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Tropical Bank Limited
For the year ended 31 December 2015
Directors' Report and Financial statements
Tropical Bank LimitedDirectors' report and Financial StatementsFor the year ended 31 December 2015
Table of Contents Page
Corporate information 2 - 3
Chairman's statement 4 - 6
Report of the directors 7 - 18
Statement of directors' responsibilities 19
Report of the independent auditors 20 - 21
Financial statements:
Statement of comprehensive income 22
Statement of financial position 23
Statement of changes in equity 24
Statement of cash flows 25
Notes to the financial statements 26 - 63
1
Tropical Bank LimitedCorporate informationFor the year ended 31 December 2015
DIRECTORS
Names Position
Gerald M Ssendaula Chairman
Guoma Mohamed Ali Alrgibi ++ Deputy Chairman
Abduelhadi Taher Giuma ++
Seyfullah Asaad Mousa Saleem ++ Director
Christopher Mugisha Director
Omer Abdulla Maguri ++ Director
Juma Kagoro Lubega Director
++ Libyan
COMPANY AND BOARD SECRETARY Sophie. K. Nakandi
Plot 54, Lugogo Bypass( Rotary Avenue)
P.O. Box 9485
Kampala
REGISTERED OFFICE Plot 54, Lugogo Bypass( Rotary Avenue)
P.O. Box 9485
Kampala
BRANCHES Plot 27, Kampala Road Nakivubo
P.O. Box 9485 P.O. Box 9485
Kampala Kampala
Masaka Ntinda
P.O. Box 39 P.O. Box 9485
Masaka Kampala
Plot 17, Main Street Plot 5277, Ggaba road
Jinja Kansanga
P.O. Box 100 P.O. Box 9485
Jinja Kampala
Plot 3144 Kawempe Plot 1446 Katwe road
P.O. Box 9485 P.O. Box 9485
Kawempe Muganzirwassa Commercial Plaza
Kampala Kampala
Kakira Sugar works (1985) ltd Kaliro Branch
Estate P.O Box 100
P.O. Box 100 Plot 45,Zibondo Road ( Main Street)
Jinja Jinja
Oasis Mall Branch Mbale Branch
P.O Box 9485 P.O Box 9485
Plot S88-94, Yusuf Lule Road Plot 37, Cathedral Road
Kampala Mbale
Managing Director
2
Tropical Bank LimitedCorporate informationFor the year ended 31 December 2015
AUDITOR PricewaterhouseCoopers
Certified Public Accountants
10th floor, Communications House
1 Colville Street
P.O. Box 882
Kampala
LAWYERS MMAKS Advocates Namara Tumwine & Company Advocates
3rd Floor Diamond Trust Building 2nd Floor Suit 201
P.O. Box 7166 Plot 61-67 Nkuruma Road
17/19 Kampala Road P. O. Box 10707
Kampala Kampala
Lumonya, Bushara & Company Advocates JM Musisi Advocates & Legal Consultants
Plot 2 Jumbo Plaza 3rd Floor Africa House
Parliament Avenue Plot 42, Kampala Road
P.O Box 3243 P. O. Box 3288
Kampala Kampala
A.F. Mpanga Advocates & Solicitors GP Advocates
4th Floor DFCU Towers 3rd Floor Colline House, New Tower
Plot 26 Kyadondo Road, Nakasero Plot 4, Pilkington Road
P.O. Box 1520 P.O Box 6737
Kampala Kampala
Okalang Law Chambers
Advocates & Consultants
Plot 68, Gokhale Road
Jinja
3
Tropical Bank LimitedChairman's statementFor the year ended 31 December 2015
Esteemed shareholders,
On behalf of the Board of Directors of Tropical Bank Limited, I have the pleasure to present the Bank's Financial
Statements for the year 2015. This year has been by far one of the most challenging in the financial sector, caused
by depreciating shilling against international currencies, a general rise in inflation, interest rates and a slowdown in
the economy, These challenges have been externally influenced by the global economy, the uncertainty in the
emerging markets and the perceived political environment.
The economy was projected to remain growing at 5% during most of the year, 2015/2016. However, the external
economic environment, the unpredictable weather and the perceived political uncertainty could adversely affect
the anticipated targets. The effects, though strongly managed by Bank of Uganda, through its monetary policy
applications, have already had an impact on the Consumer Price Indices of the country. Headline inflation rose
from 1.8% in December 2014 to 9.3% as at 31 December 2015, attributable to higher food crop prices, the
increase in electricity tariffs and the effects of the exchange rate depreciation. Core inflation also increased from
2.7% to 7.4% during the period. The Monetary Policy Actions to raise the Central Banking Rate (CRB) from 11%
to 17% has ensured the inflationary rates are not adverse.
Performance in the financial sector
Despite the challenges in the economy, the financial sector has remained calm during most of the year, with
improved growth in total deposits, loan and assets compared to the year, 2014. Apart from the slight jittery over
the closure of Imperial Bank of Kenya Limited, the sector has continued to make considerable investments in the
electronic banking with much emphasis on Mobile Money Banking platforms.
The Uganda currency equally hit an all time low against the international currencies, depreciating by more than
31% against the US Dollar. Falling from a mid-rate of UGX 2,773 per US Dollar in December, 2014 to as low as
UGX 3,695 in September, 2015, then appreciated to UGX 3,377 by end of December, 2015, mainly due to
remittances from nationals living abroad, during the festive seasons. The period was characterised by sporadic
exchange rate volatility due to global economic conditions, perceived political uncertainty by offshore investors
and speculators who took advantage of the situation by hoarding foreign currency.
Notwithstanding, the challenges in the economy and the Bank of Uganda's monetary policy actions to stabilise the
key parameters have consequently influenced a drastic rise in interest rates during the period. Central Bank Rates
(CRB) were raised from 11.0% in 2014 to 17.0% as at 31 December 2015. Subsequently, lending average rates
increased from 20.7% to average 24.5%. Rediscount rates hiked from 14.0% to 21.0% While 91 days Treasury Bill
rates edged from 11.3% to 21.2% as at 31 October, 2015 then declined to 193.55 by end of year. These
developments greatly impacted on the cost of borrowing in the sector, which further aggravated the quality of
performing loans.
In the first nine months of the year, 2015 the entire banking sector's Total Assets grew by 17.8%, from UGX 18.9
trillion as at 2014 to UGX 22.3 trillion as at 30 September 2015. Customer deposits rose by 15%, rising from UGX
13.2 trillion to UGX 15.2 trillion by 30 September 2015. Loans on the other hand grew by 22% from UGX 9.2
trillion to UGX 11.2 trillion. The sector still possesses a great potential for growth given the many unbanked
opportunities in the country.
4
Tropical Bank LimitedChairman's statementFor the year ended 31 December 2015
1)
2)
3)
Corporate Social Responsibility
Performance of the Bank
Following the Board evaluation of the performance of the Bank's Strategic Plan 2014-2017, the Board
resolved that M/s Deloitte be engaged to undertake a thorough review of the Bank's processes and
organisational configuration with the objective of identifying areas of weaknesses and provide assistance in
the formulation of a revised Strategic Plan for the period 2016 - 2020. The target behind the revised plan is
to reposition the Bank in the industry with a view to making Tropical Bank Limited one of the thriving
financial institutions in the sector. The plan sets out bold steps and strategies required to be undertaken to
achieve these objectives inclusive of lobbying for the Bank's recapitalisation.
As a commitment to Corporate Social Responsibility (CSR), the Bank committed a total of UGX 70 million
for the support of this cause. Funds were committed to support the several orphanages and schools, the
Muslim community and medical expenses.
During the year, the Bank made a profit after tax of UGX 1.91billion compared to UGX 4.3 billion made in
the year, 2014. Customer deposits increased from UGX 144 billion to UGX 149 billion. While gross loans
and advances rose from UGX 119 billion to UGX 125 billion and assets grew from UGX 241 billion as at
31st December 2014 to UGX 256 billion as at 31 December 2015.
Further, M/S Ipsos Uganda Limited was engaged to carry out a customer satisfaction survey to
understand the customer needs and the level of satisfaction of the Bank's services and products. The
report of the survey has greatly helped in the formulation process of our Strategic Plan, 2016 - 2020.
Key developments
The following are some of the other key developments the Bank undertook during the year, 2015.
The Bank introduced two new loan related products; Asset/Vehicle and contract Financing. These
products are meant to increase options to our customers who desired to procure assets and a bid to
grow the Bank's loan book. During the period the Bank was also able to launch MoneyGram money
transfer services.
Secondly, the Bank ran an advertising and promotional campaign code named "Jjuza Enyumba" that
ran for a period of three months. The campaigns were ran through television and radio adverts and
customers were able to win special prizes including fridges and LED televisions. The campaign created
mileage to the Bank's brand and improved performance.
As part of its objective to establish branches in strategic geographical business regions in the country, the
Bank set up a branch in Mbale town, a regional business hub for the agricultural rich districts in the region.
The branch will provide both accessibility and visibility of the Bank's brand. Secondly, the Bank relocated
its Ntinda Branch from Ntinda Shopping Center to Ntinda Complex along Ntinda Road. The new site is
conspicuous and easily accessible with ample parking space. We are happy to report that the branch's
performance has since tremendously improved.
5
Tropical Bank LimitedChairman's statementFor the year ended 31 December 2015
Conclusion
v
Hon. Gerald M. SsendaulaCHAIRMAN
May I also record my highest consideration to my colleagues on the Board for steadily steering the Bank during this
period, to ensure progress. The management and staff too are accorded acknowledgement and gratitude for their
whole heartiness that contributed to the state of affairs.
I urge all the stake holders to vigorously work towards the improvement of the Bank's performance.
Finally, I would like to once again thank Bank of Uganda and the shareholders for the support provided to the Bank
during the period. I also wish to thank most heartily, the External auditor who have worked so hard to ensure that
the Annual Financial Statements of the Bank are ready and also for always being available to render professional
advice whenever necessary.
6
Tropical Bank Limited
CORPORATE GOVERNANCE
a)
b)
For the year 2015, the strategic planning process began with a review of the Strategic Plan 2014 – 2017 so as to
readjust the earlier ambitious projections as rendered necessary by changed circumstances. Later during the year,
the Board resolved to procure consultancy services for a comprehensive review of the Strategic Plan and provision
of advice and recommendations on strategies and resources needed to achieve the Bank’s vision of becoming a
premier provider of customized financial services by 2020 and thereby ensure sustainable financial growth and
returns for the Bank and its shareholders. Consequently, M/S Deloitte (U) Limited was engaged and by the end of
the year, they had achieved the following:
Reviewing the background of the Strategic Plan 2014 – 2017, highlighting proposals for additional resources
required to enhance the Bank’s investment portfolio and improve capital ratios by analysing the processes
and organizational structure, identifying thematic areas that need improvement so as to enhance performance
of the Bank and ultimately facilitate achievement of all strategic plans.
Proposals for targets, goals and timelines basis for an effective strategic plan review and development of a
comprehensive Strategic Plan 2016-2020 to be undertaken during the first part of 2016.
Directors' reportFor the year ended 31 December 2015
Good corporate governance plays a vital role in enhancement of the integrity and efficiency of the banking
industry as whole and Tropical Bank in particular. It is a testimony of an institution’s commitment to values and
ethical business conduct. Effective corporate governance structures encourage value creation and provide
accountability and control systems which are proportionate to the risks involved. In turn, these attract good
business and enhance institutional growth .
At Tropical Bank, the Board of Directors (“Board”) recognises the importance of good corporate governance in
pursuing quantifiable and long term success, and value creation for shareholders and other stakeholders. The
Board is fully committed to high standards of governance designed to protect the interests of shareholders and
other stakeholders while promoting the highest standards of integrity, transparency and accountability, and strives
to ensure that the Bank’s integrity and professional conduct are beyond reproach.
An effective corporate governance structure lies at the core of the Bank’s pursuit to realise its vision to be the
premier provider of customized financial services. The structure is based on corporate governance practices and
regulations, an organisational structure with defined accountabilities and responsibilities, and appropriate internal
control and risk management mechanisms. The Board has made concerted efforts to ensure strict compliance to
regulatory requirements and that its corporate governance framework, internal processes, guidelines and systems
remain effective and relevant. Nevertheless, the Board believes there is always room for improvement and
continues to explore various avenues to further improve governance processes.
The Board also recognises that it is absolutely necessary to put great effort to the understanding and management
of stakeholders’ expectations with a view to fulfilling their evolving needs and ensuring that the Bank’s position
and reputation as a reliable provider of professional and personalized commercial banking services to various
sectors of the economy are held in good standing.
Consequently, the Board assumes the following key roles and responsibilities:
1. Strategic Planning
The Board plays an active role in reviewing the Bank’s strategies, business plans, financial objectives, major
capital and operating budgets and policies as proposed by Management. It monitors Management’s performance in
implementing the approved strategies and plans and provides relevant direction and advice where necessary so as
to ensure the achievement of the objectives.
7
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
Directors' reportFor the year ended 31 December 2015
The Committee comprises solely non-executive directors excluding the chairperson of the Audit committee.
The Head of Finance and Head of Human Resources Section attend the committee by invitation. No individual,
irrespective of position, is present when his or her remuneration is discussed.
The year ended with an offsite strategic review and brainstorming workshop in December at which Management
discussed both the Consultant’s and their own strategic perspectives. Thereafter, the Consultant presented the draft
Strategic plan for the Board's considertaion wherein Management's proposals for the strategy and business plan of
the Bank were discussed and annual budget for the financial year 2016 with a view to ensuring that the proposed
targets are in line with the Bank’s vision and mission, reflect competitive industry trends and internal capabilities,
and provide sufficient stretch for Management.
The Board governs the business and affairs of the Bank and exercises all such powers pursuant to its Articles of
Association, the Financial Institutions Act and the Companies Act. To ensure effectiveness in discharging its roles
and responsibilities, the Board structure includes a number of Board Committees with specific Terms of
References (“TOR”) which are reviewed and approved by the Board on a regular basis with a view to taking
into account amendments to relevant legislation and other pertinent changes in the operating environment
In 2015, the Board engaged a consultant to review the Board Structure and consequently put in place a Committee
structure that included a Credit Committee mandated to handle all credit related matters that were previously
overseen by the Asset and Liability Committee. Furthermore, the Committee is to ensure that effective
frameworks for credit governance are in place - ensuring that the Credit Committee and the Credit
Function operate according to clearly defined mandates, and providing for the adequate management,
measurement, monitoring and control of credit risk.
In addition to the other existing Committees for Audit and Risk, a new Governance & Compensation Committee
was operationalised thereby phasing out the Human Resource and Administration Committee.
The purpose of the Governance and Compensation Committee is to enable the Board effectively provide general
oversight of governance and compensation structures, overall employment and compensation environment, carry
out annual evaluation of the Board including the Executive Directors and members of the Senior Management
Team, appropriate remuneration and succession plans for the Board members and Senior Management .
The ultimate objective of the Committee is to maintain compensation policies which can attract and retain
the highest quality executive and senior managers and reward them for the Bank’s progress and
enhancement of the shareholder value.
As part of the Bank’s initiative to continuously improve its management of the human resource, the Board
reviewed the results of the 2014 Staff Salary Survey conducted with a view to ensuring that what is pertaining in
the market is achieved gradually and the 2015 Staff Satisfaction Survey which was also conducted to assess the
level of employee morale and satisfaction,whereby actions were devised to address areas which require
improvement.
8
Tropical Bank Limited
CORPORATE GOVERNANCE CONTINUED
Matters such as the annual business plan and budget, declaration and distribution of dividend, business
restructuring, structure reorganization, strategic proposals, risk appetite, human capital management
policies, appointment of Senior Managers, succession planning, brand positioning as well as expenditures
above the set Management limits are reserved for the Board.
Specifically, the Board is charged with leading and governing the Bank in an effective, efficient and
responsible manner. The Directors, collectively and individually, are aware of their responsibilities to
shareholders, customers, regulators, human resource and other stakeholders and for the manner in which
the affairs of the Bank are managed. They discharge their roles and duties with integrity, honesty and
professionalism within the ambit of the law in order to serve the interest of the Bank and all stakeholders,
and are committed to ensuring that the highest corporate governance standards are adhered to.
Internal financial controls are in place to ensure the integrity of the Bank’s qualitative and quantitative
financial information, which is used by a variety of stakeholders. The Senior Manager Finance bears the
ultimate responsibility of implementing and maintaining internal financial controls.
The Board is supported by the Bank Secretary who is to ensure that it remains aware of its duties and
responsibilities and keeps Directors abreast of relevant changes in legislation and governance best
Directors' reportFor the year ended 31 December 2015
Assurance of the effectiveness of internal financial controls is achieved through management’s
confirmation that the financial governance controls and internal financial controls supporting the
assertions in the financial statements operated effectively during the year and coordinated audit work by
the internal and external auditors as part of their annual risk based audit plans.
The Audit Committee considers reports from internal audit on any weaknesses in controls that have been
identified, including financial controls, and considers corrective actions to be implemented by
Management to prevent such incidences recurring. This takes place on an ongoing basis.
As a whole, the Committees are to play an oversight role as they evaluate matters under their mandate and
make recommendations to the Board for consideration and decision. To ensure the efficient running of the
Bank’s businesses and operations, the Board also delegates certain decision making powers to the
Managing Director, Executive Director, General Manager, Deputy General Manager and some members of
Senior Management.
With particular reference to the Board Audit Committee, the composition was changed to ensure that only
independent non-executive directors are members. The Committee is to review the Bank’s financial
position and make recommendations to the Board on all financial matters, risks, internal financial controls,
fraud and IT risks relevant to financial reporting. This includes assessing the integrity and effectiveness of
accounting, financial compliance and other control systems. It has a constructive relationship with the
Chief Manager Internal Audit, who has access to Committee members as required. The Committee also
ensures effective communication between the internal and external auditors, the Board, Management and
regulators.
9
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
e) Review the decisions of the Senior Management in managing credit, market, liquidity, operational, legal and
other risks and review the information presented by management also taking into account reports by the Board
Audit Committee to the Board on financial, business and strategic risk issues and report to the Board on a
quarterly basis or more frequently should the need arise;
d) Assist the Board to determine the maximum mandate levels for the various Credit and ALCO decisions to be
delegated to management; and
2. Risk Management
The Board has the responsibility for risk management - identifying and monitoring the principal risks and
implementation of appropriate systems to manage and control them. In ensuring effective risk assessment and
control, the Board entrusted the Board Risk Committee (“BRC”), which comprises three Non-Executive Directors
with the responsibility of providing independent and objective oversight and governance of risks within the
Bank.
The salient Terms of Reference are as follows:
a) Provide an independent and objective oversight and governance of risks in the Bank;
b) Set out the nature, role, responsibility and authority of the risk and capital management function within the
Bank and outline the scope of the risk management function;
c) Review and assess the integrity of the risk control systems and ensure that the risk management policies,
strategies and processes are adequate and effectively managed;
Directors' reportFor the year ended 31 December 2015
The Board also requires the Managing Director to present a status report at every Board meeting including a
comprehensive summary of the Bank’s business operations and financial performance of each quarter. It also
keeps abreast of the key strategic initiatives, significant operational issues and the latest developments of the
financial services industry.
In addition, Management regularly provides the Board with a report on the Bank’s compliance with its statutory
obligations highlighting areas for improvement, non-compliances and recommending action plans to the Board.
Furthermore, where direction or decision is required expeditiously from the Board between the scheduled
meetings, the matter is handled by circular resolution or a special meeting is held.
The Board governs the business conduct, performance and operations of the Bank in close collaboration with
Management so as to ensure high performance and that execution of plans is aligned with the set objectives and
goals. At the highest executive level, the Executive Directors assume the overall responsibilities for the execution
of the Bank’s strategies and plans in line with the Board’s direction, oversee operations and drive the Bank’s
business and performance towards achieving the Bank’s vision and goals. In carrying out their tasks, the Executive
Directors are supported by the General Manager and the Senior Management Committee which comprises the
Managing Director as the Chairman, the Executive Director and other members of the Senior Management Team.
10
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
The Committee also reviews reports to the Board, plans for development and succession plans for the MD and
other executive officers taking into account, amongst other things, the Bank’s structure, Succession Plan and
results of the annual performance evaluation process.
During the year, Management reviewed the Bank’s Functional Structure as well as the staff salary structure and
put in place a Management Succession Plan and a performance management tool. Programmes for the
identification, competency assessment and development of talent to fill senior positions in order to continuously
strengthen the Bank’s succession plan are monitored by the Governance and Compensation committee . Salary
structures and policies, review and harmonization of benefits and retention plans for Senior Management will
continue to be matters of priority.
4. Relationship with Shareholders
The Board recognises fundamental responsibility of creating shareholder value and developing a healthy
relationship with the shareholders through regular, pertinent communication with shareholders. There is
concerted effort to ensure timely and fair dissemination of information on the Bank’s vision and strategies, overall
operations, and business and financial performance and interactive General Meetings.
The key spokespersons and representatives for investor relations of the Bank are the Executive Directors and Bank
Secretary.
Talent development and succession planning are key priorities of the Board in ensuring a high performing
workforce to ensure the Bank’s sustainability and competitiveness. The Board entrusted its Governance and
Compensation Committee with the responsibility of deliberating on Human Resource strategies, policies, systems
and development of the Bank. The Committee is also responsible for selecting, assessing and recommending to the
Board the appointment and remuneration of members of the Senior Management Team.
Directors' reportFor the year ended 31 December 2015
Following the issuance of the Bank of Uganda Risk Management Guidelines for Supervised Financial
Institutions, 2010, where the Compliance Function was delinked from the Risk Management Function,
the process of streamlining and strengthening the Compliance Function commenced. A new Manager
Compliance was appointed and later promoted to the position of Senior Manager, reporting directly to the
Chief Executive. The appointment was subject to regulatory approvals.
The Board is satisfied that the BRC has effectively and efficiently discharged its functions to support the Board in
ensuring, among others that the Bank is adequately capitalised to support the risks undertaken and meet regulatory
requirements.
3. Talent Development and Succession Planning
11
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
As such, promotion of Corporate Responsibility (“CR”) is part of the Bank’s strategic initiatives aimed at
promoting good corporate governance and thereby support and create value for the Bank’s businesses,
operations and brand, and ensure positive contribution to the shareholders, customers, employees and society
at large. The Bank’s CR Report for 2015 is part of this Annual Report.
The Board also promotes a culture for all Bank employees that upholds a high standard of ethical and
professional conduct in the performance of their duties and responsibilities, dealing with each other, the
shareholders, customers, suppliers, competitors and the general public. Ethical and professional conduct is
part of the terms and conditions of employment of every employee of the Bank and forms part of the Human
Resource Management Policy.
To strengthen governance practice, the Bank has in place a Whistle Blower Policy that provides employees
with an avenue to report on suspected fraud, corruption, dishonest practices or other similar circumstances.
The policy is to encourage the reporting of such matters in good faith, with the confidentiality of the reporter
being protected from reprisal, in the best possible manner.
The Policy is available on the Bank’s intranet for reference by all members of staff.
b) Promotion of Sustainability
Sustainability is defined as conducting business responsibly and ethically by factoring social, economic and
environmental considerations in the Bank’s decision making process for long term business success that in
turn contributes to the socioeconomic development of the communities in which it operates. Therefore, the
Board acknowledges that a sustainable approach to investing has a positive impact on the value of
investments and is vital for the interests of long term investors.
The Board further recognises that the Bank’s ability to grow hinges substantially upon its ability to make
business decisions that give credibility to their sense of economic, social and environmental responsibilities,
and by which its stakeholders and society can hold them accountable. Therefore, environment, social and
governance issues are of the utmost importance in the Board’s decision making in order to remain a
responsible corporate citizen.
The Board is committed to establishing a corporate culture which promotes ethical conduct that runs all the
way through the Bank. It works to enhance the standard of corporate governance and promote ethical
conduct for Directors in line with the governing laws, regulations and guidelines relating to general standard
of conduct, conflict of interest, insider lending, maintaining confidentiality, use of corporate assets and
others.
Directors' reportFor the year ended 31 December 2015
5. Internal Control System
The Board governs the adequacy and integrity of the Bank’s internal control system. With the support of the Board
Audit Committee and Internal Audit Department, the Board ensures that there is an effective and efficient
framework for reporting internal controls and regulatory compliance. Details pertaining to the Bank’s internal
control system and review of its effectiveness are set out in the Statement on Risk Management & Internal Control
in this Report.
a) Code of Ethics
12
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
b) Information and Advice
For the Board to function effectively, all directors have full and timely access to information that may
be relevant to the proper discharge of their duties, unrestricted access to Management and Bank
information as well as resources required to carry out their roles and responsibilities. The Directors
may seek clarification and advice and request for information on matters pertaining to the Bank’s operations
or business concerns.
The Directors also have unlimited access to the advice and services of the Bank Secretary, who
assists in providing any information or documentation they may require to facilitate the discharge of
their duties and responsibilities.
They may also seek independent professional advice at the Bank’s expense where it is deemed necessary for
the proper discharge of their duties. Provisions regulating this process are incorporated in the Bank’s
Outsourcing Policy.
The long serving Bank Secretary retired at the end of the year and a successor who had been with the
Bank was appointed in acting capacity effective January, 2016 subject to confirmation by Bank of
Uganda.
The Board is satisfied with the performance and support rendered by the Bank Secretary in the discharge of
their roles and responsibilities. In addition to acting as a custodian of the Bank’s statutory records, the Bank
Secretary serves and advises the Board on its affairs, ensures that Board meetings are properly convened and
that an accurate and proper record of the proceedings and minutes of the meetings is kept. The Bank
Secretary also assists the Chairman and Directors in the conduct of meetings and in the discharge of their
governance obligations and responsibilities. Furthermore, the Bank Secretary facilitates the communication
of key decisions and policies between the Board, Board Committees and Senior Management and updates
the Board on the follow-up or implementation of its decisions/recommendations by the Management until
their closure.
Directors' reportFor the year ended 31 December 2015
6. Corporate Governance
a) Board of Directors
The Independent Non-Executive Directors are to remain free of any conflict of interest and undertake their
roles and responsibilities in an effective manner and thereby ensure that decisions and actions are in the best
interest of the Bank.
In 2015, the total number of directors was brought up to seven against the maximum number of eight fixed
by the Annual General Meeting. The Board includes an Independent Non-Executive Director as Chairman ,
two Independent Non-Executive Directors, two Non-Independent Non-Executive Directors and two
Executive Directors. The Independent Non-Executive Directors should be in position to demonstrate such
level of independence that can enable them to exercise independent judgment at all times and contribute to
the effective functioning of the Board.
13
Tropical Bank Limited
CORPORATE GOVERNANCE (Continued)
iii. Boardroom Diversity
The Bank acknowledges the increasing importance of boardroom diversity in pursuing business and
governance performance and it is one of the key considerations in assessing and reviewing the Board’s
composition that will be explored continuously. Currently, the factors to be considered by the Board
Governance & Compensation Committee when making recommendations for appropriate composition of the
Board are embedded in its Charter and include diversity - skill mix, industry experience, background, gender
and responsibilities of specific directors with regard to the need for adequate collective knowledge and
experience relevant to the activities of the Bank;
i. Appointment of Directors
To ensure that individuals appointed to the Board have the appropriate fitness and propriety to properly
discharge their prudential responsibilities on appointment and during the course of their appointment, the fit
and proper ideals entrenched in the Financial Institutions Act and Companies Act are observed in the
nomination and assessment of an individual for appointment.
Directors are appointed by shareholders at the Annual General Meeting (AGM) and interim appointments
may be made by the Board in between Annual General Meetings. Such interim appointees are required to
retire at the following AGM may be re-appointed by shareholders at the meeting. All directors are provided
with a service contract for a period of 3 years clearly stipulating their terms of engagement. The shareholders
can, by special resolution, extend the term of service.
ii. Board Effectiveness Evaluation
The Board recognises the critical importance of undertaking an Effective Evaluation exercise annually with
a view to assessing its effectiveness as a whole and that of the Directors individually, detect strengths and
weaknesses such that necessary actions can be taken to improve overall effectiveness and that of individual
Directors.
d) Directors’ Appointment and Assessment
Directors' reportFor the year ended 31 December 2015
c) Board Charter
The Bank has a Board and Committee Charters which set out key corporate governance principles adopted
by the Board. The responsibilities of the Board and/or its Committee as a whole, Chairman, Independent
Director and other Directors are clearly defined therein. The Charters clearly stipulate the role that each
party undertakes in ensuring checks and balances in the day to day management of the Bank’s business and
operations.
The Board reviews the Charters from time to time to keep them up to date with changes in regulations and
best practices and ensure effectiveness and relevance of the Board and Committees to set objectives. The
Board reviewed the Charters in March, 2015.
14
Tropical Bank Limited
CORPORATE GOVERNANCE CONTINUED
The Executive Directors assume the overall responsibilities for the execution of the Bank’s strategies in line
with the Board’s direction, oversee operations and drive the business and performance towards achieving
the Bank’s vision and goals. They lead the Senior Management team in the execution of strategic initiatives.
The distinct and separate roles of the Chairman and Executive Directors, with a division of responsibilities,
ensures balance of power and authority, such that no one individual has unfettered powers of decision-
making.
The Bank also has a remuneration package for Senior Management which will be improved gradually to a
competitive level within the market and rewarding in line with corporate and individual performance
contribution to the organisation. The Executive Directors are neither paid a Director’s retention fee nor are
they entitled to receive any meeting attendance allowance for any of the Board and Board Committee
meetings that they attend. Their remuneration, which includes among others salary, allowances and benefits
in-kind, is solely derived from the Bank.
v. Assessment of Independence
The independence of the Non-executive Directors is reviewed on an annual basis using the annual
performance evaluation. The Governance & Compensation Committee assesses the independence of NEDs
taking into account the individual Director’s ability to exercise independent judgment at all times and
contribution to the effective functioning of the Board, and benchmark it against best practices and
regulatory provisions.
e) Role of the Chairman and Executive Directors
The Independent Non-Executive Chairman manages the affairs of the Board with a view to ensuring that it
functions effectively and meets its obligations and responsibilities, and leads the Board in the execution of
its responsibilities to the shareholders, regulators and other stakeholders. He ensures that meetings are
conducted efficiently and in accordance with the requirements of applicable laws.
Directors' reportFor the year ended 31 December 2015
iv. Remuneration Strategies
The Board is mindful that fair remuneration is critical to attraction, retention and motivation of the Directors
with the relevant experience and expertise required for the stewardship of the Bank. In this context, in 2015,
the Board recognised the need to remunerate members of Board Committees and the decision will be tabled
at the next Annual General Meeting for consideration and ratification.
The general principles regarding remuneration of Non-Executive Directors in ensuring that the remuneration
levels are commensurate with the responsibilities, risks and time commitment of Board/Board Committees
and practices within the industry are considered in order to align it with the market.
15
Tropical Bank Limited
CORPORATE GOVERNANCE CONTINUED
Directors' reportFor the year ended 31 December 2015
f) Fostering Commitment
(i) Time Commitment
In ensuring that Directors’ commitment, resources and time are more focused to enable them discharge their
duties effectively and in accordance with the law, no Director is on the Board of any other financial
institution in Uganda. In addition, the Directors are required to notify the Board on changes of their other
directorships as and when they occur.
An annual schedule for meetings of the Board and its Committees as well as the Annual General Meeting is
prepared and circulated to the Directors before the beginning of every year for planning purposes. The Board
scheduled four quarterly meetings during the year and also the specialised committees as required by
Financial Institutions (Corporate Governance Regulations). In additional one special Board meeting was also
held during the year.
In 2016, the Bank is to embark on the use of iPADs and eBooks at Board/Board Committee Meetings,
whereby encrypted Board and Board Committee papers will be circulated electronically. This initiative will
significantly enhance mobility, movement of the documents, cost and time savings, greater convenience,
better security.
(ii) Training
The Board appreciates the importance of continuing education and training for its Directors to ensure that
they are kept abreast of the latest development in business, corporate strategy, financial overview, risk
management strategy, legal requirements, duties, responsibilities and rights from the legal point of view,
moral and ethical obligations as well as good corporate governance in the ever-changing economic climate to
meet the challenges of the Board. The Bank Secretary has the responsibility of facilitating the organisation
of internal training programmes and Directors’ attendance of external programmes, and keep a record of
such training received.
Induction programmes for newly appointed Directors as well as the ongoing education of directorsorganised by Management to provide them with in-depth information of the industry as well as an overview
of the business operations of the Bank. The Bank Secretary has the responsibility of overseeing
execution of the programmes.
Each new Director receives copies of relevant laws, Bank policies and the Strategic Plan to assist them in
building a detailed understanding of the Bank’s operations, the longer term direction and the statutory
obligations.
16
Tropical Bank Limited
CORPORATE GOVERNANCE CONTINUED
(ii) Internal Audit
h) Recognising and Managing Risks
(i) Risk Management Framework
The Board recognises the importance of a sound system of risk management and internal control to ensure
good corporate governance and safeguard shareholders’ investments as well as the Bank’s assets. The Board
Risk Committee oversees the risk framework, reviews Management’s risk management policies and
activities formulated for recommendation to the Board for approval. In addition to the monthly updates on
matters that have been deliberated at Committee meetings, a Risk Management Report is also presented to
the Board.
The Bank continues to maintain and review its internal control procedures to ensure, as far as possible, the
protection of its assets and liabilities. The Board considers that the risk management framework and internal
control system maintained by Management, and which was in place throughout the financial year and up to
and as of the date of this report, are operating adequately and effectively enough to safeguard the
shareholders’ investment, customer deposits and the Bank’s assets.
The Internal Audit Department, led by the Chief Manager Internal Audit, reports directly to the Board Audit
Committee. With guidance from Internal Audit Charter, the department performs regular reviews and reports
on the adequacy and effectiveness of the Bank's risk management framework, internal control and
governance processes. The audit results are reported to the Board Audit Committee. The follow-up actions
and the review of the status of actions taken as per the auditors’ recommendations carried out are included
in the Internal Audit and Compliance reports to the Board. The internal auditors also work closely with the
external auditors to resolve any control issues as raised by them with a view to ensuring that all issues are
duly acted upon by Management.
The Internal Audit Function also undertakes an independent assessment of the internal control systems throughout
the Bank based on the annual audit plan approved by the Board for assurance that deficiencies or issues will be
promptly resolved by Management.
Directors' reportFor the year ended 31 December 2015
g) Upholding Integrity in Financial Reporting
The Board ensures provision of a clear, balanced and meaningful assessment of the Bank’s financial performance,
position and its future prospects through the Annual Audited Financial Statements and reports on significant
events affecting the Bank.
The Board Audit Committee with the assistance of both external and internal auditors, reviews the integrity and
reliability of the Bank’s financial statements prior to recommending the same for Board approval and issuance to
stakeholders. During the reviews, the External Auditors provide assurance to the Board Audit Committee that
adequate processes and controls for an effective and efficient financial statement close process are in place, that
appropriate accounting policies have been adopted and applied consistently and that the relevant financial
statements give a true and fair view of the state of affairs of the Bank in compliance with Financial Reporting
Standards and the Companies Act, 2012.
17
Tropical Bank Limited
PRINCIPAL ACTIVITIES
RESULTS AND DIVIDEND
2015 2014
Ushs '000 Ushs '000
Profit before tax 274,407 3,947,627
Income tax credit 1,635,682 382,134
Profit for the year 1,910,089 4,329,761
DIRECTORS
AUDITOR
29 April 2016
By order of the Board
Secretary
The current membership of the Board is shown on page 2.
Directors' reportFor the year ended 31 December 2015
Sophie K Nakandi
The directors present their report together with the audited financial statements for the year ended 31
December 2015, which disclose the state of affairs of Tropical Bank Limited. (the "Bank'').
The Bank is engaged in the business of banking and the provision of related services and is licenced under
the Financial Institutions Act 2004.
The net profit for the year of Shs 1.91 billion (2014: Ushs.4.3 billion) has been taken to retained earnings.
The Directors did not recommend a dividend for the year ended 31 December 2015 (2014: Ushs.700
million).
The Bank's auditor, PricewaterhouseCoopers was appointed during the year and continues in office in
accordance with the provisions of Section 167(2) of the Companies Act and Section 62 (3) of the
Financial Institutions Act.
18
Tropical Bank LimitedStatement of Directors' responsibilities
Chairman Director
Director
29 April 2016
For the year ended 31 December 2015
Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern
for at least twelve months from the date of this statement.
The directors accept responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable estimates, in conformity with International
Financial Reporting Standards and the requirements of the Ugandan Companies Act, and the Financial
Institutions Act. The directors are of the opinion that the financial statements give a true and fair view of the
state of the financial affairs of the Bank and of its profit in accordance with International Financial
Reporting Standards and with the requirements of the Ugandan Companies Act and the Financial
Institutions Act. The directors further accept responsibility for the maintenance of accounting records that
may be relied upon in the preparation of financial statements and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
The Ugandan Companies Act, requires the directors to prepare financial statements for each financial year
that give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of its
profit or loss. It also requires the directors to ensure that the Bank keeps proper accounting records that
disclose, with reasonable accuracy, the financial position of the Bank. They are also responsible for
safeguarding the assets of the Bank.
19
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
TROPICAL BANK LIMITED
Directors’ responsibility for the financial statements
Report on the financial statements
We have audited the accompanying financial statements of Tropical Bank Limited (“the Bank”), set out
on pages 22 to 63. These financial statements comprise the statement of financial position at 31
December 2015 and the statement of comprehensive income, statement of changes in equity and
statement of cash flows for the year then ended, and a summary of significant accounting policies and
other explanatory notes.
Auditors' responsibility
The directors are responsible for the preparation of financial statements that give a true and fair view
in accordance with International Financial Reporting Standards and in the manner required by the
Ugandan Companies Act and the Financial Institutions Act, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Our responsibility is to express an independent opinion on the 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 our audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
In our opinion the accompanying financial statements give a true and fair view of the state of the
Bank’s financial affairs at 31 December 2015 and of its profit and cash flows for the year then ended in
accordance with International Financial Reporting Standards, the Ugandan Companies Act and the
Financial Institutions Act .
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation of financial statements that give a true and fair view 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 Bank’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial statements.
Opinion
20
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OFTROPICAL BANK LIMITED (CONTINUED)
Report on other legal and regulatory requirements
i)
ii)
iii)
The Ugandan Companies Act requires that in carrying out our audit we consider and report to you on the
following matters. We confirm that:
we have obtained all the information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit;
in our opinion proper books of account have been kept by the company, so far as appears from our
examination of those books; and
the Bank’s statement of financial position and statement of comprehensive income are in agreement with
the books of account.
Certified Public Accountants
Kampala
29 April 2016
21
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Statement of comprehensive income
2015 2014
Note Ushs'000 Ushs'000
Interest income 5 28,182,584 26,941,359
Interest expense 6 (3,861,045) (3,461,700)
NET INTEREST INCOME 24,321,539 23,479,659
Impairment losses on Loans and advances 16 (b) (5,270,023) (5,471,591)
Net interest income after loan impairment charges 19,051,516 18,008,068
Fees and commissions income 7 (a) 5,307,774 4,855,390
Fees and commissions expense 8 (282,533) (202,969)
Net gains on foreign exchange dealings 9 234,455 399,991
Other operating income 7 (b) 3,931,634 2,921,050
Grant income 24 116,361 48,393
NET OPERATING INCOME 28,359,207 26,029,923
Operating expenses 10 (13,388,058) (11,445,060)
Employee benefits expense 11 (14,696,742) (10,637,236)
PROFIT BEFORE INCOME TAX 274,407 3,947,627
Income tax credit 12 1,635,682 382,134
PROFIT FOR THE YEAR 1,910,089 4,329,761
Other comprehensive income, net of tax - -
YEAR 1,910,089 4,329,761
22
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
2015 2014Note Ushs'000 Ushs'000
ASSETSCash and balances with Bank of Uganda 13 20,670,292 27,569,145
Deposits and balances due from banking institutions 14 50,839,606 37,692,826Deposits due from the group companies 30 (a) 5,563,330 14,415,579Government securities 15 45,248,469 33,756,890Loans and advances to customers 16 120,429,418 115,831,098Other assets 17 3,170,561 3,515,654Current income tax recoverable 281,718 -Property and equipment 18 (b) 7,089,003 6,194,008Capital work-in-progress 18 (a) 20,009 327,002Operating lease prepayments 19 268,057 272,238Intangible assets 20 379,203 767,855Deferred income tax asset 25 2,809,158 1,317,623
TOTAL ASSETS 256,768,824 241,659,918
EQUITY AND LIABILITIES
LIABILITIES
Customer deposits 21 149,607,739 141,904,578Deposits and balances due to banking institutions - 2,326,414Subordinated shareholders loan 22 (b) 37,510,936 30,685,328Administered funds 22 (a) 1,540,757 2,097,045Grants 24 146,667 48,394Current income tax payable 12 - 977,063Other liabilities 23 (a) 10,734,712 8,303,172
TOTAL LIABILITIES 199,540,811 186,341,994
EQUITY
Share capital 26 30,000,000 30,000,000Retained earnings / (losses) 10,080,296 9,624,804Capital reserve 32 6,683,451 6,205,929General reserve 32 5,810,043 5,332,521Revaluation reserve 33 2,235,438 2,252,516Regulatory credit reserve 16 (c) 2,418,785 1,902,154
TOTAL EQUITY 57,228,013 55,317,924
TOTAL EQUITY AND LIABILITIES 256,768,824 241,659,918
_____________________________________ _____________________________________Director Director
_____________________________________ _____________________________________Director Secretary
Statement of financial position
23
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Issued Retained Proposed Capital General Revaluation Regulatory
Notes capital earnings dividends reserve reserve reserve credit reserve Total
Ushs'000 Ushs'000 Ushs '000 Ushs'000 Ushs'000 Ushs'000 Ushs'000 Ushs'000(Note 26) (Note 32) (Note 32) (Note 33) (Note 16)
Year ended 31 December 2014
At 1 January 2014 30,000,000 (3,005,971) - 5,123,489 4,250,081 2,269,594 13,050,970 51,688,163
Comprehensive income:
Profit for the year - 4,329,761 - - - - - 4,329,761
Other comprehensive income - - - - - - - -
Total comprehensive income - 4,329,761 - - - - - 4,329,761
Transactions with owners: -
Transfer to capital reserve and General Reserves - (2,164,880) - 1,082,440 1,082,440 - - -
Transfer of excess depreciation - 24,397 - - - (24,397) - -
Deferred income tax on excess depreciation - (7,319) - - - 7,319 - -
Transfer from regulatory reserve 16 (c) - 11,148,816 - - - - (11,148,816) -
Proposed dividend - (700,000) 700,000 - - - - -
Dividends paid - - (700,000) - - - - (700,000)
At end of year 30,000,000 9,624,804 - 6,205,929 5,332,521 2,252,516 1,902,154 55,317,924
Year ended 31 December 2015
At 1 January 2015 30,000,000 9,624,804 - 6,205,929 5,332,521 2,252,516 1,902,154 55,317,924
Comprehensive income:
Profit for the year - 1,910,089 - - - - - 1,910,089
Other comprehensive income - - - - - - - -
Total comprehensive income - 1,910,089 - - - - - 1,910,089
Transactions with owners:
Transfer to Capital/ General reserves - (955,044) - 477,522 477,522 - - -
Transfer of excess depreciation - 24,397 - - - (24,397) - -
Deferred income tax on excess depreciation - (7,319) - - - 7,319 -
Transfer to regulatory reserve - (516,631) - - - - 516,631 -
At end of year 30,000,000 10,080,296 - 6,683,451 5,810,043 2,235,438 2,418,785 57,228,013
Statement of changes in equity
24
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Statements of Cash Flows2015 2014
Note Ushs'000 Ushs'000
OPERATING ACTIVITIES
Profit before income tax 274,407 3,947,626
Adjustments for:Amortisation 392,834 320,316Depreciation 18 (b) 1,397,346 1,109,536Unrealised foreign exchange losses 22 (b) 6,765,000 2,640,000Profit on disposal of fixed assets (5,077) -Grant income 25 (116,361) (48,393)Interest expense 22 (b) 467,424 352,822Interest paid 22 (b) (406,816) (351,830)
Profit before working capital changes 8,768,757 7,970,077
Decrease/(Increase) in balances with Bank of Uganda (cash
reserve requirement) 13 10,418,443 (2,313,298)
Increase in loans and advances to customers 16 (4,598,320) (519,811)
Decrease/(increase) in other assets 17 345,094 (1,639,621)
Increase in customer deposits 21 5,376,747 3,857,090
Decrease in administered funds 22 (a) (556,288) (477,955)
Increase in Government securities (maturing after 90 days) 15 (11,491,580) (27,617,634)
Increase in other liabilities 23 (a) 2,431,540 122,159
Tax paid 12 (1,114,634) (422,526)
Net cash flows generated/(used in) from operating activities 9,579,759 (21,041,520)
INVESTING ACTIVITIES
Proceeds from sale of assets 16,035 -
Additions to capital work in progress 18 (a) (20,009) (275,753)
Purchase of intangible assets 20 - (213,841)
Purchase of property and equipment 18 (1,976,297) (1,451,771)
Net cash flows used in investing activities (1,980,270) (1,941,365)
FINANCING ACTIVITIES
Total Liabilities
Grant income receipts 24 214,634 -
Dividends paid - (700,000)
Net cash flows generated from/(used in) financing activities 214,634 (700,000)
Net increase in cash and cash equivalents 7,814,123 (23,682,885)
Cash and cash equivalents at 1 January 60,074,678 83,757,563
Cash and cash equivalents at 31 December 29 67,888,801 60,074,678
25
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes
1 General Information:
2
(a)
(i) New and amended standards adopted by the Bank
The preparation of financial statements in conformity with IFRS requires the use of estimates and
assumptions. It also requires management to exercise its judgement in the process of applying the Bank's
accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions
and estimates are significant to the financial statements are disclosed in note 3.
Summary of significant accounting policies
The following standards/amendments have been adopted by the Bank for the first time for the financial year
beginning on 1 January 2015 but have no impact on the Bank.
Changes in accounting policy and disclosures
For the Ugandan Companies Act reporting purposes, the balance sheet is represented by the statement of
financial position and the profit and loss account by the statement of comprehensive income in these
financial statements.
The principal accounting policies adopted in the preparation of these financial statements are set out below.
The Financial statements are prepared in compliance with International Financial Reporting Standards
(IFRS). The measurement basis applied is the historical cost Basis, except where otherwise stated in the
accounting policies below. The financial statements are presented in Uganda Shillings, rounded to the nearest
thousands (shs 000).
The Bank is incorporated in Uganda under the Ugandan Companies Act as a limited liability company, and is
domiciled in Uganda. The address of its registered office is:
Tropical Bank Ltd
Lugogo Office Park
Basis of preparation.
Plot 54, Lugogo Bypass (Rotary Avenue)
P.O Box 9485, Kampala.
Amendment to IAS 32, ‘Financial instruments: Presentation’ on offsetting financial assets and financial
liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must
also be legally enforceable for all counterparties in the normal course of business, as well as in the event of
default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment
did not have a significant effect on the bank’s financial statements.
Amendments to IAS 36, ‘Impairment of assets’, on the recoverable amount disclosures for non-financial
assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been
included in IAS 36 by the issue of IFRS 13.
Amendment to IAS 39, ‘Financial instruments: Recognition and measurement’ on the novation of derivatives
and the continuation of hedge accounting. This amendment considers legislative changes to ‘over-the-
counter’ derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to
central counterparties would result in discontinuance of hedge accounting. The amendment provides relief
from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The
Bank has applied the amendment and there has been no significant impact on the bank’s financial statements
as a result.
26
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of Significant accounting policies (continued)
(b) Foreign currency translation
(i) Functional and presentation currency
(i) New and amended standards adopted by the Bank
(ii) New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods
beginning after 1 January 2015, and have not been applied in preparing these financial statements. None of
these is expected to have a significant effect on the financial statements of the Bank, except the following set
out below:
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets
and financial liabilities. The complete version of IFRS 9 was issued in July 2015. It replaces the guidance in
IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies
the mixed measurement model and establishes three primary measurement categories for financial assets:
amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the
entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity
instruments are required to be measured at fair value through profit or loss with the irrevocable option at
inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model
that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes
to classification and measurement except for the recognition of changes in own credit risk in other
comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the
requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an
economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the
same as the one management actually use for risk management purposes. Contemporaneous documentation is
still required but is different to that currently prepared under IAS 39. The standard is effective for accounting
periods beginning on or after 1 January 2018. Early adoption is permitted. The bank is yet to assess IFRS 9’s
full impact.
Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates ( the '' functional currency). The financial statements are presented in
Uganda Shillings (''shs'') which is the Bank's functional currency.
IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy if that liability is within the scope of
IAS 37 ‘Provisions’. The interpretation addresses what the obligating event is that gives rise to pay a levy and
when a liability should be recognised. The Bank is not currently subjected to significant levies so the impact on
the Bank is not material.
Other standards, amendments and interpretations which are effective for the financial year beginning on 1
January 2015 are not material to the bank.
IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for
reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a
customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits
from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and
related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and
earlier application is permitted. The bank is assessing the impact of IFRS 15.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a
material impact on the Bank.
27
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of Significant accounting policies (continued)
(b) Foreign currency translation (continued)
(ii) Transactions and balances
(c) Interest income and expense.
(d) Fees and commission income
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial
liability and of allocating the interest income and interest expense over the relevant period. The effective
interest is the rate that exactly discounts estimated future cash payments or receipts through the expected life
of the financial instrument or, when appropriate , a shorter period to the net carrying amount of the financial
asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows
considering all contractual terms of the financial instrument (for example prepayments options) but does not
consider future credit losses. The calculation includes all fees paid or received between parties to the contract
that are an integral part of the effective interest rate , transaction costs and all other premiums or discounts.
The calculation of the effective interest rate includes all fees paid or received transaction costs, and discounts
or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that
are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan
commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs)
and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised
as revenue when the syndication has been completed and the Bank has retained no part of the loan package for
itself or has retained a part at the same effective interest rate as the other participants. Commission and fees
arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the
arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses – are
recognised on completion of the underlying transaction.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the Statement of comprehensive income. Translation differences on non-
monetary financial assets and liabilities,such as equities held at fair value through profit and loss, are
recognised in profit or loss as part of the fair value gain or loss. Translation differences on non- monetary
financial assets,such as equities classified as available for -sale financial assets, are included in the available
for sale reserve in equity.
Interest income and expense for all interest bearing financial instruments, except for those classified as held
for trading or designated at fair value through profit or loss, are recognised within'interest income ' or interest
expense' respectively in the statement of comprehensive income using the effective interest method.
Once a financial asset or group of similar asset has been written down as result of an impairment loss, interest
income is recognised using the rate of interest that is was used to discount the future cash flows for the
purpose of measuring the impairment loss.
28
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies (continued)
(e) Financial Assets
0
(iv) Available - for - sale financial assets
The Bank classifies its financial assets into the following categories: financial assets at fair value through
profit or loss; loans and advances; held- to - maturity financial assets and available for sale financial assets.
Management determines the classification of its financial assets at initial recognition. Currently the Bank
does not have financial assets at fair value through profit or loss.
● those for which the holder may not recover substantially all its initial investment, other than because of
credit deterioration.
Held -to - Maturity financial assets are non- derivative financial assets with a fixed or determinable
payments and fixed maturities the management has the positive intention and ability to hold to maturity.
Where the Bank wishes to sell more than significant amount of held to maturity assets, the entire category
would have to be reclassified as available for sale.
Available -for sale assets are non- derivative that are either designated in this category or not classified in
any categories.
This category has two sub- categories: financial assets held for trading, and those designated at fair value
through profit or loss at inception.
A financial asset is classified as held for trading if acquired principally for the purpose of selling in the
short term. Derivatives are also categorised as held for trading. Financial assets are designated at fair value
through profit or loss when;
● they form part of a group of financial assets that is managed and evaluated on a fair value basis in
accordance with a documented risk management or investment strategy and reported to key management
personnel on that basis.
Loans and advances are non- derivative financial assets with fixed or determinable payments that are not
quoted in an active market, other than;
● Those classified as held for trading and those that the Bank on initial recognition designates as at fair
value through profit or loss
(i) Financial assets at fair value through profit or loss
● doing so significantly reduces or eliminates a measurement inconsistency; or
(ii) Loans and advances
● those that the Bank upon initial recognition designates as available -for- sale or;
(iii) Held -to - Maturity financial assets
29
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies (continued)
Recognition and measurement.
(f) Sale and repurchase agreements
(g) Off-setting
(h) Impairment of financial assets
Regular purchases and sales of financial assets are recognised on the trade date, which is the date on which
the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value, plus
transaction costs for all financial assets not carried at fair value through profit or loss.Financial assets
carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are
expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to
receive cash flows from the financial assets have expired or have been transferred substantially all risks and
rewards of ownership. Available- for- sale financial assets and financial assets at fair value through profit
or loss are subsequently carried at amortised cost using the effective method.
Securities sold subject to repurchase agreements (repos) are classified in the financial statements as
pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the
counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or
deposits due to customers, as appropriate. The difference between sale and repurchase price is treated as
interest and accrued over the life of the agreements using the effective interest method. Securities lent to
counterparties are also retained in the financial statements.
The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a
group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or more
events that occured after initial recognition of the asset(a'loss event) and that loss event ( or events) has an
impact on the estimated future cash flows of the financial; asset or group of financial assets that can be
reliably estimated.
Financial assets and liabilities are off set and the net amount reported in the balance sheet when there is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net
basis,or realise the asset and settle the liability simultaneously.
Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss'
category are included in the statement of comprehensive income in the period in which they arise. Changes
in the fair value of monetary and non-monetary securities classified as available for -sale are recognised in
other comprehensive income. When securities classified as available for- sale are sold or impaired, the
accumulated fair value adjustments are included in the statement of comprehensive income as 'gains and
losses from investment securities'.
The fair values of quoted investments are based on current bid prices. If the market of a financial asset is
not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These
include the use of recent arm's length transactions, reference to other instruments that are substantially the
same, discounted cash flow analysis and option pricing models refined to reflect the issuer's specific
circumstances.
30
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies (continued)
(h) Impairment of financial assets (continued)
● national or local economic conditions that correlate with defaults on the assets in the portfolio.
The estimated period between a loss occuring and its identification is determined by management for each
identified portfolio. In general, the periods used vary between 3 months and six months.
(i) Assets carried at amortised cost.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individualy significant. If
the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar characteristics and
collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an
impairment provision loss is or continues to be recognised are not included in a collective impairment.
The amount of the loss is measured as the difference between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial
instrument's original effective interest rates . The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss variable interest rate, the discount rate for measuring any impairment
loss is the current effective interest rate determined under the contract.
The calculation of the present value of estimated future cash flows of a collateralised financial asset reflects the
cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit
risk characteristics (i.e on the basis of the Bank's grading process that considers asset type,industry, geographical
location,collateral type, past dues status and other relevant factors). Those characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of the debtor's ability to pay all
amounts due according to the contractual terms of the assets being evaluated.
The criteria that the Bank uses to determine that there is objective evidence of impairment loss include:
● the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider;
● it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;(e) the
disappearance of an active market for that financial asset because of financial difficulties; or
● observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio
of financial assets since the initial recognition of those assets although the decrease cannot yet be identified with the
individual financial assets in the portfolio, including ;
● adverse changes in the payment status of borrowers in the portfolio; and
● significant financial difficulty of the issuer or obligor
● a breach of contract, such as a default or delinquency in the interest or principal payments.
31
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies (continued)
(h) Impairment of financial assets (continued)
(ii) Assets carried at fair Value
(i) Assets carried at amortised cost (continued)
In the case of equity investments classified as available fo sale, a significant or prolonged decline in the fair value of
the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for
available- for -sale financial assets, the cummulative loss measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial assets previously recognised in profit or loss- is
removed from equity and recognised in the statement of comprehensive income.
Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through
the statement of comprehensive income. If, in a subsequent period the fair value of the debt instrument classified as
available - for - sale increases and the increase can be objectively related to an event occuring after the impairment loss
was recognised in the profit or loss,the impairmrnt losss is reversed through the statement of comprehensive income.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis
of the contractual cash flows of assets and historical loss experience for assets with credit risk characteristics similar to
those in the Bank. Historical loss experience is adusted on the basis of the current observable data to reflect the effects
of current conditions that did not affect the period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist currently.
When a loan is uncollectible, it is written off against the related provision for the loan impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Impairment charges relating to loans and advances to customers are classified in loan impairment charges whilst
impairment charges relating to investment securities are classified in Net gains/(losses) on investment securities.'
Subsequest recoveries of amounts previously written off decrease the amount of the provision for the provision for loan
impairment in the statement of comprehensive income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be ralated objectively to
an event occuring after the impairment was recognised ( such as an improvement in the debtors credit rating), the
previously recognised impairment loss is reversed by adjusting the allowance account. The amount of reversal is
recognised int the statement of comprehensive income.
In the event that provisions computed in accordance with the Financial Institutions Act exceed amounts determined in
accordance with IFRS, the excess is accounted for as an appropriation of retained earnings.Otherwise no further
accounting entries are made.
In addition to the measurement of the impairment losses on loans and advances in accordance with IFRS as set out
above, the Bank is required by the Financial Institutions Act to estimate losses on loans and advances as follows:
1) Specific provision for loans and advances considered non- perfoming (Impaired) based on the criteria, and
classification of such loans and advances established by the Financial Institutions Act, as follows:
a) Substandard loans with arrears period from 90 to 179 days: 20%
b) Doubtful loans and advances with arrears period from 180 -364 days: 50%; and
c) loss with arrears period exceeding 364 days: 100% provision.
2) General provision of 1% of credit facilities less provisions and suspended interest.
32
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies(continued)
(i)
Motor vehicles 25%
33.33%
12.5%
12.5%
4%
33.33%
(j) Intangible Assets
● adequate technical, financial and other resources to complete the development and to use or sell the software
rrrrrproduct are available and;
● the expenditure attributable to the software product during its development can be reliably measured.
Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer
Software development costs recognised as assets are amortised over their estimated useful lives (not exceeding 3 years).
Property and Equipment
Land and buildings comprise mainly branches and offices. Buildings are shown at market value based on valuations by
external independent valuers, less subsequent depreciation. Increases in the current amount arising on revaluation are
recognised in other comprehensive income and credited to a revaluation reserve. Decrease that offset previous increase of
the same asset are charged against the revaluation reserve; all other decreases are charged to profit or loss. Each year the
difference in depreciation based on the revalued carrying amount of the asset ( the depreciation charge to profit or loss)
and depreciation based on the assets' original cost is transferred from the revaluation reserve to retained earnings net of the
related deferred tax effect.All other property and equipment is stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of these assets.
Subsequent expenditures are included in the assets carrying amount or are recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the
item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance
costs are charged to ' operating expenses' during the period in which they are incurred.
Machinery and equipment - Computers, ATM
hardware, telecom equipment
Machinery and equipment
Furniture
Buildings
Free hold Land is not depreciated. Depreciation on other assets is calculated on the straight line basis to allocate their cost
less their residual values over their estimated useful lives as follows:
The assets' residual values and useful lives are reviewed, and adjusted if appropriate,at each balance sheet date.
The Bank assesses at each balance sheet date whether there is any indication of that any item of property and equipment is
impaired. If any such indication exists, the Bank estimates the recoverable amounts of the relevant assets. An impairment
loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash-Generating -Units).
Fixtures and fittings
Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These are included ''other
income'' in the statement of comprehensive income.
Acquired Computer Software lincences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software.These costs are amortised over their estimated useful lives (3 years)
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development
costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the
Bank are recognised as Intangible assets when the following criteria are met:
● it is technically feasible to complete the software product so that it will be available for use;
● management intends to complete the software product and use or sell it;
● there is ability to use or sell the software product;
● it can be demonstrated how the software product will generate probable future economic benefit;
33
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2
(k)
(l)
(m)
(n)
Income tax
Summary of significant accounting policies (continued)
The Bank operates a defined contribution retirement benefit scheme for all its permanent confirmed employees. The Bank
and all its employees also contribute to the National Social Security Fund, which is a defined contribution scheme. A
defined contribution plan is a retirement benefit plan under which the Bank pays fixed contributions into a separate entity.
The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to
pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a
retirement benefit plan that is not a defined contribution plan and defines an amount of pension benefit that an employee
will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation.The
assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the
Bank and employees.The Bank’s contributions to the defined contribution schemes are charged to the Statement of
comprehensive income in the year in which they fall due.
Income tax expense for the period comprises current and deferred income tax. Income tax is recognised in the statement of
comprehensive income except to the extent that it relates to items recognised in other comprehensive income or directly in
equity. In this case the tax is also recognised in other comprehensive or directly in equity respectively.
Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with
the Ugandan Income tax Act. The current income tax charge is calculated on the basis of the tax enacted or substantively
enacted at the balance sheet date.
Deffered income tax is recognised, using the liability method, on temporary differences arising between the tax base of
assets and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it
arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax rates(and laws) that have been
enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax
liability is settled or the related deferred income tax asset is realised.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available
against which the temporary differences can be utilised.
Cash and cash equivalents includes cash at hand, deposits held at call with Banks, other short term highly liquid
investments with original maturities of three months or less,including:cash and non-restricted balances with the Central
Bank, treasury and other eligible bills, and amounts due from other Banks. Cash and cash equivalents includes the cash
reserve requirement held with the Central Bank.
(i) Retirement benefits
Employee benefits
Cash and cash equivalents
(ii) Other Benefits
The estimated monetary liability for employees' accrued annual leave entitlement at the balance sheet date is recognised as
an expense.
Customer Deposits
Deposits from customers are measured at amortised cost using the effective interest rate method.
Staff Gratuity
The Bank's terms and conditions of employment also provide for the gratuity to seconded expatriate staff and other staff
employed on contract and permanent by the Bank. Annual gratuity is based on month's gross pay for each year served.
This is a defined contribution plan and the Bank has no further obligation beyond the amounts required to be contributed.
A provision is made in the financial statements to take account of the service rendered by the seconded staff, staff on
contract and permanent up to the reporting date.
Leave pay
34
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2 Summary of significant accounting policies (continued)
(o)
(p)
(q)
(r)
(s)
(t)
The corresponding rental obligations, net of finance charges are included in deposits from banks or deposits
from customers depending on the counter party. The interest element of the finance cost is charged to the
statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. The investment properties acquired under finance
leases are measured subsequently at their fair value.
To date the Bank has not leased out any assets as lessor.
Acceptances and letters of credit are accounted for as off- balance sheet transactions and disclosed as
contingent liabilities.
Grants include assistance offered by government, government agencies and similar bodies whether local,
national, or international in form of transfers of resources in a return for past, of future compliance with
certain conditions relating to the operation of the Bank. Grants related to assets are those whose primary
condition is that they should purchase long term assets.Grants are recognised when there is reasonable
assurance that the Bank will comply with the conditions attached to the grant and that the grant will be
received.
Grants are awarded towards the purchase of assets are netted off against the total purchase price in arriving at
the carrying value of the asset. The grant is then recognised as income through profit or loss over the life of the
asset by way of reduction in the depreciation charge of the asset.
Borrowings
Dividends
Accounting for leases
(i) With the Bank as lessee
(ii) With the Bank as lessor
Share capital.
Borrowings are recognised initially at fair value, being their issue proceeds(fair value of consideration
received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; and
difference between proceeds net of transaction costs and the redemption value is recognised in the statement of
comprehensive income over the period of the borrowing using the effective interest method.
Ordinary shares are classified as 'share capital' in equity and measured at the fair value of consideration
receivable without subsequent re-measurement. Any premium received over and above the par value of the
shares is classified as 'share premium' in equity.
Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed
dividends are shown as separate component of equity until declared.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. All other leases are classified as finance leases.
To date, all leases entered into by the Bank are operating leases. Payments paid under operating leases are
charged to the statement of comprehensive income on the straight line basis over the period of the lease .
Acceptances and letters of credit
Grants
Leases of assets where the Bank has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the
leased property and the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.
35
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
3
(a)
(b)
(c)
(d)
Credit accounting estimates and judgements in applying accounting policies
The bank makes estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstamces. The resulting accounting estimates will, by definition,seldom equal the related actual results. The
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below.
In 2015, the Bank recognised tax asset of Ushs.2.81 billion in respect of accumulated tax losses based on managements'
projections that sufficient taxable profits will be generated in 2015 against which the deferred tax asset will be utilised. The
deferred tax has been maintained in the balance sheet with an assumption that 2015 will be profitable based on the projected
decrease in cost of funds and cost to income ratio and increase in customer deposits.
Impairment losses on loans and advances
The fair value of financial instruments
The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. In
these cases the fair values are estimated from observable data in respect of similar financial instruments or using models.
Where valuation techniques (for example models) are used to determine fair values,they are validated and periodically
reviewed by qualified personel independent of the area that created them. All models are certified before they are used and
models are calibrated to ensure that output reflect actual data and comparative market prices. To the extent practicable,
models use only observable data, however areas such as credit risk, (both own and counter party), volatilities and correlations
require management to make estimates, changes in assumptions about these factors could affect the reported fair value of
financial instruments.
Deferred income tax assets
The Bank follows the guidance of IAS 39 on classifying non- derivative financial assets with fixed or determined payments
and fixed maturity as held - to-maturity. This classification requires significant judgement. In making this judgement, the
bBank evaluates its intention and ability to hold such assets to maturity. If the Bank fails to keep these assets to maturity
other than the specific circumstances - for example , selling and insignificant amount close to maturity- it will be required to
classify the entire class as available -for- sale. The assets would therefore be measured at fair value not amortised cost.
Held to maturity financial assets.
The evidence may include observable data indicating that there has been an adverse change in the payment status of
borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Bank. As at 31st
December 2015, an IAS 39 provision was computed for unidentified and identified impairment. For facilities which account
for 8% of the total loan portfolio, impairment loss was measured on the basis of the present value of estimated future cash
flows discounted at the original effective interest rate. Future expected cash flows were determined based on the value of the
collateral held for which the bank's interest was registered.
For all loans not identified as individually impaired and for those identified as being impaired but classified as insignificant
and impairment provision was computed using the Bank historical loss experience to arrive at the credit loss ratio. A loss
ratio of 2.9% was obtained using bank data over a period 4 years.
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment
loss should be recorded in the statement of comprehensive income, the bank makes judgements as to whether there is any
observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans
before the decrease can be identified with an individual loan in that portfolio.
36
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a)
2015 2014Ushs'000 Ushs'000
Trade and commerce 21,765,546 16,061,561Manufacturing 7,834,253 4,423,202Agriculture 23,385,336 23,367,734Transport, communication, electricity and water 12,154,075 9,177,059Others 61,103,317 66,268,676
126,242,528 119,298,232
The weighted average effective interest rates on loans and advances as at 31 December 2015 was
17.17% (2014: 19.33%).
Credit risk
The Bank's activities expose it to a variety of financial risks: market risk (including currency risk, fair value
interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Those activities
involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks.
Taking risk is core to the Bank's business and the financial risks are inevitable consequence of being in
business. The Bank's aim is therefore to achive an appropriate balance between risk and return and minimise
potential adverse effects on its financial performance.
Risk management is carried out by the Risk department under policies approved by the Board of Directors.
Risk department identifies, evaluates and hedges financial risk in close co-operation with the operating units.
The Board provides written principles for overall risk management, as well as written policies covering
specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivatives and non-
derivative financial instruments.
The Bank takes on exposure to credit risk, which is a risk that a counterparty will cause a financial loss to the
Bank by failing to pay amounts in full when due. Credit risk is the most important risk for the Bank,s business;
management therefore carefully manages the exposure to credit risk. Credit exposures arise principally in
lending and investment activities.There is also credit risk in off- balance sheet financial instruments, such as
loan commitments. Credit risk management and control is centralised in the credit risk management team in
the Risk department, which reports regularly to the Board of Directors.
The Bank monitors concentration of risk by economic sector in line with set limits per sector. The limits are
reviewed by the board on the need by need basis depending on the performance of the sectors during the
period. An analysis of concentrations within the gross loan and advances to customers are as follows:
Economic risk concentration within gross loans and advances portfolio is as follows:
37
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
Credit Risk (continued)
(i)
12 Watch3 Substandard4 Doubtful5 Loss
(ii)
(a)
Credit risk measurement
Loans and advances (including commitments and guarantees)
The estimation of credit exposure is complex and requires the use of models, as the value of a product varies with
changes in the market variables,expected cash flows and the passage of time. The assessment of credit risk of a
portfolio on assets entails further estimations as to the likely hood of defaults occurring, of the associated loss ratios
and of default correlations between counterparties.
The Bank has developed models to support the quantification of the credit risk. These rating and scoring models are
in use for all key credit portfolios and form the basis for measuring default risks.The models are reviewed regulary to
monitor their robustness relative to actual performance and amended as necessary to optimise their effectiveness.
Standard
Risk limit control and mitigation policies
The Bank structures the level of credit risk it undertakes by pressing limits on the amount of risk accepted in relation
to one borrower or groups of borrowers and to industry segments. Such risks are monitored on a revolving basis and
subject to annual or more frequent review. Limits on the level of credit risk by product, industry sector and by country
are approved quarterly by the Board of Directors.
The exposure to any one borrower including Banks is further restricted by sub-limits covering on and off balance
sheet exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts.
Actual exposures against limits are monitored daily.
Exposure to credit risk is managed through regular analysis of the ability of the borrowers and potential borrowers to
meet interest and capital repayment obligations and changing lending limits where appropriate.
Probability of default
Bank's internal rating scale
Bank's rating Description of the grade
The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the
various categories of counterparty.They have been developed internally and combine statistical analysis with credit
offer judgement. There are validated where appropriate, by comparison with externally available data. Clients of the
Bank are segmented into four rating classes.
For regulatory purposes and for internal monitoring of the quality of the loan portfolio, customers are segmented into
Five (5) rating classes as shown below:
● Charges over financial instruments such as debt securities and equities.
Longer -term finance and lending to corporate entities are generally secured and revolving individual credit facilities
are generally unsecured.
Collateral held as security for financial assets other than loans and advances depends on the nature of the
instrument.Debt securities, treasury and other eligible bills are generally unsecured with an exception of asset -backed
securities and similar instruments which are secured by portfolios of financial instruments.
Collateral
Some other specific controls and mitigation measures are outlined below:
The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking
of security for funds advanced which is common practice. The Bank implements guidelines on the acceptability of
specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are;
● Mortgage over a residential properties.
● Charges over communal and/or business assets such as premises, inventory and accounts receivable.
38
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b)
2015 2014Credit exposures Ushs '000 Ushs '000On-statement of financial position items
Deposits and balances due frombanking institutions ( Note 14) 45,276,276 37,692,825Amounts due from group companies ( Note 31(a)) 5,563,330 14,415,579Loans and advances to customers ( Note 16(a)) 126,242,528 119,298,232Government securities (Note 15(a)) 45,248,469 33,756,890Other assets ( Note 17) 3,170,561 3,515,654
225,501,164 208,679,179
-Credit risk exposures relating to Off-statement of financial position itemsLetters of credit 14,149,666 9,766,360Guarantee and performance bonds 4,827,150 4,634,116Commitments to lend 4,843,677 9,473,653
23,820,493 23,874,129
Total Exposure 249,321,657 232,553,308
Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to the customer as required. Guarantees and
standby letters of credit which represent irrevocable assurances that the Bank will make payments in the event that a
customer cannot meet its obligations to third parties carry the same credit risk as loans. Documentary and commercial
letter of credit, which are written undertakings by the Bank on behalf of the customer authorising the third party to draw
drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying
shipments of goods to which they relate and therefore carry less risk than the direct borrowing.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees
or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in
an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused
commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.
The Bank monitors the term to maturity of credit commitments because longer- term commitments generally have a
greater degree of credit risk that shorter-term commitments.
(iii) Maximum exposure to credit risk before collateral held or other credit enhancements.
Credit risk exposures relating to on- balance sheets are as follows:
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2015 without taking
account of any collateral held or any credit enhancements attached. For on- balance sheet asset, the exposures set out
above are based on carrying amounts as reported in the balance sheet.
As shown above, 55% of the total maximum exposure is delivered from loans and advances to Banks and customers
whilst 20% represents investments in debt securities.
Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank
resulting from both its loan and advances portfolio and debt securities based on the following,
●the Bank exercises stringent controls over the granting of new loans
●59% of the loans and advances portfolio are neither past due nor impaired
●96% of the loans and advances portfolio is not impaired
39
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
(iv) Loans and Advances 2015 2014Ushs.'000 Ushs.'000
Neither past due nor impaired (0 days) 74,430,376 99,934,397Past due but not impaired (1-89 days) 38,528,145 11,120,080Past due but not impaired (90 days and above) 8,774,699 6,336,781Impaired 4,509,307 1,906,974
126,242,527 119,298,232
(5,813,110) (3,467,134)
120,429,417 115,831,098
2015 2014Ushs.'000 Ushs.'000
Standard and watch 74,430,376 99,934,397
2015 2014Ushs.'000 Ushs.'000
Past due over 90 days 8,774,699 6,336,781
Individually impaired:
Indivudually assessed impaired loans 2015 2014Ushs.'000 Ushs.'000
Impaired loans 4,509,307 1,906,974
Fair value of collateral held 1,172,285 2,640,999
During 2015, the Bank did not re-possess any collateral held as security. The Bank's policy is to dispose of repossessed properties
as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. Repossessed property not sold by year endis recognised in the balance sheet within "other assets".
Of the total gross amount of impaired loans and advances, the following amounts have been individually and collectivelyassessed:
Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate thecontrally. Loans and advances greater than 90 days are not considered impaired if there is sufficient collateral to cover the facility.The gross amounts of loans and advances that were past due but not impaired were as follows:
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference tothe internal rating system adopted by the Bank:
Gross
Net amount
Loans and advances neither past due nor impaired
Renegotiated loans
Repossessed collateral
Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral
of payments, restructuring policies and practices are based on indicators or criteria that, in the judgement of localmanagement,indicate that payment will most likely continue. These policies are kept under contineous review, restructuring is
most commonly applied to term loans- in particular customer finance loans. Renegotiated loans that would otherwise be past dueor impaired totaled shs.1.5 billion (2014: 3.03 billion).
Less: allowance for impairment (Note 16 (a))
40
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Liquidity risk
At 31 December 2015Weighted Less than 1-3 3-12 1-5
average 1 Month Months months Years Totaleffective Ushs'000 Ushs'000 Ushs'000 Ushs'000 Ushs'000
interest rate
Assets 16.80%
Cash and bank balances with Central Bank 20,670,292 - - - 20,670,292
Deposits and balances due from Banking institutions 50,839,606 - - - 50,839,606
Amounts due from group companies 5,563,330 - - - 5,563,330
Government securities 7,975,043 9,237,465 28,035,961 45,248,469
Loans and advances 14,075,506 5,667,894 45,393,461 55,292,556 120,429,417
Property and equipment - - - 7,089,003 7,089,003
Current income tax recoverable - - - 281,718 281,718
Operating lease prepayments - - - 268,057 268,057
Intangible assets - - - 379,203 379,203
Deffered income tax asset - - - 2,809,158 2,809,158
Other assets - - - 3,190,570 3,190,570
Total Assets 99,123,777 14,905,359 73,429,422 69,310,265 256,768,823
( expected maturity dates)Liabilities and equity
Customer deposits 137,398,288 4,433,880 7,775,571 - 149,607,739Administerd funds - - - 1,540,757 1,540,757Other borrowed funds - - - 37,510,936 37,510,936Grants 48,394 - - 98,273 146,667Other liabilities - - - 10,734,712 10,734,712
Total Equity and Liabilities
(Contractual maturity dates) 137,446,682 4,433,880 7,775,571 49,884,678 199,540,812
Net on Balance sheet position (38,322,905) 10,471,478 65,653,851 19,425,587 57,228,012
Net liquidity gap
Off statement of financial position itemsCommitments 4,843,677 - - - 4,843,677Guarantees & bonds 3,478,119 699,285 649,746 - 4,827,150Letters of credit 451,794 251,030 13,446,842 - 14,149,666Cash Margin (559,777) (141,759) (489,964) - (1,191,500)
Net off balance sheet position 8,213,813 808,556 13,606,624 - 22,628,993
Overall open position (30,109,092) 11,280,034 79,260,475 19,425,587 79,857,005
At 31 December 2014 (42,926,295) (4,565,315) 15,475,912 63,459,494 31,443,796
Liquidity risk is a risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace
funds when they are withdrawn.
The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash
settled contigencies.The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of
reinvestment of maturing funds can be predicted with a high level of certainty. The Bank of Uganda requires that the Bank maintains a cash reserve
ratio. In addition, the board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of
interbank and other borrowing facilities that should be in place to cover withdrawals at an expected levels of demand. The treasury department
monitors liquidity ratios on the daily basis. Sources of liquidity are regularly reviewed by a separate team in the treasury department to maintain a
wide diversification by provider, product and term.
In addition, the board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank
and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.
The table presents the undiscounted cash flows payable by the Bank under non- derivative financial liabilities by remaining contractual maturities
at the statement of financial position date and from financial assets by expected maturity dates.
Liquidity risk management
41
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
c) Market risk (Continued)
Currency risk
US$ GBP EUR Other Ushs Total
At 31 December 2015 Ushs '000 Ushs '000 Ushs '000 Ushs '000 Ushs '000 Ushs '000
Financial assets
Cash at hand and balances withCentral Bank 3,616,492 43,897 197,525 5,987 16,806,392 20,670,292
Deposits and balances due -
from banking institutions 45,934,596 51,482 849,823 17,228 3,986,478 50,839,606
Amounts due from group 5,563,330 5,563,330
Government securities - - - - 45,248,469 45,248,469
Loans and advances to 27,742,910 - 1,201 - 92,685,307 120,429,418
Other assets 8,000 14,009,709 14,017,709
Total financial assets 82,865,328 95,379 1,048,548 23,215 172,736,355 256,768,8240
Financial liabilities
Customer deposits 37,472,949 27,446 1,115,098 - 110,992,246 149,607,739
Amounts due to group -
Subordinated loan from 37,510,936 - - - - 37,510,936
Administered funds - - - - 1,540,757 1,540,757
Other financial liabilies 2,464,182 510 193,187 8,223,500 10,881,379
Total liabilities 77,448,067 27,956 1,308,285 - 120,756,503 199,540,812
Net on Balance sheet position 5,417,261 67,422 (259,737) 23,215 51,979,852 57,228,013
As at 31 December 2014 1,827,194 135,671 464,425 19,666 52,870,968 55,317,924
The Bank takes on exposures to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial positionand cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions,which are monitored daily.
At 31 December 2015, if the functional currency had strengthened/weakened by 10% against the foreign currencies with all othervariables held constant, the pretax profit for the year would have been Shs.310 million (2014: shs.163.7 million) higher/lower, mainlyas a result of foreign exchange gains/losses on translation of foreign currency denominated financial assets and liabilities.
Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fairvalue or future cash flows of a financial instrument. Market risk arises from open positions in interest rates,foreign currences andequity products, all of which are exposed to general and specific market movements and changes in the level of volatility. Theobjective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising thereturn on risk. Overall responsibility for managing market risks rests with the assets and liability committee (ALCO). The Treasurydepartment is responsible for the development of detailed risk manangement policies (subject to review and approval by the ALCO)and for the day to day implementation of those policies.
The table below summarises the Bank's exposure to foreign currency exchange rate risk at 31 December 2015 and 2014. Included inthe table are the Bank's financial instruments , categorised by currency.
42
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
d) Interest rate risk
Gap Analysis
31 December 2015
Up to 1
month 1-3 months 3-12 months Over 1 year
Non interest
bearing TotalUshs'000 Ushs'000 Ushs'000 Ushs'000 Ushs'000 Ushs'000
Financial AssetsCash at hand - - - 11,485,864 11,485,864Balances with Bank of Uganda - - - 9,184,428 9,184,428Deposits and balances due from -banking institutions 44,536,124 11,866,813 - - - 56,402,936Government securities 7,975,043 9,237,465 28,035,961 - - 45,248,469
Loans and advances to customers 14,075,506 5,667,894 44,806,211 55,292,556 587,250 120,429,417Property and equipment - - - - 7,089,003 7,089,003Current tax Recoverable - - - - 281,718 281,718Operating lease prepayments - - - - 268,057 268,057Intangible assets - - - - 379,203 379,203Deferred tax asset - - - - 2,809,158 2,809,158other assets - - - - 3,190,570 3,190,570
Total assets 66,586,673 26,772,172 72,842,172 55,292,556 35,275,251 256,768,823
Financial LiabilitiesCustomer deposits 37,448,080 4,303,160 7,285,607 - 100,570,893 149,607,739Administered funds - - - - 1,540,757 1,540,757Other borrowered funds - - - - 37,510,936 37,510,936Grants - - - - 146,667 146,667Other liabilities - - - - 10,734,712 10,734,712
Total liabilities 37,448,080 4,303,160 7,285,607 - 150,503,965 199,540,812
Share capital - - - - 30,000,000 30,000,000Retained earnings - - - - 10,080,296 10,080,296Capital reserve - - - - 6,683,451 6,683,451General reserve - - - - 5,810,043 5,810,043Revaluation reserve - - - - 2,235,438 2,235,438Regulatory credit reserve - - - - 2,418,785 2,418,785
-Equity and reserves - - - - 57,228,013 57,228,013
Total Liabilities and Equity 37,448,080 4,303,160 7,285,607 - 207,731,978 256,768,825
Interest re- pricing gap 29,138,593 22,469,012 65,556,565 55,292,556 (172,456,727) (2)
Off- statement of financial Position items 17,785,317 17,785,317
At 31 December 2014
Interest sensitive gap 38,670,796 61,461,300 27,582,535 - (127,714,631) -
Off- statement of financial Position items 13,312,452 13,312,452
The table below summarises the Bank's exposure to interest rate risk. Included in the table are the Bank's assets and liabilities at carrying
amounts, categorised by contractual re-pricing.
The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow
risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise.
The Board of Directors sets limits on the level of mismatch interest rate repricing that may be undertaken, which is monitored monthly. The
Bank is managing interest rate risk by gap analysis.
Under this, interest sensitive assets and liabilities are classified into various time bands according to their maturity in the case of fixed rates,
and residual maturity towards next pricing date in the case of floating exchange rates. The size of the gap in a given time band is analysed to
study the interest rate exposure and the possible effects on the Bank's earnings.
In order to evaluate the earning exposure, interest rate sensitive assets (RSA) in each time band are netted off against the interest rate
sensitive liabilities (RSL) to produce a pricing gap for that time band. A positive gap indicates that the Bank has more RSA and RSL. A
positive of asset gap means that an increase in market interest rates could cause an increase in the net interest margin and vice versa.
Conversely, a negative or a liability gap implies that the Bank's net interest margin could decline as a result of an increase in market rates and
vice versa.
At 31 December 2015, if the interest rates on interest bearing assets and liabilities had been 100 basis points higher /lower with all other
variables held constant, the pre tax profit or loss for the year would have been Shs190million (2014: Shs 180 million) higher/lower.
43
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
c) Market risk (Continued)
(d) Fair Value of financial assets and liabilities
Fair Value hierarchy
Level 1 Level 2 Level 3 TotalShs '000 Shs '000 Shs '000 Shs '000
At 31 December 2015
Assets measured at fair value
- - 50,839,606 50,839,606
Amounts due from group companies - - 5,563,330 5,563,330
Loans and advances - - 126,242,528 126,242,528
Government Securities - Held to maturity - 45,248,469 - 45,248,469
- 45,248,469 182,645,464 227,893,933
At 31 December 2014
- - 37,692,826 37,692,826
Amounts due from group companies - - 14,415,579 14,415,579
Loans and advances - - 119,298,232 119,298,232
Government Securities - Held to maturity - 33,756,890 - 33,756,890
- 33,756,890 171,406,637 205,163,527
Deposits and Balances due from Banking
institutions
Deposits and Balances due from Banking
● Level 3-Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level
includes equity investments and debt instruments with significant unobservable components. The Bank considers relevant
and observable market prices in its valuations where possible.
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the
management of the Bank. It is unusual for Banks ever to be completely matched since business transacted is often of
uncertain terms and of different types. An unmatched position potentially enhances profitability, but can also increase the
risk of losses.
The fair value of held to maturity investment securities and other financial assets and liabilities approximate the respective
carrying amounts, due to the generally short periods to contractual repricing or maturity dates as set out above. Fair values
are based on discounted cash flows using a discount rate based upon the borrowing rate that the directors expect would be
available to the Bank at the balance sheet date.
IFRS 7 specifies a hierarachy of valuation techniques based on whether the inputs to those valuation techniques are
observable or unobservable. Observable inputs reflect market data obtained from independent sources ; unobservable inputs
reflect the Bank market assumptions. These two types of inputs have created the following fair value hierarchy:
● Level 1- Quoted prices (unadjusted ) in active markets for identical assets or liabilities. This level includes listed equity
securities and debt instruments on exchanges and exchanges traded derivatives like futures.
● Level 2- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices). The sources of input parameters like LIBOR yield
curve.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest -bearing liabilities as they
mature are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange
rates.
The table below shows items not measured at fairvalue for which fair value is disclosed
44
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
e) Financial instruments by category
Loans and
receivables
Held to
maturity TotalShs '000' Shs '000' Shs '000'
At 31 December 2015Deposits and Balances due from Banking institutions 50,839,606 - 50,839,606
Amounts due from group companies 5,563,330 - 5,563,330
Loans and advances 126,242,528 - 126,242,528
Government Securities - Held to maturity - 45,248,469 45,248,469
Total 182,645,464 45,248,469 227,893,933
At 31 December 2014
Deposits and Balances due from Banking institutions 37,692,826 - 37,692,826
Amounts due from group companies 14,415,579 - 14,415,579
Loans and advances 119,298,232 - 119,298,232
Government Securities - Held to maturity - 33,756,890 33,756,890
-Total 171,406,637 33,756,890 205,163,527
2015 2014
Shs.000 Shs.000Liabilities as per statement of financial position - at amortised cost
Customer deposits 149,607,739 144,230,992Other borrowed funds 39,051,693 32,782,373
Total 188,659,433 177,013,366
45
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
f) Capital management
a)
b)
c)
The Bank's total capital is comprised of Tier 1 capital (core capital): share capital, share premium, capital
reserves and general reserves plus retained earnings (Note 4(f))
The Bank monitors the adequacy of its capital using ratios established by the Bank for International Settlement
(BIS) and Bank of Uganda. These ratios measure capital adequacy by comparing the Bank's eligible capital
with its balance sheet assets, off balance sheet commitments and market risk positions at weighed amounts to
The market risk approach covers the general market risk and the risk of open positions in currencies and debt,
equity securities. Assets are weighted according to the amount of capital deemed necessary to support them.
Four categories of risk weights (0%, 20%, 50% and 100%) are applied, for example cash and money market
instruments have zero risk weighting which means that no capital is required to support the holding of these
assets. A placement with a parent or related group Bank or Main correspondent bank which has a minimum of
long term rating by internationally recognised agencies of AAA to AA- will be subject to a risk weight of
20%. A rating of A+ to A-, will attract a risk weight of 50%. Property and equipment carries 100% risk
weighting, meaning that it must be supported by capital equal to 12% of the carrying amount. Other asset
catergories have intermediate weightings.
The bank's objectives when managing capital, which is a broader concept then the 'equity' on the balance
sheet, are:
shareholders and benefits for other stakeholders;
● to maintain a strong capital base to support the development of its business.
Off-statement of Financial position related commitments are taken into account by applying different
categories of credit conversion factors,designed to convert these items into statements of financial position
equivalents. The resulting credit equivalent amounts are weighted for credit risk using the same percentages as
for the statement of financial position assets.
Tier 2 capital (supplementary capital) is comprised of revaluation reserves, unencumbered general provision
for bad debts and eligible subordinated debt.
The table below summarises the composition of regulatory capital and the ratios of the Bank at 31 December
2015 determined in accordance with the Financial Institutions (Capital Adequancy Requirements) regulations,
2005;
at or above the required minimum of 8%; andmaintain a ratio of core capital to the risk-weighted assets plus risk-weighted off-balance sheet assets
maintain total capital of not less than 12% of risk-weighted assets plus risk-weighted off-balance sheet
Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques
based on the guidelines developed by Basel committee, as implemented by the Central Bank for supervisory
purposes. The required information is filed with the central bank on a monthly basis.
The Central Bank requires each bank to:
hold the minimum level of regulatory capital of Shs 25 billion;
● to comply with the capital requiremnets set by the central bank;
● to safe guard the bank's ability to continue as a going concern, so that it can continue to provide returns for
46
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
f) Capital management
2015 2014Shs '000' Shs '000'
Core Capital (Tier 1)
Shareholder's equity 30,000,000 30,000,000Retained earnings 10,080,296 9,624,804Capital reserve 6,683,451 6,205,929General reserves 5,810,043 5,332,521Less:
Intangible assets (379,203) (767,855)Defered income tax assets (2,809,158) (1,317,623)Unrealised foreign exchange gains (233,183) (399,201)
Total core capital 49,152,245 48,678,575
Supplementary Capital (Tier 2)Revaluation reserve on fixed assets 2,235,438 2,252,516General provision 1,175,871 1,139,403Subordinated debt 22,374,000 24,339,288
Tier 2 Capital 25,785,309 27,731,207
Total Capital (Tier 1 and Tier 2) 74,937,554 76,409,782
The risk weighted assets are measured by means of a hierarchy of four risk catergories classified according to the nature of
the assets and reflecting an estimate of the credit risk associated with each asset and counterparty, taking into account any
eligible collateral or guarantees.
A similar treatment is adopted for off balance sheet exposure, with some adjustments to reflect the more contingent nature
of the potential losses.
47
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
4 FINANCIAL RISK MANAGEMENT (CONTINUED)
f) Capital management
Balance sheet Riskamount weight
2015 2014 2015 2014Shs '000 Shs '000 Shs '000 Shs '000
Balance sheet assets (net provisions)
Cash and balances with Bank of Uganda 20,670,292 27,569,145 0% - -Amounts due from commercial banks in Uganda 21,416,620 31,835,265 20% 4,283,324 6,367,053Amount due from other banks:Rated AAA TO AA(-) - - - -Rated A(+) to A(-) - 4,464,808 50% - 2,232,404Rated A(-) and non rated 29,422,986 1,392,753 100% 29,422,986 1,392,753Amounts due from group companies 5,563,330 14,415,579 100% 5,563,330 14,415,579Loans and advances to customers - FIA basis 116,455,825 113,803,964 100% 116,455,825 113,803,964Investment securities held to maturity 45,248,469 33,756,890 0% - -Current income tax recoverable 281,718 - 100% 281,718 -Property and equipment 7,089,003 6,194,008 100% 7,089,003 6,194,008Operating lease prepayments 268,057 272,238 100% 268,057 272,238Work in progress 20,009 327,002 100% 20,009 327,002Other assets 3,170,561 3,515,654 100% 3,170,561 3,515,654
On balance sheet assets 249,606,870 237,547,306 166,554,813 148,520,655
Off-statement of financial position
Contingents secured by cash collateralLetters of guarantees 2,221,419 2,379,436 100% 2,221,419 2,379,436Performance bonds 1,414,232 9,743,360 50% 707,116 4,871,680Letters of credit and acceptances 14,149,666 1,189,656 20% 2,829,933 237,931Commitments to lend 4,843,677 9,473,653 50% 2,421,839 4,736,827
Total off -statement of financial position 22,628,994 22,786,105 8,180,307 12,225,874
Total risk-weighted assets 272,235,864 260,333,411 174,735,120 160,746,529
Capital ratios per Financial Institutions Act (FIA) 2015 2014Shs 000 Shs 000
Core capital 49,152,245 48,678,575Total Capital 74,937,554 76,409,782
FIA Capital ratiosCore capital 28.13% 30.28%Total Capital 42.89% 47.53%
g) Loans and advances - FIA BasisGross loans (Note 16a) 126,242,528 119,298,232Less:Specific provision (6,725,269) (4,046,775)Interest in suspense (1,930,180) (1,311,198)Loans secured by Cash (1,131,254) (136,295)
Net Loans 116,455,825 113,803,964
The table below summarises the composition of the risk weighted assets of the Bank at 31 December 2015:
Risk weightedamount
48
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2015 2014
Ushs '000 Ushs '000
5 Interest Income
Loans and advances 21,675,730 23,056,772
Government securities 5,573,172 2,112,632
Short term placements 933,682 1,771,955
28,182,584 26,941,359
6 Interest expense
Customer deposits 2,642,246 2,676,633
Deposit by other banking institutions 779,244 454,163
Borrowed funds 439,555 330,904
3,861,045 3,461,700
7 (a) Fee and commission income
Fee and commission income 3,310,815 3,018,005
Credit related fee and commission income 1,996,959 1,837,385
5,307,774 4,855,390
(b) Other operating income
Recoveries from bad debts 3,142,026 2,565,999Sale of cheque books 110,720 109,308Stationery 70,197 47,815Other income 608,691 197,928
3,931,634 2,921,050
8 Fee and Commission expense
Transactional fees and commission expense 282,533 202,969
9 Net gains on foreign exchange dealings
Unrealised foreign exchange gains 233,183 399,201
Realised foreign exchange gains 1,272 790
234,455 399,991
49
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)2015 2014
Ushs '000 Ushs '000
10 Operating Expense
Depreciation of property and equipment (Note 18 (b)) 1,397,346 1,109,536
Amortisation of intangible assets (Note 20) 388,653 316,135
4,181 4,181
Auditors’ remuneration 111,870 70,000
Legal Fees 103,744 276,061
Other professional fees 408,819 148,482
Rent and Rates 1,452,877 1,015,497
Advertising and promotion 598,289 631,166
Comminication and technology 1,779,821 1,187,157
Other 7,424,991 6,889,816
13,670,591 11,648,029
11 Employee benefit expense
Salaries and wages 8,744,487 5,060,896
National Social Security Fund contributions 1,039,052 716,974
Other staff costs 4,913,203 4,859,366
14,696,742 10,637,236
12 Income tax credit
Current income tax charge (Credit)/charge (1,258,781) 1,756,660
Withholding tax as final tax 1,114,634 422,526
Deferred income tax credit (Note 25) (1,491,535) (2,561,321)
(1,635,682) (382,135)
274,407 3,947,627
82,322 1,184,288
Income not subject to tax (1,671,952) (1,849,523)
Tax effect of non-deductible items 98,094 -
Effect of leasehold reclassification - (139,425)Interest on government securities taxed at 20% 1,114,634 422,526
Prior year deferred income tax (under)/over provision (1,258,781) -
(1,635,682) (382,134)
Income tax receivable/(payable) was as follows:
At start of year (977,063) 779,597Current income tax credit/(charge) 1,258,781 (1,756,660)
At end of year 281,718 (977,063)
13
11,485,864 7,966,274
9,184,428 19,602,871
20,670,292 27,569,145
Balances with Bank of Uganda are non interest bearing.
Amortisation of operating lease prepayments (Note 19)
Profit before income tax
Cash on hand
The tax on the Bank's profit before iincome tax differs from the theoretical amount that would arise using the statutory
income tax rate as follows
Balances with Bank of Uganda
Income tax calculated at the statutory income tax rate of 30% (2014: 30%)
Tax effect of:
Income tax credit
Cash and balances with Bank of Uganda
50
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2015 2014Ushs'000 Ushs'000
14 Placements and deposits with other banks
Balances due from other banking institutions - Outside Uganda 29,422,986 20,273,140Deposits with other banking institutions- Inside Uganda 21,416,620 31,835,264
50,839,606 52,108,404
15
(a) Held to maturity investments - at amortised cost
Treasury bills 2015 2014Face Value Ushs'000 Ushs'000
Maturing within 90 days - -Maturing after 90 days 48,753,100 29,563,500
48,753,100 29,563,500
Unearned interest (3,504,631) (1,389,966)
Amortised cost 45,248,469 28,173,534
Treasury bondsMaturing within 90 days - -Maturing after 90 days - 5,578,300
- 5,578,300
Unearned interest - 5,056
Amortised cost - 5,583,356
Government Securities
51
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
16 Loans and advances to customers
a) Analysis of loan advances to customers by category:2015 2014
Ushs'000 Ushs'000Term loans 92,468,215 84,859,873Overdrafts 33,774,313 34,438,359
Gross loans and advances 126,242,528 119,298,232Less:
- Provision for impairment -individually assessed (3,774,846) (2,359,174)- Provision for impairment -Collectively assessed (1,707,509) (924,850)- Discount on staff loans (330,755) (183,110)
120,429,418 115,831,098
Movement in provisions for impairment of loans and advances are as follows:
Individually Collectively TotalAssessed Assessed
Ushs'000' Ushs'000 Ushs'000
Year ended 31 December 2015At 1 January 2,359,174 924,850 3,284,024Provision for loan impairment 2,885,880 782,659 3,668,539Amounts recovered during the year (501,411) - (501,411)Transfers - - -Loans written off during the year as uncollectible (968,797) - (968,797)
At 31 December 3,774,846 1,707,509 5,482,355
Year ended 31 December 2014At 1 January 1,756,991 497,493 2,254,484Provision for loan impairment 1,820,634 427,357 2,247,991Amounts recovered during the year (770,772) - (770,772)Transfers - - -Loans written off during the year as uncollectible (447,679) - (447,679)
At 31 December 2,359,174 924,850 3,284,024
52
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
16 Loans and Advances to Customers
(b) Impairment Losses charged to profit or loss 2015 2014Ushs '000 Ushs '000
Provision for loan impairment (note 16 (a)) 3,668,539 2,247,991Amount written off during the year (note 16 (a)) 1,601,484 3,223,600
5,270,023 5,471,591
(c) Regulatory reserve
Analysis as per Bank of Uganda guidelines
Total provision as per IFRSIdentified Impairment loss 3,774,846 2,359,174Unidentified impairment loss 1,707,509 924,850
5,482,355 3,284,024
Total Provision as per BOU guidelinesSpecific provisions 6,725,269 4,046,775General Provisions 1,175,871 1,139,403
7,901,140 5,186,178
Regulatory reserveAt January 1,902,154 13,050,970Transfer to/(From) the regulatory reserve 516,631 (11,148,816)
At 31 December 2,418,785 1,902,154
d) Analysis of interest in suspense
At January 1,311,198 1,581,388Interest on non-perfoming advances for the year 1,848,034 856,378Reversals due to recovery (108,772) (135,574)Write-offs (1,120,280) (990,994)
At 31 December 1,930,180 1,311,198
53
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2015 2014
Ushs '000 Ushs '000
17 Other assets
Accounts receivable and prepayments 1,675,445 2,238,665
Items in transit 965,093 935,198
Stationery stocks 173,689 157,406
Deferred staff expenses 330,755 183,110Other 25,580 1,275
3,170,561 3,515,654
18 (a) Capital work in progress
At 1 January 327,002 806,358
Additions 20,009 275,753
Transfer to property and equipment (327,002) (289,650)Transfer to intangible assets - (465,459)
At 31 December 20,009 327,002
54
Tropical Bank LimitedFinancial Statements
For the year ended 31 December 2015
Notes (continued)
18 (b) Property and equipment
Buildings Machinery Motor Fixtures Total& Equipment Furniture Vehicles fittings and
equipmentUshs'000' Ushs'000' Ushs'000' Ushs'000 Ushs'000 Ushs'000
Year ended 31 December 2014Opening net book amount 3,756,665 807,173 353,134 186,590 923,310 6,026,872Additions - 737,696 120,442 222,248 371,385 1,451,771Disposals - - - - -Transfer from WIP - 289,650 - - - 289,650Write-offs - - - - - -Reclassification-cost - - - - (945,611) (945,611)Depreciable charge (224,353) (368,516) (132,512) (162,106) (222,049) (1,109,536)Depreciation on disposal - - - - - -Depreciation on write offs - - - - - -Reclassification-depreciation - - - - 480,862 480,862
Closing net book amount 3,532,312 1,466,003 341,064 246,732 607,897 6,194,008
Cost 4,429,724 5,574,336 1,397,095 1,219,596 2,017,209 14,637,960Accumulated depreciation (897,411) (4,108,333) (1,056,031) (972,864) (1,409,312) (8,443,951)-
3,532,313 1,466,003 341,064 246,732 607,896 6,194,008Net book amountYear ended 31 December 2015Opening net book amount 3,532,313 1,466,003 341,064 246,732 607,896 6,194,009Additions - 660,128 101,161 57,816 1,157,192 1,976,297Disposals - - (35,231) (2,850) (162,816) (200,896)Transfer from WIP - - - - 327,002 327,002Write-offs - - - - - -Depreciable charge (224,353) (564,303) (138,096) (90,261) (380,334) (1,397,346)Depreciation on disposal - - 25,757 1,366 162,816 189,938Depreciation on write offs - - - - - -
Closing net book amount 3,307,961 1,561,829 294,655 212,803 1,711,757 7,089,004
Cost 4,429,724 6,234,467 1,463,025 1,274,561 3,624,714 17,026,491Accumulated depreciation (1,121,763) (4,672,636) (1,168,371) (1,061,760) (1,912,957) (9,937,488)
Net book amount 3,307,961 1,561,831 294,654 212,801 1,711,757 7,089,003
55
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)2015 2014
19 Operating Lease prepayments Ushs '000 Ushs '000
CostAt 1 January 327,241 327,241Additions - -
At 31 December 327,241 327,241
AmortisationAt 1 January 55,003 50,822
Charge for the Year 4,181 4,181
At 31 December 59,184 55,003
Net book valueAt 31 December 268,057 272,238
20 Intangible assets
Net book amount at 1 January 767,855 404,690Additions: Computer Software - 213,841Transfer from work in progress (note 18) - 465,459
Amortisation 388,653 316,135
Net book amounts at 31 December 379,203 767,855
Cost 2,349,833 2,349,833
Accumulated depreciation (1,970,630) (1,581,978)
Net book amount 379,203 767,855
2015 201421 Customer deposits Ushs '000 Ushs '000
Current and demand deposits 100,570,893 101,454,154Savings accounts 34,507,634 28,896,662
Fixed deposits accounts 14,529,213 13,880,177
149,607,739 144,230,992
The intangible assets relate to computer software acquired to support the Bank's operations.This software
is not an integral part of the related computer hardware and has therefore been presented as an intangible
asset in accordance with IAS 38, Intangible assets.
56
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
22 Borrowings
(a) Administered funds
2015 2014Ushs '000' Ushs '000'
At January 2,097,045 2,575,000Received during the year - 75,000Less Payments during the year (556,288) (552,955)
1,540,757 2,097,045
(b) Subordinated debt
2015 2014Ushs '000' Ushs '000'
Balance at 1 January 30,685,328 28,044,336Unrealised exchange losses/gains 6,765,000 2,640,000Accrued Interest 467,424 352,822Interest paid (406,816) (351,830)
37,510,936 30,685,328
The Bank of Uganda (BOU) Agricultural Credit Facility relates to a partnership between the Government of
Uganda and commercial banks to facilitate farmers in acquisition of agricultural and agro-processing
machinery and equipment.
Subordinated debt from Libyan Foreign Bank represents amounts approved as subordinated loan of USD
16,000,000 at an interest rate based on six months libor plus a margin of 0.8%. The subordinated debt is for
the period of five (5) year term effective 16 July 2013 to 15th July 2018. The accrued interest as at 31st
December 2015 was Ushs 221 million (2014: Ushs160 million) and the unrealised foreign exchange loss
was Ushs 7 billion (2014: Ushs 2.8 billion) due to the depreciation of Uganda shilling against the US
Dollar.
57
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
2015 2014
23 Other Liabilities Ushs '000 Ushs '000
Bills payable 2,187,048 1,798,986
Provision for staff gratuity 2,648,075 1,690,131Creditors 462,380 316,759
Cash Margin 1,191,499 1,088,023
Deffered fee and commission income 838,109 645,597
Accruals 3,407,604 2,763,675
10,734,715 8,303,172
24 Grants
Gross
At January and 31 December 387,145 387,145Additions 214,634 -
At 31 December 601,779 387,145
Amortisation
At 1 January 338,751 290,358
Credit to comprehensive income 116,361 48,393At 31 December 455,112 338,751
Deferred grantAt 31 December 146,667 48,394
25 Deferred income tax asset
2015 2014
Ushs '000 Ushs '000
Accelerated capital allowances 187,416 241,549
Tax losses brought forward (2,922,522) -
Provision for loan impairment 372,874 228,825
Other provisions (516,881) (215,592)
Unrealised translation differences 69,955 (1,572,405)
Net deferred income tax assets (2,809,158) (1,317,623)
The movement on the deferred income tax asset account is as follows:
At start of year (1,317,623) 1,243,698
Income statement credit - current year (note 12) (1,491,535) (2,561,321)
At end of year (2,809,158) (1,317,623)
Deferred income taxes are calculated on all temporary differences under the liability method using the
applicable tax rate of 30%. The net deferred tax asset comprises:
58
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
26 Share Capital
Number
of shares
issued and
Ordinary
share capital Total
Ushs '000 Ushs '000
As at January 2015 and December 2015 & 2014 300,000 30,000,000 30,000,000
27 Bank shareholding
Country
Shareholders Shareholding of holding incorporation
Libyan Foreign Bank (Ultimate parent) 99.83% Libya
Government of Uganda 0.17% Uganda
Total 100%
28 Dividends
The total authorised number of ordinary shares is 300,000 (2014: 300,000) with a par value of Shs 100,000
per share.
Libyan Foreign Bank is the immediate and ultimate parent company holding 99.83% (2014: 99.83%) of the
issued share capital and total voting rights of the Bank. The other shares are held by the Government of
Uganda.
No dividend has been proposed for the year ended 31 December 2015 (2014: Ushs 700 million).The
payment of dividend is subject to withholding tax at rates depending on the tax status of the recipient.
The Bank's shareholders are as follows:
59
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
2015 2014
Ushs '000 Ushs '000
29 Analysis of cash and cash equivalents
Cash and balances with bank of Uganda ( Note 13) 20,670,292 27,569,145
Less: Cash requirement (see below) (9,184,428) (19,602,871)
Placement with other banks( Note 14) 50,839,606 37,692,825
Amounts due from group companies ( Note 32 (a)) 5,563,330 14,415,579
67,888,801 60,074,678
30 Related parties
Nature of 2015 2014
(a) Amounts due from group companies relationship Ushs '000 Ushs '000
Libyan Foreign Bank Tripoli Parent company 713,353 1,151,546
British Arab Commercial Bank Limited Common ownership 4,371,767 10,655,384
Arab Bank for Investment and Foreign Trade Common ownership - 162,469
Suez Canal Bank - Cairo USD Common ownership 41,685 175,569
Arab Turkish Bank - Istanbul Common ownership 436,525 2,270,611
Total 5,563,330 14,415,579
For the purpose of cash flow statement, cash and cash equivalents comprise balances with less than 90 days
maturity from the date of acquisition including: Cash and balances with Central Bank , treasury bills and
other eligible bills, and amounts due from other Banks.
Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Uganda. Banks are
required to maintain a prescribed minimum cash balance with Bank of Uganda hence not available to
finance the Bank's day- to- day activities. The amount is determined as 8% of the average outstanding
customer deposits over a cash reserve cycle period of two weeks.
The ultimate parent company of the Bank is Libyan Foreign Bank, a Company incorporated in the Libya.
There are other companies which are related to Tropical Bank Limited through common directorship or
shareholdings. The following transactions were carried out with related parties:
60
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
(b) Related party deposits and advances 2015 2014
Ushs '000 Ushs '000
Deposits from directors and shareholders 351,836 97,458
Loans to directors (111,519) (92,303)
Advances to staff (2,219,018) (1,755,046)
(1,978,700) (1,749,891)
(c) Related Party transactions
Interest:
Interest paid to related parties / directors (406,816) (351,830)
Interest earned from related parties / directors 25,861 21,530
Net interest expense (380,955) (330,300)
Directors Remuneration
Directors' fees 1,088,604 1,097,851
Other emoluments 274,215 78,285
Total 1,362,819 1,176,136
Key management compensation
6,286,700 3,886,790
Terminal benefits 194,864 152,861
Total 6,481,564 4,039,651
Salaries and short-term benefits (including
directors remuneration above)
61
Tropical Bank Limited
Financial StatementsFor the year ended 31 December 2015
Notes (continued)
31 Off - Balance sheet financial instruments, contingent liabilities and commitments
Gross Margin Net
Ushs'000 Ushs'000 Ushs'000
As at 31 December 2015
Guarantees 2,809,321 (587,902) 2,221,419
Letters of credit 14,149,666 - 14,149,666
Performance bonds 2,017,829 (603,597) 1,414,232
18,976,816 (1,191,499) 17,785,317
As at 31 December 2014
Guarantees 2,662,393 (282,957) 2,379,436
Letters of credit 9,766,360 (23,000) 9,743,360
Performance bonds 1,971,723 (782,067) 1,189,656
14,400,476 (1,088,024) 13,312,452
Other commitments
2015 2014
Ushs '000 Ushs '000
Approved advances not utilised 4,843,677 9,473,653
Commitments to lend are agreements to lend to customers in future subject to certain conditions. Such commitments are
Letters of credit are commitments by the Bank to make payments to third parties, on production of documents, on
behalf of customers and are reimbursed by customers. Letters of guarantee and performance bonds are issued by
the Bank, on behalf of customers, to guarantee performance by customers to third parties. The Bank will only be
required to meet these obligations in the event of default by the customers.
The Bank conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities.
The majority of these facilities are offset by corresponding obligations of third parties. In addition, there are other off-
balance sheet financial instruments including forward contracts for purchase and sale of foreign currencies, the nominal
amounts of which are not reflected in the balance sheet.
The following are commitments outstanding at the year end:
62
Tropical Bank LimitedFinancial StatementsFor the year ended 31 December 2015
Notes (continued)
31 Off - Balance sheet financial instruments, contingent liabilities and commitments (continued)
Non-trade contingent liabilities
32 GENERAL AND CAPITAL RESERVES
General Reserve
Capital Reserve
33 REVALUATION RESERVE
34 REGULATORY CREDIT RESERVE
The regulatory credit reserve relates to excess of general and specific provisions for loans and advances
done in accordance with the requirements of the Financial Institutions Act as compared to those per IFRS.
Bank of Uganda regulations require that the excess is appropriated from retained earnings to a regulatory
reserve. The regulatory reserve is not distributable to members.
The revaluation reserve relates to the increase in the carrying value of buildings that were revalued in
2010. The revaluation reserve is not distributable to members.
The capital reserve is built up by setting aside 25% of annual net profits after tax to enable the Bank to
accumulate financial reserves up to 50% of paid up share capital for the purpose of meeting future
increase in paid up capital.
There were outstanding legal proceedings against the Bank as at 31 December 2015 which arise from
normal day to day banking operations. In the opinion of the directors, after taking professional legal
advice, the estimated potential liability to the Bank from these proceedings is Shs 2,080 million (2014:
Nil).
Based on Article 27 (c) of the Bank's Articles of Association that empowers the Board to set aside out of
profits such sums as it may think proper as reserves which shall be applicable for any lawful purpose, the
general and capital reserve are set aside based on the results of the years begining from 2007 to the
reporting date. These reserves are distributable to the members upon the discretion of the directors and are
set up as follows:
The general reserve which should be built up to at least 100% of paid up capital (by setting aside 25% of
annual net profits after tax after covering any cumulative losses from previous periods and any Bank of
Uganda regulatory reserves) to cover possible losses not yet specifically identified, finance activities that
shareholders may not be in a position to fund and provide for unforeseen expenditure.
63