Zanaco 2015 anuual report

2015 | ANNUALREPORT

VISION | MISSION | VALUES

Vision

Values

Mission

To be Zambia’s leading, preferred, admired, and innovative financial institution that should provide to each of our chosen customer segments a fair deal as we also strive to bank the unbanked.

To be the leading financial institution in each of our chosen segments with a special focus on Government, Food and Agriculture, Personal and SME Banking through appropriate technology, distribution channels, and with empowered and motivated employees.

• Pride• Respect• Integrity• Excellence• Teamwork

CONTENTS

2015 events in photos

Brief Profile

Financial Highlights

Board of Directors

Executive Management

Chairperson’s Report

Managing Director’s Report

Directors’ Report

Statement of Corporate Governance

Corporate Social Responsibility

Statement of Responsibility for Financial Statements

Auditor’s Report

Financial Statements

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2015 | ANNUALREPORT

PAGE 2

EVENTS IN PHOTOS

Some of the delegates at the Loan a Cow Product launch in Chisamba following proceedings.

Giving back to customers: Managing Director Bruce Dick hands over a brand new vehicle to a lucky customer following the Swipe and Win Promotion which was aimed at encouraging customers to use Point of Sale (POS) terminals.

His Excellency, President Edgar Chagwa Lungu visits the Zanaco stand during the launch of the Farmer Input Support Programme (FISP) in Choma.

Towards enhanced stakeholder management: Zanaco Board members at Nakambala Sugar Estates in Mazabuka.

Getting closer to customers: A Zanaco member of staff explains the Bank’s services and products to a customer

2015 | ANNUALREPORT

EVENTS IN PHOTOS

PAGE 3

Towards continuous stakeholder engagement: Zanaco Management engage with Institutional Investors during the Annual Investor Forum.

Celebrating staff loyalty and dedication to work: Managing Director Bruce Dick congratulates Mrs Kangwa Mutimushi during the Annual Long Service Awards Presentation Ceremony.

Managing Director Bruce Dick, Board Chairperson Charity Lumpa and Vice-Chairperson Hastings Mtine celebrate Zanaco’s Double AA Rating by the Credit Rating Agency Ltd.

Towards making a contribution to National Financial Education in Zambia: Managing Director Bruce Dick receives a certificate in recognition of Zanaco’s contribution to enhancing Financial Education from Bank of Zambia Governor Dr. Denny Kalyalya during the Financial Literacy Week.

Towards continuous improvement of customer service delivery: Customers accessing banking services at Zanaco outlets.

2015 | ANNUALREPORT

BRIEF PROFILE

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HistoryZambia National Commercial Bank Plc (Zanaco) was established in1969 to service the financial needs of the Zambian economy and it has since evolved into a leading Bank nationwide. In 2007, GRZ sold a 49% stake in the Bank to Rabo Development B.V. a subsidiary of the Cooperatieve Centrale Raiffeisen-Boerenleen Bank (Rabobank) of the Netherlands.

Subsequently, Rabo Development sold a 3.41% stake to Lizara Investments Limited, a nominee of the Zambia National Farmers Union (ZNFU), following the Bank’s Initial Public Offering in 2008.

The Bank remains majority-owned by Zambians and is thus considered “citizen owned”. The relationship with Rabobank enables Zanaco to benefit from technical assistance and best practices in various areas of banking.

Our CustomersIn our quest to meet customer expectations, Zanaco’s strategic focus has been centred around improved service delivery. Guided by our Vision, Mission and Values, we are determined and committed to ensuring that we not only meet the expectations of our over 978,000 customers who cut across the Personal, Corporate, Government, SME and Agriculture sectors, but exceed them.

Innovation and sustainability for us means doing things better and smarter, driven by the needs of our customers; it means making efficient use of our resources and empowering the customer with financial services and products that help them attain their goals and aspirations. Our PeopleOur members of staff are our number one resource. We are proud of our 1,361 dedicated, inspired and motivated staff who drive our agenda. Zanaco is the largest employer in the Zambian banking sector.

To ensure we maximise output and get the best out of our employees. We invest in training and ensure we take good care of their wellbeing.

Ownership StructureThe current ownership structure of Zanaco is as follows:

Rabo Development B.V. 45.59%

GRZ 25.00%

LuSE Free Float 26%

LIZARA Investments Limited 3.41%as Nominees of Zambia National Farmers Union (ZNFU)

2015 | ANNUALREPORT

FINANCIAL HIGHLIGHTS

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1,200,000

2011 2012 2013 2014 2015

1,000,000

800,000

600,000

400,000

200,000

-

700,000

600,000

500,000

400,000

300,000

200,000

100,000

-

3,500,000

3,000,000

2,500,000

1,500,000

1,000,000

500,000

-

1,200,000

1,000,000

800,000

600,000

400,000

200,000

-

Total Revenue - 970,000

Kwac

ha

Kwac

ha

Kwac

ha

Kwac

ha

Loans and Advances - 3,450,000

Net Interest Revenue - 638,000

Shareholders’ Funds - 1,040,000

2011 2012 2013 2014 2015

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

2015 | ANNUALREPORT

BOARD OF DIRECTORS

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Gertrude M. Akapelwa

Ms. Akapelwa is the Founder, Vice - Chancellor and Board Chairperson of Victoria Falls University of Technology (VFU). Her career extends over 44 years in the Information Technology, banking and education sectors.

She is South Africa’s CEO Magazine 2013, 2014 and 2015 Overall, Regional and Country Award winner in the category “Africa’s Most Influential Women in Business and Government.” She is the owner and CEO of La Residence Executive Guest House.

She has served as the Board Chairperson of the Zambia Information and Communications Technology Authority (ZICTA) and was also a member of the Millennium Challenge Account Zambia Steering Committee and the Technical Committee for the Government of the Republic of Zambia Lands Information Management System. Prior to that, she served the African Development Bank in different capacities for 23 years in Ivory Coast and Tunisia, She is a former IBM Systems Engineer.”

Bruce Dick

Mr. Dick was appointed Managing Director of Zanaco in January 2014. He had previously served as Board Chairman for the period 2010 until 2013. He has over 35 years experience in retail and wholesale banking.

Prior to taking up his role at Zanaco, he was responsible for Rabo Development’s retail bank investments throughout Sub-Saharan Africa and Latin America.

Hastings Mtine

Mr. Mtine is the Managing Partner of MPH Chartered Accountants. With a career spanning over 40 years as a Chartered Accountant, he serves as a member of Konkola Copper Mines Plc (KCM) board of directors. He is also a member of the audit committees of KCM and Zambeef Plc.

Mr Mtine has previously served as Vice - Chairperson of the Bank of Zambia board and as chairperson of the sub-committee Pensions and Audit. He was also once Principal International Contact Partner for Zambia - KPMG-Africa Board.

Charity Chanda Lumpa

Ms. Lumpa is the former Managing Director of Airtel Networks Zambia. An experienced executive with a career running over 32 years in banking, tourism and telecommunications. She has functional expertise in credit risk, banking and marketing. She is also Chairperson of the Hostels Board of Zambia and SOS Children’s Villages Zambia. She also serves on the boards of Air Namibia, Livingstone International University of Tourism Excellence and Business Management (LIUTEBM) and Malawi Innovation Challenge Fund.

Other boards where Ms. Lumpa has served include Airtel Networks Zambia, Airtel Money Zambia, Ecobank Zambia, Zambia Tourism Board (ZTB), Zambia Airports Limited and Global Compact Board of Advisors.

2015 | ANNUALREPORT

BOARD OF DIRECTORS

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Eric Drok

Mr. Drok’s banking career spans over 28 years. From 2002 to 2006 he served on the Board of ING Bank in the Netherlands. In 2006 he was appointed CEO of ING Bank in Australia. He later moved to Poland as Head of Retail at ING Poland until 2011 when he joined Rabobank.

Until 2015, he was the Chief International Direct and Retail Banking of Rabobank International. He was also board member of Rabobank Australia and Rabobank New Zealand and of BGZ Bank in Poland.

Now Mr Drok is Corporate Advisor and Non-Executive Director in finance and retail industry. He is also Chairman of Flow Traders NV (listed company) and member of the supervisory board of MS-mode BV (fashion), Lievense CSO BV (engineering), The Greenery BV (vegetables wholesaler) and Max Havelaar (Fairtrade).

Guy H. Robinson

Mr. Robinson is a businessman and farmer. He represents Lizara Investments Limited, a nominee of the Zambia National Farmers Union (ZNFU) where he serves as Trustee.

He is also a board member of Musika, Parmalat and Tiger Feeds Ltd.

Fred Weenig

Mr. Weenig is Chief Executive Officer of FGH Bank, part of Rabobank in the Netherlands. Part of his assignment is to integrate FGH Bank into Rabobank. FGH Bank finances commercial real estate and also analyses social and economic developments and assesses their impact on the market for commercial real estate. Before taking up this role, Mr. Weenig was Director Wholesale Clients Netherlands at Rabobank. He joined Rabobank in 2004 where he was Deputy Head of Special Asset Management Rabobank Group until July 2010.

Ronald M. Simwinga

Dr. Simwinga Is Permanent Secretary in charge of Economic Management and Finance at the Ministry of Finance. As a nominee of the Minister of Finance, he joined the Board of Zanaco in 2013.

His research interests include Macroeconomic. Theory and Policy, Monetary Theory, Financial Economics and International Finance and Economics.

2015 | ANNUALREPORT

EXECUTIVE MANAGEMENT

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Bruce DickManaging Director

Lucas HaraDirector Finance

Ignatius Mwanza Director Corporate Banking

Chimango Chikwanda Director Human Resources

Manlio D’AlessandroDirector Corporate Support

2015 | ANNUALREPORT

EXECUTIVE MANAGEMENT

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Lishala SitumbekoDirector Treasury and

Investments

Suzyo Ng’andu Bank Secretary

Hamish Chipungu Director Internal Audit

Arjan Poels Director Risk Management

Chibotu ChiyasaDirector Retail Banking

2015 | ANNUALREPORT

MESSAGE FROM CHAIRPERSON

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The year 2015 was one of mixed performance: Zanaco made significant progress in terms of resolving the most critical issues that arose in 2014, i.e. stabilising the new core banking system, after facing many post-implementation challenges that affected our ability to deliver good and consistent service to our valuable customers.

The operating environment remained challenging throughout the year. Nevertheless, with a much-improved core banking system, the year focused on building the Bank for future sustainability and profitability, through a Board and Executive team-driven initiative called Fit2Serve (F2S). The F2S programme is designed to build on the past and current successes recorded by the Bank, consolidate all its current and future performance activities, and align them with the refreshed Medium Term Plan (MTP).

The Programme is reviewing the Bank’s Operating Model. This includes the organisation’s structure, processes, people and ways of working as well as performance culture and reward systems. The resulting cost improvements will accelerate our ability to deliver on the Bank’s overall strategic ambitions.

On behalf of the Board of Directors, I therefore want to express my sincere gratitude to my predecessor, Mr. Eric Drok, who stepped down as Chairman of the Board of Directors in June 2015, for steering the Bank steadfastly during a rather challenging period.

I also thank our customers for their continued loyalty throughout the year, and I look forward to serving them better going forward.

Business Operating EnvironmentThe banking sector has continued to face serious challenges associated with global, regional and national uncertainties which are not only economic but also increasingly regulatory, and weather influenced.

The following factors have had tough negative effects on the economy in general and the Kwacha, more specifically:

• The strengthening US Dollar• The continued weak global demand for copper and the low copper prices• The declining copper productivity due to reduced mining investments and lower-than-normal copper export receipts and• Increasing levels of foreign debt repayment obligations. In addition, the regulatory environment continued to remain tough due to:

• The Statutory reserve ratio which was further increased from 14% to 18%• The Monetary Policy Rate (MPR) which was increased from 12.5% to 15.50% and• Very low market liquidity due the to Bank of Zambia’s tight monetary stance.

The above, coupled with the fiscal challenges the country has been experiencing, resulted in key macro-economic indicators for 2015 deteriorating. More specifically, inflation spiked to over 21%, gross international reserves further declined, the fiscal gap continued to widen, and GDP growth estimates were revised downwards - and are anticipated to be lower than what has been recorded historically.

Despite the above challenges, the banking sector has continued to grow albeit at a reduced rate. The deposits, assets, and revenue pool grew in nominal terms by 32% to K 46 billion 35% to K56 billion and 19% to K8 billion in 2015 respectively.

The Performance of the BankTotal income grew from K924 million in 2014 to K970 million in 2015 representing a 5% growth rate. However, costs grew by 30% from K606 million in 2014 to K785 million in 2015, resulting in Profit Before Tax (PBT) declining by 13% to K185 million in 2015.

Despite the significant economic and industry challenges, I am pleased to announce that the Bank’s commercial success continued to improve. The number of customers and the card base grew by 15% and 12% respectively. The Bank’s branches, Zanaco Xpress, ATMs, and POS network grew by 4%, 118%, 3%, and 80% respectively, in line with our strategic aspirations of reaching out and bringing banking closer to our customers in an efficient and cost effective way.

2015 | ANNUALREPORT

MESSAGE FROM CHAIRPERSON

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The Board of Directors and Executive team believe that Zanaco has the right platform and catalyst for change in the Fit2Serve programme, on which it will launch its financial performance recovery and turnaround. The Board of Directors have every confidence in the Executive team’s ability to deliver against current challenges and in the years to come. This belief is strengthened by what has been, and continues to be, the relentless focus of the Board and the Executive team on ensuring that the Bank is primed for success in the years ahead.

Outlook for 2016The headwinds in the economic environment, the uncertain weather pattern, and more specifically, the market challenges relating to regulatory, funding, and competitive pressure, will remain the most significant risks in the operating environment. The tight monetary policy stance, weak Kwacha, and high interest rate environment is likely to remain for the most part of 2016, thus exerting further pressure on most of our customers’ capacity to service their banking obligations.

Although the market Non - Performing Loan (NPL) ratio had been trending downwards from the mid-teens in the past few years, from Quarter 3 of the year under review, we have seen signs of pressure, and the change in the trend direction of the NPL ratio. Clearly, we anticipate this scenario in the market to continue as high interest rate pressure settles on lending portfolios.

Our focus on the transformation journey will remain firm, and we shall continue to support our valued customers through these challenging times, whilst maintaining a robust risk management profile. This transformation journey is a major milestone for the Bank because it is the first of its size and complexity in a very long time. Indeed, it will have significant financial implications in the short term, but it will also help to re-position Zanaco in its rightful place in the market, as the “Big, Strong, and Reliable” one.

ConclusionEvery year is a new chapter written in the history of this, “the People’s Bank”. Therefore, I would like to express my sincere gratitude for the privilege to humbly serve in this role of Chairperson during what, I am sure, will be considered in the future to have been an important, positively transformational, period in Zanaco’s history. I would also like to express my gratitude to the Executive team, management and staff of Zanaco for the spirited effort to continue providing innovative products and excellence in all service areas of the Bank.

Furthermore, I would like to express my sincere thanks to the Zanaco Board of Directors for the leadership and support provided to the Executive and management team as well as to appreciate their commitment to improving shareholder value and employee engagement.

I look forward to another exciting albeit challenging year dedicated to building upon the solid foundation we have put in place and focusing on delivering on our commitments to customers, employees, suppliers, shareholders and the broader society.

Charity Chanda LumpaChairperson

2015 | ANNUALREPORT

MESSAGE FROM THE MANAGING DIRECTOR

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OverviewFrom 2014 into the year under review, Zanaco Plc, has undertaken major steps on its transformation journey. This journey is aimed at maximising our existing core strength, as one of the top banks in Zambia, as well as building a Bank for the future that will continue to consistently strengthen its leadership role within its chosen segments.

It is, therefore, pleasing that the Bank has continued to grow in terms of its customer base, distribution, and product offering in line with its overall strategic ambitions. In this regard, I would like to also take this opportunity to appreciate and thank our loyal customers, staff, and all other stakeholders for their continued effort and support rendered consistently throughout all the challenges experienced during the year under review.

I take this opportunity to reiterate that our strategic intent remains steadfast across all key segments of Food and Agriculture, Public Sector, Mass retail, and SME, in essence we remain committed to the economic development of Zambia

Our Transformation JourneyAt the core of our strategic aspirations is the drive to continue improving the service experience of our customers; improving our business for today and the future. In 2014, we embarked on a multi-phased transformation journey which commenced with refreshing our strategy, followed by the roll-out of our new and upgraded core banking system and the supporting new Tier 3 Data Centre. The implementation of the core banking system came with challenges, but it is pleasing to confirm that we have successfully resolved these during the year under review. However, we note that the resolution of our system issues came with a level of inconvenience to our esteemed customers, as well as to the Bank.

The next phase of this journey is to implement our new Operating Model (structure, processes, and ways of working, people, and governance) and align it with the strategy and the upgraded core banking system. The implementation of the new Fit2Serve programme has already commenced.

We believe that finalising the implementation of the multi-phased transformation journey will give Zanaco Plc the efficiencies and effectiveness needed to continue growing sustainably and to also be able to deliver on its overall strategic ambitions. Our Business PerformanceThe challenging economic and market conditions experienced in 2015 had significant impact on the business in terms of deposit mobilisation and its attendant costs, deposit growth, overall cost of funding, and ultimately the growth in assets. Although the growth of business during the year under review was less than anticipated, both the retail and corporate banking business, managed to rebound in terms of growth in customer numbers. After experiencing customer attrition in 2014 in the wake of the core banking system implementation challenges, it is pleasing to confirm that we have closed the year 2015 with over 978,000 customers, representing 98% performance against the strategic milestone of reaching to 1 million customers by the end of 2015. Attaining this strategic milestone entrenches our belief in the long-term growth potential of this market.

We further expanded our product portfolio by introducing new savings products which are aimed at delivering improved value to our customers and rolling out, innovative payment solutions for our farming customers in partnership with the Zambia National Farmers Union. We have continued to grow our footprint by opening two new outlets and one strategic relocation, Zanaco Xpress Agents from 244 to 533. Our ATM and POS network also grew from 184 to 192, and 1,100 to 2,044 in 2014 and 2015 respectively. Our card base also expanded by 12% from 1,038,000 in 2014 to 1,158,000 in 2015.

Furthermore, we have also seen our deposits recovering, after a significant drop in 2014. The Net Promoter Score (NSP), a measure of customer satisfaction, has significantly improved from a high negative score in 2014, to close to a neutral score by the end of December 2015.

We are thus proud of our continued partnership with our clients and we aim to continue strengthening this mutually beneficial relationship going forward.

Our Financial PerformanceTotal income has continued to grow from K 924 million in 2014, to K 970 million in 2015 representing a 5% growth rate. The key drivers were:

• The overall size of the loan book• Re-pricing the loan book, after Bank of Zambia reviewed upwards the Monetary Policy Rate and the allowable margin• Growth in fees and commissions driven by increased transactional volumes.

2015 | ANNUALREPORT

MESSAGE FROM THE MANAGING DIRECTOR

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Nevertheless, the steep depreciation of the Kwacha against major currencies pushed up operational costs, mainly driven by:

• Imported ICT costs• Increased rental property costs which are USD - denominated.Overall, the cost-to-income ratio remains higher than desired. Notwithstanding the impact of some one-off costs relating to legacy cases involving former employees and the costs relating to the Fit2Serve programme, the Bank’s cost structure has historically not been flexible enough. However, with the changes being implemented through the Fit2Serve programme, we believe that we are taking the right direction towards achieving the levels of efficiency set out in our strategic ambitions.

Consequently, Profit Before Tax (PBT) was K185 million which is 13% lower than in 2014. Despite this slowdown in performance in 2015, our consistency in focusing on our chosen strategy, our past performance and belief in our future growth prospects have made Zanaco Plc to become the first corporate entity to be credit-rated in the country. The Bank has been awarded an AA credit rating by Credit Rating Agency of Zambia.

Our PeopleOur employees are core to Zanaco Plc’s core competencies. We thus value the loyalty of our staff and the experience they bring to the Bank. We have focused on improving our investment in training in order to continuously improve skill sets across the organisation. Our learning and development strategy is set on increasing the training and education initiatives among all our staff. Quality, skilled, customer-focused staff remains key to our quest to build the Zanaco of the future.

On Behalf of Management and Staff, I would also like to thank Mr. Edward Mutale, former Chief Financial Officer (CFO) - who retired in September 2015 - for his contribution to the Bank during his 10 years as the Bank’s CFO and 23 years with Zanaco in total. Our Corporate Social Responsibility FocusBeing the “People’s Bank” defines who we really are and dictates our strategic aspirations. We take pleasure in continuing to build strong bonds with our valued communities. This is because these communities:

• Represent strong brand ambassadors who continue to support growth in the recognition of our brand• Provide us with the much-needed customers, much-appreciated employees, suppliers of goods and services and overall, our trusted shareholders both today and in the future.

In 2015, through our Financial Literacy, and Health and Sanitation Corporate Social Responsibility (CSR) programmes, we increased our community reach by 11% and 17% to over 42,000 and 6,300 people respectively. Outlook for 2016The economic and market challenges experienced in 2015 are expected to continue for the most part of 2016. Thus, banking is expected to remain challenging. Competitive opportunities will lie in quality of service delivery, value proposition and efficiency in operations.

Our commitment in 2016 will be to continue to drive the changes needed in the organisation through the next phase of our transformation journey, focusing on the following:

• Bringing the structure and branches in line with our strategy• Aligning the processes with the new structure and ways of working• Further improving the quality of services provided to our customers• Further improving our risk management standards• Raising our operating and financial efficiency• Enhancing the performance culture and aligning compensation and reward system with strategy and new ways of working.

ConclusionAlthough 2016 is expected, for the most part, to be a challenging year, we are confident that with the continued hard work of Management and Staff, coupled with the unwavering support of our Board of Directors, we will deliver on our strategic ambitions and financial performance.

I therefore, would like to most profoundly thank our Clients, Management and Staff, and the Board of Directors for the effort, hard work and loyalty rendered to thie Bank in the past year.

Bruce DickManaging Director

2015 | ANNUALREPORT

DIRECTORS’ REPORT

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The Directors present their report together with the audited financial statements for the year ended 31 December 2015. Principal Activities The principal activity of the Bank is the provision of commercial banking and related services to the general public. Share Capital A share consolidation exercise was conducted during the year under review. The Bank consolidated its shares at the a ratio of 6 to 1. Results and Dividend The net profit for the year amounted to K117,509,000 (2014: K142,926,000 ). The Bank paid dividends during the year amounting to K43,313,000 in respect of the 2014 profit. The Board has recommended a final dividend of K43,313,000 for the year ended 31 December 2015. Directors The directors who held office during the year and to the date of this report were: Ms C C Lumpa - Board Chairperson - appointed 31 March 2015Mr H Mtine - Vice- Chairperson - appointed 31 March 2015Mr E D Drok - Non Executive DirectorDr R Simwinga - Non-Executive Director Ms G M Akapelwa - Non-Executive DirectorMr G H Robinson - Non-Executive DirectorMr F Weenig - Non-Executive DirectorMr B Dick - Managing Director Number of Employees and Remuneration The total remuneration of employees during the year amounted to K360,232,000 (2014: K306,133,000) and the average number of employees for each month of the year was as follows:

Month Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15Total Headcount 1,336 1,330 1,347 1,347 1,361 1,361 1,390 1,385 1,383 1,383 1,349 1,361

Zanaco launched its new values at the beginning of 2015. The focus for the rest of the year has been continuing to drive cultural change across the Bank through a number of initiatives focused on building capability and skills to embed the values into the Bank’s systems and processes. Our Management Development Programme has been designed with this in mind - using the values to align leaders’ mindset to driving organisational performance. We continue to review and revise our people policies and practices ensuring compliance to labour legislation while remaining competitive in the market in which we operate. One such progressive policy is the Gender Policy that was approved for implementation earlier in the year. The essence of this policy is to ensure that female talent in Zanaco can thrive, particularly at the senior leadership level. This is evidenced by our sponsorship of female employees to Women Leadership programmes offered by international universities. It has also become imperative for the Bank to strengthen its wellness programme in order to promote good health among staff to prevent loss of human resource from terminal illnesses. In order to implement an effective workplace programme, we plan to conduct an HIV prevalence and KAP (Knowledge Attitude and Practice) survey among staff in the early part of 2016. The findings of the survey will provide important input into designing a programme that will be used to maintain a healthier workforce.

Gifts and Donations During the year, the Bank made donations of K2,622,000 (2014: K2,408,000 ) to charitable organisations and events. Property, Plant and Equipment The Bank purchased property and equipment amounting to K48,595,000 (2014:K23,487,000 ) during the year. In the opinion of the Directors, the recoverable amount of property, plant and equipment is not less than the carrying value.

Research and Development During the year, the Bank did not incur any research and development costs (2014:Nil). However, the Bank incurred K5,183,000 (2014:K2,521,000) on development of various products.

2015 | ANNUALREPORT

DIRECTORS’ REPORT

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Related Party Transactions Related party transactions are disclosed in Note 34 to the financial statements. Directors’ Emoluments And InterestsDirectors’ emoluments and interests are disclosed in Note 34 to the financial statements. Prohibited Borrowings or LendingsThere were no prohibited borrowings or lendings as defined under Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as amended). Risk Management and Control The Bank, through its normal operations, is exposed to a number of risks, the most significant of which are credit, market, operational and liquidity risks. The Bank’s risk management objectives, policies and strategies are disclosed in Note 5 to the financial statements. Compliance Function The Bank has a compliance function whose responsibility is to monitor compliance with regulatory requirements and the various internal control processes and procedures. Know Your Customer (KYC) and Anti-Money Laundering (AML) Policies The Bank has adopted know-your-customer (“KYC”) and anti-money laundering (“AML”) policies and complies with current legislation in these areas. Auditors A resolution to consider the appointment of the Auditors of the Bank for the Financial Year ending 31 December 2016 and authorise the Directors to set the Auditors remuneration will be put to the Annual General Meeting. By order of the Board. Mrs. S. Ng’andu Secretary Date: 18 February 2016

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STATEMENT OF CORPORATE GOVERNANCE

Introduction The concept of corporate governance has now been well embedded in organisations as a means to fostering values of fairness, accountability, responsibility and transparency.

This is achieved through the development of a clear governance framework which helps to increase the level of governance in the organisation. Furthermore, it leads to increased independent scrutiny in decision-making and alignment to a robust legislative and ethical framework in order to develop a good corporate governance culture.

This necessity for increased focus on corporate governance has been underscored by the continued number of corporate failures in a highly competitive operating environment. The Bank has continued to ensure that appropriate governance frameworks are in place to ensure best practice at all times. Compliance Status of Corporate Governance Rules A review of the Bank’s compliance with the Lusaka Stock Exchange Corporate Governance Code as at 31 December 2015, showed that the full compliance rate was at 97%. The summary of the compliance status is shown in the chart below.

Summary of areas that are not fully compliant or inapplicable Areas of Non-Compliance (i) The Board must have a charter of terms of reference defining its functions and setting out its responsibilities. (ii) The details of the Board Charter must be provided in the annual report. Areas not Applicable (i) Where share options have been granted to non-executive directors, the Board must obtain the prior approval of share owners and meet the specific requirements of the Companies Act. Category Total Applicable Non applicable Full Partial Non Rules to Zanaco to Zanaco compliance compliance compliance % N/A % FC % PC % NC General matters 15 15 - 13 - 2 0% 87% 0% 13%Chairman and CEO 5 5 - 5 - - 0% 100% 0% 0%Executive and NED’s 4 4 - 4 - - 0% 100% 0% 0%Directors’ compensation 9 9 - 9 - - 0% 100% 0% 0%Share and share dealings 4 3 1 3 - - 25% 75% 0% 0%Board meetings 4 4 - 4 - - 0% 100% 0% 0%Board evaluations 1 1 - 1 - - 0% 100% 0% 0%Company Secretary 3 3 - 3 - - 0% 100% 0% 0% Board committees 10 10 - 10 - - 0% 100% 0% 0%Legal and compliance 2 2 - 2 - - 0% 100% 0% 0%External audit 6 6 - 6 - - 0% 100% 0% 0%Internal audit 12 12 - 12 - - 0% 100% 0% 0%Risk 7 7 - 7 - - 0% 100% 0% 0% Integrated sustainability reporting 7 6 1 6 - - 14% 86% 0% 0%Disclosure and stakeholder reporting 4 4 - 4 - - 0% 100% 0% 0%Organisation integrity 6 6 - 6 - - 0% 0% 0% 0% 99 97 2 95 0 2 2 96 0 2

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Board PerformanceThe Board continued to perform its oversight role, while also providing strategic direction to Management.

In order to infuse new skills and relevant experience, the Board embarked on a rigorous and transparent process to identify two new independent Non – Executive Directors, through an external third party.

This resulted in the appointment of Ms. C Lumpa as Board Chairperson, the first female to chair the Board of a listed entity in Zambia. In addition, Mr. H Mtine was appointed as Vice-Chairman as well as Chairman of the Audit Committee.

All Board appointments are subject to a fit-and-proper test by the Central Bank, while Shareholder approval is sought for the nomination of new Directors at Annual General Meetings.

The role of the Chairperson is to ensure that there is the right balance on the Board, with the requisite industry knowledge.

In keeping with best practice, the activities of the Board are planned and documented. These may include engagement with third parties, such as Pension Fund Managers and Organisational Development Consultants to get deeper insights into the relevant changes to legislation and market trends.

New Board members are properly inducted into the Bank’s policies and procedures to ensure that they are well versed with the governance structures which have been developed over the years.

The Board agrees on its Annual Plan which includes a Strategy Session, review of the Succession Planning, Budgeting and Performance Review for Senior Executives. The Chairperson, with assistance of the Chief Executive Officer and Company Secretary, ensures that the Directors are provided with timely information to facilitate for an interactive dialogue during board sessions.

To ensure transparency, the activities of the Board are documented and planned. Although the Board has ultimate responsibility for the success of the Bank, this is managed on a delegated basis. The Board ratiffies the appointment of the Chief Executive Officer and monitors his or her performance in leading the Bank and providing operational and performance management in delivering the strategy.

The Chief Executive Officer provides a regular report to the Board that includes information on operational matters, the operating environment, strategic development, corporate social responsibility, human resource and stakeholder relations.

The Board promotes good behaviour and demonstrates clear values and high ethical standards being mindful of the overriding duty of each director to act in good faith and promote the success of the company.

The Board has a planned programme for each financial year to ensure that all necessary matters are covered and to allow for sufficient debate and challenge.

The Board continues to guard against the risk of complacency by encouraging openness and appropriate levels of challenge. While engaging with Management both formally and informally, the Board strives to ensure that it remains sufficiently detached to maintain its independence.

The Bank has put in place a formal induction process for new Board members that takes into account the different backgrounds and experience of each director.

To ensure continuous improvement, Board members undertook training to help them understand the role of the Audit Committee and the new developments related to its operations.

Equitable Treatment of Minority ShareholdersThe corporate governance framework of the Bank ensures that equitable treatment of shareholders, including minority shareholders, is achieved. This is done by:

• Ensuring that the Board adopts a shareholders’ perspective when making decisions and ensuring minority interests are protected• Improving communication and interaction between Minority Shareholders, Board Members and Management• Ensuring that Appointment of Directors is subjected to the final approval of all shareholders (including Minority Shareholders) at the Annual General Meeting.

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• Ensuring Minority Shareholders are duly accorded with their three basic rights, as follows:

• The right to seek information• The right to voice an opinion• The right to seek redress.

Management TeamOur Executive Management team provided leadership and direction for the organisation. Respective members of the Executive Team participated in various industry initiatives, such as those promoted by the Bankers Association of Zambia (BAZ) and its committees, the Zambia Chamber of Commerce and Industry and the Zambia Federation of Employers. In addition, the Management team participated in various industry initiatives which were driven by the regulators such as the implementation of the Basel II framework. The Board, within its responsibility for succession planning for the Executive Management team, also engaged with staff at every opportunity available. In addition, the Board periodically discussed the People’s Balance sheet which is a tool for developing and managing talent within the Bank.

Risk ManagementThe Board continued to manage both risks and controls in the organisation.

To further demonstrate its focus on the various risks with the potential to impact the Bank’s performance, the Board has approved governance structures, internal controls and risk management framework, which are both prudent and effective.

The Board has processes in place to ensure that it receives the right information in the right form and at the right time to enable it to effectively discharge its duties.

The Board continued to maintain rigor in reviewing the strategy for the future of the Bank. A key requirement is that the Bank has robust processes to identify, evaluate and manage risk so that Directors have visibility of the major risks. To this end, the Bank has developed a system of internal controls that encompasses policies, processes, tasks and behaviours to facilitate the effective and efficient operation of the Bank.

The Bank also developed policies and procedures to drive consistency and clarity on how risks are managed and subsequently reported.

While the Board accepts final responsibility for the risk management and internal control systems of the Bank, it is the duty of Management to ensure that adequate internal financial and operational control systems are developed and maintained on an on-going basis in order to provide reasonable assurance regarding:

• Effectiveness and efficiency of operations• Safeguarding of the Bank’s assets (including information)• Compliance with applicable laws, regulations and supervisory requirements• Reliability of accounting records• Business sustainability under normal as well as adverse conditions• Responsible behaviour towards all stakeholders.

The efficiency of internal control systems is dependent on their compliance with prescribed measures. There is always a risk of staff non-compliance with such measures. Consequently, even a strict and efficient internal control system can provide no more reasonable measures of assurance in respect of the above-mentioned objective.

Internal auditors evaluate and assess the adequacy of internal controls and regularly report to Management and the Audit Committee on their findings and recommendations. The internal control procedures are tested periodically and it is the opinion of the Board that the internal control procedures meet the acceptable criteria.

The Internal Audit team independently reviews the risk identification procedures and control processes implemented by Management.It provides objective assurance of the operation and validity of the systems of internal control through a programme of cyclical reviews, making recommendations for business and control improvements as required.

The table below summarises key risks that the Bank faces:

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RISK COMPONENTS DEFINITION

Credit risk The risk of loss due to the non-performance of a counterparty in respect of any financial or other obligation. Credit risk also includes concentration risk. Market risk - Interest The sensitivity of a Bank’s financial position and earnings to unexpected, adverse movements in rate risk in banking interest rates.book

Market risk – Foreign Foreign exchange risk is the risk of losses occurring on its foreign currency denominated assets orExchange risk liabilities from movements in the foreign exchange rates.

Liquidity/Funding risk Funding/liquidity risk is the risk that a Bank will not be able to meet current and future cash flow and collateral requirements (expected and unexpected) without negatively affecting its reputation, daily operations and/or financial position.

Operational risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes fraud and criminal activity (internal and external), project risk, legal risk, business continuity, information and IT risk, process and human resources risk. Strategic, business and reputational risks are excluded from the definition.

Regulatory Risk The risk of statutory or regulatory sanction and material financial loss or reputational damage as a result of failure to comply with any applicable laws, regulations or supervisory requirements.

Strategic risk Strategic risk is the risk to current or prospective earnings arising from inappropriate business decisions or the improper implementation of such decisions.

Business risk Business risk is the risk to earnings and capital from potential changes in the business environment, client behaviour and technological progress. Business risk is often associated with volume and margin risk and relates to the Bank’s ability to generate sufficient levels of revenue to offset its costs.

Reputational risk Reputational risk is the risk of reputational damage due to compliance failures, pending litigations, under-performance or negative media coverage.

Environmental, social Risks focus on the environmental, social and governance issues which impact the Bank’s ability and governance (ESG) to successfully and governance and sustainably implement business strategy.

Risk Governance The Board has ultimate leadership authority and responsibility for identifying and controlling all risks that affect Zanaco.

The responsibility for managing and monitoring risks has been delegated to other independent bodies such as the Risk Committee and the Credit Committee.

The Risk Committee (“RC”) has overall responsibility for the development of Zanaco’s risk strategy and implementation of risk principles, frameworks, policies and limits.

The Board:

• Provides overall strategic direction and oversight• Ensures implementation of appropriate internal risk management, financial, compliance and audit controls and frameworks• Approves credit and investment policies, budgets and business plans and • Monitors and reviews Zanaco’s performance against strategy.

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Responsibilities of the Board Committes

Risk CommitteeThe RC reviews and recommends risk management strategy and risk appetite to the Board and is the approval body for risk policies. The RC is also responsible for reviewing the control framework for the management of risks that the Bank is exposed to and defining the risk management roles and responsibilities across the Bank.

Audit CommitteeAt Zanaco, the Audit Committee reviews Financial Reporting processes, system of internal controls and through the Internal Audit Division of the Bank, undertakes audits of various units and the branches to ensure that risks are being identified and appropriately managed, as well as assessing adherence to internal control processes and procedures.

Credit CommitteeThe Credit Committee is responsible for approving all credit exposures exceeding the authority of the management credit committee.

Risk Governance Framework Effective risk management also requires multiple points of control or safeguards to be consistently applied at various levels throughout the Bank.

Business Units within Zanaco are accountable for executing specific aspects of the Bank’s activities. Authority is delegated to the head of each Business Unit by the Chief Executive Officer (CEO). The head of each functional unit delegates responsibility to individual staff for carrying out specific tasks in accordance with delegated authorities and with the procedural disciplines of the Bank.

The Bank’s profit is directly derived from how successfully it manages and prices for risk. Risk management is, therefore, at the core of banking and risk awareness must be embedded in the whole organisation. Risk governance is designed according to the three ‘lines of defence’ as per best banking practice:

• The first line is the ‘business’, meaning both commercial, customer-facing staff as well as staff in back offices and operational departments. All departments are directly responsible to identify and manage all risks that will or can materialise in the course of doing business. This includes the monitoring of risk management in each policy and procedure and making sure procedures are designed to include checks and balances through internal control activities and the separation of duties as much as possible.• The second line of defence are the various departments in the risk directorate. These departments play a supporting and controlling role for the benefit of the first line of defence, ensuring necessary risk activities are executed with the necessary detail and quality. • The third line of defence is the Internal Audit function. The Internal Audit department works independently, objectively and reports to the Board Audit Committee. Risk CultureA strong risk culture is critical to Zanaco’s success and underpins both the business strategy and risk appetite of the Bank. Zanaco’s culture is to actively take risks that are adequately rewarded and that support its objectives and vision. Shareholder value is added by creating profits measured after charging for the cost of risk or by activities that are of strategic importance and related to a wider shareholder value growth opportunity.

Risk Appetite and Financial Resource Management The Bank’s risk appetite and resource management process frames its decision-making and is integrated into strategic objectives. The financial resource management process sets minimum targets for these resources.

Risk appetiteThe Bank’s risk appetite is defined as the amount of risk that the Bank is willing to seek or accept in pursuit of its long-term objectives. The Bank has chosen to express its risk appetite for different categories of risk, each with their own characteristics and tolerance levels.

Inherent to the banking business, risk is present in the lending and financing activities of the Bank where credit is extended in the form of loans. In addition to credit risk, Zanaco is exposed to operational and other balance sheet risks (interest rate, foreign exchange, liquidity risk and others).

The Bank has established an active risk culture within the organisation where the correct risk information is utilised across the Bank for decision making. The Bank has developed and embraced a Risk Appetite Statement which is positioned to assist it achieve the strategic

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plan. The Risk Appetite Statement covers Credit, Market, Capital and non - financial risks. Zanaco has a prudent risk taking culture but acknowledges that some risks need to be taken to attain strategic goals.

Zanaco has defined risk tolerance parameters to safeguard its robust financial position. In quarterly meetings, portfolio variables are compared with the risk tolerance variables. The levels of internal risk tolerance are generally stricter than the Central Bank of Zambia requirements. The Risk Appetite Statement within Zanaco is developed with reference to key metrics and limits applied throughout the Bank. It is necessarily aligned to the strategy and objectives of the Bank.

The Risk Appetite Statement is set by the Risk Committee and, ultimately, approved by the Board.

The Bank differentiates between tolerance levels for balance sheet, credit and operational risk:

• Balance sheet risks comprise of interest-rate risk, liquidity risk, market risk and other risks, and also encompass management of the regulatory ratios• Credit risk captures the potential loss from a borrower, obligor, or counterparty which fails to honour their contracted debt obligations in a timely manner • Operational risk is the risk resulting in a direct or indirect loss caused by human error, inadequate internal process and systems or by external calamities.

Tolerance levels for balance-sheet risk are monitored by the Asset and Liability Committee (ALCO). The tolerance variables for operational risk are currently being developed by the Operational Risk Department.

The Board assumes responsibility for ensuring that risks are adequately managed and controlled through the Board Risk Committee.Risk appetite measures and stress and scenario results are included in risk and management reports across the businesses and at board level, and are continually refined.

Stress TestingZanaco’s stress testing objective is to ensure that the Bank can meet its capital requirements in a forward-looking manner, including severe but plausible economic stresses specific to Zanaco’s portfolios and risk profile. The results of the entity-wide stress tests assist the Bank in ascertaining whether it has sufficient capital in periods of stress. Both stress scenarios and sensitivity analysis are considered during stress testing, with regard to credit, market, operational and liquidity risks. The Bank calculates a capital buffer based on the stress testing results, holding this capital buffer as part of its capital base to ensure that capital remains above the minimum regulatory ratio should the stresses materialise. Mitigating actions are included to provide a realistic view of the impact on the Bank’s earnings and capital under the stress scenario.

The Bank’s objective is to offer value by undertaking to deliver sustainable earnings within a desired risk profile. Stress testing is embedded in the risk management of the Bank and is a key focus area in the strategic planning processes. It is an integral part of the Bank’s internal capital adequacy assessment process (ICAAP) and is used to assess and manage the adequacy of capital.

Through stress testing and scenario analysis, the Bank is able to assess the performance of its portfolios under potentially adverse economic conditions. It focuses on the key macroeconomic variables that impact the Balance Sheet and Income Statement.

The business plan for the next three years is included in the budget and forecasting process. Scenario planning is then used to assess whether the desired profile can be delivered and whether the business stays within the constraints it has set for itself. The scenarios are based on changing macroeconomic variables, plausible event risks and regulatory and competitive changes.

Stress testing is employed in the:

• Strategic planning and budgeting process• Capital planning and management process including the setting of a capital buffer for the Bank• Communication with internal and external stakeholders• Assessment of the impact of changes in the macroecomic factors on the Bank’s performance.

Financial Resources ManagementThe strategy, risk and financial resource management processes influence the capital and funding plans of the Bank. The capital position provides a buffer over and above the minimum regulatory limit against adverse business performance under extremely severe economic conditions.

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The financial, treasury, capital and risk information both actual and budgeted, is used as the basis for risk, capital and financial analysis and stress testing.

Internal Capital Adequacy Assessment Process (ICAAP)ICAAP outlines the process to ensure the Bank achieves its capital management objectives. In order to achieve these objectives, the Bank needs to:

• Ensure that at least the minimum amount of regulatory capital is held at all times for the Bank of Zambia to allow the Bank to conduct business• Hold sufficient capital that will instill confidence in the Bank’s ongoing solvency and status as a creditworthy counterparty for all stakeholders• Allocate capital to businesses based on an understanding of the risk and reward drivers of the income streams and to ensure that appropriate returns are earned on capital deployed• Ensure that the buffer over the minimum regulatory capital requirement is sufficient to cater for income and capital volatility and economic risk which may manifest through business disruption, regulatory intervention or credit downgrades, where applicable and• Ensure that Zanaco’s capital adequacy ratios and other limits remain within approved thresholds during different economic and business cycles.

The optimal level and composition of capital is determined after taking into account the Bank’s organic growth plans as well as targeted capital ratios, future business plans, appropriate buffers in excess of minimum requirements, proposed regulatory changes and risk appetite.Additionally, this requires that the Bank develops and maintains a capital plan that incorporates, among others, the following:

• Anticipated capital utilisation• Planned issuance of capital instruments• Stress tests and scenario analysis• Appropriation of profits and dividend payments• Desired level of capital, inclusive of a buffer• Expansion and strategic initiatives and• General contingency plan for dealing with divergences and unexpected events.

ICAAP is an integral tool in meeting the above capital management objectives and is key to the Bank’s risk and capital management processes. ICAAP allows and facilitates:

• The link between business strategy, introduced risk and capital required to support the strategy• The establishment of frameworks, policies and procedures for the effective management of material risks• The embedding of a responsible risk culture at all levels in the organisation• The effective allocation and management of capital in the organisation• The development of recognised stress tests to provide useful information which serve as early warnings/triggers, so that contingency plans can be implemented and• The determination of the capital management strategy and how the Bank will manage its capital including during periods of stress.

Capital ManagementCapital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial position, are:

• To comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended)• To safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders• To maintain a strong capital base to support the development of its business• To allocate capital to businesses using a risk-based capital allocation system, to support the Bank’s strategic objectives, including optimising returns on shareholder and regulatory capital and• Maintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory expectations.

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Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed by the Basel Committee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.

Capital Target SettingCapital target-setting is key to ensuring that sufficient capital resources are available to meet Zanaco’s regulatory requirements while supporting Zanaco’s ability to meet its strategic objectives and attain its desired balance sheet growth. Zanaco’s capital target-setting is linked to the results of its stress testing.

The capital targets are defined taking into account the impact of stress testing on Zanaco’s Capital Adequacy Ratios (CAR). The capital targets are based on the BoZ requirements for minimum Basel II capital adequacy at both the Tier 1 and Total Capital levels. These targets are reviewed and potentially revised based on changes in Zanaco’s capital position, portfolio structure, capital plans and risk appetite. The capital targets are also guided by regulatory developments.

Financial ReportingThe Directors accept final responsibility for the preparation of the annual financial statements which fairly present:

• The financial position of the Bank as at the end of the year under review• The financial results of operations as well as the cash flows for that period.

The responsibility for compiling the annual financial statements was delegated to Management. The external auditors report on whether the annual financial statements are fairly presented.The Directors are satisfied that during the year under review:

• Adequate accounting records were maintained• An effective system of internal controls and risk management monitored by Management was maintained• Appropriate accounting policies supported by reasonable and prudent judgements and estimates were used consistently• The financial statements were compiled in accordance with International Financial Reporting Standards approved by the Zambia Institute of Chartered Accountants (ZICA), the Banking and Financial Services Act, the Zambian Companies Act, the Securities Act and the Stock Exchange Listing Rules.

Board EngagementThe Board continued to meet on a quarterly basis. The attendance by the Directors during the year was as follows:

Director’s Name 2015 February June September December

Ms C C Lumpa - NED n/e a a a

Mr H Mtine - NED n/e a a a

Ms G M Akapelwa - NED a a a a

Mr G Robinson - NED a a a a

Mr F Weenig - NED a a a a

Dr R Simwinga - NED a - a aMr E D Drok - NED a a a a

Mr B Dick - ED - a a a

NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attendMs C Lumpa and Mr H Mtine were yet to be eligible to attend as they were appointed to the Board in June 2015

Directors’ CompensationThe disclosure of Directors’ fees and remunerations is made in Note 34 of the financial statements. The Directors do not have any shares in the Bank and are not entitled to share options. Directors’ fees and any amendments are approved by shareholders at the Annual General Meeting.

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Board Evaluation The Board carried out a self-assessment of its performance during the year through the engagement of an external third party which covered the following:

• Performance against its objectives at the beginning of the year• Effectiveness with respect to the Bank’s strategic direction• Responsiveness to shareholders and stakeholders’ concerns• Maintenance and implementation of the Board’s governance principles• Access to and review of information from Management and the quality of such information• Review of the composition and diversity of the skills and exposure of the Board• Continuous professional development for Board members.

Board CommitteesTo help it discharge its executive functions, the Board has established four principal standing Committees, each governed by written terms of reference defining the frequency of meetings, power and duties, and reporting obligations. These Committees continuously evaluate the progress made towards meeting the Bank’s overall objectives, in addition to ensuring the efficient and effective management of the entire Bank’s core functions. A Non-Executive Director chairs each of the four Committees. The committees are Audit, Risk, Credit and Human Resources and Compensation.

It should be noted that all Board Committees were reconstituted in June 2015 and some Directors were reassigned new roles.

(a) Audit CommitteeThe Audit Committee is chaired by a Non-Executive Director and consists of three other Non-Executive Directors. The Committee meets at least four times per year to evaluate, among other things, accounting practices, the internal control systems and the auditing and financial reporting. Its tasks include evaluating critical risk areas identified with the help of Management, as well as reporting on them to the Board.

The Committee operates under a formal charter approved by the Board and the Committee Members have unlimited access to all information. Certain members of Management are invited to attend and give feedback at Committee meetings. The Audit Committee also recommends to the Board the remuneration of the external auditors. The Committee also holds separate meetings with the Director of Internal Audit and the external auditors when required, in order to ensure that matters are considered without undue influence.

The attendance by the Directors during the year was as follows:


Mr H Mtine - NED n/e a a a

Ms C C Lumpa - NED n/e a a a

Ms G M Akapelwa - NED a a n/e n/eMr E D Drok - NED a a n/e n/eDr R Simwinga - NED a - a a

Mr F Weenig - NED a a a a

NED - Non-Executive Directorn/e - Not eligible to attendMs C C Lumpa and Mr H Mtine were yet to be eligible to attend as they were only appointed to the committee in June 2015Mr Drok and Ms Akapelwa only served in the committee during the first half of the year.

(b) Risk CommitteeThe Risk Committee is chaired by a Non-Executive Director and consists of three Non-Executive Directors and one Executive Director, who is also the Chief Executive Officer of the Bank. On a quarterly basis, the Committee reviews the collectability of the Bank’s lending portfolio by not only ensuring adherence to statutory and regulatory requirements, but also ensuring that lending practices and procedures are in line with the credit policy of the Bank, including on matters relating to provisions and allowances for impairment.

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The attendance by the Directors during the year was as follows:


Mr F Weenig - NED a a a a Dr R Simwinga - NED a - a aMr H Mtine - NED n/e a a aMs C C Lumpa - NED n/e a a aMr. B Dick - ED - a a a NED - Non-Executive DirectorED - Executive DirectorMr Mtine and Ms Lumpa were appointed to the committee in June 2015 and were ineligible to attend during the first half of the year.

(c) Credit CommitteeThe Credit Committee is chaired by a Non-Executive Director and consists of two other Non-Executive Directors and one Executive Director, who is also the Chief Executive Officer of the Bank. Certain members of the Executive Management Committee attend by invitation. The Credit Committee supervises the effective implementation of credit and risk management policies and ensures the enhancement of the Bank’s credit risk management systems and processes, in line with best practices in loan rating/credits, risk modelling, loan pricing and strategic loan management, including the identification and control of the concentration of risk. The Credit Committee also approves credits with values beyond the mandate of Management.

The attendance by the Directors during the year was as follows: Director’s Name 2015 February June September December

Ms G M Akapelwa - NED a a a aMr G Robinson - NED a a a aMr E D Drok - NED a a a aMr B. Dick - ED - a a a

NED - Non-Executive DirectorED - Executive Director

(d) Human Resources and Compensation CommitteeThe Committee provides oversight over the remuneration and compensation for Senior Management and key personnel in the Bank, so as to retain and motivate staff to perform at the level of the quality required.

Currently, the Bank participates annually in local market surveys and those focusing on the rest of Africa in order to ensure market-related salaries are paid and that market related trends are also followed when changes are made to employee benefits. The remuneration of all managerial staff in the Bank is also linked to their individual performance.

The attendance by the Directors during the year was as follows: Director’s Name 2015 February June September December

Ms G M Akapelwa - NED a a a aMr G Robinson - NED a a a a Ms C C Lumpa - NED n/e a a a Mr E D Drok - NED a a a aDr R Simwinga - NED a - n/e n/eMr B Dick - ED - a a a

NED - Non-Executive DirectorED - Executive Directorn/e - Not eligible to attendMs C C Lumpa was not eligible to attend as she was appointed to the committee in June 2015Dr Simwinga only served on the Committee for the first half of the year.

Bank SecretaryThe Board appoints the Bank Secretary and all Board Members have access to the services of the Bank Secretary. Where necessary, the Board may seek independent professional advice on any matter.

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The Bank Secretary ensures the following: • Annual calendar for Board meetings is circulated to all Board Members after approval• Adequate information is provided to all the Members prior to commencement of the Board and sub-committee meetings• Culture of Good Corporate Governance is promoted• Serves as key liaison with Securities and Exchange Commission (SEC), the Lusaka Stock Exchange (LuSE) and Patents and Companies Registration Agency (PACRA)• Statutory registers are maintained• Key liaison for investors and contact point for shareholders• Board is updated on relevant statutory amendments and developments.

Code of ConductThe purpose of the Code of Conduct is to regulate the required standards of corporate behaviour by which the Bank is judged in all its dealings and operations to promote and safeguard the integrity of the Bank. Therefore, the Code of Conduct stipulates the standards by which individuals within the Bank are judged.

The key areas covered under the code are:

• Integrity• Skill, Care and Diligence• Relations with Regulators• Staff Interest and Gifts• Customer Due Diligence / Know Your Customer• Conduct of Business / Customer Relationships• Conduct of Business / Communication with Customers• Conduct of Business / Conflict of Interest and Duty• Duty to Supervise.

Members of staff, as well as agents, are being subjected to continued training on the contents of the Code of Conduct to enable them understand and appreciate these important guidelines, which control their conduct in their daily activities as Bank employees.

In tandem with the Code of Conduct, staff received further guidelines on how to seek prior authorisation and reporting of the gifts and hospitality they give or receive in connection with their employment to the Bank, as long as such gifts are reasonable and proportionate to a specific situation. This was done to promote transparency and to avoid the risk of conflict of interest arising from gifts which could potentially lead to suggestions of impropriety by the Bank or its employees.

There is a formal procedure requesting Board Members and Management to fill out a Declaration of Interest Form on an annual basis. Directors have a continuing duty to update any changes in these interests at each Board meeting. External AuditThe external auditors are responsible for reporting on whether the financial statements are fairly presented in accordance with International Financial Reporting Standards and in the manner required by the Zambian Companies Act and the Banking and Financial Services Act.

Consultation occurs between external and internal auditors to effect an efficient audit process. The external auditors consider all the reports issued by the Internal Audit Department and which are duly supplied to them by the Bank.

Internal AuditInternal audit is an independent, objective assurance and consulting activity designed to add value to the Bank as well as to improve its operations. It helps the Bank accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving risk management, control and governance processes.

The Internal Audit function encompasses the examination and evaluation of the adequacy, effectiveness and efficiency of Governance, Risk Management and Control processes.

The Internal Audit Division (IAD) evaluates and makes appropriate recommendations for improving the governance process in promoting appropriate ethical values in the Bank as well as ensuring effective bank performance management and accountability.

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The IAD evaluates the effectiveness and adequacy of the Risk Management Framework of the Bank and contributes to the improvement of Risk Management processes. IAD provides the Board with the objective assurance that the major business risks are being managed appropriately and the Risk Management and Internal Control Framework is operating effectively. The IAD also evaluates the risk involved in governance, operations, and information systems that relate to compliance with laws, regulations, policies, procedures, and contracts.

Internal audit plans are prepared annually by using a risk assessment model that ensures audit resources are directed towards high- risk areas that are consistent with the Bank’s strategic and operational goals. The plan is developed in consultation with Management and the Audit Committee to ensure their input and expectations are considered in the planning process. IAD also considers proposed consulting engagements based on the engagement’s potential to improve the management of risk and Bank’s operations. The audit plan is then approved by the Audit Committee to ensure independence of the audit function. The Director Internal Audit functionally reports to the Audit Committee and, administratively, to the Managing Director.

The Internal Audit function is governed by an Internal Audit Charter which defines its purpose, authority and responsibility. The Internal Audit Charter is reviewed and updated to meet best international practices at least once a year.

The IAD assists the Bank in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement. The control processes are expected to ensure, among other things, that:

• The Bank’s strategic objectives are achieved• Financial and operational information is reliable and possesses integrity• Operations and programs are performed efficiently and effectively• Assets are safeguarded and • Actions and decisions of the Bank are in compliance with laws, regulations, policies, procedures and contracts.

Compliance FunctionThe Bank has an independent Compliance Function, guided by a Compliance Charter, which defines the fundamental principles, roles and responsibilities of the Compliance Functions within the Bank, as well as its relationship with Executive Management, the Board of Directors and the business and operational functions.

The Charter is updated from time to time to reflect the legal and regulatory evolution which is communicated to all staff. The Board of Directors is responsible for formally approving the Compliance Charter. In line with the Compliance Charter, the Compliance Function independently reports to the Board Audit Committee on material compliance issues in the Bank through a Compliance Quarterly Report to enable the Board to appreciate the level of compliance risk and to solicit for their timely guidance.

The objectives of the Independent Compliance Function are to:

• Identify and evaluate the compliance risks within the Bank• Organise, co-ordinate and structure compliance related controls• Control and monitor all measures taken to mitigate compliance risks• Report to the Executive Management and the Board of Directors as appropriate• Act as the compliance advisor within the Bank.

The Compliance Function and Compliance Monitoring programme are subject to an independent review by both an internal and external audit for the appropriateness of the policies and their implementations.

Anti-Money Laundering PolicyThe Bank has in place the Anti-Money Laundering (AML) and Watch List Management (WLM) solutions. The two interrelated systems detect and report suspicious activities through automated screening of transactions and names of customers in line with the Bank of Zambia Anti-Money Laundering Directives, the Financial Intelligence Centre Act and the Bank’s Anti- Money Laundering Policy. The Bank, also, conducted several compliance training programmes during the year where members of staff and agents were trained on the identification and reporting of suspicious activities as well as the obligations that go with the above regulatory requirements.

WhistleblowingThe Whistle-Blowing Policy is a vital corporate governance tool. It is intended to make it easier for members of staff, consultants and other service providers to report irregularities in good faith without the fear of adverse consequences for them. The Whistle Blowing


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Policy is a key element in demonstrating the Bank’s commitment to the highest possible standards of transparency, integrity, probity and accountability in its operations with all stakeholders and is in line with the provisions of the Public Interest Disclosure (Protection of Whistle-blowers) Act. Protecting the integrity and reputation of the Bank requires the active support of all members of staff who, in most cases, are the first to notice and who are required to report incidents of suspected fraud, corruption, collusion and coercion and other serious infringements of the rules and policies in force at the Bank. To enhance whistle-blowing reporting, the Bank has a Trusted Person, appointed by the Board, who is an outsider. Bank staff are required, under the Whistle-blowing Policy, to report serious concerns of possible malpractice and wrong doing concerning employees of the Bank, by opting to identify themselves or anonymously, to the Trusted Person. The Trusted Person will be the entry point for all reports of malpractice for on-ward submission to the Trusted Committee for consideration and resolution. As a deliberate measure to raise awareness of the requirements of the Whistle-blowing Policy, the Bank issued a communique to all members of staff during the year reminding them of the existence of the Whistle-blowing Policy and the Trusted Person as well as their duties to report cases of malpractice they may come across.

Gender and DiversityIn an effort to improve gender awareness in the organisation, the Board approved a Gender Policy which will provide guidance in embedding gender in all Bank structures.

Environmental and Social Management Policy (E and S)Compliance with Legislation on Environmental and Social aspects of business are increasingly becoming focal measurement points for Good Governance. The Bank’s approach has been to develop and implement innovative monitoring and screening processes that adhere to both its internal guidelines and the Zambian Environmental Laws. Alongside the environmental laws, the Bank has developed an Environmental and Social Policy that is in full compliance with local environmental laws. In order to operationalise this policy, the Bank has also enhanced its environmental assessment screening process which is an integral part of loan origination and appraisal processes. The E and S Policy has been refreshed to incorporate counterparty requirements and introducing an E and S Due Diligence (E500) to be used in assessing category A Customers. The policy has been disseminated to all staff and rolled out to stakeholders by way of a clinic.

Broadly, the process is categorised in three parts:

• Category A – Projects with potential significant adverse social or environmental impacts• Category B – Projects with potential limited adverse social or environmental impacts• Category C – Projects with minimal or no significant social or environmental impacts.

As a good corporate citizen, Zanaco intends to actively work towards the realisation of sustainable development. Through its business activities and services, the Bank will support environmental conservation efforts within its operational scope as well as those in the service supply chain in order to contribute to the realisation of sustainable development in Zambia.

The Bank is committed to raising staff awareness on environmental issues and sustainable development and encourages staff observance of the following at the workplace: • Preventing of pollution by reducing, reusing and recycling materials and goods purchased • Encourage energy-saving, reduce water consumption, and promote good housekeeping practices• Improve and maintain the quality of the working environment within the Bank and all our branches/affiliates (internal air quality, water quality, waste management, paper use, energy use, etc).

Internal Environmental ManagementA broad-based approach has been pursued in terms of managing E and S at the place of work. It includes the formation of a cross-function E and S committee made up of staff from PR, HR, Facilities, Credit and Procurement to spear-head internal CSR/E and S activities. An action plan has been devised with specifics for who, what, when status.

The Public Relations and Credit departments are responsible for the joint reporting of the E and S/CSR in Bank reporting such as the annual report.

Basel IIThe implementation of the International convergence of Capital Measurement and Capital Standards also known as Basel II is progressing well following the issuance by Bank of Zambia of draft regulations. Zanaco has structures and resources in place which will ensure full implementation and compliance of the Basel II requirements in line with guidelines issued by the Central Bank.

2015 | ANNUALREPORT

PAGE 29


During the year 2015, Zanaco submitted its second Internal Capital Adequacy Assessment Process (ICAAP) document and Pillar III disclosures to the Bank of Zambia. The Bank continued with the parallel running to assess the impact of the application of Base ll on Capital Adequacy. The Bank has enough capital to absorb the additional capital allocation.

Stakeholder EngagementTo support customer engagement, a visit was facilitated for the Board to meet with some customers in Mazabuka towards the end of August for them to appreciate some of the challenges they were facing with the Bank. The Board members in the company of the Managing Director, met agri-business, SME and retail customers to explain some of the products and services they could access and thanked the customers for their loyalty and support.

Two investor fora to discuss the full-year and interim half-year results were held in April and September respectively, to update the institutional investors on the developments in the Bank. As part of the Bank strategy to be the leading finance institution in agriculture, the Bank supported the Zambia National Farmers Union (ZNFU) congress in October, at which the Bank provided resources for the congress and on the sidelines, sponsored the Farmers’ Gala.

Zanaco held a customer cocktail party in October as way of engaging clients and getting feedback on service delivery on the various products and services the Bank provides. As part of the Bank’s support towards the development of the economy, Zanaco was the lead sponsor of the Euromoney Zambia Investment Conference in September. This platform was used to network and build client recognition. Board members were also present during the conference.

Zanaco made it twice in a row for the overall LuSE Corporate Governance Awards. The Bank was also awarded second place award for Sustainability for Corporate Social Responsibility (CSR).

Employee WellnessThe Bank continues to promote wellness by participating and initiating work-place programmes that can be implemented and operated in a way that creates sustainable value to both the organisation and employees.

During the year, the Bank focused on eye-screenings and health checks (blood sugar and blood pressure).

The Bank has also partnered with ZHECT (Zambia Heath and Education Communication Trust) and the National AIDs Council to finalise the Zanaco Wellness Policy.

The year ended with an HIV prevalence and KAP (Knowledge, Attitudes and Practices) survey with health talks on diabetes, cervical cancer, prostate cancer, HIV/ AIDS and male circumcision.

2015 | ANNUALREPORT

PAGE 30

IntroductionIt is Zanaco’s core Corporate Social Responsibility (CSR) to take into account the Bank’s economic, social and environmental impact and obligation to employees and the local community. Zanaco strives to promote sustainable development of the communities in which the Bank operates not just for the present but for future generations as well.

In pursuit of the CSR objectives and in fulfilling the Bank’s social obligations as a good corporate citizen, Zanaco has identified specific areas of focus which include financial education for various target groups under the programme dubbed Financial Fitness, environmental support, cultural preservation, water/sanitation and strategic partnerships addressing various social developmental needs.

Financial Fitness activitiesFor the past 7 years, Zanaco has been committed to helping citizens become financially fit through financial education. The Bank believes this is one way of promoting wealth creation among citizens thereby driving economic growth. In addition to innovative products and distribution channels to promote financial inclusion, the Bank focuses on promoting financial literacy and general entrepreneurship initiatives. Financial Fitness focuses on providing financial education through direct training and use of other media to reach a diverse segment of our citizenry. The programme targets three major groups: children/youth, adults and business groups. There is very high and positive appreciation among all target groups.

The following were achieved during the period under review:

• Children and youth: Zanaco provided financial education to children and youth through various avenues that include institutions of learning. 6,900 children and youth were reached in 2015 bringing the aggregate to 39,000• Farmers: During the year, 992 farmers were trained in financial and business management, bringing the aggregate reached to date to 4,790• SMEs: 690 SMEs were trained to enhance business skills. An aggregate of 5,180 have been reached to date• Financial Fitness for the general adult population: Financial education programmes for the general adult population were delivered through the electronic media, print media, trainings, literature, SMS, sensitisation talks and other avenues deemed fit. General sensitisation was conducted through country wide commemorations such as the Financial Literacy Week and World Savings Day. Close to 300,000 people have been reached to-date through individual reach and a wide spectrum of society through the media.

AwardsThe Financial Fitness programme has received wide recognition as evidenced from some of the awards received.

• Pioneer for financial literacy in Zambia - 2015 BOZ Governor’s award• Financial Literacy Week – Outstanding Theme Messaging - 2015 BOZ Governor’s award• 1st Position Excellency in Financial Education – Bankers Association of Zambia.

Water and sanitationZanaco recognises the importance of health to society in general. As the “People’s “Bank, the Bank has a role to play in supplementing government’s efforts in providing water and sanitation that contributes to good health. Zanaco has supported 10 low-income communities and institutions with water and sanitation facilities reaching over 6,000 people. During the year, a community school in Kabwe was assisted to complete construction of an ablution block. Communities appreciate the support provided and indicate the positive change experience are and reported in the comments below:

‘The clinic had no water supply and relied on water from a nearby school. Now the clinic staff have more time to attend to patients and operating in a cleaner environment.’ Mweemba clinic – Mazabuka.

‘The borehole is the only source of safe clean water.’ – Kaboloko Village, Kasempa District.

‘We are now able to draw water for cooking, washing and drinking within the village as opposed to travelling 3 kilometers to the next village – Sacha Village.’ – Lundazi District.

Go big for charityZanaco continued with “Go Big for Charity”, a workplace charity initiative. The objective is to provide a platform for employees to engage in CSR, thereby creating awareness of the extent of social needs in their communities and allowing the workplace to be a ‘good neighbour’ and community partner in areas of operation. Zanaco tallies staff donations for the selected charities and matches them Kwacha for Kwacha.

CORPORATE SOCIAL RESPONSIBILITY

2015 | ANNUALREPORT

PAGE 31


Go Big for Charity- Lusaka Business Centre donating to Lusaka Central Prison

The response from members of staff has been commendable with a total of K171,000 having been contributed by members of staff from various branches and divisions across the country in the past 2 years. After matching of funds, ‘Go Big for Charity’ has facilitated donations worth K342,000 to 48 charities across Zambia.

Partnerships and donationsZanaco meets various social developmental needs through strategic partnerships and one-off donations. During the year, over 100,000 pupils were supported to increase literacy skills through The “Read to Succeed” project covering four provinces of Zambia. Over 500 entrepreneurs were targeted through the Nyamuka Zambia Business Plan Competition.

Traditional ceremoniesAs a way of contributing to strengthening the cultural heritage of the nation, donations supporting traditional ceremonies are made. Zanaco believes that traditional ceremonies provide valuable insight into traditional culture that has been passed on from generation to generation. The Bank endeavours to provide, in kind, support that can help meet the needs of the community over the years including outside traditional ceremonies. During the year three traditional ceremonies were supported, namely; N’cwala, Kulamba and Ichibwela Mushi.

Environmental managementThe Bank made a commitment to monitor the performance and setting of objectives and targets for environmental improvement. The focus is on the following major internal areas: water supply and sanitation; waste disposal management, energy conservation and environmental pollution.

2015 | ANNUALREPORT

PAGE 32


Dr Susan Bremmies USAID/ Zambia Mission Director opening donated Reading Tools in a Box

Lusaka City Market entrepreneurs in training

Section 164(6) of the Companies Act, 1994 (as amended) requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Bank and of the profit or loss for that period. The Directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information. The independent external auditors, Messrs Deloitte & Touche, have audited the annual financial state-ments and their report is shown on page 34. The Directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute assurance as to the reliability of the financial statements and to adequately safeguard, verify and maintain accountability for assets and to prevent and detect material misstatements. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The annual financial statements are prepared on a going concern basis. Nothing has come to the attention of the Directors to indicate that the Bank will not remain a going concern in the foreseeable future. In the opinion of the Directors: • The statement of profit or loss is drawn up so as to give a true and fair view of the profit of the Bank for the financial year ended 31 December 2015 • The statement of financial position is drawn up so as to give a true and fair view of the state of affairs of the Bank as at 31 December 2015• There are reasonable grounds to believe that the Bank will be able to pay its debts as and when they fall due and• The financial statements have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1994 (as amended), Securities Act, 1993 and the Banking and Financial Services Act,1994 (as amended).

Signed on behalf

_______________________ _______________________Director Director _______________________ _______________________Director Secretary

2015 | ANNUALREPORT

PAGE 33

STATEMENT OF RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS

To the members ofZambia National Commercial Bank Plc

We have audited the accompanying financial statements of Zambia National Commercial Bank Plc as set out on pages 35 to 97, and which comprise the statement of financial position as at 31 December 2015, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the financial statementsThe Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards, and in the manner required by the Banking and Financial Services Act, 1994 (as amended), the Companies Act, 1994 (as amended), and the Securities Act, 1993, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements give a true and fair view of the financial position of Zambia National Commercial Bank Plc as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Banking and Financial Services Act, 1994 (as amended), the Companies Act, 1994 (as amended), and the Securities Act, 1993. Report on other legal requirements Section 173 (3) of the Companies Act, 1994 (as amended) requires that in carrying out our audit, we consider and report to you on the following matter: we confirm that, in our opinion, the accounting and other records and registers have been properly kept in accordance with the Act. In accordance with section 64 (2) of the Banking and Financial Services Act, 1994 (as amended), we report that in our opinion: • Included in the loans and advances balance of K3,446.5 million shown in the statement of financial position are total amounts of K291.5 million relating to loans that are more than 5% of regulatory capital as per section 64(2)(d)(ii) for which impairment has been recorded. Our audit opinion is not qualified in respect of this matter as loan impairment has been recorded for these non-performing loans• We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit• We are not aware of any transaction that has not been within the powers of the Bank or which was contrary to the Act• The Bank has complied with the provisions of this Act and the regulations, guidelines and prescriptions under this Act and• No transactions or conditions affecting the well being of the Bank have come to our attention that in our opinion are not satisfactory and require rectification. In accordance with requirements of the Schedule IV, Rule 18 of The Securities Act, Cap 254 of the Laws of Zambia we confirm that:• The annual financial statements of the licensee have been properly prepared in accordance with the Act• The licensee has, throughout the financial year, kept proper accounting records in accordance with the requirements of the Securities and Exchange Commission Rules• The statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the licensee’s accounting records and• We have obtained all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit. DELOITTE & TOUCHE

C. CHUNGU (AUD/F000292) PARTNER Date: 24 February 2016

2015 | ANNUALREPORT

PAGE 34

INDEPENDENT AUDITOR’S REPORT

2015 | ANNUALREPORT

PAGE 35

FINANCIALS

STATEMENT OF PROFIT OR LOSSfor the year ended 31 December 2015

Notes 2015 2014 K’ 000 K’ 000

Interest incomeInterest expense

Net interest income

Impairment losses on loans and advances

Net interest income after loans impairment charges

Net fee and commission income

Foreign exchange incomeOther operating income

Total income

Operating expensesLoss on disposal of Goverment Securities

Profit before income tax

Income tax expense

Profit for the year

Earnings per share

Basic earnings per share (Kwacha)

864,342 (226,342)

638,000

(97,949)

540,051

307,055

116,425 6,220

122,645

969,751

(784,898)-

184,853

(67,344)

117,509

0.081

67

17

8

9

10

11

13

779,442 (133,969)

645,473

(48,545)

596,928

291,300

29,065 6,278

35,343

923,571

(605,520) (104,494)

213,557

(70,631)

142,926

0.016

2015 | ANNUALREPORT

PAGE 36

FINANCIALS

Profit for the year

Other comprehensive income, net of income tax

Items that may be reclassified subsequently to profit or loss

Net loss on available-for-sale financial assetsNet reclassification adjustment for realised net losses on available-for-sale financial assets

Items that will not be reclassified subsequently to profit or loss

(Deficit)/Surplus on defined benefit planGain on revaluation of propertyIncome tax relating to items that will not be reclassified

Other comprehensive income for year, net of income tax

Total comprehensive income for the year

Notes

31

31

16

243131

OTHER COMPREHENSIVE INCOMEfor the year ended 31 December 2015

2015 K’ 000

117,509

(8,799)

23,797

14,998

(50,560) -

544

(50,016)

(35,018)

82,491

2014 K’ 000

142,926

(23,797)

(4,102)

(27,899)

54,706 7,944 (878)

61,772

33,873

176,799

2015 | ANNUALREPORT

PAGE 37

FINANCIALS

ASSETS

Cash and balances with Bank of ZambiaBalances with other banksInvestment securities Loans and advances to customers Withholding tax recoverableCurrent tax assets Property and equipmentOther assets

Total assets

LIABILITIESCustomer depositsDeposits from other banksDeferred tax liabilitiesOther liabilitiesProvisions for liabilities and chargesBorrowings

Total liabilities

EQUITYShare capitalShare premiumStatutory reserveGeneral banking reservesRevaluation reservesRetained earnings

Total equity

Total equity and liabilities

NOTES

14

15

16

17

11

11

18

20

21

22

23

25

26

27

28

28

29

30

31

2015 K’ 000

1,626,539 1,119,496 1,182,626 3,446,554

3,179 13,528

270,055 283,795

7,945,772

6,033,084 1

10,206 198,349

410 663,438

6,905,488

86,625 2,622

86,625 299,409

51,314 513,689

1,040,284

7,945,772

2014

K’ 000

1,163,202

399,170

1,445,340

3,138,509

19,530

20,397

274,635

203,020

6,663,803

5,053,720

142

32,440

106,087

12,038

458,270

5,662,697

86,625

2,622

86,625

188,479

37,458

599,297

1,001,106

6,663,803

The financial statements on pages 35 to 97 were approved for issue by the Board of Directors on 18 February 2016 and signed on its behalf by: Director Director Director Secretary

STATEMENT OF FINANCIAL POSITION as at 31 December 2015

2015 | ANNUALREPORT

PAGE 38

FINANCIALS

STATEMENT OF CHANGES IN EQUITY As at 31 December 2015

At 1 January 2015

Profit for the year

Other comprehensive income, net of taxes:Net loss on available-for-sale financial assets (note 31)Deferred tax on revalued propertiesNet reclassification adjustment for realised net loss on available-for-sale financial assets (note 31)Transfer of revaluation surplus after disposalReversal of excess depreciation (Note 31)Deficit on employee retirement benefit plan (Note 24)Total comprehensive incomeGeneral reserve transferTransactions with owners: Dividend paid

At 31 December 2015

Share capital

K’000

86,625

-

- -

- - - - - -

-

- 86,625

Share premium

K’000

2,622

-

- -

- - - - - -

-

- 2,622

Statutory reserve

K’000

86,625 -

- -

- - - - - -

-

- 86,625

General reserve

K’000

188,479

-

- -

- - - - -

110,930

-

299,409

Revaluation reserves

K’000

37,458

-

(8,799) 544

23,797 (2,594)

908 -

13,856 -

-

51,314

Retained earnings

K’000

599,297

117,509

- -

- 2,594 (908)

(50,560) 68,635

(110,930)

(43,313)

513,689

Total K’000

1,001,106

117,509

(8,799) 544

23,797 - -

(50,560) 82,491

-

(43,313)

1,040,284

At 1 January 2014

Profit for the year

Other comprehensive income, net of taxes:Net gain on available-for-sale financial assets (note 31)Revaluation surplus (note 31)Deferred tax on revalued propertiesloss on available-for-sale financial assets (note 31)Surplus on employee retirement benefit plan (Note 24)Total comprehensive incomeGeneral reserve transferTransactions with owners: Dividend paid

At 31 December 2014

Share capital

K’000

86,625

-

- - - - - - -

-

86,625

Share premium

K’000

2,622

-

- - - - - - -

-

2,622

Statutory reserve

K’000

86,625 -

- - - - - - -

-

86,625

General reserve

K’000

154,746

-

- - - - - -

33,733

-

188,479

Revaluation reserves

K’000

58,291

-

(23,797) 7,944 (878)

(4,102) -

(20,833) -

37,458

Retained earnings

K’000

478,711

142,926

- - - -

54,706 197,632 (33,733)

(43,313)

599,297

Total K’000

867,620

142,926

(23,797) 7,944 (878)

(4,102) 54,706

176,799 -

(43,313)

1,001,106

2015 | ANNUALREPORT

PAGE 39

FINANCIALS

STATEMENT OF CASH FLOWS

NOTES 2015 2014 K’ 000 K’ 000

Cash flows from operating activities Profit before tax Adjustments for: Amortisation of staff loan benefit 20Impairment loss recognised on loans and advances 17Reversal of impairment loss on loans and advances 17Reversal of impairment loss on other assets 20Impairment loss recognised on other assets 20Net exchange gains on borrowings 27Revaluation deficit on properties recognised in profit or loss loss on sale of property 18Assets written off 18 Depreciation 18 Cash flows from operating activities before changes in operating assets and liabilities Changes in operating assets and liabilities: - loans and advances to customers - statutory deposits - other assets - customer deposits - other liabilities - investment securities Cash generated from (used in) operations Withholding tax suffered 11Tax paid during the year 11 Tax credit from prior year 11Net cash generated from (used in) operating activities Cash flows from investing activities Purchase of property and equipment 18 Proceeds from sale of property and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings 27 Repayment of borrowings 27 Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year 33

213,557

20,18353,068(4,523)

3,627845

44,5417,868(202)2,422

49,809

391,195

(239,735)(321,921)

(17,684)(461,159)

(50,158)939,978

(150,679)

(20,936)(68,211)

-(239,826)

(23,487)311

(23,176)

160,250(119,742)

(43,313)

(2,805)

125,388

870,864

996,252

184,853

30,179 97,949

- -

40,198 222,850

- (19)

- 53,167

629,177

(405,994)(342,608) (201,712)

979,364 80,634

190,405

300,089

(12,633) (35,345)(17,836)234,275

(48,595) 27

(48,568)

126,050 (143,732)

(43,313)

(60,995)

753,889

996,252

1,750,141

2015 | ANNUALREPORT

PAGE 40

FINANCIALS

Standard, Amendment or interpretationIFRS 9 Financial Instruments

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement

of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the

classification and measurement of financial liabilities and for derecognition, and in November 2013 to

include the new requirements for general hedge accounting. Another revised version of IFRS 9 was

issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited

amendments to the classification and measurement requirements by introducing a ‘fair value through

other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

The directors of the Bank anticipate that the application of IFRS 9 in the future may have a material impact

on amounts reported in respect of the Bank’s financial assets and financial liabilities. However, it is not

practicable to provide a reasonable estimate of the effect of IFRS 9 until the Bank undertakes a detailed

review.

NOTES TO THE FINANCIAL STATEMENTS

1. General information The Bank is incorporated and domiciled in Zambia under the Companies Act , 1994 (as amended) as a limited liability Bank . The address of its registered office is: Plot 2118-2121 P.O Box 33611 Cairo Road Lusaka The Bank’s principal activities are the provision of Commercial banking and related services to the general public. 2. Adoption of new and revised international financial reporting standards

2.1 Amendments to IFRSs that are mandatorily effective for the current year

In the current year, the Bank has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2015:

• Amendments to IAS 19 Defined Benefit Plans: Employee ContributionsThese amendments have been applied retrospectively. The application of these amendments has had no material impact on the disclosures or the amounts recognised in the Bank’s financial statements.

• Annual Improvements to IFRSs 2010 - 2012 Cycle and 2011 – 2013 CycleThe application of amendments has had no impact on the disclosures or amounts recognised in the Bank’s financial statements.

2.2 New and revised IFRS in issue but not yet effectiveThe Bank has not applied the following new and revised IFRSs that have been issued but are not yet effective:

Effective date1 January 2016

2015 | ANNUALREPORT

PAGE 41

FINANCIALS


IFRS 14 Regulatory Deferral Accounts

IFRS 14 Regulatory Deferral Accounts permits an entity which is a first-time adopter of International Financial

Reporting Standards to continue to account, with some limited changes, for ‘regulatory deferral account

balances’ in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial

statements. Regulatory deferral account balances, and movements in them, are presented separately in the

statement of financial position and statement of profit or loss and other comprehensive income, and specific

disclosures are required.

The directors of the Bank do not anticipate that the application of these amendments will have any impact

on the Bank’s financial statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities

to provide users of financial statements with more informative, relevant disclosures. The standard provides

a single, principles based five-step model to be applied to all contracts with customers. The core principle

of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to

customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange

for those goods or services. This core principle is delivered in a five-step model framework:

• Identify the contract(s) with a customer

• Identify the performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to the performance obligations in the contract

• Recognise revenue when (or as) the entity satisfies a performance obligation.

The directors of the Bank anticipate that the application of IFRS 15 in the future may have a material impact

on the amounts reported and disclosures made in the Bank’s consolidated financial statements. However, it

is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Bank performs a detailed

review.

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint operation that

constitutes a business as defined in IFRS 3 Business Combinations. Specifically, the amendments state that

the relevant principles on accounting for business combinations in IFRS 3 and other standards (e.g. IAS 12

Income Taxes regarding the recognition of deferred taxes at the time of acquisition and IAS 36 Impairment

of Assets regarding impairment testing of a cash-generating unit to which goodwill on acquisition of a joint

operation has been allocated) should be applied. The same requirements should be applied to the formation

of a joint operation if, and only if ,an existing business is contributed to the joint operation by one of the

parties that participate in the joint operation.

A joint operator is also required to disclose the relevant information required by IFRS 3 and other standards

for business combinations.

1 January 2016

1 January 2016

1 January 2016

Effective date Standard, Amendment or interpretation

FINANCIALS

The directors of the Bank do not anticipate that the application of these amendments will have any impact on

the Bank’s financial statements.

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 give some guidance on how to apply the concept of materiality in practice.

• An entity should not reduce the understandability of its financial statements by obscuring material

information with immaterial information or by aggregating material items that have different natures or

functions.

• An entity need not provide a specific disclosure required by an IFRS if the information resulting from that

disclosure is not material.

• In the other comprehensive income section of a statement of profit or loss and other comprehensive

income, the amendments require separate disclosures for the share of other comprehensive income

of associates and joint ventures accounted for using the equity method that will not be reclassified

subsequently to profit or loss and those that will be reclassified subsequently to profit or loss.

The directors of the Bank anticipate that the application of IAS 1 in the future may have a material impact on

the disclosures made in the Bank’s financial statements.

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of

property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue

is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in

the following two limited circumstances:

a) when the intangible asset is expressed as a measure of revenue or

b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible

asset are highly correlated.

Currently, the Bank uses the straight-line method for depreciation and amortisation for its property, plant and

equipment, and intangible assets respectively. The directors of the Bank believe that the straight-line method

is the most appropriate method to reflect the consumption of economic benefits inherent in the respective

assets. Accordingly, the directors of the Bank do not anticipate that the application of these amendments to

IAS 16 and IAS 38 will have a material impact on the Bank’s financial statements.

Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants

The amendments to IAS 16 and IAS 41 define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41. The produce growing on bearer plants continues to be accounted for in accordance with IAS 41.

The directors of the Bank do not anticipate that the application of these amendments to IAS 16 and IAS 41 will

have a material impact on the Bank’s financial statements as the Bank is not engaged in agricultural activities.


2015 | ANNUALREPORT

PAGE 42


1 January 2016

1 January 2016

1 January 2016

FINANCIALS


Amendments to IAS 27: Equity Method in Separate Financial Statements

The amendments focus on separate financial statements and allow the use of the equity method in such

statements. Specifically, the amendments allow an entity to account for investments in subsidiaries, joint

ventures and associates in its separate financial statements:

• At cost,

• In accordance with IFRS 9 (or IAS 39 for entities that have not yet adopted IFRS 9), or

• Using the equity method as described in IAS 28 Investments in Associates and Joint Ventures.

Basically, the same accounting must be applied to each category of investments and the amendments also

clarify that when a parent ceases to be an investment entity, or becomes an investment entity, it should

account for the change from the date when the change in status occurs.

The directors of the Bank do not anticipate that the application of these amendments to IAS 27 will have a

material impact on the Bank’s financial statements.

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets

between an investor and its associate or joint venture. Specifically, the amendments state that gains or

losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction

with an associate or a joint venture that is accounted for using the equity method, are recognised in

the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint

venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former

subsidiary (that has become an associate or a joint venture that is accounted for using the equity method)

to fair value are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’

interests in the new associate or joint venture.

The amendments should be applied prospectively to transactions occurring in annual periods beginning

on or after 1 January 2016. The directors of the Bank anticipate that the application of these amendments

to IFRS 10 and IAS 28 may have an impact on the Bank’s financial statements in future periods should such

transactions arise.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

The amendments to IFRS 10, IFRS 12 and IAS 28 clarify that the exemption from preparing consolidated

financial statements is available to a parent entity that is a subsidiary of an investment entity, even if the

investment entity measures all its subsidiaries at fair value in accordance with IFRS 10. The amendments

also clarify that the requirement for an investment entity to consolidate a subsidiary providing services

related to the former’s investment activities applies only to subsidiaries that are not investment entities

themselves.

The directors of the Bank do not anticipate that the application of these amendments to IFRS 10, IFRS 12

and IAS 28 will have a material impact on the Bank’s financial statements.

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Annual Improvements to IFRSs 2012-2014 Cycle

The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRSs,

which are summarised below.

The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an asset

(or disposal group) from held-for-sale to held-for-distribution to owners (or vice versa). The amendments

clarify that such a change should be considered as a continuation of the original plan of disposal and hence

requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments also clarify

the guidance for when held-for-distribution accounting is discontinued.

The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing

involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.

The amendments to IAS 19 clarify that the rate used to discount post-employment benefit obligations

should be determined by reference to market yields at the end of the reporting period on high quality

corporate bonds. The assessment of the depth of a market for high qualify corporate bonds should be at

the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which there is no

deep market in such high quality corporate bonds, the market yields at the end of the reporting period on

government bonds denominated in that currency should be used instead.

The directors of the Bank do not anticipate that the application of these amendments will have a significant

impact on the Bank’s financial statements.

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3. Significant Accounting Policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 3.1 Statement of Compliance The financial statements are prepared in accordance with International Financial Reporting Standards. 3.2 Basis of Preparation The financial statements have been prepared on the historical-cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Bank takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly and • Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below: 3.3 Interest Income and Expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognised within ‘interest income’ or ‘interest expense’ in profit or loss using the effective interest method. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Bank and the amount of income can be measured reliably. Interest income is accrued on a time-basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Effective interest rateThe 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. 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, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. The calculation of the effective interest rate includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment loss. 3.4 Fees and Commission Income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank has retained no part of

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the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party - such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of business - are recognised on completion of the underlying transaction. 3.5 Translation of Foreign Currencies (i) Functional and Presentation Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in Kwacha (“K”) which is the Bank’s functional currency. (ii) Transaction and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss account. Monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items denominated in foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the year in which they arise. 3.6 Financial Assets Financial assets and liabilities are recognised when the Bank becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributed to acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities as appropriate, on initial recognition. Transaction costs directly attributed to the acquisition of financial assets or financial liabilities at fair value through profit and loss (FVTPL) are recognised immediately in the profit or loss. The Bank classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans, advances and receivables; held-to-maturity financial assets; and available-for-sale assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade-date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Management determines the appropriate classification of its financial assets at initial recognition.

(i) Loans, Advances and Receivables Loans, advances and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. (ii) Held-to-maturity Held-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where the Bank sells more than an insignificant amount of held-to-maturity assets, the entire category would have to be reclassified as available- for-sale. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest rate method, less any impairment. (iii) Available-for-sale (AFS) Available-for-sale (AFS) financial assets are non-derivatives that are either designated as AFS or are not classified as; (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. The Bank also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates (see below), interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.


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Dividends on AFS equity instruments are recognised in profit or loss when the Bank’s right to receive the dividends is established. AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period. 3.7 Impairment of Financial Assets The Bank assesses at each Reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: (a) Significant financial difficulty on the part of the issuer or obligor (b) A breach of contract, such as a default or delinquency in interest or principal payments (c) The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider (d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation (e) The disappearance of an active market for that financial asset because of financial difficulties or (f ) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) Adverse changes in the payment status of borrowers in the portfolio and (ii) National or local economic conditions that correlate with defaults on the assets in the portfolio.

The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between 3 months and 6 months.

Assets carried at amortised cost The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

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. If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original effective interest rate.

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 profit and loss account. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. 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, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. 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. 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 exist currently.

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When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in profit or loss. If, in a subsequent period, 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), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss. Assets Carried at Fair Value In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss account. 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. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due. 3.8 Derecognition of Financial Assets The Bank derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognises its retained interest in the asset and any associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the Bank continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Bank retains an option to repurchase part of a transferred asset), the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.

3.9 Property and Equipment (i) Recognition and MeasurementsAll property, plant and equipment - except buildings - is stated at historical cost. Items of property, plant and equipment are subsequently measured at cost. Less accumulated depreciation and accumulated impairment losses and which property is subsequently measured at fair value, less accumulated depreciation.

Buildings are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent impairment losses. It is the Bank’s policy to perform revaluations with regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. The revaluation differences are credited to other comprehensive income and accumulated in equity under the heading “revaluation surplus”, unless it represents the reversal of a revaluation decrease previously recognised as an expense to the extent, in which case it should be recognised as income. A decrease as a result of a revaluation is recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset.


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When a revalued asset is disposed of, any revaluation surplus is transferred directly to retained earnings.

Cost includes expenditure that is directly attributable to the acquisition of the asset. This includes the cost of materials, direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are componentised as separate items of property, plant and equipment. Capital work-in-progress relates to items of property, plant and equipment that are under construction and are yet to be commissioned for use. Work-in-progress is measured at the cost incurred in relation to the construction up to the reporting date.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other operating income.

(ii) Subsequent costsThe cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Bank and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) DepreciationDepreciation is based on the cost of the asset less its residue value. Components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Capital work-in-progress is not depreciated. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment.

The estimated useful lives are as follows:

• Leasehold buildings 50 years • Fixtures, fittings and equipment 5 years • Motor vehicles 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

The Bank assesses at each reporting date whether there is any indication that any item of property and equipment is impaired. If any such indication exists, the Bank estimates the recoverable amount of the relevant assets. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are banked at the lowest levels for which there are separately identifiable cash flows (cash-generating units). A reversal of an impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.10 TaxationIncome tax expense represents the sum of the tax currently payable as well as deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Bank’s liability for current tax is calculated using tax rates that have been enacted by the reporting date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

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Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Bank intends to settle its current tax assets and liabilities on a net basis.

3.11 Non-Current Assets Held for SaleNon-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held-for-sale are measured at the lower end of their previous carrying amount and fair value, less costs to sell. Any impairment loss on a disposal group is allocated to remaining assets and liabilities. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on re-measurements are recognised in profit or loss. 3.12 Employee Benefits

(i) Retirement benefit obligations Defined Contribution The Bank operates a defined benefit scheme for non-fixed term contracted employees. The Bank and all its employees also contribute to the National Pension Scheme, which is a defined contribution scheme. A defined contribution plan is a retirement benefit plan under which the Bank pays fixed contributions into a separate entity.

The Bank’s contributions to the defined contribution schemes are charged to profit or loss in the year in which they fall due. A defined benefit plan is a retirement benefit plan that is not a defined contribution plan. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Bank and employees. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:

• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements)• Net interest expense or income• Remeasurement.

The Bank presents the first two components of defined benefit costs in profit or loss in the line item employee-benefits-expense. Curtailment gains and losses are accounted for as past service costs.

The retirement benefit obligation recognised in the statement of financial position represents the actual deficit or surplus in the Bank’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.

A liability for a termination benefit is recognised at the earlier of - when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs.


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(ii) Short-term and other long-term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Bank in respect of services provided by employees up to the reporting date. (iii) Contributions from employees or third parties to defined benefit plans Discretionary contributions made by employees or third parties reduce service cost upon payment of these contributions to the plan. When the formal terms of the plans specify that there will be contributions from employees or third parties, the accounting depends on whether the contributions are linked to service, as follows: • If the contributions are not linked to services (e.g. contributions are required to reduce a deficit arising from losses on plan assets or from actuarial losses), they are reflected in the remeasurement of the net defined benefit liability (asset)• If contributions are linked to services, they reduce service costs. For the amount of contribution that is dependent on the number of years of service, the entity reduces service cost by attributing the contributions to periods of service using the attribution method required by IAS 19 paragraph 70 for the gross benefits. For the amount of contribution that is independent of the number of years of service, the entity reduces service cost in the period in which the related service is rendered / reduces service cost by attributing contributions to the employees’ periods of service in accordance with IAS 19 paragraph 70.

3.13 BorrowingsBorrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. 3.14 Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the year in which they are incurred. 3.15 Financial Liabilities and Equity

Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity, in accordance with the substance of the contractual agreement.

Financial liabilities Financial liabilities are classified as borrowed funds, other payables, other liabilities and amounts due to related parties. Borrowed funds, other payables and other liabilities are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Bank after deducting all of its liabilities. Equity instruments are recorded at proceeds received, net of direct issue costs.

Derecognition of financial liabilities The Bank derecognises financial liabilities when, and only when, the Bank’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in profit or loss.

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3.16 Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 3.17 Sale and Repurchase Agreements Securities sold subject to repurchase agreements (‘repos’) are classified in the financial statements as pledged assets when the transferee has the right, by contract or custom, to sell or re-pledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. 3.18 Share Capital Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. 3.19 Dividends Payable Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are not recognised as a liability until declared.

3.20 Fiduciary ActivitiesThe Bank commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Bank. 3.21 Acceptances and Letters of CreditAcceptances and letters of credit are accounted for as off-statement of financial position transactions and disclosed as contingent liabilities. 3.22 ProvisionsProvisions are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.

The Bank recognises no provisions for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

3.23 Segment ReportingOperating segments are reported in a manner consistent with the internal reporting to the Executive Management Committee. The Executive Committee allocates resources to and assesses the performance of the operating segments of an entity. The Executive Committee is the Bank’s key management-making body.

All transactions between business segments are conducted on an arm’s length basis, with intra-segment revenue and cost being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance.

4. Critical AccountingJudgements and Key sources of Estimation Uncertainty In the application of the Bank’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is done if it affects only that period; or in the period of the revision and future periods if it affects both current and future periods.


2015 | ANNUALREPORT

PAGE 52

FINANCIALS


Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimations, that the directors have made in the process of applying the Bank’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

(a) Impairment Losses on Loans and Advances The Bank reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgements as to whether there is any observable data indicating 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. This evidence may include observable data indicating an adverse change in the payment status of the borrower, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. (b) Fair Value of Financial instruments The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used and calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For example, to the extent that management used a tightening of 2 basis points in the yield rate, the fair values as at 31 December 2015 would be estimated at K1,077,652,000 as compared to their reported fair values of K523,000,000 at 31 December 2014.

(c) Held-to-maturity Financial Assets The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturing as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such assets to maturity. If the Bank fails to keep these assets to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to classify the entire class as available-for-sale. The assets are currently measured at amortised cost. (d) Discount Rate Used to Determine the Carrying Amount of the Bank’s Defined Benefit Obligation The Bank’s defined benefit obligation is discounted at a rate set by reference to market yields at the end of the reporting period on high-quality government bonds. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the government bonds, quality of the bonds and the identification of outliers which are excluded.

(e) Revaluation of Property The Bank reviews the fair value of its property at the end of each reporting period. An independent valuation of the Bank’s properties to determine fair value is carried out by independent valuers. Revaluations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date. (f) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

• Mortgages over residential properties • Charges over business assets such as premises, inventory and accounts receivable • Charges over financial instruments such as debt instruments • Cash cover and• Longer-term finance and lending to corporate entities are generally secured. Certain personal credit facilities are generally unsecured. In addition, in order to minimise the credit loss, the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.

2015 | ANNUALREPORT

PAGE 53

FINANCIALS

5. Financial Risk Management The Bank’s activities expose it to a variety of financial risks which include market risk, currency risk, interest rate risk, credit risk and liquidity risk. These activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the Bank’s business. Financial risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and to minimise potential adverse effects on its financial performance. Risk management is carried out by the Risk Directorate under policies approved by the Executive Management Committee and Board of Directors. The Risk Directorate identifies, evaluates and hedges financial risks in close cooperation with the operating units. In carrying out these functions, the Directorate is guided by policies contained in the Credit Policy document, Business Lending Standards, Environmental and Social Policy, Scheme Loans Policy and Premier Loans Policies.

(a) Credit Risk The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss to the Bank by failing to pay amounts in full when due. Credit risk is the most important risk to the Bank’s business. Management, therefore, carefully manages the exposure to credit risk. Credit exposures arise principally in lending and investment activities. There is also credit risk in off-statement of financial position financial instruments, such as loan commitments and guarantees. Credit risk management and control are centralised in the Risk Directorate which reports regularly to the Board of Directors.

(i) Credit Risk Measurement (a) Loans and advances (including commitments and guarantees) The estimation of credit exposure is complex and requires the use of processes and procedures that will limit the likelihood of default on loans in the Bank’s portfolio. The assessment of credit risk of a portfolio of assets entails analysis of various risk aspects and making a decision on whether the risk is bankable or not. The risks assessed include business, financial, market, management, security, structural and industry. The Loan Portfolio of the Bank is segregated into seven rating classes: 2 - Loan has no arrears 3 - Loan has arrears over 1 day but less than 29 days 4 - Loan has arrears over 30 days but less than 59 days 5 - Loan has arrears over 60 days but less than 89 days 50 - Loan has arrears over 90 days but less than 119 days 51 - Loan has arrears over 120 days but less than 179 days 52 - Loan has arrears over 180 days (b) Risk limit and mitigation policies The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review. The exposure to any one borrower, including banks, is further restricted by sub-limits covering on and off-statement of financial position exposures. For example:

(1) There is a single-name credit exposure limit of 25% of the regulatory capital (2) Clean and secured counterparty limits apply for money market operations conducted by the Treasury Division.

(c) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Mortgages over residential properties • Charges over business assets such as premises, inventory and accounts receivable • Charges over financial instruments such as debt instruments and • Cash cover • Longer-term finance and lending to corporate entities are generally secured and • Certain personal credit facilities are generally unsecured.


2015 | ANNUALREPORT

PAGE 54

FINANCIALS


(d) Lending limit Credit risk exposure is managed as part of overall lending limits with customers, together with potential exposures from market movements. Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding receipt in cash or securities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.

(e) Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and, therefore, carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term-to-maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

The Bank holds collateral and other credit enhancements against certain of its credit exposures. The table below sets out the principal types of collateral held against different types of financial assets.

2015 | ANNUALREPORT

PAGE 55

FINANCIALS

Rating

2 Standard

3 Satisfactory risk

4 Watch risk

5 Unacceptable

50 Sub-standard

51 Doubtful

52 Loss

Credit exposure

%

51

22

13

1

-

-

13

100

5. Financial risk management (Continued)

(i) Credit risk measurement (continued)

(e) Credit related commitments (continued)

Impairment allowance

%

1

1

-

-

1

1

96

100

Credit

exposure

%

69

14

7

0

0

1

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allowance

%

3

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2

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2015 2014

Type of credit exposure Percentage of exposure that is subject to collateral requirements 2015 2014 Type of collateral held Loans and advances to banks Securities borrowing 100 100 Marketable securitiesLoans and advances to retail customers Mortgage lending 7 12 Residential propertyPersonal loans 31 25 NoneOthers 4 3 NoneLoans and advances to corporate customers Corporate Loans 5 16 GuaranteesOthers 53 44 Property and equipment


2015 | ANNUALREPORT

PAGE 56

(ii) Impairment and provisioning policies The impairment allowance shown in the statement of financial position at year-end is derived from each of the seven internal rating grades. The table below shows the percentage of the Bank’s on-statement of financial position credit related obligations.

New loans issued covered by collateral Details of financial and non-financial assets obtained by the Bank during the year covered by collateral held as security against loans and advances as well calls made on credit enhancements and held at the year end are shown below. 2015 2014 K’000 K’000

Property 375,151 525,641Debt securities 10,090 154,385Other (debentures) 67,858 54,746

FINANCIALS


Maximum exposure to credit risk before collateral held

Loans and advances to customers Loans to other banksInvestment securities:

Credit risk exposures relating to off-statement of financial position items: - Acceptances and letters of credit - Guarantee and performance bonds - Undrawn stand-by facilities, credit lines and other commitments to lend

2015K’ 000

3,446,554 342,000

1,182,626

4,971,180

572,08064,443

229,190

5,836,893

The above table represents a worst-case scenario of credit risk exposure to the Bank at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached. For on-statement of financial position assets, the exposures set out above are based on carrying amounts as reported in the statement of financial position. As shown above, 65% of the total maximum exposure is derived from loans and advances to banks and customers (2014: 56%). Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following: • the Bank exercises stringent controls over the granting of new loans • 51% (2014: 69%) of the loans and advances portfolio are neither past due nor impaired • 68% (2014: 73%) of the loans and advances portfolio are backed by collateral • 100% (2014:100%) of the investments in securities are government securities.

Financial assets that are past due or impaired

Loans and advances are summarised as follows:

Neither past due nor impairedPast due but not impairedIndividually impairedGrossLess: allowance for impairment (Note 17)

Net

No other financial assets are either past due or impaired.

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 by the Bank

2015K’ 000

1,850,162 1,492,251

295,867 3,638,280 (191,726)

3,446,554

1,850,162

2014K’ 000

3,138,509-

1,445,340

3,583,849

820,32244,289

127,581

5,576,041

2014K’ 000

2,256,866 792,478 210,112

3,259,456 (120,947)

3,138,509

2,256,866

2015 | ANNUALREPORT

PAGE 57

Loans and Advances Past due but not Impaired Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows:

Past due up to 30 days Past due 31–60 days Past due 61–90 days Over 90 days Total Fair value of collateral held

Loans and advances individually impaired Of the total gross amount of impaired loans, the following amounts have been individually assessed: Loans Individually assessed impaired loans and advances - Corporate - Retail Fair value of collateral held Loans and advances renegotiated

Restructuring activities include extended payment arrangements, approved external management plans, modifications and deferral of payments.

FINANCIALS

2015K’000

768,705475,083

29,910218,553

1,492,251

1,455,631

2014K’000

404,091204,118

36,967147,302

792,478

1,069,296


2015 | ANNUALREPORT

PAGE 58

2015K’000

201,055 94,812

295,867

107,018

2014K’000

109,399 100,713

210,112

117,932

5. Financial Risk Management (Continued)

(ii) Impairment and Provisioning Policies (Continued)

FINANCIALS(b

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2015 | ANNUALREPORT

PAGE 59

FINANCIALS

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2015 | ANNUALREPORT

PAGE 60

2015

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FINANCIALS


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owin

gs

Tota

l fina

ncia

l lia

bilit

ies

Ass

ets

Cash

and

Bal

ance

s w

ith B

ank

of Z

ambi

a

Bala

nces

with

oth

er B

anks

Lo

ans

and

adva

nces

to c

usto

mer

s In

vest

men

t in

secu

ritie

s

Oth

er a

sset

s To

tal a

sset

s

Liqu

idit

y ga

p

Up

to

1 m

onth

K’00

0

5,20

0,78

2 119

8,34

9 -

5,39

9,13

2

1,62

6,53

91,

119,

496

618,

179

130,

448

283,

795

3,77

8,45

8

(1,6

20,6

74)

1-3

mon

ths

K’00

0

415

,526

- - 7

5,24

4

490

,770

- - 17

3,52

1 3

25,6

48 -

499,

169

8,39

9

3-6

mon

ths

K’00

0

195

,087

- - 1

37,5

00

332

,587

- - 12

9,67

7 3

92,5

89 -

522,

266

189,

679

6-12

mon

ths

K’00

0

221

,685

- - 1

57,7

43

379

,428

- - 37

5,88

3 2

43,8

85 -

619,

768

240,

340

1-3

year

sK’

000 4

- - 1

90,9

73

190,

977 - -

516,

706

83,9

35 -

600,

641

409,

664

3

-5 y

ears

K’00

0 - - - 6

7,98

6

67,9

86 - - 93

4,21

65,

765 -

939,

981

871,

995

Ove

r 5

year

sK’

000 - - -

33,

992

33,9

92 - - 69

8,37

235

5 -

698,

727

664,

735

Tota

lK’

000

6,03

3,08

4 119

8,34

966

3,43

78

6,89

4,87

2

1,62

6,53

91,

119,

496

3,44

6,55

41,

182,

625

283,

795

7,65

9,01

0

764,

138

2015 | ANNUALREPORT

PAGE 61

FINANCIALS

Fina

ncia

l ris

k m

anag

emen

t (Co

ntin

ued)

At 3

1 D

ecem

ber 2

014

Liab

iliti

es

Cust

omer

dep

osits

D

epos

its fr

om o

ther

ban

ks

Oth

er li

abili

ties

Borr

owin

gs

Tota

l fina

ncia

l lia

bilit

ies

Up

to

1 m

onth

K’00

0

4,36

3,66

714

210

6,08

7 -

4,46

9,89

6

1,16

3,20

239

9,17

066

8,05

111

4,59

920

3,02

0

2,54

8,04

2

(1,9

21,8

54)

1-3

mon

ths

K’00

0

145

,855

- - 4

3,84

6

189

,701

- - 65

,437

31

7,58

5 -

383,

022

193,

321

3-6

mon

ths

K’00

0

144

,496

- - 3

6,05

6

180

,552

- - 70

,796

41

5,82

5 -

486,

621

306,

069

6-12

mon

ths

K’00

0

342

,437

- - 6

3,87

7

406

,314

- - 33

1,10

0 4

82,6

64 -

813,

764

407,

450

1-3

year

sK’

000

57,

265 - -

239,

484

296,

749 - -

533,

327

109,

039 -

642,

366

345,

617

3

-5 y

ears

K’00

0 - - - 71

,223

71,2

23 - - 84

5,39

55,

359 -

850,

754

779,

531

Ove

r 5

year

sK’

000 - - -

3,78

4

3,78

4 - - 62

4,40

326

9 -

624,

672

620,

888

Tota

lK’

000

5,05

3,72

014

210

6,08

745

8,27

0

5,61

8,21

9

1,16

3,20

239

9,17

03,

138,

509

1,44

5,34

020

3,02

0

6,34

9,24

1

731,

022


2015 | ANNUALREPORT

PAGE 62


Ass

ets

Cash

and

Bal

ance

s w

ith B

ank

of Z

ambi

a

Bala

nces

with

oth

er B

anks

Lo

ans

and

adva

nces

to c

usto

mer

s In

vest

men

t in

secu

ritie

s

Oth

er a

sset

s To

tal fi

nanc

ial a

sset

s

Liqu

idit

y ga

p

FINANCIALS

(i) Liquidity Risk Maturity Analysis The amounts in the table have been compiled as follows: Type of financial instruments Basis on which amounts are compiled Non-derivative financial liabilities and financial assets Undiscounted cash flows, which include estimated interest payments Issued financial guarantee contracts and unrecognised Earliest possible contractual maturity. For issued financialloan commitments guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. The Bank’s expected cash flows on some financial assets and financial liabilities vary significantly from the contractual cash flows. The principal differences are as follows:

• Demand deposits from customers are expected to remain stable or increase and • unrecognised loan commitments are not all expected to be drawn down immediately. As part of the management of liquidity risk arising from financial liabilities, the Bank holds liquid assets comprising cash and cash equivalents and debt securities which can be readily sold to meet liquidity requirements. In addition, the Bank maintains agreed lines of credit with other banks and holds unencumbered assets eligible for use as collateral with the Central Banks (these amounts are referred to as the ‘Bank’s liquidity reserves’). Liquidity reserves The table below sets out the components of the Bank’s liquidity reserves.

Balances with central banksCash and cash equivalentsTreasury bills

Total liquidity reserves

2014Carrying amount

K’000 173,492 315,297 966,765

1,455,554

2014Fair Value

K’000 173,492 315,297 821,131

1,309,920

Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, net liquid assets includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market, less any deposits from banks, debt securities issues, other borrowings and commitments maturing within the next month. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

At 31 December Average for the period Maximum for the period Minimum for the period (d) Market Risk Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Assets and Liabilities Committee (ALCO).


2015Carrying amount

K’000 249,662 359,856

1,142,703

1,752,221

2015Fair Value

K’000249,662 359,856

1,066,225

1,675,743

2015 | ANNUALREPORT

PAGE 63

2015

58.252.373.438.4

2014

47.4632.9447.4615.07

FINANCIALS

The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios. 31 December 2015 Market risk measure Assets subject to market risk Carrying amount Non-trading portfolio

Liabilities subject to market risk

Customer depositsBorrowingsOther liabilities

31 December 2014

Assets subject to market risk

Cash and cash equivalentsBalances with other banksLoans and advances to customersInvestments in securities Other assets

Liabilities subject to market risk

Customer depositsBorrowingsOther liabilities

96,1291,266,9163,446,5541,182,626

45,979

6,038,204

6,033,084 663,438

31,445

6,727,967

19,866409,142

3,138,5091,445,340

14,9795,027,836

5,053,720 458,270

96,066

5,608,056

96,1291,266,9163,446,5541,182,626

45,979

6,038,204

6,033,084 663,438

31,445

6,727,967

19,866409,142

3,138,5091,445,340

14,9795,027,836

5,053,720 458,270

96,066

5,608,056

Cash Balances with other banksLoans and advances to customersInvestments in securities Other assets

The Bank did not have a trading portfolio.


2015 | ANNUALREPORT

PAGE 64


FINANCIALS


(e) Currency Risk The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 December 2015. Included in the table are the Bank’s financial instruments, categorised by currency.

At 31 December 2015

AssetsCash and balances with Bank of ZambiaLoans and advances to customersOther financial assets

Total financial assets

LiabilitiesCustomer depositsBorrowingsOther liabilities

Total financial liabilities

Net position

At 31 December 2014

Financial assetsFinancial liabilities

Net position

USDK’000

976,337 896,313

34,789

1,907,439

1,186,049663,437

30,166

1,879,652

27,786

1,009,1081,005,834

3,274

GBP K’000

5,615 -

10,275

15,890

4,778 -

921

5,699

10,191

2,3542,134

220

Euro K’000

39,093 -

915

40,008

30,601 -

359

30,960

9,048

32,84532,804

41

TotalK’000

1,021,045896,313

45,979

1,963,337

1,221,428663,437

31,446

1,916,312

47,025

1,044,3071,040,772

3,535

2015 | ANNUALREPORT

PAGE 65

FINANCIALSA

t 31

Dec

embe

r 201

5

Ass

ets

Loan

s an

d ad

vanc

es to

cus

tom

ers

Inve

stm

ent i

n se

curit

ies

Tota

l fina

ncia

l ass

ets

Liab

iliti

esCu

stom

er d

epos

itsBo

rrow

ings

Tota

l fina

ncia

l lia

bilit

ies

Tota

l int

eres

t re-

pric

ing

gap

The

tabl

e ab

ove

sum

mar

ises

the

Bank

’s ex

posu

re to

inte

rest

rate

risk

s. In

clud

ed in

the

tabl

e ar

e th

e Ba

nk’s

asse

ts a

nd li

abili

ties

at c

arry

ing

amou

nts,

cate

goris

ed b

y th

e ea

rlier

of c

ontr

actu

al re

-pric

ing

or m

atur

ity d

ates

. Th

e Ba

nk d

oes

not b

ear a

ny in

tere

st ra

te ri

sk o

n off

sta

tem

ent o

f fina

ncia

l pos

ition

item

s.

The

mat

chin

g an

d co

ntro

lled

mis

mat

chin

g of

the

mat

uriti

es a

nd in

tere

st ra

tes

of a

sset

s an

d lia

bilit

ies

is fu

ndam

enta

l to

the

man

agem

ent o

f the

Ban

k. I

t is

unus

ual f

or b

anks

ever

to b

e co

mpl

etel

y m

atch

ed s

ince

bus

ines

s tr

ansa

cted

is o

ften

of u

ncer

tain

term

s an

d of

diff

eren

t typ

es.

An

unm

atch

ed p

ositi

on p

oten

tially

enh

ance

s pr

ofita

bilit

y, b

ut

can

also

incr

ease

the

risk

of lo

sses

.

Up

to

1 m

onth

K’00

0

618,

179

130,

448

748,

627

5,20

0,78

2 - 5,

200,

782

(4,4

52,1

55)

1-3

mon

ths

K’00

0

173,

521

325,

648

499,

169

415

,526

75

,244

490

,770

8,39

9

3-6

mon

ths

K’00

0

129,

677

392,

589

522,

266

195

,087

13

7,50

0

332

,587

189,

679

1-3

year

sK’

000

516,

706

83,9

35

600,

641 4

19

0,97

3

190,

977

409,

664

Ove

r 5ye

ars

K’00

0

698,

372

355

698,

727 -

33,9

92

33,9

92

664,

735

6-12

mon

ths

K’00

0

375,

883

243,

885

619,

768

221

,685

15

7,74

3

379

,428

240,

340

3-5

Year

sK’

000

934,

216

5,76

5

939,

981 -

67,9

86

67,9

86

871,

995

Tota

lK’

000

3,44

6,55

41,

182,

625

4,62

9,17

9

6,03

3,08

466

3,43

8

6,69

6,52

2

(2,0

67,3

43)

(f)

Inte

rest

rate

risk


2015 | ANNUALREPORT

PAGE 66

5. Financial risk management (Continued)

FINANCIALS


5 F

inan

cial

risk

man

agem

ent (

Cont

inue

d)

(f)

Inte

rest

rate

risk

At 3

1 D

ecem

ber 2

014

Ass

ets

Loan

s an

d ad

vanc

es to

cus

tom

ers

Inve

stm

ent i

n se

curit

ies

Tota

l fina

ncia

l ass

ets

Liab

ilitie

sCu

stom

er d

epos

itsBo

rrow

ings

Tota

l fina

ncia

l lia

bilit

ies

Tota

l int

eres

t re-

pric

ing

gap

Up

to

1 m

onth

K’00

0

668,

051

114,

599

782,

650

4,36

3,66

7 -

4,36

3,66

7

(3,5

81,0

17)

1-3

mon

ths

K’00

0

65,4

3731

7,58

5

383,

022

145

,855

43

,846

189

,701

193,

321

3-6

mon

ths

K’00

0

70,7

9641

5,82

5

486,

621

144

,496

36

,056

180

,552

306,

069

1-

3ye

ars

K’00

0

533,

327

109,

039

642,

366

57,

265

239,

484

296,

749

345,

617

Ove

r 5ye

ars

K’00

0

624,

403

269

624,

672 -

3,78

4

3,78

4

620,

888

6-12

mon

ths

K’00

0

331,

100

482,

664

813,

764

342

,437

63

,877

406

,314

407,

450

3-5

year

s K’

000

845,

395

5,35

9

850,

754 -

71,2

23

71,2

23

779,

531

Tota

lK’

000

3,13

8,50

91,

445,

340

4,58

3,84

9

5,05

3,72

045

8,27

0

5,51

1,99

0

(928

,141

)

2015 | ANNUALREPORT

PAGE 67

FINANCIALS

(g) Fair values of financial assets and liabilities The fair value of held-to-maturity investment securities at 31 December 2015 is estimated at K NIL (2014: K NIL. The fair values of the Bank’s other financial assets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual re-pricing or maturity dates as set out above. Fair values are based on discounted cash flows using discount rates based upon the yield rates on similar financial assets at the reporting date. Fair Value Hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs into those valuations techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. The two types of inputs have created the following fair value hierarchy: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on stock exchanges (for example, Lusaka Stock Exchange) • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) • Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible. (i) Fair value of the Bank’s financial assets and financial liabilities that are measured at fair value on a recurring basis

Financial assets/financial liabilities

Available-for-sale financial assets

2015 2014 K’ 000 K’ 000

1,134,338 1,397,052

Fair value hierarchy

-

Valuation technique(s) and key input(s)

Quoted bid prices in an active market

“Significantunobservable

input (s)”

-

There were no transfers between level 1 and 2 in the period.

Fair value as at 31 December


2015 | ANNUALREPORT

PAGE 68


FINANCIALS


(ii) Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis (but fair value disclosures are required) Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.

The fair values of the financial assets and financial liabilities included in the level 2 and level 3 categories above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

Financial assets Loans and receivables: - Loans and advances to customers Fair value of investment – Treasury Bills – Government bonds Fair values of financial assets and liabilities Financial liabilities Financial liabilities held at amortised cost: – Loans from other entities – Customer deposits

Financial assets Loans and receivables: - Loans and advances to customers Fair value of investment - Treasury bills - Government bonds Total Financial Assets Financial liabilities – Customer deposits

Total Financial liabilities

Carrying amount

K’000

3,638,280 3,638,280

1,221,557 1,142,703

78,854

6,696,522663,438

6,033,084

Level 1K’000

-

- -

-

-

-

Fair valueK’000

3,446,554 3,446,554

1,134,338 1,066,225

68,113

6,696,522663,438

6,033,084

Level 2 K’000

-

- -

-

-

-

Carrying amount

K’000

3,259,456 3,259,456 1,641,931

966,765 675,166

5,511,990 458,270

5,053,720

Level 3K’000

3,446,554 1,066,225

68,113

4,580,892

6,033,084

6,033,084

Fair valueK’000

3,138,509 3,138,509 1,397,052

821,131 575,921

5,511,990 458,270

5,053,720

TotalK’000

3,446,554 1,066,225

68,113

4,580,892

6,033,084

6,033,084

Fair value hierarchy as at 31 December 2015

2015 2015 2014 2014

2015 | ANNUALREPORT

PAGE 69

FINANCIALS

(iii) Reconciliation of Level 3 fair value measurement

31 December 2015 Opening balance Total gains or losses: – in other comprehensive income Purchases Disposals/settlements Closing balance 31 December 2014 Opening balance Total gains or losses: – in other comprehensive income Purchases Disposals/settlements At 31 December 2015

The total gains for the year included an unrealised gain of K14,998 relating to financial assets that are measured at fair value at the end of each reporting period (2014: a gain of K27,899). Such fair value gains or losses are included in ‘other gains and losses’. All gains and losses included in other comprehensive income relate to unlisted shares held at the end of the reporting period and are reported as changes of ‘Investment revaluation reserve’. (h) Capital management Capital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial positions, are: • to comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended) • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits or other stakeholders • to maintain a strong capital base to support the development of its business • to allocate capital to businesses using risk-based capital allocation, to support the Bank’s strategic objectives, including optimising returns on shareholder and regulatory capital and • maintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory expectations.

Treasury bills

K’000

821,131

4,311 1,061,914 (821,131)

1,066,225

995,535

(6,278)827,410

(995,536)

821,131

Government bonds K’000

575,921

10,687 -

(518,495)

68,113

1,345,966

(21,621) 5,581

(754,005)

575,921

TotalK’000

1,397,052

14,998 1,061,914

(1,339,626)

1,134,338

2,341,501

(27,899)832,991

(1,749,541)

1,397,052


2015 | ANNUALREPORT

PAGE 70


FINANCIALS


Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines de-veloped by the Basel Committee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis. Regulatory capital The Bank manages its capital base to achieve a prudent balance between maintaining capital levels to support business growth, maintaining depositor and creditor confidence, and providing competitive returns to shareholders. The Bank of Zambia requires local banks to: (a) hold the minimum level of regulatory capital of K104 million (b) maintain a ratio of total regulatory capital to the risk-weighted assets plus risk-weighted off-statement of financial position assets (the Basel ratio’) at or above the required minimum of 10% (c) maintain primary or tier 1 capital of not less than 5% of total risk weighted assets and (d) maintain total capital of not less than 10% of risk-weighted assets plus risk-weighted off-statement of financial position items. Regulatory capital adequacy is measured through risk-based ratio: • Tier 1 capital (primary capital): common shareholders’ equity, qualifying preferred shares and minority interests in the equity of subsidiaries that are less than wholly owned • Tier 2 capital (secondary capital): qualifying preferred shares, 40% of revaluation reserves, subordinated term debt or loan stock with a minimum original term of maturity of over five years (subject to a straight-line amortisation during the last five years leaving no more than 20% of the original amount outstanding in the final year before redemption) and other capital instruments which the Bank of Zambia may allow. The maximum amount of secondary capital is limited to 100% of primary capital. Risk-weighted assets are determined on a granular basis by using risk weights calculated from internally derived risk parameters within the regulatory requirements. The risk-weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of – and reflecting an estimate of the credit risk associated with – each asset and counterparty. A similar treatment is adopted for off-statement of financial position exposure, with some adjustments to reflect the more contingent nature of the potential losses.

The table below summarises the composition of regulatory capital and the ratios of the Bank as at 31 December:

2015 | ANNUALREPORT

PAGE 71

2015K’ 000

721,097753,292

3,998,733306,843

4,305,576

16%17%

2014K’ 000

716,020746,214

3,195,064345,763

3,540,827

20%21%

Tier 1 capitalTier 1 + Tier 2 capital Risk-weighted assetsOn-balance sheetOff-balance sheet Total risk-weighted assets Regulatory ratiosTier 1 (Regulatory minimum – 5%)Tier 1 + Tier 2 (Regulatory minimum – 10%)

FINANCIALS

6. Interest income Arising from:Loans and advancesGovernment and other securitiesCash and short-term fundsOther Banks

7. Interest expense Arising on:Customer depositsBorrowings

8. Net fees and commission income

Account maintenance feesATM issuer feesOtherPayflexArrangement and commitment feesAirtime purchaseBalance inquiryXapit Management feesLetters of credit commissionsOTC cash withdrawalBill MusterExcess cash withdrawalBelow required minimum balanceXapit Money TranferCash ManagementCommission on encashment of salary cheques

2015 K’000

605,482239,641

17,6841,535

864,342

201,60724,735

226,342

63,35475,82734,02419,13416,27013,26712,40712,20211,080

9,6438,6968,2616,5585,6804,8793,773

307,055

76,48445,77233,74017,92116,26212,644

9,3597,5949,614

12,6208,1888,3999,2394,8594,6373,773

291,300

2014 K’000

536,092237,634

5,62789

779,442

106,56027,409

133,969


2015 | ANNUALREPORT

PAGE 72

FINANCIALS


9. Other operating income

Sundry operating income Gain on disposal of investment

10. Operating expenses The following items are included within operating expenses:

Employee benefits expense OthersInformation technology expensesDepreciation of property and equipment (Note 18)Professional feesSecurity PropertyCash-in-transitRents PaidBank of Zambia supervisoy feesDonationsDirectors’ remuneration - as directors of the BankAuditors’ remunerationProfit on disposal of property and equipment

Employee benefits expense:The following items are included within employee benefits expense:

Post-employment benefits Defined contribution plans Defined benefit plans

Termination benefitsOther employee benefits

Total employee benefits expense

2014 K’000

6,076 202

6,278

306,133124,909 68,801 49,809 5,492

11,640 12,961 11,497

9,715 2,408

1,252 903

-

605,520

14,70117,923

32,624

4,290269,219

273,509

306,133

2015 K’000

6,220 -

6,220

360,232 188,707

91,138 53,167 33,374 16,435 13,248 12,317 10,077

2,622

2,553 1,009

19

784,898

17,09318,468

35,561

4,817319,854

324,671

360,232

2015 | ANNUALREPORT

PAGE 73

FINANCIALS

11. Income tax expense 2014 K’000

73,817(3,186)

70,631

(30,593) 31,999

(20,936)

(19,530)

5,996 73,817

(68,211) -

(31,999)

(20,397)

213,557

74,745

(20,985) 16,871

70,631

2015 K’000

89,034(21,690)

67,344

(19,530) 28,984

(12,633)

(3,179)

(20,397) 89,034

(35,345) (17,836) (28,984)

(13,528)

184,853

64,698

- 2,646

67,344

Current taxDeferred tax (Note 23)

Withholding tax recoverable movement in the statement of financial position

At beginning of yearRecoveries offset against tax liability Withholding tax suffered during the year

At end of year

The movement during the year in withholding tax (WHT) balance is as follows:- Tax payable at beginning of year- Payable in respect of the year- Tax paid during the year- Tax credit from prior year - WHT Tax recoveries in respect of prior years

Tax recoverable at end of year

The tax on the Bank’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:

Profit before income tax

Tax calculated at the statutory income tax rate of 35% (2014: 35%)Tax effect of:Bank of Zambia impairmentExpenses not deductible for tax purposes

Income tax expense

12. Dividends per share The dividend paid in the year 2015 amounted to K43,313,000 in respect of the year ended 31 December 2014 representing K0.005 per share. The Board has recommended a final dividend of K43,313,000 for the year ended 31 December 2015 representing K0.03 per share. Payment of dividends is subject to withholding tax ( WHT ) at the rate of 15% for resident and non-resident shareholders. However, where there is a double tax treaty, the WHT will be subject to the rates in the treaty. Furthermore, the WHT is taxed at zero percent for individuals because the Bank is listed on the Lusaka Stock Exchange.


2015 | ANNUALREPORT

PAGE 74

FINANCIALS

13. Earnings Per Share

Basic earnings per share is calculated by dividing the profit after tax attributed to equity holders of the Bank by the weighted average number of shares in issue during the year.

Profit attributable to equity holders

Weighted number of ordinary shares in issue (thousands)

Basic earnings per share

There are no potentially dilutive shares, hence diluted earnings per share is the same as the basic earnings per share.

14. Cash and Balances with Bank of Zambia Cash-in-handBalances with Bank of Zambia

15. Balances with Other Banks Items in course of collection Placements with other banks

Current balances with other BanksBalances due from Banks abroad

16. Investment Securities Available-for-sale-Treasury BillsGovernment securities–at fair value- Maturing within 90 days of the date of acquisition- Maturing after 90 days of the date of acquisition

Total available-for-sale-Treasury Bills Securities available-for-sale-BondsGovernment securities–at fair value- Maturing after 90 days of the date of acquisition

Corporate bondsTotal available-for-sale bonds

Total Investment Securities CurrentNon-current

2014K’000

142,926

8,662,500

0.016

315,297847,905

1,163,202

47,010 -

47,010352,160

399,170

108,435712,696

821,131

575,921

48,288624,209

1,445,340

1,330,673114,667

1,445,340

2015K’000

117,508

1,444,444

0.081

359,8561,266,683

1,626,539

6,803 342,000

348,803 770,693

1,119,496

21,1281,045,097

1,066,225

68,113

48,288116,401

1,182,626

1,092,57190,055

1,182,626


2015 | ANNUALREPORT

PAGE 75

FINANCIALS

16. Investment Securities (Continued) The movement in Government Bonds and Treasury Bills available-for-sale may be summarised as follows:

At 1 January 2014 Additions Disposals (redemption) Gain (loss) from changes in fair value At 31 December 2014 At 1 January 2015 Additions Disposals (redemption) Gain (loss) from changes in fair value At 31 December 2015

Available-for-sale Treasury bills

K’000

995,535 827,410

(995,536) (6,278)

821,131

821,131 1,061,914 (821,131)

4,311

1,066,225

Available-for-saleGRZ bonds

K’000

1,345,966 5,581

(754,005)(21,621)

575,921

575,921 -

(518,495)10,687

68,113

Total K’000

2,341,501 832,991

(1,749,541) (27,899)

1,397,052

1,397,052 1,061,914

(1,339,626) 14,998

1,134,338

Commercial loans Personal loans Overdrafts Mortgages Others Gross loans and advances Less: Provision for impairment of loans and advances - Individually assessed - Collectively assessed

Current Non-current

1,656,145833,669862,757253,721

31,988

3,638,280

(187,664)(4,062)

(191,726)

3,446,554

1,297,260 2,149,294

3,446,554

1,281,219928,741817,340179,605

52,551

3,259,456

(114,132)(6,815)

(120,947)

3,138,509

1,135,384 2,003,125

3,138,509

17 . Loans and Advances to Customers 2015K’000

2014 K’000


At 1 January 2014Impairment loss recognised Reversal of impairment loss

At 31 December 2014

Net impairment charge

Personal overdrafts

K’ 000

10,206 15,451 (1,153)

24,504

14,298

Commercial overdraft

K’ 000

11,236 11,817

(882)

22,171

10,935

Personal loansK’ 000

29,826 15,096 (1,689)

43,233

13,407

Commercial loansK’ 000

21,134 10,704

(799)

31,039

9,905

TotalK’ 000

72,402 53,068 (4,523)

120,947

48,545

Movements in provisions for impairment of loans and advances are as follows:

2015 | ANNUALREPORT

PAGE 76

Interest on the Treasury bills is receivable on maturity and at varying rates between 7% and 24%. The treasury bills mature on various dates between January 2016 and November 2016. Interest on Government bonds are received semi-annually at varying rates between 9% and 14%. The Bonds mature on various dates between February 2016 and May 2027.

The Corporate Bonds are held in Bayport Financial Services Limited and denominated in Kwacha. Interest is payable at 18% and 20% per annum and the Bonds will mature on 27 Apr 2017 and 22 December 2018 respectively.

FINANCIALS

Cost or valuation

Balance at 1 January 2014AdditionsRevaluation decreaseRevaluation increaseDisposalsWrite-offs

Balance at 31 December 2014AdditionsDisposalsReclassification to fixtures

Balance at 31 December 2015

Accumulated depreciation and impairment

Balance at 1 January 2014Charge for yearDisposalsEliminated on revaluationEliminated on write-offs

Balance at 31 December 2014Charge for yearDisposalsReclassification to fixtures

Balance at 31 December 2015

Carrying amount

At 31 December 2014

At 31 December 2015


* This relates to provisions made on customers with overdrawn accounts which were classified in the prior year under impairment allowance on loans and advances instead of being written off as operational losses. All impaired loans have been written down to their estimated recoverable amount. The aggregate carrying amount of impaired loans at 31 December 2015 was K295.6 million (2014: K210.12 million).

18. Property and EquipmentLeasehold Buildings

K’ 000

143,192

5,349 (7,868)

2,499-

(1,605)

141,5671,328

-(890)

142,005

5,616 - -

(5,447) (59)

110 2,959

- (92)

2,977

141,457

139,028

Motor Vehicles

K’ 000

14,949 415

- -

(1,674)-

13,690 1,003

(83)-

14,610

11,295

1,037 (1,564)

- -

10,768 1,402

(75) -

12,095

2,922

2,515

Fixture, fittings and equipment

K’ 000

268,430 71,872

-- -

(2,240)

338,062 32,089

- 890

371,041

177,511 48,772

- -

(1,364)

224,919 49,302

- 92

273,817

113,143

97,224

Capital work in progress

K’ 000

71,262 (54,149)

- - - -

17,11314,175

- -

31,288

17,113

31,288

TotalK’ 000

497,833 23,487 (7,868)

2,499(1,674) (3,845)

510,43248,595

(83)-

558,944

194,422 49,809 (1,564)(5,447)

(1,423)

235,797 53,167

(75) -

288,890

274,635

270,055

2015 | ANNUALREPORT

PAGE 77

At 1 January 2015Impairment loss recognised Reclassification non-credit impairment to Operational loss*Write- offs

At 31 December 2015

Net impairment charge

Personal overdrafts

K’ 000

24,504 12,963

(21,785) -

(8,822) 15,682

12,963

Commercial overdraft

K’ 000

22,171 17,774

- -

17,774 39,945

17,774

Personal loans

K’ 000

43,233 (2,185)

- -

(2,185) 41,048

(2,185)

Commercial loans

K’ 000

31,039 69,397

- (5,385)

64,012 95,051

69,397

TotalK’ 000

120,947 97,949

(21,785) (5,385)

70,779 191,726

97,949

FINANCIALS

18. Property and Equipment (Continued) An independent valuation of the Bank’s leasehold buildings was performed by Messer’s Sherwood Greene Consulting to determine the fair value of the building as at 31 December 2014. The valuation conforms to Royal Institute of Chartered Surveyor’s Appraisal and Valuation Manual valuation standards as determined by reference to IAS 16: – Property, Plant and Equipment. Had the Bank buildings (other than bank building classified as held for sale) been measured on historical cost basis, their carrying amount would have been as follows:

Cost Accumulated depreciation Carrying amount In accordance with section 193 of the Companies’ Act (as amended), 1994 the Register of Land and Buildings is available for inspection by members and their duly authorised agents at the Registered Records Office of the Bank.

19. Capital Commitments Authorised and contracted for The commitments will be met from internally generated funds and borrowings.

2014 K’ 000

50,204 (3,866)

46,338

2014 K’000

4,370

2015 K’ 000

53,955 (4,265)

49,690

2015 K’ 000

5,736


2015 K’ 000

86,883 (42,076)

44,807

142,703 88,056

7,349 573 307

283,795

1,878 -

40,198

42,076

2014 K’ 000

55,525 (1,878) 53,647

89,816 1,041

57,909 300 307

203,020

4,660 (3,627)

845

1,878

20. Other Assets

Prepayments and other receivablesAllowance for doubtful debts

Staff loans marked to marketVisa transactionsDefined benefit asset (Note 24)Insurance premiums paid in advanceInvestment in Zambia Electronic Clearing House Limited

Movement in the allowance for doubtful debts

Balance at beginning of yearwrite backsCharge for the year

Balance at end of the year

2015 | ANNUALREPORT

PAGE 78

FINANCIALS


2015 | ANNUALREPORT

PAGE 79

The prevailing interest rates on staff loans were as follows: House Personal loan Car loan Personal-Development loan Interest income earned on staff loans The Bank adjusted the interest received on staff loans by the market rate of 24.50%.

Zambia Electronic Clearing House Limited The investment in Zambia Electronic Clearing House Limited (“ZECHL”) represents the Bank’s contribution to the set-up costs for the establishment of the National Switch to enhance ZECHL functionality, more specifically to support electronic point-of-sale transactions to help minimise cash-based transactions and their attendant costs and risks. The principal activity of ZECHL is the electronic clearing of cheques and direct debits and credits in Zambia for its member banks. The ZECHL is funded by contributions from member banks. As there is no reliable measure of the fair value of this investment, it is carried at cost, and regularly reviewed for impairment at each reporting date.

Employee loans and advances are offered on concessionary rates. House, Car and personal-development loans are enhanced by collateral of landed property. In the case of car loans, the motor vehicle registration certificate is endorsed with the Bank as absolute owner. Where staff loans are issued to members of staff at concessionary rates, fair value is calculated based on market rates. This will result in the long-term staff loans benefit as shown above.

2014 K’ 000

69,315 40,684

109,999

(20,183)

89,816

Staff loans marked to market

At beginning of yearCurrent year fair value

Amortisation to profit or loss

2015 K’ 000

89,816 83,066

172,882

(30,179)

142,703

2014 %

812

812

K ‘000

24,218

2015 %

812

812

K ‘000

26,518

23 . Deferred Tax Deferred tax is calculated using the enacted income tax rate of 35% (2014: 35%). The movement on the deferred account tax is as follows: At beginning of year Credit to profit or loss (Note 11) Credit to equity (Note 31) At end of year

FINANCIALS


21. Customer Deposits Current and demand deposits Savings accountsFixed deposit accounts

CurrentNon-current

22. Deposits from Other Banks Items in course of collection

2015K’ 000

3,857,5941,390,503

784,987

6,033,084

6,033,0804

6,033,084

1

(32,440) 21,690

544

(10,206)

2014K’000

3,008,710 1,278,616

766,394

5,053,720

4,996,455 57,265

5,053,720

142

(34,748) 3,186 (878)

(32,440)

2015 | ANNUALREPORT

PAGE 80

FINANCIALS


24. Retirement Benefit Obligations 24.1 Defined Contribution Plans Defined contribution plans are a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Bank’s contributions to the defined contribution schemes are charged to profit or loss in the year to which they relate. The Bank has no further obligation once contributions have been paid. The total expense recognised in profit or loss of K17,093,000 (2014: K14,707,000) represents contributions payable to these plans by the Bank at rates specified in the rules of the plans. National Pension Scheme The Bank and all its employees contribute to the National Pension Scheme (“NAPSA”), which is a statutory defined contribution plan. Zambia State Insurance Corporation Limited Certain employees of the Bank are also members of a defined retirement contribution plan operated by Zambia State Insurance Corporation Limited. The Bank is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits.

2015 | ANNUALREPORT

PAGE 81

Year ended 31 December 2014Deferred tax liabilitiesProperty and equipment

Deferred tax assetsOther temporary differences Net deferred tax liability

Year ended 31 December 2015 Deferred tax liabilitiesProperty and equipment Deferred tax assetsOther temporary differences Net deferred tax liability

At beginning

of yearK’ 000

(31,229)

(31,229)

(3,519)

(34,748)

(31,166)

(1,274)

(32,440)

Charged(credited)

to profit or lossK’ 000

941

941

2,245

3,186

(284)

21,974

21,690

Creditedto equity

K’ 000

(878)

(878)

-

(878)

544

-

544

At endof yearK’ 000

(31,166)

(31,166)

(1,274)

(32,440)

(30,906)

(20,700)

(10,206)

FINANCIALS

24. Retirement Benefit Obligations (Continued) 24.2 Defined Benefit Plans The Bank sponsors funded defined benefit plans for qualifying employees. The defined benefit plans are administered by a separate Fund that is legally separated from the Bank. The Board of the pension fund is composed of an equal number of representatives from both employers and (former) employees. The Board of the pension fund is required by law and by its articles of association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employers. The Board of the pension fund is responsible for the investment policy with regard to the assets of the fund.

The scheme typically exposes the Bank to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.

The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at 31 Decem-ber 2015 by Independent Actuarial Consultancy of Johannesburg, South Africa. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate % Expected rate of salary increase % Average longevity at retirement age for current employees (future pensioners) in years Males Females

2015

2015.3

2125

2014

1912

2125

The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan asset is below this rate, it will create a plan deficit. Currently the plan has a relatively balanced investment in equity securities, debt instruments and real estates. Due to the long-term nature of the plan liabilities, the Board of the pension fund considers it appropriate that a reasonable portion of the plan assets should be invested in equity securities and in real estate to leverage the return generated by the fund. A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan’s debt investments.

The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

The present value of the defined benefit plan liability is calculated by reference to future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

The risk relating to benefits to be paid to the dependants of plan members (widow and orphan benefits) is re-insured with an external insurance company. No other post-retirement benefits are provided to these employees.

Investment risk

Interest risk

Longevity risk

Salary risk


2015 | ANNUALREPORT

PAGE 82

FINANCIALS


Amounts recognised in comprehensive income in respect of these defined benefit plans are as follows:

Service cost: Current service cost

Net interest expense

Components of defined benefit costs recognised in profit or loss

Remeasurement on the net defined benefit liability:

Actuarial (losses) and gains arising from changes in financial assumptions

Actuarial losses arising from experience adjustments

Components of defined benefit income (costs) recognised in other comprehensive income

Total

The current service cost and the net interest expense for the year are included in the employee benefits expense in profit or loss. Of the expense for the year, an amount of K18,468 (2014: K17,923) has been included in profit as an expense (Note 10) The amount included in the statement of financial position arising from the entity’s obligation in respect of its defined benefit plans is as follows:

2015 K’ 000

9,270 1,771

11,041

(57,559) (4,361)

(61,920)

(61,920)

2014

K’ 000

9,770 (9,474)

296

39,908 (3,045) 36,863

36,863

Present value of funded defined benefit obligation Fair value of plan assets Funded status Net assets arising from defined benefit obligation

Reconciled to Note 26 as follows:

At 1 January At 31 December

Movement in defined benefit obligation

31 December 2015

K’ 000

(186,605) 193,954

7,349

7,349

31 December 2014

K’ 000

(114,215) 172,124

57,909

57,909

2015 K’ 000

57,909 7,349

(50,560)

31 December 2013

K’ 000

(135,552) 138,755

3,203

3,203

2014 K’ 000

3,203 57,909

54,706

2015 | ANNUALREPORT

PAGE 83

Movements in the present value of the defined benefit obligation in the current year were as follows:

Opening defined benefit obligation Current service cost Interest cost Remeasurement (gains) losses: - Actuarial (gains) and losses arising from changes in financial assumptions - Actuarial gains and losses arising from experience adjustments Benefits paid

Closing defined benefit obligation

FINANCIALS

Movements in the fair value of the plan assets in the current year were as follows:

Opening fair value of plan assets Remeasurement gain (loss): Return on plan assets (excluding amounts included in net interest expense) Others (funded expenses) Contributions from the employer Contributions from plan participants Benefits paid Closing fair value of plan assets

2015 K’ 000

172,124

32,703 (19,007)

18,465 9,233

(19,564)

193,954

2014 K’ 000

138,755

23,078(1,101)17,923

8,961(15,492)

172,124

2015 K’ 000

114,215 9,270

20,765

57,559 4,361

(19,564)

186,606

2014 K’000

135,552 9,770

21,248

(39,908) 3,045

(15,492)

114,215

24 . Retirement Benefit Obligations (Continued) 24.2 Defined benefit plans (Continued)


2015 | ANNUALREPORT

PAGE 84

FINANCIALS


Cash and cash equivalents Equity investments categorised by industry type: Consumer industry Manufacturing industry Energy and utilities Financial institutions ICT and telecom Sub-total Debt investments categorised by issuers’ credit rating: AAA BBB and lower not rated Sub-total

Properties categorised by nature and location: Retail shops Commercial properties Residential properties

Sub-total Total

2015 K’ 000

18,838

459 9,036 2,033 5,347

115

35,828

3,449 33,878 59,912 97,239

1,583 20,580 38,724

60,887

193,954

2014 K’000

2,482

16,33613,200

2,767 30,378

156

65,319

4,656 15,014 15,947 35,617

1,84224,047 45,299

71,188

172,124

The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets whereas the fair values of properties and derivatives are not based on quoted market prices in active markets. It is the policy of the fund to use interest rate swaps to hedge its exposure to interest rate risk. This policy has been implemented during the current and prior years. Foreign currency exposures are fully hedged by the use of the forward foreign exchange contracts.

The actual return on plan assets was 17% (2014: 5%). Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes in the respective assumptions occurring at the end of the reporting period, while holding all other assumptions as constant. • If the discount rate is 100 basis points higher (lower), the defined benefit obligation would decrease by K28,112 (increase by K21,761) • If the expected salary growth increases (decreases) by 1%, the defined benefit obligation would increase by K10,809 (decrease by K12,111) • If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligation would decrease by K2,648 (increase by K1,053). The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position.

The fair value of the plan assets at the end of the reporting period for each category are as follows:

2015 | ANNUALREPORT

PAGE 85

2015K’ 000

43,234 40,087 15,609

- 12,541 10,858 76,020

198,349

FINANCIALS

24. Retirement Benefit Obligations (Continued) 24.2 Defined benefit plans (Continued)

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years. Each year, an Asset-Liability-Matching study is performed in which the consequences of the strategic investment policies are analysed in terms of risk-and-return profiles. Investment and contribution policies are integrated within this study. The main strategic choices formulated in the actuarial and technical policy document of the Fund are: • Asset mix based on 40% equity instruments, 60% debt instruments• Interest rate sensitivity caused by the duration of the defined benefit obligation should be reduced by 40% by the use of debt instruments in combination with interest rate swaps • Maintaining an equity buffer that gives a 85% assurance that assets are sufficient within the next 12 months. There has been no change in the process used by the Bank to manage its risks from prior periods. The Bank funds the cost of the entitlements expected to be earned on a yearly basis. Employees pay a fixed 10% percentage of pensionable salary. The residual contribution (including back service payments) is paid by the Bank. The funding requirements are based on the local actuar-ial measurement framework. In this framework, the discount rate is set on a risk-free rate. Furthermore, premiums are determined on a current salary base. Additional liabilities stemming from past service due to salary increases (back-service liabilities) are paid immediately to the Fund. The average duration of the benefit obligation at 31 December 2015 is 13.18 years (2014: 12.6 years). This number can be analysed as follows: • Active members: 13.19 years (2014 : 19 years) • Deferred members: zero years (2014: 22 years) and • Retired members: zero years (2014: 9 years). The Bank expects to make a contribution of K18.468 (2014 K17,923) to the defined benefit plans during the next financial year.

Reconciliation of funded status Present value of obligations Fair value of plan assets

SurplusUnrecognised losses Prepaid pension cost Asset ceiling restriction

Prepaid pension cost after asset ceiling restriction

2015 K’ 000

(186,605)193,954

7,349-

7,349

7,349

2014 K’ 000

(114,215) 172,124

57,909 -

57,909 -

57,909


2015 | ANNUALREPORT

PAGE 86

25. Other Liabilities

Accrued expenses Sundry payables Statutory payments Incoming SWIFT transfers Bills payable Deferred arrangement fees VISA transactions payable

2014K’ 000

33,133 28,855 18,379 10,070

9,580 5,560

510

106,087

(i) Retirement benefits obligations represent contributions payable to defined contribution plans by the Bank at rates specified in the rules of the plans.

(ii) The Bank is engaged in certain on-going litigation. Other than the matter disclosed in note 32, following legal advice the Directors believe any future liability following final determination of the matter under litigation will either be “not material” in the context of these financial statements or is unlikely to occur. 27. Borrowings Payable to:Nederlandse Financierings-Maatschappij Voor OntwikkelingslandenInternational Financing CorporationSociete de Promotion et de Participation pour la Cooperation Economique African Development BankRabobankDeutsche Investitions-Und Entwicklungsgesellschaft mbh (DEG)

FINANCIALS


Retirementbenefits

obligationsK’ 000

4004,680

(4,456)

624

624-

(214)

410

2015K’000

5,560 21,568

(16,270)

10,858

2014K’000

8,558 13,264

(16,262)

5,560

Total K’ 000

11,4595,035

(4,456)

12,038

12,038 -

(11,628)

410

2014K’ 000

80,12596,15080,12541,620

-160,250

458,270

Provision for legal

claims K’ 000

11,059 355

-

11,414

11,414 -

(11,414)

-

2015K’ 000

68,750

110,00068,75058,438

110,000247,500

663,438

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Deferred arrangement fees are charged at inception of the loans and deferred over the tenure of the underlying instrument. The movement in deferred arrangement fees was as follows:

26. Provisions for Liabilities and Charges

At 1 January 2014ProvisionPayment

At 31 December 2014 At 1 January 2015ProvisionPayment

At 31 December 2015

At beginning of the year Fees and commissions arising during the year Fees and commissions earned during the year (Note 8)

FINANCIALS

27. Borrowings (Continued) The movement during the year was as follows: At beginning of yearRepayments during the yearProceeds from borrowingsExchange losses At end of year Repayable as follows: 1 - 12 months 1 - 3 years 3 - 5 years After 5 years

The Bank obtained a foreign currency facility of US$50 million from Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V (FMO) and Societe de Promotion et de Participation pour la Cooperation Economique (PROPARCO) in the year ended 31 December 2011. During the year 2010, 2011 and 2014, the Bank secured further amounts of US$5 million and US$50 million from African Development Bank (ADB) , International Financing corporations (IFC) and Deutsche investitutions-Und Entwicklungsgesellschaft mbh (DEG) respectively.

The purpose of the loans was for onward lending to the customers. Under the terms of the FMO and PROPARCO loan, the Bank is required to observe, inter alia, the following financial covenants: Covenants• Capital adequacy ratio: Minimum 10%• Open loan exposure ratio: not to exceed 25%• Related party lending ratio: not to exceed 20%• Net interest margin: Minimum 2%• Cost-to-income ratio: not exceed 70% after 2010 The only financial covenant to be observed under the terms of the ADB loan is as follows:

• Capital adequacy ratio: Minimum 10% The only financial covenant to be observed under the terms of the DEG loan is as follows: • Capital adequacy ratio: Minimum 12%• Open loan exposure ratio: not to exceed 25%• Related party lending ratio: not to exceed 20%• Net interest margin: Minimum 2%• Cost-to-income ratio: not exceed 70% • Market Risk 25%• Liquidity ratio <300• Single group exposure 25%

2015 K’ 000

458,270 (143,732)

126,050 222,850

663,438

370,487190,973

67,98633,992

663,438

2014 K’ 000

373,221 (119,742)

160,250 44,541

458,270

143,779239,484

71,2233,784

458,270


2015 | ANNUALREPORT

PAGE 88

FINANCIALS


Under the terms of the IFC loan, the Bank is required to observe inter-alia, the following covenants: Covenants • Capital adequacy ratio: Minimum 12%• Equity-to-asset ratio not less than 5%• Economic Group exposure ratio not more than 25%• Aggregate large exposure ratio of not more than 400%• Related party exposure ratio of not more than 15%• Open credit exposure ratio of not more than 25%• Fixed assets plus equity investment ratio of not more than 35%• Aggregate foreign exchange exposure of not more than 25%• Single Currency Foreign Exchange Risk Ratio of not more 10%• Interest rate risk ratio of not more than 10%• Aggregate interest rate risk ratio of not more than 20%• Foreign Currency Maturity Gap of at least (150%)• Aggregate negative maturity gap ratio of not less than (300%)• Single industry exposure ratio of not more than 30%

As at the year end, the loan covenants on cost to income ratio and single industry exposure with FMO, PROPARCO, IFC and DEG as appropriate were breached as a consequence of the devaluation of the Kwacha. The Bank has entered into discussion with the lenders aimed at rectifying the breaches.

The total authorised number of ordinary shares is 10,000 million (2014: 10,000 million) with a par value of 6 Ngwee (2014: 1 Ngwee) per share. 1,444 (2014: 8,663) million shares are issued and fully paid.

During the year, the Bank undertook a share consolidation at the ratio of 6 old shares per each new consolidated share. During the year, the Bank maintained its paid up share capital at K86,625,000 in compliance with the Bank of Zambia minimum capital requirements announced on 30 January 2012.

28. Share Capital Balance at 31 December 2014 Balance at 31 December 2015

Number of shares

8,662,500

1,443,750

Ordinary sharesK’ 00086,625

86,625

Share premium

K’ 0002,622

2,622

Below is the shareholding structure:

Rabo Development B.V. Government of ZambiaNational Pension Scheme AuthorityLizara Investments Limited (as nominees for Zambia National Farmers Union)Africa Life Financial Services Limited Managed fundsPublic Service Pension FundMukuba Pension Trust FundOther Total

2015%

45.5925.00

8.91

3.413.04

2.762.279.02

100.00

2014%

45.5925.00

8.91

3.413.04

2.762.279.02

100.00

2015 | ANNUALREPORT

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FINANCIALS

The balance in the general banking reserve represents the excess of impairment provisions determined in accordance with the Bank of Zambia prudential regulations over the impairment provisions recognised in accordance with IFRS. Where the IFRS impairment exceeds the Bank of Zambia provisioning, a reversal is done from general banking reserves to revenue reserves.

31. Revaluation Reserves Property and equipmentAt beginning of yearRevaluation surplusTransfer of excess depreciationDeferred tax on revaluation (Note 23)Deferred tax on excess depreciation

At end of year Available-for-sale financial assetsAt beginning of yearNet gain (loss) from changes in fair valueNet gain transferred to profit and loss account

At end of year Total revaluation reserves Property and equipmentAvailable-for-sale-Investment

At end of year

2015 K’ 000

61,255 -

(2,594) 544 908

60,113

(23,797)23,797

(8,799)

(8,799)

60,113 (8,799)

51,314

2014 K’ 000

54,189 7,944

-(878)

- -

61,255

4,102 (4,102)

(23,797)

(23,797)

61,255 (23,797)

37,458

29. Statutory Reserve

Statutory Reserve

The regulatory reserve represents an appropriation from retained earnings to comply with SI No.182 of 1995. 30. General Banking Reserves At begining of the yearTransfer from retained earnings

At end of year

2015K’ 000

86,625

188,479 110,930

299,409

2014K’ 000

86,625

154,74633,733

188,479


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32. Off-Statement of Financial Position, Financial Instruments, Contingent Liabilities and Commitments In common with other banks, the Bank conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties. Contingent liabilities Acceptances and letters of credit Guarantees and performance bonds Nature of contingent liabilities During the ordinary course of business, the Bank is subject to threatened or actual legal proceedings. All such material cases are pe-riodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Bank incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management’s best estimate of the amount required to settle the obligation at the relevant reporting date. In some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed to properly assess the merits of the case.

A group of ex-employees filed a claim against the Bank for additional separation benefits of over K71,814,000. The matter was litigat-ed in the Industrial Relations Court and appealed to the Supreme Court by the Bank where judgement was entered against the Bank. However, no judgement sum was awarded and the matter was referred back to the Industrial Relations Court for assessment. The Bank sought an interpretation of the Supreme Court judgement from its external Legal Counsel and on the basis of this interpreta-tion, proceeded to re-compute the separation benefits which resulted in a payment of only a sum of K7,484,000 to the claimants. On the strength of the legal advice obtained, the Directors are reasonably of the view that the final assessment by the Industrial relations Court will not be significantly in excess of this amount already paid to the claimants. However, in view of the inherent difficulty of ascertaining the outcome of the assessment, as the claimants were employed on different conditions of service, an estimate of the additional liability could not be made with any reasonable certainty at the time of signing off of these financial statements. Accord-ingly, no additional liabilities have been raised in these financial statements in this respect.

Other commitments Undrawn stand-by facilities, credit lines and other commitments to lend Nature of commitments Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The Bank may withdraw from its contractual obligation for the undrawn portion of agreed overdraft limits by giving reasonable notice to the customer.

33. Analysis of Cash and Cash Equivalents as shown in the Statement Cash Flows Statement

FINANCIALS


Cash and balances with Bank of Zambia (Note 14)Less: Statutory deposits requirementGovernment and other securities (Note 16)

Balances with other banks (Note 15)Amounts due to Banking Institutions (Note 22)

2015 K’000

1,626,539 (1,017,021)

21,128

(630,646)

1,119,496 (1)

1,750,141

2014 K’000

1,163,202 (674,413) 108,435

597,224

399,170 (142)

996,252

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PAGE 91

2015K’ 000

572,08064,443

636,523

2014K’ 000

820,32244,289

864,611

2015K’ 000

229,190

2014K’ 000

127,581

FINANCIALS

33. Analysis of Cash and Cash Equivalents as shown in the Statement Cash Flows Statement (Continued) For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including; cash and balances with the Bank of Zambia, Treasury Bills and other eligible bills, and amounts due from other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Zambia. Banks are required to maintain a prescribed minimum cash balance with the Bank of Zambia that is not available to finance the Bank’s day-to-day activities. The amount is determined as 18% of the average outstanding customer deposits over a cash reserve cycle period of one week. 34. Related Party Transactions The Bank’s major shareholder is Rabo Development B.V. , a subsidiary of Cooperation Raiffeisen – Boerenleenbank CV (Rabobank) incorporated in the Netherlands. There are no other companies which are related to Zambia National Commercial Bank Plc, listed on the Lusaka Stock Ex-change. Government of the Republic of Zambia hold a 25% interest in the Bank. In the normal course of business, current accounts are operated and placings of foreign currencies are made with Rabobank at market rates (arms length).

2015 2014

K’000 K’000 (a) Loans to Directors Loans and advances issued at arm’s length to companies controlled by directors. 17,121 17,873

(b) Directors’ interests in the Bank As at 31 December 2015, no Director held any interest in the Bank, as recorded in the register and on the Lusaka Stock Exchange. (c) Shareholder’s guarantee During the year, the Government had guaranteed outstanding letters of credit and a loan in respect of two public sector entities all amountingto K 470,457,000.

During the year there were no provisions on loans given to related parties.

(d) Deposits from directorsDuring the year there were no deposits from Directors.

(e) Key management personnel compensationSalaries and other short-term employment benefits

The Chief Executive Officer and two other senior management officials are seconded from Rabo Development B.V. , a significant shareholder of the Bank.

(f) Management fees paid to Rabo Development B.V. Fees are computed on the basis of the Management contract.


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32,545

15,115

29,577

7,875

FINANCIALS


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PAGE 93

2015 2014 K’ 000 K’ 000

(g) Loan held with Rabobank 110,000 -

(h) Directors’ remuneration

-as Directors of the Bank 2,553 1,252 Analysis is as follows:

Director’s fees: Ms. C Lumpa 360 - Mr. H Mtine 257 - Mr. E Drok 223 192 Dr. R Simwinga 399 23 Ms. G Akapelwa 534 403 Mr. F Weenig 150 153 Mr. G Robinson 437 309Mr. B Dick 193 172 (i) Shareholder deposits Deposits 1,941,072 1,678,905 35. Segment Reporting Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Executive Management Committee (the chief operating decision-maker), which is responsible for allocating resources to the reportable segments and assessing its performance. All operating segments used by the Bank meet the definition of a ‘reportable segment’, under IFRS 8. The Bank has two main business segments: • Retail banking:-incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, safe custody, credit and debit cards, consumer loans and mortgages • Corporate banking:-incorporating direct debit facilities, current accounts, deposits, overdrafts, loans and other credit facilities and foreign currency. Other Bank’s operations comprise Treasury management, Credit and Computer services, none of which constitute a separate reportable segment and business activities. As the Bank segment operations are all financial with a majority of revenues deriving from interest and the Executive Management Committee relies primarily on net interest revenues to assess the performance of the segment, the total interest income for all reportable segments is presented on a net-basis.

The Bank’s management reporting is based on a measure of operating profit comprising net interest income, loan impairment charge, net fee and commission income and other income.

The information provided about each segment is based on the internal reports about segment profit or loss, which are regularly reviewed by Executive Management Committee.

Business segments • Corporate Banking • Retail Banking • Treasury

Net interest incomeNet fee and commission incomeOther operating income

Total income

Operational expensesDepreciationImpairment

Profit before tax

2014

Net interest incomeNet fee and commission incomeOther operating income

Total income

Operational expensesDepreciationImpairmentExceptional loss

Profit before tax

2015Assets Total assets for reportable segments

Total liabilities for reportable segments

2014

Assets Total assets for reportable segments

Total liabilities for reportable segments

Corporate banking

K’ 000

196,318 83,065

-

279,383

(186,564) (13,730) (85,080)

(285,374)

(5,991)

256,235 86,706

-

342,941

(144,668) (12,751)

(3,261) -

(160,680)

182,261

3,884,892

4,798,786

2,586,660

3,686,047

Retail bankingK’ 000

279,369 223,990

-

503,359

(183,419) (20,595) (12,869)

(216,883)

286,476

301,522 204,594

6,278

512,394

(175,506) (19,127) (45,284)

(239,917)

272,477

2,370,960

2,101,318

2,039,312

1,973,018

TreasuryK’ 000

55,609 -

116,437

172,046

(59,472) - -

(59,472)

112,574

87,716 -

29,065

116,781

(34,093) - -

(104,494)

(138,587)

(21,806)

1,689,920

5,384

2,037,831

3,632

Others

106,704

- 6,208

112,912

(302,276) (18,842)

- (321,118)

(208,206)

- - -

-

(201,443)

(17,932) - -

(219,375)

(219,375)

216,333

-

-

-

36. Events after the reporting date There were no material significant events after the reporting date that require disclosure in or adjustment to the financial statements for the year ended 31 December 2015.

FINANCIALS


35. Segment Reporting (Continued)

2015

2015 | ANNUALREPORT

PAGE 94

TotalK’ 000

638,000307,055122,645

1,067,700

(731,731)(53,167)(97,949)

(882,847)

184,853

645,473 291,300

35,343

972,116

(555,710) (49,810) (48,545)

(104,494)

(758,559)

213,557

7,945,772

6,905,488

6,663,803

5,662,697

I Primary (Tier 1) capital (a) Paid up common shares (b) Eligible preferred shares (c) Contributed surplus (d) Retained earnings (e) General reserves (f ) Statutory reserves (g) Minority interests (common shareholders’ equity) (h) Shareholders’ loan capital (i) Sub-total

Less (j) Goodwill and other intangible assets (k) Investments in unconsolidated subsidiaries and associates (l) Lending of a capital nature to subsidiaries and associates (m) Holding of other bank’s or financial institutions’ capital instruments (n) Assets pledged to secure liabilities Sub-total (A) (items i to m)

Other adjustments Provisions Assets of little or no realisable value - specify details or use separate list if necessary. Other adjustments (prepaid expenses) (o) Sub-total (B) (Sub-total A above + other adjustments) (p) Total primary capital (h - n)

II Secondary (Tier 2) (a) Eligible preferred shares (regulations 13 and 17)(b) Eligible subordinated term debt (regulation 17 (b)(c) Eligible loan stock/capital (regulation 17(b)(d) Revaluation reserves (regulation 17 (a) (Max. is 40% of res. ratio)(e) Other (regulation 17)(f ) Total secondary capital III Eligible secondary capital (the maximum amount of secondary capital is limited to 100% of primary capital) IV Eligible total capital (i) (o) (Regulatory capital) V Minimum capital requirement: (10% of total on and off balance sheet risk-weighted assets as established in the first schedule, or K104 million, whichever is the higher) On-balance sheetOff-balance sheet

Regulatory capital as % of risk-weighted assets Primary capital as % of risk-weighted assets

Computation of regulatory capital ( under the Banking and Financial Services Act 1994, as amended)

2015K’000

86,625 0

2,622 554,888

- 86,625

- -

730,760

- 307

9,356

-

9,664

721,097

- - -

32,195 -

32,195

- 32,195

753,292

3,998,734 306,843

4,305,576

17 16

CAPITAL ADEQUACY RATIOS As at 31 December 2015 APPENDIX I

2015 | ANNUALREPORT

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RISK-WEIGHTED ASSETS As at 31 December 2015 APPENDIX II Part 1 - Calculation of Risk-Weighted Assets

Assets Notes and coins - Zambian notes and coins - Other notes and coins Balances held with the Bank of Zambia - Statutory reserves - Other balances Balances with commercial Banks in Zambia - With residual maturity of up to 12 months - With residual maturity of more than 12 months Balances with commercial Banks abroad - With residual maturity of up to 12 months - With residual maturity of more than 12 months Assets in transit - From other commercial Banks - From branches to reporting Bank Investment in debt securities - Treasury bills - Other government securities - private securities - Issued by local government units Bills of exchange Loans and advances - Portion secured by cash or Treasury bills - Loans to or guaranteed by the government of Zambia - Loans repayable in instalments and secured by a mortgage on owner-occupied residential property - Loans to or guaranteed by local government units - Loans to parastatals - Other

RiskWeight

%

00

00

20100

20100

5020

020

100

100

050

50100100100

Balance (netof allowance

for losses)

263,72796,129

1,017,021249,661

342,000

770,693

6,803 -

975,71571,35048,288

22,950106,919

0253,198

23,481234,717

2,648,684

7,131,335

Risk- weighted assets (1

x 2)

- - - - - -

68,400 - -

154,139 -

3,402 - - -

14,270 48,288

- - -

53,460

126,599 23,481

234,717 2,648,684

3,375,439

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RISK-WEIGHTED ASSETS As at 31 December 2015 APPENDIX II

Balance brought forward Inter-Bank advances and loans/advances - Guaranteed by other banks - With a residual maturity of 12 months - With residual maturity of more than 12 months Bank premises Acceptances Other assets Investment in equity of other companies Total risk-weighted assets (on balance sheet) Part 2 - Off balance sheet obligations (Under first schedule - regulations 21 and 24) Letters of credit - Sight import letters of credit - Portion secured by cash/Treasury bills - Standby letters of credit - Portion secured by cash/Treasury bills - Export letters of credit confirmed Guarantees and Indemnities - Guarantees for loans, trade and securities - Portion secured by cash/Treasury bills - Performance bonds - Securities purchased under resale agreement - Other contingent liabilities - Net open position in foreign currencies Total risk-weighted assets (off-balance sheet) Total risk-weighted assets (on and off-balance sheet)

RiskWeight

%

20100100100100100

200

100--

1000

50100100

Balance (netof allowance

for losses)

7,131,335

- - -

139,027 -

483,960307

7,754,631

183,225

22,653 - -

64,4430

366,20300 -

636,524

8,391,154

Risk- weighted

assets (1 x 2)

3,375,439 - - - -

139,028 -

483,960 307

3,998,735

36,645

22,653 - -

64,443 -

183,102 - - -

306,843

4,305,578

2015 | ANNUALREPORT

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2015 | ANNUALREPORT

Interest incomeInterest expensesNet interest incomeCommission and othersOperating incomeOperating expensesImpairmentProfit before loss from sale of Bonds and before taxLoss on disposal of GRZ bondsProfit before taxTax chargeProfit for the year

2014 K’000

779,442(133,969)

645,473326,643972,116

(605,520)(48,545)

318,051(104,494)

213,557(70,631)142,926

2015 K’000

864,342 (226,342)

638,000 429,700

1,067,700 (784,898)

(97,949)

184,853-

184,853 (67,344)117,509

2013 K’000

673,552 (120,169)

553,383 284,192 837,575

(542,175) (31,136)

264,264 -

264,264 (77,950) 186,314

2012 K’000

550,876

(88,926) 461,950 251,603 713,553

(475,995) (243)

237,315 -

237,315 (81,854) 155,461

2011 K’000

453,533 (60,139) 393,394 232,648 626,042 (421,252) (19,852)

184,938

- 184,938 (64,425) 120,513

1,626,539 1,119,496 1,182,626 3,446,554

270,055 300,502

7,945,772

6,033,084 1

663,438 208,965

6,905,488

86,625 953,659

1,040,284 7,945,772

Cash and balances with Bank of ZambiaBalances with other banksInvestment in securities Loans and advances to customersProperty and equipmentOther assets Total assets LIABILITIESCustomer depositsDeposits from other banksBorrowed fundsOther liabilitiesTotal liabilities EquityShare capitalReserves Total

1,163,202399,170

1,445,3403,138,509

274,635242,947

6,663,803

5,053,720142

458,270150,565

5,662,697

86,625914,481

1,001,106 6,663,803

909,543 284,303

2,341,501 2,987,685

303,411 145,512

6,971,955

5,514,878 7,209

373,221 209,027

6,104,335

86,625 780,995 867,620

6,971,955

470,772 364,860

1,944,275 2,639,161

242,365 150,622

5,812,055

4,314,918 22,347

494,065 267,342

5,098,672

86,625 626,758 713,383

5,812,055

512,896 404,741

1,558,779 1,890,736

229,140 121,329

4,717,621

3,412,319 1,246

511,076 210,309

4,134,950

11,550 571,121 582,671

4,717,621

5 YEAR FINANCIAL TRENDS

STATEMENT OF PROFIT OR LOSS

STATEMENT OF FINANCIAL POSITION

2015 | ANNUALREPORT

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NOTES 2015 | ANNUALREPORT

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NOTES 2015 | ANNUALREPORT

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Zanaco 2015 anuual report

Investor Relations

Transcript of Zanaco 2015 anuual report