest in Shanduka which acquired 16 088 608 shares in terms of the black ownership initiative of which 1 787 444 were sold to ICBC.


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156


16. Share capital continued 16.4 Interest of directors in the capital of the company continued

Second preference shares

Direct beneficial1

2012Number

2011Number

DDB Band 27 167 27 167KP Kalyan 3 214SJ Macozoma 1 140 1 140JH Maree 10 331 10 331

41 852 38 638

1 As per Listings Requirements of the JSE.

No directors, other than those disclosed, have direct or indirect beneficial preference shareholdings.

No director owns more than 1% of the company’s total issued share capital. The company has not been informed of any changes in these holdings at the date of this report.

2012Number

2011Number

Shares as at 31 December Share incentives 2 410 648 2 650 000

2012 2011

Numberof shares (million) % holding

Numberof shares

(million) % holding

16.5 Shareholder analysis16.5.1 10 major shareholders1

ICBC 322,0 20.1 318,5 20.1Public Investment Corporation 233,7 14.6 213,5 13.4Tutuwa participants 88,2 5.5 88,4 5.6

Staff 34,5 2.2 34,7 2.2Strategic partners 35,8 2.2 35,8 2.3Communities and regional businesses 17,9 1.1 17,9 1.1

Old Mutual Group 29,8 1.9 33,2 2.0Dodge & Cox 25,9 1.6 48,1 3.0Investment Solutions 25,2 1.6 26,4 1.7Vanguard Emerging Markets Fund 23,9 1.5 19,7 1.2Sanlam Group 23,2 1.4 25,0 1.6Dimensional Emerging Markets Value Fund 16,8 1.0 14,9 0.9Allan Gray Equity Fund 14,1 0.9 13,1 0.8

802,8 50.1 800,8 50.3

1 Beneficial holdings are determined from the share register and investigations conducted on our behalf in terms of section 56 of the Companies Act.


157


2012 2011

Numberof shares (million) % holding

Numberof shares

(million) % holding

16. Share capital continued16.5 Shareholder analysis continued16.5.2 Geographic spread of shareholders

South Africa 864,6 53.8 860,2 54.1Foreign shareholders 741,5 46.2 728,5 45.9

China 323,5 20.1 318,7 20.1United States of America (US) 217,5 13.6 224,8 14.2United Kingdom (UK) 62,8 3.9 60,7 3.8Singapore 17,6 1.1 20,5 1.3Namibia 16,7 1.0 15,6 1.0United Arab Emirates 12,8 0.8 11,7 0.7Australia 11,1 0.7 9,7 0.6Luxembourg 11,1 0.7 7,8 0.5Netherlands 10,4 0.7 7,8 0.5Saudi Arabia 10,0 0.6 10,2 0.6Canada 9,6 0.6 8,1 0.5Other 38,4 2.4 32,9 2.1

1 606,1 100.0 1 588,7 100.0

16.5.3 Spread of ordinary shareholdersPublic1 957,8 59.6 962,4 60.6Non-public1 648,3 40.4 626,3 39.4

Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 2,3 0.2 3,4 0.2ICBC 322,0 20.1 318,5 20.1Public Investment Corporation 233,7 14.6 213,5 13.4Standard Bank Group retirement funds 1,4 0.1 1,9 0.1Tutuwa participants3 88,2 5.4 88,3 5.6Associates of directors 0,7 0,7

1 606,1 100.0 1 588,7 100.0

2012 2011

Numberof shares % holding


16.5.4 Spread of 6.5% cumulative preference shareholdersPublic1 8 000 000 100.00 7 996 000 99.95Non-public1 4 000 0.05

Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 4 000 0.05

8 000 000 100.00 8 000 000 100.00

1 As per JSE Listings requirements.2 Excludes indirect holdings of strategic partners which are included in Tutuwa participants.3 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust.


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158


2012 2011



16. Share capital continued16.5 Shareholder analysis continued16.5.5 Spread of non-redeemable, non-cumulative,

non-participating preference shareholdersPublic1 52 743 071 99.60 52 653 386 99.40Non-public1 239 177 0.40 328 862 0.60

Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 234 643 0.40 324 828 0.60Associates of directors 4 534 4 034

52 982 248 100.00 52 982 248 100.00

1 As per JSE Listings Requirements.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 18 756 489 (2011: 11 265 060) for which the average price paid was R110,33 (2011: R99,75). The total number of equity securities held as treasury shares at the end of the year was 6 739 938 (2011: 11 170 972). Refer to page 69 of the annual integrated report for a detailed explanation of the differences between normalised and IFRS results.

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 black economic empowerment (BEE) entities (SPEs). 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 SPEs that are deemed to be treasury shares in terms of accounting conventions. Refer to page 69 of the annual integrated report for a detailed explanation of the accounting treatment of the group’s Tutuwa initiative.

On 20 December 2007, the group obtained financing external to the group for a portion of the financing provided to the SPEs. 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 SPEs (24 691 358 shares) were no longer deemed to be treasury shares for accounting purposes.

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.


159


17. Empowerment reserve continued 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.

At yearend the accumulated unrecognised asset, including accrued dividends, was R2 721 million (2011: R2 503 million) for SBG and R1 031 million (2011: R1 095 million) for Liberty.

The investments in the cumulative redeemable preference shares of the BEE entities are set out below.

2012Number ofpreference

shares

2011Number of

preference shares

Issue priceper share

(R)2012

Rm2011

Rm

Standard Bank Group 3 031 3 031

Shanduka – Tutuwa Strategic Holdings 1 Proprietary Limited1 491 682 491 682 1 000 492 492Safika – Tutuwa Strategic Holdings 2 Proprietary Limited1 737 523 737 523 1 000 737 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 1 012 1 075

Shanduka 161 000 171 000 1 000 161 171Safika 245 000 261 000 1 000 245 261Black Managers’ Trust 404 000 429 000 1 000 404 429The Community Trust 202 000 214 000 1 000 202 214

Total investment 4 043 4 106Financing by parties external to the group2 (1 000) (1 000)Preference dividends accrued but not received due to dividends distributed 690 472Attributable to non-controlling interests of Liberty (463) (499)

Standard Bank Group empowerment reserve 3 270 3 079

1 The SPEs above owned 88 170 168 (2011: 88 170 168) ordinary shares of SBG at 31 December 2012, of which 24 691 358 (2011: 24 691 358) ordinary shares are funded by third-party financing.

2 On 20 December 2007 the group obtained financing external to the group for a portion of the financing provided to the SPEs.


report


160


StandardBank Group

RmLiberty

RmTotal

Rm

17. Empowerment reserve continuedReconciliation of investment in preference sharesOriginal amount invested in 2004 4 017 1 251 5 268Redemption – 20061 (92) (92)Financing by external parties – 20072 (1 000) (1 000)Redemption – 20083 (986) (986)Redemption – 20101 (40) (40)Redemption – 20111 (44) (44)

Redemption – 20121 (63) (63) Attributable to non-controlling interests of Liberty (463) (463) Preference dividends accrued but not received due to dividends distributed 690 690

Remaining amounts invested at 31 December 2012 2 721 549 3 270

1 Redemption of cumulative preference shares.2 On 20 December 2007 the group obtained financing external to the group for a portion of the financing provided to the SPEs.3 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.

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 (2011: 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).


161


2012Rm

20111

Rm20101

Rm

18. Trading liabilitiesClassificationListed 20 533 16 259 18 001Unlisted 18 673 14 005 11 481

39 206 30 264 29 482

Comprising:Government, municipality and utility bonds 4 417 5 010 5 590Corporate bonds 1 154 520 359Listed equities 9 995 5 845 6 958Unlisted equities 520 334 421Collateral 2 267 2 511 1 148Repurchase agreements and other collateralised agreements 13 174 7 413 3 891Credit linked notes 7 585 8 271 7 957Other instruments 94 360 3 158

39 206 30 264 29 482

Maturity analysisThe maturities represent periods to contractual redemption of trading liabilities recorded.Repayable on demand 1 854 185 191Maturing within 1 month 14 043 7 728 2 167Maturing after 1 month but within 6 months 1 096 1 088 3 601Maturing after 6 months but within 12 months 2 243 3 151 2 069Maturing after 12 months 9 507 11 924 14 030Undated 10 463 6 188 7 424

39 206 30 264 29 482



report


162


2012Rm

20111,2

Rm20102

Rm

19. Deposit and current accountsDeposits from banks 124 275 129 741 87 830

Deposits from banks and central banks 117 577 126 954 83 511Deposits from banks under repurchase agreements and other collateralised agreements 6 698 2 787 4 319

Deposits from customers 794 258 749 181 698 664

Current accounts 124 515 106 259 93 165Cash management deposits 106 968 98 480 83 455Call deposits 182 221 173 011 151 001Savings accounts 24 382 23 893 26 203Term deposits 245 652 255 883 241 351Negotiable certificates of deposit 79 966 66 415 71 211Repurchase agreements and other collateralised agreements 1 596 2 709 2 073Securitisation issuances 6 002 7 278 10 152Other funding 22 956 15 253 20 053

Total deposit and current accounts 918 533 878 922 786 494

The carrying value of deposits and current accounts was increased by R621 million (2011: increased by R354 million) for fair value adjustments arising from risks subject to fair value hedging relationships.

Maturity analysisThe maturities represent periods to contractual redemption of deposit and current accounts recorded.Repayable on demand 473 017 438 174 392 738Maturing within 1 month 102 989 102 360 89 543Maturing after 1 month but within 6 months 151 066 148 379 120 155Maturing after 6 months but within 12 months 54 191 80 038 77 177Maturing after 12 months 137 270 109 971 106 881

918 533 878 922 786 494

1 2011 balances of R14 045 million were reclassified from deposit and current accounts from customers to deposits and current accounts from banks in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year.


Segmental analysis – geographic area The following table sets out the distribution of the group’s deposit and current accounts by geographic area where recorded.

2012%

2012Rm

2011%

2011Rm

2010%

2010Rm

South Africa 76 701 070 76 671 884 76 595 600Rest of Africa 14 122 876 12 101 286 10 81 342Outside Africa 10 94 587 12 105 752 14 109 552

100 918 533 100 878 922 100 786 494


163


2012Rm

2011Rm

20. Current and deferred tax liabilitiesCurrent tax liabilities 4 230 2 353Deferred tax liabilities 3 374 3 683

7 604 6 036

20.1 Deferred tax analysisAccrued interest receivable (4) (4)Assessed losses (696) (426)Assets on lease 384 557CGT 831 1 252Credit impairment charges (858) (713)DAC 123 113Deferred revenue liability (DRL) (47) (46)Property and equipment 363 97Derivatives 2 451 1 662Fair value adjustments on financial instruments 300 220Intangible asset – present value of in-force (PVIF) life insurance 111 142Policyholder change in valuation basis 1 715 1 514Post-employment benefits (30) (56)Secondary tax on companies (STC) (122)Share-based payments (635) (430)Special transfer to life fund (311) (373)Provisions and other items (1 506) (1 144)

Deferred tax closing balance 2 191 2 243

Deferred tax liabilities 3 374 3 683Deferred tax assets (note 10) (1 183) (1 440)


report


164


2012Rm

2011Rm

20. Current and deferred tax liabilities continued20.2 Deferred tax reconciliation

Deferred tax at the beginning of the year 2 243 1 726Acquisitions (27)Reclassified to assets and liabilities held for sale 143

(Reversing)/originating temporary differences for the year: (52) 401

Accrued interest receivable (64)Assessed losses (270) (226)Assets on lease (173) 9CGT (421) 87Credit impairment charges (145) 200DAC 10 11DRL (1) (7)Property and equipment 266 (19)Derivatives 789 415Fair value adjustments on financial instruments 80 (81)Intangible asset – PVIF life insurance (31) (46)Policyholder change in valuation basis 201 276Post-employment benefits 26 67STC 122 207Share-based payments (205) 77Special transfer to life fund 62 (88)Provisions and other items (362) (417)

Deferred tax at the end of the year 2 191 2 243

Temporary differences for the year comprise:Recognised in OCI from continuing operationsRecognised in OCI – fair value adjustments on financial instruments (167) (53)Recognised in equity – deferred tax on share-based payments (69) 83Recognised in profit or loss 165 192Translation movement 19 179

Recognised in OCI 2 (12)Other items 17 191

(52) 401

There are unutilised tax losses amounting to R4 253 million (2011: R413 million) for which no deferred tax asset 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.

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.


165


2012Rm

2011Rm

21. Provisions and other liabilities21.1 Summary

Trading settlement liabilities 13 454 8 645Items in the course of transmission 1 684 1 887Provision for post-employment benefits (note 21.2) 1 149 1 267Third-party liabilities arising on consolidation of mutual funds (note 21.3) 14 465 11 164Operating leases – accrued expense (note 13) 30 93Cash-settled share-based payment liability (annexure D) 1 446 1 296Insurance payables 5 259 3 820Staff-related accruals 4 186 3 586DRL 174 159Accounts payable 1 336 2 323Deemed disposal taxation liability 918Other liabilities 14 373 11 434

58 474 45 674

21.2 Provision for post-employment benefitsBalance at the beginning of the year 1 267 1 188Net provision (released)/raised (118) 79

Balance at the end of the year 1 149 1 267

Details on post-employment benefits are provided in note 37.

21.3 Third-party liabilities arising on consolidation of mutual fundsBalance at the beginning of the year 11 164 11 000Additional mutual funds classified as subsidiaries 692 918Repayments through withdrawal or change in effective ownership (261) (420)Mutual funds no longer classified as subsidiaries (109) (1 564)Fair value adjustment 2 979 1 230


Liberty 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 Liberty’s control.

2012Rm

2011Rm

22. Policyholders’ liabilitiesPolicyholders’ liabilities under insurance contracts 168 521 149 005

Insurance contracts (note 22.1) 164 666 145 558Investment contracts with discretionary participation features (DPF) (note 22.1) 3 855 3 447

Policyholders’ liabilities under investment contracts (note 22.2) 68 163 59 560

236 684 208 565


report


166


2012 2011

Insurance contracts

Rm

Investment contractswith DPF1

Rm

Reinsurance assets2

Rm

Insurance contracts

Rm

Investment contractswith DPF1

Rm

Reinsurance assets2

Rm

22. Policyholders’ liabilities continued

22.1

Policyholders’ liabilities under insurance contracts and reinsurance assetsBalance at the beginning of the year 145 558 3 447 (902) 138 873 2 634 (847)Additions through business acquisitions 301 769 (2)Inflows 55 993 1 194 (919) 38 678 494 (837)

Insurance premiums 29 061 659 (845) 26 362 455 (767)Investment returns 26 932 535 (74) 12 309 39 (70)

Unwinding of discount rate 1 144 1 (73) 1 017 (70)Investments 25 788 534 (1) 11 292 39

Equity accounted earnings from joint ventures 7

Outflows (34 391) (857) 679 (30 422) (521) 617

Claims and policyholders’ benefits (23 680) (824) 599 (22 106) (472) 543

Claims and policyholders’ benefits under insurance contracts (23 680) (529) 599 (22 106) (234) 543Switches between investment contracts with DPF to investment contracts

without DPF (295) (238)

Acquisition costs associated with insurance contracts (3 173) (6) 1 (2 685) (11) 3General marketing and administration expenses (4 173) (47) 5 (3 694) (31) 2Preference dividend (794) (621)Finance costs (46) (32)Taxation (2 525) 20 74 (1 284) (7) 69

Net income from insurance operations (2 505) 43 164 (1 920) (46) 167

Changes in estimates (501) (28) (498) (4)Planned margins and other variances (3 711) 51 260 (2 524) (51) 238New business 275 2 144Shareholder taxation on transfer of net income 1 432 (8) (70) 958 5 (67)

Foreign currency translation 11 28 48 117

Balance at the end of the year 164 666 3 855 (978) 145 558 3 447 (902)

Liquidity profileCurrent 17 833 230 (163) 14 664 326 (168)Non-current 146 833 3 625 (815) 130 894 3 121 (734)

164 666 3 855 (978) 145 558 3 447 (902)

1 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.

2 Reinsurance assets are included in insurance prepayments and reinsurance assets under other assets in note 11 on page 144.


167


2012Rm

2011Rm

22. Policyholders’ liabilities continued22.2 Policyholders’ liabilities under investment contracts

Balance at the beginning of the year 59 560 56 371Fund inflows from investment contracts (excluding switches) 11 724 9 661Net fair value adjustment including the change in deferred taxation on investment property 10 035 4 089Fund outflows from investment contracts (excluding switches) (12 556) (9 924)Switches between investments with DPF to investments without DPF 295 238Service fee income (895) (875)


Liquidity profileCurrent 7 033 5 689Non-current 61 130 53 871

68 163 59 560

Net income from investment contracts1 11 65

Service fee income 895 875Expenses (884) (810)

Property expenses applied to investment returns 464 407Shareholder taxation on transfer of net income (17) (28)Acquisition costs (269) (222)General marketing and administration expenses (1 028) (954)Finance costs (34) (13)

1 Prior to DAC and DRL adjustments.


report


168


Redeemable/repayable date Date issued Rate % Callable date Rate after call date %

Notionalvalue2012LCm

Carryingvalue20121

Rm

Notionalvalue2012

Rm

Carryingvalue

20111

Rm

Notionalvalue2011

Rm

23. Subordinated debtSubordinated bonds2

The Standard Bank of South Africa 22 400 21 550 16 095 15 178

USA private placement 31 July 20173 31 July 20074 LIBOR5 + 0.88 and 6.446 31 July 2012 LIBOR5 + 1.88 USD355 2 925 2 548SBK 7 24 May 2020 24 May 2005 9.636 24 May 20157 JIBAR8 + 1.97 ZAR3 000 3 033 3 000 3 033 3 000SBK 8 10 April 2018 10 April 2006 8.206 10 April 20137 JIBAR8 + 1.50 ZAR1 500 1 528 1 500 1 528 1 500SBK 9 10 April 2023 10 April 2006 8.406 10 April 20187 JIBAR8 + 1.68 ZAR1 500 1 529 1 500 1 529 1 500SBK 10 (Tier III) 19 November 20123 19 November 2007 JIBAR8 + 0.675 ZAR300 302 300SBKI 11 9 April 2019 9 April 2009 CPI indexed9 10 April 20147 RY10 of 7.25 ZAR1 800 2 414 1 800 2 206 1 800SBK 12 24 November 2021 24 November 2009 10.826 24 November 2016 JIBAR8 + 3.90 ZAR1 600 1 618 1 600 1 618 1 600SBK 13 24 November 2021 24 November 2009 JIBAR8 + 2.20 24 November 2016 JIBAR8 + 4.20 ZAR1 150 1 159 1 150 1 159 1 150SBK 14 1 December 2022 1 December 2011 9.666 1 December 20177 CPI indexed9 + 2.69 ZAR1 780 1 795 1 780 1 795 1 780SBK 15 23 January 2022 23 January 2012 JIBAR8 + 2.00 23 January 2017 CPI indexed9 + 2.36 ZAR1 220 1 236 1 220SBK 16 15 March 2023 15 March 2012 JIBAR8 + 2.10 15 March 2018 CPI indexed9 + 2.42 ZAR2 000 2 005 2 000SBK 17 30 July 2024 30 July 2012 JIBAR8 + 2.20 30 July 2019 JIBAR8 + 2.20 ZAR2 000 2 024 2 000SBK 18 24 October 2025 24 October 2012 JIBAR8 + 2.35 24 October 2020 JIBAR8 + 2.35 ZAR3 500 3 552 3 500SBK 19 24 October 2024 24 October 2012 JIBAR8 + 2.20 24 October 2019 JIBAR8 + 2.20 ZAR500 507 500

Standard Bank Swaziland December 2019 – October 2020

December 2009 – October 2010

8.10 – 8.70 December 2014 – October 2015

JIBAR8 + 1.00 E80 80 80 80 80

Stanbic Bank Botswana June 2018 – May 2022 June 2008 – May 2012 BWC11 + (0.05 to 1.50) June 2013 – May 2017 BWC11 + (0.80 to 2.25) BWP280 306 306 216 216Standard Bank Mozambique 29 June 2017 29 June 2007 WA12 + 0.5013 29 June 2012 WA12 + 0.5013 MT260 74 74 78 78CfC Stanbic Bank Kenya April 2012 – July 2016 October 2005

– December 20107Y T-Bond14 and T-Bill15 + 1.75

KES5 400 492 492 514 514

Stanbic Bank Uganda 10 August 2016 10 August 2009 14.50 and T-Bill16 + 1.5017 10 August 2014 UGX30 000 95 95 98 98Stanbic Bank Ghana 23 January 2022 23 January 2012 11.256 23 January 2017 15.756 GHS7 34 34Standard Bank Plc 6 307 5 652 5 913 5 395

27 July 2016 27 July 2006 8.012 27 July 20167 LIBOR5 + 3.25 USD142 1 246 1 201 1 189 1 1472 December 2019 2 December 2009 8.125 USD500 4 849 4 239 4 522 4 0463 December 201918 3 December 200919 8.0020 USD25 212 212 202 202

Subordinated bonds issued to group companies (603) (592) (666) (648)

Total bonds qualifying as regulatory banking capital 29 185 27 691 22 328 20 911

LibertyQualifying as regulatory insurance capital 2 037 2 000 2 054 2 000

Redeemable – 12 September 2017 12 September 20173 12 September 2005 8.936 12 September 2012 JIBAR8 + 1.86 ZAR2 000 2 054 2 000Redeemable – 13 August 2017 13 August 2017 13 August 2012 7.676 7.676 ZAR1 000 1 024 1 000Redeemable – 3 October 2018 3 October 2018 3 October 2012 7.646 7.646 ZAR1 000 1 013 1 000

Total subordinated bonds 31 222 29 691 24 382 22 911Subordinated loans issued within the rest of Africa

September 2016 – January 2022

December 2006 – January 2012

LIBOR5 + (0.75 to 4.00) and 11.25


LIBOR5 + (1.75 to 5.00) and 15.75

USD3 to 20 and GHS7 326 326 372 372

Total subordinated debt 31 548 30 017 24 754 23 283

1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts, foreign exchange movements, accrued interest and the unamortised fair value adjustments relating to bonds hedged for interest rate risk.

2 Tier II, unless otherwise stated. 3 Redeemed during 2012. 4 These bonds were issued in US dollars (USD355 million) redeemable on 31 July 2017. The bonds are divided into two categories: – Category A – USD230 million bearing interest at 6.44% compounding semi-annually, switching to LIBOR + 1.88% on 31 July 2012 – Category B – USD125 million at LIBOR + 0.88%, switching to LIBOR + 1.88% on 31 July 2012. 5 LIBOR is the London interbank offer rate for three-month US dollar deposits. 6 Fixed semi-annual coupon. 7 The issuer may redeem on this date, or any subsequent interest payment date. 8 JIBAR is the three-month floating Johannesburg interbank agreed rate. 9 The interest rate is calculated in terms of the pricing supplement using the base rate as defined adjusted for changes in the consumer

price index (CPI) as published by Statistics South Africa.10 RY is the real yield, which is the return from an investment adjusted for the effects of inflation, compounded semi-annually.

11 BWC is the rate for three-month Botswana certificates.12 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.13 The interest is payable quarterly.14 7Y T-Bond refers to the yield on the seven-year Kenya Treasury Bond.15 T-Bill refers to the yield on the latest 91-day or 180-day Kenyan Treasury Bill.16 T-Bill refers to the yield on the latest 182-day Uganda Treasury Bill.17 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.18 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.19 Regulatory approval was received in 2010 on which date these balances qualified as subordinated bonds.20 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.


169


Redeemable/repayable date Date issued Rate % Callable date Rate after call date %

Notionalvalue2012LCm

Carryingvalue20121

Rm

Notionalvalue2012

Rm

Carryingvalue

20111

Rm

Notionalvalue2011

Rm

23. Subordinated debtSubordinated bonds2

The Standard Bank of South Africa 22 400 21 550 16 095 15 178

USA private placement 31 July 20173 31 July 20074 LIBOR5 + 0.88 and 6.446 31 July 2012 LIBOR5 + 1.88 USD355 2 925 2 548SBK 7 24 May 2020 24 May 2005 9.636 24 May 20157 JIBAR8 + 1.97 ZAR3 000 3 033 3 000 3 033 3 000SBK 8 10 April 2018 10 April 2006 8.206 10 April 20137 JIBAR8 + 1.50 ZAR1 500 1 528 1 500 1 528 1 500SBK 9 10 April 2023 10 April 2006 8.406 10 April 20187 JIBAR8 + 1.68 ZAR1 500 1 529 1 500 1 529 1 500SBK 10 (Tier III) 19 November 20123 19 November 2007 JIBAR8 + 0.675 ZAR300 302 300SBKI 11 9 April 2019 9 April 2009 CPI indexed9 10 April 20147 RY10 of 7.25 ZAR1 800 2 414 1 800 2 206 1 800SBK 12 24 November 2021 24 November 2009 10.826 24 November 2016 JIBAR8 + 3.90 ZAR1 600 1 618 1 600 1 618 1 600SBK 13 24 November 2021 24 November 2009 JIBAR8 + 2.20 24 November 2016 JIBAR8 + 4.20 ZAR1 150 1 159 1 150 1 159 1 150SBK 14 1 December 2022 1 December 2011 9.666 1 December 20177 CPI indexed9 + 2.69 ZAR1 780 1 795 1 780 1 795 1 780SBK 15 23 January 2022 23 January 2012 JIBAR8 + 2.00 23 January 2017 CPI indexed9 + 2.36 ZAR1 220 1 236 1 220SBK 16 15 March 2023 15 March 2012 JIBAR8 + 2.10 15 March 2018 CPI indexed9 + 2.42 ZAR2 000 2 005 2 000SBK 17 30 July 2024 30 July 2012 JIBAR8 + 2.20 30 July 2019 JIBAR8 + 2.20 ZAR2 000 2 024 2 000SBK 18 24 October 2025 24 October 2012 JIBAR8 + 2.35 24 October 2020 JIBAR8 + 2.35 ZAR3 500 3 552 3 500SBK 19 24 October 2024 24 October 2012 JIBAR8 + 2.20 24 October 2019 JIBAR8 + 2.20 ZAR500 507 500

Standard Bank Swaziland December 2019 – October 2020

December 2009 – October 2010

8.10 – 8.70 December 2014 – October 2015

JIBAR8 + 1.00 E80 80 80 80 80

Stanbic Bank Botswana June 2018 – May 2022 June 2008 – May 2012 BWC11 + (0.05 to 1.50) June 2013 – May 2017 BWC11 + (0.80 to 2.25) BWP280 306 306 216 216Standard Bank Mozambique 29 June 2017 29 June 2007 WA12 + 0.5013 29 June 2012 WA12 + 0.5013 MT260 74 74 78 78CfC Stanbic Bank Kenya April 2012 – July 2016 October 2005

– December 20107Y T-Bond14 and T-Bill15 + 1.75

KES5 400 492 492 514 514

Stanbic Bank Uganda 10 August 2016 10 August 2009 14.50 and T-Bill16 + 1.5017 10 August 2014 UGX30 000 95 95 98 98Stanbic Bank Ghana 23 January 2022 23 January 2012 11.256 23 January 2017 15.756 GHS7 34 34Standard Bank Plc 6 307 5 652 5 913 5 395

27 July 2016 27 July 2006 8.012 27 July 20167 LIBOR5 + 3.25 USD142 1 246 1 201 1 189 1 1472 December 2019 2 December 2009 8.125 USD500 4 849 4 239 4 522 4 0463 December 201918 3 December 200919 8.0020 USD25 212 212 202 202

Subordinated bonds issued to group companies (603) (592) (666) (648)

Total bonds qualifying as regulatory banking capital 29 185 27 691 22 328 20 911

LibertyQualifying as regulatory insurance capital 2 037 2 000 2 054 2 000

Redeemable – 12 September 2017 12 September 20173 12 September 2005 8.936 12 September 2012 JIBAR8 + 1.86 ZAR2 000 2 054 2 000Redeemable – 13 August 2017 13 August 2017 13 August 2012 7.676 7.676 ZAR1 000 1 024 1 000Redeemable – 3 October 2018 3 October 2018 3 October 2012 7.646 7.646 ZAR1 000 1 013 1 000

Total subordinated bonds 31 222 29 691 24 382 22 911Subordinated loans issued within the rest of Africa


December 2006 – January 2012

LIBOR5 + (0.75 to 4.00) and 11.25


LIBOR5 + (1.75 to 5.00) and 15.75

USD3 to 20 and GHS7 326 326 372 372

Total subordinated debt 31 548 30 017 24 754 23 283

1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts, foreign exchange movements, accrued interest and the unamortised fair value adjustments relating to bonds hedged for interest rate risk.

2 Tier II, unless otherwise stated. 3 Redeemed during 2012. 4 These bonds were issued in US dollars (USD355 million) redeemable on 31 July 2017. The bonds are divided into two categories: – Category A – USD230 million bearing interest at 6.44% compounding semi-annually, switching to LIBOR + 1.88% on 31 July 2012 – Category B – USD125 million at LIBOR + 0.88%, switching to LIBOR + 1.88% on 31 July 2012. 5 LIBOR is the London interbank offer rate for three-month US dollar deposits. 6 Fixed semi-annual coupon. 7 The issuer may redeem on this date, or any subsequent interest payment date. 8 JIBAR is the three-month floating Johannesburg interbank agreed rate. 9 The interest rate is calculated in terms of the pricing supplement using the base rate as defined adjusted for changes in the consumer

price index (CPI) as published by Statistics South Africa.10 RY is the real yield, which is the return from an investment adjusted for the effects of inflation, compounded semi-annually.

11 BWC is the rate for three-month Botswana certificates.12 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.13 The interest is payable quarterly.14 7Y T-Bond refers to the yield on the seven-year Kenya Treasury Bond.15 T-Bill refers to the yield on the latest 91-day or 180-day Kenyan Treasury Bill.16 T-Bill refers to the yield on the latest 182-day Uganda Treasury Bill.17 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.18 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.19 Regulatory approval was received in 2010 on which date these balances qualified as subordinated bonds.20 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.


report


170


24. Classification of assets and liabilities Accounting classifications and fair values The table below sets out the group’s classification of assets and liabilities, and their fair values.

Note

Held-for-trading1

Rm

Designatedat fair value

Rm

Held-to-maturity

Rm

Loans and receivables2

Rm

Available-for-sale

Rm

Otheramortised

cost2

Rm

Other non-financial

assets/liabilitiesRm

Totalcarryingamount

RmFair value3

Rm

2012AssetsCash and balances with central banks 3 61 985 61 985 61 985Derivative assets 4.7 120 190 120 190 120 190Trading assets 5.1 114 419 114 419 114 419Pledged assets 6.1 9 977 1 663 11 640 11 640Non-current assets held for sale 7 960 960Financial investments 8 46 284 574 13 744 4 070 15 724 318 158 319 352Loans and advances to banks 9.1 3 166 245 104 785 108 196 107 776Loans and advances to customers 9.1 10 862 4 882 697 221 702 975 702 025Interest in associates and joint ventures 12 17 246 17 246Other financial assets 24 581 24 581 24 581Other non-financial assets 63 870 63 870

244 642 288 602 18 871 892 642 17 387 82 076 1 544 220

LiabilitiesDerivative liabilities 4.7 121 998 121 998 121 998Trading liabilities 18 39 206 39 206 39 206Deposits from banks 19 1 737 122 538 124 275 124 251Deposits from customers 19 44 42 727 751 487 794 258 805 422Policyholders’ liabilities 22 68 163 168 521 236 684 68 163Subordinated debt 23 31 548 31 548 37 890Other financial liabilities 48 231 48 231 48 231Other non-financial liabilities 17 847 17 847

161 248 112 627 953 804 186 368 1 414 047

2011AssetsCash and balances with central banks 3 31 907 31 907 31 907Derivative assets 4.7 150 046 150 046 150 046Trading assets 5.1 90 449 90 449 90 449Pledged assets 6.1 4 764 1 349 6 113 6 113Non-current assets held for sale 7 539 25 551 3 140 4 855 34 085 29 230Financial investments4 8 550 255 924 12 815 5 359 14 671 289 319 292 045Loans and advances to banks5 9.1 63 3 481 126 713 130 257 130 061Loans and advances to customers5 9.1 3 618 667 433 671 051 670 846Interest in associates and joint ventures 12 11 697 2 238 13 935 11 648Other financial assets 11 660 11 660 11 660Other non-financial assets 64 007 64 007

246 411 274 720 12 815 868 623 19 160 71 100 1 492 829

LiabilitiesDerivative liabilities 4.7 153 142 153 142 153 142Trading liabilities6 18 30 264 30 264 30 264Non-current liabilities held for sale 7 37 24 342 3 560 27 939 24 379Deposits from banks5 19 3 271 126 470 129 741 129 431Deposits from customers4,5,6,7 19 53 881 695 300 749 181 746 177Policyholders’ liabilities 22 59 560 149 005 208 565 59 560Subordinated debt 23 24 754 24 754 25 082Other financial liabilities 11 164 26 928 38 092 38 092Other non-financial liabilities 13 618 13 618

183 443 127 876 897 794 166 183 1 375 296

1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.7 on page 127.2 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 approximates fair value, excluding non-financial assets and liabilities. Refer to the fair value section in accounting policy 4 – Financial instruments on page 232 for a description on how fair values are determined.4 Included in the restated comparative information is the restatement of financial assets of R2 763 million from the designated at fair value category to

the held-to-maturity category and financial liabilities of R2 357 million from the designated at fair value category to the amortised cost category. These restatements reflect the original intention of management and the underlying nature of the financial instruments. The restatement had no impact on the group’s income statement or reserves.

5 2011 balances reclassified in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year.

6 The comparative information was restated to reflect the presentation consequences of the restatements in annexure A – restatements on page 212.7 During the previous financial year, comparative amounts for deposits from customers were reclassified from other amortised cost to the designated at fair value

category to be consistent with the classification of such amounts that were reported in the prior financial year (2011). During the current financial year (2012) it was determined that such reclassification was incorrect. These amounts were deposits from customers for which fair value hedge adjustments had been recognised and hence such amounts should have rather remained classified as amortised cost together with its fair value hedge adjustment. The fair value adjustments, which were historically classified in the designated at fair value category, should rather have been classified within the amortised cost category. Accordingly, in order to adjust for the previous incorrect reclassification an amount of R28 822 million has been reclassified from designated at fair value to other amortised cost. The reclassification reflects the original intention of management and is in accordance with IFRS. No adjustments to the carrying value of the deposits from customers arose as a result of the reclassification.


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24. Classification of assets and liabilities Accounting classifications and fair values The table below sets out the group’s classification of assets and liabilities, and their fair values.

Note

Held-for-trading1

Rm

Designatedat fair value

Rm

Held-to-maturity

Rm

Loans and receivables2

Rm

Available-for-sale

Rm

Otheramortised

cost2

Rm

Other non-financial

assets/liabilitiesRm

Totalcarryingamount

RmFair value3

Rm

2012AssetsCash and balances with central banks 3 61 985 61 985 61 985Derivative assets 4.7 120 190 120 190 120 190Trading assets 5.1 114 419 114 419 114 419Pledged assets 6.1 9 977 1 663 11 640 11 640Non-current assets held for sale 7 960 960Financial investments 8 46 284 574 13 744 4 070 15 724 318 158 319 352Loans and advances to banks 9.1 3 166 245 104 785 108 196 107 776Loans and advances to customers 9.1 10 862 4 882 697 221 702 975 702 025Interest in associates and joint ventures 12 17 246 17 246Other financial assets 24 581 24 581 24 581Other non-financial assets 63 870 63 870

244 642 288 602 18 871 892 642 17 387 82 076 1 544 220

LiabilitiesDerivative liabilities 4.7 121 998 121 998 121 998Trading liabilities 18 39 206 39 206 39 206Deposits from banks 19 1 737 122 538 124 275 124 251Deposits from customers 19 44 42 727 751 487 794 258 805 422Policyholders’ liabilities 22 68 163 168 521 236 684 68 163Subordinated debt 23 31 548 31 548 37 890Other financial liabilities 48 231 48 231 48 231Other non-financial liabilities 17 847 17 847

161 248 112 627 953 804 186 368 1 414 047

2011AssetsCash and balances with central banks 3 31 907 31 907 31 907Derivative assets 4.7 150 046 150 046 150 046Trading assets 5.1 90 449 90 449 90 449Pledged assets 6.1 4 764 1 349 6 113 6 113Non-current assets held for sale 7 539 25 551 3 140 4 855 34 085 29 230Financial investments4 8 550 255 924 12 815 5 359 14 671 289 319 292 045Loans and advances to banks5 9.1 63 3 481 126 713 130 257 130 061Loans and advances to customers5 9.1 3 618 667 433 671 051 670 846Interest in associates and joint ventures 12 11 697 2 238 13 935 11 648Other financial assets 11 660 11 660 11 660Other non-financial assets 64 007 64 007

246 411 274 720 12 815 868 623 19 160 71 100 1 492 829

LiabilitiesDerivative liabilities 4.7 153 142 153 142 153 142Trading liabilities6 18 30 264 30 264 30 264Non-current liabilities held for sale 7 37 24 342 3 560 27 939 24 379Deposits from banks5 19 3 271 126 470 129 741 129 431Deposits from customers4,5,6,7 19 53 881 695 300 749 181 746 177Policyholders’ liabilities 22 59 560 149 005 208 565 59 560Subordinated debt 23 24 754 24 754 25 082Other financial liabilities 11 164 26 928 38 092 38 092Other non-financial liabilities 13 618 13 618

183 443 127 876 897 794 166 183 1 375 296

1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.7 on page 127.2 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 approximates fair value, excluding non-financial assets and liabilities. Refer to the fair value section in accounting policy 4 – Financial instruments on page 232 for a description on how fair values are determined.4 Included in the restated comparative information is the restatement of financial assets of R2 763 million from the designated at fair value category to

the held-to-maturity category and financial liabilities of R2 357 million from the designated at fair value category to the amortised cost category. These restatements reflect the original intention of management and the underlying nature of the financial instruments. The restatement had no impact on the group’s income statement or reserves.

5 2011 balances reclassified in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year.

6 The comparative information was restated to reflect the presentation consequences of the restatements in annexure A – restatements on page 212.7 During the previous financial year, comparative amounts for deposits from customers were reclassified from other amortised cost to the designated at fair value

category to be consistent with the classification of such amounts that were reported in the prior financial year (2011). During the current financial year (2012) it was determined that such reclassification was incorrect. These amounts were deposits from customers for which fair value hedge adjustments had been recognised and hence such amounts should have rather remained classified as amortised cost together with its fair value hedge adjustment. The fair value adjustments, which were historically classified in the designated at fair value category, should rather have been classified within the amortised cost category. Accordingly, in order to adjust for the previous incorrect reclassification an amount of R28 822 million has been reclassified from designated at fair value to other amortised cost. The reclassification reflects the original intention of management and is in accordance with IFRS. No adjustments to the carrying value of the deposits from customers arose as a result of the reclassification.


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25. Financial instruments measured at fair value The tables that follow analyse financial instruments carried at fair value at the end of the reporting period, by level of fair

value hierarchy as required by IFRS 7. The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the financial instruments and the levels have been defined as follows:

Level 1 – fair values are based on quoted market prices (unadjusted) in active markets for an identical instrument.

Level 2 – fair values are calculated using valuation techniques based on observable inputs, either directly (that is as quoted prices) or indirectly (that is 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 values are based on 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 instruments.

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

2012AssetsDerivative 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 143 184 151 857 5 303 300 344Loans and advances to banks 655 2 511 3 166Loans and advances to customers 3 654 215 872

206 405 328 967 15 259 550 631

Comprising:Held-for-trading 244 642Designated at fair value 288 602Available-for-sale 17 387

550 631

LiabilitiesDerivative liabilities 8 365 111 298 2 335 121 998Trading liabilities 13 256 20 929 5 021 39 206Deposits from banks 9 1 728 1 737Deposits from customers 4 335 38 436 42 771Policyholders’ liabilities 68 153 10 68 163

25 965 240 544 7 366 273 875

Comprising:Held-for-trading 161 248Designated at fair value 112 627

273 875


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25. Financial instruments measured at fair value continued

Level 1Rm

Level 2Rm

Level 3Rm

TotalRm

2011AssetsDerivative assets 12 411 133 785 3 850 150 046Trading assets 23 169 61 414 5 866 90 449Pledged assets 4 739 1 374 6 113Non-current asset held for sale 3 609 50 20 3 679Financial investments1 136 137 128 669 6 339 271 145Loans and advances to banks 816 2 728 3 544Loans and advances to customers 2 702 916 3 618Associates held at fair value 11 697 11 697

180 881 342 419 16 991 540 291

Comprising:Held-for-trading 246 411Designated at fair value 274 720Available-for-sale 19 160

540 291

LiabilitiesDerivative liabilities 9 883 140 549 2 710 153 142Trading liabilities2 9 473 14 698 6 093 30 264Non-current liabilities held for sale 37 37Deposits from banks 3 271 3 271Deposits from customers1,2 3 347 50 428 106 53 881Policyholders’ liabilities 59 532 28 59 560Other financial liabilities 11 164 11 164

22 740 279 642 8 937 311 319

Comprising:Held-for-trading 183 443Designated at fair value 127 876

311 319

1 2011 deposits from customers and financial investments restated to reflect the presentation consequences of reclassifications as explained in note 24 on page 170.

2 The comparative information was restated to reflect the presentation consequences of the restatement in annexure A – restatements on page 212.


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25. Financial instruments measured at fair value continued Reconciliation of level 3 financial assets The tables below set out the reconciliation of financial assets that are measured at fair value based on inputs that are not

based on observable market data (level 3):

Derivative assets

Rm

Tradingassets

Rm

Non-current assets held

for saleRm

Financial investments

Rm

Loans and advances to

customersRm

TotalRm

Balance at 1 January 2011 2 514 4 213 6 682 1 608 15 017Reclassified as held for sale 19 (19)Total gains/(losses) included in profit or loss 1 815 (219) 15 675 (115) 2 171

Interest income (42) (42)Trading revenue 1 815 (219) 15 63 1 674Other revenue 303 (73) 230Investment gains 309 309

Originations and purchases 188 2 981 1 537 280 3 987Sales (819) (3 506) (1 749) (6 074)Settlements1 (244) (17) (87) (980) (1 328)Transfers into level 32 130 1 442 1 572Transfers out of level 33 (104) (1) (598) (43) (746)Exchange movements 370 956 2 898 166 2 392

Balance at 1 January 2012 3 850 5 866 20 6 339 916 16 991Disposed4 (20) (20)Total (losses)/gains included in profit or loss (872) 83 525 126 (138)

Trading revenue (872) 83 17 (772)Other revenue 285 126 411Investment gains 223 223

Total gains included in OCI 8 8Originations and purchases 33 1 813 1 799 37 3 682Sales (338) (4 150) (3 057) (473) (8 018)Settlements1 597 (63) (271) 263Transfers into level 32 39 2 459 2 498Transfers out of level 33 (107) (180) (287)Exchange movements 88 273 (141) 60 280

Balance at 31 December 2012 3 397 6 344 5 303 215 15 259

1 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.

2 During 2012 and 2011, the valuation inputs of certain financial assets became unobservable. The fair values were transferred into level 3.

3 During 2012 and 2011, the valuation inputs of certain level 3 financial assets became observable. The fair values were transferred into level 2.

4 SBA was disposed of during the year. Refer to note 7 on page 136.


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25. Financial instruments measured at fair value continued (Losses)/gains for the period included in profit or loss for level 3 financial assets

held at the end of the reporting period

Derivative assets

Rm

Tradingassets

Rm


Rm

Loans and advances to

customersRm

TotalRm

2012Trading revenue (506) (115) 17 (604)Other revenue 6 213 219Investment gains 223 223

(506) (115) 246 213 (162)

2011Interest income (42) (42)Trading revenue 1 801 (344) 63 1 520Other revenue 165 (85) 80Investment gains 309 309

1 801 (344) 537 (127) 1 867

Reconciliation of level 3 financial liabilities The table below sets out the reconciliation of financial liabilities that are measured at fair value based on inputs that are not

based on observable market data (level 3):

Derivativeliabilities

Rm

Trading liabilities

Rm

Depositsfrom

customersRm

Policy-holders’

liabilitiesRm

TotalRm

Balance at 1 January 2011 583 3 035 449 35 4 102Total losses/(gains) included in profit or loss 1 848 (296) 8 1 560

Interest expense 8 8Trading revenue 1 848 (296) 1 552

Issuances 30 2 753 104 2 887Sales (104) (3) (107)Settlements1 (494) (3 238) (67) (3 799)Transfers into level 32 540 2 917 3 457Transfers out of level 33 (219) (369) (588)Net change in policyholders’ liabilities (7) (7)Exchange movements 526 922 (16) 1 432

Balance at 1 January 2012 2 710 6 093 106 28 8 937Total losses included in profit or loss 137 145 282

Trading revenue 137 145 282

Issuances 126 126Sales (114) (47) (161)Issues 489 489Settlements1 (608) (1 990) 143 (2 455)Transfers into level 32 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

1 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 liabilities.

2 During 2012 and 2011, the valuation inputs of certain financial liabilities became unobservable. The fair values were transferred into level 3.3 During 2011, the valuation inputs of certain level 3 financial liabilities became observable. The fair values were transferred into level 2.


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25. Financial instruments measured at fair value continued Losses/(gains) for the period included in profit or loss for level 3 financial liabilities

held at the end of the reporting period

Derivative liabilities

Rm

Trading liabilities

RmTotal

Rm

2012Trading revenue 396 77 473

Total 396 77 473

2011Trading revenue 1 864 (311) 1 553

Total 1 864 (311) 1 553

The fair value of 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.

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 below indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 3 financial instruments. The table further indicates the effect that a change in one or more of the inputs to a reasonably possible alternative assumption would have on profit or loss at the reporting date (where the change in the input would change the fair value of the financial instrument significantly). The changes in the inputs that have been used in the analysis below have been determined taking into account several considerations, such as the nature of the instrument and the market within which the instrument is transacted.

Valuation basis/technique Main assumptions

Effect on profit or loss

FavourableRm

(Un-favourable)

Rm

20121

Derivative instruments

Discounted cash flow model, Black-Scholes model

Discount, liquidity discount, risk-free, and volatility rates 192

Trading assets Discounted cash flow model Discount and liquidity discount rates 182 (182)


Discounted cash flow model, earnings multiple, sustainable earnings

Discount and liquidity discount rates, 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 deposits from customers and policyholders’ liabilities is negligible.


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25. Financial instruments measured at fair value continued

Valuation basis/technique Main assumptions

Effect on profit or loss

FavourableRm

(Un-favourable)

Rm

20111,2

Derivative instruments

Discounted cash flow model, Black-Scholes model

Discount, liquidity discount, risk-free, and volatility rates 353 (353)

Trading assets Discounted cash flow model Discount and liquidity discount rates 147 (141)


Discounted cash flow model, earnings multiple, sustainable earnings

Discount and liquidity discount rates, earnings multiple

217 (208)Loans and advances to customers

Discounted cash flow model Discount rate6 (6)

Trading liabilities Discounted cash flow model Discount rate 264 (264)

987 (972)

1 The effect on profit or loss for reasonably possible alternative assumptions on deposits from customers and policyholders’ liabilities is negligible.

2 The effect on profit or loss for reasonably possible alternative assumptions on non-current assets held for sale is negligible.

26. Financial assets and financial liabilities designated at fair value through profit or loss

26.1 Loans and advances The group’s maximum exposure to credit risk for loans and advances designated at fair value through profit or loss

is R4 028 million (2011: R7 099 million).

The maximum exposure to credit risk is reduced by R73 million (2011: R680 million) by 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 R147 million (2011: R79 million loss).

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 gain of R112 million (2011: R18 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 R44 441 million (2011: R52 296 million)1 R23 million lower (2011: R4 856 million lower) than the carrying amount. This does not include policyholders’ liabilities with a carrying value of R68 163 million (2011: R59 560 million) and third-party liabilities arising on consolidation of mutual funds with a carrying value of R14 465 million (2011: R11 164 million).

1 An amount of R28 822 million and R2 357 million was reclassified from designated at fair value to other amortised cost for deposits from customers. Refer to note 24 on page 170.


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2012Rm

2011Rm

27. Contingent liabilities and commitments27.1 Contingent liabilities

Letters of credit and bankers’ acceptances 14 218 15 345Guarantees 45 247 36 307

59 465 51 652

Loan commitments of R97 162 million (2011: R75 929 million) that are irrevocable over the life of the facility or revocable only in response to material adverse changes are included in the risk management section on page 44.

27.2 Capital commitmentsContracted capital expenditure1 2 153 2 846Capital expenditure authorised but not yet contracted2 8 832 7 901

10 985 10 747

1 Includes an amount of R770 million (2011: R627 million) relating to investment property.2 Includes an amount of R1 150 million (2011: R824 million) relating to investment property.

The expenditure will be funded from the group’s internal resources.

27.3 Operating lease commitmentsThe future minimum payments under non-cancellable operating leases are as follows:

PropertiesWithin 1 year 1 267 1 338After 1 year but within 5 years 2 218 3 094After 5 years 900 1 096

4 385 5 528

EquipmentWithin 1 year 29 266After 1 year but within 5 years 31 76

60 342

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.

27.4 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.


179


2012Rm

2011Rm

28. Supplementary income statement information28.1 Interest income

Interest on loans and advances 63 132 56 331Interest on investments 3 247 1 409Unwinding of discount element of credit impairments for loans and advances (note 9.3) 733 944Fair value adjustments on dated financial instruments 153 (312)Dividends on dated securities 1 597 1 537

68 862 59 909

All interest income reported above with the exception of R3 197 million (2011: R3 839 million)1 relates to financial assets not carried at fair value through profit or loss.

1 2011 restated to reflect the effect of the transfer of financial investments from designated at fair value through profit or loss to held to maturity. Refer to note 24 on page 170.

28.2 Interest expenseCurrent accounts 274 355Savings and deposit accounts 11 903 10 975Foreign finance creditors 851 631Subordinated debt 2 477 2 136Other interest-bearing liabilities 19 342 16 985

34 847 31 082

All interest expense reported above with the exception of R706 million (2011: R2 165 million)1 relates to financial liabilities not carried at fair value through profit or loss.

1 2011 restated to reflect the effect of the transfer of customer deposits from designated at fair value through profit or loss to amortised cost. Refer to note 24 on page 170.

28.3 Net fee and commission revenueFee and commission revenue 24 732 22 957

Account transaction fees 9 286 9 101Card-based commission 4 132 3 644Knowledge based fees and commission 2 465 2 680Electronic banking 2 082 1 858Insurance – fees and commission 1 381 1 203Foreign currency service fees 1 381 1 274Documentation and administration fees 1 222 890Other 2 783 2 307

Fee and commission expense (3 413) (3 175)

21 319 19 782

All net fee and commission revenue reported above relates to financial assets or liabilities not carried at fair value through profit or loss.

28.4 Trading revenueForeign exchange 3 723 3 605Debt securities 3 808 2 615Commodities 1 553 1 376Equities (251) 247Other 60 53

8 893 7 896

Interest and dividend income included in trading revenue:Net interest income 747 769Dividend income 81 153

828 922


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2012Rm

2011Rm

28. Supplementary income statement information continued28.5 Other revenue

Banking and other 1 927 344Property-related revenue 524 386Insurance – bancassurance profit 1 371 1 365Loss on realisation of undated available-for-sale financial assets (35)Net gains/(losses) on undated financial instruments designated at fair value through profit or loss 326 (13)

4 148 2 047

28.6 Net insurance premiumsInsurance premiums 30 720 27 302Reinsurance premiums (1 089) (909)

29 631 26 393

28.7 Investment income and gainsInvestment income 13 332 11 723Investment gains 30 040 8 300

43 372 20 023

Comprising:Investment income 13 332 11 723

Interest income1 6 795 6 444Dividends received 3 392 2 634

Listed shares 2 788 2 107Unlisted instruments 604 527

Rental income from investment property 2 290 1 902Hotel operations’ sales 720 679Adjustment to surplus recognised on defined benefit pension fund 47 15Sundry income 88 49

Investment gains 30 040 8 300

Investment property 1 188 904Financial instruments held at fair value through profit or loss 27 316 6 956Financial instruments held for trading through profit or loss (831) (502)Cash and cash equivalents 32Foreign exchange differences on subsidiaries’ monetary items (13) (9)Foreign currency translation reserve recycled through profit or loss (2)Adjustment to joint venture purchase price 1 4Consolidated mutual funds 2 381 915

43 372 20 023

1 Interest of R6 710 million (2011: R6 354 million) relates to financial assets held at fair value through profit or loss. Included in interest income are proceeds on the sale of rights to dividends of Rnil million (2011: R58 million).


181


2012Rm

2011Rm

28. Supplementary income statement information continued28.8 Credit impairment charges

Net credit impairments raised for loans and advances 9 962 7 849Recoveries on loans and advances previously written off (1 162) (1 413)

8 800 6 436

Comprising:Net specific credit impairment charges 9 040 5 849

Specific credit impairment charges (note 9.3) 10 202 7 262Recoveries on loans and advances previously written off (1 162) (1 413)

Portfolio credit impairment (reversal)/charges (note 9.3) (240) 587

8 800 6 436

28.9 Net insurance benefits and claimsClaims and policyholders’ benefits under insurance contracts 25 004 22 897Insurance claims recovered from reinsurers (672) (627)

24 332 22 270Change in policyholder liabilities under insurance contracts 19 532 6 210

Insurance contracts 19 219 6 336Investment contracts with DPF 380 (73)Reinsurance assets (67) (53)

43 864 28 480

28.10 Staff costs – banking activitiesSalaries and allowances 21 113 18 295Equity-linked transactions – group equity compensation plans (annexure D) 1 082 846

22 195 19 141

28.11 Restructuring costs – banking activitiesOnerous lease provision 56Redundancy costs 487Impairment – intangible assets 215

758

28.12 Acquisition costs – investment management and life insurance activitiesInsurance contracts 3 178 2 693Investment contracts 219 197Short-term insurance 90 42Asset management 331 336

3 818 3 268

Comprising:Incurred during the year 3 864 3 293Deferred acquisition costs (259) (244)Amortisation and impairment of DAC 213 219

3 818 3 268


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2012Rm

2011Rm

28. Supplementary income statement information continued28.13 Other operating expenses

Banking activities 17 803 15 584

Information technology 3 636 3 183Communication 1 403 1 227Premises 3 133 2 876Other 9 631 8 298

Investment management and life insurance activities 8 134 7 142

Staff costs 3 032 2 595Office costs 2 168 1 811Training and development costs 401 412Other 2 533 2 324

25 937 22 726

The following disclosable items are included in other operating expenses:

Amortisation – intangible assets (note 14.2) 1 005 739Auditors’ remuneration 364 245

Audit fees 188 195

Current year 196 194Prior year (8) 1

Fees for other services1 176 50

Depreciation (note 15.2) 2 595 2 288

Property, comprises:– freehold 61 54– leasehold 364 301Equipment, comprises:– computer equipment 1 356 1 179– motor vehicles 93 97– office equipment 122 111– furniture and fittings 599 546

Impairments 264 138

Property (note 15.2) 29Intangible assets – computer software (note 14.2) 264 109

Operating lease charges 2 071 1 848

Properties 2 058 1 832Equipment 13 16

Premises – other expenses 2 366 2 228Professional fees 2 484 1 950

Managerial 40 56Technical and other 2 444 1 894

Profit on sale of property and equipment (30) (62)

1 All ‘fees for other services’ paid to the group’s auditors were considered and approved by the group’s audit committee. The fees paid for 2012 include a number of non-recurring items.


183


2012Rm

2011Rm

28. Supplementary income statement information continued28.14 Goodwill impairment

Goodwill impairment charge on subsidiaries (note 14.1) 777 61

28.15 Profit for the year from discontinued operationThe agreed disposal of the group’s investment in SBA resulted in the group classifying its investment in SBA as a discontinued operation. The profit for the 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. Refer to note 7 on page 136.

Net interest income 3 005 2 295

Interest income 4 157 3 151Interest expense 1 152 856

Non-interest revenue 1 963 1 477

Net fee and commission revenue 1 266 1 035

Fee and commission revenue 1 851 1 482Fee and commission expense 585 447

Trading revenue 652 377Other revenue 45 65

Total income 4 968 3 772Credit impairment charges 376 152

Income after credit impairment charges 4 592 3 620Operating expenses in banking activities 2 715 2 311

Staff costs 1 735 1 373Other operating expenses 980 938

Net income before associates and joint ventures 1 877 1 309Share of profits from associates and joint ventures 21 15

Net income before indirect taxation 1 898 1 324Indirect taxation 507 359

Profit before direct taxation 1 391 965Direct taxation 481 324

Profit for the year from discontinued operation 910 641

Attributable to non-controlling interests 227 160Attributable to ordinary shareholders 683 481

Profit from disposal of discontinued operation 1 525

Discontinued operation 2 435 641


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28. Supplementary income statement information continued 28.16 Other comprehensive income after tax for the year from discontinued operation

Ordinaryshareholder’s

equityRm

Non-controlling

interestsRm

Totalequity

Rm

2012Profit 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 647Net change in fair value of cash flow hedges 12 4 16Realised 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

2011Profit for the year from discontinued operation 481 160 641Other comprehensive income after tax for the year from discontinued operation 83 79 162

Items that may be reclassified subsequently to profit or loss:Exchange differences on translating foreign operations 76 77 153Net change in fair value of cash flow hedges transferred to profit or loss (2) (1) (3)Realised fair value adjustments of cash flow hedges transferred to profit or loss (1) (1)Net change in fair value of available-for-sale financial assets 33 11 44Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (23) (8) (31)

Total comprehensive income for the year from discontinued operation 564 239 803

29. Emoluments of Standard Bank Group Limited directors and prescribed officers Refer to annexure F on page 252.


185


2012Rm

2011Rm

30. TaxationIndirect taxation (note 30.1) 1 766 1 384Direct taxation (note 30.2) 7 075 5 713

8 841 7 097

30.1 Indirect taxationValue added tax (VAT) 1 570 1 163Duties 7 7Financial services levy 27 24Skills development levy 115 98Other indirect taxes 47 92

1 766 1 384

30.2 Direct taxationCurrent year 8 191 5 924

South African normal tax 5 756 4 059South African withholding tax 72South African deferred tax 22 720STC 104STC – deferred tax 122 207Foreign normal and withholding tax 1 741 1 311Foreign deferred tax (568) (751)Capital gains tax current 1 402 144Capital gains tax deferred (446) 130Deferred tax adjustment attributable to decrease in tax rate 90

Prior years (1 208) (193)

South African normal tax (1 666) (63)South African deferred tax (3) 10Capital gains tax deferred (43)Foreign normal and withholding tax (75) (34)Foreign deferred tax 536 (63)

6 983 5 731Income tax recognised in OCI 23 65

Deferred tax 165 65Current tax (142)

Deferred tax recognised directly in equity 69 (83)

Direct taxation per the income statement 7 075 5 713


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30. Taxation continued30.2 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:

Before taxRm

Tax(expense)/

benefitRm

Net of taxRm

2012Items 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 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 lossOther losses (49) 47 (2)

664 23 687

2011Items that may be reclassified subsequently to profit or lossExchange differences on translating foreign operations 5 531 5 531Net change on hedges of net investments in foreign operations (279) (279)Net change in fair value of cash flow hedges 258 (44) 214Realised fair value adjustments of cash flow hedges transferred to profit or loss (211) 58 (153)Net change in fair value of available-for-sale financial assets (624) 58 (566)Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss 35 (7) 28Items that may not be reclassified to profit or lossOther gains 81 81

4 791 65 4 856


187


30. Taxation continued30.2 Direct taxation continued Future tax relief The group has estimated tax losses of R1 532 million (2011: R1 391 million) which are available for set-off against future

taxable income for which a deferred tax asset was recognised. These deferred tax asset balances were offset against deferred tax liabilities, refer to annexure E, accounting policy 15 – Tax on page 241.

2012%

2011%

Rate reconciliation including indirect and direct taxThe total tax charge for the year as a percentage of net income before indirect tax 34 32VAT (6) (5)Duties, skills development levy and other indirect taxes (1) (1)STC (1)Policyholder funds – normal tax (1) (1)CGT (4) (1)

The corporate tax charge for the year as a percentage of profit before indirect tax 22 23Tax relating to prior years 4 1

Net tax charge 26 24The charge for the year has been reduced/(increased) as a consequence of:Dividends received 4 4Other non-taxable income 4 4Other permanent differences (6) (4)

Standard rate of South African tax 28 28

Direct taxation rate reconciliationThe direct taxation charge for the year as a percentage of profit before direct taxation 29 27STC (2)Policyholder funds – normal tax (1) (1)CGT (4) (1)Tax relating to prior years 4 1

Net tax charge 28 24The charge for the year has been reduced/(increased) as a consequence of:Dividends received 4 4Other non-taxable income 4 4Other permanent differences (8) (4)



report


188


2012 2011

GrossRm

DirecttaxRm

Non-controlling

interestsand

preferenceshare-

holdersRm

Profitattribu-table to

ordinaryshare-

holdersRm

GrossRm

DirecttaxRm

Non-controlling

interestsand

preferenceshare-

holdersRm

Profitattribu-table to

ordinaryshare-

holdersRm

31. Headline earningsProfit for the year from continuing operations 24 051 (7 075) (3 038) 13 938 20 856 (5 713) (2 398) 12 745Headline adjustable items added/(reversed) 21 13 19 53 231 (33) 198

Goodwill impairment – IAS 36 777 777 61 61Profit on sale of property and equipment – IAS 16 (31) (3) (34) (62) 9 1 (52)Impairment of property and equipment – IAS 36 29 (7) 22Impairment of non-current asset held for sale – IFRS 5 37 37Realised foreign currency translation profit on foreign operations – IAS 21 (119) (119)

Gains on the disposal of businesses and divisions – IAS 27 (188) 38 54 (96)

Transactions with associates – IAS 28/IFRS 3 (217) (217) 22 22Impairment of intangible assets – IAS 36 264 (20) 244 109 (28) 81Realised (gains)/losses on available-for-sale assets – IAS 39 (595) 11 (15) (599) 35 (7) (1) 27

Loss on net investment hedge reclassification on disposal of associate – IAS 39 130 (33) 97

Standard Bank Group headline earnings from continuing operations 24 072 (7 062) (3 019) 13 991 21 087 (5 746) (2 398) 12 943

Profit for the year from discontinued operation 2 435 (227) 2 208 965 (324) (160) 481Headline adjustable items (reversed)/added (1 547) 10 2 (1 535) (49) 17 8 (24)

Profit on sale of property and equipment – IAS 16 1 (1) (1) (1)Realised gains on available- for-sale assets – IAS 39 (23) 10 3 (10) (48) 17 8 (23)Gain on the disposal of discontinued operation – IAS 27 (1 525) (1 525)

Standard Bank Group headline earnings from discontinued operation 888 10 (225) 673 916 (307) (152) 457

Standard Bank Group headline earnings 24 960 (7 052) (3 244) 14 664 22 003 (6 053) (2 550) 13 400

Headline earnings is calculated in accordance with Circular 3/2012 Headline Earnings issued by the South African Institute of Chartered Accountants 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 220 for the required disclosure in terms of the circular.


189


2012 2011

32. Earnings per ordinary shareThe calculations of basic earnings and headline earnings per ordinary share and diluted earnings and diluted headline earnings per ordinary share are as follows:

Earnings based on weighted average shares in issue (Rm)Headline earnings 14 664 13 400

Continuing operations 13 991 12 943Discontinued operation 673 457

Earnings attributable to ordinary shareholders 16 146 13 226

Continuing operations 13 938 12 745Discontinued operation 2 208 481

Weighted average number of ordinary shares in issue (number of shares)Weighted average number of ordinary shares in issue before adjustments 1 595 600 440 1 587 053 915Adjusted for shares held pursuant to Tutuwa initiative1 (63 478 810) (63 478 810)Adjusted for deemed treasury shares held by entities within the group2 (9 944 383) (13 223 280)

1 522 177 247 1 510 351 825

Headline earnings per ordinary share (cents) 963,4 887,2

Continuing operations 919,1 857,0Discontinued operation 44,3 30,2

Basic earnings per ordinary share (cents) 1 060,7 875,7


Diluted earnings per ordinary shareWeighted average number of ordinary shares in issue (number of shares) 1 522 177 247 1 510 351 825

Adjusted for the following potential dilution:Standard Bank Group Share Incentive Scheme 1 874 419 3 154 095Standard Bank Equity Growth Scheme 9 258 203 5 798 170Deferred bonus scheme (2012) 1 773 450Tutuwa initiative3 38 752 182 38 110 854

Tutuwa consortium and Community Trust 27 088 996 26 618 355Black Managers’ Trust 11 663 186 11 492 499

Diluted weighted average number of ordinary shares in issue (number of shares) 1 573 835 501 1 557 414 944

Diluted headline earnings per ordinary share (cents) 931,7 860,4


Diluted earnings per ordinary share (cents) 1 025,9 849,2


1 The number of shares held by the Tutuwa participants are deducted as they are deemed not to be issued in terms of IFRS.2 The number of shares held by entities within the group are deemed to be treasury shares for IFRS purposes.3 Dilutive effect of shares held pursuant to Tutuwa initiative.

Refer to page 69 of the annual integrated report for further details on the Tutuwa initiative and the group shares held by entities within the group.


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32. Earnings per ordinary share continued 1 890 700 (2011: 4 745 950) share options outstanding at the end of the year in terms of the Standard Bank Group Share

Incentive Scheme were not included in the calculation of diluted earnings per ordinary shares because they were non-dilutive.

8 513 226 (2011: 20 162 766) rights outstanding at the end of the year in terms of the Standard Bank Equity Growth Scheme, convertible into 492 477 (2011: nil) ordinary shares that is equivalent to the full value of the rights at yearend, 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

Nil (2011: 2 377 250) share options were issued during the year in terms of the Standard Bank Group Share Incentive Scheme, of which nil (2011: 50 000) were included in the calculation of diluted earnings per ordinary share because they were dilutive.

976 476 (2011: 11 005 225) rights were issued during the year in terms of the Standard Bank Equity Growth Scheme, of which 907 649 (2011: 303 000) rights were convertible into 83 696 (2011: 9 761) ordinary shares which were included in the calculation of diluted earnings per ordinary share because they were dilutive.

5 269 318 units were issued to SBSA participants during the year in terms of the Deferred Bonus Scheme 2012, of which 4 077 427 were included in the calculation of diluted earnings per ordinary share because they were dilutive. 1 482 222 of these issued units were hedged by entering into a forward contract, of which 984 098 were included in the calculation of diluted earnings per ordinary share because they were dilutive.

Refer to annexure D on pages 221 to 228 for further details on the group’s share incentive schemes.

2012Rm

2011Rm

33. DistributionsOrdinary sharesDistribution No. 85 of 284,0 cents per share (2011: 245,0 cents per share), paid on 2 April 2012 to shareholders registered on 30 March 2012 4 520 3 888Cash distribution elected by shareholders 2 036 2 238

Dividend No. 86 of 212,0 cents per share (2011: 141,0 cents per share), paid on 17 September 2012 to shareholders registered on 14 September 2012 2 037 2 238Less: Scrip taken up by shareholders in respect of the cash dividend/capitalisation issue (1)

6 556 6 126

A final dividend No. 87 of 243,0 cents per share was declared on 6 March 2013, payable on 22 April 2013, to all shareholders registered on 19 April 2013, bringing the total dividends declared in respect of 2012 to 455,0 cents per share (2011: 425,0).

Preference shares – 6.5% first cumulative preference sharesDividend No. 85 of 3,25 cents per share (2011: 3,25 cents) paid on 26 March 2012 to shareholders registered on 23 March 2012 – –Dividend No. 86 of 3,25 cents per share (2011: 3,25 cents) paid on 10 September 2012 to shareholders registered on 7 September 2012 – –

Non-redeemable, non-cumulative, non-participating preference sharesDividend No. 15 of 317,59 cents per share (2011: 337,90 cents) paid on 26 March 2012 to shareholders registered on 23 March 2012 168 179Dividend No. 16 of 345,55 cents per share (2011: 312,41 cents) paid on 10 September 2012 to shareholders registered on 7 September 2012 184 166

352 345

6.5% first cumulative preference shares dividend No. 87 of 3,25 cents per share (2011: 3,25 cents) was declared on 6 March 2013, and is payable on 15 April 2013, to all shareholders registered on 12 April 2013.

Non-redeemable, non-cumulative, non-participating preference shares dividend No. 17 of 331,96 cents per share (2011: 317,59 cents) was declared on 6 March 2013, and is payable on 15 April 2013 to shareholders registered on 12 April 2013.


191


2012Rm

2011Rm

34. Statement of cash flows notes34.1 Increase in income-earning assets

Net derivative assets (1 408) 6 672Trading assets (21 010) 2 695Pledged assets (5 364) (2 899)Financial investments 3 181 (3 825)Loans and advances (12 864) (71 042)Other assets (8 213) (4 487)

(45 678) (72 886)

34.2 Increase in deposits and other liabilitiesDeposit and current accounts 33 888 67 841Trading liabilities 8 023 (2 469)Other liabilities and provisions 10 549 5 636

52 460 71 008

34.3 Direct taxation paidTaxation payable and deferred taxation at the beginning of the year (4 153) (4 676)Reclassified as held for sale (120)Net addition through business acquisition (6) 35Direct taxation (6 983) (5 731)

Recognised directly in equity and OCI 92 (18)Recognised in profit or loss (7 075) (5 713)

Taxation payable and deferred taxation at the end of the year 7 008 4 153

Current and deferred taxation at the end of the year 6 090 4 153Deemed disposal taxation liability 918

(4 134) (6 339)

34.4 Net cash flows from/(used in) discontinued operationCash and cash equivalents at the beginning of the year 4 849 4 231Net cash flows from operating activities 3 338 117Net cash flows used in investing activities (97) (247)Disposal of subsidiary (7 961)Effect of exchange rate changes on cash and cash equivalents (129) 748

Cash and cash equivalents at the end of the year 4 849


report


192


2012Rm

2011Rm

34. Statement of cash flows notes continued34.5 Net cash outflow resulting from the acquisition of subsidiaries

Net cash outflow resulting from the acquisition of subsidiaries 9 153

Comprising:Trading assets 270Loans and advances (205) 259Current and deferred taxation 35Other assets 256 46Goodwill and other intangible assets 40 46Property and equipment 13 101Investment property 11Trading liabilities (246)Current and deferred taxation (6)Other liabilities (41) (250)

Net asset acquired 68 261Non-controlling interests (33)Goodwill 4Less: Fair value of joint venture previously held (30)

Fair value of net assets acquired 9 261Deemed disposal of associate (note 12) (108)

Net cash outflow resulting from acquisition of subsidiaries 9 153

34.6 Net dividends paidDividends to ordinary shareholders (6 556) (6 126)Dividends to preference shareholders (352) (345)Dividends received in terms of the Tutuwa initiative and on deemed treasury shares 174 170Dividends to non-controlling shareholders in subsidiaries (809) (950)

(7 543) (7 251)

34.7 Cash and cash equivalentsCash and balances with central banks (note 3) 61 985 31 907Cash and balances with central banks held for sale (note 7) 4 849

61 985 36 756


193


2012Rm

2011Rm

34. Statement of cash flows notes continued34.8 Net cash outflow resulting from the disposal of subsidiaries

Net cash outflow resulting from the disposal of subsidiaries 3 543

Derivative assets (1)

Trading assets (9)

Financial investments (18)

Loans and advances (605)

Current and deferred tax assets (17)

Other assets (70)

Non-current assets held for sale (37 556)

Goodwill and other intangible assets (132)

Property and equipment (4)

Deposit and current accounts 280

Current and deferred tax liabilities 17

Other liabilities 77Non-current liabilities held for sale 33 296

Net asset value disposed of (4 742)Non-controlling interests 1 076

Share of subsidiary disposed of (3 666)

Profit on disposal of subsidiaries (1 713)Release of reserve movements to profit or loss (765)

Sale consideration (6 144)

Deferred non-cash consideration 231Investment in associates 1 495

Cash consideration received (4 418)Less cash held within subsidiary disposed 7 961

Net cash outflow resulting from disposal of subsidiaries 3 543

35. Reclassification of financial assets previously reclassified Amounts reclassified from held-for-trading to loans and receivables at amortised cost Following the amendments to IAS 39, 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.

Carrying value of reclassified financial assets at the end of the year1 935 2 451Fair value of reclassified financial assets at the end of the year1 922 2 364

A fair value gain of R10 million (2011: R23 million loss) after tax together with other post tax losses of Rnil million (2011: R1 million) and foreign currency translation losses of R2 million (2011: R8 million loss) would have been recognised in 2012 had all reclassifications not been effected.

The following amounts were recognised in profit or loss past reclassification of the financial assets:

Period after reclassificationNet interest income 88 132Credit impairments reversal/(charges) 41 (219)

1 The carrying value and fair value of reclassified financial assets decreased as a result of financial assets in Blue Titanium, a subsidiary of the group, maturing during 2012.


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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 on pages 213 to 217.

36.3 Associates and joint ventures Details of effective interests, investments in and loans to associates and joint ventures are disclosed in annexure C on pages

218 to 220.

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 2012 and 2011. Non-executive directors are included in the definition of key management personnel as required by 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 dependents of the person or the person’s domestic partner.

2012Rm

2011Rm

Key management compensationSalaries and other short-term benefits paid 93 96Post-employment benefits 4 4IFRS 2 value of share options and rights expensed 37 41

134 141

The transactions below are entered into in the normal course of business.

Loans and advancesLoans outstanding at the beginning of the year 27 50Change in key management structures (3) (21)Loans granted during the year 22 20Loans repaid during the year (26) (22)

Loans outstanding at the end of the year 20 27

Net interest earned 2 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 (2011: Rnil). The mortgage loans and instalment sale and finance leases are secured by the underlying assets. All other loans are unsecured.


195


2012Rm

2011Rm

36. Related party transactions continued36.4 Key management personnel continued

Deposit and current accountsDeposits outstanding at the beginning of the year 129 527Change in key management structures 9 (429)Net deposits received during the year (25) 31

Deposits outstanding at the end of the year 113 129

Net interest expense 3 2Deposits includes cheque, current and savings accounts.

Investment productsBalance at the beginning of the year 219 1 062Change in key management structures (4) (846)Investments placed during the year 114 59Investments repaid during the year (71) (56)


Net investment return 44 8

Third party funds under managementFund value at the beginning of the year 386 480Change in key management structures 3 (119)Net deposits including commission and other transaction fees 111 25

Fund value at the end of the year 500 386

Other feesFinancial consulting fees and commission 6 9

Shares and share options heldAggregate details of Standard Bank Group Limited shares and share options held by key management personnel.Shares beneficially owned (number) 12 890 450 12 946 766Share options held (number) 6 578 371 6 451 500


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2012Rm

2011Rm

36. Related party transactions continued36.5 Transactions with a shareholder1

The following transactions took place between the group and ICBC, a 20% shareholder of Standard Bank Group:

RevenueTrading revenue 42 29Net interest income 30 41

Total revenue earned 72 70

DepositsDeposits outstanding at the beginning of the year 1 276 953Net deposits (repaid)/received during the year (821) 323

Deposits outstanding at the end of the year 455 1 276

1 Refer to note 7 on page 136 for further details regarding the disposal of SBA by the group to ICBC.

36.6 Other contractsSaki Macozoma, a director and deputy chairman of the company, has an effective shareholding of 26.62% (2011: 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% (2011: 2.50%) in Liberty Holdings Limited and 1.34% (2011: 1.40%) in the company. The group has an effective interest of 25.00% (2011: 20.33%) in Safika.

Cyril Ramaphosa, a director of the company, has an effective shareholding of 29.63% (2011: 29.63%) in Shanduka, which is a member of the Tutuwa consortium. Shanduka holds effective interests of 1.40% (2011: 1.44%) in Liberty Holdings Limited and 0.90% (2011: 1.20%) in the company. The group holds an effective interest of 12.90% (2011: 13.00%) in Shanduka.

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.

2012Rm

2011Rm

36.7 Post-employment benefit plansDetails of balances with SBG and transactions between SBG and the group’s post-employment benefit plans are listed below:Fee income 22 40Deposits held with the bank 248 566Interest paid 32 234Value of assets under management 8 690 10 363Investments held in bonds and money market instruments 1 020 1 214Number of ordinary SBG shares held (‘000) 4 744 1 453


197


2012Rm

2011Rm

37. Pensions and other post-employment benefitsAmount recognised as assets in the statement of financial position (note 11)Standard Bank banking activitiesRetirement funds (note 37.1) 784 445Post-employment healthcare benefits – provider funds (note 37.2) 308

LibertyRetirement funds (note 37.1) 186 199

970 952

Amounts recognised as liabilities in the statement of financial position(note 21.2)Standard Bank banking activitiesRetirement funds (note 37.1) 31 65Post-employment healthcare benefits – other funds (note 37.2) 747 743

LibertyPost-employment healthcare benefits (note 37.3) 371 459

1 149 1 267

The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R930 million (2011: R975 million).

37.1 Retirement funds37.1.1 Standard Bank retirement funds Membership of the group’s 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. Member-elected trustees represent 50% of the trustee board. The assets of the fund are held independently.

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 Fund 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.

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 Fund Act 24 of 1956.

1 This includes the Liberty Group defined benefit pension fund, ACA defined benefit fund and Rentmeester defined benefit fund.


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2012Rm

2011Rm

37. Pensions and other post-employment benefits continued37.1 Retirement funds

The amounts recognised in the statement of financial position in respect of the retirement funds are determined as follows:Present value of funded obligations 25 839 22 701Fair value of plan assets (27 733) (23 769)

Surplus (1 894) (1 068)Defined benefit pension fund employer surplus1 (186) (199)Unrecognised actuarial gains 1 141 688

Included in the statement of financial position (939) (579)

Comprising:SBGRF (784) (445)Liberty retirement funds (186) (199)Other retirement funds 31 65

(939) (579)

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 obligationsBalance at the beginning of the year 22 701 22 028Current service cost and interest cost 2 643 2 355Employee contributions 511 502Actuarial losses/(gains) 1 241 (187)Exchange differences 31 138Benefits paid (2 098) (2 135)Settlement costs (51)Transfer in of Provider Fund liability2 861


Movement in the fair value of plan assetsBalance at the beginning of the year 23 769 23 774Expected return on plan assets 2 136 1 961Contributions received 1 090 1 065Actuarial gains/(losses) 1 623 (986)Reduction in employer surplus account (15) (14)Exchange differences (36) 107Benefits paid (2 098) (2 138)Transfer in of Provider Fund assets2 1 264


Plan assets consist of the following:Cash 1 703 1 892Equities 13 008 11 213Bonds 8 363 6 564Property and other 4 659 4 100

27 733 23 769

Plan assets include R15 million (2011: R19 million) of property occupied by the group.

The group expects to pay R551 million in contributions to the Standard Bank retirement funds in 2013 (2012: R553 million).

1 The apportionment of the surplus within the Liberty Group Defined Benefit Pension Fund between the employer and the members was approved on 31 August 2007 by the Registrar of Pension Funds in terms of the Pension Fund Second Amendment Act 39 of 2001. The employer surplus has been measured as the approved amount allocated at 1 January 2003 (date of apportionment) adjusted for additional trustee-approved allocations and subsequent related investment net gains or losses. The amount will be recovered through future reductions in employer contributions to the plan.

2 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF.


199


2012Rm

2011Rm

37. Pensions and other post-employment benefits continued37.1 Retirement funds continued

The amounts recognised in profit or loss are determined as follows:Current service cost 632 539Interest cost 2 011 1 816Expected return on plan assets (2 136) (1 961)Net actuarial gains recognised during the year (22) (78)Curtailment gain (28)

Included in staff costs 485 288

Actual return on plan assets 3 461 796

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.

Historical information

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

Present value of funded obligation 25 839 22 701 22 028 20 951 20 763Fair value of plan assets (27 733) (23 769) (23 774) (22 686) (20 855)

Surplus (1 894) (1 068) (1 746) (1 735) (92)Excess not recognised 107 112 111 96 91

Surplus obligation (1 787) (956) (1 635) (1 639) (1)

Defined benefit pension fund employer surplus included in other assets in the statement of financial position 186 199 202 170 144

Experience adjustments arising on plan liabilities 1 047 (234) (227) 1 605 4 966Experience adjustments arising on plan assets 1 487 (980) (586) (7) (4 985)


report


200


37. Pensions and other post-employment benefits continued37.2 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 Fund Act, 1956 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 credit method. The latest full actuarial valuation was performed at 31 December 2012. The next actuarial valuation is to be performed on 31 December 2015.

2012Rm

2011Rm

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 747 743Present value of funded defined benefit obligations 861

Total present value of defined benefit obligations 747 1 604Fair value of plan assets (1 264)

Unfunded obligation 747 340Unrecognised actuarial gains 95

Included in the statement of financial position 747 435

Comprising:Provider fund (308)Other funds 747 743

747 435

Movement in the present value of defined benefit obligationsBalance at the beginning of the year 1 604 1 414Current service cost and interest cost 68 156Exchange differences (9) (23)Actuarial gains 182Settlement costs (3)Benefits paid (52) (125)Transfer out of Provider Fund liability1 (861)

Balance at the end of the year 747 1 604



201


2012Rm

2011Rm

37. Pensions and other post-employment benefits continued37.2 Standard Bank post-employment healthcare benefits continued

Movement in the fair value of plan assetsBalance at the beginning of the year 1 264 1 340Expected return on plan assets 117Actuarial losses (122)Benefits paid (71)Transfer out of Provider Fund assets1 (1 264)


Plan assets consist of the following:Cash 249Equities 499Government bonds 397Property and other 119

1 264

The group expects to pay Rnil million in contributions to post-employment healthcare benefit plans in 2013 (2012: R52 million).


The amounts recognised in profit or loss are determined as follows:Current service cost 7 38Interest cost 61 118Expected return on plan assets (117)Net actuarial gains recognised in the year (50) (13)

Included in staff costs 18 26

Actual return on plan assets (5)


report


202



37. Pensions and other post-employment benefits continued37.2 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:

2012 2011

1% increaseRm

1% decreaseRm

1% increaseRm

1% decreaseRm

Effect on the aggregate of the current service cost and interest cost 10 (7) 11 (8)Effect on the defined benefit obligation 89 (69) 92 (77)

Historical information

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

Present value of obligations 747 1 604 1 414 1 456 1 433Fair value of plan assets (1 264) (1 340) (1 247) (1 157)

Unfunded obligation 747 340 74 209 276

Experience adjustments arising on plan liabilities (5) (185) (166) (111) 84Experience adjustments arising on plan assets (122) 91 91 (276)

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.

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

Movement in the liability recognised in the statement of financial positionPresent value of unfunded defined benefit obligations at the beginning of the year 459 400 354 344 293

Benefits paid (10) (9) (8) (7) (6)Recognised in profit or loss (78) 68 54 17 57

Present value of unfunded defined benefit obligations at the end of the year 371 459 400 354 344

203


2012Rm

2011Rm

37. Pensions and other post-employment benefits continued37.3 Liberty post-employment healthcare benefits continued

The amounts recognised in profit or loss are determined as follows:Current service cost 9 8Interest cost 40 34Actuarial (gains)/losses (127) 26

Included in staff costs (78) 68

A one percentage point change in medical inflation rates would have the following effect on the post-employment medical aid liability recognised:

2012 2011

1%increase

Rm

1%decrease

Rm

1%increase

Rm

1%decrease

Rm

Increase/(decrease) in the liability 57 (46) 79 (64)


report


204



37. Pensions and other post-employment benefits continued37.4 The principal actuarial assumptions used for accounting purposes were:

Standard Bank Liberty

Retirement fund1

%

Providerfund2

%

Otherfunds

%

Definedbenefit

pensionfund

%

Post-employ-

mentmedical

aid%

2012Discount rate Nominal Government Bond Yield curve 8.76 7.99 8.40

Return on investments 8.20% – Yield Government Bondsat a term equivalent to the discounted

mean term of the liabilities 8.76 7.99 N/A

Salary/benefit inflation Inflation rates plus 1% 6.36

CPI inflation Difference between nominal and index linked bond yield curves 6.37 5.36

Medical inflation 7.42 7.06

Provider benefit escalation Inflation rates plus 2%

Pension increase in allowance

Inflation rates

Remaining service life of employees (years) 12,21 16,48 12,41

2011Discount rate 8.76 8.76 8.76 8.76 8.78Return on investments 8.76 8.76 8.76 8.76 8.78Salary/benefit inflation 7.37 8.37 6.11CPI inflation 6.37 6.37 6.37 5.12Medical inflation 7.42 7.38Remaining service life of employees (years) 12,94 16,48 12,41

1 The assumptions used in determining the defined benefit obligation and the fair value of plan assets in SBGRF have changed from 2011 to 2012.


205


38. Business acquisitions38.1 Business acquisitions

LC Golf SA (Pty) Ltd

Total Health Trust (THT) Limited

2012Date of acquisition 19 December 2012 1 January 2012Percentage of voting equity instruments acquired (%) 100 51.2Contribution to revenue since acquisition (Rm) nil 14Contribution to net profit before tax since acquisition (Rm) nil 6Contribution to revenue if acquisition occurred on 1 January 2012 (Rm) 50 14Contribution to net profit before tax if acquisition occurred on 1 January 2012 (Rm) (246) 6

Fair value

LC Golf SA (Pty) Ltd

RmTHT Limited

Rm

2012Other 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 interests (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 (Pty) Ltd With effect from 19 December 2012, SBSA acquired 100% of LC Golf SA (Pty) Ltd and its subsidiaries, Pearl Valley

Golf Estates (Pty) Limited and Novelway Investments (Pty) Limited. Pearl Valley Golf Estates (Pty) Limited is a golf estate which also offers rental accommodation and residential sales. Novelway Investments (Pty) Limited is a non-operating company that holds undeveloped property assets that form part of SBSA’s total security package in respect of a term loan previously granted to Pearl Valley Golf Estates (Pty) Limited. The primary reason for the business combination was to recoup financing previously extended to the group of companies acquired.

THT Limited With effect from 1 January 2012, Liberty acquired a 51.2% controlling stake in THT Limited. THT is a Nigerian health

expenses insurance group servicing both government employees and corporate customers. THT 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.


report


206


Statement of financial positionas at 31 December 2012

Note

Company

2012Rm

2011Rm

AssetsCurrent tax 8 37Other assets 867 607Interest in subsidiaries 40 62 288 56 425Interest in associates 41 142 142

Total assets 63 305 57 211

Equity and liabilitiesEquity 63 284 57 114

Share capital and premium 16 23 595 23 238Reserves 39 689 33 876

Liabilities 21 97

Deferred tax 39 6Other liabilities 21 91

Total equity and liabilities 63 305 57 211

Statement of comprehensive incomefor the year ended 31 December 2012

Note

Company

2012Rm

2011Rm

Dividends from subsidiaries 12 677 7 612Interest income 75 135Other income 42 (90) (6)

Total income 12 662 7 741Operating expenses 8 6

Profit before direct taxation 12 654 7 735Direct taxation 43 45 182

Profit for the year 12 609 7 553

Other comprehensive incomeRelease/(deferred) fair value adjustments on cash flow hedges 85 (85)

Total comprehensive income 12 694 7 468


207

Standard Bank Group Annual financial statements 2012 > Standard Bank Group Limited

Statement of cash flowsfor the year ended 31 December 2012

Note

Company

2012Rm

2011Rm

Operating activitiesIncome before direct taxation 12 654 7 735Adjusted for:Dividends received (12 677) (7 612)Interest income (75) (135)Fair value adjustments on derivatives 46

Net cash flows used in operating activities (52) (12)Interest received 75 135Dividends received 12 677 7 612Taxation received/(paid) 44.1 17 (129)Net cash flows used in operating funds 44.2 (330) (334)Net cash flows used in investing activities (5 836) (1 014)

Decrease in interest in associates 2Increase in investment in subsidiaries 44.3 (5 836) (1 016)

Net cash flows used in financing activities (6 551) (6 258)

Proceeds from issue of share capital 357 213Net dividends paid 44.4 (6 908) (6 471)

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 – –


report


208


Statement of changes in equityfor the year ended 31 December 2012

Company Note

Share capital

and premium

Rm

Share- based

payment reserve

Rm

Revalu-ation

reserveRm

Cash flowhedgingreserve

Rm

Empower-ment

reserveRm

Retainedearnings

RmTotal

Rm

Balance at 1 January 2011 23 025 81 3 100 969 (2 371) 31 053 55 857Issue of share capital and share premium 16.2 213 213Equity-settled share-based payment transactions 47 47Transfer of vested equity options (11) 11Total comprehensive income (85) 7 553 7 468Dividends paid 33 (132) (6 339) (6 471)

Balance at 31 December 2011 23 238 117 3 100 884 (2 503) 32 278 57 114

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 paid 33 (6 908) (6 908)

Balance at 31 December 2012 23 595 144 3 100 969 (2 503) 37 979 63 284

Standard Bank Group Limited – company annual financial statements continued

209


Company

2012Rm

2011Rm

39. Deferred taxDeferred tax liability (6)

STC (39)Deferred tax on cash flow hedge reserve recognised in OCI 33

Deferred tax liability (6)

39.1 Deferred tax reconciliationDeferred tax (liability)/asset at the beginning of the year (6) 52Originating/(reversing) temporary difference for the year 6 (58)

STC 39 (91)Deferred tax on cash flow hedge reserve recognised in OCI (33) 33

Deferred tax liability at the end of the year (6)

40. Interest in subsidiariesShares at cost 61 981 53 867Net indebtedness (by)/to the company (501) 1 777

Indebtedness to the company 766 2 611Indebtedness by the company (1 267) (834)

Investment through equity-settled share incentives 808 781

62 288 56 425

Subsidiaries and investments and loans therein are listed in annexure B on pages 214 to 217.

41. Interest in associatesCarrying value at the beginning of the year 142 144Disposal of associate (2)

Carrying value at the end of the year 142 142

Interest in associates comprises an investment in South African Home Loans Proprietary Limited, refer to annexure C on pages 218 to 220.

42. Other incomeLosses on derivatives (90) (6)

Notes to the company annual financial statementsfor the year ended 31 December 2012


report


210


Company

2012Rm

2011Rm

43. Direct taxationCurrent yearSouth African normal tax 10 59Foreign and withholding taxes 39 32STC – deferred tax (4) 91

Direct taxation 45 182Deferred tax on cash flow hedge reserve recognised in OCI (33) 33

Total direct taxation recognised in statement of comprehensive income 12 215

South African tax rate reconciliation (%)Effective tax rate 2STC (1)

Net tax charge 1The charge for the year has been reduced as a consequence of:Dividends received 28 27


44. Cash flow statement notes44.1 Taxation paid

Net current and deferred taxation receivable at the beginning of the year 31 52Direct taxation (12) (215)

Recognised in profit or loss (45) (182)Deferred tax on cash flow hedge reserve recognised in OCI 33 (33)

Withholding taxes realised 39 32Tax on cash flow hedge (33) 33Current taxation receivable at the end of the year (8) (37)Deferred taxation payable at the end of the year 6

17 (129)

44.2 Net cash flows used in operating fundsIncrease in other assets (260) (424)(Decrease)/increase in other liabilities (70) 90

(330) (334)

Notes to the company annual financial statements continuedfor the year ended 31 December 2012

211


Company

2012Rm

2011Rm

44. Cash flow statement notes continued44.3 Increase in investment in subsidiaries

Cost of investment in subsidiaries net of disposal (8 114) (3 587)Movement in net indebtedness 2 278 2 571

(5 836) (1 016)

44.4 Net dividends paidAmounts unpaid at the beginning of the yearDividends paid to ordinary shareholders (6 556) (6 126)Dividends paid to preference shareholders (352) (345)Amounts unpaid at the end of the year

(6 908) (6 471)

45. Liquidity, credit and market risk informationOther assets and liabilities consist mainly of non-financial assets and liabilities which are not subject to liquidity, credit and market risk for IFRS 7 purposes.

46. Related party transactionsDuring the current and prior year, the company has entered into transactions with its subsidiaries and received dividend and interest income. A list of subsidiaries is detailed within annexure B on pages 214 to 217.


report


212


Group statement of financial position restatements

December 2011 December 2010

Aspreviously

reportedRm

Customer deposit

restatementRm

RestatedRm

Aspreviously

reportedRm

Customer deposit

restatementRm

RestatedRm

AssetsCash and balances with central banks 31 907 31 907 28 675 28 675Derivative assets 150 046 150 046 149 682 149 682Trading assets 90 449 90 449 80 679 80 679Pledged assets 6 113 6 113 2 491 2 491Non-current assets held for sale 34 085 34 085Financial investments 289 319 289 319 283 295 283 295Loans and advances 801 308 801 308 710 722 710 722Current tax assets 443 443 473 473Deferred tax assets 1 440 1 440 1 166 1 166Other assets 22 640 22 640 17 882 17 882Interest in associates and joint ventures 13 935 13 935 10 533 10 533Investment property 23 470 23 470 21 521 21 521Goodwill and other intangible assets 12 754 12 754 10 383 10 383Property and equipment 14 920 14 920 14 907 14 907

Total assets 1 492 829 1 492 829 1 332 409 1 332 409

Equity and liabilitiesEquity 117 533 117 533 103 198 103 198

Equity attributable to ordinary shareholders 99 042 99 042 87 073 87 073

Ordinary share capital 159 159 159 159Ordinary share premium 17 576 17 576 17 363 17 363Reserves 81 307 81 307 69 551 69 551

Preference share capital and premium 5 503 5 503 5 503 5 503Non-controlling interests 12 988 12 988 10 622 10 622

Liabilities 1 375 296 1 375 296 1 229 211 1 229 211

Derivative liabilities 153 142 153 142 145 004 145 004Trading liabilities 32 409 (2 145) 30 264 30 375 (893) 29 482Non-current liabilities held for sale 27 939 27 939Deposit and current accounts 876 777 2 145 878 922 785 601 893 786 494Current tax liabilities 2 353 2 353 3 423 3 423Deferred tax liabilities 3 683 3 683 2 892 2 892Provisions and other liabilities 45 674 45 674 40 900 40 900Policyholders’ liabilities 208 565 208 565 197 878 197 878Subordinated debt 24 754 24 754 23 138 23 138

Total equity and liabilities 1 492 829 1 492 829 1 332 409 1 332 409

Management previously classified certain customer deposits (deposits) as trading liabilities on the basis that such deposits were used to fund trading positions. In accordance with IFRS and group accounting policies, such deposits should rather have been classified as part of deposit and current accounts. The deposits have accordingly been reclassified in previously reported financial periods from trading liabilities to customer deposit and current accounts to conform to the classification of such deposits in the current financial reporting period. The reclassification amounts to R2 145 million and R893 million for the 2011 and 2010 financial years respectively. The reclassification had no impact on the group’s reserves or the income statement.

Annexure A – restatements

213

Standard Bank Group Annual financial statements 2012 > Annexure A – restatements / Annexure B – subsidiaries

Annexure B – subsidiaries

Standard Bank Group1

Liberty Holdings1

(53.6%)

The Standard Bank of South Africa1

Stanbic Africa Holdings, UK

Standard International Holdings, Luxembourg

Liberty Group1

Diners Club (SA)1

Blue Bond Investments1

Standard Bank Insurance Brokers1

CfC Stanbic Holdings, Kenya (60%)

Stanbic Bank Botswana

Stanbic Bank Ghana (99.4%)

Stanbic Bank Tanzania

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

Stanbic Bank Zimbabwe

Standard Bank, UK

SBIC Investments, Luxembourg

Standard Bank London Holdings

Standard Advisory (China)

Standard Resources (China)

Standard Merchant Bank (Asia), Singapore

Standard Americas, USA

Standard New York, USA

Standard New York Securities, USA

Banco Standard de Investimentos, Brazil

Standard Securities Asia (Hong Kong)

Liberty Active1

Stanlib1

Melville Douglas Investment Management1

Standard Insurance1

Standard Executors and Trustees1

Stanvest1

SBG Securities1

Standard Bank Properties

Stanlib Collective Investments1

Stanlib Multi-Manager1

Stanlib Wealth Management1

Stanlib Asset Management1

Stanlib Fund Managers Jersey

Capital Alliance Holdings1

Liberty Kenya Holdings (56.8%)

Neil Harvey & Associates1 (74.9%)

Liberty Group Properties1

Standard Lesotho Bank (80%)

Standard Bank Namibia

Standard Bank Swaziland (65%)

Standard Bank de Angola (51%)

Standard Bank Group International,

Isle of Man

Standard Bank Offshore Group, Jersey

Stanbic International Insurance, Isle of Man

Standard Finance, Isle of Man

SBIC Finance, Isle of Man

SML, Isle of Man

Standard Bank Jersey

Standard Bank Fund Administration Jersey

Standard Bank Offshore Trust Company Jersey

Standard Bank Isle of Man

Standard Bank Trust Company, Mauritius

Standard Bank International Investments, British Virgin Islands

Standard Bank Trust Company, Isle of Man

1 Incorporated in South Africa.

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.


report


214


Nature of operation

Nominal share

capital issued

Rm

Effectiveholding

Book valueof shares

Netindebtedness

2012%

2011%

2012Rm

2011Rm

2012Rm

2011Rm

Standard Bank Group will ensure that, except in the case of political risk, its subsidiaries denoted by # are able to meet their contractual liabilities.

Banking subsidiariesBanco Standard de Investimentos S.A. (Brazil)1# Investment bank 1 461 100 100CfC Stanbic Bank Limited (Kenya)1# Commercial bank 232 60 60Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 174 100 100Stanbic Bank Ghana Limited (Ghana)1# Commercial bank 630 99 99Standard Bank RDC s.a.r.l. (Democratic Republic of Congo)1# Commercial bank 85 100 100Stanbic Bank Tanzania Limited (Tanzania)1# Commercial bank 29 100 100Stanbic Bank Uganda Limited (Uganda)1# Commercial bank 227 80 80Stanbic Bank Zambia Limited (Zambia)1# Commercial bank 660 100 100Stanbic Bank Zimbabwe Limited (Zimbabwe)1 Commercial bank ** 100 100 135 135Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 103 53 53Industrial and Commercial Bank of China (Argentina) S.A.1,2,3 Commercial bank 20 75Standard Bank de Angola S.A. (Angola)4# Commercial bank 768 51 100 359 350Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100Standard Bank Jersey Limited (Jersey)1# Merchant bank 222 100 100Standard Bank Limited (Malawi)1# Commercial bank 22 60 60Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100Standard Bank Namibia Limited (Namibia)#1 Commercial bank 2 100 100 444 444Standard Bank Plc (UK)5# Investment bank 3 926 100 100 2 024 2 024Standard Bank s.a.r.l. (Mozambique)1# Commercial bank 309 98 98Standard Bank Swaziland Limited (Swaziland)# Commercial bank 15 65 65 33 33Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 13 13Standard Merchant Bank (Asia) Limited (Singapore)1# Investment bank 214 100 100The Standard Bank of South Africa Limited# Commercial bank 60 100 100 35 063 27 097 (73)6 1 7766

Refer to footnotes on page 217.

Annexure B – subsidiaries continued

215

Standard Bank Group Annual financial statements 2012 > Annexure B – subsidiaries

Nature of operation

Nominal share

capital issued

Rm

Effectiveholding

Book valueof shares

Netindebtedness

2012%

2011%

2012Rm

2011Rm

2012Rm

2011Rm

Non-banking subsidiariesAccelerator Fund 1 (Pty) Limited7 Securitisation vehicleAccelerator Fund 2 (Pty) Limited7 Securitisation vehicleAlisier Investments (Pty) Limited5 Investment holding

company ** 100 100Blue Banner Securitisation Vehicle RC1 (Pty) Limited7 Mortgage financingBlue Bond Investments Limited1 Participation

mortgage bond finance ** 100 100

Blue Granite Investments No. 1 (Pty) Limited7 Securitisation vehicleBlue Granite Investments No. 2 (Pty) Limited7 Securitisation vehicleBlue Granite Investments No. 3 (Pty) Limited7 Securitisation vehicleBlue Granite Investments No. 4 (Pty) Limited7 Securitisation vehicleBlue Titanium Conduit Limited7 Securitisation vehicleDiners Club (SA) (Pty) Limited1# Travel and

entertainment card ** 100 100eCentric Switch (Pty) Limited Development

and marketing transactions – switching software and services ** 80 80

Erf 224 Edenburg (Pty) Limited Property holding and development ** 100 100

Gleneagles Retail Centre (Pty) Limited8 Property owning and investing company ** 100 100

Liberty Group Limited1 Insurance company 28 54 54Liberty Holdings Limited9 Insurance holding

company 26 54 54 7 668 7 668Standard Bank International Investments Limited (British Virgin Islands)1,10#

Portfolio management ** 100 100

Melville Douglas Investment Management (Pty) Limited#

Asset and portfolio management ** 100 100 53 53

SBG Securities (Pty) Limited# Stockbrokers ** 100 100 320 181SBIC Finance Limited (Isle of Man)1 Project finance ** 100 100SBIC Investments S.A. (Luxembourg)5# Investment holding

company 542 100 100Stanbic IBTC Holdings PLC (Nigeria)1 Bank holding

company 275 53 53SBN Holdings Limited (Namibia) Bank holding

company ** 100 100Siyakha Fund (Pty) Limited7 Securitisation

vehicleSML Limited (Isle of Man)1 Investment holding

company ** 100 100



report


216


Nature of operation

Nominal share

capital issued

Rm

Effectiveholding

Book valueof shares

Netindebtedness

2012%

2011%

2012Rm

2011Rm

2012Rm

2011Rm

Non-banking subsidiaries continuedSMT Limited (Isle of Man)1 Investment holding

company ** 100 100Stanbic Africa Holdings Limited (UK)5

Investment holding company 385 100 100 2 161 2 161

Stanbic International Insurance Limited (Isle of Man)1 Insurance company 1 100 100Standard Americas, Inc (US)1# Trading company ** 100 100Standard Bank Fleet Management (Pty) Limited Fleet management ** 100 100Standard Bank Fund Administration Jersey Limited (Jersey)1

Portfolio management 34 100 100

Standard Bank Group International Limited (Isle of Man)

Investment holding company ** 100 100 13 435 13 435

Standard Bank Insurance Brokers (Pty) Limited1 Insurance broking ** 100 100Standard Bank London Holdings Plc (UK)1

Investment holding company 1 869 100 100 (434)

Standard Bank Manx Holdings Limited (Isle of Man)1

Investment holding company 1 100 100

Standard Bank Offshore Group Limited (Jersey)5

Investment holding company 17 100 100 49 49

Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 4 100 100Standard Bank Properties (Pty) Limited Properties and

financial services ** 100 100Standard Bank Trust Company (Isle of Man) Limited (Isle of Man)1# Trust company 1 100 100Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company ** 100 100Standard Executors and Trustees Limited# Trust company ** 100 100Standard Finance (Isle of Man) Limited (Isle of Man)1# Finance company ** 100 100Standard Insurance Limited Short-term

insurance 15 100 100 30 30Standard International Holdings S.A. (Luxembourg)5#

Investment holding company 157 100 100 99 99

Standard London (Asia) Sendirian Berhad (Malaysia)1 Introducing broker 1 70 70Standard New York, Inc (US)1#

Investment holding company 37 100 100

Standard New York Securities, Inc (US)1#

Securities broker/dealer 82 100 100


Annexure B – subsidiaries continued

217

Standard Bank Group Annual financial statements 2012 > Annexure B – subsidiaries

Nature of operation

Nominal share

capital issued

Rm

Effectiveholding

Book valueof shares

Netindebtedness

2012%

2011%

2012Rm

2011Rm

2012Rm

2011Rm

Non-banking subsidiaries continuedStandard Resources (China) Limited (China)1 Trading company 116 100 100Standard Advisory (China) Limited (China)1 Trading company 8 009 100 100Ünlü Menkul Degerler A.S. (Turkey)1,11

Securities broker/dealer 14 67

Standard Securities (Asia) Limited (Hong Kong)1 Securities company 117 100 100Stanlib Limited1 Wealth and asset

management ** 54 54Stanvest (Pty) Limited Investment holding

company ** 100 100Triskelion Trust Company Limited (Isle of Man)1 Trust company ** 100 100Miscellaneous Finance companies 95 95 6 1

61 981 53 867 (501) 1 777

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.

1 Held indirectly, no book value in Standard Bank Group Limited. 2 This company changed its name from Standard Bank Argentina S.A. with effect from 5 April 2013. 3 The group completed the disposal of its controlling interests in SBA to ICBC at the end of November 2012. The group retained a 20%

shareholding and rights to board representation in each of the companies that SBA held an interest in. 4 The group’s shareholding in Standard Bank de Angola reduced from 100% to 51% during the year. 5 Effective holding comprises direct and indirect holdings. 6 Represents mainly cash held in current and call accounts. 7 Consolidated special purpose entity, no shareholding. 8 This company was dissolved during the year. 9 Listed on the exchange operated by the JSE.10 This company changed its name from Melville Douglas International Limited during the year.11 The controlling interest in Ünlü Menkul Degerler A.S. (Turkey) (Ünlü) was disposed of during the year. The group retained 13.86% of Ünlü

and classified the shareholding as an investment in associate as the group retains significant influence. This company’s name had also changed from Standard Ünlü Menkul Degerler A.S. during the year.

** Issued share capital less than R1 million.


report


218


Safika Holdings Proprietary Limited

The Cullinan Hotel Proprietary Limited

South African Home Loans

Proprietary Limited

Ownership structureNature of business

AssociateInvestment holding

company

Joint ventureLeisure

AssociateFinance

YearendDate to which equity accounted

February31 December 2012

March31 December 2012

February31 December 2012

2012 2011 2012 2011 2012 2011

Effective holding (%) 25 20 50 50 44 44

Rm Rm Rm Rm Rm Rm

Carrying value 538 457 374 394 569 423

Balance sheet1

Non-current assets 3 341 2 924 712 730 766 199Current assets 533 521 99 92 888 1 292Non-current liabilities (701) (714) (320) (142)Current liabilities (486) (409) (62) (44) (52) (241)Loans to group entities2 64 279Attributable income before impairments 118 85 7 81 71

Standard Bank Argentina S.A.3

Edu-Loan Proprietary Limited

Integrated Processing Solutions Proprietary

Limited


Associate Banking

AssociateStudent loans

Joint ventureFinancial Services


December31 December 2012



2012 2011 2012 2011 2012 2011

Effective holding (%) 20 29 29 50 50

Rm Rm Rm Rm Rm Rm

Carrying value 1 340 41 37 50 44

Balance sheet1

Non-current assets 10 843 13 13 26 27Current assets 28 574 337 331 80 106Non-current liabilities (401) (144) (89) (4) (4)Current liabilities (35 128) (84) (147) (25) (53)Attributable income before impairments 1 6 5 6 3

1 Represents the summarised financial information of the associates and joint ventures.2 These loans are provided on an arm’s length basis.3 The group retained 20% of SBA and classified the shareholding as an investment in associate.


219

Standard Bank Group Annual financial statements 2012 > Annexure C – associates and joint ventures

RCS InvestmentHoldings Proprietary

Limited

Ünlü Finansal Yatirimlar A.S.1

Dairy Belle Holdings Proprietary Limited


AssociateFinance

AssociateFinance

AssociateDairy products


March31 December 2011


September31 December 2012

2012 2011 2012 2011 2012 2011

Effective holding (%) 45 20 50

Rm Rm Rm Rm Rm Rm

Carrying value * 724 73 ** **

Balance sheet2

Non-current assets 99 5 405Current assets 3 335 615 531Non-current liabilities (2 039) (301) (242)Current liabilities (225) (96) (317)Loans to group entities3 392 231Attributable income before impairments 100 (3)

Otherassociates

Otherjoint ventures

Totalassociates

and joint ventures


AssociatesVarious

Joint venturesVarious


Various31 December 2012

Various31 December 2012

2012 2011 2012 2011 2012 2011

Effective holding (%) Various Various Various Various Various Various

Rm Rm Rm Rm Rm Rm

Carrying value 419 123 5 36 3 409 2 238

Balance sheet2

Non-current assets 2 016 1 522 24 17 722 5 943Current assets 661 729 65 31 788 7 002Non-current liabilities (1 463) (1 490) (6) (3 334) (4 726)Current liabilities (655) (580) (57) (36 588) (2 073)Loans to group entities3 2 417 5 44 7 1 427Attributable income before impairments 338 73 2 2 552 343

1 The controlling interest in Ünlü was disposed of during the year. The group retained 13.86% of Ünlü and classified the shareholding as an investment in associate, as the group retained significant influence.

2 Represents the summarised financial information of the associates and joint ventures.3 These loans are provided on an arm’s length basis.* RCS Investment Holdings (Pty) Ltd was classified as a non-current asset held for sale as at 31 December 2012. Refer to note 7 for

further information.** Investment fully impaired in 2011. During 2012, the group obtained control of Dairy Belle Holdings Proprietary Limited (Dairy Belle) for an

immaterial amount of consideration. The fair value of Dairy Belle’s assets and liabilities on acquisition date was negligible. Dairy Belle is currently in the process of being liquidated.


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Private equity/venture capital associates and joint ventures1

2012Rm

2011Rm

Cost 159 287Carrying value 540 613

Statement of financial position2

Non-current assets 4 424 4 239Current assets 620 1 934Non-current liabilities (1 386) (1 767)Current liabilities (776) (1 176)

Loans to group entities3 6 195

Income statementAttributable income before impairment 94 83Impairments included in non-interest revenue (60)Fair value 454 591

All investments in associates and joint ventures, other than those recognised at fair value through profit and loss in accordance with IAS 39, made by a private equity organisation are ring-fenced for headline earnings purposes. On the disposal of these associates and joint ventures held by the group’s private equity division, the gain or loss on the disposal will be included in headline earnings in terms of Circular 3/2012 Headline Earnings, issued by the South African Institute of Chartered Accountants at the request of the JSE.

1 Included in associates and joint ventures on pages 218 to 219.2 Represents the summarised financial information of the associates and joint ventures.3 These loans are provided on an arm’s length basis.

Annexure C – associates and joint ventures continued

221

Standard Bank Group Annual financial statements 2012 > Annexure D – group share incentive schemes

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.

2012Rm

2011Rm

Expenses recognised in staff costs:

Banking activities 1 082 846

Share options and appreciation rights 236 311Standard International Holdings S.A. (SIH) long-term incentive scheme (21)Quanto stock scheme 606 467Deferred bonus scheme (DBS) 74 68Deferred bonus scheme 2012 (DBS 2012) 187

Liberty 76 52

Share options 76 52

Total expenses recognised in staff costs 1 158 898

Expenses recognised in restructuring costs – banking activitiesQuanto stock scheme 29

29

Liabilities recognised in other liabilitiesSIH long-term incentive scheme 6 43Quanto stock scheme 1 233 1 116DBS 188 137DBS 2012 19

Total liability recognised in other liabilities 1 446 1 296

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 four different sub-types 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 D1 2, 3, 4 33, 67, 100 10

1 New vesting category. Awards under category D are similar in vesting to category C, but with a longer average duration over the cumulative vesting period.

Refer to the annexure F on pages 256 to 263 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 hereafter.



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Equity-settled share-based paymentsA reconciliation of the movement of share options is detailed below:

GSIS

Option price range (rand)

Numberof options

2012 2012 2011

ReconciliationOptions outstanding at the beginning of the year 14 230 100 15 104 350Granted 2 377 250Exercised 27,70 – 111,94 (3 496 166) (2 962 100)Lapsed 62,39 – 111,94 (694 459) (289 400)

Options outstanding at the end of the year 10 039 475 14 230 100

Share options were exercised regularly throughout the year. The weighted average share price for the year was R110,03 (2011: R98,66).

The following options granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number ofordinary shares

Option price range(rand)

Weighted averageprice (rand) Option expiry period

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

The following options granted to employees, including executive directors, had not been exercised at 31 December 2011:




428 600 27,80 – 35,70 28,01 Year to 31 December 20121 187 000 27,70 – 32,19 27,93 Year to 31 December 20132 036 800 39,90 – 48,00 40,73 Year to 31 December 2014

193 400 64,27 – 65,60 65,50 Year to 31 December 2015738 600 76,40 – 85,80 79,54 Year to 31 December 2016877 800 97,95 – 107,91 98,49 Year to 31 December 2017

1 955 650 89,00 – 92,00 91,94 Year to 31 December 20182 076 000 62,39 – 98,20 63,02 Year to 31 December 20192 395 000 102,00 – 114,60 110,96 Year to 31 December 20202 341 250 93,74 – 107,55 98,90 Year to 31 December 2021

14 230 100

Annexure D – group share incentive schemes continued

223


Equity-settled share-based payments continuedThe share options 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

2012 2011 2012 2011

Number of options granted 1 265 000 1 112 250Weighted average fair value at grant date (R) 33,47 35,28The principal inputs are as follows:Weighted average share price (R) 98,89 98,91Weighted average exercise price (R) 98,89 98,91Expected life (years) 5,9 6,9Expected volatility (%) 33.9 – 35.4 33.9 – 35.4Risk-free interest rate (%) 7.0 – 8.2 7.3 – 8.4Dividend yield (%) 3.7 3.7

No options were granted during 2012. The options granted during 2011 which were expected to vest had an estimated fair value of R60 million.

A reconciliation of the movement of appreciation rights is detailed below:

EGS

Average price range (rand)

Numberof rights

2012 2012 2011

ReconciliationRights outstanding at the beginning of the year 51 382 167 47 163 913Granted 98,75 – 113,50 976 476 11 005 225Exercised1 60,35 – 104,65 (5 310 654) (2 318 085)Lapsed 62,39 – 114,69 (2 613 648) (4 468 886)

Rights outstanding at the end of the year2 44 434 341 51 382 167

1 During the year 1 104 534 (2011: 322 648) SBG shares were issued to settle the appreciated rights value.2 At the end of the year the group would need to issue 10 379 054 (2011: 6 082 325) SBG shares to settle the outstanding appreciated rights value.

The EGS rights are only awarded to individuals in the employment of a group entity 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 714 331 (2011: 393 825) SBG shares were issued and sold to settle the employees’ tax due during the year. This amount settled reduces the liability due in respect of the outstanding appreciated rights value.


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Equity-settled share-based payments continuedThe following rights granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number ofrights



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

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2011:

Number ofrights



2 957 214 60,35 – 69,50 65,41 Year to 31 December 20155 000 707 76,40 – 87,00 79,63 Year to 31 December 20164 411 389 94,50 – 117,30 98,46 Year to 31 December 20179 060 200 69,99 – 100,08 91,82 Year to 31 December 20189 823 991 62,39 – 99,00 64,19 Year to 31 December 20199 913 191 102,00 – 116,80 111,41 Year to 31 December 2020

10 215 475 90,50 – 107,55 98,83 Year to 31 December 2021

51 382 167

The 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

2012 2011 2012 2011 2012

Number of appreciation rights granted 503 048 5 903 947 72 750 5 101 278 400 678Weighted average fair value at grant date (R) 32,82 33,47 33,37 35,26 28,14The principle inputs are as follows:Weighted average share price (R) 108,11 98,87 103,43 98,81 108,9Weighted average exercise price (R) 108,11 98,87 103,43 98,81 108,9Expected life (years) 5,9 5,9 6,9 6,9 7Expected volatility (%) 32.83 – 33.33 33.9 – 35.4 32.83 – 33.33 33.9 – 35.4 32.87Risk-free interest rate (%) 7.08 – 7.29 6.5 – 8.3 7.30 – 7.53 6.8 – 8.4 6.63Dividend yield (%) 3.8 3.7 3.8 3.7 3.8

The appreciation rights granted during the year which are estimated to vest have a fair value of R30,2 million (2011: R280 million) at grant date.

Liberty has similar share-based payment transactions and has recognised a total expense of R76 million (2011: R52 million) relating to the share-based payments, comprising of R74 million (2011: R52 million) for share options and R2 million (2011: nil) relating to the Standard Bank Group Employee Scheme.


225


SIH long-term incentive schemeSIH has a long-term incentive scheme that was set up in 1998, whereby certain employees, including certain executive directors of Standard Bank 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 Standard Bank Plc remuneration committee agreed to close the scheme with all remaining options being exercised at a price of USD2,31. As of 31 December 2012 the scheme is 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 provision in respect of liabilities under the scheme at 31 December 2012 was USD0,68 million (2011: USD5,3 million), and USD2,6 million (2011: nil) was released to the income statement.

SIH Shadow share scheme

Option pricerange (USD) Number

2012 2012 2011

ReconciliationOptions outstanding at the beginning of the year 9 158 057 14 848 677Lapsed 1,59 – 2,48 (2 059 001) (3 652 941)Transfers 33 000Exercised1 2,24 – 2,31 (7 099 056) (2 070 679)

Options outstanding at the end of the year 9 158 057

1 During the year 32 400 (2011: 31 200) SBG shares were issued to settle the underpinning SIH shadow share scheme liability.

The following options granted to employees had not been exercised at 31 December 2011:


Option price range(USD)

Weighted averageexercise price

(USD) Option expiry period

536 430 1,59 1,59 Year to 31 December 2012 1 578 001 2,83 2,83 Year to 31 December 2013 1 700 000 0 – 2,20 1,94 Year to 31 December 20141 257 500 0 – 1,89 1,79 Year to 31 December 2015 3 962 626 0 – 1,99 1,99 Year to 31 December 2016

123 500 2,48 2,48 Year to 31 December 2017

9 158 057


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Quanto stock schemeSince 2007 Standard Bank 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. Awards prior to 2011 can be exercised within 10 years, 2011 awards can be exercised within the longest vesting period and current and future awards will be exercised on vesting. Units granted since 1 January 2012 do not allow for incremental payments to employees in service for four years.

The provision in respect of liabilities under the scheme amount to USD145,5 million as at 31 December 2012 (2011: USD138,0 million), and the charge for the year is USD73,8 million (2011: USD64,4 million). The change in liability due to the change in the SBG share price, is hedged through the use of equity options and are designated as cash flow hedges.

Units (‘000)

Quanto stock scheme 2012 2011

Reconciliation Units outstanding at the beginning of the year 1 308 1 235 Transfers 6 Granted 578 621 Lapsed (30) (377)Exercised (534) (171)

Units outstanding at the end of the year 1 328 1 308

Quanto stock units granted not yet exercised at 31 December 2012:

Number of units (‘000) Unit expiry period

393 Year to 31 December 2015 504 Year to 31 December 2016

31 Year to 31 December 2018 164 Year to 31 December 2019 236 Year to 31 December 2020

1 328

Quanto stock units granted not yet exercised at 31 December 2011:

Number of units (‘000) Unit expiry period

170 Year to 31 December 2018344 Year to 31 December 2019302 Year to 31 December 2020492 Year to 31 December 2021

1 308


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Equity participation plansDeferred 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 2012.

The provision in respect of liabilities under the scheme amounts to R188 million at 31 December 2012 (2011: R137 million) and the amount charged to the income statement for the year was R74 million (2011: R68 million). The change in the liability due to change in the group share price, is hedged through the use of equity options and are designated as cash flow hedges.

Units

2012 2011

ReconciliationUnits outstanding at the beginning of the year 2 666 847 1 784 466 Granted1 1 137 668Exercised (511 585) (113 562)Lapsed (132 733) (141 725)

Units outstanding at the end of the year 2 022 529 2 666 847

Weighted average fair value at grant date (R) 87,93 87,93 Expected life (years) 3,00 3,00 Risk-free interest rate (%) 4.96 6.13 Dividend yield (%) 3.96 3.63

1 Restated from 1 081 285 in prior year to 1 137 668. The restatement had no impact on the income statement.



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Deferred bonus scheme 2012In 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 2012 is to encourage a longer-term outlook in business decision-making and closer alignment of performance with long-term value creation.

All employees granted an annual performance award over a threshold have part of their award deferred. The award is indexed to the group’s share price and accrues notional dividends during the vesting period, which are payable on vesting. 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 2012 with regards to these awards was R168 million. These awards have been hedged through the use of equity forwards.

Awards issued to individuals in employment of a group entity domiciled outside South Africa are cash-settled. The provision in respect of these awards are recognised in liabilities at 31 December 2012 and the amount charged to the income statement for the year under the scheme amounts to R19 million.

Units2012

ReconciliationUnits granted during the year 5 751 687Lapsed (203 794)

Units outstanding at the end of the year 5 547 893

Weighted average fair value at grant date (R) 109,01Expected life (years) 2,51Risk-free interest rate (%) 5.02

229

Standard Bank Group Annual financial statements 2012 > Annexure E – detailed accounting policies

Annexure E – detailed accounting policies

1. Basis of consolidationSubsidiariesThe annual financial statements of subsidiaries are consolidated from the date on which the group1 acquires control, up to the date that control ceases. For this purpose, subsidiaries are entities over which the group, directly or indirectly, has the power to govern the financial and operating policies to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.

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 these policies.

Investments in subsidiaries are accounted for at cost less impairment losses in the separate financial statements. The carrying amounts of these investments are reviewed annually and impaired when necessary.

Special purpose entitiesSpecial purpose entities are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of financial assets. These entities may take different legal forms. A special purpose entity, including a securitisation vehicle, is consolidated when the substance of the relationship between the group and the special purpose entity indicates that the group controls the entity.

Mutual fundsMutual funds that are controlled by the group, including those in which the group has more than a 50% economic interest (resulting in control), are consolidated.

Business combinationsThe 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. Transaction costs for business combinations prior to 1 January 2010 were capitalised as part of the consideration transferred. Transaction costs for business combinations on or after 1 January 2010 are recognised within profit or loss as and when they are incurred.

Basis of consolidation 229

Foreign currency translations 230

Cash and cash equivalents 231

Financial instruments 231

Investment property 237

Interest in associates and joint ventures 237

Intangible assets 237

Property and equipment 238

Property developments 239

Capitalisation of borrowing costs 239

Impairment of non-financial assets 239

Leases 239

Provisions, contingent assets and contingent liabilities

240

Employee benefits 240

Tax 241

Non-current assets held for sale, disposal groups and discontinued operations

242

Policyholder insurance and investment contracts

242

Equity 245

Equity-linked transactions 245

Revenue and expenditure 246

Segment reporting 248

Fiduciary activities 248

Comparative figures 248

New standards not yet adopted 249

1 For the purposes of annexure E, all references to group include the company (unless otherwise indicated).


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2. Foreign currency translationsFunctional and presentation currencyItems 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 companiesThe 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 on 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, and

¢ all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the foreign currency translation reserve.

On the partial disposal of a subsidiary that includes a foreign operation, a proportionate share of the balance of the foreign currency translation reserve is transferred to the non-controlling interests. For all other partial disposals of a foreign operation, the proportionate share of the balance of the foreign currency translation reserve is reclassified to profit or loss.

On disposal (where a change in ownership occurs and control is lost) of a subsidiary that includes a foreign operation, the relevant amount in the foreign currency translation reserve is reclassified to profit or loss at the time at which the profit or loss on disposal of the foreign operation is recognised.

Transactions and balancesForeign 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

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 on page 237.

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.

Unincorporated property partnershipsThe group consolidates its interests in those property partnerships where the group holds a majority stake in the property and controls the management of the property, including the power over all significant decisions around the use and maintenance of the property. Non-controlling interests in the unincorporated property partnerships are measured at their proportionate share of the fair value in the various properties and any non-distributed net accumulated profit or loss.

Transactions with non-controlling interestsTransactions 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 a change in ownership occurs and control is not lost) of the group’s interest in a subsidiary to non-controlling interests are also accounted for directly in equity.

Common control transactionsCommon control transactions, in which the company is the ultimate parent entity both before and after the transaction, are accounted for at book value.

Annexure E – detailed accounting policies continued

231


management has both the positive intent and ability to hold to maturity. Were the group 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 method, less any impairment losses.

Held-for-trading assets and liabilitiesHeld-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 profit-taking, 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).

Financial assets and liabilities designated at fair value through profit or lossThe 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

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 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 jointly controlled entity 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 jointly controlled entity 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.

3. Cash and cash equivalentsCash and balances with central banks comprise coins and bank notes, and balances with central banks. Cash and cash equivalents presented in the statement of cash flows consist of cash and balances with central banks.

4. Financial instrumentsInitial recognition and measurementFinancial 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 measurementSubsequent 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


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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 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.

Fair valueFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, that is, the fair value

other investment portfolios have been designated at fair value through profit or loss, or

¢ financial instruments contain 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 the scope exemption in IAS 28 Investments in Associates (IAS 28), 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 holds between 20% and 50% economic interest (resulting in significant influence) are deemed to be interests in associates and are also designated at fair value through profit or loss, based on the scope exemption in IAS 28 relating to investment-linked insurance funds.

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).

Available-for-sale financial assets are impaired when there has been a significant or prolonged decline in the fair value of the financial asset below its cost. The cumulative fair value adjustments previously recognised in OCI on the impaired financial assets are reclassified to profit or loss. Reversal of impairments on equity available-for-sale financial assets are recognised in OCI.

Interest income, calculated using the effective interest method, is recognised in profit or loss. Dividends received on available-for-sale instruments are recognised in profit or loss when the group’s right to receive payment has been established.


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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

of the consideration paid or received, unless the fair value is evidenced either by comparison with other observable current market transactions in the same instrument, without modification or repackaging, or based on valuation techniques such as discounted cash flow models and option pricing models whose variables include only data from observable markets.

When such valuation models, with only observable market data as inputs, or the comparison with other observable current market transactions in the same instrument indicate that the fair value differs from the transaction price, this initial difference, commonly referred to as day one profit or loss, is recognised in profit or loss immediately. If non-observable market data is used as part of the input to the valuation models or 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 the resulting difference between the transaction price and the model value is deferred. 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, the fair values of financial assets and liabilities are based on quoted market prices or dealer price quotations for financial instruments traded in active markets. If the market for a financial asset 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.

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 a financial asset or liability with similar terms and conditions.

Where the fair value of investments in unquoted equity instruments and derivatives that are linked to and must be settled by delivery of such unquoted 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.

Impairment of financial assetsAssets carried at amortised costThe 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


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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 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

the fair value policy on page 232.

All derivative instruments are carried as assets when the fair

value is positive and as 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.

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.

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 loansLoans 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.


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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 hedgesWhere 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 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 jointly controlled entity 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 accountingAll 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 method.

Preference shares, which carry a mandatory coupon and 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

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 hedgesWhere 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 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 hedgesThe 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


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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 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, at either a

fixed price or the purchase price plus a lender’s rate of return,

are recorded as loans and included under trading assets or loans

and advances, as appropriate. The difference between the

purchase and sales price is treated as interest and amortised

over the life of the reverse repurchase agreement using the

effective interest method.

Securities lent to counterparties are retained in the annual

financial statements and are classified and measured in

accordance with the measurement policy on page 231.

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.

liabilities are accounted for as interest on an amortised cost basis

using the effective interest 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.

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.


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reflects the group’s share of the net assets of the associate or jointly controlled entity (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 jointly controlled entities’ income and expenses and OCI. Equity accounting of losses in associates and jointly controlled entities 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 jointly controlled entity. Unrealised intragroup profits 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 jointly controlled entity up to the date on which it ceases to be an associate or jointly controlled entity. The accounting policies of associates and jointly controlled entities 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 jointly controlled entities are accounted for at cost less impairment losses in the company’s annual financial statements.

Jointly controlled operationsJointly controlled operations exist where two or more venturers combine their operations, resources or expertise to market or distribute jointly a particular product. Each venturer recognises the assets it controls, the liabilities and expenses that it incurs, and its share of the gains and losses in respect of its interest in the joint venture.

7. Intangible assetsGoodwillGoodwill 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

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.

6. Interest in associates and joint venturesAssociates and jointly controlled entitiesAssociates are those entities in which the group has significant influence, but not control, over the financial and operating policies. Significant influence generally accompanies, but is not limited to, a shareholding of between 20% and 50% of the voting rights. Investments in mutual funds over whose financial and operating policies the group is able to exercise significant influence (including those in which the group has between a 20% and 50% economic interest) are also classified as associates.

A jointly controlled entity is one where a contractual arrangement establishes joint control over the economic activity of the entity.

Interests in associates and jointly controlled entities are accounted for using the equity method and are measured in the consolidated statement of financial position at an amount that


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There have been no changes in the estimated useful lives from those applied in the previous financial year.

Other intangible assetsThe 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 yearend and adjusted, if necessary. There have been no changes in the estimated useful lives from those applied in the previous financial year.

Present value of acquired in-force policyholder contracts and investment contracts with DPFWhere 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 propertiesEquipment, 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

of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, associate or jointly controlled entity 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) on page 229.

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 jointly controlled entities is 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 on page 237). Goodwill is allocated to cash-generating units (not larger than operating segments of the group as defined) and is tested annually for impairment. A gain from a bargain purchase is recognised as income in profit or loss in the period in which it arises. Gains or losses on the disposal of an entity are determined after taking into account the carrying amount of goodwill (if any) relating to the entity sold.

Computer softwareCosts 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 yearend and adjusted, if necessary.


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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 levels for which there are separately identifiable cash inflows from continuing use (cash-generating units). Impairment losses recognised in respect of cash-generating units 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. LeasesGroup as lesseeLeases, where the group assumes substantially all the risks and rewards of ownership, are classified as finance 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 separated using the interest rate implicit in the lease 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.

Leases of assets are classified as operating leases if the lessor retains a significant portion of the risks and rewards of ownership. 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

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 yearend.

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 change to the estimated useful lives and depreciation methods from those applied in the previous financial year.

9. Property developments Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and where applicable, development and borrowing costs during development. When development is completed borrowing costs and other charges are expensed as incurred.

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


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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 benefitsPost-employment benefitsDefined contribution plansThe group operates a number of defined contribution plans,

based on a percentage of pensionable earnings funded by both

employer 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 financial yearend.

The liabilities recognised in the statement of financial position in

respect of defined benefit pension 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, together with adjustments for

unrecognised actuarial gains and losses and past service costs.

The group’s current service costs are recognised as expenses in

the current year. Past service costs, experience adjustments and

the effect of changes in actuarial assumptions are recognised in

profit or loss in the current year to the extent that they relate to

vested benefits of retired employees or past service. For active

employees, these items are recognised in profit or loss

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 lessorLease 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 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.

Leases of assets under which the group retains a significant portion of the risks and rewards of ownership are classified as operating leases. 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


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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

¢ investments in subsidiaries and jointly controlled entities

(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.

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.

systematically over a period not exceeding the expected

remaining service period of employees.

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. For past service, the group recognises and provides for

the actuarially determined present value of post-employment

medical aid employer contributions using the projected unit

credit method. Independent qualified actuaries carry out annual

valuations of these obligations. Unrecognised actuarial gains or

losses are accounted for over a period not exceeding the

remaining working life of active employees. Actuarial gains or

losses in respect of vested benefits of retired employees are

recognised immediately in profit or loss.

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 benefitsShort-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 has a present legal or constructive obligation to pay this

amount as a result of past service provided by the employee

and the obligation can be estimated reliably.

15. TaxNormal taxDirect taxation includes current and deferred tax. Current tax

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.


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17. Policyholder insurance and investment contractsPolicyholder 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 Financial Services Board. The terms ‘reversionary bonus’ and ‘smoothed bonus’ refer to the specific forms of DPF contracts underwritten by the group.

All components in respect of DPFs are included in policyholder liabilities.

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, or a contract comprising a combination of any of those policies.

Indirect taxIndirect 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.

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 on page 239). 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.

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.


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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 contractsReceivables 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 AfricaIn 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 Actuarial Society of South Africa to determine the liability in respect of insurance contracts issued in South Africa. The group has continued to value long-term insurance liabilities in accordance with these.

In 2012 the naming convention was changed and the term PGN was replaced with either Advisory Practice Note (APN) or Standard of Actuarial Practice (SAP) depending on whether the former PGN was best-practice or mandatory respectively.

These are available on the Actuarial Society of South Africa website www.actuarialsociety.org.za

Where applicable, the APNs and SAPs are referred to in the accounting policies and notes to the annual financial statements.

Long-term insurance contracts and investment contracts with DPFMeasurementThese 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.

Recognition and measurementGross written premiumsGross 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 premiumsThe 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 adequacyProvision 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 reportedProvision 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 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 contractsCommissions 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 contractsA DRL is raised for any income receivable on the placement of reinsurance for risks arising


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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 the light of the estimated future cash flows, then the deficiency is recognised in profit or loss.

Long-term investment contracts without DPFThe 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 on page 231.

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 contractsReceivables 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 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’ 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


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¢ 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 SPEs 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 costsIncremental 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 sharesDistributions are recognised in equity in the period in which they are declared. Distributions declared after the reporting date are disclosed in the distributions note.

19. Equity-linked transactionsEquity compensation plansThe group operates both equity-settled and cash-settled share-based compensation plans. All share options issued after 7 November 2002 that had not vested by 31 December 2004 are accounted for as share-based payment transactions.

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 retrenchment of staff, are not considered in the valuation but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of options expected to vest is reassessed and adjusted against 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.

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.

18. EquityReacquired 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.

Black economic empowerment ownership initiative (Tutuwa)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 entities. The group subscribed for 8.5% redeemable, cumulative preference shares issued by SPEs controlled by the group. The initial repurchase of group shares by the SPEs was treated as a reduction in the group’s equity. Subsequent to the repurchase of the group shares, the SPEs 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 SPEs 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 SPEs 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 SPEs 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 SPEs are eliminated against the ordinary dividends paid on the group shares held by the SPEs


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Non-interest revenueNet fee and commission revenueFee and commission revenue, including transactional fees, account servicing fees, investment management fees, sales commissions and placement fees are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period. Loan syndication fees, where the group does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised 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 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 and underwriting profit from the group’s short-term insurance operations and related insurance activities.

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 incomeDividends 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

20. Revenue and expenditureBanking activitiesRevenue 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 incomeInterest income and expense (with the exception of those

borrowing costs that are capitalised – refer to accounting

policy 10 – Capitalisation of borrowing costs on page 239)

are recognised in profit or loss on an accrual basis using the

effective interest method for all interest-bearing financial

instruments, except for those classified at fair value through

profit or loss. In terms of the effective interest method, interest

is recognised at a rate that exactly discounts estimated future

cash payments or receipts through the expected life of the

financial instrument or, where appropriate, a shorter period, to

the net carrying amount of the financial asset or financial

liability. Direct incremental transaction costs incurred and

origination fees received, including loan commitment fees, as a

result of bringing margin-yielding assets or liabilities into the

statement of financial position, are capitalised to the carrying

amount of financial instruments that are not at fair value

through profit or loss and amortised as interest income or

expense over the life of the asset or liability as part of the

effective interest rate.

Where the estimates of payments or receipts on financial assets

(except those that have been reclassified – refer to accounting

policy 4 – Financial instruments on page 232) 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.


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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 contracts and the renewing of existing contracts. These costs are expensed as incurred.

Investment contracts without DPFAmounts 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 DRL 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.

DAC 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.

accounted for on the accrual basis and comprises the cash value of commission and fees earned when premiums or fees are payable directly to the group. Direct commission income is accounted for as and when cash is received and comprises the cash value of commission earned when premiums are payable directly to the underwriters.

Customer loyalty 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.


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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 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.

21. 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 black economic empowerment ownership 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.

¢ 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.

22. Fiduciary activitiesThe 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.

23. Comparative figuresWhere necessary, comparative figures within notes have

been restated to conform to changes in presentation in

the current year.


249


24. New standards not yet adoptedThe following new or revised standards and amendments which have a potential impact on the group, are not yet effective for the year ended 31 December 2012 and have not been applied in preparing these annual financial statements.

Pronouncement Title Effective date

IFRS 7 (amendments) Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities

The amendment to IFRS 7 requires additional disclosure for those financial instruments that are offset in the statement of financial position and for those financial instruments that are not offset in the statement of financial position but that are subject to either an enforceable master netting arrangement or similar agreement.

Annual periods beginning on or after 1 January 2013

IFRS 9 (amended) Financial Instruments

IFRS 9 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.

IFRS 9 will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.


IFRS 10 (amended)1 Consolidated Financial Statements

IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. It introduces a single control model to be applied in determining control.

An investor controls an investee when it has:

¢ power over the investee

¢ exposure, or rights, to variable returns from its involvement with the investee, and

¢ the ability to use its power over the investee to affect the amount of its returns.

When assessing whether an investor controls an investee, an investor with decision-making rights determines whether it acts as principal or as an agent.

IFRS 10 will be applied retrospectively. The application of IFRS 10 will result in more entities, particularly mutual funds, being consolidated than under the existing consolidation standards. The consolidation of these additional entities will result in the additional assets and liabilities being consolidated, however, it is unlikely to have a material impact on the group’s OCI and profit or loss. The consolidation of these entities will also result in an increase in the number of treasury shares within the group’s statement of changes in equity.

The application of IFRS 10 may also result in certain structured entities no longer being required to be consolidated by the group. The impact on the group’s financial statements is currently being finalised.


1 Amendments were made to the transitional guidance within IFRS 10, 11 and 12 to limit the requirement to provide comparative information to only the preceding comparative period.


report


250



IFRS 11 (amended)1 Joint Arrangements

IFRS 11 focuses on the rights and obligations of joint arrangements, rather than the legal form. The standard:

¢ distinguishes between joint operations and joint ventures depending on the rights and obligations of the parties to the arrangements

¢ requires joint operations to be accounted for by recognising own assets, separately incurred liabilities, own revenue and expenses as well as the share of assets, liabilities, revenue and expenses arising from the joint operation

¢ requires joint ventures to be accounted for using the equity method.

IFRS 11 will be applied retrospectively and is not expected to have a material impact on the group’s financial statements.


IFRS 12 (amended)1 Disclosure of Interests in Other Entities

IFRS 12 contains disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures seek to provide information to enable users to evaluate:

¢ the nature of, and risks associated with, an entity’s interests in other entities

¢ the effects of those interests on the entity’s financial position, financial performance and cash flows.

IFRS 12 will be applied retrospectively and will result in additional disclosures regarding the nature of the relationship, risks and significant judgements an entity may make in determining the nature of its interest in another entity.


IFRS 13 Fair Value Measurement

IFRS 13 provides a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce any new requirements to measure additional assets or liabilities at fair value.

IFRS 13 will be applied prospectively. The application of IFRS 13 may result in changes to the measurement of certain of the group’s assets and liabilities although initial high level assessments indicate these are unlikely to be significant. IFRS 13 will also result in additional disclosure requirements.


IAS 19 (amendments) Employee Benefits

The amendments to IAS 19 include the following requirements:

¢ actuarial gains and losses are to be recognised immediately in OCI. This change will remove the corridor method and eliminate the ability to recognise all changes in the defined benefit obligation and plan assets in profit or loss

¢ the expected return on plan assets that is recognised in profit or loss is calculated based on the rate used to discount the defined benefit obligation.

The amendment will be applied retrospectively. The group will recognise all unrecognised actuarial losses or gains in OCI. As at 31 December 2012, there were unrecognised actuarial gains of R1,1 billion. The group will recognise an interest charge on the net pension fund liability or asset, rather than the expected return on the schemes’ assets and interest cost on the schemes’ benefit obligation.


1 Amendments were made to the transitional guidance within IFRS 10, 11 and 12 to limit the requirement to provide comparative information to only the preceding comparative period.


251



IAS 27 (amendments) Separate Financial Statements

The amendments to IAS 27 include both existing and amended accounting and disclosure requirements for separate financial statements.

The amendments will be applied retrospectively and are not expected to have a material impact on the company’s financial statements.


IAS 28 (amendments) Investments in Associates and Joint Ventures

The amendments to IAS 28 carry forward existing accounting requirements for separate financial statements, as well as the existing equity accounting requirements for associates and joint ventures for group financial statements, with minor clarifications.

The amendments will be applied retrospectively and are not expected to have a material impact on the group’s financial statements.


IAS 32 (amendments) Offsetting Financial Assets and Financial Liabilities

The amendment to IAS 32 clarifies the requirements for offsetting of financial assets and liabilities.

The amendments will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.



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252


Directors’ and prescribed officers’ emoluments 2012

Fixed remuneration Variable remuneration

Totalremuneration for the year

R’000

Services asdirectors of

Standard BankGroupR’000

Standard BankGroup

committeefees

R’000


groupsubsidiaries

R’000

Cashportion of

packageR’000

Otherbenefits

R’000

Pensioncontributions

R’000

Otherwise inconnection

with theaffairs ofStandard

Bank Groupand its

subsidiariesR’000

Total fixedremuneration

R’000Cash award

R’000

DeferredawardR’000

Value ofoptions/

rightsgranted EGS

R’000

Non-executive directorsDDB Band 189 410 315 4731 1 387 1 387RMW Dunne 189 746 189 1 124 1 124TS Gcabashe 189 280 225 694 694KP Kalyan 189 84 189 462 462Yagan Liu 533 180 713 713SJ Macozoma 189 580 2 287 3 056 3 056KD Moroka 189 189 378 378AC Nissen 189 84 189 462 462TMF Phaswana 4 400 4162 4 816 4 816MC Ramaphosa 189 82 189 460 460MJD Ruck 189 533 1 352 2 074 2 074Lord Smith of Kelvin, Kt 533 213 533 1 279 1 279EM Woods 189 679 207 1 075 1 075Hongli Zhang 533 295 828 828

Subtotal 7 889 4 166 5 864 416 473 18 808 18 808

Former non-executive directorsSE Jonah KBE3 78 78 156 156Sir Paul Judge3 222 221 443 443

Subtotal 300 299 599 599

Executive directorsJH Maree 6 345 470 997 7 812 4 5004 3 7005 2 0006,8 18 012SP Ridley 4 617 246 572 5 435 5 5004 4 7005 1 5006,8 17 135

Subtotal 10 962 716 1 569 13 247 10 000 8 400 3 500 35 147

Subtotal board 8 189 4 166 6 163 10 962 1 132 1 569 473 32 654 10 000 8 400 3 500 54 554

Prescribed officersBJ Kruger 6 014 132 963 7 109 5 9004 5 1005 2 0006,8 20 109PG Wharton-Hood 6 008 191 966 7 165 7 5004 6 7005 2 5006,8 23 865SK Tshabalala 5 098 270 482 5 850 8 2504 7 4505 2 5006,8 24 050JB Hemphill 4 424 387 132 4 943 7 9004 3 8507 7 0007,8 23 693

Subtotal 21 544 980 2 543 25 067 29 550 23 100 14 000 91 717

Total 8 189 4 166 6 163 32 506 2 112 4 112 473 57 721 39 550 31 500 17 500 146 271

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 SBSA. 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 SBSA. 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 SBSA.

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 In terms of the DBS 2012, described on page 262, the amount finally payable is dependent on the performance of the group’s share price. The awards deferred for the

2012 performance year are only issued in the 2013 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 on page 131 of the annual integrated report, over and above the duration of service.

7 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report.8 Black-Scholes value of conditional awards forfeited. Detail of award listed on pages 257 to 261.

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)

Total (18 516)


253

Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers



Totalremuneration for the year

R’000


Standard BankGroupR’000

Standard BankGroup

committeefees

R’000


groupsubsidiaries

R’000

Cashportion of

packageR’000

Otherbenefits

R’000


R’000

Otherwise inconnection

with theaffairs ofStandard

Bank Groupand its

subsidiariesR’000

Total fixedremuneration

R’000Cash award

R’000

DeferredawardR’000

Value ofoptions/

rightsgranted EGS

R’000

Non-executive directorsDDB Band 189 410 315 4731 1 387 1 387RMW Dunne 189 746 189 1 124 1 124TS Gcabashe 189 280 225 694 694KP Kalyan 189 84 189 462 462Yagan Liu 533 180 713 713SJ Macozoma 189 580 2 287 3 056 3 056KD Moroka 189 189 378 378AC Nissen 189 84 189 462 462TMF Phaswana 4 400 4162 4 816 4 816MC Ramaphosa 189 82 189 460 460MJD Ruck 189 533 1 352 2 074 2 074Lord Smith of Kelvin, Kt 533 213 533 1 279 1 279EM Woods 189 679 207 1 075 1 075Hongli Zhang 533 295 828 828

Subtotal 7 889 4 166 5 864 416 473 18 808 18 808

Former non-executive directorsSE Jonah KBE3 78 78 156 156Sir Paul Judge3 222 221 443 443

Subtotal 300 299 599 599

Executive directorsJH Maree 6 345 470 997 7 812 4 5004 3 7005 2 0006,8 18 012SP Ridley 4 617 246 572 5 435 5 5004 4 7005 1 5006,8 17 135

Subtotal 10 962 716 1 569 13 247 10 000 8 400 3 500 35 147

Subtotal board 8 189 4 166 6 163 10 962 1 132 1 569 473 32 654 10 000 8 400 3 500 54 554

Prescribed officersBJ Kruger 6 014 132 963 7 109 5 9004 5 1005 2 0006,8 20 109PG Wharton-Hood 6 008 191 966 7 165 7 5004 6 7005 2 5006,8 23 865SK Tshabalala 5 098 270 482 5 850 8 2504 7 4505 2 5006,8 24 050JB Hemphill 4 424 387 132 4 943 7 9004 3 8507 7 0007,8 23 693

Subtotal 21 544 980 2 543 25 067 29 550 23 100 14 000 91 717

Total 8 189 4 166 6 163 32 506 2 112 4 112 473 57 721 39 550 31 500 17 500 146 271

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 SBSA. 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 SBSA. 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 SBSA.

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



as set out on page 131 of the annual integrated report, over and above the duration of service.

7 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report.8 Black-Scholes value of conditional awards forfeited. Detail of award listed on pages 257 to 261.

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)

Total (18 516)


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254




Totalremuneration

for the yearR’000

Services as directors of

Standard Bank GroupR’000

Standard Bank Group

committee feesR’000

Servicesas directors

of group subsidiaries

R’000

Cash portionof package

R’000

Otherbenefits

R’000


R’000

Total fixed remuneration

R’000Cash award

R’000Deferred award

R’000

Value ofoptions/rights

granted EGSR’000

Non-executive directorsDDB Band 171 389 302 862 862RMW Dunne 171 711 172 1 054 1 054TS Gcabashe 171 194 172 537 537SE Jonah KBE 171 172 343 343Sir Paul Judge 430 430 860 860KP Kalyan 171 77 172 420 420Yagan Liu 430 163 593 593SJ Macozoma 171 544 2 066 2 781 2 781KD Moroka 171 172 343 343AC Nissen 171 77 172 420 420TMF Phaswana 4 000 2841 4 284 4 284MC Ramaphosa 171 74 172 417 417MJD Ruck 171 822 1 071 2 064 2 064Lord Smith of Kelvin, Kt 430 194 430 1 054 1 054EM Woods 171 486 172 829 829Hongli Zhang 430 284 714 714

Subtotal 7 601 4 015 5 675 284 17 575 17 575

Former non-executive directorRP Menell2 16 28 15 59 59

Subtotal 16 28 15 59 59

Executive directorsJH Maree 5 595 423 895 6 913 8 7863 9 0434 2 5005 27 242SP Ridley 4 087 212 514 4 813 5 8813 5 6004 1 5005 17 794

Subtotal 9 682 635 1 409 11 726 14 667 14 643 4 000 45 036

Subtotal board 7 617 4 043 5 690 9 682 919 1 409 29 360 14 667 14 643 4 000 62 670

Prescribed officersBJ Kruger 5 268 143 858 6 269 9 5063 9 7634 2 5005 28 038SK Tshabalala 4 713 227 454 5 394 8 2003 7 9006 2 5005 23 994PG Wharton-Hood 5 337 152 840 6 329 8 6313 8 8884 2 5005 26 348JB Hemphill 4 208 110 394 4 712 7 3323 2 7137 6 0007 20 757

Subtotal 19 526 632 2 546 22 704 33 669 29 264 13 500 99 137

Total 7 617 4 043 5 690 29 208 1 551 3 955 52 064 48 336 43 907 17 500 161 807

1 Use of motor vehicle.2 Resigned on 4 February 2011.3 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



as set out on page 131 of the annual integrated report, over and above the duration of service.6 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258.7 Awards are made in terms of the Liberty Group DBS and EGS. Details are available in the Liberty Holdings Limited annual integrated report.

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

255




Totalremuneration

for the yearR’000

Services as directors of

Standard Bank GroupR’000

Standard Bank Group

committee feesR’000

Servicesas directors

of group subsidiaries

R’000

Cash portionof package

R’000

Otherbenefits

R’000


R’000

Total fixed remuneration

R’000Cash award

R’000Deferred award

R’000

Value ofoptions/rights

granted EGSR’000

Non-executive directorsDDB Band 171 389 302 862 862RMW Dunne 171 711 172 1 054 1 054TS Gcabashe 171 194 172 537 537SE Jonah KBE 171 172 343 343Sir Paul Judge 430 430 860 860KP Kalyan 171 77 172 420 420Yagan Liu 430 163 593 593SJ Macozoma 171 544 2 066 2 781 2 781KD Moroka 171 172 343 343AC Nissen 171 77 172 420 420TMF Phaswana 4 000 2841 4 284 4 284MC Ramaphosa 171 74 172 417 417MJD Ruck 171 822 1 071 2 064 2 064Lord Smith of Kelvin, Kt 430 194 430 1 054 1 054EM Woods 171 486 172 829 829Hongli Zhang 430 284 714 714

Subtotal 7 601 4 015 5 675 284 17 575 17 575

Former non-executive directorRP Menell2 16 28 15 59 59

Subtotal 16 28 15 59 59

Executive directorsJH Maree 5 595 423 895 6 913 8 7863 9 0434 2 5005 27 242SP Ridley 4 087 212 514 4 813 5 8813 5 6004 1 5005 17 794

Subtotal 9 682 635 1 409 11 726 14 667 14 643 4 000 45 036

Subtotal board 7 617 4 043 5 690 9 682 919 1 409 29 360 14 667 14 643 4 000 62 670

Prescribed officersBJ Kruger 5 268 143 858 6 269 9 5063 9 7634 2 5005 28 038SK Tshabalala 4 713 227 454 5 394 8 2003 7 9006 2 5005 23 994PG Wharton-Hood 5 337 152 840 6 329 8 6313 8 8884 2 5005 26 348JB Hemphill 4 208 110 394 4 712 7 3323 2 7137 6 0007 20 757

Subtotal 19 526 632 2 546 22 704 33 669 29 264 13 500 99 137

Total 7 617 4 043 5 690 29 208 1 551 3 955 52 064 48 336 43 907 17 500 161 807

1 Use of motor vehicle.2 Resigned on 4 February 2011.3 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



as set out on page 131 of the annual integrated report, over and above the duration of service.6 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258.7 Awards are made in terms of the Liberty Group DBS and EGS. Details are available in the Liberty Holdings Limited annual integrated report.


report


256



Share incentives

Director’s or prescribed officer’s name

Opening balance

1 January

Numberof share

incentives allocated

Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year

Black-Scholes value of

participation rights

forfeited(R)

Number of share

incentives exercised

or accepted during the

year

Issueprice (R)/ resultant

shares

Difference between

issue priceand closing

price ondate ofdelivery

(R)

Balance ofshare

incentives31 December

Numberof share

incentivesas at

31 December 2012 Issue date

Issue oroffer price

(R)Vesting

category Expiry date

JH Maree GSIS

2012 300 000 300 000 40,65 20 661 000

2011 325 000 25 000 33,50 1 621 250 300 000

EGS

2012 1 625 000 61 471 2012/03/08 (125 000) (5 747 500) 108,90 1 561 471 375 000 2006/03/10 79,50 A 2016/03/10

2011 1 625 000 1 625 000 125 000 2006/03/10 79,50 B 2016/03/1062 5001 2008/03/06 92,00 A 2018/03/06

250 0001 2008/03/06 92,00 B 2018/03/0662 5001 2009/03/06 62,39 A 2019/03/06

125 0001 2009/03/06 62,39 B 2019/03/06500 0001 2010/03/05 111,94 A 2020/03/05

61 4711 2012/03/08 108,90 A 2022/03/08

SP Ridley GSIS

2012

2011 77 500 17 500 27,90 1 232 350 60 000 40,65 3 460 200

EGS

2012 725 000 36 883 2012/03/08 (42 500) (2 127 925) 50 000 12 175 2 170 000 669 383 150 000 2006/03/10 79,50 B 2016/03/10

2011 525 000 200 000 2011/03/04 725 000 15 000 2007/03/07 98,00 A 2017/03/0715 000 2007/03/07 98,00 B 2017/03/0712 5001 2008/03/06 92,00 A 2018/03/0650 0001 2008/03/06 92,00 B 2018/03/0630 0001 2009/03/06 62,39 A 2019/03/0660 0001 2009/03/06 62,39 B 2019/03/06

100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

36 8831 2012/03/08 108,90 A 2022/03/08

1 Conditional awards.

257


Share incentives


Opening balance

1 January

Numberof share


Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year



forfeited(R)

Number of share



year


shares

Difference between



(R)

Balance ofshare


Numberof share

incentivesas at


Issue oroffer price

(R)Vesting


JH Maree GSIS

2012 300 000 300 000 40,65 20 661 000

2011 325 000 25 000 33,50 1 621 250 300 000

EGS

2012 1 625 000 61 471 2012/03/08 (125 000) (5 747 500) 108,90 1 561 471 375 000 2006/03/10 79,50 A 2016/03/10

2011 1 625 000 1 625 000 125 000 2006/03/10 79,50 B 2016/03/1062 5001 2008/03/06 92,00 A 2018/03/06

250 0001 2008/03/06 92,00 B 2018/03/0662 5001 2009/03/06 62,39 A 2019/03/06

125 0001 2009/03/06 62,39 B 2019/03/06500 0001 2010/03/05 111,94 A 2020/03/05

61 4711 2012/03/08 108,90 A 2022/03/08

SP Ridley GSIS

2012

2011 77 500 17 500 27,90 1 232 350 60 000 40,65 3 460 200

EGS

2012 725 000 36 883 2012/03/08 (42 500) (2 127 925) 50 000 12 175 2 170 000 669 383 150 000 2006/03/10 79,50 B 2016/03/10

2011 525 000 200 000 2011/03/04 725 000 15 000 2007/03/07 98,00 A 2017/03/0715 000 2007/03/07 98,00 B 2017/03/0712 5001 2008/03/06 92,00 A 2018/03/0650 0001 2008/03/06 92,00 B 2018/03/0630 0001 2009/03/06 62,39 A 2019/03/0660 0001 2009/03/06 62,39 B 2019/03/06

100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

36 8831 2012/03/08 108,90 A 2022/03/08



report


258



Share incentives continued


Opening balance

1 January

Numberof share


Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year



forfeited(R)

Number of share



year


shares

Difference between



(R)

Balance ofshare


Numberof share

incentivesas at


Issue oroffer price

(R)Vesting


PG Wharton-Hood GSIS

2012 250 000 125 000 27,90 10 641 250 125 000 125 000 2004/03/11 40,65 A 2014/03/11

2011 300 000 50 000 27,80 3 408 200 250 000

EGS

2012 1 250 000 61 471 2012/03/08 (75 000) (3 696 750) 108,90 1 236 471 125 000 2005/03/10 65,60 B 2015/03/10

2011 1 100 000 150 000 2011/03/04 1 250 000 300 000 2006/03/10 79,50 B 2016/03/10125 000 2007/03/07 98,00 B 2017/03/07

25 0001 2008/03/06 92,00 A 2018/03/06100 0001 2008/03/06 92,00 B 2018/03/06

50 0001 2009/03/06 62,39 A 2019/03/06100 0001 2009/03/06 62,39 B 2019/03/06100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2010/03/05 111,94 B 2020/03/05

75 0001 2011/03/04 98,80 A 2021/03/0475 0001 2011/03/04 98,80 B 2021/03/0461 4711 2012/03/08 108,90 A 2022/03/08

SK Tshabalala2 GSIS

2012 25 000 25 000 25 000 2004/03/11 40,65 A 2014/03/11

2011 25 000 25 000

EGS

2012 795 000 274 305 2012/03/08 (50 000) (2 547 250) 108,90 1 019 305 50 000 2005/03/10 65,60 B 2015/03/10

2011 595 000 200 000 2011/03/04 795 000 22 500 2006/03/10 79,50 A 2016/03/1022 500 2006/03/10 79,50 B 2016/03/1025 000 2007/03/07 98,00 A 2017/03/0725 000 2007/03/07 98,00 B 2017/03/0712 5001 2008/03/06 92,00 A 2018/03/06

100 0001 2008/03/06 92,00 B 2018/03/0650 0001 2008/03/06 92,00 B 2018/03/0637 5001 2009/03/06 62,39 A 2019/03/0675 0001 2009/03/06 62,39 B 2019/03/0662 5001 2010/03/05 111,94 A 2020/03/0562 5001 2010/03/05 111,94 B 2020/03/05

100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

61 4711 2012/03/08 108,90 A 2022/03/08212 834 2012/03/08 108,90 D 2022/03/08

1 Conditional awards. 2 SK Tshabalala, has a right to 698 339 shares as a beneficiary of the Tutuwa Manager’s Trusts. There is a current liability of R44,36 per share.

Special conditions apply to the shares.

259




Opening balance

1 January

Numberof share


Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year



forfeited(R)

Number of share



year


shares

Difference between



(R)

Balance ofshare


Numberof share

incentivesas at


Issue oroffer price

(R)Vesting


PG Wharton-Hood GSIS

2012 250 000 125 000 27,90 10 641 250 125 000 125 000 2004/03/11 40,65 A 2014/03/11

2011 300 000 50 000 27,80 3 408 200 250 000

EGS

2012 1 250 000 61 471 2012/03/08 (75 000) (3 696 750) 108,90 1 236 471 125 000 2005/03/10 65,60 B 2015/03/10

2011 1 100 000 150 000 2011/03/04 1 250 000 300 000 2006/03/10 79,50 B 2016/03/10125 000 2007/03/07 98,00 B 2017/03/07

25 0001 2008/03/06 92,00 A 2018/03/06100 0001 2008/03/06 92,00 B 2018/03/06

50 0001 2009/03/06 62,39 A 2019/03/06100 0001 2009/03/06 62,39 B 2019/03/06100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2010/03/05 111,94 B 2020/03/05

75 0001 2011/03/04 98,80 A 2021/03/0475 0001 2011/03/04 98,80 B 2021/03/0461 4711 2012/03/08 108,90 A 2022/03/08

SK Tshabalala2 GSIS

2012 25 000 25 000 25 000 2004/03/11 40,65 A 2014/03/11

2011 25 000 25 000

EGS

2012 795 000 274 305 2012/03/08 (50 000) (2 547 250) 108,90 1 019 305 50 000 2005/03/10 65,60 B 2015/03/10

2011 595 000 200 000 2011/03/04 795 000 22 500 2006/03/10 79,50 A 2016/03/1022 500 2006/03/10 79,50 B 2016/03/1025 000 2007/03/07 98,00 A 2017/03/0725 000 2007/03/07 98,00 B 2017/03/0712 5001 2008/03/06 92,00 A 2018/03/06

100 0001 2008/03/06 92,00 B 2018/03/0650 0001 2008/03/06 92,00 B 2018/03/0637 5001 2009/03/06 62,39 A 2019/03/0675 0001 2009/03/06 62,39 B 2019/03/0662 5001 2010/03/05 111,94 A 2020/03/0562 5001 2010/03/05 111,94 B 2020/03/05

100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

61 4711 2012/03/08 108,90 A 2022/03/08212 834 2012/03/08 108,90 D 2022/03/08

1 Conditional awards. 2 SK Tshabalala, has a right to 698 339 shares as a beneficiary of the Tutuwa Manager’s Trusts. There is a current liability of R44,36 per share.

Special conditions apply to the shares.


report


260





Opening balance

1 January

Numberof share


Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year



forfeited(R)

Number of share



year


shares

Difference between


price ondate of

delivery(R)

Balance ofshare


Numberof share

incentivesas at


Issue oroffer price

(R)Vesting


BJ Kruger GSIS

2012

2011 15 700 15 700 40,65 960 309

EGS

2012 1 231 500 61 471 2012/03/08 (75 000) (3 696 750) 31 500 7 990 1 441 440 1 186 471 300 000 2006/03/10 79,50 B 2016/03/10

2011 1 062 500 200 000 2011/03/04 31 000 7 243 262 341 1 231 500 150 000 2007/03/07 98,00 B 2017/03/0750 0001 2008/03/06 92,00 A 2018/03/06

100 0001 2008/03/06 92,00 B 2018/03/0625 0001 2009/03/06 62,39 A 2019/03/06

100 0001 2009/03/06 62,39 B 2019/03/06100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2010/03/05 111,94 B 2020/03/05100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

61 4711 2012/03/08 108,90 A 2022/03/08

JB Hemphill GSIS

2012

2011

EGS

2012 250 000 (12 500) (698 875) 237 500 5 000 2005/04/21 60,35 A 2015/04/21

2011 225 000 25 000 2011/03/04 250 000 20 000 2005/04/21 60,35 B 2015/04/2112 5001 2009/03/06 62,39 A 2019/03/0625 0001 2009/03/06 62,39 B 2019/03/0675 0001 2010/03/05 111,94 A 2020/03/0575 0001 2010/03/05 111,94 B 2020/03/0512 5001 2011/03/04 98,80 A 2021/03/0412 5001 2011/03/04 98,80 B 2021/03/04


261




Opening balance

1 January

Numberof share


Issue oroffer date

Number of partici-

pation rights

forfeitedfor the

current performance

year



forfeited(R)

Number of share



year


shares

Difference between


price ondate of

delivery(R)

Balance ofshare


Numberof share

incentivesas at


Issue oroffer price

(R)Vesting


BJ Kruger GSIS

2012

2011 15 700 15 700 40,65 960 309

EGS

2012 1 231 500 61 471 2012/03/08 (75 000) (3 696 750) 31 500 7 990 1 441 440 1 186 471 300 000 2006/03/10 79,50 B 2016/03/10

2011 1 062 500 200 000 2011/03/04 31 000 7 243 262 341 1 231 500 150 000 2007/03/07 98,00 B 2017/03/0750 0001 2008/03/06 92,00 A 2018/03/06

100 0001 2008/03/06 92,00 B 2018/03/0625 0001 2009/03/06 62,39 A 2019/03/06

100 0001 2009/03/06 62,39 B 2019/03/06100 0001 2010/03/05 111,94 A 2020/03/05100 0001 2010/03/05 111,94 B 2020/03/05100 0001 2011/03/04 98,80 A 2021/03/04100 0001 2011/03/04 98,80 B 2021/03/04

61 4711 2012/03/08 108,90 A 2022/03/08

JB Hemphill GSIS

2012

2011

EGS

2012 250 000 (12 500) (698 875) 237 500 5 000 2005/04/21 60,35 A 2015/04/21

2011 225 000 25 000 2011/03/04 250 000 20 000 2005/04/21 60,35 B 2015/04/2112 5001 2009/03/06 62,39 A 2019/03/0625 0001 2009/03/06 62,39 B 2019/03/0675 0001 2010/03/05 111,94 A 2020/03/0575 0001 2010/03/05 111,94 B 2020/03/0512 5001 2011/03/04 98,80 A 2021/03/0412 5001 2011/03/04 98,80 B 2021/03/04



report


262



Deferred bonus schemeThe table below reflects bonus awards issued in the 2012 and prior financial years and relate to past years’ performance. The awards will only vest in future in terms of the rules of the DBS and DBS 2012. The bonus awards payable and bonus awards deferred for the 2012 performance year are only issued in the 2013 financial year and are reflected on page 253.

Performance year Issue dateAmount

deferred (R)Award

price (R) Units

Expirydate/final

vesting date

Number ofunits exercisedduring the year

Shareprice (R)

Value ofunits

exercised (R)

Balanceof units

31 December

JH Maree 2008 2009/03/061 2 593 000 62,39 41 561 2013/11/30 41 5612011 2012/03/082 9 043 512 108,90 83 035 2015/09/08 83 035

SP Ridley 2008 2009/03/061 887 500 62,39 14 226 2013/11/30 5 691 111,36 633 750 8 535#

2009 2010/03/051 817 500 111,94 7 303 2014/11/30 7 3032010 2011/03/041 552 875 98,80 5 596 2015/11/30 5 5962011 2012/03/082 5 600 074 108,90 51 424 2015/09/08 51 424

PG Wharton-Hood 2008 2009/03/061 967 500 62,39 15 508 2013/11/30 6 204 111,36 690 877 9 304#

2009 2010/03/051 887 500 111,94 7 928 2014/11/30 7 9282010 2011/03/041 5 184 600 98,80 52 476 2015/11/30 52 4762011 2012/03/082 8 887 547 108,90 81 612 2015/09/08 81 612

SK Tshabalala3 2008 2009/03/061 1 750 000 62,39 28 050 2013/11/30 11 220 111,36 1 249 459 16 830#

2009 2010/03/051 1 930 000 111,94 17 241 2014/11/30 17 241

BJ Kruger 2008 2009/03/061 1 870 000 62,39 29 973 2013/11/30 29 973 111,36 3 337 793 2009 2010/03/051 1 075 000 111,94 9 603 2014/11/30 9 6032010 2011/03/041 2 310 000 98,80 23 381 2015/11/30 23 3812011 2012/03/082 9 762 558 108,90 89 647 2015/09/08 89 647

JB Hemphill4

1 Units are granted in DBS and vest after three years from date of award. 2 Units are granted in DBS 2012 and vest in three equal tranches at 18, 30 and 42 months from date of award. 3 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012.

Details are on page 258.4 JB Hemphill was awarded a deferred bonus, issued in Liberty. Full details are available in the Liberty annual integrated report.# The units were exercised to settle taxes due on vesting date.

263


Deferred bonus schemeThe table below reflects bonus awards issued in the 2012 and prior financial years and relate to past years’ performance. The awards will only vest in future in terms of the rules of the DBS and DBS 2012. The bonus awards payable and bonus awards deferred for the 2012 performance year are only issued in the 2013 financial year and are reflected on page 253.

Performance year Issue dateAmount

deferred (R)Award

price (R) Units

Expirydate/final

vesting date

Number ofunits exercisedduring the year

Shareprice (R)

Value ofunits

exercised (R)

Balanceof units

31 December

JH Maree 2008 2009/03/061 2 593 000 62,39 41 561 2013/11/30 41 5612011 2012/03/082 9 043 512 108,90 83 035 2015/09/08 83 035

SP Ridley 2008 2009/03/061 887 500 62,39 14 226 2013/11/30 5 691 111,36 633 750 8 535#

2009 2010/03/051 817 500 111,94 7 303 2014/11/30 7 3032010 2011/03/041 552 875 98,80 5 596 2015/11/30 5 5962011 2012/03/082 5 600 074 108,90 51 424 2015/09/08 51 424

PG Wharton-Hood 2008 2009/03/061 967 500 62,39 15 508 2013/11/30 6 204 111,36 690 877 9 304#

2009 2010/03/051 887 500 111,94 7 928 2014/11/30 7 9282010 2011/03/041 5 184 600 98,80 52 476 2015/11/30 52 4762011 2012/03/082 8 887 547 108,90 81 612 2015/09/08 81 612

SK Tshabalala3 2008 2009/03/061 1 750 000 62,39 28 050 2013/11/30 11 220 111,36 1 249 459 16 830#

2009 2010/03/051 1 930 000 111,94 17 241 2014/11/30 17 241

BJ Kruger 2008 2009/03/061 1 870 000 62,39 29 973 2013/11/30 29 973 111,36 3 337 793 2009 2010/03/051 1 075 000 111,94 9 603 2014/11/30 9 6032010 2011/03/041 2 310 000 98,80 23 381 2015/11/30 23 3812011 2012/03/082 9 762 558 108,90 89 647 2015/09/08 89 647

JB Hemphill4

1 Units are granted in DBS and vest after three years from date of award. 2 Units are granted in DBS 2012 and vest in three equal tranches at 18, 30 and 42 months from date of award. 3 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012.

Details are on page 258.4 JB Hemphill was awarded a deferred bonus, issued in Liberty. Full details are available in the Liberty annual integrated report.# The units were exercised to settle taxes due on vesting date.


report


264


period commencing with effect from 1 January 2012 and granted the directors authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ Capital Alliance Australia Holdings Proprietary Limited changed its name to Own your life Rewards Proprietary Limited, the main object was changed to conducting a rewards programme.

¢ Liberty Holdings Limited granted the directors general authority to issue ordinary shares for cash.

¢ Liberty Holdings Limited approved the group restricted share plan, details of which were set out in the notice of the AGM.

¢ Liberty Holdings Limited granted the directors authority to issue ordinary shares for share incentives schemes.

¢ Liberty Holdings Limited approved the fees payable to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 and granted authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ Banco Standard de Investimentos S.A. approved the increase of the company’s corporate capital by issuing new ordinary and nominative shares.

¢ Gale Force SDN BHD approved the reduction of the share capital in the company.

¢ Standard Bank Argentina S.A. changed its name to Industrial and Commercial Bank of China (Argentina) S.A.

¢ Stanbic Bank Zambia Limited approved the changes to its share capital and allotment of bonus shares.

¢ Integrated Processing Solutions Proprietary Limited granted authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ K2011103588 Proprietary Limited changed its name to IPS Electronic Payments Proprietary Limited.

¢ Stanbic IBTC Bank PLC approved the scheme of arrangement, the cancellation, reduction and acquisition of shares described in the scheme and for the ordinary shares of the bank to delist from the Nigerian Stock Exchange.

¢ Standard Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión changed its name to ICBC Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión.

Group companies passed the following special resolutions during the year for the purposes indicated.

Amendment to the articles of association/memorandum of incorporation

¢ Standard Bank Group Limited’s existing memorandum and articles of association was substituted with a new MOI.

¢ The Standard Bank of South Africa Limited’s existing memorandum and articles of association was substituted with a new MOI.

¢ Liberty Holdings Limited’s existing memorandum and articles of association was substituted with a new MOI.

¢ Banco Standard de Investimentos S.A. approved the consolidation of the By-Laws.

¢ Standard Resources (China) Limited amended its articles of association to expand the company’s business scope.

¢ Capasia South East Asian Strategic Asset Fund (General Partner) Limited adopted new articles of association.

¢ Scenic Streams SDN BHD amended its existing articles of association and reclassified the authorised share capital of the company.

Increase in the authorised share capital ¢ Standard Bank Fund Administration Jersey Limited

¢ CfC Stanbic Bank Limited.

Authorise the acquisition of shares by the company

¢ Standard Bank Group Limited

¢ Liberty Holdings Limited

¢ Standard Bank London Holdings Limited

¢ Stanbic Bank Uganda Limited.

Other ¢ Standard Bank Group Limited approved the fees payable

to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 and granted the directors authority to provide financial assistance to any company or corporation which is related or inter-related to the company.

¢ The Standard Bank of South Africa Limited approved the fees payable to the non-executive directors for the 12-month

Annexure G – special resolutions

265

Standard Bank Group Annual financial statements 2012 > Annexure G – special resolutions / Annexure H – third-party funds under management


2012Rbn

20111

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 activitiesAsset managementTrusts and estates 57 52Unit trusts/collective investments 4 9Portfolio management 85 78Other 2

148 139

Fund administrationTrusts and estatesUnit trusts/collective investments 25 72Segregated funds 49Portfolio management 44 43Other 77 3

146 167

Geographical areaAfrica 223 191International 71 115

294 306

LibertyAsset management 42 40

Segregated funds 38 36Properties 4 4

Wealth management – funds under administration 236 215

Single manager unit trust 100 88Institutional marketing 48 37Linked and structured life products 43 33Multi-manager 9 15Rest of Africa 36 42

Total Liberty 278 255

Total assets under management and funds under administration 572 561

1 2011 comparative information has been restated.

Included in the balances above are funds for which the fund value is determined using directors’ valuations.


report


266


Consolidated normalised statement of financial position1

2012USDm

2012GBPm

2012EURm

CAGR%

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

2006Rm

AssetsBanking activities 150 128 92 858 113 872 9 1 273 083 1 257 361 1 107 986 1 077 637 1 245 704 950 203 758 841

Cash and balances with central banks 7 310 4 521 5 544 28 61 985 31 907 28 675 24 983 25 697 20 618 14 343Financial investments, trading and pledged assets 26 022 16 096 19 738 6 220 670 193 770 178 567 171 972 174 230 165 873 152 305Loans and advances 95 978 59 364 72 799 8 813 892 803 811 713 025 723 507 790 087 637 868 501 506Current and deferred taxation assets 149 92 113 4 1 261 1 700 1 492 1 329 1 197 1 058 969Derivative and other assets 17 002 10 516 12 896 9 144 174 166 333 160 437 134 025 236 554 112 046 83 767Non-current assets held for sale 113 70 86 (83) 960 34 085Interest in associates and joint ventures 331 205 251 16 2 810 1 881 4 388 4 265 2 057 1 660 1 130Goodwill and other intangible assets 1 642 1 016 1 246 54 13 928 11 449 8 965 7 827 8 364 5 659 1 043Property and equipment 1 581 978 1 199 23 13 403 12 425 12 437 9 729 7 518 5 421 3 778

Liberty 32 499 20 101 24 650 5 275 590 240 069 229 535 220 151 212 640 222 083 202 838

Total assets 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679

Equity and liabilitiesEquity 15 867 9 814 12 035 13 134 552 122 023 108 210 104 498 105 143 77 489 64 187

Equity attributable to ordinary shareholders 13 432 8 308 10 188 15 113 905 102 523 90 755 87 454 85 902 58 406 48 352Preference share capital and premium 649 401 492 5 503 5 503 5 503 5 503 5 503 5 503 5 503Non-controlling interests 1 786 1 105 1 355 7 15 144 13 997 11 952 11 541 13 738 13 580 10 332

Liabilities 166 760 103 145 126 487 8 1 414 121 1 375 407 1 229 311 1 193 290 1 353 201 1 094 797 897 492

Banking activities 136 558 84 464 103 579 9 1 158 007 1 152 661 1 015 119 987 151 1 155 479 887 042 708 276

Deposit and current accounts 109 688 67 845 83 198 10 930 153 888 968 793 629 766 058 840 578 677 778 529 726Derivative and other liabilities 18 097 11 193 13 727 7 153 460 178 590 166 480 138 509 238 819 122 325 104 516Trading liabilities 4 730 2 925 3 587 (5) 40 105 31 145 30 108 53 608 51 392 62 864 54 352Current and deferred taxation liabilities 492 305 373 4 175 2 653 3 137 4 374 5 213 5 161 4 166Non-current liabilities held for sale (100) 27 939Subordinated debt 3 551 2 196 2 694 12 30 114 23 366 21 765 24 602 19 477 18 914 15 516

Liberty 30 202 18 681 22 908 5 256 114 222 746 214 192 206 139 197 722 207 755 189 216

Total equity and liabilities 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

Exchange rates utilised to convert the 31 December 2012 statement of financial position:USD – 8,48 (2011: 8,09)GBP – 13,71 (2011: 12,48)EUR – 11,18 (2011: 10,46)

Annexure I – seven-year review

267

Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Consolidated normalised statement of financial position1

2012USDm

2012GBPm

2012EURm

CAGR%

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

2006Rm

AssetsBanking activities 150 128 92 858 113 872 9 1 273 083 1 257 361 1 107 986 1 077 637 1 245 704 950 203 758 841

Cash and balances with central banks 7 310 4 521 5 544 28 61 985 31 907 28 675 24 983 25 697 20 618 14 343Financial investments, trading and pledged assets 26 022 16 096 19 738 6 220 670 193 770 178 567 171 972 174 230 165 873 152 305Loans and advances 95 978 59 364 72 799 8 813 892 803 811 713 025 723 507 790 087 637 868 501 506Current and deferred taxation assets 149 92 113 4 1 261 1 700 1 492 1 329 1 197 1 058 969Derivative and other assets 17 002 10 516 12 896 9 144 174 166 333 160 437 134 025 236 554 112 046 83 767Non-current assets held for sale 113 70 86 (83) 960 34 085Interest in associates and joint ventures 331 205 251 16 2 810 1 881 4 388 4 265 2 057 1 660 1 130Goodwill and other intangible assets 1 642 1 016 1 246 54 13 928 11 449 8 965 7 827 8 364 5 659 1 043Property and equipment 1 581 978 1 199 23 13 403 12 425 12 437 9 729 7 518 5 421 3 778

Liberty 32 499 20 101 24 650 5 275 590 240 069 229 535 220 151 212 640 222 083 202 838

Total assets 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679

Equity and liabilitiesEquity 15 867 9 814 12 035 13 134 552 122 023 108 210 104 498 105 143 77 489 64 187

Equity attributable to ordinary shareholders 13 432 8 308 10 188 15 113 905 102 523 90 755 87 454 85 902 58 406 48 352Preference share capital and premium 649 401 492 5 503 5 503 5 503 5 503 5 503 5 503 5 503Non-controlling interests 1 786 1 105 1 355 7 15 144 13 997 11 952 11 541 13 738 13 580 10 332

Liabilities 166 760 103 145 126 487 8 1 414 121 1 375 407 1 229 311 1 193 290 1 353 201 1 094 797 897 492

Banking activities 136 558 84 464 103 579 9 1 158 007 1 152 661 1 015 119 987 151 1 155 479 887 042 708 276

Deposit and current accounts 109 688 67 845 83 198 10 930 153 888 968 793 629 766 058 840 578 677 778 529 726Derivative and other liabilities 18 097 11 193 13 727 7 153 460 178 590 166 480 138 509 238 819 122 325 104 516Trading liabilities 4 730 2 925 3 587 (5) 40 105 31 145 30 108 53 608 51 392 62 864 54 352Current and deferred taxation liabilities 492 305 373 4 175 2 653 3 137 4 374 5 213 5 161 4 166Non-current liabilities held for sale (100) 27 939Subordinated debt 3 551 2 196 2 694 12 30 114 23 366 21 765 24 602 19 477 18 914 15 516

Liberty 30 202 18 681 22 908 5 256 114 222 746 214 192 206 139 197 722 207 755 189 216

Total equity and liabilities 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679


Exchange rates utilised to convert the 31 December 2012 statement of financial position:USD – 8,48 (2011: 8,09)GBP – 13,71 (2011: 12,48)EUR – 11,18 (2011: 10,46)


report


268


Consolidated normalised income statement1

2012USDm

2012GBPm

2012EURm

CAGR%

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

2006Rm

Banking activitiesNet interest income 4 170 2 631 3 245 12 34 233 29 027 27 028 29 438 30 329 22 068 16 999Non-interest revenue 4 199 2 651 3 268 10 34 474 29 724 28 720 29 906 28 324 24 201 19 144

Net fee and commission revenue 2 597 1 639 2 021 10 21 319 19 782 17 883 17 395 16 896 14 083 11 827Trading revenue 1 080 682 841 11 8 868 7 895 8 032 10 032 9 046 7 098 4 829Other revenue 522 330 406 9 4 287 2 047 2 805 2 479 2 382 3 020 2 488

Total income 8 369 5 282 6 513 11 68 707 58 751 55 748 59 344 58 653 46 269 36 143Credit impairment charges 1 072 677 834 22 8 800 6 436 7 394 11 719 11 081 4 538 2 733

Net specific credit impairment charges 1 101 695 857 28 9 040 5 849 8 032 11 433 9 207 3 726 2 022Portfolio credit impairment (reversal)/charges (29) (18) (23) (17) (240) 587 (638) 286 1 874 812 711

Income after credit impairment charges 7 297 4 605 5 679 10 59 907 52 315 48 354 47 625 47 572 41 731 33 410Operating expenses 4 963 3 132 3 863 14 40 756 34 725 34 579 30 757 28 441 23 755 19 056

Staff costs 2 703 1 706 2 104 12 22 195 19 141 18 440 16 636 15 762 13 939 10 971Restructuring costs 92 58 72 100 758 781Other operating expenses 2 168 1 368 1 687 14 17 803 15 584 15 358 14 121 12 679 9 816 8 085

Net income before goodwill and gains and losses on disposal of subsidiaries 2 334 1 473 1 816 5 19 151 17 590 13 775 16 868 19 131 17 976 14 354Goodwill impairment/(gain) 95 60 74 93 777 61 30 42 5 (376) 15Loss on disposal of subsidiaries 10 7 8 100 86

Net income before associates and joint ventures 2 229 1 406 1 734 4 18 288 17 529 13 745 16 826 19 126 18 352 14 339Share of profit/(loss) from associates and joint ventures 82 52 64 21 675 257 572 (53) 136 283 218

Net income before indirect taxation 2 311 1 458 1 798 5 18 963 17 786 14 317 16 773 19 262 18 635 14 557Indirect taxation 172 109 134 15 1 412 1 085 947 1 191 922 819 602

Profit before direct taxation 2 139 1 349 1 664 4 17 551 16 701 13 370 15 582 18 340 17 816 13 955Direct taxation 530 335 413 4 4 354 4 312 3 040 3 534 3 917 4 121 3 386

Profit for the year from continuing operations 1 609 1 014 1 251 4 13 197 12 389 10 330 12 048 14 423 13 695 10 569Profit for the year from discontinued operation2 297 187 231 2 435 641 428 430 410 230 (18)

Profit for the year 1 906 1 201 1 482 7 15 632 13 030 10 758 12 478 14 833 13 925 10 551Attributable to non-controlling interests and preference shareholders 148 93 115 22 1 212 1 033 993 1 031 1 409 817 363

Continuing operations 120 76 93 18 985 873 913 925 1 313 763 363Discontinued operation 28 17 22 100 227 160 80 106 96 54

Banking activities profit attributable to ordinary shareholders 1 758 1 108 1 367 6 14 420 11 997 9 765 11 447 13 424 13 108 10 188

LibertyProfit for the year 519 327 404 4 4 260 2 942 2 704 320 1 892 3 480 3 372Attributable to non-controlling interests 267 168 207 (2) 2 188 1 514 1 381 248 1 251 2 505 2 412

Liberty profit attributable to ordinary shareholders 252 159 197 14 2 072 1 428 1 323 72 641 975 960

Attributable to group ordinary shareholders 2 010 1 267 1 564 7 16 492 13 425 11 088 11 519 14 065 14 083 11 148

Headline earnings 1 828 1 154 1 423 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818

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 expense relating to Standard Bank Argentina S.A., which qualified as a discontinued operation, is presented as a single amount

relating to its after taxation profit.

Exchange rates utilised to convert the 31 December 2012 income statement:USD – 8,21 (2011: 7,25)GBP – 13,01 (2011: 11,62)EUR – 10,55 (2011: 10,08)

Annexure I – seven-year review continued

269


Consolidated normalised income statement1

2012USDm

2012GBPm

2012EURm

CAGR%

2012Rm

2011Rm

2010Rm

2009Rm

2008Rm

2007Rm

2006Rm

Banking activitiesNet interest income 4 170 2 631 3 245 12 34 233 29 027 27 028 29 438 30 329 22 068 16 999Non-interest revenue 4 199 2 651 3 268 10 34 474 29 724 28 720 29 906 28 324 24 201 19 144

Net fee and commission revenue 2 597 1 639 2 021 10 21 319 19 782 17 883 17 395 16 896 14 083 11 827Trading revenue 1 080 682 841 11 8 868 7 895 8 032 10 032 9 046 7 098 4 829Other revenue 522 330 406 9 4 287 2 047 2 805 2 479 2 382 3 020 2 488

Total income 8 369 5 282 6 513 11 68 707 58 751 55 748 59 344 58 653 46 269 36 143Credit impairment charges 1 072 677 834 22 8 800 6 436 7 394 11 719 11 081 4 538 2 733

Net specific credit impairment charges 1 101 695 857 28 9 040 5 849 8 032 11 433 9 207 3 726 2 022Portfolio credit impairment (reversal)/charges (29) (18) (23) (17) (240) 587 (638) 286 1 874 812 711

Income after credit impairment charges 7 297 4 605 5 679 10 59 907 52 315 48 354 47 625 47 572 41 731 33 410Operating expenses 4 963 3 132 3 863 14 40 756 34 725 34 579 30 757 28 441 23 755 19 056

Staff costs 2 703 1 706 2 104 12 22 195 19 141 18 440 16 636 15 762 13 939 10 971Restructuring costs 92 58 72 100 758 781Other operating expenses 2 168 1 368 1 687 14 17 803 15 584 15 358 14 121 12 679 9 816 8 085

Net income before goodwill and gains and losses on disposal of subsidiaries 2 334 1 473 1 816 5 19 151 17 590 13 775 16 868 19 131 17 976 14 354Goodwill impairment/(gain) 95 60 74 93 777 61 30 42 5 (376) 15Loss on disposal of subsidiaries 10 7 8 100 86

Net income before associates and joint ventures 2 229 1 406 1 734 4 18 288 17 529 13 745 16 826 19 126 18 352 14 339Share of profit/(loss) from associates and joint ventures 82 52 64 21 675 257 572 (53) 136 283 218

Net income before indirect taxation 2 311 1 458 1 798 5 18 963 17 786 14 317 16 773 19 262 18 635 14 557Indirect taxation 172 109 134 15 1 412 1 085 947 1 191 922 819 602

Profit before direct taxation 2 139 1 349 1 664 4 17 551 16 701 13 370 15 582 18 340 17 816 13 955Direct taxation 530 335 413 4 4 354 4 312 3 040 3 534 3 917 4 121 3 386

Profit for the year from continuing operations 1 609 1 014 1 251 4 13 197 12 389 10 330 12 048 14 423 13 695 10 569Profit for the year from discontinued operation2 297 187 231 2 435 641 428 430 410 230 (18)

Profit for the year 1 906 1 201 1 482 7 15 632 13 030 10 758 12 478 14 833 13 925 10 551Attributable to non-controlling interests and preference shareholders 148 93 115 22 1 212 1 033 993 1 031 1 409 817 363

Continuing operations 120 76 93 18 985 873 913 925 1 313 763 363Discontinued operation 28 17 22 100 227 160 80 106 96 54

Banking activities profit attributable to ordinary shareholders 1 758 1 108 1 367 6 14 420 11 997 9 765 11 447 13 424 13 108 10 188

LibertyProfit for the year 519 327 404 4 4 260 2 942 2 704 320 1 892 3 480 3 372Attributable to non-controlling interests 267 168 207 (2) 2 188 1 514 1 381 248 1 251 2 505 2 412

Liberty profit attributable to ordinary shareholders 252 159 197 14 2 072 1 428 1 323 72 641 975 960

Attributable to group ordinary shareholders 2 010 1 267 1 564 7 16 492 13 425 11 088 11 519 14 065 14 083 11 148

Headline earnings 1 828 1 154 1 423 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818

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 expense relating to Standard Bank Argentina S.A., which qualified as a discontinued operation, is presented as a single amount

relating to its after taxation profit.

Exchange rates utilised to convert the 31 December 2012 income statement:USD – 8,21 (2011: 7,25)GBP – 13,01 (2011: 11,62)EUR – 10,55 (2011: 10,08)


report


270


Share statistics and market indicators – normalised1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Share statisticsDividend cover times (3) 2.1 2.0 1.9 2.0 2.4 2.5 2.5Dividend yield % 3.8 4.3 3.6 3.8 4.7 3.9 3.4Earnings yield % 7.9 8.7 6.7 7.4 11.4 9.6 8.4Price earnings ratio times 1 12.6 11.5 15.0 13.5 8.8 10.4 11.9Price-to-book times (7) 1.7 1.5 1.9 1.8 1.5 2.4 2.7Number of shares traded millions (1) 938,2 959,4 1 169,9 1 490,0 1 383,5 1 056,8 1 014,9Turnover in shares traded % 58.8 60.5 74.2 96.2 92.2 77.2 74.7Market capitalisation Rm 7 190 937 156 889 170 471 158 942 126 576 137 370 128 769

Market indicators at 31 DecemberStandard Bank Group share priceHigh for the year cents 4 12 030 11 000 11 800 10 500 10 250 11 950 9 650Low for the year cents 6 9 876 8 775 10 075 5 915 6 602 9 000 6 850Closing cents 4 11 888 9 875 10 755 10 200 8 300 10 008 9 450Prime overdraft rate (closing) % 8.5 9.0 9.0 10.5 15.0 14.5 12.5JSE All Share Index – (closing) 8 39 250 31 986 32 119 27 666 21 509 28 958 24 915JSE Banks Index – (closing) 7 53 362 41 178 40 985 36 675 30 566 35 876 36 121ZAR exchange rates – (closing)USD 3 8,48 8,09 6,64 7,37 9,31 6,81 7,05GBP 13,71 12,48 10,29 11,88 13,64 13,64 13,80EUR 3 11,18 10,46 8,87 10,61 13,02 10,00 9,29ZAR exchange rates – (average)USD 3 8,21 7,25 7,32 8,42 8,24 7,05 6,77GBP 1 13,01 11,62 11,30 13,09 15,00 14,10 12,49EUR 4 10,55 10,08 9,71 11,67 12,00 9,65 8,51



271


Share statistics and market indicators – normalised1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Share statisticsDividend cover times (3) 2.1 2.0 1.9 2.0 2.4 2.5 2.5Dividend yield % 3.8 4.3 3.6 3.8 4.7 3.9 3.4Earnings yield % 7.9 8.7 6.7 7.4 11.4 9.6 8.4Price earnings ratio times 1 12.6 11.5 15.0 13.5 8.8 10.4 11.9Price-to-book times (7) 1.7 1.5 1.9 1.8 1.5 2.4 2.7Number of shares traded millions (1) 938,2 959,4 1 169,9 1 490,0 1 383,5 1 056,8 1 014,9Turnover in shares traded % 58.8 60.5 74.2 96.2 92.2 77.2 74.7Market capitalisation Rm 7 190 937 156 889 170 471 158 942 126 576 137 370 128 769

Market indicators at 31 DecemberStandard Bank Group share priceHigh for the year cents 4 12 030 11 000 11 800 10 500 10 250 11 950 9 650Low for the year cents 6 9 876 8 775 10 075 5 915 6 602 9 000 6 850Closing cents 4 11 888 9 875 10 755 10 200 8 300 10 008 9 450Prime overdraft rate (closing) % 8.5 9.0 9.0 10.5 15.0 14.5 12.5JSE All Share Index – (closing) 8 39 250 31 986 32 119 27 666 21 509 28 958 24 915JSE Banks Index – (closing) 7 53 362 41 178 40 985 36 675 30 566 35 876 36 121ZAR exchange rates – (closing)USD 3 8,48 8,09 6,64 7,37 9,31 6,81 7,05GBP 13,71 12,48 10,29 11,88 13,64 13,64 13,80EUR 3 11,18 10,46 8,87 10,61 13,02 10,00 9,29ZAR exchange rates – (average)USD 3 8,21 7,25 7,32 8,42 8,24 7,05 6,77GBP 1 13,01 11,62 11,30 13,09 15,00 14,10 12,49EUR 4 10,55 10,08 9,71 11,67 12,00 9,65 8,51



report


272


Capital adequacy, employee and other relevant statistics1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Capital adequacy2

Risk-weighted assets Rm 11 789 613 710 725 620 064 599 822 614 960 554 473 421 187Tier I capital3 Rm 13 92 299 85 547 79 996 71 354 67 726 48 336 45 415Total capital3 Rm 11 115 186 101 978 94 805 90 712 81 597 64 301 62 468Tier I capital to risk-weighted assets3 % 11.7 12.0 12.9 11.9 11.0 8.7 10.8Total capital to risk-weighted assets3 % 14.6 14.3 15.3 15.1 13.3 11.6 14.8

Employee statisticsNumber of employeesBanking activities4 2 42 736 45 904 48 1255 45 937 45 315 44 301 37 703Group 3 49 017 51 656 53 3515 51 411 50 321 48 905 42 265Employee turnover rate % 10.2 11.6 10.1 10.0 12.1 13.0 15.0Normalised headline earnings per employee6 R 5 348 629 265 140 205 506 253 521 298 113 274 937 264 568

Points of representation6

ATMs7 8 7 152 6 770 6 473 5 580 4 864 4 699 4 538Banking branches and service centres7 5 1 249 1 217 1 159 1 012 1 013 1 015 951

Customer ServiceCustomer evaluation of branch service rating8 (out of 10) 2 9.5 9.4 8.9 8.7 8.6 8.5 8.6

Social investment and environmentCorporate social investment spend9 Rm 12 125,2 119,5 139,7 104,4 92,4 64,9 61,9Carbon footprint8,10 (metric tons CO2) 27 412 089 180 403 177 289 154 538 168 824 122 884 N/A11

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 II 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 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 Banking activities. 7 Excludes discontinued operation relating to Argentina. 8 South African banking activities only. 9 Excludes the rest of Africa.10 Significant increase in 2012 due to the measurement scope of CO2 emissions adapted to include all Standard Bank occupied premises in

South Africa.11 Information not available.


273


Capital adequacy, employee and other relevant statistics1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Capital adequacy2

Risk-weighted assets Rm 11 789 613 710 725 620 064 599 822 614 960 554 473 421 187Tier I capital3 Rm 13 92 299 85 547 79 996 71 354 67 726 48 336 45 415Total capital3 Rm 11 115 186 101 978 94 805 90 712 81 597 64 301 62 468Tier I capital to risk-weighted assets3 % 11.7 12.0 12.9 11.9 11.0 8.7 10.8Total capital to risk-weighted assets3 % 14.6 14.3 15.3 15.1 13.3 11.6 14.8

Employee statisticsNumber of employeesBanking activities4 2 42 736 45 904 48 1255 45 937 45 315 44 301 37 703Group 3 49 017 51 656 53 3515 51 411 50 321 48 905 42 265Employee turnover rate % 10.2 11.6 10.1 10.0 12.1 13.0 15.0Normalised headline earnings per employee6 R 5 348 629 265 140 205 506 253 521 298 113 274 937 264 568

Points of representation6

ATMs7 8 7 152 6 770 6 473 5 580 4 864 4 699 4 538Banking branches and service centres7 5 1 249 1 217 1 159 1 012 1 013 1 015 951

Customer ServiceCustomer evaluation of branch service rating8 (out of 10) 2 9.5 9.4 8.9 8.7 8.6 8.5 8.6

Social investment and environmentCorporate social investment spend9 Rm 12 125,2 119,5 139,7 104,4 92,4 64,9 61,9Carbon footprint8,10 (metric tons CO2) 27 412 089 180 403 177 289 154 538 168 824 122 884 N/A11

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 II 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 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 Banking activities. 7 Excludes discontinued operation relating to Argentina. 8 South African banking activities only. 9 Excludes the rest of Africa.10 Significant increase in 2012 due to the measurement scope of CO2 emissions adapted to include all Standard Bank occupied premises in

South Africa.11 Information not available.


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274


Results and ratios – normalised1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Standard Bank GroupShare statisticsListed on JSE (millions) number of ordinary sharesWeighted average 3 1 595,6 1 587,1 1 576,1 1 548,2 1 501,1 1 369,2 1 358,4End of period 3 1 606,1 1 588,7 1 585,0 1 558,3 1 525,0 1 372,6 1 362,6

Share statistics per ordinary shareBasic earnings cents 4 1 033,6 845,9 703,5 744,0 937,0 1 028,5 820,7

Continuing operations cents 1 895,2 815,6 681,4 723,1 916,0 1 015,7 822,0Discontinued operation cents 138,4 30,3 22,1 20,9 21,0 12,8 (1,3)

Headline earnings cents 3 940,7 856,9 715,9 756,9 942,6 960,6 796,4

Continuing operations cents 2 898,5 828,1 695,0 736,3 921,8 951,2 797,8Discontinued operation cents 42,2 28,8 20,9 20,6 20,8 9,4 (1,4)

Dividends cents 6 455,0 425,0 386,0 386,0 386,0 386,0 320,0Net asset value cents 12 7 091,9 6 453,1 5 725,7 5 612,3 5 632,9 4 255,1 3 548,4

ROE % 14.2 14.3 12.5 13.6 18.2 24.8 25.4

Normalised headline earnings per business unitPersonal & Business Banking Rm 8 7 476 6 092 4 364 3 866 4 777 5 665 4 816Corporate & Investment Banking Rm (1) 4 784 5 816 5 252 7 156 7 597 6 536 5 033Central and other Rm 34 717 263 274 624 1 135 (21) 126Liberty Rm 16 2 033 1 428 1 393 72 641 973 843

Total normalised headline earnings Rm 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818

Banking activities normalisedSelected returns and ratiosHeadline earnings contribution Rm 4 12 977 12 171 9 890 11 646 13 509 12 180 9 975

Continuing operations Rm 4 12 304 11 714 9 561 11 327 13 196 12 051 9 994Discontinued operation Rm 673 457 329 319 313 129 (19)

ROE % 13.3 13.8 11.8 14.5 18.6 24.7 25.3Continuing operationsNet interest margin % 3.08 2.92 2.87 3.06 3.23 2.91 2.78Non-interest income to total income % 50.2 50.6 51.5 50.4 48.3 52.3 53.0Cost-to-income ratio % 58.9 58.8 61.4 51.9 48.4 51.0 52.4Credit loss ratio % 1.08 0.87 1.04 1.57 1.53 0.80 0.60Effective taxation rate % 30.4 30.3 27.8 28.2 25.1 26.5 27.4



275


Results and ratios – normalised1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Standard Bank GroupShare statisticsListed on JSE (millions) number of ordinary sharesWeighted average 3 1 595,6 1 587,1 1 576,1 1 548,2 1 501,1 1 369,2 1 358,4End of period 3 1 606,1 1 588,7 1 585,0 1 558,3 1 525,0 1 372,6 1 362,6



Headline earnings cents 3 940,7 856,9 715,9 756,9 942,6 960,6 796,4

Continuing operations cents 2 898,5 828,1 695,0 736,3 921,8 951,2 797,8Discontinued operation cents 42,2 28,8 20,9 20,6 20,8 9,4 (1,4)


ROE % 14.2 14.3 12.5 13.6 18.2 24.8 25.4

Normalised headline earnings per business unitPersonal & Business Banking Rm 8 7 476 6 092 4 364 3 866 4 777 5 665 4 816Corporate & Investment Banking Rm (1) 4 784 5 816 5 252 7 156 7 597 6 536 5 033Central and other Rm 34 717 263 274 624 1 135 (21) 126Liberty Rm 16 2 033 1 428 1 393 72 641 973 843

Total normalised headline earnings Rm 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818

Banking activities normalisedSelected returns and ratiosHeadline earnings contribution Rm 4 12 977 12 171 9 890 11 646 13 509 12 180 9 975





report


276


Results and ratios – IFRS1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Standard Bank GroupShare statisticsNumber of ordinary shares in issue in terms of IFRS (millions)Weighted average 4 1 522,2 1 510,4 1 492,0 1 459,3 1 398,9 1 231,0 1 216,7End of period 4 1 535,9 1 514,1 1 505,1 1 474,3 1 430,6 1 256,9 1 224,9



Headline earnings cents 2 963,4 887,2 735,2 771,1 1 002,0 1 033,4 837,4



ROE % 14.4 14.6 12.7 13.7 19.1 26.7 27.4

IFRS headline earnings per business unitPersonal & Business Banking Rm 8 7 476 5 872 4 364 3 866 4 777 5 665 4 816Corporate & Investment Banking Rm (1) 4 784 5 521 5 252 7 156 7 597 6 536 5 033Central & Other Rm 17 521 572 135 607 955 (347) (208)Liberty Rm 23 1 883 1 435 1 218 (376) 688 867 547

Total IFRS headline earnings Rm 6 14 664 13 400 10 969 11 253 14 017 12 721 10 188

Banking activities IFRSSelected returns and ratiosHeadline earnings contribution Rm 5 12 781 11 965 9 751 11 629 13 329 11 854 9 641





277


Results and ratios – IFRS1

CAGR% 2012 2011 2010 2009 2008 2007 2006

Standard Bank GroupShare statisticsNumber of ordinary shares in issue in terms of IFRS (millions)Weighted average 4 1 522,2 1 510,4 1 492,0 1 459,3 1 398,9 1 231,0 1 216,7End of period 4 1 535,9 1 514,1 1 505,1 1 474,3 1 430,6 1 256,9 1 224,9



Headline earnings cents 2 963,4 887,2 735,2 771,1 1 002,0 1 033,4 837,4



ROE % 14.4 14.6 12.7 13.7 19.1 26.7 27.4

IFRS headline earnings per business unitPersonal & Business Banking Rm 8 7 476 5 872 4 364 3 866 4 777 5 665 4 816Corporate & Investment Banking Rm (1) 4 784 5 521 5 252 7 156 7 597 6 536 5 033Central & Other Rm 17 521 572 135 607 955 (347) (208)Liberty Rm 23 1 883 1 435 1 218 (376) 688 867 547

Total IFRS headline earnings Rm 6 14 664 13 400 10 969 11 253 14 017 12 721 10 188

Banking activities IFRSSelected returns and ratiosHeadline earnings contribution Rm 5 12 781 11 965 9 751 11 629 13 329 11 854 9 641





report


278




Central and other Banking activities Liberty1

Normalised Standard Bank Group

IFRS adjustments

IFRS Standard Bank Group

Change%

2012Rm

20112

Rm Change

%2012

Rm20112

Rm Change

%2012

Rm20112

Rm Change

%2012

Rm2011

Rm Change

%2012

Rm2011

Rm Change

%2012

Rm2011

Rm2012

Rm2011

Rm Change

%2012

Rm2011

Rm

AssetsCash and balances with central banks 7 4 027 3 754 >100 47 868 20 417 30 10 090 7 736 94 61 985 31 907 94 61 985 31 907 94 61 985 31 907 Financial investments, trading and pledged assets 37 4 312 3 137 14 217 971 190 860 (>100) (1 613) (227) 14 220 670 193 770 16 225 279 194 209 15 445 949 387 979 (1 732) (2 098) 15 444 217 385 881 Loans and advances 10 489 895 446 571 (7) 352 952 380 033 (27) (28 955) (22 793) 1 813 892 803 811 1 813 892 803 811 (2 721) (2 503) 1 811 171 801 308

Loans and advances to banks (5) 27 049 28 541 (17) 106 363 128 743 7 (25 216) (27 027) (17) 108 196 130 257 (17) 108 196 130 257 (17) 108 196 130 257 Loans and advances to customers 11 462 846 418 030 (2) 246 589 251 290 (>100) (3 739) 4 234 5 705 696 673 554 5 705 696 673 554 (2 721) (2 503) 5 702 975 671 051

Investment property 3 24 133 23 470 3 24 133 23 470 3 24 133 23 470 Derivative and other assets 68 6 043 3 607 (15) 139 663 165 198 65 (271) (772) (13) 145 435 168 033 32 8 653 6 536 (12) 154 088 174 569 (12) 154 088 174 569Non-current assets held for sale 100 960 (100) 3 010 (100) 31 075 (97) 960 34 085 (97) 960 34 085 (97) 960 34 085 Interest in associates and joint ventures (33) 795 1 191 (3) 615 631 >100 1 400 59 49 2 810 1 881 20 14 436 12 054 24 17 246 13 935 24 17 246 13 935 Goodwill and other intangible assets 54 8 287 5 396 (24) 2 582 3 377 14 3 059 2 676 22 13 928 11 449 (42) 759 1 305 15 14 687 12 754 15 14 687 12 754 Property and equipment 10 4 824 4 389 1 1 355 1 335 8 7 224 6 701 8 13 403 12 425 (7) 2 330 2 495 5 15 733 14 920 5 15 733 14 920

Total assets 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829

Equity and liabilitiesEquity 29 43 844 33 992 47 323 47 467 3 23 909 23 241 10 115 076 104 700 12 19 476 17 323 10 134 552 122 023 (4 379) (4 490) 11 130 173 117 533

Equity attributable to ordinary shareholders 29 42 298 32 835 (1) 44 856 45 457 8 17 864 16 590 11 105 018 94 882 16 8 887 7 641 11 113 905 102 523 (3 535) (3 481) 11 110 370 99 042 Preference share capital and premium 5 503 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 34 1 546 1 157 23 2 467 2 010 (53) 542 1 148 6 4 555 4 315 9 10 589 9 682 8 15 144 13 997 (844) (1 009) 10 14 300 12 988

Liabilities 10 475 299 434 053 715 683 717 394 (>100) (32 975) 1 214 1 158 007 1 152 661 15 256 114 222 746 3 1 414 121 1 375 407 (74) (111) 3 1 414 047 1 375 296

Deposit and current accounts 9 461 343 422 231 1 471 831 467 381 (>100) (3 021) (644) 5 930 153 888 968 (16) (11 620) (10 046) 5 918 533 878 922 5 918 533 878 922

Deposits from banks 32 1 705 1 287 (4) 123 052 128 567 (>100) (482) (113) (4) 124 275 129 741 (4) 124 275 129 741 (4) 124 275 129 741Deposit and current accounts from customers 9 459 638 420 944 3 348 779 338 814 (>100) (2 539) (531) 6 805 878 759 227 (16) (11 620) (10 046) 6 794 258 749 181 6 794 258 749 181

Derivative, trading and other liabilities >100 6 118 2 371 (3) 226 346 233 272 (49) (34 724) (23 255) (7) 197 740 212 388 30 29 616 22 839 (3) 227 356 235 227 (74) (111) (3) 227 282 235 116Non-current liabilities held for sale (100) 27 939 (100) 27 939 (100) 27 939 (100) 27 939 Policyholders’ liabilities 13 236 684 208 565 13 236 684 208 565 13 236 684 208 565 Subordinated debt (17) 7 838 9 451 5 17 506 16 741 >100 4 770 (2 826) 29 30 114 23 366 3 1 434 1 388 27 31 548 24 754 27 31 548 24 754

Total equity and liabilities 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829

Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518

1 Includes elimination of balances between Liberty and banking activities.2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures

are reclassified accordingly.


279

Standard Bank Group Annual financial statements 2012 > Annexure J – segmental statement of financial position



Central and other Banking activities Liberty1

Normalised Standard Bank Group

IFRS adjustments

IFRS Standard Bank Group

Change%

2012Rm

20112

Rm Change

%2012

Rm20112

Rm Change

%2012

Rm20112

Rm Change

%2012

Rm2011

Rm Change

%2012

Rm2011

Rm Change

%2012

Rm2011

Rm2012

Rm2011

Rm Change

%2012

Rm2011

Rm

AssetsCash and balances with central banks 7 4 027 3 754 >100 47 868 20 417 30 10 090 7 736 94 61 985 31 907 94 61 985 31 907 94 61 985 31 907 Financial investments, trading and pledged assets 37 4 312 3 137 14 217 971 190 860 (>100) (1 613) (227) 14 220 670 193 770 16 225 279 194 209 15 445 949 387 979 (1 732) (2 098) 15 444 217 385 881 Loans and advances 10 489 895 446 571 (7) 352 952 380 033 (27) (28 955) (22 793) 1 813 892 803 811 1 813 892 803 811 (2 721) (2 503) 1 811 171 801 308

Loans and advances to banks (5) 27 049 28 541 (17) 106 363 128 743 7 (25 216) (27 027) (17) 108 196 130 257 (17) 108 196 130 257 (17) 108 196 130 257 Loans and advances to customers 11 462 846 418 030 (2) 246 589 251 290 (>100) (3 739) 4 234 5 705 696 673 554 5 705 696 673 554 (2 721) (2 503) 5 702 975 671 051

Investment property 3 24 133 23 470 3 24 133 23 470 3 24 133 23 470 Derivative and other assets 68 6 043 3 607 (15) 139 663 165 198 65 (271) (772) (13) 145 435 168 033 32 8 653 6 536 (12) 154 088 174 569 (12) 154 088 174 569Non-current assets held for sale 100 960 (100) 3 010 (100) 31 075 (97) 960 34 085 (97) 960 34 085 (97) 960 34 085 Interest in associates and joint ventures (33) 795 1 191 (3) 615 631 >100 1 400 59 49 2 810 1 881 20 14 436 12 054 24 17 246 13 935 24 17 246 13 935 Goodwill and other intangible assets 54 8 287 5 396 (24) 2 582 3 377 14 3 059 2 676 22 13 928 11 449 (42) 759 1 305 15 14 687 12 754 15 14 687 12 754 Property and equipment 10 4 824 4 389 1 1 355 1 335 8 7 224 6 701 8 13 403 12 425 (7) 2 330 2 495 5 15 733 14 920 5 15 733 14 920

Total assets 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829

Equity and liabilitiesEquity 29 43 844 33 992 47 323 47 467 3 23 909 23 241 10 115 076 104 700 12 19 476 17 323 10 134 552 122 023 (4 379) (4 490) 11 130 173 117 533

Equity attributable to ordinary shareholders 29 42 298 32 835 (1) 44 856 45 457 8 17 864 16 590 11 105 018 94 882 16 8 887 7 641 11 113 905 102 523 (3 535) (3 481) 11 110 370 99 042 Preference share capital and premium 5 503 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 34 1 546 1 157 23 2 467 2 010 (53) 542 1 148 6 4 555 4 315 9 10 589 9 682 8 15 144 13 997 (844) (1 009) 10 14 300 12 988

Liabilities 10 475 299 434 053 715 683 717 394 (>100) (32 975) 1 214 1 158 007 1 152 661 15 256 114 222 746 3 1 414 121 1 375 407 (74) (111) 3 1 414 047 1 375 296

Deposit and current accounts 9 461 343 422 231 1 471 831 467 381 (>100) (3 021) (644) 5 930 153 888 968 (16) (11 620) (10 046) 5 918 533 878 922 5 918 533 878 922

Deposits from banks 32 1 705 1 287 (4) 123 052 128 567 (>100) (482) (113) (4) 124 275 129 741 (4) 124 275 129 741 (4) 124 275 129 741Deposit and current accounts from customers 9 459 638 420 944 3 348 779 338 814 (>100) (2 539) (531) 6 805 878 759 227 (16) (11 620) (10 046) 6 794 258 749 181 6 794 258 749 181

Derivative, trading and other liabilities >100 6 118 2 371 (3) 226 346 233 272 (49) (34 724) (23 255) (7) 197 740 212 388 30 29 616 22 839 (3) 227 356 235 227 (74) (111) (3) 227 282 235 116Non-current liabilities held for sale (100) 27 939 (100) 27 939 (100) 27 939 (100) 27 939 Policyholders’ liabilities 13 236 684 208 565 13 236 684 208 565 13 236 684 208 565 Subordinated debt (17) 7 838 9 451 5 17 506 16 741 >100 4 770 (2 826) 29 30 114 23 366 3 1 434 1 388 27 31 548 24 754 27 31 548 24 754

Total equity and liabilities 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829

Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518

1 Includes elimination of balances between Liberty and banking activities.2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures

are reclassified accordingly.


report


280


2012 2011

Trading book

Rm

Non-interest earning

Rm

Interest earning

Rm

Total average balance

RmInterest1

Rm

Average rate

%

Trading book

Rm


Rm

Interest earning

Rm


RmInterest1

Rm

Average rate

%

Assets Cash and balances with central banks2 5 112 8 980 22 899 36 991 813 7 279 17 995 26 087Trading assets 99 502 12 777 112 279 93 773 14 882 108 655Financial investments 1 644 92 643 94 287 7 071 7.52 28 78 425 78 453 6 167 7.86Net loans and advances 28 478 774 046 802 524 60 883 7.61 12 406 712 294 724 700 54 424 7.51

Loans and advances to banks 27 666 85 768 113 434 985 0.87 11 369 80 881 92 250 1 704 1.85Loans and advances to customers 812 703 281 704 093 59 898 8.53 1 037 646 795 647 832 52 720 8.14

Mortgage loans 294 765 294 765 23 807 8.10 281 048 281 048 22 749 8.09Instalment sale and finance leases 61 535 61 535 6 338 10.33 53 185 53 185 5 477 10.30Card debtors 22 221 22 221 3 057 13.79 19 754 19 754 2 713 13.73Overdrafts and other demand loans 812 78 447 79 259 6 191 7.83 1 037 79 764 80 801 5 813 7.19Term loans 207 456 207 456 17 463 8.44 176 290 176 290 12 980 7.36Commercial property finance 38 857 38 857 3 042 7.85 36 754 36 754 2 988 8.13

Gross loans and advances 28 478 789 049 817 527 60 883 7.47 12 406 727 676 740 082 54 424 7.35Credit impairments for loans and advances (15 003) (15 003) (15 382) (15 382)

Investment property 4 286 4 286 4 408 4 408Other assets 18 528 7 865 26 393 10 860 11 756 22 616Interest in associates and joint ventures 9 870 9 870 6 519 6 519Goodwill and other intangible assets 10 207 10 207 9 118 9 118Property and equipment 13 947 13 947 12 583 12 583

Total average assets and interest excluding derivative assets 153 264 67 932 889 588 1 110 784 67 954 6.13 117 880 66 545 808 714 993 139 60 591 6.10Derivative assets 184 453 184 453 185 207 185 207

Total average assets and interest 337 717 67 932 889 588 1 295 237 67 954 5.26 303 087 66 545 808 714 1 178 346 60 591 5.14

Equity and liabilitiesEquity 5 254 92 409 97 663 4 069 84 024 88 093Liabilities 137 957 27 715 840 785 1 006 457 33 721 3.36 108 682 36 264 758 799 903 745 31 564 3.49

Trading liabilities 36 189 36 189 35 752 35 752Deposit and current accounts 89 881 815 243 905 124 31 432 3.48 66 885 737 347 804 232 29 536 3.67

Deposits from banks 37 589 92 394 129 983 2 722 2.10 30 779 68 459 99 238 2 113 2.13Deposit and current accounts from customers 52 292 722 849 775 141 28 710 3.71 36 106 668 888 704 994 27 423 3.89

Current accounts 118 525 118 525 330 0.28 102 716 102 716 379 0.37Cash management deposits 84 299 84 299 3 409 4.06 70 756 70 756 2 955 4.18Call deposits 157 175 157 175 6 942 4.43 136 403 136 403 6 136 4.50Savings accounts 22 349 22 349 251 1.13 21 368 21 368 240 1.12Term deposits 52 292 260 181 312 473 13 381 4.29 36 106 267 346 303 452 13 284 4.38Negotiable certificates of deposit 80 320 80 320 4 397 5.49 70 299 70 299 4 429 6.30

Other liabilities 10 355 27 715 38 070 4 605 36 264 40 869Subordinated bonds 1 532 25 542 27 074 2 289 8.48 1 440 21 452 22 892 2 028 8.86

Total average equity, liabilities and interest excluding derivative liabilities 143 211 120 124 840 785 1 104 120 33 721 3.06 112 751 120 288 758 799 991 838 31 564 3.18Derivative liabilities 191 117 191 117 186 508 186 508

Total average equity, liabilities and interest 334 328 120 124 840 785 1 295 237 33 721 2.61 299 259 120 288 758 799 1 178 346 31 564 2.68

Margin on total average assets excluding derivatives 153 264 67 932 889 588 1 110 784 34 233 3.09 117 880 66 545 808 714 993 139 29 027 2.92Margin on total average loans and advances 28 478 774 046 802 524 34 233 4.28 12 406 712 294 724 700 29 027 4.01Margin on average interest earning assets 889 588 889 588 37 906 4.27 808 714 808 714 31 995 3.96

1 Interest received and paid on derivative instruments used for hedging purposes have been netted against interest received and paid on the instrument being hedged. Accordingly, the interest will not equate to interest income and interest expense as 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.


281

Standard Bank Group Annual financial statements 2012 > Annexure K – banking activities average statement of financial position (normalised)

2012 2011

Trading book

Rm


Rm

Interest earning

Rm


RmInterest1

Rm

Average rate

%

Trading book

Rm


Rm

Interest earning

Rm


RmInterest1

Rm

Average rate

%

Assets Cash and balances with central banks2 5 112 8 980 22 899 36 991 813 7 279 17 995 26 087Trading assets 99 502 12 777 112 279 93 773 14 882 108 655Financial investments 1 644 92 643 94 287 7 071 7.52 28 78 425 78 453 6 167 7.86Net loans and advances 28 478 774 046 802 524 60 883 7.61 12 406 712 294 724 700 54 424 7.51

Loans and advances to banks 27 666 85 768 113 434 985 0.87 11 369 80 881 92 250 1 704 1.85Loans and advances to customers 812 703 281 704 093 59 898 8.53 1 037 646 795 647 832 52 720 8.14

Mortgage loans 294 765 294 765 23 807 8.10 281 048 281 048 22 749 8.09Instalment sale and finance leases 61 535 61 535 6 338 10.33 53 185 53 185 5 477 10.30Card debtors 22 221 22 221 3 057 13.79 19 754 19 754 2 713 13.73Overdrafts and other demand loans 812 78 447 79 259 6 191 7.83 1 037 79 764 80 801 5 813 7.19Term loans 207 456 207 456 17 463 8.44 176 290 176 290 12 980 7.36Commercial property finance 38 857 38 857 3 042 7.85 36 754 36 754 2 988 8.13

Gross loans and advances 28 478 789 049 817 527 60 883 7.47 12 406 727 676 740 082 54 424 7.35Credit impairments for loans and advances (15 003) (15 003) (15 382) (15 382)

Investment property 4 286 4 286 4 408 4 408Other assets 18 528 7 865 26 393 10 860 11 756 22 616Interest in associates and joint ventures 9 870 9 870 6 519 6 519Goodwill and other intangible assets 10 207 10 207 9 118 9 118Property and equipment 13 947 13 947 12 583 12 583

Total average assets and interest excluding derivative assets 153 264 67 932 889 588 1 110 784 67 954 6.13 117 880 66 545 808 714 993 139 60 591 6.10Derivative assets 184 453 184 453 185 207 185 207

Total average assets and interest 337 717 67 932 889 588 1 295 237 67 954 5.26 303 087 66 545 808 714 1 178 346 60 591 5.14

Equity and liabilitiesEquity 5 254 92 409 97 663 4 069 84 024 88 093Liabilities 137 957 27 715 840 785 1 006 457 33 721 3.36 108 682 36 264 758 799 903 745 31 564 3.49

Trading liabilities 36 189 36 189 35 752 35 752Deposit and current accounts 89 881 815 243 905 124 31 432 3.48 66 885 737 347 804 232 29 536 3.67

Deposits from banks 37 589 92 394 129 983 2 722 2.10 30 779 68 459 99 238 2 113 2.13Deposit and current accounts from customers 52 292 722 849 775 141 28 710 3.71 36 106 668 888 704 994 27 423 3.89

Current accounts 118 525 118 525 330 0.28 102 716 102 716 379 0.37Cash management deposits 84 299 84 299 3 409 4.06 70 756 70 756 2 955 4.18Call deposits 157 175 157 175 6 942 4.43 136 403 136 403 6 136 4.50Savings accounts 22 349 22 349 251 1.13 21 368 21 368 240 1.12Term deposits 52 292 260 181 312 473 13 381 4.29 36 106 267 346 303 452 13 284 4.38Negotiable certificates of deposit 80 320 80 320 4 397 5.49 70 299 70 299 4 429 6.30

Other liabilities 10 355 27 715 38 070 4 605 36 264 40 869Subordinated bonds 1 532 25 542 27 074 2 289 8.48 1 440 21 452 22 892 2 028 8.86

Total average equity, liabilities and interest excluding derivative liabilities 143 211 120 124 840 785 1 104 120 33 721 3.06 112 751 120 288 758 799 991 838 31 564 3.18Derivative liabilities 191 117 191 117 186 508 186 508

Total average equity, liabilities and interest 334 328 120 124 840 785 1 295 237 33 721 2.61 299 259 120 288 758 799 1 178 346 31 564 2.68

Margin on total average assets excluding derivatives 153 264 67 932 889 588 1 110 784 34 233 3.09 117 880 66 545 808 714 993 139 29 027 2.92Margin on total average loans and advances 28 478 774 046 802 524 34 233 4.28 12 406 712 294 724 700 29 027 4.01Margin on average interest earning assets 889 588 889 588 37 906 4.27 808 714 808 714 31 995 3.96

1 Interest received and paid on derivative instruments used for hedging purposes have been netted against interest received and paid on the instrument being hedged. Accordingly, the interest will not equate to interest income and interest expense as 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.

282


report



Standard Bank Group

Basic earnings per ordinary share (EPS) (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 (DEPS) (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 (HEPS) (cents)

Headline earnings divided by the weighted average number of ordinary shares in issue.

Net asset value (Rm) Equity attributable to ordinary shareholders.

Price earnings ratio (times) Closing share price divided by headline earnings per share.

Price-to-book (times) Market capitalisation divided by net asset value.

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 yearend, less non-controlling interests.

Profit for the year (Rm) Income statement profit attributable to ordinary shareholders, non-controlling interests and preference shareholders for the year.

Return on equity (ROE) (%) Headline earnings as a percentage of monthly average ordinary shareholders’ funds.

Shares in issue (number) Number of ordinary shares in issue as listed on the exchange operated by the JSE.

SBG or the group Standard Bank Group.

Turnover in shares traded (%) Number of shares traded during the year as a percentage of the weighted average number of shares.

Weighted average number of shares (number)

The weighted average number of ordinary shares in issue during the year as listed on the JSE.

Financial and other definitions

283

Standard Bank Group Annual financial statements 2012 > Financial and other definitions

Banking activities

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.

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 earning 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 advance that have been classified as non-performing and specifically impaired, net of the present value of estimated recoveries.

Other definitions

Additional increment To enhance the retention component of the DBS, additional increments of the deferred award become payable at vesting and one year thereafter. This feature was replaced by notional dividends for awards in respect of the 2011 and future financial years.

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).

Broad-based black economic empowerment (BBBEE)

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.

284

Other definitions continued

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 page 69 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.

Special purpose entity (SPE) An entity created to accomplish a narrow and well-defined objective.

Tutuwa Tutuwa is the group’s black economic empowerment ownership initiative entered into in terms of the Financial Sector Charter.

Value of in-force business The present value of the projected stream of after tax profits for all business in force at the reporting date.

Financial and other definitions continued


report



285

Standard Bank Group Annual financial statements 2012 > Acronyms and abbreviations

Acronyms and abbreviationsA

AGM Annual general meetingAIRB Advanced internal ratings basedALBI All Bond IndexALCO Asset and liability committeeAMA Advanced management approachATM Automated teller machineAUD Australian dollar

B

Banks Act South African Banks Act 94 of 1990BASA Banking Association of South AfricaBasel Basel Capital AccordBCBS Basel Committee on Banking SupervisionBEE Black economic empowermentBoard Standard Bank Group Board of DirectorsBSD Bank Supervision DepartmentBWC The rate for three-month Botswana certificatesBWP Botswana pula

C

CAGR Compound annual growth rateCAR Capital adequacy requirementCGT Capital gains taxCIB Corporate & Investment BankingCoE Cost of equityCompanies Act/ the Act

South African Companies Act 71 of 2008

Consumer Protection Act

South African Consumer Protection Act 68 of 2008

CR Country risk gradeCRO Chief risk officerCVA Credit valuation adjustment

D

DAC Deferred acquisition costsDBS Deferred bonus schemeDPF Discretionary participation featureDRL Deferred revenue liability

E

E Swazi emalangeniEAD Exposure at defaultEGS Equity growth scheme

F

FIRB Foundation internal ratings-basedFSA Financial Services AuthorityFSB Financial Services BoardFSV Financial Soundness ValuationFTSE/JSE Top 40 Index

Capitalisation weighted index including 40 largest companies by market capitalisation

G

GAC Group audit committeeGBP British pound sterlingGIA Group internal auditGilt rate 60% of the risk-free rateGIRC Group insurance risk committeeGORC Group operational risk committeeGRCMC Group risk and capital management committeeGROC Group risk oversight committeeGSIS Group share incentive scheme

I

IAS International Accounting StandardsIASB International Accounting Standards BoardICAAP Internal capital adequacy assessment processICBC Industrial and Commercial Bank of China LimitedIFRS International Financial Reporting StandardsIncome Tax Act South African Income Tax Act 68 of 1962IRB Internal ratings-basedISDA International Swaps and Derivatives Association

J

JIBAR Johannesburg Interbank Agreed RateJSE JSE Limited, the licensed securities exchange

in Johannesburg

K

KES Kenyan shillingKing 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 currencyLCR Liquidity coverage ratioLGD Loss given defaultLibFin Liberty Financial SolutionsLiberty Liberty Holdings Limited and its subsidiariesLIBOR London Interbank Offered RateLong-Term Insurance Act

South African Long-Term Insurance Act 52 of 1998

M

MOI Memorandum of IncorporationMT Mozambican metical

N

NAD Namibian dollarNSFR Net stable funding ratioNSX Namibian Stock Exchange

286

O

OCAR Ordinary capital adequacy requirementOCI Other comprehensive incomeOTC Over-the-counter

P

PBB Personal & Business BankingPD Probability of defaultPGN Professional Guidance NotePillar 3 Basel II pillar 3PVIF Present value in-force

Q

QRRE Qualifying revolving retail exposures

R

R South African randRAPM Risk-adjusted performance measurementRbn Billions of randRm Millions of randROE Return on equityRY Real yield

S

SAICA South African Institute of Chartered Accountants

SAM Solvency assessment managementSARB South African Reserve BankSBA 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 GroupSBGRF Standard Bank Group Retirement FundSBSA The Standard Bank of South Africa LimitedShort-Term Insurance Act

South African Short-Term Insurance Act 53 of 1998

SIH Standard International HoldingsSIFI Systemically important financial institutionSIL Standard Insurance LimitedSME Small and medium enterprisesSPE Special purpose entitySTC Secondary tax on companies

T

TCF Treating Customers FairlyTCM Treasury and capital managementTDMP TDM Limited PartnershipThe company Standard Bank Group LimitedThe group Standard Bank GroupTier I Primary capitalTier II Secondary capitalTier III Tertiary capitalTroika Troika Dialog Group LimitedTutuwa Black economic empowerment ownership

initiative

U

UK United KingdomUS United States of AmericaUSD United States dollarUGX Ugandan shilling

V

VaR Value-at-riskVAT 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


report



Acronyms and abbreviations continued

Contact detailsStandard Bank Group LimitedRegistration No. 1969/017128/06

Incorporated in the Republic of South Africa

Website: www.standardbank.com

Head: Investor relationsDavid KinseyTel: +27 11 631 3931

Group financial directorSimon RidleyTel: +27 11 636 3756

Group secretaryZola StephenTel: +27 11 631 9106

Head: Group sustainability managementKarin IretonTel: +27 11 631 4586

Registered address9th FloorStandard Bank Centre5 Simmonds StreetJohannesburg 2001PO Box 7725Johannesburg 2000

Head office switch boardTel: +27 11 636 9111

Transfer secretaries in South AfricaComputershare Investor Services (Pty) LimitedGround floor, 70 Marshall StreetJohannesburg 2001PO Box 61051Marshalltown, 2107

Transfer secretaries in NamibiaTransfer Secretaries (Pty) Limited4 Robert Mugabe Avenue,(Entrance in Burg Street),WindhoekPO Box 2401Windhoek

Website: www.standardbank.com

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]

287

Standard Bank Group Annual financial statements 2012 > Contact details


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288


Standard Bank Rosebank branch

Johannesburg, South Africa

Rising income levels and rapid urbanisation are driving the uptake of banking products and services in Africa. To realise the opportunity this presents, we will strengthen our competitive advantage through continuing to build on-the-ground universal banks and invest in branch and IT infrastructure, whilst offering greater value to our transactional banking customers.

www.standardbank.com

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