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ABC Holdings Limited
ABC Holdings Limited is the parent company of a number of banks operating under the BancABC brand in Sub-Saharan Africa, with operations in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe. A group services ofﬁce is located in South Africa. Our vision is to be Africa’s preferred banking partner by offering world class ﬁnancial solutions. We will realise this by building proﬁtable, lifelong customer relationships through the provision of a wide range of innovative ﬁnancial products and services – to the beneﬁt of all our stakeholders. The Group offers a diverse range of services including but not limited to the following: wealth management, corporate banking, treasury services, leasing, asset management, stock broking, and retail banking. ABC Holdings Limited is registered in Botswana. Its primary listing is on the Botswana Stock Exchange, with a secondary listing on the Zimbabwe Stock Exchange.
ifc Our values 1 2 3 4 Highlights Five-year ﬁnancial highlights Salient features Chairman’s report
10 Chief Executive Ofﬁcer’s report 17 orporate social responsibility report C 19 Risk and governance report 27 irectors and Group management D 31 Directors’ responsibility 32 Directors’ report 33 Annual ﬁnancial statements
111 Analysis of shareholders 112 Contact information
Our core values centre on five distinct areas. They remain the guiding principles by which we operate and form the basis of our corporate personality.
WHERE WE OPERATE
Financial: T otalincomeincreasedby39%toBWP546 million. O peratingexpensesincreasedby19%toBWP435 million. O peratingprofitincreasedby327%toBWP111 million. C osttoincomeratioimprovedto77%from82%intheprioryear. I mpairmentchargesonloansandadvancesreducedby69%toBWP16 million. Basicearningspershareimprovedby15%from40.4thebeto46.3 thebe. Thebalancesheetgrewby36%fromBWP4.4billionin2009toBWP6.0 billion. Loansandadvancesincreasedby54%fromBWP2.0billiontoBWP3.1 billion. C ustomerdepositsgrewby46%fromBWP3.4billionin2009toBWP4.9 billion. NetassetvaluepershareupfromBWP2.73toBWP2.93. R eturnonaverageequitywas16%comparedto14%in2009. Operational: AllbankingoperationsreportedprofitforthefirsttimeinthehistoryoftheGroup Totalnumberofretailbranchesincreasedto17asat28February2011 ¢ SuccessfulturnaroundoftheZambiaoperationwhichisnowprofitable ¢ BancABCMozambique,BancABCZambiaandBancABCZimbabwerecapitalisedduringtheyear
FIVE-YEAR FINANCIAL HIGHLIGHTS
on a historical cost basis in US$’000s
31 Dec 2010 US$’000s Income statement Netinterestincomeafterimpairment Noninterestrevenue Total income Operatingexpenditure Net income from operations Shareofprofitsofassociates andjointventure Profit before taxation Taxation Profit for the year Attributableto Equityholdersofparent Minorityinterests Profit for the year Balance sheet Cashandcashequivalents Financialassetsheldfortrading Financialassetsdesignatedatfairvalue Derivativeassetsheldforrisk management Loansandadvancestocustomers Investments Investmentinassociates andjointventure Otherassetsandinvestmentproperty Propertyandequipment Intangibleassets Shareholders’equity Deposits Derivativeliabilitiesheld forriskmanagement Borrowedfunds Otherliabilitiesandtaxation Sharesinissue Costtoincomeratio(%) Averageshareholders’equity Returnonaverageshareholders’ equity(Headline)(%) Netassetvaluepershare(cents) Closing exchange rates to US$ BotswanaPula Euro MozambicanMetical(droppedthree zeroin2006) TanzanianShilling ZambianKwacha ZimbabweDollar(droppedthreezero in2006and10zerosin2008) –official –calculated 6.45 0.75 32.58 1,505.01 4,800.00 – – 41,542 38,930 80,472 (64,089) 16,383 (2,966) 13,417 (3,314) 10,103 9,827 276 10,103 154,997 173,375 12,274 6,516 477,415 8,224 5,405 34,048 51,217 8,903 932,374 67,911 761,083 162 89,868 13,350 932,374 146,419,524 77 65,118 15 44.7
31 Dec 2009 US$’000s 17,948 37,402 55,350 (51,610) 3,740 2,281 6,021 2,225 8,246 8,202 44 8,246 132,194 134,707 – 1,195 299,099 7,387 6,138 32,123 41,818 7,558 662,219 62,325 502,932 293 81,519 15,151 662,219 146,419,524 82 61,449 13 40.9
31 Dec 2008 US$’000s 20,498 31,650 52,148 (34,679) 17,469 337 17,806 (4,905) 12,901 12,592 309 12,901 68,056 90,956 – 5,891 298,450 8,988 5,471 14,101 28,776 5,653 526,342 60,572 374,385 294 79,565 11,526 526,342 146,419,524 59 57,401 23 39.7
31 Dec 2007 US$’000s 12,152 37,849 50,001 (26,126) 23,875 540 24,415 (3,417) 20,998 20,174 824 20,998 87,832 143,642 – – 207,372 11,795 5,064 16,426 9,178 5,824 487,133 54,230 326,096 849 96,855 9,103 487,133 132,568,680 47 50,456 42 39.4
31 Dec 2006 US$’000s 16,085 28,849 44,934 (24,757) 20,177 1,912 22,089 (7,444) 14,645 14,587 58 14,645 71,312 141,709 – – 156,396 8,745 7,086 7,013 8,349 6,226 406,836 46,681 255,239 1,182 91,132 12,602 406,836 132,568,680 50 41,537 37 33.6
6.67 0.69 29.19 1,339.51 4,650.00 – –
7.54 0.72 25.50 1,315.02 4,795.00 5,059,942.76 642,901,315.78
6.02 0.68 25.86 1,146.01 3,850.00 30,000.00 4,948,961.54
6.05 0.76 25.97 1,264.05 4,390.24 250.00 2,400.99
ABC Holdings Limited
ANNUAL REPORT 2010
417.3 10.325 3.355.745 1.3% 48% 77% 5% 25% 146.069 14% 1.907.956 46.SALIENT FEATURES 2010 Income statement (BWP000’s) Profitattributabletoordinaryshareholders Balance sheet (BWP000’s) Totalassets(attributable) Loansandadvances Deposits Netassetvalue Financial performance (%) Returnonaverageequity Returnonaverageassets Operating performance (%) Noninterestincometototalincome Costtoincomeratio Impairmentlossesonloansandadvances togrossaverageloansandadvances Effectivetaxrate Share statistics (000’s) Numberofsharesinissue Weightedaveragenumberofshares Share statistics (thebe) Earningspershare Dividendpershare Netassetvaluepershare 66.420 143.045 422.117 4.4% 68% 82% 6% -37% 146.420 143.995.110 4.078.77 0% 0% 15% – 6% % change 15% 36% 54% 46% 6% 3 .118 399.93 2009 58.846 40.336 16% 1.0 2.439 3.4 – 2.011.710 6.
CHAIRMAN’S REPORT HJButtery “The Group performed well during the period under review.Alltherequired informationtechnologysystems.6%experienced in 2009.asituation brought about in part by the widespreadrecoveryfromtherecentglobal financialcrisis.” Review of the economic environment During 2010. reflecting the improved economic and business environment across the markets in whichthebankoperates.ThestatusofAsia. Economic growth in Sub-Saharan Africa Africaisvulnerabletoeconomicdislocationsthroughmany sources.Therecoverywasledbyemergingmarkets whichenjoyedhighergrowthratesthanthoseexperienced indevelopedmarkets. retailbankingisexpectedtocontributepositivelytoincome in2011andbeyond.Theseincludefluctuationsincommodityprices. Itshouldbenotedthoughthatthepresentrapid“bounceback” to prosperity is unlikely to continue at its current pace. Additional inherent risks arise from a dependence on aidandfinancialflows. when economic growth in SSA is projectedtoacceleratefurthertoalevelof5.Thecontinuingfiscalausteritymeasuresinthe EuropeanUnioncouldthereforehaveadampeningeffect onregionalgrowthprospects.Asaresult. reflectingtheimprovedeconomicandbusinessenvironment acrossthemarketsinwhichthebankoperates.asituation broughtaboutinpartbythewide preadrecoveryfromthe s recentglobalfinancialcrisis.AreductioninactivitybetweenChinaand 4 ABC Holdings Limited ANNUAL REPORT 2010 .TheGroupperformedwellduringtheperiodunderreview.0%(fromaninitialprojectionof4.Despitethis.during2010overall economicgrowthinSub-SaharanAfrica(SSA)wasrevised upwardsbyIMFto5.movingsteadilyawayfromtheeconomiclowsof 2008and2009.cognisancestillhastobetakenofthefactthat EuroperemainsthelargesttradingpartnerofseveralSSA countries. the world economy began a widespread recovery. The trend is set to continue during 2011.3%).alsoneedstobeconsideredaspartofthechanging globaldynamics. but will revert to a lower but more sustainable growthrate. Followingtheintroductionofretailbanking. which was largely spurred by firming commodity prices and improved resource inflows. Thiswasasignificantincreasefromthe2.whichis experiencing burgeoning levels of trade and investment links. Inaddition.distributionchannelsalbeit limitedandkeypersonnelarenowinplace.thedecisiontakentocurtaillendingfollowing the start of the global recession has been vindicated as evidencedbythesignificantreductionincreditimpairments. naturaldisastersandpoliticalinstabilitywithinthecontinent.5%.theGroupnow offersafullsuiteofbankingproductswhichwillenablethe businesstogetahighershareofthewallet. However.
having recently emerged from 10 years of uninterrupted depression. Zambia Zambia’seconomyreboundedfollowingtherecoveryof copperpricesonworldmarkets.Thesepriceincreases wereduelargelytoimprovedglobaldemandandalso.tosupplyconstraints. Brazil and Kazakhstan rose in the last fewmonthsoftheyear. Economic growth in BancABC markets EconomicgrowthprospectsinBancABCoperationalmarkets havesignificantlyimprovedinlinewiththepositiveemerging 5 .Thiscomparesfavourablywiththe6. For 2010.3%growthrate achievedin2009.thepreciousmetals.0%in2009toabout7. OilproductionfrombothOPECandnon-OPECcountries.Thiswouldparticularlybethecaseinthefields ofmineralandoilexports.3%in2009.6% in 2010. The improved economic growth outlook has largely been underpinned by expected double digit growthintheagricultureandminingsectors.5%in2010.comparedtothedeclineof6%in GDPduring2009. could impact negatively on growth prospects in thisregion.withtheGDPgrowthrate increasingfrom5. Gold. Government now expects the economytogrowby8. The oil price was largely influenced by financialflowsasthemarketwaswellsupplied.1%thisyear.takingplacesimultaneouslywith an increase in oil prices. the projected GDP growth rate wasestimatedat8. The economic recovery in Sub-Saharan Africa has been driven by high commodity prices which have increased exports.platinumandpalladium. Botswana In Botswana. including Canada. markets economic outlook. Most agricultural commodities recordedsharppriceincreasesin2010. Tanzania Tanzaniahadanexcellentyear. Zimbabwe Zimbabwe. comparedto5.Economicgrowth projections for 2010 were revised upwards by both Government and the IMF.9% growth. Mozambique TheMozambicaneconomyisestimatedtohavegrownby 6.which are traditionally used as “safe havens” during times of economicuncertaintybenefitedfromtheweakeningof the US Dollar.whileIMFprojects a 5.4%. is expected to post positive growthforasecondconsecutiveyear.5%in2010.Cottonprices firmedduetofearsthatthecurrentseason’scropmaynot besufficienttomeetdemand. The tight wheat market resulted in increaseddemandformaizeandsoya-beans. Wheatpricesfirmedonthebackofweather-relatedsupply lossesinCanadaandKazakhstanandalsobecauseofthe grainexportbanimposedbyRussiaandUkraine. This export ban is expected to last until the end of the 2011 harvest season.SSAcausedbyasignificantslowdownofChineseeconomic activity. economic growth was supported largely by recovering demand for diamonds and growth in base metal prices.Zambia’seconomywas expected to expand in real terms by 6. Firm commodity prices are expectedtoprovideanimpetustosustainedgrowthinthe commoditydriveneconomiesinthesemarkets.in somecases.Itisprojectedtotest8%overthemedium term.thoughpre-crisislevelsinsomeinstancesareyet tobeachieved.
8%inNovember2010. Interest rate developments Relaxedmonetarypolicies.During2010. inflation pressuresgraduallyfirmed. respectively. respectively.softenedfrom8. TheBankofZambiarate(BOZrate).5%to2%and3.2% inDecember2009.8% in December 2009.2% compared to 12.1%.reflectingseasonal patterns and firming international oil prices. during the first nine months to September2010.Morerecently.adoptedasameansofpropping up economic activity in the wake of the world financial crisis.Consumerdemandisyetto recover as conservative consumers are primarily focusing onreducingtheirpresentdebtlevelsratherthanundertaking newobligations. largely due to lower food inflation.8%of2009. InZambia. Year-on-year inflation increased from 4. Thelowinflationarypressurescanbeplacedatthedoorof subduedconsumerdemand.6% at the end of 2010.5%.despitethelow interestrateswhichhaveprevailedinthesemarketssince theonsetoftheglobalfinancialcrisis.withtheovernightand91-day T-billratebeinginthe1.TheBank of Botswana. Assisted by improved availability of consumergoodsonthemarket.Awidedisparity between lending and deposit rates exists in the banking industry. ThiswasthealsothecaseinSub-SaharanAfrica.9%range. inflationary pressures in the markets in which theGroupoperateshavebeensubdued.2%. This reflected the inef if cienciesthatexistwithinthemarket.4%. resulting in an increase in the overall price to the consumer.Inaddition. the BOZ rate. compared to 5.thelowinterestratepositionthatexistedat theendof2009continued.therewasa“knock-on”effectonthe pricesofotherkeygoodsandservices.1% in 2009.henceany changesinweatherpatternscouldhaveanadverseimpact ontheinflationoutlook. there is still no lender of last resort as the countryusesabasketofforeigncurrencies.Thisisoccurringasborrowerscanno longer pass these costs on to consumers.maintaineditat10%fromDecember2009until December 2010.continuedtoprevailinmostcountriesduring2010. Since then.9% in April 2010. however.Chairman’s report continued Zimbabwe’s inflation position in 2010 remained at an average of 3. However.theannualaverageinflationratein2010was 6.Thisweakness was exacerbated by a reduction in Government subsidies on fuel.lendingand90-daydeposit ratesremainedbroadlystable. Inflation developments Generally.overallinflationcontinueditsdownwardspiral in 2010.Lendingrateshavebeenunderpressureaidedby thefactthattheborrowersarealsoincreasinglyresisting highlendingrates. representing the lowest level in over 15 years.averaging28%and7. The inflationrateendedtheyearat5. Volatile food inflation. The end of year inflation rate was 7.2% in December 2009 to 16. the annual inflation rate declined to 7.6% in August2010.beforeretreatingto5. then reduced it by a further 50 basis pointsto9.3%inDecember 2009 to 3.6%comparedto12. could be a concern goingforwardifthetrendissustained. An increase inVATfrom10%to12%hadamarginaleffectonthe inflationrate. Mozambiquewastheonlyexceptionasfarasinflationwas concerned.averagelendinganddepositrateswere 14.whichistheCentral Bank’skeypolicyrate. InTanzania.8% in September2010. Average inflationforthefirst11monthsoftheyearwas8.2% in 2009. increased for consecutive months to 7. which compared favourably to 8.thepricesofimportedcommoditiesaresetwithinrangesthatwouldadverselyaffect theinflationoutlookofanyofthesecountries.Oilprices having already risen sharply in 2011.Averageannual inflation was 7. The 91-day T-bill rate which is pegged at 2 percentage pointslowerthantheBOZratealsomirroredchanges inthepolicyrate.Weatherconditionshavealargepart toplayinthecountry’sfooddeficitsorsurplus. which was in double digit levels during 2009. InBotswana.1% and 8. This was primarilydrivenbyimportedinflationduetotheweakening ofthelocalcurrency(Metical)againstkeyforeigncurrencies suchastheSouthAfricanRandandUSDollar.inflationpressureshave beenwellcontained. dipped to 7. respectively.9%. Deposit rates 6 ABC Holdings Limited ANNUAL REPORT 2010 . In Zimbabwe.1% in January 2010 and stood at 2.Inevitably. after lowering the bank rate several times in2009.5%to3.thelowestlevelsinceJanuary2007.In November. Inflation in Tanzania was lower as a result of low food pricesthatprevailedformostoftheyear.4% in December 2010.6%which wassignificantlylowerthanthe13.1%.
whereit remainedunchangedfortheremainderoftheyear.theBotswanaPulaappreciatedby3.5%. The Standing Lending Facility. which was at 11. The Standing Deposit Facility (SDF). Mozambique’sinterestratepolicywasdifferentfromthe other four countries in the sense that the policy rates increased dramatically in an attempt to counter inflation.whichattractratesofinterest ofupto20%insomeinstances.Highdemandforforeignassetsinthebanks(largely duetoatechnicalchangeinthecalculationofthelimiton theirnetopenforeignexchangepositions)alsocontributed. Similarly.1% against the dollar in December 2010. TheTanzanianShillingweakenedagainsttheUSDollarby 10.5% againstthe USDollarfrom BWP6. as risk appetite improved and investors began to be wary of a rise in US inflation resulting from the aggressive monetary policies it pursued to counteract therecession. The Zambian Kwacha was range bound against the US Dollarformuchoftheyear.67/USD in December 2009toBWP6. since December 2009.arebroadlyinthelowersingledigitlevels. the Tanzanian Shilling was consistently under pressureagainsttheUSDollarandtheZAR.6%againsttheUS Dollaranddepreciatedby32. was raised by 100 basis points in April 2010to12. assets 7 Exchange rate developments The US Dollar remained under pressure during much of 2010.9/USDollarasofendofDecember2010. the Tanzanian Shilling alsoweakenedby24%againsttheZARand14.dependingontheamount andinstitution.5% in December 2009. In 2010.Howeverthecurrencyappreciated by 7.withtheexception ofsomefixedtermdeposits.wasreviewed upwardsby100basispointsto4%inJune2010.6/USDollarattheendofDecember 2009toTZS1.8%against theBotswanaPula.8%fromTZS1. depreciated massively by 8% against the South AfricanRand(ZAR).however. Notwith tandingtheappreciationinDecemberonanannual s basisthecurrencydepreciatedby19.326. another benchmark interestratefortheBankofMozambique.5%inJuneand 15.However.469.the effectoftheexchangeratedepreciationoninflationwas veryminimal. TheMozambicanMeticalhadaturbulentyear.5% in September where it has remained unchanged.Itincreasedfurtherto14.44/USDinDecember2010.Theexchangeratedepreciationagainstthe US Dollar was in the main due to low domestic interest rates.depreciating rapidlyagainsttheUSDollar.the .Onayear-on-yearbasis.2%againsttheZAR.ThePula. Onanannualbasis.Thiswasduetoitsdecliningappealasasafehaven currency.
2.3%in2009. In some cases.thebaddebtsproblemisstillamajorconcernfor thebankingindustryparticularlyinTanzania.Tanzania’sloantoGDPratio hassteeplytrendedupwardsfrom4.there was some recovery evident. In Tanzania.According to BOZ. In October 2010. was none the less indirectlyaffectedbythefinancialcrisis.thoughnotdirectly exposed to the infamous toxic assets.3%in2006to18. construction.4%. rentingandleasingofmachineryandequipmentservices).0 billion in July 2010.Thisnotwithstanding.7billionin December 2009 to about USD3. are now estimatedtohaveincreasedby79%toUSD2.5 billion in December 2009 to USD5. InZimbabwe.5% in2008andgrewfurtherto26%in2009. a weak Metical can influence depositors to relinquish the local currency deposits in preference to the FCAs in order to restore value.4%)and ZAR(15. By and large.3%inSeptember2010com aredto p 9. manu acf turing.2%). The banking sector depositsinUSDollartermsincreasedfromUSD2. total bankdepositswereUSD3.715billioninSeptember2010.0%) and GBP (1.3%. In Botswana.consulting.5billionin December2010. In nominal terms.6 billion in December 2010. total bank deposits (US Dollar equivalent) marginally improved from USD5. FBZL is alleged to have had weak corporate governanceandriskmanagementsystemsandwaslikely tofailtoconductbusinessinasafeandsoundmanner.andmining.15billion.This situationisnotexpectedtohaveamaterialadverseimpact onthebankingsectoringeneral.Miningsectorcompanies have capacity to borrow offshore at favourable terms andconditions.totalbankdepositsinUSDollarterms de lined from USD3. advisory.engineering. credit to the privatesectorgrewbyTZS723billionfromTZS4.whiletheratioofFCAs to total deposits improved to 43%.8%.which stoodatUSD636millioninDecember2009improvedto about USD1.3 billion in October 2010. although.Inaddition.1%. TheZambianfinancialservicessector.Tanzania’sprivatesectorloanstoGDPratio had been one of the lowest when compared to other countriesintheregion.Banksarenow beginningtograduallyloosentheirlendingcriteria.7%.Theshareofforeigncurrencydenominated deposits (FCAs) has.6billionto USD1.whiletheprivatesectorcreditgrowthshowed signs of modest rebound. over the courseofthepastfewyears.asdepositors’fundswere protectedbyBOZ. 8 ABC Holdings Limited ANNUAL REPORT 2010 .3.992billion inDecember2009toTZS5. aggressive credit growth witnessedinthebankingsectorhasexposedmostbanks toheightenedliquidityandcreditrisks. auditing. Reflecting a significant improvement in financial deepening.However.mostbankscontinuedtoholdexcessively highreserves.5billion inOctober2010. the vast majorityofMozambicansarestillnotservedbyregistered institutions.private sectorcredittoGDPratioimprovedfrom15%in2007to 28%in2010. theyarestillconsideredtobeverylow. both deposit and credit ratiosrelativetoGDPhavebeengrowingovertheyears. asaresultoftherecentfinancialturmoil.7billioninOctober2010. total bank loans to the private sector amountedtoUSD3.theshareofcreditofthemining sectorisverylow.During2010. not recovered from the levelsthatprevailedpriortotheglobalrecession. This was primarily due to the massivedepreciationoftheMeticalagainsttheUSDollar.Asat October 2010.isbeingliberalised asmarketscontinuetoreturntonormalcy. Annual growth in private sector creditimprovedto22.4 billion in December 2009 to c USD3.Hence.bankingsectorloans. trade accounted for 8. TheloansalsomarginallyincreasedfromUSD1. (this includes legal.Bankdepositsto GDPimprovedsignificantlyfrom13.advertising.Similarly.Regional marketsthatwerebatteredbybaddebtsduringthecrisis (such as Botswana and Zambia) have largely stabilised. total banking sector deposits increased by 10%fromUSD5.3%.1%)butdepreciatedagainsttheUSDollar(3.Thehouseholdsectoraccounted forthelargestshareofbankingsectorloansat57.despitetheimportanceofthissector totheeconomy. 4.6billioninDecember2009toUSD6.This was followed by the business services sector at 8. representing a loantodepositratioof65%. InMozambique.thebankingsectorcontinuedtoexperience aremarkablerecoveryduring2010asreflectedbystrong growthindepositsandloans. ThebankingsysteminZambiawasfacedwithaminorcrisis of confidence following the take-over of Finance Bank of ZambiaLimited(FBZL)byBankofZambia(BOZ).Chairman’s report continued Kwacha appreciated against the Euro (4. however.7 billion in September 2010.duetotheabsence of a functional money market. accounting. with most banks im roving p their lending criteria to customers.Likewise. which increased from USD300 million at the beginning of 2009 to USD1.Totalbankingsectordeposits. Only 10% of the population has access to bankingsectorloanssuggestingthatthereisstillahuge potentialforgrowthinthismarket.areportby Ernst&Youngindicatesthatonlyabout4millionTanzanians (outofapopulationofabout40millionpeople)haveaccess to loans provided by banks and non-banking financial institutions. data processing.Inspiteofverylow interestrates.6% in December 2009.7%in2000to18%in 2008beforemarginallydecliningto16. Financial sector developments Conservativeattitudetowardsriskexercisedbymostbanks.3billion. However.surveying.4 billion in December 2009.Priorto recentyears.
however.theChiefFinancialOfficer. as well as ongoing fiscalandhouseholdconsolidationexercisesamongothers. however.however.economicgrowthwill be largely dependent on restructuring and right-sizing in the banking and construction sectors. The dividend will be payable to shareholders registered in the booksofthecompanyatthecloseofbusinessonFriday. the socio-political instabilities in the Arab world.beenmuchhigherthanthis range. The effects of the large stimulus packages that countries had to provide to help stem-out growth areunknown.TheIMFhasurgedtheReserveBankofZimbabwe tostepupsupervisoryeffortsinordertoensurethatthe bankingsystemcanwithstandanyshocksthatmightarise duetosystemicrisks. is still grappling with the Kimberly Process so that it can gain full access to international diamondmarketsforitsMarangediamonds.economicgrowthwillbenefit fromsomewhatstrongerremittanceinflows. noted that although financial conditions have begun to normalise.managementand staff for the positive results achieved by the Group in 2010. Base metal prices are expected to record further price gains on the backdrop of continued strong demand from China.whowere electedinMay2010totheBoard.theChiefOperatingOfficer.aMauritianregistered company. Inmanyhighincomeeconomiesanddevelopingterritories inEasternEuropeandCentralAsia.institutionsandmarketsremainfragile. 1April2011.asthisisthefirsttimethatsuchwidespread useofstimuluspackageshasoccurred. Dividend TheDirectorshavedeclaredafinaldividendofBWP0. Zimbabwe.Weremainhopefulthatthe Zimbabweaneconomywillberestoredtoitsformersizein themediumterm. Acknowledgements Iwouldliketothankmyfellowdirectors.TheseresultspositiontheGroupwellinitsquestto bethepre-eminentfinancialservicesgroupinAfrica. The sovereign debt crisis in Europe.Theimpactofthe variousstimuluspackagesoneconomicgrowthisstillto bedetermined. falling stocks and supply constraints.pricesofcommodities.oilpricesareexpectedtoremainfirmdespite slowerdemandgrowthandlargesurpluscapacityasOPEC now prefers a wider price range of USD70 – 90/bbl.2% and rebound in 2012. Zimbabwe’s banking sector is still fragile.TheIMFestimatesthat the global economy. However. Some expertsprojectanincreaseinbasicfoodpriceswhichcould sparkriotsandgeneralunrestinsomedevelopingcountries.10 (tenThebe)(USDequivalentcurrently1. The economies in which the Group has a footprint are expectedtocontinuegrowingintothefuture.willbe thecommondrivertoeconomicgrowthinallthesemarkets. Goingforward.global economic growth is expected to weaken somewhat in 2011. will grow by 4.arecoveryin tourismandhighercommodityprices. has recently acquired 20% of the company’s sharesthroughtheopenmarket.52cents)pershare in respect of the year ended 31 December 2010.According to the IMF. AccordingtotheInternationalMonetaryFund(IMF). Governance IwelcomeMrFrancisDzanya. Inthedevelopingcountries. HJ Buttery GroupChairman 9 .Theuncertaintiesthatcharacterisethepoliticalarrange entareunnerving m for foreign investors and are limiting foreign investor participationinthelocalmarket. Oil pricesin2011have. The IMF. austerity measures being undertaken by some large developed economies and risk of asset price bubbles developing in China point to a potentiallynegativeoutlookontheworldeconomicgrowth.beforepickingupin2012.Improvements indemandandconsequently. which grew by 4.8% in 2010.thiscouldbeshort-livedifproductionreturnsto normalandcountriesstartrebuildingstrategicfoodstocks. Outlook The growth recovery of the world economy is still very fragileanditssustainabilityremainsuncertainforanumber of reasons. andMrBekiMoyo. Change of shareholding The Directors wish to advise shareholders that African DevelopmentCorporation(ADC).
Operatingprofit m atBWP111millionismorethanfourtimestheBWP26million thatwasachievedin2009.withmostofthe incomebeinggeneratedfromcorebankingactivities. which had estimated that profitability would be achieved 18to24monthsafterthedoorsopenedforbusiness. Thequalityoftheloanbookcontinuedtoimprove. CHIEF EXECUTIVE OFFICER’S REPORT DTMunatsi “It is pleasing to report that for the first time in the short history of the institution.whichispleasing.particularlyinZimbabwewherethe retail business achieved profitability after its first year in operation. Thequalityofearningshasimproved.The Group has to date set up 17 retail branches across its network.During theperiodunderreview.Themovehasbeenwell receivedinallmarkets.whennonrecurrentincomecontributedsignificantlytotheprofitability ofthebusiness.alltheGroup’soperatingbanking subsidiariespostedcom endableresults. 10 ABC Holdings Limited ANNUAL REPORT 2010 .Theother operationsrecordednetwrite-backs.Tanzaniawastheonlyoperation that had significant impairments and its contribution is higherthanalltheotheroperationscombined.Boththereturnon equity and the net asset value per share improved as a consequence.alltheGroup’soperating banking subsidiaries posted commendableresults.resultingina69%reductionincharges forcreditimpairments.Itispleasingtoreportthatforthefirsttimeintheshort historyoftheinstitution.Operatingprofitat BWP111 million is more than four times the BWP26 million that was achievedin2009.the courtsysteminTanzaniaissuchthattherecoveryprocess willbeprotracted.Whilstweareconfident thatwearewellsecuredformostoftheseexposures.Theretailexpansionwasfundedentirelyfrom Groupresources. attributable profit at BWP66 million is 14% ahead of BWP58millionachievedinprioryear.” Businessgrowthwasachievedacrossalloperationsasthe Group continued widening and strengthening its footprint throughtheexpansionintotheretailbankingsector.This contrastsmarkedlywith2009andprioryears. Notwithstandingthehugeshareoflossfromassociates.non-performingloansreduced from10%to8%.Thisachievementexceededinternalexpectations.
Notwithstandingtheincreaseincosts.Thestrategyofcurtailinglendingatthestartofthe globalcrisishasbeenvindicated. BancABCTanzania’snetimpairmentchargesatBWP18million were41%higherthantheBWP13millionrecordedinprior year and exceeded the Group total as other operations recordedsignificantrecoveries. the Group realised once-off incomeofBWP94millioninrespectofdisposalofassociates andtheequityportfolioinZimbabwe.however.andtheretailbankingrolloutwhichcostBWP63millioncomparedtoBWP35million in2009.Mostofthesefacilities are secured by tangible assets.cognisantofthefactthat. 11 .AlloperationswiththeexceptionofBancABC Mozambique recorded an improvement in net interest income. On the other hand. the level of non-performing loans shouldcontinuetodeclineandbeinlinewiththoseofother industryplayers.thevalueofthoseassetsmayhavesubstantially declined.thecostto incomeratiodeclinedby5percentagepointsfrom82%in 2009to77%fortheperiodunderreview.dueto thesignificantdepreciationoftheMeticalagainstallmajor currencies. BancABC Zimbabwe performedexceptionallywellalbeitoffalowbase. In 2009. Non interest income NoninterestincomeatBWP264millionwasmarginallydown onprioryear.coupledwithahighernetinterestmarginof6. upfrom5.bythetimejudgement isissued.Owing to the above a number of clients that were previously adversely classified were able to service their facilities. Themedium-termtargetistoreducethecosttoincome ratioto50%.Thebiggestchallenge.Thisimprovement wasduetoacombinationofanimprovementintheeconomic environmentandstrictcreditmonitoringoffacilities.isthecomplex courtsystemwhichresultsincasesgenerallytakingan inordinateamountoftimetoresolvein-spiteofthefactthat therewillbeaclearbreachofcontract.Inviewthereof. whilst still high. hence they should be recoverable.Thiswaslargelyduetoa54%increaseinloansand advances.itwillstillbehigherthanthis targetinthenear-term. Operating expenses OperatingexpensesatBWP435millionwere19%above theBWP366millionrecordedin2009.Thequalityoftheloanbook is sound and barring any unforeseen adverse changes in the regional economies.Thisincreasewas largelyattributabletotheZimbabweoperation.where Tax The Group incurred a net tax charge of BWP22 million comparedtoacreditofBWP16millionin2009.Alltheoperationswith theexceptionofBancABCBotswanarecordedsignificant increases in non interest income BancABC Botswana experienced a slump in foreign exchange trading income duetoamarket-widereductioninbothvolumesandmargins.however. whilsttheratiowilldecline.whilstnon-recurrentincome reduced significantly. is reducing.In addition.loansaresecuredbymoveableassets.andasmuch aspossibletakeimmoveablepropertiesascollateral.wehavedecidedtobeextremely cautiousinourlendingapproachinTanzania.Changesto thetaxationrulesinZimbabwein2009resultedinataxcredit fortheGroupthroughthereductionofdeferredtaxinrespect ofgainsondisposalofquotedmarketablesecurities.6%.theloanportfolioincreasedonlymarginally.Whilstcostswill continuetoincreaseaswerampuptheretailprogramme.Whatiscomfortingthoughisthatincomefrom bankingservicesincreased.Weare. we expect the cost to income ratio to come down as a resultofrevenuecontributionbytheretailbankingsegment. Financial performance Net interest income NetinterestincomeofBWP298millionis67%higherthan theBWP178millionrecordedinthepreviousreporting year.Mozambiquewasimpactedbyexcessivelyvolatile interestrateswhichresultedinmarginsbeingsqueezed. Thisresultedinsignificantreversalsofloanimpairments. The level of non-performing loans. Impairment losses on loans and advances NetimpairmentchargesofBWP16millionare69%below theprioryearchargesofBWP51million.8%.Efforts torecoverfromallthedelinquentclientsareintensifying.wherecosts roseby71%post-dollarisation.Asaresult.
The quality of the loan book in all subsidiaries.wasgood.9billion.Alltheotherbankingsubsidiaries with the exception of Tanzania registered growth in loans andadvances. Botswana’s contribution at 40%isstillthehighestandBancABCZimbabwehascome instronglyandnowcontributes22%ofthebook.upfrom 8%inprioryear.1%in2009to8. Deposits increased by 46% from BWP3. Loans and advancesincreasedby54%fromBWP2billionin2009 to BWP3.BancABCTanzaniamanagementfocusedon collectionsandrehabilitationofnon-performingloans.Thiswas achieveddespitethebankstillbeingpredominantlycorporate innature.upfrom5%inthe previous year.4 billion to BWP6 billion as at 31 December 2010. 12 ABC Holdings Limited ANNUAL REPORT 2010 .9billion.1 billion. LoansandadvancesinBancABCZimbabweincreasedninefoldfromBWP98milliontoBWP975million.8%in2010.Marketshareisexpectedtoincreaseontheback oftheretailexpansion. Deposits increased by 46% from BWP3.Overthelastfiveyearsdepositshavegrown byanannualcompoundrateof32%.4billiontoBWP4.Zimbabwenow constitutes32%ofthetotalloanportfolio.Alltheoperations recorded growth in deposits.4 billion to BWP4.Chief Executive Officer’s report continued Balance sheet The balance sheet grew by 36% from BWP4.ThestrategyinTanzaniawillbepremised on growing quality loans and collecting on delinquent accounts. other than Tanzania. BancABC Zimbabwe’s market share has increasedfrom3.
theyremainavailableforsaleaslongasa reasonablepricecanberealised. noninterestincomedeclinedby22%(BWP9million).BancABCBotswanahadazero netchargeforcreditimpairmentsin2010.collectingonsomepreviouslyimpairedloan accounts.Ontheotherhand.largely due to a reduction in foreign exchange trading income on account of a reduction in both volumes and margins.whileassociatescontributedalossof BWP20million.AlthoughtheGroupwillcontinuetosupport theassociates. Net interest income increased by 48% fromBWP35milliontoBWP51million. Thefirmingofmarginsinlendingactivitiescoupledwithan increaseinthebalancesheetsize. Head office and other non-banking operations posted a lossofBWP11million.includingBank ofBotswanacertificatesaswellasinloansandadvances.revenue 13 Attributable profit by operation The banking subsidiaries recorded attributable profits of BWP98million. . Operational performance Botswana BancABC Botswana performed well on the back of the economicrecoveryascommoditypricesimproved. Management acted proactively in managing the quality of theloanbook.up151%fromBWP39millioninprioryear.resultedinhighernet interest income.Owingtotheabove.Headofficeintheprior yearrecordedsomeonce-offgainsthroughthesaleofequity investments that were being used for capital preservation purposesinZimbabwe.largelyduetoincreasedcustomerdeposits.which grewby40%toBWP2billion.Non-performingloansinBotswanahavecome downandthissituationisexpectedtoimprovefurtherin 2011.Thisadditionalliquiditywas investedpartlyinmoneymarketinstruments.Thebalancesheetgrew by30%.Profit after tax of BWP20 million was 15% higher than the BWP17millionachievedin2009.
Theincreaseinoperatingexpenses waslargelyduetothenormalisationofstaffsalaries. In addition.Asaresult. Customer deposits increased by 316% fromBWP0.Despiteincreased staffnumbersandbusinessactivitiesfollowingtheintroductionofretailservices.thelackofcapacitybythelenderoflast resorthaslimitedbothloanexpansionandinterbanktrading. including Government bonds.Asthebank’sfortunes changeditbecamecorrespondinglyeasiertoraisedeposits atareasonablecost.substantialworktobe doneonthebankingsideofthebusinesstoensurethat profitabilityaccelerates.1billion. recorded growth for the first time in 2009followingtheestablishmentofagovernmentofnational unityanddollarisationoftheeconomy. Mozambique BancABCMozambiquewasadverselyaffectedbythehigh volatilityinmarketinterestandexchangeratesduringthe year. Thecapitalpositionofthebankhadbecomeprecariousdue tohistoricallosses. BancABC Zimbabwe posted BWP27 million in profit after tax.Chief Executive Officer’s report continued Operatingexpensesincreasedby27%(BWP13million)to BWP59millionasaresultofexpenditurerelatedtothe roll-outoftheretailprogramme.5 billion. This enabled the entity to record a net impairment recovery ofBWP3millioncomparedtoachargeofBWP27million in2009.Creditmanagementand monitoring has been strengthened and benefits of these actions should be realised in the near-term. an improvement of 43%fromtheBWP19millionachievedin2009. Zambia BancABCZambiaachievedasuccessfulturnaround. the subsidiary managed to increase its attributableprofitsby207%toBWP16million.Further.1billiontoBWP0. Tanzania DespitethehighimpairmentsrecordedbyBancABCTanzania during the year. As a consequence. Asaresult.Thisgrowthcontinued into2010. Zimbabwe TheZimbabweaneconomywhichhadbeeninfree-fallfor more than a decade. BancABCZambiareinforceditsimprovedpositionbygrowing its customer deposit base by 21% to BWP253 million. The above achievements were.5 billion to BWP1. 14 ABC Holdings Limited ANNUAL REPORT 2010 . The quality of the loan book improved significantly.however.Thiscomparedfavourably tothelossofBWP34millionthebankrecordedin2009. Despite these challenges. Loansandadvances.thecreditimpairmentchargedeclined by77%toBWP2millionfromBWP10millionin2009.Operatingexpensesweretightlymanagedand onlyincreasedby5%.operatingexpensesincreasedonly by6%(BWP3million).25billiontoBWP1.Netinterestincomeincreasedby9% to BWP67 million while non interest income increased by 110%toBWP21milliononthebackofincreasedtran acs tionalvolumesduringtheyear.however.posting aprofitaftertaxofBWP11million.increased the bank’s revenues across the board by 93% from BWP73millionin2009toBWP140millionin2010.mainlythroughsynergiesachieved followingthemergerofthebankandthemicrofinanceunit in2009.which was a feature of the market post-dollarisation.However. As a result. Operatingexpensesincreasedby71%toBWP107million fromBWP62million.foreigninvestorparticipationisstilllimitedand the economy continues performing at a fraction of its full potential. however.Loansandadvances increasedby810%fromBWP0. Operatingexpensesweretightlymanaged. no new accounts were adversely classified.This wasduetocollectionsonpreviouslyadverselyclassified accountsandtightmonitoringofthequalityoftheloanbook.Thiswas achieved on the back of increased revenues across the board.Thesedevelopmentsnegativelyimpactedthebank’s margins and led to subdued balance sheet growth. net interest income declined by 25% (BWP10million)toBWP29millionandnoninterestincome declinedby7%toBWP57million. Onapositivenote.Thereremains. Operating expenses increased by 18% (BWP7 million) as the bank intensifiedtheretailbankingroll-out. AftertaxprofitatBWP23millionwas24%lowerthanthe BWP30millionachievedin2009. Net interestincomeincreasedonthebackofincreasedvolumes andmarginsasthecostoffundsinthemarketdeclinedto historiclows.9billion.Thebank grew its balance sheet by 215% from BWP0. Thebank’sdepositsincreasedby18%(BWP119million).AsaresultnewequityofUSD6million wasinjectedbytheholdingcompany. This.togetherwithincreasedtransactionflows. negated by an increaseinimpairmentsfromafewlargeclientswhodid notservicetheirdebtsonschedule. theexpansionintotheretailbankingsectorexacerbatedthe increaseincosts.thedevelopedworldremainsdoubtful thattheriskprofileofthecountryhasmateriallychanged.declinedby8%(BWP40million). The excess liquidity generated was invested in money market instruments.noninterestincomeincreasedby 40%fromBWP27milliontoBWP38million. despitea22%declineinitsloanbooktoBWP233million.
Growth washamperedbyadeclineintradingvolumesinBotswana following the introduction of cheque capping and other regulations that are restricting transaction volumes.Business segments Treasury and structured finance Thedivisionperformedwellduringtheyear.withcustomer depositsincreasingby46%fromBWP3. TradingactivitiesinMozambique. This growth was achieved on the back of stability in market interest ratesotherthaninMozambique. The objective of the Executive Leadership Develop ent Programme is to achieve universal particim pationbyallexecutivesandseniormanagers. Human capital During the year.withsignificantgrowthbeing registeredinBotswanaandZimbabwe.Asaresultofallthese policiesweshouldbeabletoattractandretainhighlyskilled employeeswithintheGroup.9billion.4billionin2009to BWP4. Thedivisionwasabletoincreasefundsinvestedinmoney marketinstrumentsresultingina27%increaseinmoney market interest income to BWP201 million. These products havebeenwellreceivedacrossallmarkets.Toensurecontinuity. wroteretailloansofBWP109million. Thedivisionrecordeda31%increaseininterestincome to BWP450 million and an increase of 23% in fees and commissionstoBWP103million.the division raised deposits of BWP165 million and underThedivision’sshorttomediumtermplansaretoentrench strategichumancapitalmanagementpractices.Allsubsidiariesregisteredpositivegrowth whencomparedto2009. even though challenges.thedivisionopened11branchesacrossits regionalfootprint(bringingthetotalnumberofbranches openedto15asat31December2010and17todateafter opening2morebranchesinJanuaryandFebruary2011) and began marketing all key products. which militated against growth.Allthesystemshavebeenacquired andasubstantialnumberhasbeendeployedorareinthe processoffinaldeployment.Withtheintroductionofretail bankingtheGroupwillnowbeinapositiontoofferafull suiteofbankingproductsandthisshouldhelpinpushing formorebusinessfrombothnewandexistingclients. Retail banking During2010. 15 .Loansandadvancesgrewsignificantly.thesewerelinkedtoindividualand countrybalancedscorecards.compensation and incentive schemes were also harmonised during the year.TanzaniaandZimbabwe re ained high.Theestablishmentofa separatecreditfunctionacrossallsubsidiariesin2009has resultedinamorefocusedapproachtocreditmanagement and has led to more objective assessment of any new loansbeingunderwritten. Corporate banking The division fared well despite the tough but improving operatingenvironment. it is anticipated that this objective will beachievedbytheendofDecember2011. Trading income increased 8% to m BWP140 million from BWP129 million in 2009.Staffgrading. foreign exchange trading income improved substantiallyinMozambiqueandZimbabwe.Ofthemostnoteworthyachievements was the success of the Leadership Development Programmes undertaken by executives.Totalrevenueswere BWP27millionagainstoperatingexpensesofBWP63million (2009:BWP35million).In2010. Thequalityoftheloanbookcontinuestoimproveandthe ratioofnon-performingloansshouldbeinlinewithindustry peerswithinthenext24months. Tremendous successes were recorded in the fields of learninganddevelopment. persistedinZambiaandtoalesserextentinMozambique.improve overall employee productivity in the Group. managers and specialists.Withalmost a year still to run.whilsttrading of Government securities helped improve overall trading incomeinTanzaniaandZambia. the Group’s Human Capital department continuedexecutingitsmandateofensuringstandardised andconsistentpeoplemanagementpracticesinallGroup operations. However.Centraltreasuryoperations havebeenbolsteredanditisourhopethatthisunitwill contributepositivelytoincomegoingforward.Zimbabwenowcontributes meaningfullytothedivision’soverallresults.As previouslyadvisedourtargetistoensurethatallbranches areprofitablewithin18to24monthsofopening. drive down peoplecostsanddrivearobusttalentmanagementsystem thatincludessuccessionplanning. The “Balanced Scorecard” methodology which is part of the overall performance management and measure ent tool at entity and individual level has now m beenembeddedGroup-wide.
TheGrouphasmademajorinvestmentsintheretailbankingbusinessandthisshouldyield higherreturnsinthenexttwoyears.Tothisend.Inflationcould beachallengeasaconsequenceofhigheroilpricesgiven the challenges currently being experienced in the Middle EastandNorthAfrica.Italsoreviewedand wroteanumberofnewprocessmanualstohelpnewstaff understandtheGroup’sstandardwayofhandlingbusiness.Theroll-outofretailbankingfunctionality is ongoing. The Legal and Compliance department developed a legal policy framework that sets uniform legal document protocols. The departmentrationalisedexistinginternalfunctionstoimprove transaction handling and to cater for increased transaction processingfromtheretailprogramme. Group Internal Audit plays a key role in maintaining and improvingtheinternalcontrolenvironmentwithintheGroup.Wecontinuouslylookfor newandbetterwaysofservicingthecustomerandatthe same time reduce the error rate to negligible figures.A new management information system will be deployed in 2011whichwillhelpinboththequalityandtimeousreporting ofallkeyinformation. GroupFinanceisresponsibleforfinancialmanagementand reporting.fullrecoverywillbeprotracted. An even stronger performance is anticipated in 2011.Thekey committees are the Asset and Liability Management CommitteeandtheOperationalRiskCommittee. The evolution of the Group’s rating is listed below. Thisinvolvedthesettingupofamorerobusthelp-deskand buildingtheinfrastructureandsystemsrequiredtosupport theretailprogrammethroughaspeciallycreatedprogramme managementoffice. the core banking system is being upgraded to improve performance.regulatoryreporting.TheBoardand Managementareactivelyexaminingthisimportantmatter. also provides legal services as required or in conjunctionwithexternalattorneys.Thewholesalebanking businessremainsrobustandcontinuestogeneratestrong revenues.TheLegal andCompliancedepartmentisalsochargedwiththeday-todaymanagingoflegalandcompliancerisks. Acknowledgements I would like to extend my sincere thanks to the Board. GroupRiskmanagesallrisksthattheGroupisexposedto fromallitsactivities. andfurtherannouncementswillbemadeinduecourse. Security class Short-term Long-term 2006 A3 BBB 2007 A2 BBB 2008 A2 BBB 2009 A3 BBB2010 A3 BBB- Outlook Webelievethateventhoughtheeconomicrecessionhas bottomedout. Simultaneouslywiththedevelopmentofnewfunctionality.Ithasstrengthenedstructures inthesubsidiariesandestablishedacentralisedfilingsystem foralllegaldocumentation.budgetingandGrouptax.ThefocusofITduringtheyearwastoimprove overallservicesofferedtointernalandexternalcustomers.the department has developed standardised documents for wholesaleandretailbanking. The Group Legal Counsel. TheGroupHeadofInternalAuditreportsdirectlytothe RiskandAuditCommittee. management and the entire BancABC team for all their supportduring2010.it willbenecessarytoraiseadditionalcapital. Rating GlobalCreditRatingmaintainedtheratingfortheGroupat A3forshort-termsecuritiesandBBBminusforlong-term securities. DT Munatsi GroupChiefExecutiveOfficer 16 ABC Holdings Limited ANNUAL REPORT 2010 . who heads this department.Thedepartmenthasvariouscommittees thatidentifyandmanagevarioustypesofrisks.Thehigherversionofthecorebankingsoftware willenabletheGrouptoseamlesslyintegratesystemsfrom differentvendors. In addition. To meet the demands of this programme the departmentwillbebolsteredbyadditionalskilledstaffasthe roll-outprogresses.ItalsoadvisedtheBoardofDirectorsonaugmenting corporatepoliciesinlinewiththenewcorporategovernance recommendationsmadeintheKingIIIReportoncorporate governance. it also monitorsexistingcustomerswhomaybefacingfinancial challenges that impact on their ability to meet their commitments.Chief Executive Officer’s report continued Other support divisions The Group operates a centralised Information Technology (IT)function. GroupCreditmonitorstheloanportfoliooftheGroupand ensuresthattheGroupisnotexposedtoundueriskfrom new business that is underwritten. TheGroup’sBankingOperationsdepartmentsupportsvarious revenue-generatingdepartments.Inordertomovethecompanytothenextlevel.
This policy framework commits the Group to: ¢ rovide inhouse environmental education and p CORPORATE SOCIAL RESPONSIBILITY REPORT “BancABC is also a patron of the arts. ¢ upport business activities that contribute to the s protectionandimprovementoftheenvironment.BancABC’screditriskassessmentseekstoensure that the social and environmental effects of its financial support are assessed and monitored. ¢ onitortheeffectsofouractivitiesontheenvironm ment and work towards continuous improvement andpollutionprevention.Social and environmental policy BancABC recognises. that sustainable development is dependent upon a positive interaction between economic growth. 17 .nationalandinternationallawsandstandards. ¢ omply with all applicable laws and regulations c related to environmental protection and other requirementstowhichBancABCGroupcompanies aresubjecttoandsubscribeto.socialupliftmentandenvironmentalprotection.Africa boasts a rich artistic and cultural heritage that is as diverse as its people.” support. ¢ ecognise the environmental burden caused by r consumption of resources and release of waste fromourownbusinessactivitiesandaimtoprotect theenvironmentthroughresourcerecyclingaswell asefficientuseofenergyandresources.toensurethatthepotentialrisksassociatedwith theseissuesareappropriatelyidentifiedandmitigated. The Group supports the view thatvibrantartsandcultureisavital expressionofAfrica’sidentity. This heritage is the soul of the African continent and for it to grow and thrive.theGrouphasapolicyframeworkthatisdesignedtoensurethatallprojectsundertaken adheretosocialandenvironmentalregulationsoftherelevant local. the cultural arts needtobenurturedandcelebrated.Asa responsiblecorporatecitizen. This Environmental and Social Review Appraisal Procedure (ESRP) enables the integration of social and environmental safeguards in projects.and ¢ rovidefinancingtoprojectswithminimaladverse p impact on the environment while ensuring that those having potentially major adverse environmental and social impact are accompanied by adequatemitigationmeasures. Inordertoensurecompliancewiththelastofthesecommitments.
evaluated andwherenecessary. The team managed to work on “People” as one of the core values by ensuring that all staff participate in CorporateSocialResponsibilitiesandimpactotherpeople outsidetheBank. through training and coaching.TheBank’s projectissupportingfivegirlsthroughtheirsecondaryeducation.inApril2010.home-basedcareandhospital facilities for people suffering from full blown AIDS.Insuchcases. generalenvironmentalandsocialconsiderationspertaining to emissions. hazardous materials and wastes.KIWOHEDE is a non-governmental community-based organisation and operatesin21townsanddistrictsacrossthecountry.Thefoundation willcostUSD62.lifeandfiresafetyandotherhazardsareborne inmindduringtheappraisal.andotherfoodstuff.TheBankfurtherconformstotheAfricanDevelopment Bank’s Environmental and Social Assessment Procedures (2001). as the need arises. Projects financed by the Group shall.Africaboastsarichartisticandcultural heritagethatisasdiverseasitspeople. Tanzania BancABCChangeForumteamwasformedin2010forthe purposeofensuringthatstafflivetheBank’scorevalues.The center caters for girls between the ages of 9 to 20 by providing counselling. BancABC is focusedontheeconomicupliftmentofthemostvulnerable grouponourcontinent–womenandchildren.andtheZambiaCyclingUnionby sponsoring their cycling event to support healthy living inZambia.washingandbathsoaps.and ¢ he commitment and capacity of the borrower to t managethisimpact. It also givessupportinprovidinganti-retroviraltreatmenttosome of its patients. Through various programmes and initiatives.ambientnoise. This is supplemented by external expertise. BancABC Zambia supports the hospice by providingUSD1. that there is an appropriate internal capacity to handle environmental and social issues. Against this background. 18 ABC Holdings Limited ANNUAL REPORT 2010 . and promotinglocalartsandculture. ThebankpartneredwithHIFAinsponsoringtheBancABC openingday. The bank alsopledgedtocontributetowardsthefoundationbuilding oftheMidlandsStateUniversityLibrary. theculturalartsneedtobenurturedandcelebrated. HIFA has become one of the biggest festivals in Africa. Zimbabwe BancABChasbeenproudlyinvestinginHarareInternational FestivalofTheArts(HIFA)throughthelifeoftheFestival. which focused on changes the country is going through. The Group may finance projects for which no specific environmentalorsocialguidelinesexist.100kgofmaizeflour.BancABCZambiaalsosupportedtheZambia Judo Association by sponsoring the tracksuits used for allinternationalevents.Thegirlsaredoingwellatschoolandtheassistanceis changingtheirlives. BancABCisalsoapatronofthearts.occupationalhealth andsafety. domestic workers.the Group will not finance any business activity that cannot reasonablybeexpectedtomeettherequiredenvironmental andsocialstandardsupfront. Corporate Social Investment (CSI) BancABC recognises it has a responsibility to uplift and supportsocialprogrammesinAfricaanditplaysanactiverole inthecommunitiesinwhichitoperatestoachieveasmuch.TheGroupsupports theviewthatvibrantartsandcultureisavitalexpression ofAfrica’sidentity. Thehospiceprovidesdaycare.Inlinewithitspolicy.thusgivingthemhopeforabetterfuture. BancABChascontinuedtosupportKiota’sWomen’sHealth andDevelopmentOrganization(KIWOHEDE).Thisheritageisthe souloftheAfricancontinentandforittogrowandthrive. Zambia BancABCZambiasupportsOurLady’sHospiceinKalingalinga. All the Bank’s employees in the Operations department are provided withacopyoftheESRP. sexually abusedandothervulnerablechildrenandyouth.Theteamidentifiedoneoftheorphanage centres in Dar es Salaam known as Kurasini National Children’sHomeCenterwhereneedychildrenarelooked afterandraised. Morethan30stafffromBancABCvisitedtheCenterand hadtimetointeractwiththechildren.Thisyear’sthemewas“about face”. rehabilitation and alternative programmes for child prostitutes. attracting international artists and tourists.000everymonthtoassistthelabinbuying astringents.50kgof sugar.000. the procedure ensures that projects financed by the Group are environmentally and socially sound and sustainable and that any potential environmental and social risks are identified.mitigated. at the minimum. complywiththenationaland/orlocallegislationandguidelinesforenvironmentalandsocialassessmentandmanagement.drinks. liquid effluents. The bank contributed to the Khayelihle Children’s Home fundraising dinner that was held in Bulawayo.Corporate and social responsibility report continued The key components of the ESRP are: ¢ n assessment of potential and current environ a - mentalandsocialrisksandimpactarisingoutofthe proposal. Management ensures. including50mattresses.TheBankdonatedvariousmaterialitems.000andthebankhasalreadycontributed USD15.solidwastes.
Itmayalsobeadverselyimpactedby significantholdingsoffinancialassets. monitoredandcontrolled.” Market risk TheGroupmaybeadverselyimpactedbyglobalmarkets and economic conditions that can lead to fluctuations in interest and exchange rates.orsignificantloans orcommitmentstoextendloans. Operational risk TheGroupmayincurlossesduetothefailureofitspeople. The Group’s primary risksareoutlinedbelow: RISK AND GOVERNANCE REPORT “GroupRiskManagementcontinually seekstoenhanceitsriskmanagement techniques and provide assurance thatrisksareappropriatelyidentified. monitorandmanagetheprincipalriskstheGroupassumes in conducting its activities.Risk management ThedirectorateandmanagementofABCHoldingsrecognise thateffectiveriskmanagementisfundamentaltothesustainabilityofitsbusiness. as well as equity and commodityprices.and underpins sound decision making. Credit risk TheGroupmaybeadverselyimpactedbyanincreaseinits creditexposurerelatedtotrading.mostofwhicharediscussedinthe Financial Risk Management section. internalprocessesorsystems. a comprehensive risk management process is in place to evaluate.Astrongriskmanagementculture withintheGroupensuresanappropriatebalancebetween thediverserisksandrewardsinherentinanytransaction. Some of these risks are managedinaccordancewithestablishedriskmanagement policiesandprocedures.orasaresultofexternalevents.theGroupisexposedtovariousrisksinherent in providing financial services. Accordingly. Liquidity risk The financial condition of the Group may be adversely impactedbyaninabilitytoborrowfundsorsellassetsto meetitsobligations.lendingandotherbusiness activities.counterpartyorissuerbeingunableorunwillingto honourtheircontractualobligations.Potentialcredit-relatedlossescanresultfroman individual. 19 . In the course of conducting its business.
approvedand e implementedandensurethatsuchriskparametersand limitsareconsistentlyadheredto. ¢ nsuringthateffectiveinternalcontrolsystemsare e Role of Group Risk Management GroupRiskManagementisresponsibleformaintaininga culture of risk awareness throughout the Group. The Board has approved the Group Risk Management frame ork which applies to all Group companies and w dealswithenterprise-wideriskandgovernanceprotocol. Group Risk Management is headed by an executive managerwhoreportstotheChiefExecutiveOfficer(CEO). The Group’s risk appetite sets out the level of risk that the Group is willing to take in pursuit of its businessobjectives. Ownership and management of risks begins in the business units of each subsidiary. including profitability and impairment targets. Group Risk Management objectives TheGroupRiskManagementfunction. ofinternalcontrol.monitorandmanageallaspectsofexposures a acrossriskclasses.managesandreportsonallrisksfacingtheGroup.theGroup’screditgradingmodelsproduceinternal ratings through internally-derived estimates of default probabilities. Group Risk Management continually seeks newwaystoenhanceitsriskmanagementtechniques.aggregateand report risk for internal and regulatory purposes.Itcoordinatesrisk management activities across the Group to ensure that riskparametersareproperlysetandadheredtoacrossall riskcategoriesandinallGroupcompanies. While each business unit is primarily responsible for managing its own risks.Thesemeasurementsareusedbymanagementin anextensiverangeofactivities.evaluatingandmanagingthesignificant i risksfacedbytheGroup.It alsoupdatestheGroupRiskManagementframeworkona regularbasistoreflectnewpoliciesadoptedbytheBoard of Directors.fromcreditgrading. asmandatedbytheBoardofDirectors.byultimatelybecomingthecustodianof BancABC’sriskmanagementculture. Group Risk Management independently monitors.pricing and approval to portfolio management.asmandatedbythe BoardofDirectorsisto: ¢ oordinate risk management activities across the c The Group’s approach to risk management The Group’s approach to risk management involves a numberoffundamentalelementsthatdriveitsprocesses across the Group.toprovidetheBoardwithassurancethatrisks arebeingappropriatelyidentified. ¢ nalyse. ¢ nsureriskparametersandlimitsareset. The procedure and methodology is describedintheGroup’sEnteprise-wideRiskManagement Framework. Risk management in the Group is underpinned by governancestructuresaswellasriskownership. ¢ nsuringthatadocumentedandtestedprocessis e in place to allow the Group to continue its critical businessintheeventofasevereincidentimpacting itsactivities. regulatoryandlegislativeinitiatives. and could be adversely impacted by. 20 ABC Holdings Limited ANNUAL REPORT 2010 . Approach to risk management TheBoardrecognisesthatitisultimatelyresponsibleand accountabletoshareholdersfor: ¢ heprocessofriskmanagementandthesystems t Regulatory and legislative risks ManyoftheGroup’sbusinessesarehighlyregulatedand are subject to. economic capital allocationandcapitaladequacyprocesses.managedandcontrolled.GroupRisk Management reviews actions taken by business units to mitigateidentifiedrisks. ¢ dentifying. Group Risk Management regularly reports to the Executive Committee and the Risk and Audit Committee.Risk and governance report continued Legal risk Legal proceedings against the Group or insufficient legal protectioncouldadverselyaffectitsoperatingresultsfora particularperiodandimpactitscreditratings. who identify andevaluaterisksparticulartotheirfunction. The Group’s risk methodologies include systemsthatenabletheGrouptomeasure.Thisriskappetiteiscalibratedagainst the Group’s broad financial targets.identificationand evaluation.and ¢ eviewing the efficacy of the internal control r system. dividend coverage and capital levels business. As an example. Managing risk effectively is one of the key drivers of the Group’s continuous investment in technology.and ¢ acilitate various risk management committees as f partoftheGroup’sriskmanagementprocess. organisation.seediscussiononCreditRiskManagement below.Italsoensures that all risk exposures can be measured and monitored across the Group. inplacetomitigatesignificantrisksfaced.
Group Risk Management framework The Group Risk Management framework documents the risk management policies followed by the Group.inline withrespectiveregulatoryrequirements. theGroupisexposedtofundingliquidityrisk.Capitaladequacy andtheuseofregulatorycapitalarereportedperiodically tothecentralbanksoftheGroup’soperatingcountries. including the Group CEO.Italsoconsiderstheactivitiesofthetreasurydesk whichoperatesintermsofanapprovedtreasurymanagement policyandinlinewithapprovedlimits. ALCO reviews a stress mismatch report monthly.GroupHeadofCorporateBanking. 21 . Chief FinancialOfficer.TheGroupapproachesliquidity cautiouslyandconservativelybymanagingtheliquidityprofile withapreferenceforlong-term.and ¢ operationalRiskCommittee(ORCO)–responsiblefor technology. The risk reportspresentabalancedassessmentofsignificantrisks and the effectiveness of risk management procedures.operationalandregulatoryrisk. andmanagementactionsinmitigatingthoserisks. compliance. p currencyandcapitaladequacyrisk. liquidity.fixedratefunding. is discussed by the Board. These policies ensurethatrisksareconsistentlymanagedthroughouttheGroupthroughasetofinternalcontrols. Thereportalsoconsiderstheavailablesourcesofstress fundingtoaddressanypotentialstrainonthecashflows oftheGroup.Assuch. reputational. counter arty. alongwiththedetailedriskinformationprovidedbyGroup Risk Management. LiquidityriskismanagedbyALCOintermsoftheGroup RiskManagementframework. In addition.Thepoliciesalsoensure thatriskawarenessfiltersdownthrougheveryleveloftheGroup.andthateveryemployeeunderstandstheirresponsibilityin managingrisk. legal.ChiefRiskOfficer.GroupHeadofWholesale Banking. Capital and liquidity risk management ALCOreviewsthecapitalstatusoftheGrouponamonthly basis.areresponsiblefordealing withtherisksfacingtheGroupinastructuredmanner: Ultimatelyresponsibleforriskmanagement BOARD OF DIRECTORS Specialised committees of the Board Responsibleforenterprise-widerisk managementacrosstheGroup Loans Review Committee Board Credit Committee Group Executive Committee Responsibleforoverseeingday-to-dayrisk managementacrosstheGroup Audit and Risk Management Committee Management Credit Committee • Credit Credit Group ALCO ALCO • Interestrate • Liquidity • Market • Currency • Capitaladequacy Group ORCO Operational Risk • Technology • Operational • Compliance • Legal • Regulatory • Reputational Group Internal Audit ¢ creditCommittee(CREDCO)–responsibleforcredit risk. human resources. Chief Operating Officer. which simulates stress scenarios based on the current asset andliabilitystructureoftheGroupforthereportingmonth.comprisingexecutivesandseniormanagement. market.ALCOcomprises broadly representative executive and senior managers.Thefollowingsub-committees. ALCOreportstotheRiskandAuditCommitteeintermsof theGroupRiskManagementframework.GroupHeadof TreasuryandGroupHeadofRetailBanking. ¢ assetsandLiabilityCommittee(ALCO)–responsible for interest rate. the Group has a documented contingency fundingplan(CFP)thatspecifiesmeasuresthatmustbe Reporting Eachsubsidiaryorbusinessunitproducesriskreportswhich.
40% 0. As part of its monthly meetings.50% 0.facilityandportfoliolevel.AtmanagementCREDCO level.measuring andmitigatingcreditrisk. Chief Credit Officer and Group Head of WholesaleBanking. arrears andpro isioninganalyses.Creditriskman gementisovera seenbytheBoardcreditcommitteeandthemanagement credit committee (CREDCO).10% 0.65% 3.00% 38. The Group strivestomatchassetandliabilityre-pricingpositionsas faraspossible.ChiefOperatingOfficer.30% 1. The modelsusedbytheGroupareaimedtobecompliantwith regulatoryrequirements. The CFP operates in conjunction with the finance and treasury managementpolicyandtheassetsandliabilitiesmanagement (ALM) policy to ensure a coordinated approach to liquiditymanagement.85% 12. The Group calculates EAD estimates for each facility through models developed and based on internal and external default data as well as credit experts’ experiencewithparticularproductsorclientgroups. ALCO considers the Group’ssensitivitytointerestratemovementsandreviews the results of management’s analysis of the impact of interestratemovements.80% 0. creditscoringtoaligncreditriskappetiteassessmentand toleranceacrossconsumerandcorporatebusinesses.i.80% 7. a management committee thatreportstotheRiskandAuditCommittee.aswellasanalysisofthepotentialeconomicimpact on interest rates and interest rate re-pricing. all decisions to enter a transaction are based on unanimousconsent.e.90% 16. BancABC rating scale BancABC defaults rates BancABC retail score Standard & Poor’s ratings A+ A AB+ B BC+ C CD+ D DE+ E EF+ F FG 0. Credit risk is broken down intothecommonriskcomponentsofProbabilityofDefault (PD).80% 2.These riskcomponentsareusedinthecalculationofanumberof aggregate risk measures such as Expected Loss (EL).96% 1. to consider and debate results from new business. Exposure at Default (EAD) In general EAD can be defined as an estimation of the extenttowhichabankmaybeexposedtoacounterparty intheeventofacounterparty’sdefaultwithinaone-year period.88% 26.Chief Risk Officer.Thedefinitionofdefaultandtheuse ofPDisstandardasprescribedbytheBaselIIframework andregulation.modelledataclient.Risk and governance report continued monitored to identify indications of liquidity stress early.67% 45. Probability of Default (PD) ThePDmeasuresthelikelihoodofaclientdefaultingon its obligations within the next one year.forthesameratingBancABC implies a much higher likelihood of defaults than the correspondingS&P. The Group’s policy is that all sanctioning members of the CREDCOhavevotingpowers.ALCOalsoreceivesinformation onyieldcurvedevelopmentsandmoneymarketinterest rates. Exposure at Default (EAD) and Loss Given Default (LGD). Approach to measuring credit risk TheGroup’sapproachtomeasuringcreditriskaimstoalign with international best practice. TheCREDCOformallymeetsonaweeklybasistoconsider the activities and operations of the credit division.Thereisa highlevelofexecutiveinvolvementinthecreditdecision making team.BancABCdefaultprobabilitytable belowshowsthemappingofthecorporaterating to retail Loss Given Default (LGD) The third major risk component measures the loss expectedonaparticularfacilityintheeventofdefaultand 22 ABC Holdings Limited ANNUAL REPORT 2010 . The management CREDCO includes the CEO.33% 0. BancABCdefaultprobabilitiesforeachratingbucketsare muchmoreconservative. and is a primary component of the internal risk rating calculated for all clients.aswellastoconsiderregulatory v compliance and to set and amend credit policy where appropriate.66% 0.25% 0.00% Default 246–255 236–245 226–235 216–225 201–215 191–200 181–190 166–180 156–165 146–155 136–145 126–135 116–125 106–115 96–105 86–95 76–85 61–75 0–60 AAA–AA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCC- Credit risk management IndependentcreditriskcommitteesineachoftheGroup’s operatingcountriesareresponsibleformanaging. The plan provides management with a set of possible actions to address potential liquidity threats.ChiefFinancialOfficer.
LGD. unauthorised transactions.EADandPDestimates arealsousedinarangeofbusinessapplications.productcomplexityandpricingriskorfromimproper recording.regulatoryinterventionorreputational damagefromsuchevents.GroupChiefLegal CounselandGroupHeadofHumanCapital.withthe ultimateaimofreducinglosses.including pricing. are building blocks used in a variety of measures of risk.GroupHeadofMarketandOperational Risk.The Groupcouldsufferfinancialloss. TheGroup’soperationalriskmanagementprocessesfocus primarilyonriskassessment. EL is the measurement of loss. Operational risk is managed by ORCO in terms of the Group’soperationalriskframework(ORF).whichcouldaffectitsbusiness andfinancialcondition. liabilitytoclients.ChiefInformationOfficer. client suitability and servicing risks.evaluatingoraccountingoftransactions.GroupHead ofRetailBanking.disruptiontoitsbusiness.Theresultsoftheseprocesses areusedtoraiseawarenessofoperationalriskmanagement andtoenhancetheinternalcontrolenvironment. EAD and LGD.with theGroupChiefLegalCounselbeingamemberofORCO.asubsetofthe riskmanagementframework. ChiefRiskOfficer.GroupHeadofBankingOperations.includingtheChiefOperatingOfficer.ORCOcomprisesexecutive andseniormanagers. such as collateral. PD.Suchoperationalrisksmayinclude exposure to theft and fraud. LegalandcompliancerisksaredealtwithbyORCO. as well as a broad base of expert judgement from credit representativesandtheresultsareprimarilydrivenbythe typeandamountofcollateralheld.LGDestimates are calculated through internally developed models. improper business practices.thusrecognisesanycreditriskmitigantsemployedbythe Bank. Operational risk management Operationalriskisdefinedastheriskoflossresultingfrom inadequateorfailedinternalprocesses. which enables the application of consistent credit risk measurement across all retail and wholesalecreditexposures. customer and portfolio strategy. credit 23 Expected Loss (EL) The three components. credit derivativeprotectionorothercredithedges. EL estimates can be compared directly to portfolio impairment figures within the regulatory capital calculation to ensure that the organisation’s estimates of EL from doing business aresufficientlycoveredbythelevelofgeneralimpairments raised.peopleandsystems orfromexternalevents. .lossdatacollectionandthe trackingofkeyriskindicators. third party guarantees.
however.responsibilitiesandproceduresoftheBoard. The committeeassessestheadequacyandeffectivenessof risk management structures in the Group and reports to theBoardonallrisk-relatedgovernanceissues. The Board is responsible to shareholders for setting the strategicdirectionoftheGroup. Complianceriskiseffectivelymanagedthroughdeveloping and implementing compliance processes. including fiveindependentnon-executivedirectors.aswell asselectingnewdirectors. This balanced representationensuresthatnooneindividualorsmallgroup candominatedecisionmaking.andprovidingadviceandtrainingon theconstantlychangingregulatoryenvironment.Thetermsofreference definetheroleandobjectives. In February 2003. the Board incorporatedsomeoftheprinciplesofKingIIIandspecificallyhas adopted a combined assurance model of reporting by the internalauditors.TheChairmanisanon-executivedirectorappointed bytheBoard. Attheoutsetofeachfinancialyear. The Board meets at least four times annually.TheBoardisalsoresponsiblefor theintegrityandqualityofcommunicationwithstakeholders. The roles of Chairman and CEO are separate and no individualhasindependentunfetteredcontroloverdecision making. central bank supervisory requirementsandindustrycodesofpractice. The audit plan is reviewed regularly and any changesmustbeapprovedbytheRiskandAuditCommittee. AlldirectorshavedirectaccesstoinformationontheGroup’s affairs.Profilesofdirectorsappearonpages28and29 ofthisreport. the Board endorsed the adoption of the second King Report on Corporate Governance (King II). 24 ABC Holdings Limited ANNUAL REPORT 2010 .authorityandresponsibility of the audit function. TheBoardhasadoptedariskmanagementframeworkand has delegated responsibility for risk to the Risk and Audit Committee. risk management processes andpolicies.Thedepthofexperienceand diversity of the Board ensures that robust and forthright debateonallissuesofmaterialimportancetotheGroupcan takeplace. In 2010.Acomprehensiveauditplanfortheyearthat identifiesspecificareasoffocusisthenderivedfromthis assessment. The Group’s reporting structures ensure that the Group internal auditor has unrestricted accesstotheChairmanoftheRiskandAuditCommittee andtheCEO. This committee reviews risk management processes in the Group and ensures that Board policies and decisions on risk are properly implemented. Legal risk management GroupChiefLegalCounselisresponsibleforensuringthat legalriskisadequatelymanaged.complianceandsettingauthoritylevels. Internalauditoperatesundertermsofreferenceapproved bytheRiskandAuditCommittee.regulatorsandshareholders. with externalrepresentationandfunctionaspertherequirements oftheirrespectivejurisdictions.Adecentralisedcompliancefunction has been implemented within business units and subsidiaries. integrity and accountability. Group Internal Audit Theprimaryfunctionofinternalauditistogiveobjective assurance to the Board that adequate management processes are in place to identify and monitor risks. internalcontrolsandgovernanceprocesses. Individual country operations have their own boards.GroupInternalAudit carries out a risk assessment for all business units and subsidiaries. Corporate governance The Group is committed to the principles of openness. developing effective policies and procedures affecting the respective regulatoryframeworks.AformalBoardcharterhasbeenadoptedwhichsets outtheroles. Board of Directors The Board currently comprises nine directors. includingemployees. The areas of focus are confirmed with executive managementbeforebeingsubmittedtotheRiskandAuditCommittee forapproval.GroupChiefLegal Counselensuresthatonlyapprovedlegaladvisersprovide legalopinionsordrawupspecialisedagreementsforthe Group.GroupInternalAuditindependentlyauditsand evaluatestheeffectivenessoftheGroup’sriskmanagement.specialisedexternallegaladvisersareusedwhen requiredfornon-standardtransactions.monitoringoperationalperformance and management.andcomplianceofficershavebeenappointedin eachoperatingentity.Risk and governance report continued Compliance risk management Compliance risk is the risk of non-compliance with all relevant regulatory statutes.Thisisachievedthrough standardapprovedlegaldocumentationwhereverpossible.Akeyrole ofcomplianceofficersintheGroupistodevelopandmaintain soundworkingrelationshipswithitsvariousregulatorsin theGroup’soperatingcountries.aswellastheadviceandservicesofGroupChiefLegal Counsel.theriskofficersandexternalauditorstoits AuditCommitteeinordertopromoteacoordinatedapproach toallassurancereportingontheriskareasofthebusiness.Thecompliance function is an integral part of the overall Group Risk Managementfunction. and that effective internal controls are in place to manage thoserisks. Additional telephonic meetings are also conducted during the year.onenon-executive director and three executive directors.
Senior executives are invited to attend meetings as appropriate.TheCEOandseniorexecutivesareavailabletobriefdirectors whenrequired.ChiefOperatingOfficer. andactsasamediumforcommunicationandcoordination between business units and Group companies.businesscontinuityplanning.policiesand procedures. amongothers. Loans Review Committee The Loans Review Committee comprises three nonexecutive directors and is chaired by Mrs D Khama. Issues addressed included reviewing accounting policies. the committee’s principalfunctionistoreviewandreporttotheBoardonthe Group’s loan portfolio at least quarterly. Directors’attendanceofthesemeetingswasasfollows: Director Buttery Chidawu* Khama Kudenga Mothibatsela* Munatsi Wasmus Ipe Shyam-Sunder Moyo Dzanya P: Present A: Absent Risk and Audit Committee TheRiskandAuditCommitteeischairedbyMrNKudenga whoisanon-executivedirector.Sub-committeesareaccountable to the Board. disposing of certain Group assets. as well as the delinquent loan recovery strategyandadequacyofGroupprovisions. compliance.Inparticular. implementing Basel II.theinternalauditratingspolicy. Boardcommitteesmaymakeuseofexternalprofessional adviserswhennecessarytodischargespecifictasks.subjecttotheBoard’slimitationsondelegation totheCEO. capitalraisinginitiatives.Thecommitteemetfourtimesin2010. EXCOalsoconsidersnon-remunerationaspectsofhuman resourcesmanagementsuchassuccessionplanningand skillsdevelopment. Meetings are held regularly throughout the year and are attendedbyexternalandinternalauditors.operationalrisks. Credit Committee Anewsub-committeewasestablishedduring2010whichis chairedbyMrButteryandhasamandatetoapproveloans abovetheinternalmanagementsumofUSD7million.IT connectivityissues.Thecommitteeisfurthertasked with the quarterly review of the adequacy of provisions madewithrespecttoloansandmakesrecommendationsto theBoardinthisregard. Chief Risk Officer and Group Head of WholesaleBanking.Chief Financial Officer. The following divisional and functional heads comprise EXCO:CEO(Chairman). Thecommitteeconsideredwhetherthecompanyandthe Grouparegoingconcerns.capitaladequacyandcompliance. Executive Committee The Executive Committee (EXCO) assists the CEO in managingtheGroupandimplementingstrategy. 25 .TheCEO’sauthorityinmanagingtheGroupis unrestricted.EXCOmeetingsareconductedmonthly.EXCOassiststheCEOinmanagingtheGroup andsettingtheoveralldirectionofthebusinessoftheGroup. Four Board meetings were conducted during the year.recommendingthattheBoard endorse a statement to this effect and that the financial statementspreparedonthisbasisbeapproved. with minutes of sub-committee meetings circulatedandreportedonatthefollowingBoardmeeting.Italsoperiodicallyreviewsthemaximumloan authoritylimitsforeachGrouplendingauthorityaswellas write-offswithintheGroup. Thecommitteemetfourtimesin2010andissuesaddressed includedthereviewofGroupandcountrycreditpoliciesand guidelines to ensure that these meet best international banking practice. risk management and the effectiveness of accountingandmanagementinformationsystems.aswellassenior executivemanagers. Feb P P P P P P P n/a n/a n/a n/a *: resigned June P n/a P P n/a P P P P P P Aug P n/a P P n/a P P A P P P Dec P n/a P P n/a P P P P P P Board committees TheBoardisassistedindischargingitsresponsibilitiesbya numberofsub-committees. In accordance with its terms of reference.Thecommitteeadoptedthe termsofreferenceforboththeRiskCommitteeandAudit Committee as detailed in the King Reports on Corporate Governance.itassiststheBoardinthedischarge ofitsdutiesrelatingtofinancialreportingtoallstakeholders. and the Board.The committeemeetswhenrequiredtoapproveloans.financial reporting. The committee placesspecificemphasisonensuringconformityoftheloan portfolio and lending function to a sound documented lendingpolicy.
national and international standards with regard to environmentalandsocialregulations. and asagoodcorporatecitizenitstrivestofulfilitsresponsibility to society by working towards realising a sustainable environment.Itaimstoensurethat thefinancialrewardsofferedbytheGrouptoemployeesare sufficienttoattractpeopleofthecalibrerequiredforeffective runningoftheGroupandtoproducetherequiredreturnsto itsshareholders.within a reasonable period.Risk and governance report continued Remuneration Committee TheRemunerationCommitteeischairedbyMrHButtery.Aformalprocess isinplaceintermsofwhichtheskillsneededareidentified andthoseindividualswhomightbestassisttheBoardintheir endeavoursarerecruited.theGroup 26 ABC Holdings Limited ANNUAL REPORT 2010 .The committeeisresponsiblefortheseniorexecutiveremu en rationpolicy.The Group encourages the businesses it supports to adopt appropriatehealthandsafetymeasuresandtocomply. Health and safety policy TheGroupseekstoensurethatitengagesinactivitieswhich donotjeopardisethehealthandsafetyofitsemployees. takingintoaccounttheindustrialsectorsconcerned.Thecommitteereviewstheprofitsharing scheme annually. A policy isinplaceprohibitingdirectorsandemployeesindealingin the Group’s shares when they are in possession of price sensitiveinformation. Accordingly. Dealing in ABCH shares is further restricted during defined periods. The Group believes that conserving the global environment is the responsibility of every individual. TheRemunerationCommitteeisalsoresponsibleforsetting theremunerationpolicyoftheGroup.whichmaygenerallynotbeavailable to the public.Itfixestheremunerationpackagesofindividual directorswithinagreedtermsofreference.toavoidpotential conflictsofinterest. followsstrictguidelineswithrespecttodealingofitsshares on stock exchanges by employees and directors. but does not participateinanydiscussionsonhisownremuneration. the Group will endeavour to pursuebestpracticeinenvironmentalmanagementandwill put in place guidelines and procedures to ensure that projects are undertaken in accordance with the relevant local. generally six weeks prior to the publicationoftheinterimandfinalresults.TheCEO attends committee meetings by invitation.Thecommitteemetfour timesduringtheyearunderreview. Dealing on stock exchanges As part of its commitment to conducting business in a professionalandethicalmanneratalltimes. Environmental policy The Group’s directorate and management recognise that sustainable development depends on a positive balance between economic development and environmental protection.a non-executivedirectorandChairmanoftheBoard. Nominations Committee TheNominationsCommitteecomprisestwonon-executive directorsandisresponsibleformakingrecommendationsto theBoardonallnewBoardappointments. with local legislative requirements concerningoccupationalhealthandsafety. which is based on achieving a specified returnonequityfortheperiod.
DIRECTORS AND GROUP MANAGEMENT ABC Holdings Limited Board of Directors ¢ HowardJButtery** ¢ DoreenKhama** ¢ NgoniKudenga** ¢ SimonIpe* ¢ JohannesWasmus** ¢ LakshmiShyam-Sunder* ¢ DouglasTMunatsi ¢ BekithembaMoyo *Non-executive **Independent non-executive Chairman Group Chief Executive Officer ¢ FrancisDzanya Remuneration Committee Loans Review Committee Risk and Audit Committee Credit Committee Executive Committee ¢ HowardJButtery ¢ NgoniKudenga Chairman ¢ DoreenKhama ¢ SimonIpe ¢ LakshmiShyam-Sunder Chairperson ¢ NgoniKudenga ¢ JohannesWasmus ¢ LakshmiShyam-Sunder Chairman ¢ HowardJButtery ¢ JohannesWasmus ¢ DouglasTMunatsi Chairman ¢ DouglasTMunatsi ¢ FrancisDzanya ¢ BekiMoyo ¢ HashmonMatemera ¢ DrBlessingMudavanhu Chairman Group management ¢ JohanBosch ¢ BruceJonker ¢ CorneliusMunyurwa ¢ LeahBanda ¢ AndreaPrazakova ¢ JohanTesta ¢ MelanieVogt ¢ PaulWestraadt ¢ AndréWillemse Chief Information Officer Group Internal Auditor G roup Head Banking Operations (w.e.f. 4 March 2011) Group Head Marketing Group Head Retail Banking Group Head Treasury Chief Legal Officer and Secretary to the Board Chief Credit Officer Group Head Human Capital 27 .
a reputable legal firminoperationforover20years.Helatersuccessfully negotiated Heritage’s merger with First MerchantBankLtd. Prior to setting up Heritage. a Netherlands-based development financeinstitution. a member of the remuneration andnominationscommittee’ssince2007.Hecurrentlyisamemberofthe riskandauditcommittee.includingBotswanaSavingsBank. D ouglas T Munatsi (Zimbabwean) GroupChief Executive Officer Board Member Douglas “Doug” Munatsi was born in Zimbabwein1962. Hans has been a director since 2003. DougholdsaBachelorofBusinessStudies degreefromtheUniversityofZimbabwe. Hans previously served as chief financial officer and regional manager for Africa at FMO. Lesotho andSwaziland.a MasterofBusinessAdministration(Finance) from the American University.theprivatesectorarmoftheWorldBank. 2 N goni Kudenga (Zimbabwean) Board Member Non-Executive Director Ngoni Kudenga was born in Zimbabwe in 1952.Kudengahasbeenadirectorsince 2000. and has earned a high standing of professional prominence throughherinternationalaffiliations.She isfounderandseniorpartnerofthelawfirm Doreen Khama Attorneys. Doug founded Heritage Investment Bank [HeritageLtd]in1995. a listed SouthAfricancompany. 3 committee. HeholdsaBachelorofAccountancydegree fromtheUniversityofZimbabwe. She serves as a director and board member for several organisations across various industries. 5 HowardButterywasborninSouthAfricain 1946. Doreen is active in business initiatives in Africa and internationally. Howard was appointed nonExecutiveChairmanofABCHoldingsLimited (BancABC)inJune2010.Directors and Group management continued 2 3 4 5 1 1 H oward JButtery (SouthAfrican) Board Chairman Non-Executive Director missionoftheInternationalFinanceCorporation (IFC). HeiscurrentlytheManagingPartnerofBDO Zimbabwe(CharteredAccountants)andserves on the boards of listed companies Bindura NickelCorporationandHippoValleyEstates. Anglo American Corporation Zimbabwe and severalotherprivatecompanies. Doreenhasbeenadirectorsince2007anda memberofourloansreviewcommittee. 4 D oreen Khama (Motswana) Board Member Non-Executive Director DoreenKhamawasborninBotswanain1949. and hasservedaschairmanoftheloansreview 28 ABC Holdings Limited ANNUAL REPORT 2010 .Mr.Liebher(Germany)andHitachi(Japan). Washington DC and completed the Harvard Business School’sAdvanceManagementProgramme.chairmanoftheriskandauditcommittee since 2000.Hehasservedasadirectorsince2003 and on the Remuneration and Nominations Committee. LengaoHoldingsandPEPHoldings. d FirstMerchantBankandHeritageInvestment Bank. he was an executive in the Southern Africa regional Johannes Wasmus (Dutch) Board Member Non-Executive Director HansWasmuswasborninHollandin1941. He holds a Diploma in Accountancy from the Netherlands Institute for Chartered AccountantsandaDiplomainEconomics. Howardhasextensiveknowledgeofbusiness across the African continent offering key insightstotheorganisation.Sheisalso theHonoraryConsulforAustriainBotswana. and wasManagingDirectorofitspre ecessors. Heholdsacertificateintheoryofaccounting fromtheUniversityofNatal. Ngoni is past president of the Institute of Chartered Accountants in Zimbabwe and a fellowoftheCharteredInstituteofManagementAccountantsintheUnitedKingdom. He recently retired from being Executive Chairman of Bell Equipment Ltd.Hiscurrentfocusis on developing a strategic alliance of three international companies: John Deer (United States).HehasbeentheCEOof BancABC since its formation in 2000.thencontrolledbyAnglo AmericanCorporation. Doreen holds a Bachelor’s Degree in Law from the University of Botswana.
UK.Initially an auditor by profession. Lakshmi Shyam-Sunder (American) Board Member Non-Executive Director LakshmiShyam-SunderwasborninAmerica in1956.Mr. 7 and client risk advisory services.DzanyahasbeenChiefOperating Officer since April 2008 and Chief Banking Officer before that. In the course of his banking career spanning over fifteen years. Insurance and Finance from Sheffield Hallam University in the UnitedKingdom(UK)andaHigherNational Diploma in Banking and Finance from John Moores University.Plot21andFlyingMission Botswana.Ahmedabad. Simon occupied several senior positions with the Bank of Botswana. He then joined the banking world in 1994 as Chief AccountantatStanbicZimbabwe. Moyo has been the Chief Financial Officer since 2005. Bekihasheldvariousseniorpositionswithin ABCHoldings. ShejoinedtheIFCin1994andpriortobeing appointed a Director held a number of positionswithintheinstitutionworkingin treasury and portfolio management before beingnamedDirectorofRiskManagement andFinancialPolicyforIFC.beforejoiningtheBIFMHoldings Group of which he is presently Chief of SpecialProjects.oneinBotswanaand theotherinTanzania.DartmouthCollege. He holds a BSc (Chemistry) and BCom (Accounting)fromMadrasUniversityinIndia. Dr. a position within the Finance Department. He has also been a member of the Executive Committee since 2006. Francis Dzanya (Zimbabwean) Group Chief Operating Officer Board Member Francis Dzanya was born in Zimbabwe in 1960. He is a Fellow of both the Institute of Chartered Accountants of India and the BotswanaInstituteofAccountants.andisafullboardmember on Khumo Property Asset Management Company.India.7 8 6 9 6 Simon Ipe (Indian) Board Member Non-Executive Director SimonIpewasborninIndiain1951. a Master of Business Administration degree in Banking and Finance from Manchester UniversityandcompletedtheHarvardBusiness School’sAdvanceManagementProgramme.D in Finance from the MIT Sloan School of Management and an MBA from the Indian Institute of Management. Mr. These included Deputy Director – Operations. andisaCertifiedInformationSystemsAuditor (CISA) and Certified in Risk and Information Control(CRISC)oftheISACARIllinoisUSA. Francis holds a Bachelor of Arts (Honours) degree in Banking. He serves as an alternate director on the boardofTurnstar. Francis joined Heritage at its formation in 1995havingspentovertenyearswithother bankinginstitutionsintheregion.HesubsequentlybecameaDirector ofKPMG. 8 9 Beki Moyo (Zimbabwean) Group Chief Financial Officer Board Member BekiMoyowasborninZimbabwein1967. Lakshmi holds a Ph.Hehas been a secretariat member for two PresidentialCommissions. also in the UK and is an Associate of the Chartered Institute of Bankers.partoftheWorld Bank Group working on economic capital 29 . She has wide-ranging financial experience. Beki trained and qualified as a Chartered Accountant with Deloitte and Touché and quickly rose to Audit Manager.andasthebank’sChiefInternal Auditor.SheisaDirectorattheInternational FinanceCorporation(IFC). HeholdsaBachelorofAccountancy(Honours) degree from the University of Zimbabwe.Bongwe. which includes aperiodontheFinanceFacultyof theMITSloanSchoolofManagementinthe USA and at the Tuck School of Business Administration.
Dr. Blessing Mudavanhu (Zimbabwean) Group Chief Risk Officer 3 D ouglas T Munatsi (Zimbabwean) Group Chief Executive Officer Beki Moyo (Zimbabwean) Group Chief Financial Officer Francis Dzanya (Zimbabwean) Group Chief Operating Officer HashmonMatemerawasborninZimbabwe in1964.Hehasheld severalpositions.Directors and Group management continued Executive Management Committee 2 3 4 1 5 1 Hashmon Matemera (Zimbabwean) Group Head Wholesale Banking 2 Dr.MudavanhuwasappointedGroup ChiefRiskOfficerinFebruary2009. Matemera has over 17 years’ banking experience in merchant and commercial bankingandasacentralbanker. 4 5 30 ABC Holdings Limited ANNUAL REPORT 2010 . He has published many research papers in theJournalofInvestmentManagementand in many mathematics journals. He holds a Bachelor of Science (Honours) degree in Mathematics from the University ofZimbabwe.HashmonhasbeenGroupHeadof WholesaleBankingsince2007andamember oftheExecutiveCommitteesince2006.aMasterofSciencedegree and a Doctorate in Mathematics from the UniversityofWashingtonaswellasaMaster of Science in Financial Engineering from theHassSchoolofBusiness. Mr. BlessingMudavanhuwasborninZimbabwe in1971.Blessing spenteightyearsworkingonWallStreetin New York. Hashmon spent ten years at the Reserve Bank of Zimbabwe. Hashmon holds a Bachelor of Science (Honours)degreeinEconomicsaswellas aMasters’ofScienceinEconomicsbothfrom theUniversityofZimbabwe. where most recently he was a directorinGlobalRiskManagementatBank ofAmericaMerrillLynch.Universityof CaliforniaatBerkeley.includingExecutiveDirector of Banking Services at ABC Zimbabwe and Group Head of Treasury and Structured Finance. mostly in the SupervisionandSurveillanceDivision. He is also listedintheWho’sWhoinAmericaandisa recipientoftheFulbrightScholarship.
recommends improvementsinthesystemsofinternalcontrolandaccountingpractices.accountingpolicies.wereapprovedbytheBoardof Directorson4March2011andaresignedby: H Buttery Chairman 15March2011 DT Munatsi GroupChiefExecutiveOfficer 15March2011 31 .basedontheforecastsandavailablecashresource.reportinganddisclosure.playanintegralroleinmattersrelatingto financialandinternalcontrol. To enable the directors to meet these responsibilities: ¢ TheBoardandmanagementsetstandardsandmanagementimplementssystemsofinternalcontrolandaccountingand informationsystemsaimedatprovidingreasonableassurancethatassetsaresafeguardedandtheriskoferror.togetherwiththeexternalauditors.integrityandobjectivityofthefinancialstatementsthatfairlypresentthe stateoftheaffairsoftheGroupattheendofthefinancialyearandthenetincomeandcashflowfortheyear. evaluates and.whichoperatesindependentlyfromoperationalmanagementandunimpeded. when necessary.andother informationcontainedinthisannualreport.containedinestablishedpoliciesandprocedures.Thesefinancialstatementshaveaccordinglybeenprepared onthatbasis.The directorshavenoreasontobelievethattheGrouporanysubsidiarycompanywithintheGroupwillnotbegoingconcernsin theyearahead. ¢ TheGroup’sinternalauditfunction. appraises.the BotswanaStockExchangeRegulationsandInternationalFinancialReportingStandardsrelatingtocompaniesandbanks.whichappearonpages35to110. Their report to the members of the Companyissetoutonpage34ofthisannualreport.reportinganddisclosure.effectiveaccountingproceduresandadequatesegregationofduties. TheannualfinancialstatementshavebeenpreparedinaccordancewiththeprovisionsoftheBotswanaCompaniesAct. It is the responsibility of the independent auditors to report on financial statements.includethe properdelegationofresponsibilitiesandauthorities.andhas unrestricted access to the Group Audit and Risk Committee.and ¢ TheGroupAuditandRiskCommittee. Approval of the annual financial statements Thedirectors’reportandtheannualfinancialstatements.accountingpolicies.DIRECTORS’ RESPONSIBILITY Responsibility for the annual financial statements Thedirectorsareresponsibleforthepreparation.fraudor lossisreducedinacosteffectivemanner–thesecontrols.basedonauditplansthattakecognisanceof therelativedegreesofriskofeachfunctionandinternalcontrol.
0 billion.670. which is considered to be adequate by the directors. Any interests by Directors in transactions between the company and third parties were disclosed to committees that were responsible for approval prior to such approval being granted and interested parties are required to recuse themselves from any approval process.438. international. 32 ABC Holdings Limited ANNUAL REPORT 2010 . The earnings and perquisites of the Group Chief Executive Officer and executive management are approved by the Remuneration Committee of the Board.583 31.10 (ten Thebe) per share in respect of the year ended 31 December 2010.640. which are considered by the directors to be appropriate. The business and economic environments. were still challenging.947 7.947 – – 37. Group results The Group posted solid results in the year ended 31 December 2010 with all subsidiaries posting profits. a feat that has not happened in several years. Subsidiary and associated companies Details of the Group’s subsidiaries are set out in note 14 of the separate company financial statements. Directors’ interests in the shares of ABC Holdings Limited The following table depicts the interests of directors in the shares of ABC Holdings Limited: Post-balance sheet events There were no significant postbalance sheets events.957 2.127 Authorised share capital There was no change in the authorised or issued share capital of the company during the year. Directors’ interests in transactions In terms of ABC Holdings Limited policy.106 2009 17.765.9 billion.DIRECTORS’ REPORT Nature of business ABC Holdings Limited is listed on the Botswana and Zimbabwe Stock Exchanges and is the holding company of the African Banking Corporation group of companies which comprise diverse financial services activities in the areas of corporate. investment and merchant and retail banking. **Appointed director on 31 May 2010. Directors are required to furnish details on an annual basis of their respective personal interests in business concerns which are recorded in a specific register. asset management. asset losses. professional indemnity and directors’ and officers’ claims at a level of cover.619 365.478 19. **Mr. African Banking Corporation aims to deliver worldclass financial solutions to the SubSaharan African region. 1 April 2011. Director OM Chidawu* DT Munatsi N Kudenga B Moyo** FM Dzanya** Total Number of shares 2010 – 21. Acquisitions and disposals There were no acquisitions or disposals of subsidiaries during the year. Directors and Secretaries Full details of the directorate are shown on pages 28 and 29. Details of the Group associate companies are in note 13 of the consolidated Group financial statements. the Group posted operating profits of BWP111 million which is more than four times the BWP26 million achieved in 2009. The dividend will be payable to shareholders registered in the books of the company at the close of business on Friday. OM Chidawu resigned as director and chairman on 31 May 2010. Accounting policies have been applied in a manner consistent with that in the previous financial year and details of significant accounting policies can be found on pages 35 to 48. and deposits by 46% to BWP4. Insurance ABC Holdings Limited and its subsidiaries are insured against banking risks.099.702 365. with loans and advances increasing by 54% to BWP3. Brief CVs of directors eligible and available for re election at the Annual General Meeting are included in the Notice to Shareholders. Business growth was achieved across all operations as the Group continued widening and strengthening its footprint through the expansion into the retail banking sector. Details of lending exposures are provided in note 25 on related party transactions.937. stock broking and treasury services. Despite the difficult operating conditions. The Group has to date set up 17 retail branches across its network. Dividends The Directors have declared a final dividend of BWP0.930. while improving. The financial statements have been prepared in accordance with International Financial Reporting Standards and the accounting policies of the Group. Directors’ emoluments Directors’ emoluments in respect of the Group’s directors (executive and nonexecutive) are shown in note 4 to the financial statements.1 billion. The Group’s total assets increased by 36% to BWP6. leasing finance.
ANNUAL FINANCIAL ANNUAL FINANCIAL STATEMENTS STATEMENTS 34 Independent auditor’s report 35 Signiﬁcant accounting policies 49 Financial risk management 77 Consolidated Group ﬁnancial statements 97 Company separate ﬁnancial statements 33 .
company’s directors are responsible for the preparation and fair presentation of these financial statements control relevant to the in accordance with International Financial Reporting Standards andarethe manner material by the Companies preparation and fair presentation of financial statements that in free from required misstatement. s. We believe that the audit evidence have obtained is sufficient and appropriate to provide basis for basis for our We believe that the audit evidence we we have obtained is sufficient and appropriate toaprovide a our audit audit opinion. N B Soni Associates: A S Edirisinghe. In those risk assessments.pwc.pwc. Plot 50371. and making accounting estimates that are reasonable in the circumstances. which comprise consolidated and separate balance sheets as at 31 December 2010. implementing and maintaining internal cont preparation Act. as set0. Gaborone. F: (267) 397 3901. N B Soni T: (267)A395 2011. in all and its consolidated and separate separate financial position of financial statements of 31 December 2010. R P De Silva. control to fraud orThis responsibility and applying appropriate accounting policies. An audit also evaluatingevaluating the the en entity’s expressing an opinion the effectiveness of the entity’s tity’s internal An audit also includes includes the appropriateness of the accounting policies used and and the reasonableness of the accounting made by appropriateness of the accounting policies used the reasonableness of the accounting estimates estimates made by management. Opinion Certified Public Accountants Gaborone 15 March 2011 Certified Public Accountants Gaborone 15 March 2011 PricewaterhouseCoopers. selecting includes: designing. as well as evaluating the overall presentation of the financial statements statements. in all material respects. including the assessment of financial statements. T: (267) 395 2011. changes in equity and cash flows for the year then ended Opinion In our opinion.com/bw Senior Partner: B D Phirie PricewaterhouseCoopers. management. The procedures selected depend on the auditor’s judgement.MF: (267) S Sinha. theon pages 35 to 110. but not for not for the purpose of expressingan opinion onon the effectiveness ofentity’s internal control. Report on the financial statements and have audited the group annual financial statements changes in equity and cash flows for the year then ended separate statements of comprehensive income. which comprise consolidated and separate balance sheets as at Directors’ responsibility for the financial statements and a summary of significant accounting policies and other explana explanatory notes. implementing and maintaining internal cont relevant to the preparation and fair presentation of financial statements that are free from material misstatement. P O Box 294. whether due due to fraud or In makingmaking those risk assessments. whether due Act.com/ Wijesena. and annual financial statements of ABC Holdings We and a summary of significant accounting policies and other explana 31 December 2010. S Sinha. the consolidated and In our opinion.control. error. P O Box 294. Botswana Park. material respects. We conducted our Auditor’s responsibility audit in accordance express an opinion on these financialAuditing. R P De Silva. to fraud or error. out consolidated 110 Limited. This responsibility includes: designing. 34 ABC Holdings Limited ANNUAL REPORT 2010 . Partners: R Binedell. www. as well as evaluating the overall presentation of the financial statements statements. including the assessment of the risks of material misstatement. The procedures selected depend on the auditor’s judgement. Fairground Office Park Gaborone.com/bw Associates: S Edirisinghe. Those standards require that we comply with financial ethical requirements and material misstatement. statements are free fromplan and perform the audit to obtain reasonable assurance whether the financial An audit involves performing procedures to obtain audit evidence about the amounts and d disclosures in the An audit involves performing procedures to obtain audit evidence about the amounts and d disclosures in the financial statements. the consolidated 0. financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards andards. 110 The company’s directors are responsible for the preparation and fair presentation of these financial statements preparation Directors’ responsibility for the financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies The 2003. and separate statements of comprehensive income. opinion. Gaborone. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Those standards require that weour Our responsibility is to with International Standards on statements based on our audit. S K K Wijesena pwc. Botswana Park. We conducted comply with audit in accordance with International perform on audit to obtain reasonable assurance whether the ethical requirements and plan and Standards the Auditing. statements are free from material misstatement. whether due are reasonable in the circumstances. the annual financial statements present fairly. the auditor considersinternalal control relevantthe the entity’s preparation and fair presentation of the statements in considers internal al control relevant to to entity’s preparation and fair presentation of the financial financial statements in order to design audit procedures thatthat are appropriate in the circumstances. but the purpose of order to design audit procedures are appropriate in the circumstances. and making accounting estimates that error. whether to fraud or error. and its accordance and International Financial Reporting Standards andards.INDEPENDENT AUDITOR’S REPORT Independent auditor’s report to the members of ABC Holdings Limited Report on the financial statements Independent auditor’s group the members of statements and annual financial statements of ABC Holdings We have audited thereport toannual financial ABC Holdings Limited Limited. 397 3901. explanatory notes. the auditor the risks of material misstatement. 2003. as set out on pages 35 to 110. s. S K K Wijesena Wijesena. Senior Partner: B D Phirie Partners: R Binedell. www. Fairground Office Park Gaborone. the annualABC Holdings Limited as present fairly. the consolidated and separateperformance and its of ABC Holdingsseparate cash flows for the year then ended inconsolidatedwith separate financial financial position consolidated and Limited as of 31 December 2010. M Lalithkumar. Lalithkumar. Plot 50371. selecting and applying appropriate accounting policies.com/ pwc.
the cash flow statement and the notes. continues to 1 January 2013) ||further improvements to IFRS (issued in May 2010) ||IFRIC 19.SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2010 Reporting entity ABC Holdings Limited (the “Company”) is domiciled in Botswana. the balance sheet. All transaction costs will be expensed. ‘This is a collection of amend ments to IFRSs. makes two significant changes. The adoption of the standard has no impact to the Group in the current year. It also prohibits including time value in the onesided hedged risk when designating options as hedges. ‘Related party disclosures’ (effective from 1 January 2011) ||IFRS 9. with some contingent payments subsequently remeasured at fair value through income. It prohibits designating inflation as a hedgeable component of a fixed rate debt. or in the period of the revision and future periods if the revision affects both current and future periods. ‘Financial Instruments: Recognition and Measurement Eligible Hedged Items’. ||IAS 27. ‘Financial Instruments’ (effective from Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Some amendments involve consequential amendments to other IFRSs. The adoption of the standard has no impact to the Group in the current year. ||Improvements to IFRSs. The Group has chosen not to early adopt the following standards and interpretations that were issued but not yet effective for accounting periods beginning on 1 January 2010: ||amendments to IAS 32. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. the Group adopted the following interpretations effective in 2010. ‘Business Combinations – Revised’. The annual improvements project provides a vehicle for making nonurgent but necessary amendments to IFRSs. all pay ments to purchase a business are to be recorded at fair value at the acquisition date. that are relevant to the Group: ||IFRS 3. ‘Consolidated and Separate Financial State ments – Revised’. The estimates and underlying assumptions are reviewed on an ongoing basis. ‘Classification of rights issues’ (effective from 1 February 2010) ||amendment to IAS 24. Any remaining interest in the entity is remeasured to fair value and a gain or loss is recognised in profit or loss. with some significant changes. The Group classifies its expenses by the nature of expense method. The consolidated financial statements are prepared in accordance with the going concern principle under the historical cost basis as modified by the revaluation of financial instruments classified as availableforsale. The standard also specifies the accounting when control is lost. the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The adoption of the standard has no impact to the Group in the current year. and presents its cash flows using the indirect method. land and buildings and investment properties. income and expenses. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period.’ 35 . These amendments are the result of conclusions the IASB reached on proposals made in its annual improvements project. The consolidated financial statements of the Company for the year ended 31 December 2010 include the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and its jointly controlled entities. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the minority interest. For example. estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed below: apply the acquisition method to business combinations. The consolidated financial statements comprise the con solidated income statement and statement of comprehensive income shown as two statements. ‘Extinguishing Financial Liabilities with Equity Instruments’ (effective from 1 July 2010) Basis of preparation The Group presents accounts in accordance with IFRS. the statement of changes in equity. requires the effects of all transactions with noncontrolling interests to be recorded in equity if there is no change in control. In preparing these financial statements. financial assets and liabilities held “at fair value through profit or loss”. The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements. ||Amendments to IAS 39. They will no longer result in goodwill or gains and losses.
All models are certified before they are used. ABC Holdings Limited’s Zimbabwe operations have adopted the US Dollar as its functional and reporting currency. If the Group fails to keep these investments to maturity other than for the specific circumstances – for example. This classification requires significant judgement. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. the Zimbabwe operations have discon tinued the preparation of financial statements in accordance with IAS 29 ‘Financial Reporting in Hyper inflationary Economies’ from that date. the Group evaluates its intention and ability to hold such investments to maturity. volatility and estimated cash flows) and therefore cannot be determined with precision. Significant estimates and judgements are applied in 36 ABC Holdings Limited ANNUAL REPORT 2010 . based on market conditions and information about the financial instrument. with the Botswana Pula. not amortised cost. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group. such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. and introduced multiple international currencies. The investments would therefore be measured at fair value. areas such as credit risk (both own and counterparty). they are validated and periodically reviewed by qualified personnel independent of the area that created them. The methodology and assumptions used for estimating both the amount and timing of future cash flows are The Group is subject to income taxes in numerous jurisdictions. Where the final tax outcome of these matters is different from the amounts that were initially recorded.Significant accounting policies continued ||Inflation adjusted accounts In February 2009. ||Goodwill impairment The Group assesses goodwill for impairment on an annual basis based on value in use calculations. volatilities and correlations require man agement to make estimates. ||Held-to-maturity investments The recognition of deferred tax assets is based on profit forecasts made by management of the particular Group company where the asset has arisen. ||Fair value of derivatives Many of the Group’s financial instruments are measured at fair value on the balance sheet and it is usually possible to determine their fair values within a reasonable range of estimates. or national or local economic conditions that correlate with defaults on assets in the Group. ||Income taxes The Group reviews its loan portfolios to assess impairment at least on a monthly basis. (eg interest rates. and models are calibrated to ensure that outputs reflect actual data and comparative market prices. the Group 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. ||Deferred tax assets The fair value of financial instruments that are not quoted in active markets is determined by using valuation techniques. selling an insignificant amount close to maturity – it will be required to reclassify the entire category as available for sale. To the extent practical. Changes in assumptions about these factors could affect reported fair value of financial instruments. however. the Government of Zimbabwe effec tively discontinued the use of the Zimbabwe Dollar. models) are used to determine fair values. Consequently. Fair value estimates are made at a specific point in time. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the port folio when scheduling its future cash flows. These forecasts are based on the Group’s recapitalisation plans of the subsidiary and market conditions prevailing in the economy in which the Company operates. These estimates are subjective in nature and involve uncertainties and matters of judgement. In determining whether an impairment loss should be recorded in the income statement. as heldtomaturity. Where valuation techniques (for example. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. models use only observable data. In making this judgement. South African Rand and the US Dollar being the anchor currencies. ||Fair value of financial instruments reviewed monthly to reduce any differences between loss estimates and actual loss experience. Significant estimates are required in determining the worldwide provision for income taxes. ||Impairment of loans and advances The Group follows the IAS 39 guidance on classifying nonderivative financial assets with fixed or determinable payments and fixed maturity.
Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. are eliminated in preparing the consolidated financial statements. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Unrealised gains arising from transactions with associates and joint ventures are eliminated against the investment in the associate. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group is exposed to credit risk arising from its daily lending activities. until the date joint control ceases. ||Credit risk management Associates Associates are those enterprises in which the Group has significant influence. and any unrealised gains arising from intragroup transactions. Accounting policies of subsidiaries conform to the policies adopted by the Group for its banking and investment management activities. Jointly controlled entities Jointly controlled entities are those enterprises over whose activities the Group has joint control established by con tractual agreement. Unrealised losses are eliminated in the same way as unrealised gains. Financial assets not individually impaired are included in a collective assessment for impairment. financial information presented in BWP has been rounded off to the nearest thousand. Functional and presentation currency The financial statements are presented in Botswana Pula (BWP). but only to the extent that there is no evidence of impairment. The consolidated financial statements include the Group’s share of the total gains or losses of the entity on an equity accounted basis from the date that joint control commences. Goodwill is any excess of the cost of an acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities acquired. Future cash flows in a group of financial assets that are collectively assessed are estimated on the basis of contractual cash flows in the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their 37 . Investments in subsidiaries are accounted for at cost less impairment losses in the Company accounts. Goodwill arising on acquisition is included in the carrying amount of the investment. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. generally accompanying a shareholding of between 20% and 50% of the voting rights over the financial and operating policies. Control is defined as the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. Except as indicated. Goodwill All business combinations are accounted for by applying the purchase method. The consolidated financial statements include the Group’s share of the total gains and losses of associates on an equity accounted basis. but not control. The assumptions applied in testing goodwill for impairments at year end are discussed in note 17. At year end credit risk related exposures are assessed for impairment. Investments in associates and joint ventures are accounted for at cost less impairment losses in the Company’s separate financial statements. Impairment on individually impaired financial assets is determined based on the estimated future cash flows discounted at an appropriate rate. The cost of an acquisition is measured as the fair value of the assets given. Transactions eliminated on consolidation Intragroup balances and transactions. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the enterprise. its share of postacquisition movements in reserves is recognised in reserves. The accounting policies have been applied consistently by Group entities. Basis of consolidation Subsidiaries Subsidiaries are those enterprises controlled by the Company. plus costs directly attributable to the acquisition. The Group’s share of its associates’ postacquisition profits or losses is recognised in the income statement. which is the Company’s functional currency and the Group’s presentation currency. the appropriate growth and discount rates. from the date significant influence commences until the date that significant influence ceases. equity instruments issued and liabilities incurred or assumed at the date of exchange. and the historical loss experience for assets with credit risk characteristics similar to those in the Group.projecting the future pretax cash flows. The carrying amounts of these investments are reviewed annually and written down for impairment where considered necessary.
Foreign currency transactions Foreign currency transactions are translated at the foreign exchange rates ruling at the date of the transaction. accounted for directly in equity. irrespec tive of the extent of any noncontrolling interest. are accounted for as transactions with equity holders of the Group. which could impact on distributable profits. from their respective measurement currencies at foreign exchange rates ruling at the balance sheet date. or partially disposed of. Transaction costs on or after 1 January 2010 are recognised within profit and loss as and when they are incurred. Nonmonetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date Transactions with non-controlling interests Transactions. Foreign exchange differences arising on translation are recognised as foreign currency translation reserve in equity. is recognised directly in profit or loss. This applies whether the consideration was for shares or cash. Botswana Pula. the excess of the purchase consideration over the Group’s proportionate share of the subsidiary’s additional net asset value of the subsidiary acquired is accounted for directly in equity. No goodwill is recorded. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. All other foreign exchange gains are presented within the income statements within “other net (losses)/gains”. The excess of the fair value of the Group’s share of the identifiable net assets acquired over the cost of the acquisition is recorded immediately in the income statement. Instead. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired. The acquirer in a business combination under common control does not restate any assets and liabilities to their fair values. the acquirer incorporates the assets and liabilities at their precombination carrying amounts without fair value uplift. The Group elects to measure noncontrolling interests on the acquisition date at either fair value or at the non controlling interest’s proportionate share of the subsidiary’s identifiable net assets. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment. Foreign entities The assets and liabilities of foreign operations are translated to the Group’s presentation currency. Differences arising on translation are recognised in the income statement and shown under other income. For purchases of additional interests from noncontrolling interests. When a foreign operation is disposed of. Impairment losses are recognised in the income statement. Business combinations The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The excess of the cost of an acquisition over the Group’s share of the fair value of identifiable net assets acquired is recorded as goodwill and accounted for in terms of accounting policy. For disposals to noncontrolling shareholders. The cost of an acquisition is measured as the sum of the fair value of the assets given. The acquirer’s financial statements include the acquired entity’s results from the date of the business combination. equity instruments issued and liabilities incurred or assumed at the acquisition date. with minority noncontrolling interests shareholders that do not result in the gain or loss of control. the difference. such exchange differences are recognised in the income statement as part of the gain or loss on sale. except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Any difference between the cost of investment and the carrying value of the net assets is recorded in equity. Intangible assets. depending on local legislation. All acquisitionrelated costs are expensed. Transaction costs for any business combinations prior to 1 January 2010 are capitalised as part of the cost of an acquisition. irrespective of the extent of any minority interest. The revenues and expenses of foreign operations are translated to Botswana Pula at the average exchange rate for the year. referred to as negative goodwill. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or cost. Goodwill is carried at cost less accumulated impairment losses.Significant accounting policies continued fair values at the acquisition date. Common control transactions Entities are under common control when the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination and where control is not transitory. the profit or losses on the partial disposal of the Group’s interest in a subsidiary to noncontrolling interests is also 38 ABC Holdings Limited ANNUAL REPORT 2010 . including partial disposals.
the date on which the Group commits to purchase or sell the asset. All changes in fair value are recognised in the income statement. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of shortterm profit taking. containing one or more embedded derivatives that could significantly modify the cash flows. Financial assets at fair value through profit or loss are measured at initial recognition and subsequently at fair value based on quoted market price using the bid/offer mid rate at the balance sheet date. such as equity investments. the instruments are measured using valuation models. A liability is derecognised when it is extinguished. or ||financial instruments. unless they are designated as hedging instruments. Derecognition of assets and liabilities An asset is derecognised when the Group loses control over the contractual rights that comprise the asset. and those designated at fair value through profit or loss at inception. and availableforsale financial assets. Changes in the fair value of monetary securities denominated in foreign currency classified as availableforsale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. heldtomaturity investments. Management determines the classification of its investments at initial recognition. other than: 39 .that the fair value was determined. Financial assets Initial recognition The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss. Financial assets and financial liabilities are designated at fair value through profit or loss when: | |doing so significantly reduces measurement incon Recognition of assets and liabilities Assets are recognised when the Group irrevocably gains control of a resource from which future economic benefits are expected to flow to the Group. Subsequent to initial recognition. For cash flow purposes cash and cash equivalents include bank overdrafts. are designated at fair value through profit or loss. a contingent liability is disclosed. cash deposited with banks and shortterm highly liquid investments with maturities of three months or less when purchased. Financial assets at fair value through profit or loss This category has two subcategories: financial assets held for trading. or outflow of resources from the Group can be made. the fair values are remeasured at each reporting date. Regularway purchases and sales of financial assets at fair value through profit or loss. The fair value designation. and transaction costs are expensed in the income statement. Translation differences related to changes in the amortised cost are recognised in the income statement. sistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortised cost for loans and advances to customers or banks and debt securities in issue. Derivatives are also categorised as held for trading. is irrevocable. and other changes in the carrying amount are recognised in equity. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. If there is no quoted market price in an active market. Financial assets carried at fair value through profit and loss are initially recognised at fair value. heldtomaturity and availableforsale are recognised on trade date. If there is a possible obligation or outflow of resources from the Group or where a reliable estimate is not available. ||certain investments. are 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 are designated at fair value through profit or loss. Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. loans and receivables. Cash and cash equivalents Cash and cash equivalents comprise cash balances on hand. Gains and losses arising from changes therein are recognised in interest income for all dated financial assets and in other revenue within non interest revenue for all undated financial assets. once made. Liabilities are recog nised when the Group has a legal or constructive obligation as a result of past events and a reliable estimate of the amount of the obligation. such as debt securities held.
If nonobservable market data is 40 ABC Holdings Limited ANNUAL REPORT 2010 . unless the fair value is evidenced by comparison with other observable current market transactions in the same instrument. is recognised in the income statement. commonly referred to as day one profit or loss. the fair value of the consideration given or received. Reclassifications are made at fair value as of the reclassification date. If the Group were to sell other than an insignificant amount of heldto maturity assets. Availableforsale quoted investments are valued at market value using the bid/offer mid rate. exchange rates or equity prices or financial assets that are not designated as another category of financial assets. Dividends received on availableforsale instruments are recognised in the income statement when the Group’s right to receive payment has been established.Significant accounting policies continued ||those that the entity intends to sell immediately or in the short term. Available-for-sale financial assets Availableforsale investments are those intended to be held for an indefinite period of time. Included in loans and advances are finance lease receivables. which may be sold in response to needs for liquidity or changes in interest rates. indicate that the fair value differs from the transaction price. the availableforsale reserves are transferred to the income statement. When such valuation models. Interest income. Origination transaction costs and origination fees received that are integral to the effective rate are capitalised to the value of the loan and amortised through interest income as part of the effective interest rate. Effective interest rates for financial assets reclassified to loans and receivables and heldtomaturity categories are determined at the reclassification date. this initial difference. less any impairment losses. the unquoted investments are stated at cost. Foreign exchange gains or losses on availableforsale debt invest ments are recognised in the income statement.e. On realisation of the investment. Availableforsale investments are marked to market and any gains or losses arising from the revaluation of investments are shown in shareholders’ equity as available Fair value The best evidence of the fair value of a financial instrument on initial recognition is the transaction price. with only observable market data as input. Further increases in estimates of cash flows adjust effective interest rates prospectively. Reclassification of financial assets The Group may choose to reclassify a nonderivative financial asset held for trading out of the held for trading category if the financial asset is no longer held for the purpose of selling it in the near term. In addition. or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets. i. or ||those for which the holder may not recover substantially all of its initial investment. Finance lease receivables are those leases where the Group transfers substantially all the risk and reward incident to ownership of an asset. if necessary. the entire category would be reclassified as availableforsale. Fair value becomes the new cost or amortised cost as applicable. Heldtomaturity fixed interest instru ments. and those that the entity upon initial recognition designates as at fair value through profit or loss. Financial assets other than loans and receivables are permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. Unlisted equity investments and instruments for which there is no quoted market price are measured using valuation models. held in investment portfolios. the Group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held for trading or availableforsale categories if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. On reclassification of a financial asset out of the “at fair value through profit or loss” category. is recognised in the income statement immediately. are stated at cost. which are classified as held for trading. other than because of credit deterioration. Loans and advances are accounted for on an amortised cost basis using the effective interest rate. Where the valuation models may not produce reliable measurement. Finance lease charges are recognised in income using the effective interest rate method. accounted for separately. forsale reserves. ||those that the entity upon initial recognition designates as availableforsale. They are stated net of allowances for specific and portfolio impairment. Held-to-maturity investments Heldtomaturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. all embedded derivatives are reassessed and. calculated using the effective interest method. with out modification or repackaging. The majority of the Group’s advances are included in the loans and receivables category. and no reversals of fair value gains or losses recorded before reclassification date are subsequently made.
If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset. estimated future cash flows are based on management’s best estimates and the discount rate is a marketrelated rate at the balance sheet date for a financial asset with similar terms and conditions. industry group. and those prices represent actual and regularly occurring market transactions on an arm’s length basis. it includes the asset in a group of financial assets with similar credit risk character istics and collectively assesses them for impairment. the instruments are carried at cost less impairment. If the market for a financial asset is not active or the instrument is an unlisted instrument. ||initiation of bankruptcy proceedings. The timing of recognition of deferred day one profit or loss is determined individually. ||deterioration in the value of collateral. If a loan or held tomaturity investment has a variable interest rate. The fair value for loans and advances as well as liabilities to banks and customers are determined using a present value model on the basis of contractually agreed cash flows. the discount rate for measuring any impairment loss is the current effective interest rate determined under the 41 .used as part of the input to the valuation models. equity ratio. and individually or collectively for financial assets that are not individually significant. Indications that a market is inactive are when there is a wide bid offer spread or significant increase in the bid offer spread or there are few recent transactions. any resulting difference between the transaction price and the model value is deferred. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange. whether significant or not. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. inputs are based on observable market indicators at the balance sheet date and profits or losses are only recognised to the extent that they relate to changes in factors that market participants will consider in setting a price. the fair values of financial assets and liabilities are based on quoted market prices or dealer price quotations for financial instruments traded in active markets. net income percentage of sales). If the above criteria are not met. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. pricing service or regulatory agency. deferred until the instrument’s fair value can be determined using market observable inputs. liquidity and costs. These include the use of recent arm’s length transactions. the market is regarded as being inactive. 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 occurred after the 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. or realised through settlement. the fair value is determined by using applicable valuation techniques. and ||downgrading below investment grade level. The deferral and unwind method is based on the nature of the instrument and availability of market observable inputs. discounted cash flow analyses. ||cash flow difficulties experienced by the borrower (for example. taking into account credit quality. Impairment of financial assets a) Assets carried at amortised cost The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. broker. Where pricing models are used. pricing models and valuation techniques commonly used by market participants. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Where discounted cash flow analyses are used. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: ||delinquency in contractual payments of principal or interest. ||breach of loan covenants or conditions. dealer. It is either amortised over the life of the transaction. Subsequent to initial recognition. In cases where the fair value of unlisted equity instruments cannot be determined reliably. ||deterioration of the borrower’s competitive position. 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 asset’s original effective interest rate.
or other factors indicative of changes in the probability of losses in the Group and their magnitude). Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. the cumulative loss – measured as the difference between the acquisition cost and the current fair value. property prices. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. As a practical expedient. Derivative financial instruments and hedging activities A derivative is a financial instrument whose value changes in response to an underlying variable. in a subsequent period. in a subsequent period. c) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. the effects of discounting unwind over time as interest income. the previously recognised impairment loss is reversed by adjusting the allowance account. the fair value of a debt instrument classified as availableforsale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. changes in unemployment rates. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example. are treated as separate derivatives 42 ABC Holdings Limited ANNUAL REPORT 2010 . Historical loss experience is adjusted on the basis of 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 currently exist. including discounted cash flow models and options pricing models. including recent market transactions.e. the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating). geographical location. that requires little or no initial investment and that is settled at a future date. or realise the asset and settle the liability simultaneously. The amount of the reversal is recognised in the income statement in impairment charge for credit losses.Significant accounting policies continued contract. The calculation of the present value of the 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. the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. less any impairment loss on that financial asset previously recognised in the income statement – is removed from equity and recognised in the income statement. and valuation tech niques. If. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. collateral type. For the purposes of a collective evaluation of impairment. as appropriate. If. a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. on the basis of the Group’s grading process that considers asset type. When a loan is uncollectible. industry. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis. Certain derivatives embedded in other financial instruments. it is written off against the related provision for loan impairment. past due status and other relevant factors). b) Assets classified as available-for-sale The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. the impairment loss is reversed through the income statement. financial assets are grouped on the basis of similar credit risk characteristics (i. whether or not foreclosure is probable. In the case of equity investments classified as availableforsale. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Fair values are obtained from quoted market prices in active markets. If any such evidence exists for availableforsale financial assets. 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 the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Subsequent to impairment. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. payment status.
Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due. The Group documents at inception of the transaction. overdrafts and 43 . the relationship between hedged items and hedging instruments. the nature of the item being hedged. both at hedge inception and on an ongoing basis. Hedge accounting is used for derivatives designated in this way provided certain criteria are met. Effective changes in fair value of currency futures are reflected in “net trading income – foreign exchange – transaction gains less losses”. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement under net trading income. together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement. The gain or loss relating to the ineffective portion is recognised immediately in the income statement – “net trading income – transaction gains less losses”. c) hedges of a net investment in a foreign operation (net investment hedge). Effective changes in fair value of interest rate swaps and related hedged items are reflected in “net interest income – net gains/losses on hedging instruments”. any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. If the hedge no longer meets the criteria for hedge accounting. b) hedges of highly probable future cash flows attributa ble to a recognised asset or liability. The Group designates certain derivatives as either: a) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge). Any ineffectiveness is recorded in “net trading income”. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement unless the Group chooses to designate the hybrid contacts at fair value through profit or loss. However. The gain or loss relating to the effective portion of currency swaps and options are recorded in “net trading income – foreign exchange – transaction gains less losses”. b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. as well as its risk management objective and strategy for undertaking various hedge transactions. or d) derivatives that do not qualify for hedge accounting.when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. or a forecasted transaction (cash flow hedge). Amounts accumulated in equity are recycled to the income statement in the periods when the hedged item affects profit or loss. Such financial guarantees are given to banks. When a hedging instrument expires or is sold. c) Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The Group also documents its assessment. or when a hedge no longer meets the criteria for hedge accounting. When a forecast transaction is no longer expected to occur. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security. financial institutions and other bodies on behalf of customers to secure loans. the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. d) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. the gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with designated financial assets or financial liabilities are included in “net income from financial instruments designated at fair value”. in accordance with the terms of a debt instrument. and if so. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument. the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the income statement over the period to maturity.
the Group liabilities under such guarantees are measured at the higher of the initial measurement. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. the Group continues to recognise the asset to the extent of its continuing involvement. Owneroccupied properties are held for use in the supply of services or for administrative purposes. otherwise at least once every three years. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. These estimates are determined based on experience of similar transactions and history of past losses. Subsequent to initial recognition. Derecognition of financial instruments Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired. supplemented by the judgement of management. Property and equipment Land and buildings are shown at fair value based on annual valuations by external independent valuers under hyper inflationary economies. Land is not depreciated. The estimated useful lives are as follows: ||Buildings 40 – 50 years ||Bank premises and renovations 20 years ||Computer equipment 3 – 5 years ||Office equipment 3 – 5 years ||Furniture and fittings 5 – 10 years ||Vehicles 4 – 5 years 44 ABC Holdings Limited ANNUAL REPORT 2010 . Securities lent to counterparties are retained in the financial statements and are classified and measured in accordance with the accounting policy on financial instruments. In these cases. The revaluation surplus or deficit is reversed when the asset is disposed of. The Group enters into transactions whereby it transfers assets recognised on its balance sheet. it derecognises the asset if control over the asset is lost. cancelled or expires. Securities purchased under agreements to resell (reverse repos) are recorded as loans granted under resale agreements and included under loans and advances to other banks or customers as appropriate. Where parts of an item of property and equipment have different useful lives. Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses. Income and expenses arising from the securities borrowing and lending business are recognised on an accrual basis over the period of the transactions. Financial liabilities are derecognised when they are extinguished. Depreciation is charged to the income statement on a straightline basis over the estimated useful life of the property and equip ment. When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets. The difference between the sale and repurchase price is treated as interest and amortised over the life of the repurchase agreement using the effective interest method. All other items of property and equipment are stated at cost less accumulated depreciation and impairment losses. determined by the extent to which it is exposed to changes in the value of the transferred asset. Repurchase agreements Securities sold subject to linked repurchase agreements (repos) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral. Transfers of assets with retention of all or substantially all risks and rewards include securities lending and repurchase agreements. The liability to the counterparty is included under deposit and current accounts. less amortisation calculated to recognise in the income statement the fee income earned on a straightline basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. In transactions where the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset. Surpluses and deficits arising thereon are transferred to the property revaluation reserve in equity. the transaction is accounted for as a secured financing transaction similar to repurchase transactions. then the transferred assets are not derecognised from the balance sheet. they are accounted for as separate items of property and equipment. the obligation to return the securities borrowed is recorded at fair value as a trading liability. Securities borrowed are not recognised in the financial statements unless these are sold to third parties. but retains either all risks and rewards of the transferred assets or a portion of them. or where the Group has transferred its contractual rights to receive cash flows on the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. If all or substantially all risks and rewards are retained. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. that is when the obligation is discharged.Significant accounting policies continued other banking facilities. In transfers where control over the asset is retained.
depreciation methods and useful lives are reviewed. the Group recognises any impairment loss on the assets associated with that contract. using the effective interest method. Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. There have been no changes in the estimated useful lives from those applied in the previous financial year. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.The assets’ residual values. which include certain guarantees other than financial guarantees. Amortisation is recognised in the income statement on a straightline basis over the estimated useful life of the software. Provisions and contingent liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. where appropriate. otherwise at least once every three years. the risks specific to the liability. useful lives and residual values are reviewed at each financial year end and adjusted. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Amortisation methods. Other intangible assets Software Software acquired by the Group is stated at cost less accumulated amortisation and accumulated impairment losses. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances 45 . Investment property Investment properties are properties which are held by the Group either to earn rental income or for capital appreciation or for both. indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment. The cost of daytoday servicing of property and equipment are recognised in the income statement as incurred. Before a provision is established. The deemed cost for any reclassification between investment properties and owner occupied properties is its fair value. at each balance sheet date. Contingent liabilities are not recognised in the financial statements but are disclosed in the notes to the financial statements. Subsequent expenditure on computer software is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. A provision for restructuring is recognised when the Group has approved a detailed formal plan. if necessary. Contingent liabilities. at the date of reclassification. Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset. Fair value is based on open market value and any gain or loss arising is recognised in the income statement. assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). as appropriate only when it is probable that future economic benefits associated with the item will flow to the Group. Nonfinancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. of one or more uncertain future events not wholly within the Group’s control. are possible obligations that arise from past events whose existence will be confirmed only by the occurrence. Future operating costs or losses are not provided for. Fair value adjustments on investment properties are included in the income statement as investment gains or losses in the period in which these gains or losses arise and are adjusted for any double counting arising from the recognition of lease income on the straightline basis compared to the accrual basis normally assumed in the fair value determination. or nonoccurrence. and letters of credit pledged as collateral security. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. The estimated useful life is three to five years. Provisions are determined by discounting the expected future cash flows using a pretax discount rate that reflects current market assessments of the time value of money and. Investment property is stated at fair value determined annually by an independent registered valuer under hyperinflationary economies. and the restructuring either has commenced or has been announced publicly. and adjusted if appropriate. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Deposits and other borrowed funds Deposits and other borrowed funds are initially measured at fair value plus transaction costs and subsequently measured at their amortised cost. from the date from the date that it is available for use.
Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction. interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Fee and commission income Fee and commission income arises from services provided by the Group. hold and invest funds on behalf of clients and act as trustees and in other fiduciary capacities. Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders and dividends thereon are recognised in the income statement as an interest expense. These shares are treated as a deduction from the issued share capital and the cost price of the shares is presented as a deduction from total equity. a shorter period to the net carrying amount of the financial asset or financial liability. from the proceeds. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss. method except for those classified as held for trading based on the original settlement amount. Interest earned on accounts. Fee and commission income is recognised when the corresponding service is provided and receipt of the fee is certain. Income from these activities is brought into account over the period to which the service relates. Net trading income Net trading income includes realised gains and losses arising from trading in financial assets and liabilities and unrealised changes in fair value of these instruments. which have been in arrears for three months or more is credited to an interest in suspense account. are reversed on consolidation and dividends received are eliminated against dividends paid. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate. Assets and liabilities representing such activities are not included on the balance sheet. Operating income Income such as revenue derived from service fees. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. prepayment options) but does not consider future credit losses. any con sideration received is included in shareholders’ equity. Interest Interest income and interest expense are recognised in the income statement for all interestbearing financial instruments on an accruals basis using the effective yield Rental income Rental income from investment property is recognised in the income statement on a straightline basis over the 46 ABC Holdings Limited ANNUAL REPORT 2010 . including cash management. when appropriate. and held at cost. as these relate directly to clients.Significant accounting policies continued Managed funds and trust activities Certain companies in the Group operate unit trusts. Fair value changes recognised in the subsidiary’s financial statements on equity investments in the holding entity’s shares. net of tax. net surplus arising from trading activities and other income are included in operating income. the Group estimates cash flows considering all contractual terms of the financial instrument (for example. project and structured trade finance transactions. Share capital Preference share capital Preference share capital is classified as equity if it is non redeemable and any dividends are discretionary at the option of the directors. net interest income. Dividends Dividends are recognised as a liability in the period in which they are declared. Loan commit ment fees for loans that are not expected to be drawn down are recognised on a straightline basis over the commitment period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or. transaction costs and all other premiums or discounts. commissions. This interest is only recognised in the income statement when the account is no longer in arrears. Where such shares are subsequently sold or reissued. Dividends Dividend income is recognised in the income statement on the date that the dividend is declared. Repurchase of share capital Shares repurchased by Group companies are classified as treasury shares. When calculating the effective interest rate.
term of the lease. Lease incentives granted are recognised as an integral part of total rental income.
Defined contribution plans
In terms of certain employment contracts, the Group provides for medical aid contributions to qualifying employees beyond the date of normal retirement. Although these benefits are a defined benefit plan, the full liability has not been recognised as the number of employees affected is very small. The contributions are recognised as an expense in the income statement as incurred.
Group as lessee
Leases where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leases’ inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are separated using the interest rate implicit in the lease to identify the finance cost, which is charged against income over the lease period, and the capital repayment, which reduces the liability to the lessor. Leases of assets are classified as operating leases if the lessor effectively retains all the risks and rewards of ownership. Payments made under operating leases, net of any incentives received from the lessor are charged to the income statement on a straightline basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
The Group recognises gratuity and other termination benefits in the financial statements when it has a present obligation relating to termination.
Leave pay accrual
The Group’s obligation in respect of accumulated leave days is recognised in full in the financial statements, on an undiscounted basis and is expensed as the related services are provided.
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Additional income taxes that arise from the distribution of dividend are recognised at the same time as the liability to pay the related dividend is recognised. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets or liabilities are measured using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is not recognised for the following temporary differences:
||the initial recognition of goodwill; ||the initial recognition of assets and liabilities, in a
Group as lessor
Lease and instalment sale contracts are primarily financing transactions in banking activities, with rentals and instal ments receivable, less unearned finance charges, being included in loans and advances on the balance sheet. Finance charges earned are computed using the effective interest method which reflects a constant periodic return on the investment in the finance lease. Initial direct costs paid are capitalised to the value of the lease amount receivable and accounted for over the lease term as an adjustment to the effective rate of return. The benefits arising from investment allowances on assets leased to clients are accounted for in tax. Leases of assets under which the lessor effectively retains all the risks and benefits of ownership are classified as operating leases. Receipts of operating leases from properties held as investment properties in investment management net of any incentives given to lessees, are accounted for as rental income on the straightline basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required by the lessee by way of penalty is recognised as income in the period in which termination takes place.
transaction that is not a business combination, which affects neither accounting nor taxable profits or losses; and
||investments in subsidiaries and joint ventures (excluding
Repossessed assets are not brought on balance sheet until they are sold off to extinguish or reduce the outstanding debt.
mutual funds) where the Group controls the timing of the reversal of temporary differences and it is probable that these differences will not reverse in the foreseeable future.
Significant accounting policies continued
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Current and deferred tax relating to items which are charged or credited directly to equity, are also charged or credited directly to equity and are subsequently recognised in the income statement when the related deferred gain or loss is recognised.
between business segments are conducted on an arm´s length basis, with intrasegment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance. In accordance with IFRS 8, the Group has the following business segments: Banking operations in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe and non banking operations arising from ABCH and nonbanking subsidiaries.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined the Group Executive Committee as its chief operating decision maker. All transactions
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. For the cash flow statement, these changes in presentation comprise of the separate disclosure of losses from associates of BWP16.2 million, which was previously included in the increase in operating assets line.
ABC Holdings Limited
ANNUAL REPORT 2010
FINANCIAL RISK MANAGEMENT
The Group’s activities exposes it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or a combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Group’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Group’s financial performance. The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and uptodate information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by Group Risk, under policies approved by the Board of Directors. The Board approves principles for overall risk management as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and nonderivative financial instruments. In addition, internal audit is responsible for the independent review of risk management and the control environment. The most important types of risk are credit risk, liquidity risk, market risk and operational risk. Market risk includes currency risk, interest rate and price risk.
refer to “Risk and Governance” – page 19. No one individual has the power to authorise credit exposures. Each subsidiary has a credit committee which operates within the defined limits set by the Board. These com mittees are responsible for the management of credit risk within their country, including credit decisions, processes, legal and documentation risk and compliance with impair ment policies. The Group Risk department regularly reviews each sub sidiary’s adherence to required standards. The Executive Committee reports to the Board and is responsible for approval of credit decisions that are above country limits, recommendations on exposure limits and impairment policies. The Group has adopted standard impairment policies which at a minimum comply with the prudential guidelines of the respective countries’ central banks. Impairments are determined monthly at subsidiary level and are subject to regular review by Group Risk.
Credit risk management
Loans and advances
In measuring credit risk of loans and advances to customers and to banks at a counterparty level, the Group considers three components: the probability of default by the client or counterparty on its contractual obligations; the current exposures to the counterparty and its likely future develop ment; and the likely recovery on the defaulted obligations. These credit risk measurements, which reflect expected loss, are embedded in the Group’s daily operational man agement. The operational measurements are contrasted with impairment allowances required under IAS 39, which are based on losses that have been incurred at the balance sheet date. The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparties. They have been developed internally and combine statistical analysis for certain categories, as well as credit officer judgement. Clients of the Group are segmented into five rating classes. The Group’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events.
The Group takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Group by failing to discharge an obligation. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Group’s portfolio, could result in losses that are different from those provided for at the balance sheet date. Country (or sovereign) risk is part of overall credit risk and is managed as part of the credit risk management function as it has a major impact on individual counterparties‘ ability to perform. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in offbalance sheet financial arrangements such as loan commitments. The Group Risk team reviews subsidiary risk exposures regularly, and reports to the Board of Directors. The Board has defined and documented a credit policy for the Group which forms the basis of credit decisions. This policy includes a framework of limits and delegation of credit approval authority which are strictly adhered to;
may weaken the asset or prospects of collection in full e. 50 ABC Holdings Limited ANNUAL REPORT 2010 . a) Collateral The Group employs a range of policies and practices to mitigate credit risk. ||charges over assets financed. ||mortgages over residential and commercial properties. Debt securities. All exposures are generally secured. or more than 12 months in arrears Substandard Doubtful Loss Risk limit control and mitigation policies The Group manages. in order to minimise credit loss. poor documentation or 30 days but less than 90 days in arrears the credit has defined weaknesses that may jeopardise liquidation of the debt i. In addition. if not attended to. which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and inventory and accounts receivable. The Group implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. Limits on the level of credit risk by product. or 180 days but less than 12 months in arrears facilities considered impossible to collect with little or no realisible security. which are secured by portfolios of financial instruments. or groups of borrowers. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower.e the paying capacity of the borrower is doubtful or inadequate. Some other specific control and mitigation measures are outlined below. ||charges over business assets such as premises. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. and reviewed regularly. and ||charges over financial instruments such as debt securities and equities. The principal collateral types for loans and advances are: ||cash collateral.g. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. industry sector and by country are approved by the Board of Directors. full recovery will not be possible. which is common practice. However. Guarantees and standby letters of credit carry the same credit risk as loans. The most traditional of these is the taking of security for funds advanced. as it is affected by each transaction subject to the arrangement. or more than 90 days but less than 180 days in arrears credit facilities with above weaknesses and has deteriorated further to the extent that even with the existing security. the credit risk associated with favourable contracts is reduced by a master netting arrangement to the extent that if a default occurs. limits and controls concentrations of credit risk in respect of individual counterparties and groups. with the exception of assetbacked securities and similar instruments. and to industries and countries. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities. The Group’s overall exposure to credit risk on derivative instruments subject to master netting arrangements can change substantially within a short period. c) Credit-related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. b) Master netting arrangements The Group further restricts its exposure to credit losses by entering into master netting arrangements with counter parties with which it undertakes a significant volume of transactions. Documentary and commercial letters of credit. treasury and other eligible bills are generally unsecured. the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. when considered necessary. as transactions are usually settled on a gross basis. and to geographical and industry segments.Financial risk management continued Group’s internal rating scale Category Performing Special mention Description the credit appears satisfactory the credit appears satisfactory but exhibits potential or inherent weaknesses which. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. all amounts with the counterparty are terminated and settled on a net basis.
The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39. or notional values used to express the volume of instruments outstanding. d) Derivatives The Group maintains strict control limits on net open derivative positions (that is. ||initiation of bankruptcy proceedings. This credit risk exposure is managed as part of the overall lending limits with customers. ||deterioration of the borrower’s competitive position.conditions. However. by using the available historical experience. The Group’s policy requires the review of individual financial assets at least once a month. The table below shows the percentage of the Group’s on and offbalance sheet items relating to loans and advances and the associated impairment for each of the Group’s internal rating categories. and are recorded on an actual loss basis. the difference between purchase and sale contracts) by both amount and term. 51 . the likely amount of loss is less than the total unused commitments. and ||downgrading below “Performing” level. With respect to credit risk on commitments to extend credit. or more regularly when individual circumstances require. Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually below materiality thresholds. which in relation to derivatives are only a fraction of the contract. The Group monitors the term to maturity of credit commitments because longerterm commitments generally have a greater degree of credit risk than shorterterm commitments. The amount subject to credit risk is limited to expected future net cash inflows of instruments. The assessment normally encompasses collateral held (including reconfirmation of its enforceability) and the anticipated receipts for that individual account. Collateral or other security is not always obtained for credit risk exposures on these instruments. except where the Group requires margin deposits from counterparties. ||deterioration in the value of collateral. Impairments classification Category Performing Special mention Substandard Doubtful Loss 2010 Loans and advances (%) 86% 6% 3% 1% 4% 100% Impairments (%) 19% 8% 6% 12% 55% 100% 2009 Loans and advances (%) 74% 16% 2% 2% 6% 100% Impairments (%) 18% 6% 8% 8% 60% 100% Impairments are managed on an expected loss basis. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance sheet date on a casebycase basis. together with potential exposures from market movements. as most commitments to extend credit are contingent upon customers maintaining specific credit standards. the Group is potentially exposed to loss in an amount equal to the total unused commitments. based on the following criteria set out by the Group: ||delinquency in contractual payments of principal or interest. and (ii) losses that have been incurred but have not yet been identified. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans. are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. experienced judgement and statistical techniques. and are applied to all individually significant accounts. adjusted for the provision of IAS 39. ||cash flow difficulties experienced by the borrower. ||breach of loan covenants or conditions. guarantees or letters of credit. Impairment policies The impairments shown in the balance sheet at year end are derived from each of the five internal rating grades.
471 75.093 Investment securities – Promissory notes Prepayments and receivables Current tax assets 210.251 – 727. 52 ABC Holdings Limited ANNUAL REPORT 2010 .827 102.567. Credit risk exposures relating to on-balance sheet assets are as follows: BWP’000s Placements with other banks Derivative financial assets Financial assets held for trading – – – – Government bonds Corporate bonds Treasury bills Bankers’ acceptances and commercial paper 2010 924.012 1.677 1.007.515 63.502 38.034 Financial assets designated at fair value (convertible debentures) Loans and advances to customers at amortised cost – – – – – – Mortgage lending Instalment finance Corporate lending Commercial and property finance Microfinance lending Other loans and advances 75.602 2.705 – – 2.913 1.205 Contingent liabilities Credit exposures relating to offbalance sheet items are as follows: Guarantees Loan commitments and other creditrelated facilities 2009 847.530 418.306 6. Investment in associates and listed equities have been excluded as they are regarded as primarily exposing the Group to market risk. For financial assets recognised on the balance sheet.832 166.822 153.951 244.146 129. For loan commitments and other creditrelated commitments that are irrevocable over the life of the respective facilities.388 5.993 7.973 3.359 385.377.672 17.659 320.151 135.735 1. For financial guarantees granted.805 339. ||the Group continues to improve its credit selection and monitoring processes. and ||loans and advances are generally backed by collateral.129.876 34. the exposure to credit risk equals their carrying amount before deducting impairments.870 132.913 4.194 98.832 34.784 106.034 3. while 20% (2009: 22%) represents financial assets held for trading.766 5. ||86% (2009: 74%) of the gross loans and advances portfolio is considered to be “neither past due nor impaired”. the maximum exposure to credit risk is the maximum amount that ABC Holdings Limited would have to pay if the guarantees are called upon.502 188.Financial risk management continued Maximum exposure to credit risk before collateral held or other credit enhancements The following table presents the maximum exposure to credit risk of balance sheet and offbalance sheet financial instruments.117.575 14.637 141. ||8% (2009: 10%) of gross loans and advances are “individually impaired”.327 45. before taking into account of any collateral held or other credit enhancements unless such credit enhancements meet offsetting requirements.609.216.072. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group resulting from both its loan and advances portfolio and financial assets held for trading based on the following: ||92% (2009: 90%) of the gross loans and advances portfolio is categorised in the top two grades of the internal rating system.966 38.996 57% (2009: 52%) of the total maximum exposure is derived from loans and advances.561 42.740 46.970 880. the maximum exposure to credit risk is the full amount of the committed facilities.
3 million).765.5 million (2009: BWP134.589. shares and stock in trade. Distribution of loans and advances by credit quality: BWP’000s Neither past due nor impaired Past due but not impaired Individually impaired Gross loans and advances Less: Allowance for impairment Net loans and advances 2010 2. Further information on the impairment allowance for loans and advances to customers is provided in notes 2 and 10. bonds over residential and commercial property.383 1.955 62. During the year ended 31 December 2010.639 148.802 203.600 268.151 103.573 45.132 53 .765.339 942.672 (134.659 283.963 95.995. with limited exposure to small and medium enterprises that have sufficient collateral. assets financed.347) 1.078.132 336. Credit quality Loans and advances The following tables reflect broadly. attributable to the recovery of economies from the financial crisis.589.Nature of security held The nature of security held ranges from cash security.645 182. stable credit quality across the majority of the Group’s businesses.330 3.584 2.216.325 The total impairment of loans and advances is BWP138.110 2009 1. The mix is expected to change following the introduction of retail banking. Most of the loans and advances are predominantly in the corporate sector. the Group’s total gross loans and advances increased by 51% (2009: decreased by 10%).465) 3.645 2009 16.129.853 322.192.575 (138.447 2.231 126. a) Distribution of loans and advances neither past due nor impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted below: Internal grade: Performing BWP’000s Mortgage lending Instalment finance Corporate lending Commercial and property finance Microfinance lending Other 2010 14.738 2.
2009 Undercollateralisation* 24. c) Loans and advances individually impaired The individually impaired loans and advances before taking into consideration the cash flows from collateral held is BWP268. All microfinance lending past due were categorised as “individually impaired” advances. along with the fair value of related collateral held by the Group as security. and charges over financial instruments such as debt securities and equities.893 4. The breakdown of the gross amount of individually impaired loans and advances by class.170 Days past due 31 – 60 days 61 – 90 days – 23.333 52.382 268.231 3.7 million).483) 71.775 Total 4.515 153.333 182.002 8.396 – 15.658 1.526 – – 57.330 *The under-collateralisation amount is fully impaired.667 28. 54 ABC Holdings Limited ANNUAL REPORT 2010 .752 24.738 Fair value collateral 39. the fair value of collateral is based on valuation techniques commonly used for the corresponding assets.265 160.507 139.707 151.358) BWP’000s Instalment finance Corporate lending Microfinance lending Other Fair value collateral 8.546 Undercollateralisation* (4.182 92. unless other information is available to indicate the contrary.132 273.Financial risk management continued b) Loans and advances past due but not impaired: age analysis Internal grade: Special mention Late processing and other administrative delays on the side of the borrower can lead to a financial asset being past due but not impaired.458 128.481 – – 129.349 203.091 – 22.958 105.748 89. are as follows: 2010 Gross loans 32. and charges over financial instruments such as debt securities and equities.492 24. the fair value is updated by reference to market price or indexes of similar assets.129 Gross loans 35.600 Upon initial recognition of loans and advances. Gross amount of loans and advances by class to customers that were past due but not impaired were as follows: 2010 BWP’000s Internal Grade: Special mention Instalment finance Corporate lending Microfinance lending 1 – 30 days 439 27.561 2009 BWP’000s Internal Grade: Special mention Mortgage lending Instalment finance Corporate lending Commercial and property finance Other 1 – 30 days 678 8. inventory and accounts receivable.864 – 114.306 6.183 144 336. Collateral taken for this category includes cash. mortgages over residential properties.183 144 150.545 8. Therefore.802 4.231 (19.640 221. In subsequent periods. charges over business assets such as premises. charges over business assets such as premises.264 Days past due 31 – 60 days 61 – 90 days 697 113.306 6.379 12.802 3.457 – 253 137. inventory and accounts receivable.193 Total 678 61. loans and advances less than 90 days past due are not usually considered impaired.3 million (2009: BWP203. mortgages over residential properties.665 1.168 Collateral taken for this category includes cash.439 – 28.
897 – 13.924 733 712.110 38. For this table.306 6.811 401.037 – 56. a previously overdue customer account is reset to a normal status.117.567 – – 19.713 – 16.388 5.742 Total 924. the Group has allocated exposures to regions based on the country of domicile of its counterparties: 2010 BWP’000s Placements with other banks Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances (net of impairments) Investment securities Prepayments and other receivables Current tax asset Botswana 236.194 884.6 million has been repaid subsequent to year end.2 million at 31 December 2010 (2009: BWP43.655 1.078. Restructuring policies and practices are based on indicators or criteria which.601 38.249 2009 5. as follows: Nature of assets Property Cash security Motor vehicles Carrying amount 2010 2.792 Other 25.900.9 million). Following restructuring.811 – 1.332 – 21.903 7.167 43. the Group obtained assets by taking possession of collateral held as security.d) Loans and advances renegotiated Restructuring activities include extended payment arrangements.356 Repossessed properties are sold as soon as practical. with the proceeds used to reduce the outstanding indebtedness. Concentration risk of financial assets with credit risk exposure a) Geographical sectors The following table breaks down the Group’s main credit exposure at their carrying amounts.257 14. of which an amount of BWP74.189 179.975 75. Renegotiated loans totalled BWP179.693 – 4. BWP’000s Mortgage lending Corporate lending* 2010 – 179. in the judgement of local management. Repossessed property is classified in the balance sheet under prepayments and other receivables.561 1.464 5.140 Tanzania 123. and managed together with other similar accounts.189 2009 760 43.738 77.168 7.069 – 122.740 55 . approved external management plans.674 – 6.241 126.807.470.502 188.005 589 4.4 million at year end. Repossessed collateral During 2010.827 75.564 633.749 Mozambique 121.502 6.012 3. as categorised by geographical regions as of 31 December 2010.054 436.934 – 4.365. indicate that payment will most likely continue.034 42.927 *Renegotiated but current loans include a corporate advance of BWP135.683 636.918 20. modification and deferral of payments.721 – 15.931 1.340 359.084 751 1.328 – – 232.340 Zimbabwe 329.033 3.977 Zambia 87. These policies are kept under continuous review.034 – 1.417 1.
968 – 7.006 – 359.941 – 32.995. 2010 Wholesale. retail and trade – – – – 339.703 Construction – – – – 197.938 30.993 880.185 Public sector – 68.693 – – 135.496 – 671 – 340.565 135 296.664 Manufacturing – 32.711 780 1.710 – – – 314.613 Manufacturing – – 11. as categorised by the industry sectors of the counterparties.977 – 4.968 – 498.845 – 313.234 24.806 – – – 370.384 – 663.058 518.380 440.852 870 262.832 166.463 Public sector – 126.913 3.970 1.410 Construction – – – 166.618 – 32.586 34.224 – 200.238 – 725.495 – – – 76.973 3.469 Tanzania 136.331 – 737. retail and trade – 16.389 – 3.992 – 17.045 1.133 418.937.664 – – – 166.185 – 188.135 – 202.095 – – – 220.392 Mozambique 224.090 Total 847.808 – 366.812 BWP‘000s Placements with other banks Financial assets held for trading Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax assets Agriculture – 17.028 – 449.675 – – – 513.542 BWP‘000s Placements with other banks Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax assets Agriculture – – 64.208 105.849 – – – 262.463 – 11.914 68.325 34.190.258 – 2.366 – 93.832 8.740 7.280 56 ABC Holdings Limited ANNUAL REPORT 2010 .174 3.617 157.356 321.167 2009 Wholesale.653 – 342.154 Zambia 37.766 Other 164.875 Zimbabwe 98.746 The following table breaks down the Group’s main credit exposure at their carrying amounts.Financial risk management continued 2009 BWP’000s Placements with other banks Financial assets held for trading Derivative financial assets Loans and advances (net of impairments) Investment securities Prepayments and other receivables Current tax asset Botswana 186.266 4.
388 5.325 34.026 Total 924.975 – – 276.174 – 58.740 Mining – 36.434 – 4.502 188.970 1.460 – 2.993 708.995.159 – 42.827 75.740 7.561 983.948 Tourism – – – 53.034 42.716 2009 Tourism – – – – 62.937.973 3.716 – – – 259.632 – – – 320.277 – – – 138.2010 Financial services 924.211 34.820 Financial services 847.227 38.078.012 301.260 – – – 62.306 6.913 3.832 166.802.778 – – – 53.561 1.084 Mining – – – – 539.462 – 543.921 Transport and energy – – – – 157.897 – 65.746 57 .533 6.489 6.188 – 284.260 Other – 7. 388 349.277 Individuals – – – 237.470.012 3.896 Individuals – – – – 259.444 Total 847.943 – 1.185 3.965 135.410.832 68.913 293.110 38.117.502 121.778 Other – 449 – 223.993 880.477 Transport and energy – – – 138.948 – – – 237.084 – – – 157.
967.139 129.463 751 15.and off-balance sheet financial instruments: At 31 December 2010 BWP‘000s Cash and shortterm funds Financial assets held for trading Financial assets designated at fair value Derivative financial asset* Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset EUR 51.461.750 255.952. The currency exposure that arises as a result of the Group’s continuing expansion and cross border investment activities is managed through the Executive Committee and the Group Asset and Liability Committee.878 – 15. thereby ensuring that any errors or unauthorised transactions are promptly identified. Market risk measurement techniques The major measurement techniques used to measure and control market risk are outlined below.798.860 45.425 7.763 (11.224 7.846 5.618 2.283 677.551 111.169 (14. Foreign exchange risk The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.299 402 – 26. Group Risk is responsible for monitoring of limits and pricing.621 25.411 29.715 6.622 277.144 38.678 167. currency and equity products. currency and counterparty limits.489 1.599) 6.653.405 *Notional amounts have been reported in the currency columns and adjustments made in “Other” to arrive at the fair values. Concentration of currency risk: On.656 15.483 17.335 – 415 – – 37. which is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Included in the table are the Group’s assets and liabilities at carrying amounts.064 91 – – 12.370 116. Market risks arise from open positions in interest rate. Market and foreign currency exposures related to dealing positions are housed and managed in the Treasury division within a framework of preapproved dealer.375 17.987 60.744 Net on-balance sheet position Credit commitments (71.555 884. credit spreads.046 94.347 166.455 2. all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rate.338 3.919 – – – 109.471 1. 58 ABC Holdings Limited ANNUAL REPORT 2010 .201 – 5 – – 242 – – – 95.241 – – 468 133.021 5.857 (2.Financial risk management continued Market risk The Group takes on exposure to market risks.059 23.202 1. foreign exchange rates and equity prices.502 2.535 BWP 153.242 1.524 Deposits Derivative financial liabilities* Creditors and accruals Current tax liabilities Deferred tax liabilities Borrowed funds 153.853 USD 566. All trading positions are marked to market as required by IAS 39.182 ZAR 32.006 408.869.303 7. Group Risk sets limits on the level of exposure by currency and in aggregate for both overnight and intraday positions.698) 31.036 11.363 – – 55.573 79. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2010.290 – 16.220) 24.934 – 19.936 1. which are monitored daily.576 136.248) 1. categorised by currency.990.
300 733 2.338 1.071) (6.341 53.402 20.281 2 – – – 121.951 59 .463 13.573.924 13.012 3.418 – – 186.126 1.110 53.890 603.195 1.274 MZN 78.078.764 – – – (347.163 Total 999.629 91.858 339.907.117.647 31.740 2.011.565 – 40.064 JPY 13.681) 8.819 15.139 42.377 353 16.471 8.493 203.080 132.816 ZMK 8.339 – 9.479 43.707 3.953 6.898 437.023 – – 2.659 Other 9.426 4.841 6.030) 57 – – – – – – – – (353.921 20.149 – – 19.897 – – 267.363 (99.846 (363.878 57.388 34.586) 1.579 – 7.863) 38.179 126.837 107.306 6.504 – 15.039 – – (363.934) 7.581 437.225 189.530 77.629 1.987 – 2.286 4.328 – 15.777 11.045 1.313 4.154 – 602 444.827 79.152 159.628 – – – – – – – – – 32.439 4.693 – 139.971 – 1.023 188.933 – 453.047 64.017 6.592 17.697 – 488.At 31 December 2010 TZS 86.218 3.535 2.420 5.419 35.233 579.387 174.781 384.845 330.
609 5.431 1.305 127.101.295.173 17.982 – 328 – – – – – – 287.729 9.290 BWP 155.170 25 17.517 1.294 USD 216.127 693 3.Financial risk management continued Concentration of currency risk: On.691 56 7.216 951.135 39.093 *Notional amounts have been reported in the currency columns and adjustments made in “Other” to arrive at the fair values.628 158.591 – – 1.145 743 18.695 1.821 Net on-balance sheet position Credit commitments 31.548 1.209 88.830 92. 60 ABC Holdings Limited ANNUAL REPORT 2010 .976 (77.826 ZAR 39.552 34.058 48.229 – – 439.992 (3.716 – 5.545) 123.628.312 67.134 1.139 – 1.783) 15.832 64.977 272.224 – – 21 95.057 155.401 1.947 124.746 Deposits Derivative financial liabilities* Creditors and accruals Current tax liabilities Deferred tax liabilities Borrowed funds 235.480 105.925 23.711 759 612 – – 18.504 333.512 517.632 24.041 1.and off-balance sheet financial instruments: At 31 December 2009 BWP‘000s Cash and shortterm funds Financial assets held for trading Financial assets designated at fair value Derivative financial asset* Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset EUR 265.903 27.072 (489) – 925 15.276 877 4.561 990.128 13 – 34.308.905 58.739 255.385.631 – 7.992 – 43 19.
967 68.431 Other 15.653 – – 172.007 392.975 25.745 3.124 157.484 – 447.681 – – – – 126.970 1.132 – 17.733) – Total 881.946 278.023 1.445 8.616 150.995.624 – – 126.466 137.147 (57) 1.498 6.392 1.118 1.488 – 416.359 – 7.001.358 – 234.866 543.973 3.861) 313 – – – (158.468 ZMK 11.955 – 10.905 7.266 – – 186.596 14.At 31 December 2009 TZS 120.739 – – 38.193 JPY 10.112 53.120 (52) – (177.955 83.090 10.682 – 4.822 4.504 22.815 30.529 10.680) (7) – 23 – – – – – – (162.978 – 2.282 166.845 26.676 6.427 679 454 – 181.560 4.863) (3.927 406.281 – 850 518 443.421 17.685 (175.584 30.401 MZN 47.466 – – – – – – – – – 137.968 – – 209.054 23.946 50.776 377 (4.242) 3.779 385.596) 16.913 40.355.996 61 .305 3.761 27.257 – 2.515 – 5.331 31.417.740 17.851 50.325 49.966 415.884 880.415 2.761 354.319 8.
047 64.312.875 – – – – 457.545 – – – – 4.420 5. This approach has been adopted as a result of the scarcity of term deposits in the region which limits the Group’s ability to build a substantial.581 – 62 ABC Holdings Limited ANNUAL REPORT 2010 . Variable rate financial instruments are categorised in the “Up to 1 month” column.110 53.117.845 330.405) 1–5 years – 99.218 3.110 38. The Group 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.607 2.699.185 38.721 1.141.521 188.858 4.420 5.460 602.819 15.713 – – 501.233 579.352 BWP‘000s Cash and shortterm funds Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset Assets Equity Deposits Derivative financial liabilities Creditors and accruals Current tax liabilities Deferred tax liability Borrowed funds Liabilities Total interest repricing gap Total 999.388 34.973 – – 439. They operate within the prudential guidelines and policies established by Group ALCO.439 437.388 34.953 1. the majority of the Group’s lending is on a variable interest rate with a term of less than one year.502 – – – – – – – 4.370 – 1.735 – 2.878 57.465 (787.218 3.302) 3 – 12 months 13.938 28.621 1.852 64.471 – 627. categorised by the earlier of contractual repricing or maturity dates.674 – – – – 20.486.306 6.045 – – – – 579.636 208. In order to reduce interest rate risk. Asset and Liability management committees have been established in each subsidiary and meet on a monthly basis. It includes the Group’s financial instruments at carrying amounts.907.017 6.876 (149.326 437.047 64.761 481.281 (355. stable pool of fixed rate funding.878 57. 2010 Up to 1 month 357.011.111 42.740.535.344 – – 1.045 1.402 20.116 787.139 42.901 Total interest sensitive 408.402 20.352) Non interest bearing 590.649.078.331 631.502 – – – – – – – 690.028 – 3. The Asset and Liability Committee (ALCO) is responsible for managing interest rate and liquidity risk in the Group.197 – – – – – – – – 1.672 (491.233 – 87. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise.384.632.573.012 3.560 – – – – – – – – 482.546) 1–3 months 37.017 6.953 6.023 188.822 64.306 6.078.719.819 15.Financial risk management continued Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.717 7.845 330. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates.951 – – – – 96.168 – – – – – – – – 2.109.858 – 1.338 1.975 15.113 – 4.907.028 – 488. The table below summarises the Group’s exposure to interest rate risks.827 79.537 – 23.012 – 14.223 378.
386) Non interest bearing 163.916 92.995.966 – 63 .905 7.118 1.957 289.421 17.851 50.266 2.913 40.905 4.470 – 3.133 431.421 17.955 83.560 770.323 (253.975 25.643 253.230) 437.884 880.098 – – – – – – – – 2.905 – – – – – – – 3.676 6.995.808 415.970 1.356 – 377 166.529 10.302 – 54.154 – – – 101.973 3.913 40.863 476.779 3.851 50.740 17.567.779 – 572 83.282 166.975 25.074 74.623 880.447 (423.937 – 3.905 – – – – – – – 469.721 – (51.280 476.357 1–5 years 3.619 31.976 – 353.118 1.383 – – – 543.355.355.010.209 (23.665 – – – 4.325 49.629 Total interest sensitive 718.118 1.325 48.745 415.341 45.973 3.676 6.646.144.473 48.866 – 101.614 1.606 575 – – – 1.380 – 2.417.067) 1–3 months 10.565.529 10.386 BWP‘000s Cash and shortterm funds Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset Assets Equity Deposits Derivative financial liabilities Creditors and accruals Current tax liabilities Deferred tax liability Borrowed funds Liabilities Total interest repricing gap Total 881.143 424.611 – 426.900.822 3.009 170.001.946 278.343 – – – – – – – – 524.866 543.011) – – – 437.946 278.2009 Up to 1 month 656.695 3 – 12 months 47.584 – 835 1.822 4.863 – – 377.261 270 17.411 – – – – – – – – 507.560 4.729 39.185 22.970 – 10.
411) 0.88% (1. directly or through its associates.4 million (2009: BWP42.09% 296 0.00% (84) 9.746 1.26% 1.80% 778 0.01% (778) 0.13% (3.Financial risk management continued The table below illustrates the impact of a possible 50 basis points interest rate movement for each banking subsidiary: BWP’000s BancABC Botswana ABC Botswana constituted 33% of the Group’s total assets Change in net interest income (+50 basis points) As a percentage of total Shareholders equity Change in net interest income (50 basis points) As a percentage of total Shareholders equity BancABC Zambia ABC Zambia constituted 6% of the Group’s total assets Change in net interest income (+50 basis points) As a percentage of total Shareholders equity Change in net interest income (50 basis points) As a percentage of total Shareholders’ equity BancABC Mozambique ABC Mozambique constituted 12% of the Group’s total assets Change in net interest income (+50 basis points) As a percentage of total Shareholders equity Change in net interest income (50 basis points) As a percentage of total Shareholders equity BancABC Tanzania ABC Tanzania constituted 12% of the Group’s total assets Change in net interest income (+50 basis points) As a percentage of total Shareholders equity Change in net interest income (50 basis points) As a percentage of total Shareholders equity BancABC Zimbabwe ABC Zimbabwe constituted 25% of the Group’s total assets Change in net interest income (+50 basis points) As a percentage of total Shareholders equity Change in net interest income (50 basis points) As a percentage of total Shareholders equity 2010 2009 278 0.01% (1.108 1.411 0. The Group is therefore exposed to gains or losses related to the variability in the market prices of the equities held.00% (65) 0.00% (19) 0.88% 65 0.40% The interest rate sensitivity analyses set out in the table above are illustrative only and are based on simplified scenarios over a period of one year.22% (296) 0.26% (278) 0.80% 3.746) 1.00% 1.09% 84 9.13% 668 0. 64 ABC Holdings Limited ANNUAL REPORT 2010 . Sensitivity analysis of market price The Group holds.22% 19 0.3 million).108) 1. listed equities with a fair value of BWP17.40% (668) 0.
.012 462. the level and type of undrawn lending commitments. week and month respectively.404.047 6.406 566.338 1.397 Greater than 1 year – 100.547 1.374 64.715 72.545.047 64.117.011.137 437.038 3 – 12 months – 37.296.667 1.338 314. as these are key periods for liquidity management.405 5.012 3.388 34.549 – 1. the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.845 330.017 6. Liquidity risk management process The Group holds liquidity reserves in highly tradable instruments or money market placements which are immediately available if required.913 1.998 – 1.542 – – – – – – – – 1.402 20.444 – 7.674 – 51.826 – 82.078.420 6. Monitoring and reporting take the form of cash flow measurement and projections for the next day.496 – – 597.329 15. ||Monitoring balance sheet liquidity ratios against internal and regulatory requirements.507 – 6.023 188.885.612 16.789 – – – – – – 2.011.407 52. and ||Managing the concentration and profile of debt maturities. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend.233 579.Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn.110 53.010 (281.833 437.263.139 42.565 21.878 57. ||Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow.719.851 458 14.439 – 339. The Group’s liquidity management process is monitored by Group Treasury and includes: Daytoday funding.951 – – 1.276 2.402 17.265 109. The Group maintains an active presence in global money markets to enable this to happen.628 – 42.535.858 106. Liquidity is assessed by currency as well as by time bracket. managed by monitoring future cash flows to ensure that requirements can be met.111 – 1.355) 131.637 – – – – 3.218 3. Group liquidity management is dependent upon accurate cash flow projections and the monitoring of its future funding requirements.953 6. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.104 1.112 751 34.877 1–3 months – 665.412 242.907.615 1.862 636.752 (70.306 6.127 Total 999. The Group’s maturity analysis (on a discounted cash flow basis) as at 31 December 2010 was as follows: 2010 BWP‘000s Cash and shortterm funds* Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset Total assets Shareholders’ equity and liabilities Equity Liabilities Deposits Derivative financial liabilities Creditors and accruals Current tax liabilities Deferred tax liabilities Borrowed funds Total equity and liabilities Net maturity gap Contingent liabilities – 2.766 3.858 4.310 – 152.878 57.776.045 1.983 – 544. This includes replenishment of funds as they mature or are borrowed by customers.053.845 330.439 *Included in the “Up to 1 month” bucket are statutory reserve balances of BWP211.951 65 Up to 1 month 999.827 79.3 million.233 487.028 – 613.972) 118. Group Treasury also monitors unmatched mediumterm assets.819 15.218 3.147 – 15.
Funding approach Sources of liquidity are regularly reviewed by the Asset and Liability Committees to maintain a diversification by currency.946 278.417.282 166.884 880.378 429.851 50.745 *Included in the “Up to 1 month” bucket are statutory reserve balances of BWP180.913 – – – – 1.943 22.421 16.560 4.822 4.355.745 – 385.995.043 1.609 – 680.011) 20.779 10.953) 20.456 – 9.919 17.761 (561.147 57.675) 144.946 278.101 Greater than 1 year 3.866 543.421 17.191 456.265 – 355.133 687.118 1.784 – 40.321 49.775 1.280.697 3.905 7.822 – 20.154 5.665 297 541 – 4.913 40.728 42.022 1.239 355.966 – 108.100 Total 881.810.973 3.779 3.851 50.266 2.995 Up to 1 month 830.259 (23.905 5. 66 ABC Holdings Limited ANNUAL REPORT 2010 .1 million.950 495.529 10.282 75.975 25.975 25.141 1.544 3.844 415.333 – (18.277 415.372.378 – – – – – – 1. geography.Financial risk management continued 2009 BWP‘000s Cash and shortterm funds* Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax asset Investment in associates Property and equipment Investment property Intangible assets Deferred tax asset Total assets Shareholders’ equity and liabilities Equity Liabilities Deposits Derivative financial liabilities Creditors and accruals Current tax liabilities Deferred tax liabilities Borrowed funds Total equity and liabilities Net maturity gap Contingent liabilities – 2.740 17.226 2.722 640.676 6.766 61.488 1.509 – 35.955 83.334 417.970 1.808 1–3 months 742 290.666 – 641 183.411 (211.340 445.074 101.736 3 – 12 months 47.420 – 267 – – – – – – 475. provider.417.584) 715.517 851.308.473 862.325 49.075 – 55. product and term where possible.862 159.
722 2.676 6.947 1.187 1–3 months 1.676 6.409 30. The amounts disclosed in the table are the contractual undiscounted cash flows.663 3 – 12 Greater months than 1 year 568.385 3 – 12 Greater months than 1 year 55.557.037 5.761 676.518 6.718 Effect of discount/ financing rates (37.147 – 510.355.216 – 728.052 2009 BWP‘000s Derivative financial liabilities Up to 1 month 1.468 31 Dec 2010 4.993 4.725.271 – 1.429 2009 Total 4.636.402) – – (306.118 83.966 1–3 months 138.780 525.764 627.564.550) – – (27.101 3.604 662.595 64.189 110. The amounts disclosed in the table are the contractual undiscounted nominal currency swap cash flows for the liability leg of such swaps.167) BWP‘000s Deposits Creditors and accruals Current tax liabilities Borrowed funds Total liabilities Up to 1 month 2.017 6.392.206 13.164 1–3 months 663.529 849.862 9.966 106.760 Total 520. whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows: 2010 Effect of discount/ financing rates (51.392.301 BWP‘000s Deposits Creditors and accruals Current tax liabilities Borrowed funds Total liabilities Up to 1 month 2.989.296 739.332. whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows: 2010 BWP‘000s Derivative financial liabilities Up to 1 month 139.656 6.045 64.156 2.374 Total 3.Non-derivative cash flow The table below presents the cash flows payable by the Group under nonderivative financial liabilities and assets held for managing liquidity risk by remaining contractual maturities at the date of the consolidated statement of financial position.573) 31 Dec 2009 3.042 3 – 12 Greater months than 1 year 402.150 51.145 Derivative financial liabilities cash flows The table below presents the cash flows payable by the Group for derivative financial liabilities by remaining contractual maturities at the date of the consolidated statement of financial position.324.017 6.822 3.446 3 – 12 Greater months than 1 year 68.782.420 5.186 2.104 1.549 1.520 83.445 8.278 Total 363.766 3.529 543.681 67 .819 579.819 607.171) (343.022 3.907.567 173 541 11.830 442.958.373 1–3 months 7.885 61.617) (79.554.825 85.138 1.
905 – – 17.117. the instrument is included in level 3.970 14.450 14. The fair value of financial instruments that are not traded in an active market (for example. unobservable inputs) (level 3).012 14.955 – – 14. 68 ABC Holdings Limited ANNUAL REPORT 2010 .740 Unobservable inputs Level 3 – Total at fair value 880.111 – – 15. and those prices represent actual and regularly occurring market transactions on an arm’s length basis. derived from prices) (level 2).970 – 888.549 – – 79.111 – – – 42.047 64. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. A market is regarded as active if quoted prices are readily available from an exchange. industry group.499 1.955 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. either directly (that is as prices) or indirectly (that is. ||inputs other than quoted prices included within level 1 that are observable for the asset or liability.521 1.740 BWP‘000s Financial assets held for trading Financial assets designated at fair value* Derivative financial assets Investment securities** Total assets at fair value Derivative financial liabilities Total liabilities at fair value 15. broker.521 78. The quoted price used for financial assets held by the Group is the current bid price.028 – 14.047 17. pricing service or regulatory agency. If all significant inputs required to fair value an instrument are observable.450 – – 17.710 1.117. Instruments included in level 1 comprise primarily quoted equity investments classified as trading securities or availableforsale.839 1. The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2010: 2010 Quoted prices Level 1 – Observable inputs Level 2 1.139 42. the Group adopted the amendments to IFRS 7 for financial instruments that are measured in the balance sheet at fair value.065 1.450 921. overthecounter derivatives) is determined by using valuation techniques.827 Quoted prices Level 1 – 2009 Observable inputs Level 2 880.253.047 1.047 1. dealer.159.905 7. These instruments are included in level 1.827 Unobservable inputs Level 3 – Total at fair value 1.Financial risk management continued Financial assets and liabilities measured at fair value Effective 1 January 2009.955 1. or ||inputs for the asset or liability that are not based on observable market data (that is. the instrument is included in level 2.955 1. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: ||quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). If one or more of the significant inputs is not based on observable market data.905 – – – 7.012 – 1.
543 – (1.450 65. are used to determine fair value for the remaining financial instruments. *Level 3 input: In estimating the fair value of instruments under level 3 at 31 December 2010.444) – 78. with the resulting value discounted back to present value.989) (4.450 65.54%. **The investment securities comprise of unlisted equities.895) 14.450 Total at fair value 36.600 1.740) (13.Specific valuation techniques used to value financial instruments include: ||quoted market prices or dealer quotes for similar instruments. such as discounted cash flow analysis. ||the fair value of foreign exchange contracts is determined using forward exchange rates at the balance sheet date.474 (4.822 2009 Fair Unrecognised value profit/(loss) 643. The unlisted equities have been stated at cost as the fair value of the unlisted equities could not be objectively determined using valuation models.171 (99.989) (4.600 1. The movement in instruments included in the level 3 analysis is as follows: December 2010 Trading derivatives – – – – – – Debt or equity investments 14. and ||credit spread of 12.444) – 78.543 – (1.895) 14.603 Unrecognised profit/(loss) (69. and ||other techniques.450 BWP‘000s Opening balance Purchases Settlements Exchange rate adjustment Transfers out of level 3 Closing balance Trading securities – – – – – – Trading securities – – – – – – Financial instruments not measured at fair value The table below details the carrying amounts and fair values of those financial assets and liabilities not presented on the Group’s balance sheet at their fair value: 2010 Carrying value Borrowed funds 579.183) Carrying value 543. ||the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. the following assumptions were applied for investments in convertible debentures: ||volatility in the price of the underlying equity instrument of 50%.420 Fair value 648.349) 69 .740) (13.549 Total at fair value 14.474 (4.549 December 2009 Trading derivatives – – – – – – Debt or equity investments 36. They comprise of shareholdings smaller than 20% in a number of private companies.
The estimated fair value of fixed interestbearing deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and remaining maturity. fair value is estimated using discounted cash flow analysis. Where this information is not available. Loans and advances are stated net of allowances for specific and portfolio impairment. The estimated fair value of fixed interestbearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. 70 ABC Holdings Limited ANNUAL REPORT 2010 . assets classified as available for sale are measured at fair value. v) Off-balance sheet financial instruments The estimated fair values of the offbalance sheet financial instruments are based on market prices for similar facilities. is the amount repayable on demand. and unlisted equities. ii) Loans and advances Loans and advances are accounted for on an amortised cost basis using the effective interest rate. Origination transaction costs and origination fees received that are integral to the effective rate are capitalised to the value of the loans and amortised through interest income as part of the effective interest rate. iv) Deposits and borrowed funds The estimated fair value of deposits with no stated maturity. iii) Investment securities Investment securities include only interestbearing assets held to maturity. fair value is estimated using quoted market prices for securities with similar credit. which includes non interest bearing deposits. maturity and yield characteristics. Fair value for heldtomaturity assets is based on market prices or broker/dealer price quotations.Financial risk management continued Financial instruments not measured at fair value are as follows: i) Placements with other banks Placements with other banks includes interbank placements and items in the course of collection. When this information is not available. The fair value of floating rate placements and overnight deposits is their carrying amount.
creditor and market confidence and to sustain future developments of the business.241 22.Off-balance sheet items BWP’000s 2010 210.123 2009 244.805 339.996 a) Contingent liabilities Guarantees Letters of credit. There have been no material changes to the Group’s management of capital during the year.269 10.285 984 37.814 72.345 20.951 The timing profile of the contractual amounts of the Group’s offbalance sheet financial instruments that commit it to extend credit to customers and other facilities as at 31 December 2010.608 c) Non-cancelable operating lease commitments Future minimum lease payments under noncancelled operating leases are as follows: Office premises Equipment and motor vehicles 36. are summarised below: Less than one year Between one and five years 267. and ||to maintain a strong capital base to support the development of its business. ||to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.379 37.721 64. are: ||to comply with the capital requirements set by the regulators of the banking markets where the entities within the Group operate.637 141.098 58. loan commitments and other contingent liabilities b) Capital commitments Approved and contracted for Approved but not contracted for 15. Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management.308 58.604 68.996 57. The required information is filed with the Authorities on a monthly basis.359 385.146 129. At 31 December 2010.277 385.719 61. all regulated banking operations complied with all externally imposed capital requirements.627 27. The Group’s policy is to maintain a strong capital base so as to maintain investor. which is a broader concept than the ‘equity’ on the face of balance sheets.137 339.269 Noncancelable operating leases are payable as follows: Less than one year Between one and five years Over five years 9.004 83. employing techniques based on the guidelines developed by the Basel Committee and the relevant Central Bank Authorities.951 324.280 Capital management The Group’s objectives when managing capital.402 122.280 56.649 5. 71 .182 2.
750 – – – – 91.003 – – – – BancABC Mozambique 61.514 347.477) – – – – 43.058 – – 171.735 782.450 – 7.965) – – (4.958 12.411 769.058 – – 46.236 3.814 889.994 BancABC Zimbabwe 67.913 78. **Weighting of assets is based on the nature of the asset and its weighting as prescribed by the relevant regulatory authority.202 622.075 (6.973 (31.965 149. are summarised below: 2010 BWP‘000s Tier I Capital Share capital and premium Capital reserves and retained earnings* Allocation for market and operational risk Intangible assets (software) Prepayments Exposures to insiders Total qualifying for Tier I Capital Tier II Capital Shareholder’s loan General debt provision Revaluation reserve Total qualifying for Tier II Capital Tier III Capital Allocation for market and operational risk Total qualifying for Tier III Capital Total Capital Risk Weighted Assets* Onbalance sheet assets Offbalance sheet assets Total risk weighted assets Capital adequacy ratio Minimum regulatory capital adequacy ratio BancABC Botswana 34.965 6.429) – 86. 72 ABC Holdings Limited ANNUAL REPORT 2010 .178 601.054 298.776 523.496 13.251 46.527 BancABC Tanzania 128.143 – (7.545 48.642 33.027 16% 12% – – 142.314 21.534 923.693 19% 10% – – 87.176 19% 15% 6.070 57.059 25% 10% – – 86.003 476.810 42.262 79.697) – – 96.573) 134.527 43.541) – – (11.996 BancABC Zambia 81.996 – 7.380 23% 8% **Net of foreign currency translation reserve.Financial risk management continued Regulatory minimum capital adequacy ratios for the Group’s banking operations based on December 2010 returns submitted to regulatory authorities.004 (37.256 46.820 63.527 – – 43.
032 4.265) – (4.761 60.886 14.373 42.070 58.265 92.340 465. 73 .179 (44.739 10% 10% – – 76.973 23% 15% 3.848 490.327 14% 12% – – 83.726 430.362 – – 164.280) – – (18.817) – 76.908) – – – 59.116 – 1. to a large extent.492 681.461) – – – – 40.876 501.673 20% 10% – – 40. as well as contributions of the current year profit. The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.685 29.669 729.877 17. The amount of capital allocated to each subsidiary is based on the regulatory capital requirements of the countries we operate in and the need to maximise returns to shareholders.734 17% 8% **Net of foreign currency translation reserve **Weighting of assets is based on the nature of the asset and its weighting as prescribed by the relevant regulatory authority.973 (33.834 – (3.304 48.808 67.718 385.566 562.081 (17. The increase of the regulatory capital is mainly due to an increase in shareholders’ loans at subsidiary level. The increase of the risk weighted assets reflects the expansion of the lending business in most of the subsidiaries.345 BancABC Zambia 85.047 475.2009 BWP‘000s Tier I Capital Share capital and premium Capital reserves and retained earnings* Intangible assets (software) Allocation for market and operational risk Prepayments Exposures to insiders Total qualifying for Tier I Capital Tier II Capital Shareholder's loan General debt provision Revaluation reserve Other Revaluation reserves (limited to Tier I Capital) Total qualifying for Tier II Capital Tier III Capital Allocation for market and operational risk Total qualifying for Tier III Capital Total Capital Risk weighted assets** Onbalance sheet assets Offbalance sheet assets Total risk weighted assets Capital adequacy ratio Minimum regulatory capital adequacy ratio BancABC Botswana 34. Capital allocation The allocation of capital between specific operations and activities is.330) 85. driven by optimisation of the return achieved on the capital allocated.472 – – 2.684 BancABC Zimbabwe 74.738 – – – – 92.124 – – (5.718 – – – – – – BancABC Tanzania 128.265 3.652 – – – 71.366 427.512 36.873 4.333 35.762) – 23.876 – – – – – – BancABC Mozambique 41.
which is responsible for allocating resources to the reportable segments and assesses its performance. Segment assets and liabilities comprise the majority of items appearing on the consolidated balance sheet. 74 ABC Holdings Limited ANNUAL REPORT 2010 . There were no banking revenues derived from transactions with a single external customer that amounted to 10% or more of the Group’s revenues. net fee and commission income. The Group’s management reporting is based on a measure of operating profit comprising net interest income. The revenue from external parties reported to the Group Executive Committee is measured in a manner consistent with that in the consolidated income statement. Transactions between the business segments are carried out at arm’s length. The effects of nonrecurring items of income or expense is described in the report on the Group financial performance. loan impairment charges. The Group Executive Committee relies primarily on attributable profits to assess the performance of the segment for the period. As the banking operations comprise of stand alone banks. There were no changes in the reportable segments during the year. The Group has six main business segments. other income and non interest expenses. and other information. Interest is charged at rates disclosed in the ABCH company stand alone financial statements note 13.Financial risk management continued Segment analysis By geographical segment Operating segments are reported in accordance with the internal reporting provided to the Group Executive Committee (the chief operating decision maker). assets and liabilities composition. Other material items of income or expense between the business segments comprise of management fees and dividends. and ||nondeposit taking operations arising from ABCH and nonbanking subsidiaries. comprising: ||Banking operations in: ||Botswana ||Mozambique ||Tanzania ||Zambia ||Zimbabwe. The Group’s segment operations are all financial with a majority of operating revenues derived from interest and fee and commission income. which are regularly reviewed by the Group Executive Committee. each banking operation is funded with Tier I and II capital from ABCH. The information provided about each segment is based on the internal reports about segment profitability. All operating segments used by the Group meet the definition of a reportable segment under IFRS 8.
160 (757.597 14.307 111.037 6.845 (757.078.762 836.907.318 2.993 – 727.189 252.989.189 – 375.596 34.561 1.585 66.011.641 83.152 2.071 375.906 – (34.826 435.351) 16.989.883 7.439 – – 4.045) (988) (37.934 794.717 591 18.085 1.701 1.919 22.169 70.436.203 – 11.117.658 895.762 – 718.895 4.554) 20.178) 5.358 – – 1.121 (20.547 – 445.827 3.162 2.317 284.214 (20.610 84.573.967 27.451) 22.056.328 232.790 91.992 963.420 (13.975 67.520.274 29.457 – (3.423 1.739 26.329.255 140.739 1.687) (36.693 446.562 11.186 (3. 75 .319 1.224) 83.964 25.040 20.855 20.203 11.993 795.721 47.406.919 77.594 (5.083 (7.The segment information provided to the Group Executive Committee for the reportable segments for the year ended 31 December 2010 is as follows: 2010 BancABC Mozambique BancABC Zimbabwe Head office and other** Consolidation entries BWP‘000s Net interest income after impairment of loans and advances* Total income Net income from operations Share of results of associates Profit before tax Income tax Profit for the year Attributable profit Financial assets held for trading Loans and advances Segment assets (excluding associates) Associates Total assets Deposits Borrowed funds Segment liabilities*** Other segment items: Capital expenditure Depreciation Amortisation Impairment charge Operating expenses BancABC Botswana BancABC Tanzania BancABC Zambia Total 51.458) 80.186 – 20.670 29.073 (158) 59.804 126.710 1.145 1.093 *After eliminations.838 3.080 (22.787 228 34.360 2.515.110 1.040 884.045 579.572 1.370 – 27.581 23. ***Includes inter-company assets or liabilities. **Reﬂects non-banking operations in various geographical sectors.063 47.495) 68.076 1.546 7.464 30.203 – 11.897 424.344) 26.455 2.159 (3.347 28.835 15.016 288.134) 91.019 546.033) – – 282.045) – (36.374 727.502 4.032 19.976.187 106.818.361) 8.615 26.701 – 1.426 55.845 1.072) 6.072) – 5.962 29.690 (807) 7.748 718.760 1.657 – 2.966.975 15.370 10.358 82.203 20.336 1.104 – 556.594 – 25.640 – 630.593 2.416 56.370 (4.559 4.991 24.095 2.298 34.307 85.749 112.033) (37.
431 58.784 39.962 1.822 (65) 4.118 543.295 9.521) 17.069 563 8. **Includes Microﬁn Africa Limited.573 676.155 68.530.603 22.488) 109.309 843.946 (602.740 1.046 – 441.675 36.262 1.182 72.768 58.328) – – 127.378 34.778 13.567) 30.709) 5. 76 ABC Holdings Limited ANNUAL REPORT 2010 .948 2.579 13.193 26.221 81.663 15.825 777 10.691 1.720 20.294) (13.200 – 9.216 8.539 625 998 415 12.102 355.417.401 3. Attributable loss for the year 2009 excluding Microﬁn.067 19.939 – 606.816 (9.149 397.024.325 1.296 98.617 253.001.402.200 (3.205 – – – – – 132.326 53.799 40.745 – – 3.796 78.250 – (7.653 299.719) (1.376.870) 30.717 32.719) (11.136 – 36.413 17.149 – 1.530.880 480.173 14.266 383.045 618.945) (1.550 812.280 21.868 2.148 – 397. ***Reﬂects non-banking operations in various geographical sectors.267 89.117 880.934 – 21.218 365.456 51.567) (33.148 209.136 (5.Financial risk management continued The segment information provided to the Group Executive Committee for the reportable segments for the year ended 31 December 2009 is as follows: 2009 BancABC Mozambique BancABC Zimbabwe Head office and other*** Consolidation entries BWP‘000s Net interest income after impairment of loans and advances* Total income Net income from operations Share of results of associates Profit before tax Income tax Profit for the year Attributable profit Financial assets held for trading Loans and advances Segment assets (excluding associates) Associates Total assets Deposits Borrowed funds Segment liabilities**** Other segment items: Capital expenditure Depreciation Amortisation Impairment charge Operating expenses BancABC Botswana BancABC Tanzania BancABC Zambia** Total 25.623 701 26.762 23.995.479 32.891 46.984 76.174 1.974) 86.481 9.343 49.968 486.413 518.362 115.266 30.537 (31.454) 16.164 42.052 – (11.750 (7.550 – 843.266 157.966 18.684 482.411 8.222 1.917 3.934 (4.226 702.370.835 40.712 21.149 1.719) – (11.347 (52) 10.013) (13.176 392.945) – (31.362 19.694 *After eliminations.622) (33.355.466 2. ****Includes inter-company assets or liabilities.293 (602.491 5.648 44.940 68.740 – 380.498 – 698.757 10.933 1.064.428 28.499 16. was BWP45 million.758 591.103 – 156 62.338) – 4.573 – 702.338) 4.481 69.
CONSOLIDATED GROUP FINANCIAL STATEMENTS 78 Consolidated income statement 78 Consolidated statement of comprehensive income 79 Consolidated balance sheet 80 Consolidated statement of changes in equity 82 Consolidated cash ﬂow statement 83 Notes to the ﬁnancial statements 77 .
585) (2.090) (38.218) 127.017 392.214 (20.CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2010 BWP’000s Interest and similar income Interest expense and similar charges Net interest income before impairment of advances Impairment of loans and advances Net interest income after impairment of advances Non interest income Total income Operating expenditure Net income from operations Share of results of associates Profit before tax Tax Profit for the year Attributable to: Ordinary shareholders Minorities Profit for the year Earnings per share (thebe) Dividend per share (thebe) Notes 2010 650.164 42.431 (99.288 546.495) 68.694) 26.160) (78.270 22.4 – 1 2 3 4 13 5 297.144) (40.051 16.729) 78 ABC Holdings Limited ANNUAL REPORT 2010 .499 16.019 264.431 40.621) 2009 502.117 314 58.982) 3.710 1.917) 178.729) (38.188) 22.016 24 1.585 6 46.768 58.311 (323.826) 282.506) (48.093) 111.134) 91.585 66.845 (15.431 58.267 (1.193 (365.834) (1.3 10.585 (46.394 (51.176 265.080 (22.0 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2010 BWP’000s Profit for the year Other comprehensive income Exchange differences on translating foreign operations Revaluation of property Share of reserves in associate companies Movement in available-for-sale reserves Income tax relating to components of other comprehensive income Total comprehensive income for the year Total comprehensive income attributable to: Ordinary shareholders Minorities 2010 68.044 (40.079 23.466 (352.307 (435.079 2009 58.875 68.277) 112 1.663 15.
858 6.118 1.421 17.779 4.827 79.233 579.189 399.953 6.907.110 53.851 50.218 3.306 6.946 278.845 330.325 49.529 10.878 57.011.913 40.603 422.970 1.117.573.139 42.966 307.336 15.388) 162.078.CONSOLIDATED BALANCE SHEET as at 31 December 2010 BWP’000s ASSETS Cash and short-term funds Financial assets held for trading Financial assets designated at fair value Derivative financial assets Loans and advances Investment securities Prepayments and other receivables Current tax assets Investment in associates Property and equipment Investment property Intangible assets Deferred tax assets TOTAL ASSETS EQUITIES AND LIABILITIES Liabilities Deposits Derivative financial liabilities Creditors and accruals Current tax liabilities Deferred tax liabilities Borrowed funds Notes 7 8 9 21 10 12 11 13 15 14 17 16 2010 999.995.745 18 21 20 16 19 4.011.420 5.282 166.715) 144.402 20.045 1.017 6.388 34.522 437.535 299.819 15.023 188.676 6.001.439 79 .047 64.355.905 7.560 4.012 3.439 2009 881.338 1.740 17.417.973 3.009 246.586 (298.745 Equity Stated capital Foreign currency translation reserve Non-distributable reserves Distributable reserves Equity attributable to ordinary shareholders Minority interest Total equity TOTAL EQUITY AND LIABILITIES 22 307.581 3.417.069 16.955 83.822 4.884 880.586 (347.975 25.710 415.866 543.
586 – – – – – – – – – 307.059 Property revaluation reserve 138.608 – (712) – – 3.143 BWP’000s Balance as at 1 January 2009 Comprehensive income: Profit for the year Other comprehensive income: Foreign currency translation differences Revaluation of property net of deferred tax Movement in general credit risk reserve Share of reserves in associate companies Movement in statutory reserves Movement in available-for-sale reserves: – Arising in current year TOTAL COMPREHENSIVE INCOME Balance as at 31 December 2009 Comprehensive income: Profit for the year Other comprehensive income: Foreign currency translation differences Revaluation of property net of deferred tax Movement in general credit risk reserve Hedging reserve transfer Share of reserves in associate companies Movement in statutory reserves Disposal of treasury shares Movement in available-for-sale reserves: – Arising in current year TOTAL COMPREHENSIVE INCOME Balance as at 31 December 2010 Stated capital 307.083) – (75.632) (75.320 – – – 2.715) – (48.233) 116.673) (347.586 – – – – – – – – – – 307.608 119.535 – 2.388) Regulatory general credit risk reserve 4.170 – 889 – – 889 – – – – – 889 5.673) (45.CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 Attributable to owners of the parent Foreign currency translation reserve (223.825 – (655) – – (655) – – – (655) 4.768 – (22.632) – – – – – (75.233) – (22.632) (298.233) – – – – (22.902) – – – – (48.771) – – (2.586 80 ABC Holdings Limited ANNUAL REPORT 2010 .
522 Total equity 456.875 (3.695 – – 11.233) – 112 – 1.431 (99.051 (38.952 Hedging reserve (2.117 (2.632) (22.585 (46.051 – – – – – 1.144) 16.902) – 2.858 81 .336 Minority interest 18.063) – – – – – – – (1.016 – – 24 23.508 58.188) 15.458) – – – – – (2.710 (43.090) (22.574) – – – – – – – – – (2.464 – 3.160) (78.834) (712) – – 3.051 1.506) (48.051 (40.902 – – – 2.893 58.296) – – (889) – (509) (11.902 – Total 437.900 – – – – 205 11.779 68.902) – – – – – – – – – (2.414 299.654 58.117 (96.079 437.191) (2.052 – 11.588 – – – 1.702) (75.063) (3.729) 415.443) (45.603 Statutory reserve 24.695) (203) – 53.189 66.285 – 3.585) 399.458) (2.233) – 112 – 1.016 – – 24 22.574) – 203 – – – – – – 203 – 203 (2.902 – – – – 2.710 (13.588 28.371) Distributable reserves 190.051 728 – 24 – – – – – – – 24 24 752 Treasury share reserve (2.285) – 55.069 66.267 422.Attributable to owners of the parent Availablefor-sale reserve (323) – 1.303 2.296 246.821) – – 655 (1.854 314 (2.771) (712) – – 3.900 39.710 1.
346) 958.761.670 14.026 211.766 (93.350) (82.379 91.324 9.332) (16.877) (12.565) 788.080 15.671.484) 44.134 (288) (25.312 999.007 (528.164) (8.766 701.197) (163.857 90.991) (13.128 420.324) 338.884 82 ABC Holdings Limited ANNUAL REPORT 2010 .663 51.610 (56.021) – 10.324) (53.474 (53.126 42.227 – 82.243 (1.075 40.825 701.508 (56.649 53.353 (83.725) (125) – 20.826 29.075 179.314) 40.766 180.542 (79.100 154.006 20.299) 1.870) 701.026 788.477 (1.372 (11.118 881.642 430.863) (8.522) 128.087) (336) 8.CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2010 BWP’000s CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operating activities Net profit before tax Adjusted for: Impairment of loans and advances Depreciation and amortisation Net unrealised (gains)/losses on derivative financial instruments Fair value (gains)/losses on investment properties Profit on disposal of associate Loss/(profit) from associates Profit on disposal of property and equipment Tax paid Net cash inflow from operating activities before changes in operating funds Net increase in operating funds Increase in operating assets Increase in operating liabilities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Purchase of intangible assets Additions to investment property Proceeds on disposal of property and equipment Proceeds on disposal of investment property (Additions to)/proceeds on disposal of associates CASH FLOWS FROM FINANCING ACTIVITIES Increase/(decrease) in borrowed funds Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange adjustment on opening balance Cash and cash equivalents at the end of the year Cash and cash equivalents Statutory reserves Cash and short-term funds 2010 219.218 16.338 2009 474.
109 114.837 (5. disclosed in note 19.575 (357) 51.447 13.836 33.501 344.786 56.561 44. Impairment of loans and advances Specific impairments Portfolio impairments Impairments prior to recoveries Recoveries of loans and advances previously written off 18.231) 9. 83 .762 14. Net interest income Interest and similar income Cash and short-term funds Investment securities at amortised cost Loans and advances at amortised cost 122.013 104.998 – 14.782 53.542 323.845 75.917 178.375 99.777 51.610) 2. Non interest income Gains from trading activities: Gains on financial assets at fair value through profit and loss – held for trading – designated at fair value Net gains/(losses) on derivative financial instruments* Dividends received: Listed shares – fair value through profit or loss Unlisted shares – fair value through profit or loss Fee and commission income: Net fee income on loans and advances Net fee income from trust and fiduciary activities Claims in respect of project finance transaction Cash transaction fees Other fee income Other non interest income: Money market trading income Fair value gains/(losses) on investment properties at fair value (note 14) Rental and other income Profit on disposal of property and equipment Forex trading income and currency revaluation* Profit on disposal of associate Service charges recoveries 46. Net gain/(losses) on derivative instruments includes an offsetting fair value gain arising from an equal but opposite nominal Japanese Yen derivative asset.665 82.415 (6) 125 7.394 2.604 8.670) 450 83 367 53.506 449.923 5.566 20.954 (30.311 224.496 11.NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 BWP’000s 2010 2009 1.674 million) 297.632 288 106.189 60.146 2.236 (9.826 52.691 20.7 million (2009: proﬁt of BWP21 million) arising from the Japanese Yen exposure with NDB.863 115.218 41.430 (855) 51.008 33 (14.608 352.340 1.011) 15.374 169.725 123 123 – 103.091 78.516 7.621 Net interest income Interest income suspended on impaired financial assets amounts to BWP5.145 502.466 Interest expense Deposits Borrowed funds 248.332 – 265.869 650.017 3.288 *Foreign exchange income includes a foreign exchange loss of BWP10.131 million (2009: BWP4.211 38.090 – 286 264.
238) (8.701 13.080 39.093 2009 151.346 4.786 24.672) (15. medical aid contributions.2) 4.1 Staff Costs Salaries Employer contributions to post-retirement funds Other staff costs Other staff costs comprise profit share expense.971 217.013 2.542 4.636 (17. 163.125 285 (123) 3.841 (19.2 Directors remuneration Executive directors Salary.654) 377 370 22.941 5.120 684 2.650) (15.864 4.495 91.251 12.456 6.531) (12.1) Auditor’s remuneration Depreciation (note 15) Amortisation of software (note 17) Directors remuneration (note 4.971 20.495 25% 11. Operating expenditure Administrative expenses Property lease rentals Staff costs (note 4.485 (3.768) 42.864 4.065 1.804 6.267 (12.882 429 (1.Notes to the financial statements continued BWP’000s 2010 150.375) (5.941 365.542 435.438 (544) 231 22.213 173.429 35.410) 3.149) (544) 231 – 22.774) (27.137 2. performance-related remuneration and other benefits Non-executive directors Fees as director of holding company Fees as director of subsidiaries 8.647 – 235 11.502 4.768) (37%) 84 ABC Holdings Limited ANNUAL REPORT 2010 .617 912 3.184 173.868 2. Tax Current tax expense Current year Over provision in prior years Bank levies Deferred tax Accruals Impairment losses Property and equipment Gains and investments Tax losses Total tax expense/(income) per income statement Reconciliation of effective tax charge: Profit before tax Income tax using corporate tax rates Non-deductible expenses Tax exempt revenues Tax incentives Over provision in prior years Bank levies Rate change Current tax expense per income statement Effective tax rate 22.576 40.975 11.061 13.694 126.663 24.069 217. staff training and other staff-related expenses.715 3.291 13.346 4.649) – 235 (16.529 11.
710 143.044 – – 16.834) (712) 3.890 42.766 180.982) 3. Listed equities Listed debentures Unlisted debentures Financial assets designated at fair value 4.006 64.593 701. 85 .471 1.827 46.740 9.251 – 727.776) Tax (charge)/ credit – 1.118 881.051 (115.905 The listed debentures comprise of an investment in 10% convertible debentures issued by PG Industries (Zimbabwe) Limited.016 24 (46.420 – 146.117 143.277) 112 1.105 11.884 7. Basic earnings per share Profit attributable to ordinary shareholders (‘000) Weighted average number of ordinary shares in issue (‘000) Basic earnings per share (thebe) Number of shares (‘000) Shares in issue at beginning of the year Ordinary shares issued during the year Total Company Recognised as treasury shares Total Group Weighted average number of ordinary shares Earnings per share 66.677 1.784 106.338 58.5.420 (2.3 146.117. Tax (continued) Income tax effects relating to components of other comprehensive income 2010 Before tax (48.766 5.705 880. Government bonds Corporate bonds Treasury bills and other open market instruments Bankers’ acceptances and commercial paper All financial assets held for trading are carried at fair value.049 143.913 1.4 146.371) 144.956 46.139 17.160) 2009 BWP’000s Exchange differences on translating foreign operations Revaluation of property net of deferred tax Share of reserves in associate companies Movement in available-for-sale reserves Other comprehensive income BWP’000s 6.574) 143.007.204) 2010 2009 Tax (charge)/ credit – 16.834) (1.722 670.090) (22.777 42.051 (99.905 – – 17.026 211.846 40.956 74. Financial assets held for trading 102.527 788.1 5.506) Before tax (78.233) 112 1.090) (38.016 24 (47.846 33.270 – – 1.420 (2. 8. The unlisted debentures comprise of an investment in 12% convertible debentures issued by Star Africa Corporation Limited.270 After tax (48.420 – 146. These balances do not accrue interest.044 After tax (78.846 143. Cash on hand Balances with central banks Balances with other banks Cash and cash equivalents Statutory reserve balances Cash and short-term funds Statutory reserve balances are restricted minimum statutory balances not available for the banking operation’s daily operations.312 999.283 625.028 79.
347 (10.161 (324) 5.554 – – 26.510 Microfinance lending 12.661) (10.575 2009 17.Notes to the financial statements continued BWP’000s 2010 14.302 134.151 135.2 Impairment of loans and advances – movement analysis Total impairments 134.574 (421) – 3.423 Microfinance lending 15.180 85.122 3.554 1.876 2.651 Instalment finance 27.076 (13.828) (11.735 1.194 98.999 Commercial and Corporate property lending finance 85.870 132.045 3.168) 51.423 – – – – – – 1.347) 1.465 Instalment finance 26.985 (15.837 21.575 67.515 63.198 (983) – 295 295 – – 14.423 Other 2.724 134.993 138.748) 10.396) 20.786 (12.530 418.378 Other 3.226 86 ABC Holdings Limited ANNUAL REPORT 2010 .620 (265) (1.216.347 2.078.347 10.163 Commercial and Corporate property lending finance 73.659 320. Loans and advances Mortgage lending Instalment finance Corporate lending Commercial and property finance Micro-finance lending Other loans and advances Less impairments (note 10.966 3.672 (134.325 121.262) 46.338 995 – – 428 428 – – 1.623 12.603) (31.999 (211) (838) (299) (299) – – 25.323 (15.129.822 153.465) 3.563 22.910) 1.338 (9.505 138.438) (33.Mortgage ments lending 119.1) Net loans and advances 10.995.237 61.163 – – (785) (785) – – 1.216 1.377.029) 1.064 (11) – 110 110 – – 2.558) 22.887 (324) 6.037 (138) 4 201 201 – 1.198 BWP’000s 2010 Opening balance Exchange rate adjustment Bad debts written off Net new impairments created (note 2) Impairments created Impairments released Suspended interest Closing balance Mortgage lending 2.110 121.465 10.226 27 – (937) (937) – (1.602 2.472 16.1 Analysis of impairments Specific impairments Portfolio impairments (138.567.287 BWP’000s 2009 Opening balance Exchange rate adjustment Bad debts written off Net new impairments created (note 2) Impairments created Impairments released Suspended interest Closing balance Total impair.534 94.327 45.045 – – 15.748) 9.
259 27.358 3.984) 819 40.481 188.134) 38% 37% 24% 49% 2% 31 December 31 March 31 December 31 December 31 December 87 .280 4.973 14. Prepayments and other receivables Accounts receivable and prepayments Security deposits Other amounts due 12.521 13.162 11.023 13.306 2009 157.379 2.BWP’000s 2010 171.282 41.946 11.370 3.049 (23.832 49.1 Investment in associates The Group’s interest in its principal associates and in their assets and liabilities are as follows: Country of incorporation Carrying amount Share of profit/ (loss) % interest held Reporting date BWP’000s 2010 Lion of Tanzania Insurance Company Limited PG Industries (Botswana) Limited* Credit Insurance Zimbabwe Limited Prestige Investments (Private) Limited** PG Industries (Zimbabwe) Limited** Assets Liabilities Tanzania Botswana Zimbabwe Zimbabwe Zimbabwe 16.925 15.450 14.450 – 34.408 5.476 47.016 – 11.828) 3.316 13.376 (2.243 2.346) 1.736 2.212) – (45. 13.467 31.712 3.853 166.502 53. Investment in associates Carrying value at the beginning of the year Exchange rate adjustment Reclassification during the year Share of (losses)/profits Tax Share of comprehensive income Disposals (also see note 29)* Additions* 40.779 5.402 72.788) – (20.467 13. Investment securities Available-for-sale – Unlisted equities – Unlisted investments Held-to-maturity – Promissory notes 14.307 4.076 1.845 248 (2.314 34.845 *Refer to note 29 for an overview of additions and disposals.361 14.821) 227 (17.789 1.946 (1.710 811 38.644 24.612 18.694 3.599 34.
|| terminal value based on 5% long term cash flow growth rate.679 1.012 – 733 2. and || weighted average cost of capital of 19.878 471 47. The carrying amount of the investment property is at fair value as determined by registered independent valuers.415 12.946 16.234 4.199 *IFRS compliant management accounts not available.336 24.691 – 1.783 13. 14.3 million over the next 3 years.060) (52) 23.376 – 2.147 – 23.097 17.344 Investment property comprises commercial properties that are leased to third parties.Notes to the financial statements continued 13.1 Investment in associates (continued) Country of incorporation Carrying Liabilities amount Share of profit/ (loss) % interest held Reporting date BWP’000s 2009 Lion of Tanzania Insurance Company Limited PG Industries (Botswana) Limited Star Africa Corporation Limited Credit Insurance Zimbabwe Limited Prestige Investments (Private) Limited** (previously Quest Ventures (Pty) Limited) Assets Tanzania Botswana Zimbabwe Zimbabwe Zimbabwe 23.851 195 (20.610) 25.632 (5.156 – (1.164 *In assessing investments in associates for impairment.871) (5.147 38% 31% 0% 24% 49% 31 December 31 March 31 March 31 December 31 December 67. BWP8.147 PG Industries (Zimbabwe) Limited (2% held directly) The equity accounted numbers are based on management accounts.281 2009 23.762 40.15%. **The fair value of the Group’s interest in listed associate companies (listed in Zimbabwe) was as follows: BWP’000s PG Industries (Zimbabwe) Limited (29.671) (1. 88 ABC Holdings Limited ANNUAL REPORT 2010 .602 13.500) – – (14.7 million.851 1.257) 336 125 3.8 million and BWP15. 34. the following assumptions were applied for investments with underlying unlisted shares that generated a loss during the year: || projected compounded free cash flows of BWP3.372) (2.390 18.75% interest held by Prestige Investments (Private) Limited) 2010 11. Investment property Balance at the beginning of the year Exchange rate adjustment Disposal Transfer to property and equipment Additions Increase/(decrease) in fair value (note 3) Balance at end of the year Rental income recognised in the income statement 25.684 22.
248) 387 1.111 1.172) 450 – (3.986 (17.908 (3. certain buildings situated in Botswana were revalued at BWP25.818) (116) 527 (1.227 – – (7. BWP’000s Carrying amount of revalued land and buildings had it not been revalued 2010 120.276) 5.636) 205 – (5.939 316.118 2.907) 29.975 *Land and buildings are revalued by independent professional valuers based on open market value every 3 years.576 (2.589) 87.221 61.659) 3. Property and equipment Cost or valuation at prior year Exchange rate adjustment Additions Revaluation surplus (gross of deferred tax)* Transfer from investment property Disposals Cost or valuation at 31 December 2010 Accumulated depreciation at December 2009 Exchange rate adjustment Disposals Charge for the year Accumulated depreciation at 31 December 2010 Carrying amount at 31 December 2010 Cost or valuation at prior year Exchange rate adjustment Additions Revaluations deficit (gross of deferred tax) Disposals Cost or valuation at 31 December 2009 Accumulated depreciation at December 2008 Exchange rate adjustment Disposals Charge for the year Accumulated depreciation at 31 December 2009 Carrying amount at 31 December 2009 219.405 89 .173 (4.383) 36.513) 1.600 (3.897 6.868) (37.033) 3.957) 330.659) 278.033) 40.311 – (2.556 1.001) 219.678 527 (24.636) 215.503) (57.880) (21.005) (4.565 (692) 5.239 (8.172) 16.107) 239.611) (8.301 – – 25.869) (6.576 (3.818) 5.860) (2.111 (6.908 (19.039 (3.093) 56.329 4.940 10.784) 132.296 (18.860) (5.218 248.175 (37.245) 388.BWP’000s Land and buildings Motor vehicles Computer and office equipment Furniture and fittings Total 15.579 (39.234 (13.767 – – (50) 40.039 (701) 3.163 (21.070 36.653) 61.189) 628 – (2.109 – (943) 10.875 25.848 2. In the current year.634 (31.6 million.481) 28.634 (6.351 2009 99.118 2.580) 82.597) 316.411 13.257 (8.441 – – (606) 12.604) 29.597 (3.512 (5.139 – (13.858 (39.372) (3.991 1.407) 91.404) 466 125 (2.199) (31.758 17.354) 3.854 (1.257 – 248.759) (11.891 919 6.676) (9.493 186.
933) 24.176) (2.544 24.161 (12.920) 12.975) (16. The discount rates are pre-tax and reflect specific risks relating to the operation.720 2. The most significant goodwill arises from the Zimbabwe operations.798) 32. (2009: 14.421 67. and ||weighted average cost of capital of 18.402 67.457) 13.720 2009 (37. The impairment test makes a number of assumptions regarding projected cash flows.877 50.858 57.544 16.693 483 (6. Intangible assets Goodwill Software Goodwill Cost Impairments losses Carrying amount at the end of the year Software Cost Balance at the beginning of the year (software) Exchange rate adjustment Additions Amortisation Balance at the beginning of the year Exchange rate adjustment Amortisation charge (note 4) Carrying amount at the end of the year 32.560 (10. (2009: 5%). Management determined free cash flows. ||terminal value based on 5% long term cash flow growth rate.574 6.41%.798) 32.930) (515) – (5.342 (34.694 1.021 34.284) 17. The key assumptions used in the impairment test of the Zimbabwe operations are as follows: ||projected compounded free cash flow growth of 20% per annum for 5 years.544 34.694 3.544 17. 90 ABC Holdings Limited ANNUAL REPORT 2010 .267) 313 27.652) (1. Deferred tax Balance at the beginning of the year Exchange rate adjustment Income statement charge (note 5) Deferred tax on amounts charged to equity Disclosed as follows: Deferred tax asset Deferred tax liability Tax effects of temporary differences: Accruals Impairment losses Property and equipment Unrealised gains on investment Unearned income Revaluation surplus Tax losses 20. considering local market conditions and management’s judgement of future trends.953 (15.Notes to the financial statements continued BWP’000s 2010 6.727 (587) 12.694 32.715) (984) 704 (2.817) 5.866) 6.694 17.791 (16.342 (34.233) 5.998 6.88%).858 22.720 17.196 (998) (2.650 15.161 (5.459 5. residual value and growth rates based on past performance and its expectations of market developments.326 (4.087 41.213 (370) (1.877 The impairment test of goodwill is based on assumptions that take into account risk and uncertainty.456) (16.284) 4. (2009: 17% per annum for 5 years).633) 13.
308 836.907.045 91 .845 23.498 676.810.371 135.907.984 4.980 1.932.178 32.020.048 146.993 812.053 212.158 102.254 Term deposits Corporate customers Public sector Private banking customers Other financial institutions Banks 1.721 255.556 129.961 1.939 209.200 2.379 800.299 1.138 3.118 18.907.288.065.416 3.146.045 2009 390.118 747.226. Deposits Deposits from banks Deposits from other customers Deposits under repurchase agreements Payable on demand Corporate customers Public sector Private banking customers Other financial institutions Banks 1.080 176.267 4.441 304.516 48.045 Geographical analysis Botswana Mozambique Tanzania Zambia Zimbabwe Other 1.664 405.355.691 3.791 4.394.718 60 4.696 151.148.067.249 2.050 1.687 29.908 105.217.968 3.137.355.249 1.839.118 1.BWP’000s 2010 618.355.640 252.551 5.961 86.082 261.104 795.
53%.261 64. Borrowed funds National Development Bank of Botswana Limited BIFM Capital Investment Fund One (Pty) Ltd Other Fair value National Development Bank of Botswana Limited BIFM Capital Investment Fund One (Pty) Ltd Other 124. The loan matures on 15 December 2016.420 2009 126.500.072 160.276 7. Fair value is equivalent to carrying amounts as these borrowings have variable interest rates.630 201.890 83.Notes to the financial statements continued BWP’000s 2010 121.676 20.000 30 September 2019 – BWP62.017 92 ABC Holdings Limited ANNUAL REPORT 2010 .012 648.328 201.63% per annum. BIFM Capital Investment Fund One (Pty) Ltd The loan from BIFM Capital Investment Fund One (Pty) Ltd is denominated in Botswana Pula and attracts interest at 11.667 579. Principal and interest is payable semi-annually on 15 June and 15 December.328 160.615 82.500.133 108.171 19.862 487.266 4.000 30 September 2020 – BWP62. payable semi-annually. Maturity analysis BWP’000s On demand to one month One to three months Three months to one year Over one year 2010 1. Creditors and accruals Accrued expenses Other amounts due 50.080 257.786 15.466 257.071 343.756 13.012 579.822 67.961 322.822 140.000 30 September 2018 – BWP62.603 National Development Bank of Botswana Limited (NDB) The loan from National Development Bank of Botswana is denominated in Japanese Yen and attracts interest at 3.500.420 2009 1.500.950 429.473 543.028 543. The redemption dates are as follows: 30 September 2017 – BWP62.028 643.000 Other borrowings Other borrowings relate to medium to long term funding from international financial institutions for onward lending to ABC clients.
047) 520. These instruments are transacted for both hedging and non-hedging activities. the extent to which instruments are favourable or unfavourable. The Group’s credit risk exposure represents the potential cost to replace the swap contracts if counterparties fail to fulfil their obligation.012 (1. The fair values of derivative financial instruments held are set out below: BWP’000s At 31 December 2010 Cross currency interest rate swaps Designated at fair value through profit and loss Total recognised derivatives Comprising: Derivative financial assets Derivative financial liabilities At 31 December 2009 Cross currency interest rate swaps Designated at fair value through profit and loss Total recognised derivatives Comprising: Derivative financial assets Derivative financial liabilities Notional amount Fair value 363.015 7. The aggregate contractual or notional amount of derivative financial instruments on hand.955) 93 .1 Derivatives Cross currency interest rate swaps The Group uses cross-currency rate swaps to manage its exposure to foreign currency and interest rate risk. An exchange of principal takes place for all cross-currency interest rate swaps. These instruments result in an economic exchange of currencies and interest rates.681 40. To control the level of credit risk taken.965 40. the Group assesses counterparties using the same technique as for its lending activities. therefore. and thus the aggregate fair values of derivative financial assets and liabilities. do not indicate the Group’s exposure to credit or price risks. The notional amounts of the financial instruments provide a basis of comparison with instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows or the current fair value of the instruments and. can fluctuate significantly from time to time.015 6. The derivative financial instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in the market interest rates or foreign exchange rates relative to their terms.409 6.965 42.970 (1.21. Derivative financial instruments and hedging activities 21.
ABC Holdings Limited is the holding company in the ABC Group. The total exposure of the Group to directors.4 million (2009: BWP31. financial assets designated at fair value include an investment in debentures issued by PG Industries (Zimbabwe) Limited valued at BWP11.5 million) which represents 2% (2009: 4%) of shareholders’ funds.000.2 Issued and fully paid 146.006 million. The list of directors is shown on page 27. ABC Consulting and Management Services Limited has entered into management service agreements with Group companies on an arm’s length basis. The Group receives a management fee for providing these services.1 Authorised 150.524) shares of BWP0. Loans to associates as at 31 December 2010 amounted to BWP9. Employee benefits The Group makes contributions to defined contribution plans which are administered externally and for which both the employee and the employer contribute. In Zimbabwe all employees of the Group are members of the African Banking Corporation Zimbabwe Limited Pension Fund to which both the employee and employer contribute.500 7.6 million (2009: BWP16. Details of associate companies are set out in note 13 of the consolidated Group financial statements. Directors and officers Emoluments to directors have been disclosed in note 4.524 (2009: 146.1.320 300. the National Social Security Authority Scheme was introduced on 1 October 1994 and with effect from that date all employees became members of the scheme. In addition. whereby it holds and manages assets.340 The Group provides asset management and unit trust activities to pension funds. trusts and other institutions.500 7.657 shares were held by ABC Zimbabwe (2009: 2.633).320 300. to which both the employees and the employer contribute. and 0.759 221. Related party transactions Related party transactions are a normal feature of business and are disclosed in terms of IAS 24. Details of disclosures of investments in subsidiaries are set out in note 11 of the separate company financial statements.2.1 million) which represents 5% (2009: 8%) of shareholders’ funds.586 23.586 7. Funds under management Funds under management 240.419. 24.000 shares of BWP0. In addition.586 307. These transactions are entered into in the normal course of business. Stated capital 22. As at 31 December 2010. Particulars of lending transactions entered into with directors or their related companies which have given rise to exposure on the balance sheet as at the end of the year are as follows: 94 ABC Holdings Limited ANNUAL REPORT 2010 . (note 9). individuals. 2.8%) of gross loans.419. The Group is not exposed to any credit risk relating to such placements. risk and opportunity facing the organisation. 7. Treasury shares comprise the cost of the company’s own shares held by a subsidiary company.266 307.266 307. under terms that are no more favourable than those arranged with third parties.3% (2009: 0.573.586 307.Notes to the financial statements continued BWP’000s 2010 2009 22. officers and parties related to them in terms of IAS 24 as at 31 December 2010 is BWP20. Subsidiary companies and associates ABC Holdings Limited and its subsidiaries entered into various financial services contracts with fellow subsidiaries and associates during the year.370.05 each 22. Amounts recognised in expenses have been disclosed in note 4.05 each Share premium Total company Total group The holders of ordinary shares are entitled to receive a dividend as declared from time to time and are entitled to one vote per share at the annual general meeting of the company. 25. Related party transactions may affect the assessment of operations.
615 9.867 5. Related party transactions (continued) Loans and advances to entities related through shareholding: Star Africa Corporation Limited PG Industries (Botswana) Limited Loans and advances to entities related to directors: Loans and advances to entities related to N Kudenga Loans and advances to entities related to OM Chidawu and DT Munatsi Loans and advances to entities related to FM Dzanya Loans and advances to directors: OM Chidawu D Khama* DT Munatsi F Dzanya B Moyo *Guarantees.006 – – – – – – – 5.839 – 32 73 10 2.315 – 3.491 16.040 12.381 – 16.666 70 2.652 Loans and advances to key management: H Matemera B Mudavanhu Financial assets designated at fair value held with entities related through shareholding: Listed debentures: PG Industries (Zimbabwe) Limited Deposits held by entities related to directors and key management: D Khama – Doreen Khama Attorneys Trust Account Kudenga & Company Chartered Accountants Deposits from entities related to DT Munatsi Deposits from entities related to FM Dzanya Deposits held by directors and key management: N Kudenga F Dzanya B Moyo H Matemera D Khama DT Munatsi Remuneration to key management personnel: Short-term employment benefits Post-employment benefits 4.576 12. – 9.657 4.885 6. motor vehicle and personal loans at subsidised rates in some instances.317 551 12.746 1.264 1.560 – 206 – – 206 – – – – 181 1 182 4. OM Chidawu resigned as director and Chairman on 31 May 2010.373 200 1.469 – 210 623 350 2.624 3.646 738 195 933 64 – 2 66 – – 255 734 392 1.101 6 505 27 4.296 14.095 – – 2.188 43 – 16 299 30 1. 95 .631 462 49 511 3. Mr.477 72 8 – 80 1.120 25.820 2.868 19 – – – 19 10 2 – 1 1 – 14 All loans bear interest and fees at rates applicable to similar exposures to third parties. and was therefore not viewed as a related party at 31 December 2010.833 6 – 5.639 1.851 13. The Group assists officers and employees in respect of housing.491 1.315 372 – 372 11.114 1.615 174 – 921 1.554 3.2010 BWP’000s Balance Interest Balance 2009 Interest 25. The Group disposed of its interest in Star Africa Corporation Limited at the end of 2009.006 11.982 6. Consistent policies and processes govern the granting and terms of such loans.980 667 – 2.647 14.
358 ABC Holdings Limited is obliged to return equivalent securities.162 233. the Group also disposed of its 21% interest in PG Industries (Zimbabwe) Limited.820 3.141 186.880 196. The Group is not permitted to sell or repledge collateral in the absence of default.748 Assets pledged to secure these liabilities are carried at amortised cost and are included under the following: Financial assets held for trading – 39.880 These transactions are conducted under terms that are usual and customary to standard lending and borrowing activities.452 1.037 4. 96 ABC Holdings Limited ANNUAL REPORT 2010 .2 Collateral accepted as security for assets Deposits from customers Mortgage bonds. Prestige Investments (Private) Limited (formerly Quest Ventures (Pty) Ltd).292 51.484 173.868 233.831.1 Liabilities for which collateral is pledged Deposits from banks Deposits from customers Borrowed funds 46. the Group disposed of its 23. 30. Collateral 27.156 63.155 233. 29. A portion of the PG Industries (Zimbabwe) Limited shares were contributed to a new associate. These transactions are conducted under terms that are usual and customary to standard lending and borrowing activities.656 490. During 2010.147 210. Events after the reporting period There were no significant events after the reporting period.52 cents) per ordinary share.376 1. Withholding tax will be deducted from dividend payments in accordance with the income tax act in Botswana and Zimbabwe.994 1.868 196.Notes to the financial statements continued Closing Dec 10 Average Dec 10 0.702 542.4 million. shares.110 2010 Average Dec 09 0. the Group followed its rights in a rights issue by PG Industries (Botswana) Limited for BWP5. inventory. the Group acquired a 2% interest in PG Industries (Zimbabwe) Limited for BWP1. and indirectly invested an additional BWP4.27% interest in Star Africa Corporation Limited. Acquisitions and disposal of associate companies During 2010. plant and equipment.5 million. In addition. the Group acquired listed convertible debentures in PG Industries (Zimbabwe) Limited as detailed in note 9.117 707. 28.2 million by following existing rights. During 2009.678 133.732 116. letters of undertaking 402. The net assets of the associate were BWP24.053 1.903 1.860 226. Dividend The Board of Directors proposed a gross final dividend of 10 Thebe (USD equivalent currently 1. in which the Group holds an interest of 49%. 27.484 5.889 4.6 million on 21 December 2010.840 1.781 711.165 2009 26. following the underwriting of a right issue.150 200.427 744.792 697.028 27.080 Closing Dec 09 0.428. In February 2009. Exchange rates United States Dollar Tanzanian Shilling Zambian Kwacha Mozambican Metical South African Rand BWP’000s 0.
COMPANY SEPARATE FINANCIAL STATEMENTS 98 Company income statement 98 Company statement of comprehensive income 99 Company balance sheet 100 Company statement of changes in equity 101 Company cash ﬂow statement 102 Notes to the Company ﬁnancial statements 97 .
247 (633) 12.212) 30.585 (7.030) (15.566 (16.818 (43.340) 97.COMPANY INCOME STATEMENT for the year ended 31 December 2010 BWP’000s Interest and similar income Interest expense and similar charges Net interest income/(expense) Non interest income Other impairments Total income Operating expenditure Profit/(loss) before tax Tax Profit/(loss) for the year Notes 2010 102.454 56.776 (413) 1 2 3 4 5 45.614 COMPANY STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2010 BWP’000s Profit/(loss) for the year Total comprehensive income/(loss) for the year 2010 12.923) 13.202 (56.755) (9.807) 7.614 12.189) 8.614 2009 (413) (413) 98 ABC Holdings Limited ANNUAL REPORT 2010 .748) 2009 27.056 (4.170 (83.
839) 303.586 (16.586 (3.832 13.453) 291.747 1.234 85.064 427.002 158.435 15 17 8 18 – 6.464 193.302 307.028 19.149 132.053 602.660 64.537 34.077 1.239 809 4.185.986 99 .185.322 76.370 58.481 418.986 2009 51 – 2.028 882.502 18.147 449.607 790 10.863 556.433 38.435 19 307.COMPANY BALANCE SHEET as at 31 December 2010 BWP’000s ASSETS Cash and short-term funds Financial assets designated at fair value Derivative financial assets Loans and advances Inter-company balances Investment securities Prepayments and other receivables Property and equipment Deferred tax assets Loans to subsidiary companies Investment in subsidiaries TOTAL ASSETS EQUITY AND LIABILITIES Liabilities Derivative financial liabilities Creditors and accruals Inter-company balances Borrowed funds Total liabilities Equity Stated capital Distributable reserves Equity attributable to ordinary shareholders EQUITY AND LIABILITIES Notes 6 16 15 7 8 9 10 11 12 13 14 2010 22.009 238 9.133 847.424 483.470 142.318 847.
614 12.586 – – 307.586 Distributable reserves (16.614 12.040) (413) (413) (16.133 12.614 303.453) 12.747 100 ABC Holdings Limited ANNUAL REPORT 2010 .COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 BWP’000s Balance as at 31 December 2008 Comprehensive income: Loss for the year TOTAL COMPREHENSIVE INCOME Balance as at 31 December 2009 Profit for the year TOTAL COMPREHENSIVE INCOME Balance as at 31 December 2010 Stated capital 307.614 (3.839) Total equity 291.586 – – 307.546 (413) (413) 291.
298) (265) (7.404 (9.688 (183.710 12.950 2009 50.084) 317.749) (42.166) 14.340 254 (1.772 (135.660 101 .165 8.189) 7.807 116 9.688 29.725) (1.247 4.404 41.609 51 22.638 16.749) (933) 984 51 Net increase in operating funds (Increase)/decrease in operating assets Increase in operating liabilities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Investment in subsidiaries Changes in loans to subsidiaries CASH FLOWS FROM FINANCING ACTIVITIES Increase/(decrease) in borrowed funds Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 134.629) 8.243) (790) (42.759) (15.670 – 8.165 22.COMPANY CASH FLOW STATEMENT for the year ended 31 December 2010 BWP’000s CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operating activities Net profit/(loss) before tax Adjusted for: Other impairments Depreciation and amortisation Net (gains)/losses on derivative financial instruments Tax paid 2010 149.022 (8.115 8.194) (806) (118.116 13.
Netgain/(losses)onderivativeinstrumentsincludesanoffsettingfairvaluegain arisingfromanequalbutoppositenominalJapaneseYenderivativeasset.NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2010 ACCOUNTING POLICIES The accounting policies of the Company and the Group are set out on pages 35 to 48.718 14.056 * oreignexchangeincomeincludesaforeignexchangelossofBWP10.748 Net interest income 45.921 13.257 13. Operating expenditure Administrative expenses Staff costs Auditors’ remuneration Depreciation (note 11) Directors’ remuneration 64.670 73.697 27. Non interest income Gains/(losses) from trading activities: – Designated at fair value – Net gains/(losses) on derivative financial instruments* Dividends received: – Subsidiary companies Fee and commission income: – Net fee income on loans and advances at amortised cost Other non interest income/(losses): Foreign exchange income/(loss) and currency revaluation* 3.030 (15.463 7.257 15.755 4.406 17.585 2.454 7.670) – (9.525 3.783 975 116 6.600 1.600 9.082 5.223 2.918 1.867 7.110 254 10.670) 13. – 4. BWP’000s 2010 2009 1.725 37.601 102.A.624 4.212) (9.321 15. 733 3.923 102 ABC Holdings Limited ANNUAL REPORT 2010 .818 35.827 56.357 1.456 37.677 11.918 56.456 9.584 7.disclosedin note18.807 4.340 5.7million(2009: F profitofBWP21million)arisingfromtheJapaneseYenexposurewithNDB.670 8.465 1.677 30.202 Interest expense Borrowed funds Inter-company 42. Net interest income Interest and similar income Cash and short-term funds Investment securities at amortised cost Loans and advances at amortised cost Inter-company 7.631 83.321 11.257 16. Other impairments Impairment of investment in subsidiaries Capital Partners (Pty) Ltd EDFUND S.163 43.340 4.
674 (94) (6.482 633 (5%) 2009 (9.780 14.776) – (8.4millionatyearend. 7.674) 85.1 Maturity analysis On demand to one month One month to three months Three months to one year Greater than one year 135.370 (8.165 633 22.937 (363) (3.689) (8. R **ncludesarenegotiatedbutcurrentcorporateadvanceofBWP135.229 91.410 2.542 85.580) – – – 70.322 6.430 15. I ofwhichanamountofBWP74.2 Impairment of loans and advances – movement analysis Opening balance Exchange rate adjustment Bad debts written off Closing balance 6.378) (2.322 10. 103 .987 (5.800 193.776) (96%) 5.996 (6.141 193.767 28.776) 51 63.370 7. 7.674 The loans all have floating interest rates which range from 9.003) 1. The loans are denominated in Botswana Pula and United States Dollars.6millionhasbeenrepaidsubsequenttoyearend.389 40.618) 617 1.370 – 193.247 1.1 Current tax expense Deferred tax Tax losses Current tax Tax on dividends received Total tax expense/(income) per income statement (532) 1.189) (1.294 – (6.BWP’000s 2010 13.165 2.570 27.900) 6. Cash and short-term funds Balances with banks Loans and advances Corporate lending** Other* Less: Allowance for impairments Net loans and advances * elatedpartyloansandadvancesincludedintheabovearesetoutinnote20.02% to 15%). Tax Profit/(loss) before tax Income tax using standard corporate tax rate Tax exempt revenues Non-deductible expenses Tax on dividends received Tax losses of prior years now claimed or not claimed Tax expense/(income) per income statement Effective tax rate 5. The fair value of net loans and advances approximates their carrying amount.660 165.75% to 43% (2009: 8.
185 26.224 11.225 2.225 2.892 58.752 – 39.192 109.303 53.541 – – 4. and Euro 0.1 Inter-company balances Balances due from: BancABC Zambia Limited BancABC Zimbabwe Limited Tanzania Development Finance Company Limited BancABC Management Support Services (Pty) Ltd and other non-banking subsidiaries* 4.985 3.2 million).064 63.8 million (2009: nil).840 66. Investment securities Held-to-maturity – Promissory notes The promissory notes are partial security for the loan from BIFM (note 18).192 109.theloanisnolongersubordinatedastheassetsofthe companynowexceeditsliabilities.303 9. South African Rands: BWP49. Tanzania Development Finance Company Limited 157.522 45.713 6.Notes to the Company financial statements continued BWP’000s 2010 Fair value 2009 Fair value 8. Prepayments and other receivables Accounts receivable and prepayments Security deposit Other amounts due 3.502 34.537 21.4 million).009 104 ABC Holdings Limited ANNUAL REPORT 2010 .3 million (2009: BWP48. The fair value of the promissory notes cannot be determined as the promissory notes are specifically conditional to the terms of the BIFM loan referred to in note 18.151 449.607 All prepayments and other receivables are classified as current.022 – 132. The balances are denominated in Botswana Pula: – BWP164.Theloanhasnofixedtermsofrepaymentandwassubordinatedtoclaimsfromothercreditorsasat31December2009untilthetotal assetsoftheentity.832 10.713 6.433 157. 38. United States Dollars: -BWP276.. 5.fairlyvalued.Asat31December2010.505 1.537 21.423 37. and are redeemable on 31 March 2015.3 million).504 76.064 Inter-company balances are generally short-term placements or borrowings at prevailing market rates.1 million (2009: BWP35.522 45.541 – – 9. The promissory notes earn a fixed interest of 10.423 37.840 66.892 58. 8.A. * heamountincludesaninterestfreeloanofBWP37.752 – 39.336 4.481 8.504 76.a.185 26.481 63.505 1.063 3.398 18.2 Balances due to: BancABC Botswana Limited BancABC Mozambique Sarl BancABC Tanzania Limited BancABC Zimbabwe Limited EDFUND S.25% p.610 13.745 71.2 million (2009: -BWP139.433 53. BWP’000s 2010 2009 9.4millionpertainingtoBancABCManagementSupportServices(Pty)Ltd.745 71.151 449.(ABCSouth T Africa).exceeditstotalliabilities.022 – 132.
022 41.199 142.002) Total 438 806 1.244 (200) (254) (454) 790 173 265 438 (84) (116) (200) 238 2009 (694) (8.902 46.BWP’000s Computer and office equipment 438 539 977 (200) (245) (445) 532 173 265 438 (84) (116) (200) 238 Furniture and fittings – 267 267 – (9) (9) 258 – – – – – – – 2010 (9.776) (9.053 13. The loans mature between 2020 and 2021. Deferred tax Balance at the beginning of the year Income statement charge (note 5) Balance at the end of the year Tax effect of temporary differences: – Tax losses BWP’000s 2010 65.470) (532) (10. Loans to subsidiary companies BancABC Botswana Limited BancABC Zambia Limited BancABC Mozambique Sarl The loans are 13 year loans provided to subsidiaries as Tier II capital. The loans are denominated in Botswana Pula: BWP32 million (2009: BWP32 million) and United States Dollars: BWP126.470) 2009 67.093 158.4 million).058 46.470) (9. 105 . Property and equipment Cost or valuation at 31 December 2009 Additions Cost or valuation at December 2010 Accumulated depreciation at December 2009 Charge for the year Accumulated depreciation at December 2010 Carrying amount at December 2010 Cost or valuation at 31 December 2008 Additions Cost or valuation at December 2009 Accumulated depreciation at December 2008 Charge for the year Accumulated depreciation at December 2009 Carrying amount at December 2009 BWP’000s 12.5% and is payable half-yearly.424 11.002) (10.002) (10.1 million (2009: BWP110.203 34. Interest ranges from 10% to 12.470) (9.
050 – 47.949 128.andtheentitydoesnotgenerateincome.Notes to the Company financial statements continued Ownership of ordinary shares Nature of business 2010 % 2009 % Carrying value 2010 BWP’000s 2009 BWP’000s 14.thecompanyhadsharecapital I ofBWP100.895 144.610 41.A.A.375 483.In2010.019 52.019 100 100 100 100 68.776 210.3million.*** 100 100 42.077 46.00.000 2.andtheentitydoes I notgenerateincome.2millionwasinjectedintoCapitalPartnersPrivateLimited.2millionin2009asthecarryingamountexceededthe netassetvalue. **** n2009theinvestmentinEDFUNDS.000 2.397 15.6millionasthecarryingamountexceededthenetassetvalue. ****TheoperationsofMicrofinAfricaZambiaLimitedweremergedintoBancABCZambiaLimitedwitheffectfrom1August2009.752 – Registered bank Financial services 94* 68 94* 68 128.035 602.241 4. Investment in subsidiaries Registered bank Investment holding company Capital Partners Private Limited** Investment holding company Mozambique BancABC Mozambique Sarl South Africa BancABC Management Support Services (Proprietary) Limited Tanzania BancABC Tanzania Limited Tanzania Development Finance Company Limited Zambia BancABC Zambia Limited**** Zimbabwe BancABC Zimbabwe Limited Registered bank Management services Botswana BancABC Botswana Limited Bohemian Private Limited 100 100 100 100 100 100 52.397 15.TheinvestmentinCapitalPartnersPrivateLimitedwasimpairedbyBWP5. Stockbroking and Asset Management Management services 100 100 100 100 78.Priortotheinjection.690 Luxembourg EDFUND S.241 4. E **** n2009additionalcapitalofBWP7.theinvestmentwasfurtherimpairedbyBWP4. 106 ABC Holdings Limited ANNUAL REPORT 2010 .949 Registered bank Registered merchant bank.318 **** ffectiveshareholding.wasimpairedbyBWP2.
464 19. The aggregate contractual or notional amount of derivative financial instruments on hand. The derivative financial instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in the market interest rates or foreign exchange rates relative to their terms. and non-hedging activities. do not indicate the company’s exposure to credit or price risks. To control the level of credit risk taken.464 – 179. can fluctuate significantly from time to time. and thus the aggregate fair values of derivative financial assets and liabilities.080 19. therefore.931 1.464 19. The notional amounts of the financial instruments provide a basis of comparison with instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows or the current fair value of the instruments and. the extent to which instruments are favourable or unfavourable. An exchange of principal takes place for all crosscurrency interest rate swaps. The company’s credit risk exposure represents the potential cost to replace the swap contracts if counterparties fail to fulfil their obligation.425 1. These instruments result in an economic exchange of currencies and interest rates.234 (809) 107 . the company assesses counterparties using the same technique as for its lending activities. Derivative financial instruments Cross-currency interest rate swaps The company uses cross currency interest rate swaps to manage the Group’s exposure to foreign currency and interest rate risk. These instruments are transacted for both hedging on a Group basis. The fair values of derivative financial instruments held are set out below: BWP’000s At 31 December 2010 Cross currency interest rate swaps: Designated at fair value through profit and loss Total recognised derivatives Comprising: Derivative financial assets Derivative financial liabilities At 31 December 2009 Cross currency interest rate swaps: Designated at fair value through profit and loss Total recognised derivatives Comprising: Derivative financial assets Derivative financial liabilities Notional amount Fair value 121.425 2.15.
BWP’000s 2010 Fair value 2009 Fair value 1.466 257.010 3.000 30 September 2018 – BWP62.620 496.137 6.149 18.328 35.072 35. Creditors and accruals Accrued expenses Other amounts due 3.620 427.000 Other borrowings Other borrowings relate to medium to long term funding from international financial institutions for onward lending to the Group’s clients.080 257.028 124.Notes to the Company financial statements continued BWP’000s 2010 64. Financial assets designated at fair value Unlisted debentures The unlisted debentures comprise of an investment in 5 year 12% convertible debentures issued by Star Africa Corporation Limited.863 140.63% per annum. 108 ABC Holdings Limited ANNUAL REPORT 2010 .500. Principal and interest is payable semi-annually on 15 June and 15 December. The redemption dates are as follows: 30 September 2017 – BWP62.500.211 126.000 30 September 2020 – BWP62.071 343.53%.500. BIFM Capital Investment Fund One (Pty) Ltd The loan from BIFM Capital Investment Fund One (Pty) Ltd is denominated in Botswana Pula and attracts interest at 11.961 322.319 2.500. The loan matures on 15 December 2016. The balance is denominated in United States Dollars.028 2009 – 16. 30 September and 31 December. payable semi-annually. 30 June.000 30 September 2019 – BWP62. Borrowed funds National Development Bank of Botswana Limited BIFM Capital Investment Fund One (Pty) Ltd Other borrowings 121. convertible at the option of the holder after 2 years. 17.069 518.212 National Development Bank of Botswana Limited (NDB) The loan from National Development Bank of Botswana is denominated in Japanese Yen and attracts interest at 3.630 48.147 Creditors and accruals are due and payable within twelve months.069 418.830 4.328 48. with interest being paid quarterly on 31 March.
524 146.2 Issued and fully paid 146.266 307.586 146.619 427.419.05 each 19.081 409.524 (2009: 146.500 7.028 – 7.1 Authorised 150. Stated capital 19.524 146.05 each Share premium Total company The holders of ordinary shares are entitled to receive a dividend as declared from time to time and are entitled to one vote per share at the annual general meetings of the Company.000 shares of BWP0.419.419.419.266 307.1 Maturity analysis On demand to one month One month to three months Three months to one year Greater than one year 19.586 7.320 300.000.524 146.328 10.500 7.524) shares of BWP0.986 418.792 30.863 7.085 380.320 300.524 109 .BWP’000s 2010 2009 18.3 Reconciliation of the number of shares in issue Shares at the beginning of the year At the end of the year – 7.419.419. 19. Borrowed funds (continued) 18.
040 11.652 372 372 Loans and advances to directors: OM Chidawu DT Munatsi F Dzanya B Moyo – 2. Off-balance sheet items 21.554 3. Loans to/from subsidiary companies have been disclosed in notes 8 and 13 and interest on these in note 1.315 1. 21. Particulars of lending transactions entered into with related parties are as follows: 2010 BWP’000s Loans and advances to entities related through shareholding: Star Africa Corporation Limited* Balance Interest Balance 2009 Interest – – 738 738 – 237 734 392 1.595 1 10 ABC Holdings Limited ANNUAL REPORT 2010 .363 421 421 – – 14. *Asnotedinnote29oftheGroupfinancialstatements.867 5. the loan is no longer subordinated as the assets of the company now exceed its liabilities. 21.104 6.737 3. As at 31 December 2010.theGroupdisposedofitsinterestinStarAfricaCorporationLimitedattheendof2009.914 3. Related party transactions Emoluments to directors have been disclosed in note 4.1 Contingent liabilities The Company has also agreed to provide its subsidiary BancABC Management Support Services (Proprietary) Limited with financial support to meet its obligations by providing a subordinated loan (refer to note 8).624 3.315 3.373 1.768 Loans and advances to key management: H Matemera 3.469 210 623 350 2.120 24.820 1.Notes to the Company financial statements continued 20.820 1.737 There were no specific impairments on balances with related parties.2 Capital commitments BWP’000s Approved and contracted for the next year 2010 – 2009 40.
06% 18.761.000 500.00% Number of shares 16.607 21.642.01% 80.48% 4.635 29.231.018 199 3.708 10.001 – 10.901 95.85% 0.419.000 100.45% 2.81% 82.573 27.817.000.640 % of total holders 97.001 – 100.77% 0.290 146.646.00% Geographical analysis of shareholders Region Americas Botswana Europe Mauritius South Africa Zimbabwe Other Number of holders 13 310 31 3 66 3.980 190.893 7.619 15.388 2.13% 20.391 146.08% 1.80% 19.315.951.495 43.73% 100.68% 0.001 – 500.36% 8.000.187.534 38 42 9 12 5 3.153 6.98% 1.64% 2.975 30.07% 19.247. of Zimbabwe Limited International Finance Corporation Stanbic Nominees Botswana – In Respect of BIFM and Botswana Public Officers Pension Fund Shares held by and on behalf of B Moyo Barclays Botswana Nominees (Pty) Ltd – In Respect of SIMS 212/005 Nederlandse Financierings-Maatschappij Voor Ontwikkelingslande Barclays Botswana Nominees (Pty) Ltd – Other Dennilton Investments Total top 10 Shareholders Other shareholders Total shares in issue Shares 29.00% 4.00% Number of shares 5.00% Top 10 Shareholders as at 31 December 2010 Shareholder African Development Corporation Shares held by and on behalf of DT Munatsi Old Mutual Life Assurance Co.346.524 % of total shares 3.44% 2.25% 0.64% 10.640 % of total holders 0.419.192.83% 100.000 50.31% 100.567.155 10.25% 29.524 % of total shares 11.93% 100.412 93.099.582.000.66% 18.065 15.04% 1.957 6.399 28.524 % holding 20.419 3.89% 7.68% 7.09% 1.74% 63.000 2.889 146.000 1.383 27.623 3.ANALYSIS OF SHAREHOLDERS for the year ended 31 December 2010 Range 0 – 50.832.03% 14.000.942.85% 10.33% 0.794.438.000 Number of holders 3.48% 0.000 Above 10.891.297 117.484.001 – 1.419.85% 4.445.59% 5.15% 0.14% 100.321.462.00% 11 1 .
B Moyo. R Dave. W Nyachia. Plot 746B. Botswana Tel: +267 3674300 Fax: +267 3902131 www. JW Thomas.bancabc. J Kurian ABC House. L Shyam-Sunder. J Muwo ABC Pyramid Plaza Building. J Sibanda. D Botha. Zimbabwe Tel: +263 (4) 369260-99 Fax: +263 (4) 338064 Branches: Mount Pleasant branch +263 (4) 369260-99 Manica branch +263 (20) 68255/78 Heritage House branch: +263 (4) 781837-40 Abercorn House branch: +263 (9) 69212-3 abczw@africanbankingcorp. 2196 Johannesburg. LS Simao. F Dzanya.com BancABC Zambia Directors: C Chileshe. Fairground Office Park.com BancABC Botswana Directors: D Khama. J Doriye. Mozambique Tel: +258 (21) 482100 Fax: +258 (21) 486808 Branches: Beira branch +258 (23) 320655-7 Chimoio branch +258 (25) 123077/8 Maputo branch +258 (21) 482100 Matola branch +258 (21) 720008 Tete branch + 258 (25) 222984 abcmoz@africanbankingcorp. Tanzania PO Box 31. DT Munatsi. W Nyachia. L Sondo. Dar es Salaam.com BancABC Mozambique SA Directors: B Alfredo. Dar es Salaam. Harare. R Credo. South Africa Tel: +27 (11) 722 5300 Fax: +27 (11) 722 5360 Branches: Kariakoo branch +255 (22) 2180108/182/212 Upanga branch +255 (22) 2121537-9 abctz@africanbankingcorp. FM Dzanya. DT Munatsi. J Wasmus ABC House. Morningside.com Tanzania Development Company Limited Directors: JP Kipokola. Maputo.CONTACT INFORMATION ABC Holdings Limited Directors: H Buttery. TET Venichand. Tanzania PO Box 2478. I Chasosa 1st Floor Barclays House.com BancABC Zimbabwe Directors: N Kudenga. T Mudangwe Endeavour Crescent. Ohio Street. FE Ziumbe.com Administrative office – South Africa 205 Rivonia Road. Corner Nasser Road/Church Road. D Khama. H Chambisse. P Chigumira. J Doriye. N Matimba. Plot 62433. Mount Pleasant. DT Munatsi. Fairground Office Park. Plot 62433. Tanzania Tel: +255 (22) 2111990 Fax: +255 (22) 2112402 abctz@africanbankingcorp. L Makwinja. Lusaka Tel: +260 (211) 257970-6 Fax: +260 (211) 257980 Branches: Lumumba Road branch +260 (211) 230796 Kitwe branch +260 (212) 222426/7 Ndola branch +260 (212) 621716 abczm@africanbankingcorp. Ridgeway. L Mwafuliwa. A Mabhena. F Mucave 999 Avenida Julius Nyerere. Botswana Tel: +267 3674300 Fax: +267 3902131 Branches: Square branch +267 3160400 Fairground branch +267 3674300 Francistown branch +267 2414133 abcbw@africanbankingcorp. P Sithole. DT Munatsi. Gaborone. Mount Pleasant Business Park. DT Munatsi. A Dudhia. DT Munatsi. Dar es Salaam. H Matemera.com BancABC Tanzania Directors: JP Kipokola. Gaborone. B Moyo. N Kudenga. Polana Cimento. I Chasosa 1st Floor Barclays House. S Ipe. Tanzania Tel: +255 (22) 2111990 Fax: +255 (22) 2112402 1 12 ABC Holdings Limited ANNUAL REPORT 2010 . Dar es Salaam. Ohio Street.
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