Bidvest_Bank_Annual_IR_2020_14457_V03_20201204_JM_16h00

About this report 1 Business overview 2

Who we are 2 Bidvest Bank Limited is pleased to present its 2020 integrated Our vision and mission 4 annual report. Our history 4

Our values 5 and internal audit. In addition, independent external Scope and boundary assurance is sought from the external auditor and Our products and services 6 This integrated annual report covers all the regulatory inspections from our various regulators. operations and performance of Bidvest Bank for the How we provided value in 2020 7 year ended 30 June 2020. The information in this Suite of reports report has been chosen to cater for the interests Our business model 8 The integrated annual report forms part of of all our stakeholders, but with specific emphasis and should be read in conjunction with the on our investors and funders. We believe the Operating context 10 annual financial statements which are report will provide stakeholders an overview and available at www.bidvestbank.co.za. Strategic objectives and performance 12 understanding of the Bank’s business model, how we provided value to society in 2020, and an insight Forward looking statements Board composition analysis 14 into our operational and financial performance, our strategic objectives and our most important risks This report contains forward looking statements Management reports 16 and opportunities. with respect to the Bank’s operations, financial position and anticipated performance. While these Chairman’s report 16 Materiality statements represent our judgments and future expectations, several factors may cause actual Managing Director’s report 18 The selection of information covered in this report results to differ materially from our expectations. was informed by inputs from our stakeholders Financial Director’s report 22 Readers are cautioned not to place undue reliance and was refined through engagement with the on these statements. Stakeholder review 25 executive management and Board of Directors (the Board) of the Bank. For further information, please contact the Bank Our people 26 directly at 011 407 3103. Reporting comparability Socioeconomic development 32 Approval of the integrated There has been no change in the scope and Accountability 38 boundary of this report relative to the 2019 report. annual report The Board of Bidvest Bank acknowledges its Corporate governance review 38 Frameworks applied responsibility to ensure the integrity of this report and confirms that this integrated annual report Risk management 54 In selecting the content for this report, we have used the reporting principles and guidelines addresses all material matters and provides a Annual financial statements 66 provided by International Financial Reporting balanced overview of the Bank and its prospects. Standards (IFRS), the International Integrated The Board has therefore approved the 2020 Reporting Council’s (IIRC) Framework (the integrated annual report for publication. Corporate information 182 Framework) and the King Report on Corporate On behalf of the Board Governance for South Africa, 2016 (King IV)*. Assurance Bidvest Bank utilises a combination of assurance services and functions to support the integrity of external reports and the overall assurance provided Nigel George Payne to stakeholders. Internally, assurance is required Chairman How to navigate our report from the Bank’s line and specialist functions that Throughout our integrated annual report, the following take ownership of and oversee risk and compliance icons are used to provide linkages to relevant aspects or indicate where further detail is available:

This icon signifies related information elsewhere in this report.

This icon signifies related information available online at www.bidvestbank.co.za. * Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved. ii 1 Business overview

WE ARE Business Banking Personal Banking Fleet Solutions Money Transfer

Where innovation and financial solutions merge, that’s Bidvest Bank. International award earned for R4 064 900 our elearning programme on socioeconomic development (SED) A wholly owned subsidiary of The Bidvest Group Personal financial solutions and services. As a Limited, Bidvest Bank is a leading second tier proudly South African company, we believe in South African bank whose goal is to change the the importance of transformation that Broad- way people and businesses view financial solutions, Based Black Economic Empowerment (B-BBEE) turning every opportunity into a success. brings. Our positive investment and contribution is a testament to our commitment as a level 4 Recruitment of 100% A committed We pride ourselves in offering our customers R603 315 B-BBEE contributor. of competent learners the latest Foreign Exchange, Fleet, Business and spend on corporate on learnership and South African social investment (CSI) graduate programmes citizen

Together, let’s get it done. R2 billion R12,1 million B-BBEE spend in learning initiatives

55 branches 1 118 employees One of the fastest growing banks in South Africa

Contribution to revenue (%) Operating income composition (%)

5 Total assets (R000) Deposits (R000) 17 16 12 000 000 8 000 000

7 000 000 10 000 000 46 44 6 000 000 8 000 000 15 5 000 000

14 6 000 000 4 000 000

3 000 000 4 000 000 2 000 000 22 2 000 000 21 1 000 000

Net income from Net interest income Net income from Net interest income 0 0 leasing activities leasing activities 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 Net trading income Net fee and Net trading income Net fee and commission income commission income Other Loans and advances (R000) Leased assets (R000)

3 000 000 2 000 000

2 500 000 1 500 000 2 000 000 Regulatory capital Return on Level 4 Credit rating to risk weighted equity 1 500 000 1 000 000 assets B-BBEE rating Aa3.za 3,83% 1 000 000 21,99% 500 000 500 000

0 0 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

2 3 Business overview VISION AND MISSION The moral compass that drives our behaviour.

Listen Respect Energy Our vision and mission are the foundation of everything we do. We listen to learn, grow and We respect and value diversity Our energy is what helps us turn turn our customers’ obstacles and the contribution that each a mountain into a molehill and We differentiate ourselves from our competitors in the way in which into opportunities. This is the and every person makes to ‘no’ into ‘yes’ and ‘maybe’ into we service and look after our customers. Our brand mantra of ‘Let’s get it done’ cornerstone of getting things done. our business. ‘bring it on’. provides us with a purpose – for us, it is all about getting things done, in a unique manner that is constructed upon our culture and values.

We exist to serve and retain our customers, by constantly looking for better ways to improve their lives. Honesty Quality Innovate Most importantly, we strive to partner in building our customers’ successes, rather than inhibiting their achievement. Service standards: C²ARES We apply honesty to every Whether the task is big or small, We believe in constantly finding situation. This is what inspires the quality of our work shows we new ways to serve our customers Our service standards are aligned to our Company values. We are committed to serve our us and our customers to get care. It’s one of the many things and provide solutions that will get customer through the C²ARES service standards across all customer touchpoints. things done. that sets us apart from the rest. things done smarter and faster.

South Africa’s leading niche bank

The Bidvest Group is granted a Flagship Foreign Exchange banking licence as Rennies Bank, product, World Currency including the Rennies Foreign Card™, launched. Global Personal philosophy Exchange business. Rennies Foreign Payments Online™ Credit and ‘Let’s get it done’ Launch of Launch of Western Union Exchange launches international launched, International lending expertise communicated to Bidvest Bank MoneyTransfer on the money transfers via MoneyGram. Trading Platform launched. join the Bank. market. Grow Account™. mobile app.

1998 2000 2007 2008 2009 2010 2011 2015 2016 2017 2018 2019 2020

The Bidvest Group The Bidvest Group leverages Savings and Investment Personal Business Bidvest Bank Bidvest Bank launched its new acquires 100% of The the equity of the Bidvest brand accounts launched to market. Transactional Transactional launches Business Service Centre of Excellence as a Rennies Group, which and rebrands Rennies Bank Bidvest Bank acquires McCarthy Banking Banking Merchant Services. key channel for customers via our includes the Rennies to Bidvest Bank. Focused Fleet Solutions from McCarthy launched. launched. enhanced new call centre capabilities. Foreign Exchange drive to attract and retain Group and offers Fleet Finance Telkom fleet contract –extended business. talent with banking expertise. and Management Services. for two years.

Transnet fleet contract – concluded the SLA and rollout of 115 units delivered.

4 5 Business overview WE AND SERVICES PROVIDED VALUE Business Banking Personal Banking IN 2020

Business Bank Account Transactional Banking As a proudly South African bank, we aim to deliver consistently on our promises and be accessible, approachable and responsive in

Business Payment Card Savings and Investments everything we do. We aspire to put our customers first by innovating and delivering services and solutions that serve their needs.

Savings and Investments Foreign Exchange

Asset-based Finance International Payments R430 528 051 1 118 Salaries and benefits paid Employees of which Foreign Exchange Financial Emigration Services 73% are Black, Asian and Coloured and International Payments Offshore Investments R3 640 104 59% Contributed to skills development levies are women Trade Services Fleet Solutions

Merchant Services Finance R1 845 117 R4 064 900 Treasury Services Provided to employees for external bursaries Contributed to SED Maintenance

Value-added Services Money Transfer R182 864 134 R603 315 Dividends were paid to the Bank’s sole shareholder Contribution to CSI MoneyGram Alliance Banking

Western Union R218 238 000 Contribution to government in taxes

6 7 Business overview

Provides the country’s widest range of Our entrepreneurial DNA, corporate foreign banknotes structure and choice of markets generate consistent healthy returns.

Our inputs Our business Our Our outcomes Human Capital comprises activities outputs ▶ Strengthened customer the diverse employees we attract relationships and a growing ▶ Global payment ▶ Foreign Exchange and retain through a competitive customer base expertise employee value proposition ▶ Savings and ▶ Strong strategic partnerships ▶ Externalisation Investments products The communities in which we of funds ▶ Engaged, skilled and motivated ▶ Transactional Banking operate, our suppliers, regulators employees and a high- and the general public form ▶ Credit ▶ Business Banking performance culture the core of our Social and ▶ Savings and Relationship Capital ▶ Merchant Acquiring ▶ Advanced technology, designed Values, Investments options to serve our customers’ Natural Capital – as an principles, ▶ Loans changing needs ▶ Fleet Solutions Innovation, organisation we have a low robust ▶ Fleet and Asset management ▶ Strong risk management, environmental impact. Our governance ▶ Transactional Finance and compliance and governance facilities and assets reflect our and Banking facilities prudent risk ▶ Structured Trade technology frameworks efforts to minimise this impact ▶ Strategic acquisitions further management Finance ▶ Mutual trust and respect from ▶ New product and ▶ Personal Banking customers, suppliers, regulators Manufactured Capital – our solution development and society infrastructure, branches and ▶ Partnerships to technology utilised in delivering diversify product our products and services to customers offerings ▶ Treasury Services Financial Capital – our equity and reserves are maintained to South Africa’s provide a well-capitalised base to support our business activities third largest and aspirations vehicle leasing Intellectual Capital – our brand, specialised skills business and expertise, as well as institutionalised knowledge and know-how

Offers the biggest selection of prepaid foreign currency cards

8 9 Business overview

Competition Trade We remain the leading second-tier bank in South The impacts of COVID-19 on world trade and Africa with the highest Moody’s rating. Together commodity prices has had material implications with other challenger banks, we are creating an for South Africa’s trade performance. In the second environment where people are more likely to switch quarter of 2020, the current account balance went service providers, and which we believe will work in into a deeper deficit than expected, falling to -2,4% our favour in the long term. of GDP. This follows a surplus of 1,3% of GDP in the first quarter – which was more buoyant that had A number of new banks entered the industry been anticipated, helped by commodity prices. Over the past financial year, Bidvest Bank, and other industry players, over the past two years, which continues to have operated within volatile economic and political conditions. increase competition for customer numbers. It The rapid deterioration in the foreign sector came has also stimulated the market and made it more amid the COVID-19 lockdown which restricted competitive and more exciting than it has been exports. Export volumes fell noticeably while for several years. Virtual banks, in comparison to imports slid to their lowest level in over a decade, those founded on bricks and mortar, are forcing resulting in a significant narrowing of the trade the industry into a positive new direction and surplus. Some relief has started to pull through into stimulating people to think about other banking the foreign sector with export volume recovery and options. export value recovery, helped mainly by commodity prices moving sharply higher off the lows recorded General economic overview in April. Coming into the year, economic growth forecasts The supply-chain disruptions in South Africa’s main for South Africa had been consistently revised lower training partners, however, has weighed heavily as structural impediments to growth remained on shipment volumes since March. This effect has a material headwind. However, even these weak been aggravated by the services account recording expectations were reset materially lower with the a large deficit, as tourism income comprises a onset of the COVID-19 pandemic and associated substantial part of the services account. It is likely economic impacts. that the services account will remain constrained through the balance of 2020 as travel remains To this end, the Organisation for Economic Co- restricted. operation and Development (OECD) expects the world economy will shrink by 4,5% in 2020 after a South African rand outlook forecast at the start of the year of buoyant world economic growth. Similarly, the International The rand fell from R14,05 to the US dollar in January Monetary Fund (IMF) anticipates that the South to an all-time low of R19,05 in the first week of African economy will contract by 8,0% in 2020 – the April. From that low, the rand recovered substantial sharpest decline on record. Domestically, this has ground as global economic stresses eased and translated into material fiscal pressure, with leading some confidence returned to capital markets, ratings agencies moving South Africa into sub- helping the rand recover through the third quarter investment grade in the earlier part of the year. of 2020. The purchasing power of the rand is In a year characterised by no materially stronger than market prices. It is widely expected that the country will record real gross domestic product a double-digit fiscal deficit and run up a debt-to- Exceptionally accommodative monetary policies (GDP) growth, tightened GDP ratio that takes the country deeper into a and an improvement in risk appetite could see the consumer spending, reduction strained financial condition. After the exceptionally rand continue to retrace lost ground in response to in foreign direct investment (FDI) difficult circumstances of 2020, it is expected that COVID-19, the global growth slowdown and credit and political instability, Bidvest the world economy and the South African economy rating downgrades that materialised since January Bank has managed to navigate the will recover in 2021 – with the OECD pointing to when the rand traded at R14/US dollar. macroenvironment and deliver value growth of 5,0% in 2021 for the world economy and a to customers and key stakeholders. Conversely, there is a danger to any rand recovery recovery of 3,9% for the domestic economy. There are several medium to long-term in the form of the credit risk associated with public trends in our sphere of business that However, beyond that, it is anticipated that borrowing needs that remain exceptionally high, present risks and opportunities for the Bank, structural headwinds faced by the domestic and the vulnerabilities in fiscal (deficit financing) and which continue to influence our strategy economy will remain strong, and that the and financial (reliance on portfolio capital) going forward. South African economy will struggle to get much circumstances. As such, it is likely that the rand better than two percent growth in 2022 and 2023. remains volatile as a somewhat uncertain and Technology continues to play a central role in shaping Even if this is achieved, it will take the economy uneven global economic recovery takes root. modern banking. Developments in technology and to an end-of-2023 figure that matches the end- innovation have accelerated accessibility considerations – banks of-2019 figure, underlining the extent and nature need to align to how and when customers want to bank. of domestic economic conditions. Artificial intelligence (AI) and cognitive technology are enabling banks around the world to improve customer experience and streamline processes in order to improve efficiencies. Big data has provided invaluable insight into customer behaviour that has allowed banks to develop tailor-made customer-focused outcomes, improve credit scoring and reduce fraud.

By adding automation to traditionally human-driven processes, we have developed apps to facilitate accessibility and on-demand banking and a growing array of cardless payment options.

10 11 Business overview

We also reshaped our Board and introduced into a success. We pride ourselves in offering our skills aligned to our digital future. Our new customers innovative financial solutions and Managing Director, Hannah Sadiki, who joined the services, all aimed at an easier and more efficient Bank on 1 November, brings a wealth of digital and service. Our mission statement remains customer channel experience from her extensive “Let’s get it done”. career in financial services. With several leadership In line with our vision to offer a broader range of awards to her name, we look forward to Hannah services to our customers, we continue to focus on leading the Bank into 2021, and beyond. our key competencies. During the year, the Bank We remain positioned as a leading niche challenger progressed several strategic initiatives to improve bank in South Africa, driven by our entrepreneurial customer experience and enhance our growth spirit to change the way people and businesses prospects. view financial solutions, turning every opportunity

Our products Operational review ▶▶ Fleet: The Bank secured and started delivery ▶▶ To assist customers to weather the effects of on a heavy vehicle contract with Transnet which COVID-19, we deferred repayments for 65% of will help offset the COVID-related decline in our lending book, and for 25% of our leasing leases. Our contract with Telkom has been customers, for periods of three months. extended by two years. ▶▶ With the onset of lockdown, we implemented ▶▶ Foreign Exchange: We enabled new cost cutting measures, including a moratorium functionality on our Money Transfer platform on filling all but critical vacancies. Overall, costs to allow Western Union money transfers via were well maintained and rose by only 5%. Cost our app and via call centres. restriction and optimisation will continue to be a strong focus into 2021. ▶▶ Personal Banking: We have increased our ATMs to 137. Our customers are now also able Stakeholders to transact at 1 152 ATM Solutions machines and use an additional 155 Old Mutual terminals. ▶▶ We continue to explore external partnerships and alliances, with a range of account options, ▶▶ Business Banking: The pandemic-led trade payment methods and safe custody services and travel restrictions had a significant effect introduced for the benefit of our customers. on Bidvest Merchant Services and significantly Our relationships with existing partners, such affected turnover. Acquiring levels have since as Old Mutual, remain strong. recovered to 90% of pre-COVID turnover levels, although the rate of recovery varies between ▶▶ We continued our focus on the information sectors. technology strategies to harness competitive advances in technology and digital platforms ▶▶ Treasury: Given the environment, treasury for enhanced customer engagement. performed well. It was impacted by restricted foreign exchange flows, and by the SARB The Bank was recognised in this year’s Forbes interest rate reductions. These factors had a “The World’s Best Banks” list, ranking fifth after negative impact on net interest margins and Capitec, Tymebank, First National Bank and the yield on cash and investments. Nedbank. While the full impact of COVID-19 on consumers, Financial performance businesses and economies remains unclear, our ▶▶ We reflected a profit before tax of R142 million, prospects for 2021 will be strengthened by our down from R432 million in the prior year mainly existing alliances and partnerships. Our focus on due to the impact of the lockdowns and other digital transformation and our strong balance sheet form the foundation to deliver in terms of our restrictions. allow us to brace for an uncertain economic future, Business overview mission and provide a platform for a broader range while we continue to review acquisitions in line with ▶▶ Our deposits continued to grow, albeit at This year the Bank’s operational performance was of services to our expanding customer base. our growth strategy on a case-by-case basis. lower levels than before, and the Business significantly affected by the global pandemic, with Our drive to a more digitally focused and customer- and Personal Banking offerings delivered an restricted international travel and foreign exchange centric business has accelerated, necessitating a increase in profits and showed pleasing signs flows, disruptions to and financial distress in many restructure process, including branch closures and of growth. areas of the local and global economy, and the cost changes to the organisational chart. We expanded of complying with new health and safety protocols. ▶▶ Our cash reserves grew in 2020 as deposit our platforms and products to align to our overall growth exceeded advances, and as a result Our long-term strategy remains the diversification digital strategy and worked to improve the ease of of the cancellation of the Eqstra acquisition. of our income streams while at the same time banking, such as enhancing online transactions and Our cash and cash equivalent balances were maintaining our cautious approach to risk. Our four increasing the number of – and access to – our ATM R4,5 billion at the year-end. strategic pillars of Fleet, Business Banking, Retail infrastructure. Banking and Treasury (Foreign Exchange services)

12 13 Business overview

Appointment Name Position Structure Age date Tenure Gender Race

Nigel George Chairman Non-executive 60 1 August 2009 11 Male White Payne

Alastair Dunsmore Non-executive 64 1 June 2015 5 Male White Cunningham

Nompumelelo Non-executive 41 8 December 2016 4 Female Black Thembekile Madisa

Renosi Denise Lead independent Non-executive 62 1 July 2013 7 Female Black Structure (%) Length of tenure (%) Mokate

14 Lindsay Peter Non-executive 65 8 December 2016 4 Male White Ralphs

Zodwa Non-executive 64 30 April 2020 2 Female Black Reshoketsoe Pearl months

43 Matsau

57 Marthinus Financial Director Executive 55 1 January 2013 7 Male White Johannes and acting Liebenberg Managing Director

86 Skills Executive Non-executive 0 – 5 years 6 – 11 years The Board’s combined experience covers corporate finance and banking, auditing and accounting, business management and corporate governance, business administration and leadership of large listed and unlisted Gender (%) Race (%) organisations.

43 43

57 57

Black White Female Male

Age (%)

14

57 29

40 – 50 years 50 – 60 years 60 – 70 years

14 15 Bidvest_Bank_Annual_IR_2020_14457_V03_20201204_JM_16h00

Management reports

Bidvest Bank Executive remains Proudly Committee Back row Bidvest, and Russell Fogg Frikkie Hanekom Kumeran Govender maintains our Thinus Liebenberg Neil Capazorio commitment to Andrea Seaton contribute to an Jill Murtagh Front row Di Crawley improved South Hannah Sadiki Alexia Shuenyane African economy Hlengiwe Mntambo and society.

loved banking brands – thank you to our customers technology and in our regulatory and compliance for this recognition and well done to the Bidvest teams, ultimately to ensure we meet the needs of our Bank team – this positions us well to compete with customers. Further detail is provided in the reports Nigel George Payne a number of new entrants in the banking space. by our Managing Director and Financial Director, and Chairman in the rest of the integrated annual report. Welcome to our new Managing Director Hannah Sadiki. We are very excited to have you on Our balance sheet and deposit base remain board; your experience, enthusiasm and leadership strong; we have the best credit rating among the style will add significant value as we navigate the smaller banks; we have a great brand – we are thus challenges and unlock the potential in the Bank. well set to weather the current challenges and Thank you to our interim Managing Director to pursue appropriate growth initiatives. Delays Thinus Liebenberg and your EXCO for the way you in implementation resulted in us not acquiring managed the transition after the departure of former the Eqstra fleet business as anticipated. This will Managing Director Japie van Niekerk. We have made reduce our growth potential until we identify other changes to our leadership team and are confident in opportunities. the strength of those who will support Hannah. Thank you to my fellow Board members for At Bidvest Group level, we shared in the excitement your wise counsel and ongoing commitment. at the appointment of Mpumi Madisa as CEO on The Board comprises a majority of independent I am privileged on behalf of our Board to report to our shareholder, the retirement of Lindsay Ralphs. We appreciate the non-executives, with an appropriate mix of skills ongoing strategic and business input from Mpumi, and banking experience. Board meetings are our regulators, our customers, our people and all our other Mark, Gillian and others at the Bidvest Group. In strategically focused, with robust discussion and stakeholders on the affairs of Bidvest Bank for the year under review. challenging times, it is a source of strength for effective decision-making. Our governance report Bidvest Bank to have you as our shareholder. details various aspects of the performance of the Board, all of which I believe were appropriately This year also saw us reshaping our Board, partly in executed. The Board committees carry a significant This has been a year of unprecedented challenges, in progress. We are pleased to have been able to response to regulatory requirements. Our thanks to workload, details of which are also set out in our driven by the COVID-19 epidemic and its economic support our customers via payment deferrals to help departing directors Lindsay Ralphs, Renosi Mokate integrated report – thank you for your dedication impact in the context of an already weak them through COVID-19, as well as participating in and Eric Diack for the value you have added to and the value you have added. South African economy characterised by low the government backed loan scheme. the Bank over the years. Our new Board members business and consumer confidence. Zodwa Matsau and Andile Mazwai ensure that we We are grateful to our shareholders for your ongoing We appreciate that the risks of COVID-19 are not have a ‘future fit’ Board at Bidvest Bank. My thanks support, and to our regulator for an appropriately Our primary focus in the context of COVID-19 over, and will maintain our discipline in this regard. to our Company Secretary, Di Crawley, for delaying robust but arm’s length relationship, characterised is the safety and health of our employees and In line with our vision to offer a broader range of your retirement to assist us with the transition. by enhanced engagement as has been required customers. We are pleased that we were able services to our customers, and our mission “Let’s by the COVID-19-related circumstances. Bidvest to significantly mitigate the health risks and to This has been a tumultuous year for South Africa, get it done”, and in the context of COVID-19 having Bank remains Proudly Bidvest and maintains effectively implement remote working for most with rising uncertainty in the local and global significantly reduced our travel foreign exchange our commitment to contribute to an improved of our employees, while enhancing our service to economies, exchange rate volatility, a slowing business, the Bank has progressed a number of South African economy and society. our customers. This has accelerated our ongoing economy, reduced availability of credit insurance strategic initiatives to improve customer experience implementation of digital solutions for our and the increased risk of impaired loans, all of which and enhance our growth prospects. customers, combined with the closure of a number has required robust discipline in credit granting, of branches where demand for physical service Bidvest Bank and our employees have received thus inhibiting some anticipated growth initiatives. has dropped sharply; unfortunately requiring awards acknowledging our excellent customer Notwithstanding the difficulties in growing our Nigel George Payne some employee reductions, which processes are service, and of Bidvest Bank being one of the most revenue, the Bank has continued to invest in Chairman

16 17 Management reports

As such, we embarked on a strategic realignment Operating environment and process in response to changing customer needs, performance financial impact of COVID-19 and constrained economic conditions. The restructuring process The 2020 financial year was defined by the impact of comprises the consolidation of certain teams and the COVID-19 pandemic and the national response the reduction of our physical branch numbers to curb its spread. After the national lockdown was from 65 to 21. declared at the end of March, economic and travel restrictions impacted the operation of our branches, This restructuring has been possible as a result fleets, transactional banking and foreign exchange of our focus over the past few years on migrating platforms. Despite the significant pressures and systems and customers towards digital platforms impact on operating conditions, Bidvest Bank and products and will support this focus going managed to deliver a satisfactory operational forward in alignment with our digital strategy. performance that saw us turn a profit for the year. More broadly, our strategy – to build a sustainable base that will enable us to continue growing However, the COVID-19 pandemic has accelerated our four pillars (Fleet, Business Banking, Retail the demand for digital access to financial services Banking and Treasury) – remained in place in the and the decreasing need for traditional ways of year under review. interacting with banks and other service providers. A strong digital platform in the current environment is going to be crucial to remain sustainable and competitive.

Bidvest Bank Impacts of COVID-19 managed The economic environment under COVID-19 has presented increased risks in terms of credit, defaults and fraud. We have been investing in our risk cluster in terms of staffing over the past few years, to deliver a and have appointed new heads of Anti Money Laundering, our Investigation Unit, and Compliance function, and have also strengthened our fraud controls.

satisfactory We expect a new Chief Risk Officer to be appointed early in the 2021 financial year. operational In order to assist our customers to weather the effects of COVID-19, we deferred repayments for 65% of our lending book, and for 25% of our leasing customers, for a typical period of three months. This translated into higher impairments based on economic indicators, which are a big driver of our performance impairment models. As a result, we had to ramp up provisions to higher levels but still remaining lower than industry averages, but which were above what we have been accustomed to. Based on that saw us the information available since July, our proactive approach has been successful in allowing the turn a profit majority of our customers to trade through the crisis. Other than these deferments, the single biggest COVID-19-related impact was the return of for the year. 1 155 unproductive Telkom fleet vehicles, which impacted rental income. Thinus Liebenberg Corporate and personal travel came to a standstill due to border closures, business restraints and the Acting Managing Director economic environment, which had a large impact on foreign exchange flows and income as World Currency Card usage, and exchanges taking place at our branches, were drastically reduced.

We had intended to launch an online foreign exchange offering for our individual customers during 2020, but this launch was delayed due to COVID-19. We used the delay as an opportunity to enhance the platform’s functionality, and we look forward to launching in the next financial year.

COVID-19 also had a severe impact on Bidvest Merchant Services, with turnover significantly affected. Our acquiring business came to a virtual standstill over the lockdown period due to business closures and a lack of point of sale transactions. This has since recovered to 90% of pre- MANAGING COVID turnover levels, though the rate of recovery varies between sectors. Our employees performed admirably over the lockdown period. More than 500 employees worked remotely at the height of the lockdown, and approximately 250 continue to do so. We continued to pay employees and delay the impact of the lockdown so far as we could. We established a DIRECTOR’S moratorium on new hires in order to contain costs with the exception of critical roles.

18 19 Management reports

Highlights Outlook

▶▶ South African banks received The lingering impact of COVID-19 on the downgraded Moody’s deposit ratings South African and global economies and as a result of the agency’s downgrade consumers will continue to influence our of South Africa’s sovereign rating. operating environment.

Our focus remains on maintaining a strong balance ▶▶ Bidvest Bank placed fifth among sheet, preserving liquidity and capital adequacy, South African Banks in this year’s and on finalising the details of our restructuring. Forbes ‘The World’s Best Banks’ list, Our remaining physical branches currently alongside Capitec, Tymebank, First produce 50% of our revenue and will continue to National Bank and Nedbank. be supported, even as we seize the opportunity to ▶▶ Bidvest Bank secured and began expand usage of digital platforms and products. delivery on a contract tender with Our existing alliances and partnerships remained Transnet which will help offset the firm or were expanded in the year under review. COVID-related decline in leases. Expanding our partnerships will be a strong focus going forward, and there are exciting opportunities ▶▶ Our contract with Telkom has been in that regard. extended by two years. Our strong balance sheet puts us ahead of many ▶▶ We launched our new Bidvest Bank of our peers, positions us well moving forward, website which brings our brand to life and will allow us to pursue acquisitive and other and allows visitors to the site to easily opportunities on a case-by-case basis. discover more about our products and services. Continued solid balance sheet growth ▶▶ Our Money Transfer platform saw growth through the crisis. We went live with the functionality to allow Western Union money transfers via our app during lockdown, and we saw increasing volumes of MoneyGram and Western Union transfers taking place via the app and via call centres over the lockdown period. 13% Deposits ▶▶ Our Corporate Social Investment activities continued through 2020 in line with our strategic focus on supporting education and job creation, and we extended a number of projects to include support for employees and online programmes for beneficiaries.

▶▶ We anticipate a B-BBEE rating of level 4 for 2020. Our goal of reaching a 10% level 3 rating was made more difficult Cash by our response to COVID-19, but it remains a near-term objective.

▶▶ We have increased the number of our ATMs to 137 and have seen an increase in the number of ATM transactions. Our customers are also able to transact at 1 152 ATM Solutions machines, and 155 from Old Mutual. 3% Advances and leased assets

20 21 Management reports

We reacted immediately to the challenges of Based on the deterioration of the South African Our deposits the COVID-19 pandemic and resulting lockdown, economy and its impact on our IFRS 9 models, and we did our best to mitigate the effect on our our impairment balances and the provisions we continued to business. The lockdown affected a number of have on the balance sheet are our highest to date, business units within the Bank including the Fleet though they remain lower than most, if not all, of grow, albeit at business which was impacted by a reduction in our peers. planned and budgeted revenue. Foreign Exchange Based on SARB directives we have chosen not saw a number of transactional impacts related lower levels than to declare a dividend for the second half of the primarily to national and global restrictions on financial year under review. travel, which severely impacted foreign exchange before, and were transactions. Although the Business Banking division did see the total number of transactions How has the balance sheet 13% higher than down during lockdown, together with our Personal Banking division it did see growth in both deposits performed? in the prior year. as well as advances. Our Business Banking float balances increased nicely. Corporate advances Our deposits continued to grow, albeit at lower (Excluding the Group exposures levels than before, and were 13% higher than in the R400 million reduced throughout prior year. This is in excess of the results seen among the year due to SARB reductions on our peers, according to information received from dealing with Bidvest Group) the SARB. We saw some understandable pressure towards the end of the lockdown, particularly on Advances grew our fixed deposits, the majority of which are held by pensioners. We decided at the beginning of 3% lockdown not to suspend our marketing aimed at increasing deposits and maintained a presence and Deposits a profile in a depressed sector as a result.

Our cash reserves grew in 2020 as deposits 13% exceeded advances, and as a result of the lapse to of the acquisition of Eqstra not approved by the Thinus Liebenberg Payments Association of South Africa (PASA) and by R7,4 billion Financial Director the SARB during the COVID-19 lockdown. The funds allocated for the acquisition now remain on the Investment and cash balance sheet. Overall, our balance sheet remains strong, particularly in comparison to our peers, again according to SARB information. 18% to Treasury managed to perform well, given the environment. It was impacted by restricted foreign R5,5 billion exchange flows, and by the SARB rate reductions that took place over lockdown, which had a FINANCIAL negative impact on our net interest margins as Capital adequacy ratio (CAR) well as yield on cash and investments. Despite this I would like to commend our Treasury team for their 22% work in terms of managing and optimising our yield DIRECTOR’S on our increased cash reserves and investments. Cash and cash equivalent With the onset of lockdown, we put in place balances measures to restrict costs, including a moratorium on all but critical hires. Our company restructure R4,5 billion saw attendant costs, but with their exclusion, costs grew by only 5% in 2020. Part of those remaining Liquidity coverage -ratio (LCR) The global COVID-19 pandemic and measures taken in response to it had costs comprised increased investment into digital a profound impact on the South African economy, and our operations channels and platforms, which are expected to realise increasing efficiencies in the future. The 241 and results. We continued to pursue a strategy based on four pillars: increased costs involved in the move to our new corporate headquarters in Sandton also contributed NSFR – critical ratio Fleet, Business Banking, Retail Banking and Treasury and managed to to cost growth. Cost restriction and optimisation will reflect a profit before tax of R142 million, down from R432 million in the continue to be a strong focus into 2021. 149 prior year mainly due to the impact of the lockdowns.

22 23 Management reports

Salient features

Profit before tax Total assets B-BBEE rating R142 million R11,3 billion 4 Previous year: R10,2 billion (up 10%) Operating expenses Return on equity and indirect taxes 3,83 Stakeholder engagement R1 billion Deposits Employees R7,4 billion Cost to income ratio (full-time and contract) Previous year: R6,5 billion (up 13%) 82%

Financial Industry regulators representative organisations

Our stakeholders

Executive management is responsible for stakeholder relationships and implementation of stakeholder policy.

Partners and potential Customers partners

Suppliers

24 25 Management reports

Building our people Talent attraction, development and The Bank strives to be an employer of choice by retention fully optimising talent capacity and setting them up Driven by the Human Capital team, our employee for success. Over the past year, our workforce has value proposition provides our employees with decreased from 1 124 to 1 083. a variety of benefits and rewards. The various components contribute to creating a strong employer brand, engaging and motivating Headcount movement employees, and positioning the Bank as an 1 199 attractive option for key talent. 1 200 1 179 Diversity and transformation 1 167 1 124 We believe in fostering a workforce that reflects 1 133 1 118 that diversity is essential to remaining the strategic partner of choice for all our customers. Diversity and 1 100 +1,7 inclusion help stimulate different ways of thinking, which supports innovation and leads to new 1 067 Key highlights -6,67 opportunities. We are committed to providing equal 1 033 opportunities to all employees and aim to build a ▶ International award for -0,53 e-learning journey diverse and highly qualified team. 1 000 ▶ Introduction of flexible work 2017 2018 2019 2020 policy as part of employee Headcount Movement (%) value proposition

▶ Competitive employee benefits

▶ Invested R12,1 million in Ethnicity learning initiatives, R1,8 million employee bursaries

▶ Improved on our Foreign African White Indian Coloured employment equity national score on our scorecard 513 305 120 176 4 Challenges ▶ IT skills talent retention

▶ Ensuring continuous leadership through succession planning

Headcount (number) Gender Female Male 1 073 11 34

1 118 657 461 0 200 400 600 800 1000 1200

Permanent Fixed contract Learners

In the process of building the Bank we have introduced and implemented several initiatives to support and build our people, their skills and the systems to support them. Our people are core to the Bank’s growth and long-term value creation, and we are proud to provide a workplace where our people are inspired to be the best that they can be.

As a bank founded by entrepreneurs, we continuously strive to create an environment and culture that encourages entrepreneurial spirit among our people.

In turn, this cultivates innovation in the way we do business.

26 27 Management reports

Divisions (%) Remuneration The Bidvest Bank Academy has been accredited as a service provider for assessment and delivery by Remuneration of employees is based on performance the Bankseta for the national certificate in banking 9,9 Banking Operations reviews that occur twice a year and is informed by (National Qualifications Framework (NQF) levels 5 2,5 Business Banking Cluster industry guidelines and prevailing market conditions, to reward and retain superior quality employees, and 4). 3,0 Procurement and Transformation and motivate them to equip the Bank to achieve 2,6 Fleet Finance and Management Our Academy offers various training programmes: 37,3 sustained growth. Director and senior management Group Finance remuneration is approved by the Remuneration ▶▶ Information technology learnership Human Capital Committee. The Bank does not offer a share incentive Banks are facing two main IT challenges: where Information Technology scheme, but executives participate in the share do we find talent with IT future work skills, and Internal Audit incentive scheme of The Bidvest Group Limited. 16,5 how do we upskill our current IT employees for Legal Employee wellbeing jobs of the future. Bidvest Bank is partnering Marketing with Umuzi to increase the impact of its skills The Bank provides a 24-hour confidential support Personal Banking development investment in tech talent. The service through Kaelo (AskNelson) to employees 0,35 0,44 Risk IT learnership for unemployed youth was and their immediate families to assist them to Treasury launched on the 1 March 2020. 10 learners 0,53 deal with personal problems impacting their 1,4 11,6 Learnerships and Graduates Programme are participating in the programme and will personal and professional lives. In addition, the 8,4 complete the National Information Technology 1,6 3,5 Bank subscribes to online health and wellness level 5 qualification. The 10 IT learners will programmes for employees and their families. fast-track their careers as web developers, The Bank hosts a wellness day for its employees data scientists and engineers and business every year nationally which assesses employees’ analysists. health. ▶▶ National certificate in banking level 4 Ethnicity (%) Building skills and capabilities learnership

The Bank prides itself on providing a practical The national certificate in banking level 4 application of learning in the workplace. This 2020/2021 learnership commenced on allows us to raise the skill levels of all employees, 1 February 2021 and will end on 31 January 2021. improve work performance and contribute towards African White Indian Coloured It provides a launch pad for further learning education in our country. The Learning and 46 27 11 16 and will give learners an opportunity to gain Development (L&D) department promotes skills a qualification through a structured learning development which enables service excellence and programme, which is registered on the NQF. innovation. Personal development opportunities assist in talent retention. ▶▶ National certificate in banking level 5

During the year, 1 849 employees participated in This is a one-year programme for Bidvest Bank training initiatives (including employees attending employees from various business units and multiple courses). External bursary funding was branches. This programme contributes to the offered to 69 permanent employees. upskilling of our bankers making them more Headcount (number) Gender (%) competent in dealing with our customers. As Our people are at the centre of the Bank’s growth part of individual career development, this Female Male and long-term value creation. Our learnership and 1 073 11 34 programme positions each individual for future graduate programmes, established in 2015, have career development and growth. 1 118 resulted in the majority of candidates being placed 59 within the Bank. ▶▶ Graduate development programme 0 200 400 600 800 1000 1200 41 ▶▶ 15 unemployed learners are participating The Bank’s graduate development programme Permanent Fixed contract Learners on the national certificate in banking level provides the graduates with a great opportunity 4 learnership programme (1 February 2020 to experience first-hand on-the-job work to 31 January 2021). experience and immersion into the Bidvest Employees by region (number) Bank culture. The graduate programme requires ▶▶ 10 unemployed graduates are participating the graduates to complete an Agile Banking 511 278 217 112 on the Agile Banking Professional level 5 Professional qualification in banking, which is programme (1 February 2020 to 31 January 2021). 1 118 a level 5 qualification that gives the graduates ▶▶ 30 employed learners are participating on an in-depth understanding of our banking 0 200 400 600 800 1000 1200 the national certificate in banking level 5 environment. Corporate office Inland (1 February 2020 to 31 January 2021). Western and Eastern Cape KwaZulu-Natal ▶▶ 10 unemployed learners are participating on the IT level 5 learnership (1 March 2020 – 28 February 2021).

28 29 Management reports

▶▶ Leadership development programme »» Two days after the virtual session, learners Financial acumen for business bankers Learning and development plans are subscribed to the final assessment to Aligned to the Bank’s talent management In line with the Bank’s strategy, the Bank has a In consultation with the Heads of Departments, complete, a pass mark of 80% is required. strategy, Bidvest Academy has launched the vision of growing our lending book significantly. We the L&D team has developed curricula for all first mentorship programme:Courageous »» An on-the-job evaluation needs to be cannot achieve these goals and aspirations without departments in the Bank. The L&D team have Leadership Conversations. The purpose of this completed a week after the final assessment the right people, with the right skills, and by closing analysed the needs of the Bank by assessing programme is to build leadership capability by a supervisor/manager and uploaded to the right deals. It is a well-known industry fact that personal development plans aligned to the business in a formal structured approach. Mentors are BidLearn in order to receive a certificate. sales and credit work well together, but they can strategy. It has identified skills gaps, learning provided with powerful tools and monthly have challenges when it comes to certain deals. interventions and considered budgets prior to To help keep employees informed and aware support to ensure the success of the initiative. By working together, we have bridged the gap implementation. about the pandemic, the team has created The outcomes of the programme are: between Business Banking’s sales and credit teams. informative courses: Building knowledge »» creating and building a model of The Bidvest Bank Academy has set out to upskill »» Covid-19 all staff We believe that investment into education builds accountability; our Business Bankers and improve their knowledge knowledge in our team and stronger communities. »» Covid-19 housekeepers – available in English, and understanding of the credit approval process. »» purposeful reflections and sharing of the For the financial year ended June 2020, our total Sesotho and Zulu We have compiled an exciting programme deep reflections; training spend was R12,1 million, and bursary spend that has been rolled out nationally. This credit This pandemic has allowed us the opportunity was R1,8 million. »» conversations leading to ‘a-ha’ moments; training programme will be presented in three to explore a new sphere of learning. stages: beginner, intermediate and advanced. »» development of leader’s fullest potential; Bursaries ▶▶ Systems at the core The programme covers financial skills, practical and exercises and case studies that can be used in the Our spend on bursaries for the year was R1,8 million, At Bidvest Bank we ‘get things done’ for our an increase from R898 604 in the prior year. »» measurable outcomes. work environment. customers irrespective of whether they are Self-study learning, supplemented with internal Eight mentors have been nominated to external or internal. Our talent is supported by Business Bankers Accelerated courses, has afforded our employees the participate in the year-long programme. These skills development opportunities and by the Programme (B²AP) opportunity to take ownership of their own mentors will be mentored by senior managers necessary systems in order to flourish. B²AP is a three-day workshop which provides development. To support this, the Bank has an and EXCO. ▶▶ Induction- Start-Ups our bankers with an overview of Bidvest Bank’s internal study assistance programme for employees These programmes contribute to the ongoing products, services, policies and processes. In who wish to obtain a tertiary qualification. The aim Bidvest Bank Academy launched a new development of our high-potential talent. In addition to the knowledge learnt, the bankers is to enhance the supply of internal candidates for employee induction programme titled Bidvest time, they will add further value to our business meet and interact with key role players across the career opportunities within the Bank. Bank Start-Ups. The programme gives new by taking the elements they are exposed to in business divisions. employees a structured in-depth introduction the programme and transfer those learnings to Employee Child Bursary Scheme to the Bank and its values, service standards The programme outline: others in the Bank. and the Bank’s Mantra. The process includes The Bank introduced an Employee Child Bursary ▶▶ Learn all about the products, pricing, people ▶▶ Traditional Training into Virtual Learning a welcome from the Bank’s MD, a review of Scheme in 2018. Positioned as a talent attraction and place Human Capital issues and background on the and retention tool, the scheme aims to assist top L&D has moved all paper and classroom performing employees with their children’s school Bank from Human Capital. All new Start-Ups ▶▶ Explore the forex world! Calculate rates and rate training to online platforms. fees on condition that their children have a good will receive various surveys to gage employee margins. Demonstrate the uses of spot facilities, academic record. This scheme serves not only the The COVID-19 pandemic has proved to the satisfaction. forward contracts, bonds and guarantees in employee but their children as well. The Bank spent L&D team that the overall management of Trade Services. Understand the benefits of R564 797,00 during the year on this scheme. administration and training processes, learning FAIS fit and proper Trade Flow offerings. Explore the business platforms, and Learning Management System The Financial Advisory and Intermediary Services banking platforms (LMS) can offer so much. Advantages include (FAIS) Act requires that Financial Service Providers ▶▶ Gain insight to the Credit Policy and application, supported learning, and online and blended (FSPs) be licensed and creates a professional Code as well as Human Capital service offerings learning solutions which facilitate and improve of Conduct with specific enforcement measures. upon traditional educational methods. The All FSPs must ensure that they comply with the LMS can also save the Bank time and money requirements of the legislation, and with certain by allowing the easy administration of large specificfit and proper requirements as stipulated amounts of information in a user friendly, web- in the act. based environment. Bidvest Bank Academy has developed the Class of BidLearn is the Bank’s effective LMS which has Business and Continuous Professional Development allowed learning and upskilling to continue in (CPD) requirements on BidLearn. the current environment. ▶▶ Class of Business incorporates training on »» Learners download, print and read the product characteristics, terms, features, typical learner guide. Make notes of questions or fee structures, charges and other general areas of content if they require support or risks. The training also covers the relevance assistance during the virtual lesson. of different products or features for different types of customers, how economic factors and »» Learners receive a Microsoft Teams invite legislation may impact these products, as well one week prior to the facilitator led virtual as industry standards and the Codes of Conduct lesson. relevant to that particular class of business.

▶▶ CPD occurs annually and each CPD cycle will run annually for 12 months.

30 31 Management reports

Columba Leadership

Columba Leadership is an award-winning, values based non-profit organisation focused on youth leadership. With over 60% of South Africa’s learners dropping out of school and 41,7% of young people unemployed and not in education programmes, the country’s youth are at risk of being left out of productive society.

Columba has a 10-year track record of deep impact at national scale – changing the lives of South Africa’s youth by improving their life skills, education and vocational outcomes. The Columba programme shifts school cultures to provide a more conducive environment for youth development and learning, which in turn has a ripple effect into homes and communities.

Working closely with the Department of Education to run programmes at schools located in economically disadvantaged areas in six provinces, Columba focuses on developing ethical young leaders who are powerful problem-solvers and change agents. By using a values-based experiential model, young people learn and integrate the values of ethical leadership, foundations for character development, purpose and 21st century skills such as critical thinking, collaboration, communication and resilience.

Schools are equipped with know-how and methods to embed values, forge partnerships between adults and youth, and to effectively engage young people to address challenging issues in the school and community. Columba mentors the school through this change process helping them to sustain impact even after Columba exits.

Through supported project-based social action, learners tackle social issues that can impact negatively on youth outcomes. These include violence and gangsterism, ill-discipline, tardiness, unhygienic conditions, teenage pregnancy, substance abuse, poor academic achievement and learner dropouts.

The power of values and engaging youth as leaders transforms these learners into strong, socially conscious change agents. These individuals are more likely to effectively transition into studies and work after school. By ingraining a culture of ‘leadership starts with the self’, these learners are more ECONOMIC receptive to learning at school. During the uncertainty and disruption caused by COVID-19, Columban graduates have played a prominent role in supporting the pandemic protocols in schools by motivating their peers and leading tutoring sessions. Several learners have also taken the lead to set up initiatives that contribute economically to their households. Columba in turn has developed a remote learner engagement plan which has enabled the organisation to DEVELOPMENT provide mentorship and guidance to young leaders even during the disrupted schooling period. To date 9 236 people have attended Columba’s residential academy, and many more have been impacted The development and wellbeing of the communities is at the core through the programme. The programme consistently ensures that learners develop as leaders with of the Bank’s Socio-Economic Development (SED) strategy. Our SED around 74% of them assuming formal leadership positions each year. Despite selecting a range of youth, including those who are at risk of negative pathways and underperforming at school, Columba graduates investments remain focused on education, business development and routinely outperform national and provincial matric pass rates with as many as 80% achieving tertiary level passes. School retention among Columba graduates is also high at 92%. Post-school, the graduates show job creation in the small to medium sized enterprise (SME) space. excellent rates of successful transition with 70% entering work or study opportunities, within six months of leaving school.

32 33 Management reports

Bathebile

Since 2009, Bathebile has been facilitating the development of community-based skills building projects. Once the projects are self-sustaining, they are handed over to the community to manage, thereby contributing to a culture of self-reliance and sustainability.

The Bank works with Bathebile to assist and support people in need and educate children. One of the main outlets for this is Nomthandazo which is located in Oliver Village near the Zanzele informal settlement in Putfontein. The Bank assists with: The Roedean ▶▶ Crèche: the Nomthandazo Children’s Care Centre cares for 120 children between the ages of one Academy and six years old. Twenty percent of these children are orphaned due to the HIV/Aids epidemic. The Bank works to maintain and improve the facilities, support the 13 full-time teachers, assist Launched in 2009, in the education and graduation of the children, upgrading the crèche premises, and the Roedean School (SA) installation of shade netting for the play areas and walkways. spearheads a world- ▶▶ Feeding scheme: the feeding scheme not only caters for the crèche’s children but also 200 elderly class training programme beneficiaries from the Zenzele informal settlement. The Bank has assisted with installation of that is having a significant shade netting for the feeding scheme area by providing shade and fitting a kitchen area for influence on South Africa’s serving food. English, mathematics, physical science and accounting education ▶▶ Education learning centre: the Bank has created a mathematics, science and computer learning among girls from underresourced centre for grade 11 and 12 learners from the Daveyton and Etwatwa communities who cannot communities. The school has partnered afford extra lessons. Free exams and assessments are also provided to grade 12 learners who have with neighbouring Barnato High School to failed certain subjects the previous year. provide tuition in these core subjects to girls ▶▶ Free basic computer training is offered to a number of disadvantaged learners and from grades 8 to 12. school leavers. Since 2011, the Bank has been sponsoring the Roedean Academy in order to fund its vision of providing ▶▶ Community vegetable garden: the Bank has worked with the excellent education to pupils from underresourced schools. Without such sponsorship, the Academy community to establish and maintain vegetable gardens and would not be able to exist. During the school year, girls attend the programme on various afternoons per fruit trees. The community is being taught how to grow week. Classes have a maximum of 20 learners and are tutored by dedicated Roedean employees, using their own vegetables, and an independent energy and Roedean’s facilities. watering system has been installed. Not only do the In 2020, with the onset of the COVID-19 pandemic, the Academy was closed due to the national lockdown and trees provide shade for better vegetable growth, explored alternative modes of teaching and learning. Online classes for grades 10 – 12 pupils were launched but also protection from the weather. The garden by making use of zero-rated sites. This ensured the girls maintained access to educational resources. The now provides food to the community, including Academy loaded data onto the girls’ phones, or a phone from a family member to ensure lessons continued children and the elderly. The garden also serves uninterrupted. to deliver a deep understanding of children’s experience of the deprivation, exclusion For matric learners, funding was repurposed for the purchase of iPads for each girl. Although the iPads are and vulnerability of our disadvantaged property of the Academy, they remain with each girl for the duration of their Matric year and 10 GBs of data communities. It also provides a Christmas are loaded per month, and 20 GBs of night-time data. This has given the girls access to various educational meal to the elderly in the Zanele resources, and during periods of school lockdown they continued to work from home. community.

The Bank has also provided security Despite a number of initiatives being cancelled due to the national lockdown, there were several and worked with Bathebile to highlights: ensure its building meets the various ▶▶ The Roedean community donated face masks and toiletries to the girls. safety requirement as set out by the Department of Labour. This partnership ▶▶ The Girls Leadership Summit went online and was hosted by Roedean for grade 10 – 12 Academy ended in December 2019. girls. Academy graduate, Nomagugu Dlamini, was one of the panellists at the summit and gave an excellent presentation.

▶▶ Grade 9 pupil, Tehye Petros, achieved 100% mastery on Siyavula for the entire grade 9 curriculum who during lockdown – a fantastic achievement.

The Bank works ▶▶ Grades 10 and 12 all received new scientific calculators in 2020, with the grade 12’s also receiving training.

with Bathebile to ▶▶ The Academy provided eye tests and spectacles for grades 11 and 12 girls in need. assist and support ▶▶ Care vouchers for Academy families in distress were handed out, and counselling sessions for girls was provided where necessary.

people in need and ▶▶ A tutoring system between Roedean girls and the Academy girls was set up.

educate children. Due to the interruption of the academic year, the programme has been extended until early November 2020. Recipients of the Bidvest Bank bursary have all maintained a 100% pass rate in their results.

34 35 Management reports

The Link The Link is a non-profit organisation established to support the development of literacy and numeracy in children for whom English is a second language. The Link programme targets children in grades 2 and 3 who generally come from disadvantaged backgrounds and who are struggling in the classroom. It takes place each week during the normal school term morning and most of the children have two lessons weekly on a one-learner-to-one- volunteer or two-learners-to-one-volunteer basis. The children are assessed at the beginning of the year and then re-tested at the end of the year. These measurable outcomes ensure that the intervention is having the required impact.

The second half of 2019 was a successful and productive time for The Link. The organisation grew from 14 to 19 centres with a resultant increase in the number of volunteers and pupils. In the assessment results at the end of the year, 99% of the participating children improved their results with there being an overall improvement of 28%.

Although 2020 started with great expectations and plans, COVID-19 and the ensuing lockdown saw the face-to-face sessions coming to a halt. To ensure that the children were reached during this period, The Link created online resources using minimal data that could be accessed at home.

EduFeArn EduFeArn Proprietary Limited are innovators and developers of customised education and training solutions for the South African market. At the onset of COVID-19, Bidvest Bank partnered with EduFearn and the Valued Citizens Initiative to establish the iCHOOSE To Care programme to provide mathematics and psychosocial support interventions.

EduFeArn Proprietary Limited and the Valued Citizens Initiative have partnered on the Educational Intervention in partnership and support by Bidvest Bank to three schools in South Africa. The schools are surrounding Bidvest Bank operations in the Western Cape, KwaZulu-Natal, and Gauteng.

EduFeArn and the Valued Citizens Initiative have identified that mathematics and science alone do not guarantee high school learners to commit to their academic and career goals. Therefore, tuned together with the Life Skills programme named ICHOOSE To Care programme, the Valued Citizens Initiative guarantees the fact that 65% of our learners will reach tertiary education requirements and do not limit themselves to specific careers.

The role of EduFeArn is to provide learner and teacher support material (mathematics dictionaries) training and assessment methodology to the educators at the schools identified.

The programme was rolled out to grade 10 learners and teachers involved in mathematics and life skills at Kwena Molapo High School, and learners and mathematics educators at Louwville Secondary School in Western Cape and Guzana Secondary School in KwaZulu-Natal.

Valued Citizens Initiative and EduFeArn together will be responsible for the ongoing monitoring and measurement of the impact of the intervention in the school to be coupled with a motivational programme for learners.

36 37 Accountability

Governance Framework The Bank’s Governance Framework is based on:

▶▶ The Banks Act and particularly Regulation 39 GOVERNANCE ▶▶ The Companies Act ▶▶ King IV

▶▶ The Basel Committee Guidelines on Corporate Governance REVIEW ▶▶ The Bank’s Code of Conduct

There are five goals which form the five pillars of governance. In turn each pillar is supported by various components:

Ethical, effective and Strategy, Regulatory responsible Good corporate sustainability and and statutory Stakeholder

Pillar leadership citizenship value creation compliance engagement

▶▶ Promotion ▶▶ Transformation ▶▶ Strategy ▶▶ A control ▶▶ This includes of values through the development, environment of the Bank’s and ethics; transformation review, approval and processes and shareholder; management plan to implementation procedures employees; of related party promote equal regulators; Components ▶▶ Performance ▶▶ Disciplinary relationships opportunity community and management processes industry bodies. ▶▶ Whistleblowing ▶▶ CSI initiatives; ▶▶ Succession ▶▶ The assurance focused on ▶▶ Interactions ▶▶ Confidentiality planning provided by job creation, are required to Internal and ▶▶ Prevention of education and ▶▶ Employee training be complete, External Audit, procurement, training and development transparent and Compliance fraud accurate. ▶▶ Enlightened ▶▶ IT strategy and and Risk ▶▶ Prevention employment governance ▶▶ The same of criminal practices requirements ▶▶ Brand and activity apply to Board ▶▶ Reward and reputation and Board ▶▶ Prevention of recognition protection committee discrimination and ▶▶ Intellectual property reports; financial environmental ▶▶ Zero tolerance management statements awareness and and integrated ▶▶ Prevention responsibility ▶▶ Credit reports; statutory Introduction of money management disclosures; laundering The Board is required annually ▶▶ Balance sheet and regulatory returns to assess and document ▶▶ Prevention of prudential ratio and internal whether the processes relating proceeds of management communications. to corporate governance, internal crime ▶▶ Business continuity controls, risk management, capital ▶▶ Prevention of and disaster management and capital adequacy discrimination recovery planning implemented by the Bank achieve and sexual and management the objectives specified by the Board. harassment This assessment of the processes relating to ▶▶ Transparent and corporate governance and internal controls has ▶▶ Governance complete disclosure been undertaken by the Governance, Social and structures in financial Ethics Committee, using the framework of King IV. including statements and Board and integrated reports, The assessment of the efficacy of risk management, Board sub- Remuneration capital management and capital adequacy committees reports, Pillar processes is undertaken by the Risk and Capital III reports and Management Committee on behalf of the Board regulatory returns and reported separately.

38 39 Accountability

Bank employees are subject to policies and processes to promote honest, ethical and transparent conduct of the Principles 1 and 2 – Ethical, effective Principle 3 – The Bank as a responsible business, including: and responsible leadership corporate citizen Values and ethics Transformation The Board endorses the Bank’s commitment to The Bank’s B-BBEE rating under the financial sector the conduct of the business in accordance with the rating code is 4. Areas of activity in which the Bank highest ethical standards, as expressed in the Code can improve its rating have been identified, and a Whistleblowing The Code of Conflicts of Confidentiality of Conduct, and to responsibility, accountability, programme to achieve such improvement is being Policy and tip Conduct Interest Policy Policy off line fairness and transparency. Bank employees receive developed. training on, and are required to acknowledge and Corporate citizenship accept, the Code of Conduct at induction. The Bank is committed to the development and The responsibility for implementing and executing wellbeing of the communities it serves: its socio- the Code of Conduct and ethics policies lies with economic investments focus on community-based Sexual management, and disciplinary action is taken initiatives, youth and education. The Bank seeks Anti-fraud Zero Tolerance Gifts Disclosure Harassment against employees who contravene the policies. Policy Policy Policy to build robust relationships, and it works with Policy Related parties organisations that make a measurable difference to lives and communities. In 2020, R4 064 900 was The Conflicts of Interest Policy regulates the allocated to these beneficiaries up from R2 492 112 conduct of dealings with related parties, to ensure in 2019. In addition to providing financial support at that potential conflicts of interest are avoided, and an organisational level, the Bank also encourages all related party transactions are fully disclosed. employees to participate in community affairs and Adherence to the policies and processes is enforced by reporting lines and the disciplinary processes. Declarations of related party transactions are programmes. required to be made at least quarterly and are The Board and Board subcommittee’s function in terms of formal terms of reference and their effectiveness is reported to the Audit Committee, and annually Environment regularly assessed and reported. as part of the audit of the financial statements. The Bank is conscious of its environmental Accountability is ensured by performance reviews; independence is assessed by regular declarations of interest; The directors are required to make declarations of responsibilities. The business has a low direct and controlled delegation is ensured by mandates in accordance with the levels of authority matrix. interest at each directors’ meeting in accordance impact, and it participates in paper recycling with the provisions of the Companies Act, the initiatives to ensure that wastepaper is disposed of Corporate Governance Policy and the Board Charter in an environmentally acceptable manner. The Bank and Code of Conduct. encourages responsible use of energy, water and COVID-19 impact and response Whistleblowing public transport wherever possible, and its head office premises are in a Green Building Council The Bank participates in the Bidvest Group From March 2020 the Bank’s activities were affected by the national state of disaster declared in 4-star-certified building. terms of the Disaster Management Act in response to the COVID-19 pandemic. A Pandemic Crisis confidential anti-fraud tip off line: all reports are Management Plan and Framework were developed to co-ordinate the Bank’s response to the investigated and disciplinary or other appropriate regulations and guidelines issued by national authorities. The plan used the McKinsey Risk Framework actions taken. The Protected Disclosure Policy, and created workstreams to manage activities in different areas: the need for the workstreams will to which all employees are subject, specifies the continue as the pandemic and stages of lockdown change and affect the Bank’s operations and its protection of whistleblowers and their recourse stakeholders. for any occupational detriment they may suffer. In appropriate cases rewards may be given. Additional governance structures have been established with specific focus on the COVID-19 response, in particular the Corona Management Forum, and workstreams created to address the following elements of the response: Resolve, Resilience, Return, Reimagine and Reform.

The pandemic response necessitated changes to the way in which corporate governance processes have previously been exercised. These changes included remote working and the May 2020 Board, Audit Committee and Risk and Capital Management Committee meetings being held via Microsoft Teams. Monthly Executive Committee, Assets and Liabilities Committee (ALCO) and Credit Committee meetings have similarly been held via Microsoft Teams, as have the Chairman’s prudential meeting and the Internal Audit prudential meeting with the prudential authority.

The applications for approval of appointments of Executive Committee members and non-executive directors have been submitted online, as has the Bank’s application to participate in the COVID-19 Loan Guarantee Scheme.

The 2020 audit has been conducted remotely with online submission of information to the auditors.

The overriding consideration has been the safety of employees, customers, suppliers and the community and the continuation of the business in the face of considerable disruption, new operating procedures and significant financial impact.

40 41 Accountability

Principle 4 – Strategy: core purpose, risks, opportunities, business model, Principle 7 – Board The directors are as follows: performance and sustainability are all elements of value creation Composition: a balance Non-executive directors The Board’s objectives are the development and sustainable growth of the Bank’s business in accordance of knowledge, skill, with applicable regulatory requirements, for the benefit of all stakeholders. The achievement of these experience and Nigel George Payne Nompumelelo Thembekile objectives is dependent on the adherence to good corporate governance throughout the organisation. independence CA(SA) Madisa The Board approves Bank strategy as proposed by management, and management is responsible for the Board and committee 60 years BSc; BCom Hons; MMFI alignment of the strategy with the approved risk appetite, its implementation and the assessment of its composition, and the mix of Chairman 41 years effectiveness. executives and non-executives, Appointed 1 August 2009 Appointed 8 December 2016 Strategy includes short, medium and longer-term goals, and the risks attendant on any initiative. New are in accordance with the Nigel is a director of various listed Mpumi is an executive director products and services to be approved for implementation by the revenue generating and support functions. requirements of the Banks Act. and unlisted companies, including and CEO of The Bidvest Group The impact of strategy on stakeholders is part of the approval process, and the business performance The Board has not set gender or Bidcorp Ltd, Mr Price Group Ltd, and a director of Bidvest management unit measures the effectiveness of initiative implementation and its realisation of initial race targets and is mindful of the Ltd, Strate Proprietary Limited, Group companies. objectives. Management reports quarterly to the Board on business performance, including strategic importance of diversity of age, race, BSI Steel Ltd, Alexander Forbes initiatives: such reports include any negative consequences of its activities. gender, knowledge and experience Holdings Ltd, Tower Trade Group in its governance structures. Ltd and Vukile Property Fund Ltd. The financial performance is reported in financial statements audited by the external auditors, PwC. The directors are aware of the standard of directors’ conduct Alastair Dunsmore Cunningham Renosi Denise Mokate required in terms of the BCom; CA(SA); AMP BA; MA; PhD Year ended Year ended Companies Act and the Banks Act. 64 years 62 years June 2020 June 2019 Appointed 1 June 2015 Lead independent director At 30 June 2020, the Board was Operating income (R000) 1 215 090 1 349 640 Appointed 1 July 2013 composed of one executive Alastair is a director of Bidvest Profit before direct taxation (R000) 142 169 432 024 and six non-executive directors. Bank Holdings Ltd, Bidvest Renosi is a director of B-BBEE procurement (R000) 2 002 643 1 568 663 Mr Liebenberg, the Financial Insurance Ltd, Bidvest Insurance companies including Vukile Director, was approved as the Group Proprietary Limited, Property Fund Ltd, African Training spend per employee (rand) 10 896 11 082 Acting Managing Director pending Bidvest Insurance Brokers Rainbow Capital Investment, Number of employees trained 1 118 1 124 the appointment of a replacement Proprietary Limited and Concentric Alliance Proprietary for Mr JJ van Niekerk who McCarthy Ltd. Limited, V&A Waterfront Going concern resigned as Managing Director Holdings Proprietary Limited, The process for assessing the Bank’s going concern status is reviewed by the Audit Committee. The on 29 February 2020. The roles The Bidvest Group Ltd and is the Committee satisfies itself that the Bank has adequate resources available to continue in operational existence of the Chairman and Managing chairperson of the Government for the foreseeable future, and for this reason the Board adopts the going concern basis in the preparation of Director are separate, and Board Employees Pension Fund. the financial statements. composition aims to ensure unfettered decision-making Andile Moncoba Mazwai Lindsay Peter Ralphs without domination by any group BCom Hons BCom; BAcc; CA(SA) Principle 5 – Reporting for informed Principle 6 – The Board as the focal or individual. The review of the 49 years 65 years composition of the Board has Appointed 15 July 2020 Appointed 8 December 2016 assessment of performance and point and custodian of corporate been ongoing during the year: in Andile was CEO of Barnard Lindsay is the Chief Executive prospects governance order to meet the requirements of Jacobs Mellet and the Rebosis of The Bidvest Group Ltd, and The Board is responsible for the integrity of reports The Board Charter and Code of Conduct sets its role, Directive 4 of 2018 it is necessary Property Fund, and non-executive is a director of Bidvest Group issued by the Bank, including financial statements, responsibilities, membership and processes, and to appoint an independent non- governor of the National Stokvel companies, including McCarthy the integrated report and the Pillar III Public include the responsibilities of the Board Chairman. executive director to replace Association. He is currently CEO Ltd and Adcock Ingram Ltd. Disclosure: the Board reviews and approves their The Board has unrestricted access to management Mr Payne as Chairman, and to of the iKhaka Property Fund contents, based on recommendations from the and documentation, and a relationship appoint at least two independent and Ikhaka Asset Managers, Audit Committee, the Governance, Social and Ethics with executive management is created by non-executive directors to replace and a non-executive director of Committee and the Remuneration Committee. management’s attendance at Board and committee Mr EK Diack and Dr RD Mokate. St. Mary’s School Foundation. The materiality level for disclosure in the financial meetings to ensure appropriate oversight and The approval has been obtained reports is determined by the external auditors, involvement. A method exists for directors to obtain for the extension of Mr Payne’s Zodwa Reshoketsoe Pearl Executive directors but a significantly lower level is set by the Board independent professional advice. The Corporate tenure as Chairman until 31 August Matsau for purposes of reporting to the directors. The Governance Policy was amended during the year in 2021, subject to the appointment Marthinus Johannes BA (Econ); M Phil Board regards as material any issue which could line with Banks Act Directive 4 of 2018 on corporate of an independent non-executive Liebenberg significantly affect the achievement of strategic, governance. 64 years director as the Lead Independent BComp; BCompt Hons; CA(SA) financial, operational or regulatory objectives. Appointed 21 May 2020 Director in the place of Dr Mokate. 55 years The list of top 10 risks is developed by the Risk New directors will be appointed to Andile was CEO of Barnard Acting Managing Director and Department in discussion with business and is the Board subcommittees: Audit; Jacobs Zodwa is a non-executive Financial Director reviewed and refined by the Risk and Capital Governance, Social and Ethics; director of PSG Konsult and a Appointed 1 January 2013 Management Committee. Remuneration; Risk and Capital member of the Pretorium Trust Thinus is a director of Management. board. companies in The Bidvest Group The appointment of Ms Zodwa Financial Services Division. Matsau as an independent non- executive director was approved Mr JJ van Niekerk resigned as Managing Director on 29 February 2020. with effect from 21 May 2020 and Mr EK Diack resigned as a non-executive director on 31 March 2020. the appointment of Mr AM Mazwai Dr RD Mokate resigned with effect from 31 July 2020. was approved on 15 July 2020. Mr LP Ralphs resigned with effect from 30 September 2020.

42 43 Accountability

Board appointments and succession terms that are no more favourable than those with Meeting attendance July 2019 to June 2020 planning third parties. Directors and employees are required Details of the attendance by directors at Board and Board subcommittee meetings are set out in the following All appointments are subject to the approval of the to declare their personal interests in accordance schedule: Regulator in terms of the Banks Act. The selection with the Companies Act and Code of Conduct. Board and committee attendance 2019/2020 of candidates for approval is guided by the needs of Independent non-executive directors are required the Board for skill, knowledge, experience, diversity at the first directors’ meeting after appointment Number of meetings and attendance and annually thereafter to confirm that they meet and the personal attributes of the individual. The Board 5 Bank Memorandum of Incorporation does not the independence requirements of the Directive. NG Payne (Chairman) 4 provide for director rotation, and directors serve The roles and responsibilities of the Chairman, Mr Cunningham while they meet the requirements of the Banks Act AD Cunningham 5 Managing Director and Lead Independent Director chairs the ALCO and the Companies Act, subject to review in terms EK Diack 2 Resigned 31 March 2020 are separate and governed by the Corporate and Senior Credit of the Board Charter once they reach 70 years of age. Governance Policy and Board Charter and Code of MJ Liebenberg 5 Committees and Director induction, training and Conduct. NT Madisa 4 attended 10 meetings of each committee. development programmes The Board is supported by the Company Secretary ZRP Matsau – Appointed 21 May 2020 In accordance with the Induction Policy, new and by the secretarial department of the Bidvest RD Mokate 4 The Chairman has directors receive induction information and Group in its corporate governance and legal LP Ralphs 4 Resigned 30 September 2020 attended ALCO materials, access to background information about responsibilities. The appointment of the Company JJ van Niekerk 3 Resigned 29 February 2020 and Senior Credit the Bank, its business and environment, and Secretary is subject to the approval from the Board Committee meetings interaction with senior management. Ongoing and the Regulator, and the performance of the Audit Committee 4 as an invitee since director training is provided by external subject Company Secretary is evaluated annually by the AD Cunningham (Chairman) 4 March 2020. experts on topical issues: during the year the Managing Director and Chairman. The Company EK Diack 1 Resigned 31 March 2020 The executive Board received presentations on modernisation Secretary is required to fulfil the responsibilities directors attend all of payments; cloud computing and off-shoring; set out in sections 75, 76 and 88 of the Companies RD Mokate 4 Board subcommittee the COVID-19 detailed response and plan; and the Act; section 60B and Regulations 39 and 40 to the NG Payne (by invitation) 4 meetings by sovereign downgrade. Banks Act; Principle 10 of King IV; Basel Committee Risk and Capital Management 4 invitation. Independence on Banking Supervision Principles for Effective Risk Data Aggregation and Risk Reporting 3013 (RDARR); AD Cunningham (Chairman) 4 Directors are required annually to provide written and the Bank’s Corporate Governance Policy, version EK Diack – Resigned 31 March 2020 acknowledgement of their compliance with 9. The Board is satisfied that it has effective access NG Payne 4 section 75 of the Companies Act in respect of the to professional corporate governance services. avoidance of any conflict between their personal RD Mokate (by invitation) 2 interests and those of the Bank. Declarations of The Board is satisfied that it has fulfilled its Governance, Social and Ethics 2 interest are a standard agenda item at every Board obligations as specified in the Board Charter and meeting, and any transaction with a director is Code of Conduct. NG Payne (Chairman) 2 required to be concluded on at arm’s length, under NT Madisa 2 RD Mokate 2

Remuneration 3 Principle 8 – Delegation to Board The committees’ activities are regularly reported to RD Mokate (Chairman) 3 committees: promoting independent the Board, which satisfies itself that the committees NT Madisa 2 have performed their functions in accordance judgment, and the effective discharge NG Payne 3 of the Board’s duties with their terms of reference. Meeting packs for all committee meetings are distributed to all directors AD Cunningham (by invitation) 1 The Board delegates its supervisory obligations to for information purposes. Prudential meeting with directors 1 Board committees, which operate in accordance with the Companies Act and Board-approved terms Board committees are responsible for approving NG Payne (Chairman) 1 and reviewing the effectiveness of the corporate of reference. Board subcommittees assist the Board AD Cunningham 1 in the identification, measurement, mitigation and governance and risk management policies EK Diack 1 reporting of the risks applicable to Bank business in in their specified areas. The Board and Board MJ Liebenberg 1 accordance with Regulation 39. committees receive regular briefing materials on the Bank’s activities, its performance and operating NT Madisa – The committees are: environment. The Board has unfettered access to ZRP Matsau – Appointed 21 May 2020 management and information. ▶▶ Audit RD Mokate 1 ▶▶ Governance, Social and Ethics, incorporating The service by directors and senior managers on LP Ralphs – more than one committee promotes collaboration Nominations JJ van Niekerk 1 and reduces duplication. Senior managers attend ▶▶ Risk and Capital Management committee meetings by invitation. Trilateral meeting 1 ▶▶ Remuneration AD Cunningham 1 EK Diack 1 RD Mokate 1 NG Payne (by invitation) 1 MJ Liebenberg (by invitation) 1 JJ van Niekerk (by invitation) 1

44 45 Accountability

The Audit Committee is composed of three Social and ethics Principle 10 – Management effectiveness: delegation and the effective exercise of non-executive directors: Messrs Cunningham The requirements of Regulation 43 to the authority and responsibilities (Chairman), Ms Matsau and Dr Mokate. The Companies Act are addressed by Bank policies and The Managing Director is appointed by and accountable to the Board and is responsible for the committee monitors the financial, operational and practices, including: implementation of Board-approved strategy, and for the performance of the Executive Committee in management reporting processes, and evaluates managing and directing Bank operations. The Board Chairman, with the shareholder, evaluates the the adequacy and effectiveness of internal controls, ▶▶ social and economic development – the performance of the Managing Director. Hannah Sadiki has been appointed as the Bank’s Managing Director, accounting practices and processes. The committee promotion of diversity in the workplace and the effective 1 November 2020. reviews the work of Internal Audit, and the Head: elimination of discrimination in recruitment, Internal Audit has unrestricted access to the remuneration and advancement; improvement The Executive Committee is chaired by the Managing Director and is composed of the Financial Director, committee and its Chairman. Representatives of of the B-BBEE rating; implementation of and and the heads of the Bank’s revenue generating divisions and support functions. The committee is the external auditors, PwC, attend all committee compliance with the Employment Equity Policy; responsible for the implementation of Board-approved strategy and the identification, management and meetings. The Heads: Internal Audit, Risk, Financial mitigation of risk in the business. The committee terms of reference specify limits on the committee’s ▶▶ good corporate citizenship; Control and Bidvest Group Internal Audit attend authority and those areas reserved to the Board. During the year the succession plan was updated as part of meetings as invitees. The Credit Committee reports ▶▶ environment, health and safety; the implementation of the COVID-19 Risk Management Plan. to the Audit Committee. ▶▶ consumer relations – adhering to consumer In addition to statutory committees, specialised committees support line management in the risk The Risk and Capital Management Committee protection legislation; initiation of a formal management and governance of specialised activities: such committees are the Projects Steering Committee, is composed of two non-executive directors, project to review and amend systems and Operational Risk Committee, Risk and Governance Executive Committee and the Corona Management Messrs Cunningham (Chairman) and Payne. The processes to ensure protection of personal Committee. Delegation to individuals is by written mandates in accordance with a Board-approved process. vacancy on the committee will be filled as soon as information; The Board is satisfied that the delegation of authority is appropriately controlled. a suitable non-executive director is appointed. The committee’s function is principally to review and ▶▶ labour and employment – compliance with monitor the risk management strategy and policy, labour legislation; ensuring decent working conditions and fair terms of employment; and to co-ordinate risk and capital management Principle 11 – Risk management: its training and management standards and contribution to the educational development assurance activities. The committee reviews the procedures, aims to maintain a disciplined and of employees and a bursary scheme for governance of risk to support work of risk management functions including constructive control environment, in which all employees’ children; and achievement of strategic objectives compliance, anti money laundering, risk and employees understand their roles and obligations. The Board has overall responsibility for the information technology. The Head: Compliance ▶▶ response to the COVID-19 pandemic, including establishment and oversight of risk management, The Board recognises the importance of ongoing and Head: Risk have unrestricted access to the adherence to guidelines and regulations under with assistance from the Risk and Capital identification and management of risk to maintain committee, its Chairman and the Bank Chairman. the Disaster Management Act. The Executive Committee members and a Management Committee, ALCO, Senior Credit a sound financial and reputational condition, representative of Bidvest Group Internal Audit The Governance, Social and Ethics Committee Committee and Risk and Governance EXCO in the and the Risk Management Policy affirms the attend meetings by invitation. The ALCO reports received no reports of failure to comply with the identification of risks inherent in the business and need to establish a programme for enterprise risk to the Risk and Capital Management Committee. social and ethics matters specified in Regulation 43 the monitoring of controls to manage those risks. management (ERM). The Board further commits in the year under review. The separate document entitled ‘risk and capital to providing sufficient personnel and other The Governance, Social and Ethics and management review’ reports on the directors’ resources to ensure full implementation of the The Remuneration Committee is composed of Nominations Committee is composed of three assessment on whether the Bank’s processes ERM programme, which includes investment in three non-executive directors, Mr Payne, Mrs Madisa non-executive directors, Mr Payne, Dr Mokate and achieve the Board’s objectives. achievement of the Bank’s risk data aggregation and Dr Mokate, who is the Chairman. The Head: Mrs Madisa, and chaired by the Board Chairman. and risk reporting (RDARR) capability. The Board Human Capital attends meetings by invitation. The Bank has established structures and processes The Heads: Human Capital and Compliance attend acknowledges that each of the Bank’s activities has The committee oversees the development of to assist in the achievement of effective risk meetings by invitation. The committee assists the an element of risk. Due to the diverse nature of the remuneration philosophy and practices, reviews management and support the ‘Four Lines of Board to maintain and enhance the process of business units, products and services, and the fact incentive schemes and bonus allocations for senior Defence’ model. The lines of defence are operational corporate governance and undertakes the functions that not all risk can be transferred to third parties management, approves employee salary increases management; the risk and compliance functions; of the Nominations Committee, including the through insurance policies, contracts or waivers, and the remuneration of non-executive directors, internal audit and the external auditors. identification, appointment, induction and training the management of residual risk at all levels is and the compliance of remuneration practices with of directors, and succession planning of senior It is the responsibility of line management, the first imperative. the requirements of Regulation 39(16). management. The Nominations Policy guides the line of defence, to monitor risks and adherence The Bank maintains an ERM Policy and framework committee in its identification and nomination of The Board has satisfied itself that Board to limits. Through its training and management to coordinate the many aspects of risk. The Risk candidates to the Board and to senior management subcommittees have performed their activities in standards and procedures, the Bank aims to Management Policy articulates the content of the positions. The committee undertakes the accordance with their terms of reference. maintain a disciplined and constructive control ERM Policy and risk appetite. The Board expects responsibilities of a Social and Ethics Committee, environment, in which all employees understand executive management to be committed to as prescribed by the Companies Act. their roles and obligations. building a risk culture and increased awareness and As part of the second line of defence, the risk a shared responsibility for risk management at all function identifies and analyses risks and levels. A clearly defined Risk Management Policy Principle 9 – Performance Evaluation to support continued improvement recommends appropriate risk limits, controls including a risk appetite statement supports this. and policies. The function is staffed by qualified The director performance assessment process is supervised by the Governance, Social and Ethics Committee. The ability to identify, assess, measure, respond professionals, and the Chief Risk Officer has An assessment was not conducted in 2020 in view of changes in Board composition. The Board views the to, monitor and report on risk effectively is critical unrestricted access to the Risk and Capital evaluation process as helpful in improving Board and individual director performance and effectiveness. to the achievement of the mission and strategic Management Committee and its Chairman. objectives: this risk management approach reflects The risk management policies are established the Bank’s values, influences the Bank’s culture and to identify and analyse risks, to set appropriate guides the Bank’s operations. It is captured in policy risk limits and controls, and to monitor risks and statements, Board and management directives, adherence to limits. Risk management policies are operating procedures, training programmes, and reviewed regularly to reflect changes in strategy, is demonstrated in daily activities by management products and services offered. The Bank, through and employees.

46 47 Accountability

ERM is a group of structured and consistent risk activities strengthen the Bank, reduce the potential Principle 13 – Compliance: supporting Regulatory compliance management processes that are applied across the for unexpected losses, and manage volatility. the Bank as an ethical good corporate The Bank is governed by the Banks Act and the Bank. The ERM programme identifies, assesses, The Board is satisfied that the risk management citizen Regulations relating to banks, which are based prioritises, and provides a formal structure for system and process for identifying, evaluating Compliance, as part of the second line of defence, on the requirements of the Basel III framework. the internal and external risks that impact the and managing significant risks are effective, and functions independently of operations and enjoys Within this regulatory environment, the Bank is organisation. These activities are categorised under operated throughout the period of this report, the support and cooperation of the Board and required to hold adequate capital against its assets commonly accepted categories of risk. providing reasonable assurance. The Board is executive management. The Board is ultimately to safeguard its solvency and overall economic further satisfied that the processes will identify stability. The Bank maintains a strong relationship The ERM programme is driven by a formal approach responsible for ensuring that the Bank identifies and enable it to take adequate action against any with the prudential authority of the SARB, and aligned with the Bank’s profile and strategic and complies with applicable laws, rules, codes and material undue, unexpected or unusual risks. In the communication and transparency are regarded objectives. It is enhanced by formalising roles in the standards. period under review, no such risks were identified. as key factors in this relationship. The objectives of Bank, active committees, policies and procedures, Processes supporting Generally Accepted the Regulators are considered in the preparation reporting, communication, and technology. The The risk function has the necessary status and Compliance Practice are mature and risk of policies, operating procedures and in system ERM programme produces various risk mitigation independence: the Chief Risk Officer is a member management methodology is used to prioritise the development. These objectives are: activities in the business units. The resulting of the Executive Committee and reports to the meeting of high-risk regulatory requirements. strategic, financial, and operational risk mitigation Managing Director. ▶▶ financial stability; The requirements of the Companies Act for assessment of the Bank’s adherence to legislation ▶▶ appropriate market conduct and treating and codes of good practice in the areas of good customers fairly; Principle 12 – Information Technology and Information: supporting achievement of corporate citizenship, social and economic ▶▶ combatting of financial crime; and strategic objectives development, the environment, labour and consumer relations are the responsibility of the ▶▶ financial inclusion. The Bank’s Information Technology (IT) and information requirements are informed by the Board-approved Governance, Social and Ethics Committee. The Bank complies with the Net Stable Funding business strategy, and management is responsible for the effective use of IT and information under the review Ratio (NSFR) and Liquidity Coverage Ratio (LCR) of the Risk and Capital Management Committee, which receives regular reports on the governance of IT, IT Continuous compliance monitoring is conducted and views these requirements as an improvement risks, including cyber security. IT forms part of the ERM framework. IT legislation is included in the Bank’s to assess the levels of compliance with regulatory in the financial regulatory environment in regulatory universe, and compliance with regulatory requirements is subject to ongoing monitoring. requirements specific to banking, and to meet the social and ethics requirements of Regulation 43 to promoting a more resilient banking sector. Formal documented Disaster Recovery (DR) and Business Continuity Plans are in place for all business units. the Companies Act. The Bank continuously strives to improve its DR testing takes place bi-annually; a small component of business continuity is tested where practical and regulatory processes and regulatory awareness by remains under consideration for continuous improvement. The Head: Compliance reports to the Chief Risk Officer and to the Risk and Capital Management ensuring ongoing upgrading and improvement The use of any outsourced service provider is subject to a due diligence exercise, and the Guidance Note 5 Committee, with unfettered access to the Chairman of the internal governance structures, risk principles, where appropriate. IT policies address security of information, risk management and the of that committee, and corresponds with the management systems, business models, capital achievement of strategic objectives. regulators for the financial services industry, strategies and disclosure standards through The Bank’s Internal Audit Department performs IT audits during the year and reports on a quarterly basis to including the prudential authority, the SARB and compliance with the Basel frameworks and all the Audit Committee on the results of the audits performed. the FSCA. other applicable laws, regulations and codes.

Projects completed during the 2019/2020 FY included enhancements to the Bank’s point of sale system, Other Compliance function initiatives include: EVO ie money transfer automated forms; investments and deposits; Western Union Mobile Money transfer; ▶▶ being the custodian and creating awareness enhancements to the Global Platform ie dealing engine and pre-funded offering; World Currency Card of, and driving adherence to the Bank’s balances, transactions and card detailed report; Protection of Personal Information Act phase 1 gap compliance culture; assessment; Authenticated Collections channel development on the internet banking site; IFRS 9 and the launch of the new website. ▶▶ monitoring that the Bank takes appropriate The 2020/2021 FY project focus will be on the payments transformation programme; open banking Application action to manage its regulatory and Programming Interface workstream development; Investments and Deposits on online banking; RDARR; reputational risks and complies with applicable activity-based costing; general ledger restructure; implementation of the Financial Intelligence Center laws, rules, codes and standards; Amendment Act Phase 2 and continuous enhancements to the Bank’s point of sale system EVO and Global ▶▶ identifying the Bank’s regulatory universe; Platform. ▶▶ monitoring adherence to compliance risk IT infrastructure initiatives completed during the year include the deployment of additional work resources parameters; across multiple environments to enable remote working during the COVID-19 pandemic; the deployment of the network to enable the use of cost-effective broadband solutions to connect the branch office network and ▶▶ initiating and monitoring corrective action corporate sites and in future the cloud; commissioning a new DR server hosting facility for cloud compatibility; where appropriate; commencing the cloud initiatives and upskilling employees; establishing structures for the cloud journey. ▶▶ assessing the impact of any new regulatory The IT infrastructure focus for the coming year will be the implementation of the first cloud platform/solution. requirements and legislation across the Bank and overseeing the successful implementation Cyber security initiatives completed during the year included various information security policies and thereof; and procedures; Payment Card Industry certification for Bidvest Merchant Services; threat sharing with the SARB and the South African Banking Risk Information Centre; deploying a security information and event ▶▶ providing reasonable assurance to the Board management solution and integrated Active Directory, SWIFT and Remote Desktop Protocol logs; SWIFT that the compliance risks to which the Bank Customer Security Programme; improved cloud security for Office 365; DDoS protection and malware/virus is exposed are identified and appropriately analysis. managed and controlled. The cybersecurity focus for the coming year will be to deploy the latest rating systems, including the EOF replacement project; enhancing email security; Domain-Based Message Authentication, Reporting and Conformance compliance and Mimecast integration. The remote access solution will be replaced to allow enhanced functionality.

48 49 Accountability

Principle 14 – Remuneration: fair, Affordability and sustainability Governance 2021 focus areas responsible and transparent, promoting In accordance with the business plan and strategy, The Remuneration Committee approves director ▶▶ Exploring diverse remuneration practices and in consideration of the annual budgetary and senior management remuneration and ensures strategic objectives and positive ▶▶ Flexible work implementation outcomes scope, limits are set for remuneration and other compliance with principles of good governance. ▶▶ Reviewing risk benefits Remuneration philosophy human resource costs. The annual adjustment in The Bank does not offer a share incentive scheme, the remuneration account and components of but executives participate in the share incentive ▶▶ Health and safety measures to protect remote The Bank strives to be an employer of choice in its the remuneration adjustments are made with due scheme of The Bidvest Group Limited. workers chosen market by creating an environment where allowance for: people deliver great results and share in the value 2020 achievements ▶▶ Technology to enable permanent remote they create. Remuneration and reward policies and ▶▶ the necessity for competitive remuneration; The Bank added a temporary disability cover to working where possible practices are structured to attract, motivate and the employee risk benefits as part of the employee ▶▶ the budget; ▶▶ Remote work morale and productivity retain high-performance individuals, and those value proposition. A new ‘employee wellness’ service measures with scarce and critical skills. The philosophy is ▶▶ approval from the Board and Remuneration provider was appointed to enhance the employee ▶▶ Reconfiguration of the workplace underpinned by the following principles: Committee; benefit offering. A tax saving benefits programme for employees earning R600 000 p.a. or less was ▶▶ Virtual training and development strategies Support for strategic objectives ▶▶ the inflation rate; implemented. ▶▶ Innovative ways of performance management The Compensation Management Policy supports ▶▶ the desirability and extent of performance and reinforces the achievement of the vision and bonuses; and The Bank received recognition for its Youth Changes in the ways of work require the Bank to strategy. Development programme and upgraded the choice reimagine its ways of work related to workforce, ▶▶ the need for structural adjustments in the for medical care. Electronic salary increase letters workplace, occupational health and safety and Transparent communication remuneration of individuals and occupational were introduced. remuneration practices. The Bank is committed to open communication groups. with employees about the design of its Annual salary increases are based on a cost-to- remuneration programmes, and of ongoing company package and consider: changes to them with clear statements of what Principle 15 – Internal and External Assurance: enabling an effective control remuneration is designed to achieve. The Bank ▶▶ the Bank’s performance; environment and the integrity of information maintains discretion and confidentiality regarding ▶▶ affordability; the specific and individual details of remuneration, Internal Audit is the third line of defence, providing independent assurance to the Board of the effectiveness to improve the quality of decision-making, promote ▶▶ external market (forecast increases); of the other lines of defence in the achievement of the objectives of sound risk management and corporate openness and honesty, and ensure that ownership governance. The department is staffed by professionals in the auditing and internal auditing disciplines. ▶▶ inflation and market movements; and and accountability are accepted. Internal Audit uses a risk-based methodology, and the annual audit plan is approved by the Audit ▶▶ recognition agreements. Committee. Quarterly changes to the plan are presented to the committee. The Internal Audit charter Non-discriminatory practices specifies adherence to international best practice methods, and the department is subject to independent Remuneration is based on the cost of employment, All remuneration policies and practices will be review on a regular basis. The Head: Internal Audit reports to the Managing Director and has unrestricted offering certain flexible structuring choices to free of unfair distinction. The Bank has zero access to the Chairman of the Audit Committee; the King IV guidelines on independence, status and employees, which is the fairest way of managing tolerance for unfair discrimination based on recognition of the Internal Audit function are applied. remuneration and costs within tax legislation. based on race, gender, pregnancy, marital status, The fourth line of defence, the external auditors, provide assurance on the integrity of the financial family responsibility, ethnic or social origin, sexual Performance incentive (Bonus scheme) statements, facilitating informed decision-making, both by the Board and by external stakeholders, such as orientation, age, disability, HIV status, political The scheme is linked directly to the performance the shareholder, regulators and public. orientation, culture, language and birth. Distinction management system, and any award is paid based on scarcity factors and skills will be applied. annually based on the results of the performance PwC are the external auditors and Francois Prinsloo the lead audit partner. review. The performance incentive is a component Internal equity The Board is satisfied that assurance services promote an effective control environment, supporting the of variable remuneration, based on the following: The Bank remunerates all employees fairly and integrity of information for decision-making, and the quality of external reports. The assurance model consistently according to their role and individual ▶▶ a zero base each year with no carry-through effectively addresses significant risks and material issues. value and has commenced a project to eliminate effect; unjustified and historic pay discrepancies. The consistent application of the remuneration system ▶▶ quantum in any year is a direct function of the is mandatory. availability of funds; and ▶▶ achievement of annual strategic goals. External equity The Bank continuously considers sectorial The principles of the bonus pool are year-on- and national remuneration trends, to ensure year growth in trading profit; and non-financial competitive total remuneration within the measures being innovation; acquisitions; B-BBEE parameters of affordability, as far as is achievable rating and employee climate survey results. and sustainable.

50 51 Accountability

Principle 16 – A stakeholder-inclusive approach: balancing the needs, interests and expectations of material stakeholders in the Bank’s best interests The management of stakeholder relationships and implementation of the Stakeholder Policy is the responsibility of executive management. Employees The Bank’s most important stakeholder group is its employees. In addition to fair and transparent remuneration practices, the Bank talent management review ensures that critical talent is rewarded, developed and retained.

The Bank paid salaries and benefits of R430 528 051 during the year and contributed R3 640 104 in terms of the Skills Development Levies Act.

The transformation of the workforce continues: at June 2020 Black, Asian and Coloured men composed 27% and Black, Asian and Coloured women 45% of the total workforce of 1 043. Customers The Bank acknowledges its moral and legal obligation to treat customers fairly. The ‘Treating Customers Fairly’ (TCF) statement sets out how the Bank meets the Standards of Conduct required by the FSCA.

The aim of these standards is to improve customer experience with financial services providers and to ensure fair treatment. In addition, the Bank has developed policies and procedures to ensure the fair treatment of its customers: the customer should be confident that he or she is dealing with a bank where TCF is central to its corporate culture. The way a customer is first treated and the continued after-sales service provided, are the deciding factors in the Bank’s customer retention strategy.

The Product Approval Policy, applicable to the implementation of new products or significant changes to existing products, ensures that products meet customers’ expectations and are suitably designed. The Bank further has processes to ensure that the proper disclosures are made to customers and that customers receive correct advice. All complaints are dealt with in accordance with a formal complaints’ handling policy, and customers are kept engaged throughout the process. Regulators and government The following taxes were paid during the year:

Income tax R46 130 000

Value added tax R53 191 000

Employees tax R108 992 000 Shareholder Dividends totalling R182 864 134 were paid to the sole shareholder. Community The Bank contributed R3 461 585 in its CSI initiatives, focusing on training, education and small business development.

Conclusion The Board confirms that nothing has come to its attention to suggest that the structures and processes listed do not adequately and appropriately address the Bank’s corporate governance obligations.

Nigel George Payne Chairman

21 August 2020

52 53 Accountability

The Board has adopted a risk management policy Bank’s mission and strategic objectives. This to reinforce the need to establish a programme risk management approach reflects the Bank’s for enterprise risk management (ERM). The Board values, influences the Bank’s culture and guides further commits to providing enough personnel the Bank’s operations. It is captured in policy and other resources to ensure full implementation statements, Board and management directives, of the ERM programme. The Board also operating procedures, training programmes, and acknowledges that each of the Bank’s activities has is demonstrated in daily activities by management an element of risk. Due to the diverse nature of the and employees. Bank’s business units, products and services, and ERM is a group of structured and consistent risk the fact that not all risk can be transferred to third management processes that are applied across the parties through insurance policies, contracts or Bank. The ERM programme identifies, assesses, waivers; the management of residual risk at all levels prioritises, and provides a formal structure for of the Bank is imperative. The Board has delegated the internal and external risks that impact the responsibility for Risk Management Policy matters organisation. These activities are categorised under to the Risk and Capital Management Committee commonly accepted categories of risk. which is a subcommittee of the Board. The ERM programme is constructed around a Bidvest Bank maintains an ERM Policy and formal approach that is aligned with the Bank’s framework to coordinate the many aspects of risk. profile and strategic objectives. It is enhanced The Bank’s ERM Policy articulates the content of the by formalising roles within the Bank, active Bank’s ERM and risk appetite. committees, policies and procedures, reporting, The Board expects executive management of the communication, and technology. The ERM Bank to be committed to building a risk culture programme produces various risk mitigation and to have increased awareness and a shared activities within the business units. The resulting responsibility for risk management at all levels of the strategic, financial, and operational risk mitigation Bank. A clearly defined Risk Management Policy activities that have been implemented strengthen including a risk appetite Statement supports this. the Bank, reduce the potential for unexpected losses, and manage the volatility experienced by the Risk is an inherent component of the Bank’s Bank. activities. The ability to effectively identify, assess, measure, respond, monitor and report on risk The Board has overall responsibility for the in activities is critical to the achievement of the establishment and oversight of the Bank’s risk management framework. Risk Governance

Board of Directors Responsible for approving new and changes to all policies; participating in committees with managers; reviewing status; providing guidance on strategies and risk appetite; staying apprised of significant risk exposures; and ensuring that risks are managed within RISK tolerance.

MANAGEMENT Risk and Capital Management Committee Audit Committee Chaired by an independent non-executive director, A Board-level committee responsible for providing and oversees compliance and operational risk assistance to the Board of Directors in fulfilling their The Board of Directors recognises the importance of ongoing programmes, assessments, develops and agrees on need for consistency – in some places the Board is identification and management of risk in order to build and maintain policies and procedures, sets limits, monitors key referred to as ‘it’ and here as ‘their’ responsibility risk indicators, prioritises activities and investments, to the shareholders and investment community the Bank’s sound financial and reputational condition. and provides input to the senior management related to corporate accounting, reporting and the Board regarding the direction of risks and practices, the quality and integrity of financial the status of the programmes, including matters reports, and the quality and effective administration relating to the Bank’s capital adequacy levels. of the controls and procedures of all systems and work processes.

54 55 Accountability

Interrelationship of risk management functions – four lines of defence Risk and Capital Management Committee The Bank adopts the four lines of defence model. Chaired by an independent non- executive director, and oversees compliance and operational risk Board of Directors and governing bodies programmes, assessments, develops and agrees on policies and procedures, sets Business units: Responsible Independent assurance: Internal audit independent limits, monitors key risk indicators, prioritises and accountable for ongoing review and objective assurance on the quality and activities and investments, and provides input management of risks effectiveness of the Bank’s internal control system to the senior management and the Board regarding the direction of risks and the status of the programmes, including matter relating to the Bank’s capital adequacy levels.

1st line 2nd line 3rd line 4th line

Risk and compliance oversight: External auditors and Asset and Liability Committee Risk Executive Committee Complements business line risk activities regulatory bodies Chaired by an independent non- The Risk and Governance Executive through monitoring and reporting executive director, to oversee Committee (Risk EXCO) is liquidity and interest rate risk constituted in accordance with the programmes, shock tests, monitor EXCO terms of reference, to assist key risk indicators, develop and EXCO in monitoring and managing Risk universe agree policies and procedures, risk in the business of the Bank, in As the Bank builds and constructs its future, it is exposed to various forms of risk in strategic, tactical and daily set limits, prioritise activities and accordance with the approved risk activities as illustrated in the below diagram. investments, and provide input to appetite and risk tolerances, and senior management and the Board risk management policies. o eputati nal risk regarding the direction of risks and R the status of the programmes. Business risk

Credit Committee Operational Risk Committee Credit Market Chaired by an independent non- The committee’s objective is to risk risk executive director and oversees manage operational risk relating credit risk activities, assessments from direct or indirect loss arising and stress tests, develops and from a wide variety of causes, agrees on policies and procedures, associated with the Bank’s Regulatory Liquidity risk risk sets limits, monitors key risk processes, personnel, projects, indicators, prioritises activities and technology and infrastructure, and Risk investments, and provides input to from external factors other than the senior management and the credit, market and liquidity risks, management Board regarding the direction of such as those arising from legal credit risks and the status of the and regulatory requirements and Other Operational risk risk programmes. generally accepted standards of corporate behaviour.

Cyber Concentration risk risk

56 57 Accountability

Reputational risk Risk appetite Capital management Reputational risk is the risk that any activity or The Board and management of the Bank use a The Bank is willing to accept more risk in its strategy in order to chase opportunities but is less amenable to action taken by the Bank could negatively affect the balanced approach in determining acceptable levels accept risk that might damage the Bank’s reputation. Between these outlying risks, various other risks exist. Bank’s reputation. The management of reputational of risk to undertake. The Bank will only tolerate those risk is a function of the management of all risks. risks which permit it to: More acceptable risk Less acceptable risk Business risk ▶▶ achieve its stated strategic business objectives; ▶▶ provide a return that meets or exceeds The risk that planned and/or implemented strategic expectations; initiatives may not yield the desired or required return, which may affect medium and long-term business ▶▶ comply with all applicable laws and regulations; growth and profitability. and

The Bank’s business strategy is formalised, and the ▶▶ conduct its business in a safe and sound success of strategic objectives remains vital to the manner. long-term success of the Bank. All strategic initiatives The Board approves, and management sets general receive the necessary ongoing oversight and Other risks risk appetite levels annually through several means: Strategy Reputational monitoring at Board and subcommittee level. Income to which the Bank risk risk derived from new/planned strategic initiatives is ▶▶ The overall internal and external risk is exposed to measured against the cost of implementation thereof environments are considered in conjunction to determine profitability/feasibility. with the strategic planning process.

▶▶ Key strategic business objectives and their financial and non‐financial risk appetite levels are set annually and expressed in the strategic plan and policies. Within the scope of their authority and guidelines established in business plans, policies, and procedures, business unit managers make decisions regarding acceptable levels of risk. Managers are also responsible Higher risk Lower risk for implementing risk mitigation strategies of retention, control, avoidance and transfer.

The SARB sets and monitors capital requirements book or banking book, and risk weighted assets are for the Bank as a whole. In implementing current determined according to specified requirements capital requirements, the SARB requires the Bank that seek to reflect the varying levels of risk to maintain a prescribed ratio of total capital to attached to assets and off-statement of financial total risk weighted assets, market risk exposure position exposures. and operational risk exposure. The Bank follows the The Bank’s Internal Capital Adequacy Assessment standardised approach under Basel III and calculates Process (ICAAP) is formalised and approved by the requirements for market risk in its banking portfolios Risk appetite statement Board. The Bank’s policy is to maintain a strong based upon the Bank’s market risk models and uses capital base to maintain investor, credit and market The Bank considers both qualitative both external and internal grading as the basis for confidence and to sustain future development of and quantitative measures as part risk weightings for credit risk. of its risk appetite and focuses on capital, the business. The impact of the level of capital on liquidity, profitability and growth as primary The Bank’s regulatory capital is analysed into shareholders’ return is also recognised, and the measures. Financial operations are managed to two categories: Bank recognises the need to maintain a balance between the higher returns that might be possible obtain a reasonable risk/return relationship within the ▶▶ Tier I capital: which includes ordinary share with greater gearing and the advantages and management of the various risks to which the Bank is capital, share premium and appropriated security afforded by a sound capital position. exposed, including strategy risk, credit risk, liquidity risk retained earnings; and and reputational risk. The Bank’s risk appetite is linked to its The Bank’s ICAAP reflects its internal assessment ▶▶ Tier II capital: which includes collective short and longer-term strategy focusing on higher return of risk. The ICAAP determines the most suitable impairment allowances. on equity, growth in profitability, year-on-year growth and level of economic capital, ie the capital required to revenue diversification. The Bank’s risk appetite also Banking operations are categorised as either trading remain solvent under conditions that are extreme specifies, as part of risk appetite, risk tolerances around in nature. For potential losses arising from risk types its risk appetite, such as acceptable limits of credit that are statistically quantifiable, economic capital losses. The risk appetite is reviewed annually and reflects the worst-case loss, taking risk-adjusted is adjusted to take cognisance of target values returns on capital into account. and market prospects. The Bank’s overall risk appetite is relatively low.

58 59 Accountability

The final economic capital level determined through the ICAAP reflects the capital to be held for risks as Capital growth (R000) Breakdown of capital requirement assessed by management instead of implicated by a prescribed regulatory formula. The economic capital The risk weighted exposure for each of the Bank’s 4 000 requirement is then compared to the regulatory capital requirement to determine the buffer to be held for risk categories are indicated below: uncertainties to ensure adequate capitalisation for the Bank.

Focus areas during the financial year 3 000 Breakdown of risk weighted exposure June 2020 (R000) 2 000

2 393 860 1 000 Risk data Matched Recovery and aggregation and funds transfer Stress testing 0 4 652 011 resolution risk reporting 77 072 pricing June June June June June June June (RDARR) 2014 2015 2016 2017 2018 2019 2020 35 026

Total equity Of which qualifying capital and reserve funds 2 374 917

Required capital versus qualifying capital (R000) 14 948 2 500 000 Credit risk Market risk Counterparty credit risk Equity risk 2 000 000 Asset and Interest rate Operational risk Other risks Operational liability risk in the 1 500 000 IT risk risk management banking book (ALM) (IRRBB) 1 000 000 Credit risk Credit risk is the risk of financial loss to the Bank if a 500 000 customer or counterparty to a financial instrument fails to meet its contractual obligations. It arises 0 2014 2015 2016 2017 2018 2019 2020 principally from the Bank’s loans and advances to customers. Qualifying capital and reserve funds Capital composition Total required capital Board responsibility As at 30 June 2020 the Bank was adequately capitalised, and the below capital related items are highlighted: The Board is ultimately responsible for the maintenance of effective risk management in the Capital adequacy ratios (%) Bank. In discharging its responsibilities, the Board Description R000 plays a critical role in overseeing the credit granting 35 and credit risk management functions of the Bank. Total capital and reserves 2 691 033 30 The Board has delegated responsibility for the Qualifying capital and reserves 2 099 414 management of credit risk to its Credit Committee, 25 Of which: Tier I 2 058 247 which is chaired by a non-executive director. The Of which: Tier II 41 167 20 role and responsibilities of the Credit Committee,

Total amount of qualifying capital required 1 098 000 15 as specified in the Credit Committee Charter, is to support the Board in fulfilling its duties and Total risk weighted assets 9 547 834 10 responsibilities regarding the management of Capital Adequacy Ratio (CAR) (qualifying capital and reserves) 21,99% 5 credit risk. Capital Adequacy Ratio (CAR) (total capital and reserves) 28,18% 0 Credit risk approach Regulatory minimum CAR 11,50% 2014 2015 2016 2017 2018 2019 2020 The Bank adopted the standardised approach for Internal Board-approved CAR 15,00% Total capital adequacy ratio the measurement of its exposure to credit risk and (based on total capital and reserve funds) applies the requirements of Regulation 23 and 24 Capital adequacy ratio of the regulations relating to Banks to its credit (based on qualifying capital and reserve funds) exposures. Required capital adequacy ratio

60 61 Accountability

External ratings changes in the borrower’s financial position such Security held Credit risk – asset types that the borrower can no longer pay the obligation, June 2020 (R000) Where a company has a rating issued by a The Bank holds financial collateral and other or that proceeds from collateral will not be enough recognised rating agency, that rating has been security against loans and advances to customers 188 109 16 505 to pay back the entire exposure. applied. If not, an internal risk-based rating process in the form of mortgage bonds over property, has been applied. In the latter case, the Bank Restructured exposure assets financed, and other registered securities determines the financial condition of a borrower over assets, and guarantees. Estimates of fair value Debt is considered to be restructured when a by calculating certain financial ratios and changes are based on the value of security assessed at the borrower’s financial condition has deteriorated, to certain ratios in order to determine the internal time of borrowing and are updated regularly. The credit rating allocated to the borrower. and a revised repayment plan is necessary. Bank applies the comprehensive approach for Restructured credit exposure as defined by Impairment Policy credit risk mitigation as set out in Regulation 23 Regulation 67 of the Regulations relating to Banks of the Regulations relating to banks. The Bank writes off loans (and any related includes any loan, advance or facility in respect of allowance for impairment losses) when the which the Bank granted a concession to the obligor Credit Committee determines that the loan is owing to a deterioration in the obligor’s financial uncollectible. This determination is reached condition, that is, owing to a financial distressed 7 797 055 after considering information such as significant situation of the relevant obligor.

Balance sheet Off-balance sheet Credit grating process Counterparty credit risk Credit forms an integral part in the granting of credit by analysing, granting and managing of the Bank’s lending book. Credit risk portfolio

Credit risk exposure – asset classes Credit risk exposure – sectorial distribution June 2020 (R000) June 2020 (R000) Sales Online credit application submitted 72 598 302 297 380 846 216 965 401 515 102 466 1 079 739 555 676

Submitted Credit Analyse the financials and undertake in-depth 244 793 analyst Research into the industry and business entity 1 567 536 3 061 380 316 703

472 443

Credit Assess the information provided and establish whether the applicant Approved manager meets the Credit Rule 101 – affordability and within the Bank’s policy 171 643 within mandate 1 029 515 660 444 4 454 172 Outside of 395 086 231 949 37 899 mandate Transport, storage Sanction Banks Securities firms Agriculture, hunting, forestry and fishing and communication letter issued Corporates SME retail by Credit Local government and municipalities Mining and quarrying Financial intermediation Committee Credit and insurance Public sector entities SME corporate Manufacturing Committee Real estate Retail Sovereign Electricity, gas and water supply Business services

Legal, Construction Community, social and Within FICA and Out of personal services mandate Wholesale and retail trade, agreement mandate approval repair of specified items, Private households drawn up hotels and restaurants and signed

Senior Credit Committee

Activation and payout Approved Board within submission mandate

Daily management of the book Approval from Board

62 63 Accountability

Operational risk Interest rate risk Liquidity risk The interest rate risk is the risk that an investment’s Operational risk is the risk of loss resulting from value will change due to a change in the absolute Liquidity risk is the current and prospective risk to earnings or capital arising from incurring unacceptable inadequate or failed internal processes, people and level of interest rates, in the spread between losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. systems from external events. This includes legal two rates, in the shape of the yield curve, or in Liquidity risk also arises from failure to recognise or address changes in market conditions that affect the risk. These are the types of non-credit and non- any other interest rate relationship. ability to liquidate assets quickly and with minimal loss in value. interest rate exposures that can lead to financial loss – fraud, business outages, IT failures, vendor outages Management of interest rate risk Contractual and behavioural liquidity or failures, financial statement control issues and The Bank measures interest rate risk by establishing The Bank manages its liquidity mismatches on both a contractual and behavioural basis. Liquidity processing errors. the repricing gap of assets and liabilities. The impact mismatches are stressed to ensure adequate available liquidity sources are available under stress scenarios. The Bank uses the standardised approach for of changes in interest rates on the Bank’s net interest Liquidity mismatch June 2020 (R000) purposes of capital calculation. income and economic value of equity are addressed at the Bank’s ALCO monthly. 4 000 000 The capital requirement for operational risk is 3 500 000 based on a three-year average gross income, which 3 000 000 is allocated to certain business lines depending Capital adequacy ratios (%) on the type of income. The business lines carry 2 500 000 35 a prescribed beta factor, as per the standardised 2 000 000 approach for operational risk, used for calculating 30 1 500 000 the capital charge. 1 000 000 25 500 000 The key issue when determining the categorisation 20 0 of a risk event is its primary cause. A loss event will -500 000 15 be considered an operational risk event if it arose -1 000 000 because of inadequate or failed internal processes, 10 -1 500 000 people and systems or from external events. Next day 2 to 7 days 8 days to 1 month to 2 months to 5 1 month 2 months 3 months Identifying the root cause(s) of a risk event helps 0 Contractual mismatch Business as usual mismatch Stress mismatch Total available liquidity to isolate the operational loss element from other 2014 2015 2016 2017 2018 2019 2020 losses and to understand what action might be appropriate to mitigate against exposure to the Total Capital Adequcy Ratio Liquidity Coverage Ratio (LCR) risk, for example, by amending a process, system, (based on total capital and reserve funds) control or management approach. Some examples The LCR refers to High Quality Liquid Assets (HQLA) held by the Bank to meet its short-term obligations. Capital Adequacy Ratio of operational risk causes include: (based on qualifying capital and reserve funds) It is designed to ensure that the Bank has the necessary assets on hand to ride out short-term liquidity disruptions. Basel III requires the Bank to have a minimum LCR of 100%. ▶▶ lack of policies and procedures; Required capital adequacy ratio

▶▶ inadequate segregation of duties; Currency risk LCR 2020 2019 ▶▶ inadequate activity management; This is the risk that the Bank’s profitability will be LCR (%) 241% 177% ▶▶ lack of management review; negatively affected by changes in exchange rates HQLA (R000) 1 214 248 803 909 between the rand and other foreign currencies in Net outflow (R000) 504 045 454 717 ▶▶ inadequate analyses; which assets and liabilities are denominated. The ▶▶ information processing errors; net open position (NOP) in foreign currency is a limit imposed by the Regulator and is equal to 10 percent Net Stable Funding Ratio (NSFR) ▶▶ inadequate physical controls; and of the Bank’s qualifying capital and reserve funds. The NSFR is defined as the amount of available stable funding (ASF) relative to the amount of required ▶▶ external events. stable funding (RSF). The ASF is defined as the portion of capital and liabilities expected to be reliable over Net open position (R000) When an internal issue is at the root of a risk, the the time horizon considered by the NSFR, which extends to one year. A ratio of 100% or more by 2018 is focus should be on how to address the issue. This 250 000 prescribed by Basel III. generally involves modifying a business process or enhancing controls to reduce the potential 200 000 NSFR 2020 2019 likelihood and impact of a risk event. For example, if ‘miscommunication’ of critical information 150 000 NSFR (%) 149% 159% caused exposure to a risk, consideration should be RSF (R000) 5 855 627 5 175 522 given to improving the frequency and quality of 100 000 ASF (R000) 8 731 262 8 246 342 communications. 50 000 Market risk 0 Market risk is risk as a result of changes in the June June June June June June June market prices, such as interest rates, equity prices, 2014 2015 2016 2017 2018 2019 2020 foreign exchange rates and credit spreads which NOP (R000) (absolute value) Regulatory limit affect the Bank’s income or the value of its holdings Internal ALCO approved limit of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk.

64 65 Annual financial statements

Contents

The reports and statements set out below comprise the consolidated and separate annual financial statements presented to the shareholders:

Page

Six-year review 68

Governance report 71

Directors’ responsibilities and approval statement 83

Audit Committee report 84

Independent auditor’s report 85

Directors’ report 87

Consolidated and separate statement of comprehensive income 91

Consolidated and separate statement of financial position 92

Consolidated and separate statement of cash flows 93

Statement of changes in equity 94

Accounting policies 96

Notes to the consolidated and separate annual financial statements 120

Annexure A 182

ANNUAL FINANCIAL STATEMENTS

Bidvest Bank Limited (Registration number 2000/006478/06)

Consolidated and separate annual financial statements for the year ended 30 June 2020

The preparation of these Consolidated and Separate Annual Financial Statements was supervised by: G Oxford CA(SA)

Head: Financial Control

These Consolidated and Separate Annual Financial Statements have been audited in compliance with the applicable requirements of the Companies Act 71 of 2008.

66 67 Annual financial statements

Six-year review Six-year review Adjusted consolidated statement of financial performance for the years ended 30 June Adjusted consolidated statement of financial position at 30 June

2020 2019 2018 2017 2016 2015 2020 2019 2018 2017 2016 2015 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000

Interest income 588 708 507 496 444 542 342 905 231 845 222 354 Assets Imputed interest from rental Cash and cash equivalents 4 520 336 4 126 987 3 614 479 2 846 484 2 522 371 2 387 550 income* 96 117 120 422 137 124 133 495 125 939 51 719 Derivative financial assets 8 556 13 496 14 755 26 181 46 047 9 844 Interest expense (393 511) (314 195) (280 417) (210 793) (146 456) (91 198) Negotiable securities 254 658 328 317 391 722 248 284 327 442 239 067 Net interest income 291 314 313 723 301 249 211 328 211 328 182 875 Investment securities 996 626 563 990 376 702 254 868 255 061 116 184 Fee and commission income 691 645 661 696 472 105 323 084 289 108 264 142 Other assets 353 175 277 929 367 222 356 068 297 545 154 008 Fee and commission expense (483 450) (442 779) (295 080) (156 073) (130 863) (80 201) Current tax receivable 36 838 18 314 6 545 – – 30 885 Loans and advances 2 862 773 2 792 067 2 380 787 2 100 468 1 660 359 1 240 171 Net fee and commission Intergroup loans 212 337 189 989 58 796 – 445 476 income 208 195 218 917 177 025 167 011 158 245 183 941 Equipment 99 415 124 902 80 720 98 375 109 448 74 545 Leasing income 502 952 595 962 567 107 608 826 572 060 324 459 Right-of-use assets 258 342 – – – – – Imputed interest reflected under net interest income* (96 117) (120 422) (137 124) (133 495) (125 939) (51 719) Leased assets 1 360 612 1 569 074 1 687 128 1 707 427 1 489 961 1 851 857 Intangible assets 170 450 220 068 218 526 152 424 112 726 84 914 Net income from leasing 406 835 475 540 429 983 475 331 446 121 272 740 Inventories 175 357 38 111 21 983 21 386 81 285 11 480 Net trading income 223 217 277 739 277 768 324 488 327 357 267 734 Other income/(loss) 85 529 63 721 813 1 685 1 530 (9 737) Total assets 11 309 475 10 263 244 9 219 365 7 811 965 6 902 690 6 200 981

Operating income 1 215 090 1 349 640 1 186 838 1 234 122 1 144 581 897 553 Equity and Liabilities Net credit impairment income/ Equity (charge) (42 574) (4 495) 6 137 (4 960) (25 984) (562) Share capital 2 070 2 070 2 070 2 070 2 070 2 070 Share premium 525 709 525 709 525 709 525 709 525 709 525 709 Operating income after credit impairment income/(charge) 1 172 516 1 345 145 1 192 975 1 229 162 1 118 597 896 991 Share-based payment reserve (23 662) (1 807) 86 12 455 14 436 16 126 Employment costs (454 857) (469 558) (442 251) (405 432) (361 031) (295 541) Fair value reserve 8 485 24 373 524 3 635 1 107 177 Operating leases (6 404) (90 494) (86 934) (91 796) (87 154) (76 453) Retained income 2 178 431 2 295 543 2 141 993 1 982 161 1 799 244 1 592 759

Risk control (31 436) (15 749) (18 606) (25 649) (21 865) (23 646) 2 691 033 2 845 888 2 670 382 2 526 030 2 342 566 2 136 841 Information technology costs (67 359) (68 728) (53 015) (47 945) (32 457) (24 716) Impairments and provisions (36 094) – – – – – Liabilities Deposits 7 427 334 6 576 907 5 698 945 4 502 591 3 862 609 2 830 773 Depreciation and amortisation (222 728) (65 542) (54 561) (43 572) (39 454) (30 151) Derivative financial liabilities 21 934 8 635 45 513 49 585 47 405 6 996 Other operating expenditure# (159 910) (186 519) (121 812) (128 937) (116 156) (80 655) Trade and other payables 582 474 493 436 494 404 416 092 334 258 893 413 Operating expenditure (978 788) (896 590) (777 179) (743 331) (658 117) (531 162) Intergroup loans – 150 101 150 089 150 035 150 032 150 026 Finance costs (25 852) – – – – – Floating rate notes 100 257 – – – – –

Profit before indirect taxation 167 876 448 555 415 796 485 831 460 480 365 829 Lease liabilities 285 937 – – – – – Indirect taxation (25 707) (16 531) 3 482 (19 269) (19 816) (11 472) Deferred tax 200 194 187 758 159 513 161 727 151 087 182 450 Current tax payable – – – 5 454 14 282 – Profit before direct taxation 142 169 432 024 419 278 466 562 440 664 354 357 Defined benefit liability 312 519 519 451 451 482 Direct taxation (39 115) (119 528) (116 949) (130 606) (117 179) (91 345) Total liabilities 8 618 442 7 417 356 6 548 983 5 285 935 4 560 124 4 064 140 Profit for the year 103 054 312 496 302 329 335 956 323 485 263 012 Total equity and liabilities 11 309 475 10 263 244 9 219 365 7 811 965 6 902 690 6 200 981 Earnings per share

* Imputed interest is the portion of interest that is included in leasing rental income from operating rental assets. It is calculated on the monthly outstanding capital balance for each asset. # Includes marketing, communication and other administration expenses.

68 69 Annual financial statements

Six-year review Governance report Statistics, returns and capital adequacy

The Bank’s corporate governance practices and processes are informed by the Bank’s statutes, the Banks 2020 2019 2018 2017 2016 2015 Act and particularly Regulation 39, the Companies Act, the King IV Code on Corporate Governance, the Basel Statistical review Committee on Banking Supervision Guidelines on corporate governance principles for banks, and the Bank’s code of conduct. The Board is required annually to assess and document whether the processes relating Statement of financial to corporate governance, internal controls, risk management, capital management and capital adequacy performance implemented by the Bank achieve the objectives specified by the Board. This assessment of the processes Net interest income to assets (%) 2,58 3,06 3,27 3,40 3,06 3,61 relating to corporate governance and internal controls has been undertaken by the Governance, Social and Non-interest income to Ethics Committee, using the framework of the King IV Code Principles. assets (%) 8,17 10,09 9,61 12,40 13,52 12,46 The assessment of the efficacy of risk management, capital management and capital adequacy processes is Operating expenses to assets (%) 8,65 8,74 8,43 9,52 9,53 8,63 undertaken by the Risk and Capital Management Committee on behalf of the Board and reported separately. Interest income to interest earning assets (%) 6,65 7,33 7,41 6,93 5,54 6,13 Ethical, effective and responsible leadership Interest expense to funding Values and ethics liabilities (%) 5,23 4,67 4,79 4,53 3,65 3,06 The Board of Directors (the Board) endorses the Bank’s commitment to the conduct of the business in Cost-to-income (%) 82,67 67,88 64,85 62,04 60,60 60,46 accordance with the highest ethical standards, as expressed in the Code of Conduct, and to responsibility, accountability, fairness and transparency. Bank employees receive training on, and are required to Non-interest income to total acknowledge and accept, the Code of Conduct at induction. income (%) 68,70 71,80 74,23 78,79 83,43 85,44 Credit loss ratio (%)* 1,49 0,20 0,15 0,13 0,82 0,02 The responsibility for implementing and executing the Code of Conduct and ethics policies lies with Effective tax excluding indirect management, and disciplinary action is taken against employees who contravene the policies. tax (%) 27,51 26,65 28,13 26,88 25,45 24,97 Related parties Effective tax including indirect The Conflicts of Interest Policy regulates the conduct of dealings with related parties, to ensure that potential tax (%) 38,61 30,33 27,29 30,85 29,75 28,83 conflicts of interest are avoided, and all related party transactions are fully disclosed. Declarations of related Statement of financial party transactions are required to be made at least quarterly and are reported to the Audit Committee, and position annually as part of the audit of the financial statements. The directors are required to make declarations of Return on assets (%) 0,96 3,04 3,28 4,30 4,69 4,27 interest at each directors’ meeting in accordance with the provisions of the Companies Act, the Corporate Governance Policy and the Board Charter and Code of Conduct. Return on equity (%) 3,83 10,98 11,32 13,30 13,82 12,31 Loans and leased assets to Whistleblowing deposits (%) 56,86 66,31 71,38 84,57 81,56 109,23 The Bank participates in the Bidvest Group confidential anti-fraud tip-off line: all reports are investigated Regulatory capital to and disciplinary or other appropriate actions taken. The Protected Disclosure Policy, to which all employees risk‑weighted assets (%) 21,99 22,85 20,57 19,95 16,85 18,18 are subject, specifies the protection of whistleblowers and their recourse for any occupational detriment they may suffer. In appropriate cases rewards may be given. Financial leverage (times) 4,20 3,61 3,45 3,10 2,95 2,90 Net stable funding ratio (%) 149,00 159,00 153,19 101,00 87,00 70,75 The Bank as a responsible corporate citizen Liquidity coverage ratio (%) 241,00 177,00 162,92 151,00 163,00 104,00 Transformation. Statistical information The Bank’s B-BBEE rating under the financial sector rating code is 4. Areas of activity in which the Bank can Number of employees 1 118 1 124 1 199 1 179 1 171 1 109 improve its rating have been identified, and a programme to achieve such improvement is being developed. Number of branches 55 80 76 80 85 85 Corporate citizenship Income per employee (R000) 1 122 1 201 990 1 048 977 814 The Bank is committed to the development and wellbeing of the communities it serves: its socio-economic Expense per employee (R000) 904 798 648 631 562 484 investments focus on community-based initiatives, youth and education. The Bank seeks to build robust Profit before taxation per relationships, and it works with organisations that make a measurable difference to lives and communities. employee (R000) 131 384 350 396 376 330 R4 064 900 was allocated to these beneficiaries in 2020 (2019: R2 492 112). In addition to providing financial Exchange rates at 30 June support at an organisational level, the Bank also encourages employees to participate in community affairs and programmes. USD 17,36 14,08 13,77 13,12 14,70 12,17 GBP 21,47 17,85 18,11 17,03 19,71 19,09 Environment EUR 19,50 15,94 16,05 14,94 16,32 13,54 The Bank is conscious of its environmental responsibilities. The business has a low direct impact, and it participates in paper recycling initiatives to ensure that waste paper is disposed of in an environmentally Average exchange rates acceptable manner. The Bank encourages responsible use of energy, water and public transport wherever USD 15,68 14,19 12,85 13,60 15,07 11,45 possible, and its head office premises are in a Green Building Council 4 star certified building. GBP 19,73 18,36 17,29 17,32 21,40 18,01 EUR 17,33 16,19 15,32 14,98 16,92 13,72 Average prime overdraft rate (%) 9,36 10,15 10,21 10,50 9,94 9,25

* Reflected as a percentage of loans and advances only.

70 71 Annual financial statements

Governance report continued

Strategy: core purpose, risk, opportunities, business model, performance and At 30 June 2020, the Board was composed of one executive and six non-executive directors. Mr Liebenberg, sustainability are all elements of value creation the Financial Director, was approved as the Acting Managing Director pending the appointment of a replacement for Mr JJ van Niekerk who resigned as Managing Director on 29 February 2020. The roles of The Board’s objectives are the development and sustainable growth of the Bank’s business in accordance the Chairman and Managing Director are separate, and Board composition aims to ensure unfettered with applicable regulatory requirements, for the benefit of all stakeholders. The achievement of these decision-making without domination by any group or individual. The review of the composition of the Board objectives is dependent on the adherence to good corporate governance throughout the organisation. has been ongoing during the year: in order to meet the requirements of Directive 4 of 2018 it is necessary The Board approves Bank strategy as proposed by management, and management is responsible for to appoint an independent non-executive director to replace Mr Payne as chairman, and to appoint at the alignment of the strategy with the approved risk appetite, its implementation and the assessment of least two independent non-executive directors to replace Mr EK Diack and Dr RD Mokate. The approval its effectiveness. Strategy includes short, medium and longer-term goals, and the risks attendant on any has been obtained for the extension of Mr Payne’s tenure as Chairman until 31 August 2021, subject to the initiative. The new product approval process requires to be approved for implementation by the revenue- appointment of an independent non-executive director as the Lead Independent director in the place of Dr generating and support functions. The impact of strategy on stakeholders is part of the approval process, Mokate. New directors will be appointed to the Board sub-committees: Audit; Governance, Social and Ethics; and the business performance management unit measures the effectiveness of initiative implementation Remuneration; Risk and Capital Management. and its realisation of initial objectives. Management reports quarterly to the Board on business performance, including strategic initiatives: such reports include any negative consequences of its activities. The appointment of Ms Zodwa Matsau as lead independent non-executive director was approved with effect from 21 May 2020 and the appointment of Mr AM Mazwai was approved on 15 July 2020. The financial performance is reported in financial statements audited by the external auditors, PwC. Board appointments and succession planning Group Company All appointments are subject to the approval of the Regulator in terms of the Banks Act. The selection of 30 June 30 June 30 June 30 June candidates for approval is guided by the needs of the Board for skill, knowledge, experience, diversity and the Statistical information 2020 2019 2020 2019 personal attributes of the individual. The Bank Memorandum of Incorporation does not provide for director rotation, and directors serve while they meet the requirements of the Banks Act and the Companies Act, Operating income (R000) 1 215 090 1 349 640 1 154 673 1 290 979 subject to review in terms of the Board Charter once they reach 70 years of age. Profit before direct taxation (R000) 142 169 432 024 133 868 423 963 Director induction, training and development programmes BEE procurement (R000) 2 002 643 1 568 663 2 002 643 1 568 663 In accordance with the Induction Policy, new directors receive induction information and materials, access Training spend (R000) 12 182 12 456 12 182 12 456 to background information about the Bank, its business and environment, and interaction with senior Training spend per employee (Rand) 10 896 11 082 10 896 11 082 management. Ongoing director training is provided by external subject experts on topical issues: during the Number of employees trained 1 118 1 124 1 118 1 124 year the Board received presentations on modernisation of payments; Cloud computing and off-shoring; the COVID-19 detailed response and plan; and the sovereign downgrade. Going concern Independence The process for assessing the Bank’s going concern status is reviewed by the Audit Committee. The Directors are required annually to provide written acknowledgement of their compliance with section 75 of Committee satisfies itself that the Bank has adequate resources available to continue in operational existence the Companies Act in respect of the avoidance of any conflict between their personal interests and those of for the foreseeable future, and for this reason the Board adopts the going-concern basis in the preparation of the Bank. Declarations of interest are a standard agenda item at every Board meeting, and any transaction the financial statements. with a director is required to be concluded on an arm’s length, under terms that are no more favourable than those with third parties. Directors and employees are required to declare their personal interests in Reporting for informed assessment of performance and prospects accordance with the Companies Act and Code of Conduct. Independent non-executive directors are required The Board is responsible for the integrity of reports issued by the Bank, including financial statements, the at the first directors’ meeting after appointment and annually thereafter to confirm that they meet the integrated report and the Pillar III Public Disclosure: the Board reviews and approves their contents, based independence requirements of the Directive. on recommendations from the Audit Committee, the Governance, Social and Ethics Committee and the The roles and responsibilities of the Chairman, Managing Director and Lead Independent director are Remuneration Committee. The materiality level for disclosure in the financial reports is determined by the separate and governed by the Corporate Governance Policy and Board Charter and Code of Conduct. external auditors, but a significantly lower level is set by the Board for purposes of reporting to the directors. The Board regards as material any issue which could significantly affect the achievement of strategic, The Board is supported by the Company Secretary and by the secretarial department of the Bidvest Group financial, operational or regulatory objectives. The list of top ten risks is developed by the Risk Department in in its corporate governance and legal responsibilities. The appointment of the Company Secretary is subject discussion with business and is reviewed and refined by the Risk and Capital Management Committee. to the approval from the Board and the regulator, and the performance of the Company Secretary is evaluated annually by the Managing Director and Chairman. The Company Secretary is required to fulfil the The Board as the focal point and custodian of corporate governance responsibilities set out in sections 75, 76 and 88 of the Companies Act; section 60B and Regulations 39 and 40 The Board Charter and Code of Conduct sets its role, responsibilities, membership and processes, and to the Banks Act; Principle 10 of King IV; Basel Committee on Banking Supervision Principles for Effective Risk include the responsibilities of the Board chairman. The Board has unrestricted access to management and Data Aggregation and Risk Reporting 3013 (RDARR); and the Bank’s Corporate Governance Policy, version 9. documentation, and a relationship with executive management is created by management’s attendance The Board is satisfied that it has effective access to professional corporate governance services. at Board and committee meetings to ensure appropriate oversight and involvement. A method exists for The Board is satisfied that it has fulfilled its obligations as specified in the Board Charter and Code directors to obtain independent professional advice. The Corporate Governance Policy was amended during of Conduct. the year in line with Banks Act Directive 4 of 2018 on corporate governance.

Board composition: a balance of knowledge, skill, experience and independence Board and committee composition, and the mix of executives and non-executives, are in accordance with the requirements of the Banks Act. The Board has not set gender or race targets and is mindful of the importance of diversity of age, race, gender, knowledge and experience in its governance structures.

The directors are aware of the standard of directors’ conduct required in terms of the Companies Act and the Banks Act.

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Governance report continued

Delegation to Board committees promoting independent judgement, and the Bidvest Bank Committee composition and terms of reference effective discharge of the Board’s duties The following committees continue to review the activities of the Bank in accordance with such committees’ The Board delegates its supervisory obligations to board committees, which operate in accordance with terms of reference: the Companies Act and Board-approved terms of reference. Board subcommittees assist the Board in the The Audit Committee is composed of three non-executive directors: Messrs Cunningham (chairman), identification, measurement, mitigation and reporting of the risks applicable to Bank business in accordance Ms Matsau and Dr Mokate. The Committee monitors the financial, operational and management reporting with Regulation 39. processes, and evaluates the adequacy and effectiveness of internal controls, accounting practices and The Committees are: processes. The Committee reviews the work of Internal Audit, and the Head: Internal Audit has unrestricted access to the Committee and its chairman. Representatives of the external auditors, PwC, attend all ▶▶ Audit Committee meetings. The Heads: Internal Audit, Risk, Financial Control and Bidvest Group Internal Audit ▶▶ Governance, Social and Ethics, incorporating Nominations attend meetings as invitees. The Credit Committee reports to the Audit Committee.

▶▶ Risk and Capital Management The Risk and Capital Management Committee is composed of two non-executive directors, Messrs Cunningham (chairman) and Payne. The vacancy on the Committee will be filled as soon as a suitable ▶▶ Remuneration non-executive director is appointed. The Committee’s function is principally to review and monitor the risk The Committees’ activities are regularly reported to the Board, which satisfies itself that the Committees management strategy and policy, and to co-ordinate risk and capital management assurance activities. The have performed their functions in accordance with their terms of reference. Meeting packs for all committee Committee reviews the work of risk management functions including compliance, anti-money laundering, meetings are distributed to all directors for information purposes. risk and information technology. The Head: Compliance and Head: Risk have unrestricted access to the Committee, its chairman and the Bank chairman. The Executive Committee members, a representative of Board committees are responsible for approving and reviewing the effectiveness of the corporate governance Bidvest Group internal audit and a representative of the external auditors attend meetings by invitation. The and risk management policies in their specified areas. The Board and Board committees receive regular Asset and Liability Committee (ALCO) reports to the Risk and Capital Management Committee. briefing materials on the Bank’s activities, its performance and operating environment. The Board has unfettered access to management and information. The Corporate Governance, Social and Ethics and Nominations Committee is composed of three non- executive directors, Mr Payne, Dr Mokate and Mrs Madisa, and chaired by the Board chairman. The Heads: The service by directors and senior managers on more than one committee promotes collaboration and Human Capital and Compliance attend meetings by invitation. The Committee assists the Board to maintain reduces duplication. Senior managers attend committee meetings by invitation. and enhance the process of corporate governance and undertakes the functions of the Nominations Meeting attendance Committee, including the identification, appointment, induction and training of directors, and succession planning of senior management. The Nominations Policy guides the Committee in its identification and Details of the attendance by directors at Board and Board sub-committee meetings are set out nomination of candidates to the Board and to senior management positions. The Committee undertakes the in the schedule below: responsibilities of a Social and Ethics Committee, as prescribed by the Companies Act.

Risk and Social and Ethics Capital Corporate Board Audit Management REMCO Governance The requirements of Regulation 43 to the Companies Act are addressed by Bank policies and practices, including: Number of meetings 5 4 4 3 2 ▶▶ social and economic development – the promotion of diversity in the workplace and the elimination AD Cunningham@* 5 Chairman 4 Chairman 4 1i – of discrimination in recruitment, remuneration and advancement; improvement of the B-BBEE rating; # MJ Liebenberg 5 – – – – implementation of and compliance with the Employment Equity Policy; EK Diack@* 2 1 – – – ▶▶ good corporate citizenship; NT Madisa* 4 – – 2 2 ▶▶ environment, health and safety; RD Mokate@* 4 4 2i Chairman 3 2 NG Payne@* Chairman 4 4i 4 3 Chairman 2 ▶▶ consumer relations – adhering to consumer protection legislation; initiation of a formal project to review LP Ralphs* 4 – – – – and amend systems and processes to ensure protection of personal information; JJ Van Niekerk# 3 – – – – ▶▶ labour and employment-compliance with labour legislation; ensuring decent working conditions and fair terms of employment; contribution to the educational development of employees and a bursary scheme Mr Cunningham chairs the ALCO and Senior Credit Committees and attended 10 meetings of each committee. for employees’ children; The Chairman has attended ALCO and Senior Credit Committee meetings as an invitee since March 2020. The executive directors attend all Board sub-committee meetings by invitation. ▶▶ response to the COVID-19 pandemic, including adherence to guidelines and regulations under the * Non-executive director Disaster Management Act. @ Independent # Executive director The Governance, Social and Ethics Committee received no reports of failure to comply with the social and i Attendance by invitation ethics matters specified in Regulation 43 in the year under review.

The Remuneration Committee is composed of three non-executive directors, Mr Payne, Mrs Madisa and Dr Mokate, who is the chairman. The Head: Human Capital attends meetings by invitation. The Committee oversees the development of remuneration philosophy and practices, reviews incentive schemes and bonus allocations for senior management, approves employee salary increases and the remuneration of non‑executive directors, and the compliance of remuneration practices with the requirements of Regulation 39(16).

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The Board has satisfied itself that Board subcommittees have performed their activities in accordance with The Bank maintains an ERM Policy and framework to coordinate the many aspects of risk. The Risk their terms of reference. Management Policy articulates the content of the ERM Policy and risk appetite. The Board expects executive management to be committed to building a risk culture and increased awareness and a shared responsibility Performance evaluation to support continued improvement for risk management at all levels. A clearly defined Risk Management Policy including a Risk Appetite The director performance assessment process is supervised by the Governance, Social and Ethics Committee. Statement supports this. An assessment was not conducted in 2020 in view of changes in Board composition. The Board views the The ability to identify, assess, measure, respond to, monitor and report on risk effectively is critical to the evaluation process as helpful in improving Board and individual director performance and effectiveness. achievement of the mission and strategic objectives: this risk management approach reflects the Bank’s Management effectiveness: delegation and the effective exercise of authority and values, influences the Bank’s culture and guides the Bank’s operations. It is captured in policy statements, responsibilities Board and management directives, operating procedures, training programs, and is demonstrated in daily activities by management and staff. The Managing Director is appointed by and accountable to the Board and is responsible for the implementation of Board-approved strategy, and for the performance of the Executive Committee in ERM is a group of structured and consistent risk management processes that are applied across the Bank. managing and directing Bank operations. The Board chairman, with the shareholder, evaluates the The ERM program identifies, assesses, prioritises, and provides a formal structure for the internal and performance of the Managing Director. A successor to the Managing Director, who resigned on 29 February external risks that impact the organisation. These activities are categorized under commonly accepted 2020, is being sought. Mr Liebenberg is the acting Managing Director. categories of risk.

The Executive Committee is chaired by the Managing Director and is composed of the Financial Director, The ERM program is driven by a formal approach aligned with the Bank’s profile and strategic objectives. and the heads of the Bank’s revenue-generating divisions and support functions. The Committee is It is enhanced by formalising roles in the Bank, active committees, policies and procedures, reporting, responsible for the implementation of Board-approved strategy and the identification, management and communication, and technology. The ERM program produces various risk mitigation activities in the business mitigation of risk in the business. The Committee terms of reference specify limits on the Committee’s units. The resulting strategic, financial, and operational risk mitigation activities strengthen the Bank, reduce authority and those areas reserved to the Board. During the year the succession plan was updated as part of the potential for unexpected losses, and manage volatility. the implementation of the COVID-19 Risk Management Plan. The Board is satisfied that the risk management system and process for identifying, evaluating and In addition to statutory committees, specialised committees support line management in the risk managing significant risks are effective, and operated throughout the period of this report, providing management and governance of specialised activities: such committees are the Projects Steering Committee, reasonable assurance. The Board is further satisfied that the processes will identify and enable it to take Operational Risk Committee, Risk and Governance Executive Committee and the Corona Management adequate action against any material undue, unexpected or unusual risks. In the period under review, no such Committee. Delegation to individuals is by written mandates in accordance with a Board-approved process. risks were identified.

The Board is satisfied that the delegation of authority is appropriately controlled. The risk function has the necessary status and independence: the Chief Risk Officer is a member of the Executive Committee and reports to the Managing Director. Risk management: governance of risk to support achievement of strategic objectives Information technology and information: supporting achievement of strategic The Board has overall responsibility for the establishment and oversight of risk management, with objectives assistance from the Risk and Capital Management Committee, ALCO, Senior Credit Committee and Risk The Bank’s information technology (IT) and information requirements are informed by the Board-approved and Governance Exco in the identification of risks inherent in the business and the monitoring of controls to business strategy, and management is responsible for the effective use of IT and information under the manage those risks. The separate document entitled ‘Risk and Capital Management Review’ reports on the review of the Risk and Capital Management Committee, which receives regular reports on the governance directors’ assessment whether the Bank’s processes achieve the Board’s objectives. of IT, IT risks, including cyber security. IT forms part of the Enterprise Risk Management (ERM) framework. IT legislation is included in the Bank’s regulatory universe, and compliance with regulatory requirements is The Bank has established structures and processes to assist in the achievement of effective risk management subject to ongoing monitoring. and support the ‘Four Lines of Defence’ model. The lines of defence are operational management; the risk and compliance functions; internal audit and the external auditors. Formal documented disaster recovery (DR) and business continuity plans are in place for all business units. DR testing takes place bi-annually; a small component of business continuity is tested where practical and It is the responsibility of line management, the first line of defence, to monitor risks and adherence to limits. remains under consideration for continuous improvement. Through its training and management standards and procedures, the Bank aims to maintain a disciplined and constructive control environment, in which all employees understand their roles and obligations. The use of any outsourced service provider is subject to a due diligence exercise, and the Guidance Note 5 principles, where appropriate. IT policies address security of information, risk management and the As part of the second line of defence, the risk function identifies and analyses risks and recommends achievement of strategic objectives. appropriate risk limits, controls and policies. The function is staffed by qualified professionals, and the Chief Risk Officer has unrestricted access to the Risk and Capital Management Committee and its chairman. The Bank’s internal audit department performs IT audits during the year and reports on a quarterly basis to the Audit Committee on the results of the audits performed. The risk management policies are established to identify and analyse risks, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to Projects completed during the year included enhancements to the Bank’s point of sale system EVO i.e. reflect changes in strategy, products and services offered. The Bank, through its training and management money transfer automated forms; Investments and Deposits; Western Union Mobile Money Transfer; standards and procedures, aims to maintain a disciplined and constructive control environment, in which all enhancements to the global platform i.e. dealing engine and pre-funded offering; World Currency Card employees understand their roles and obligations. balances and transactions and Card detailed report; Protection of Personal Information Act phase 1 gap assessment; Authenticated Collections channel development on the internet banking site; International The Board recognises the importance of on-going identification and management of risk to maintain a Financial Reporting Standards (IFRS) 9 and the launch of the new website. sound financial and reputational condition, and the risk management policy affirms the need to establish a program for enterprise risk management (ERM). The Board further commits to providing sufficient personnel The coming year’s project focus will be on the payments transformation programme; open banking and other resources to ensure full implementation of the ERM program, which includes investment in application programming interface workstream development; Investments and Deposits on online banking; achievement of the Bank’s RDARR capability. The Board acknowledges that each of the Bank’s activities RDARR; activity-based costing; general ledger (GL) restructure; implementation of the Financial Intelligence has an element of risk. Due to the diverse nature of the business units, products and services, and the fact Center Amendment Act Phase 2 and continuous enhancements to the Bank’s point of sale system EVO and that not all risk can be transferred to third parties through insurance policies, contracts or waivers, the global platform. management of residual risk at all levels is imperative.

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IT Infrastructure initiatives completed during the year include the deployment of additional work resources Regulatory compliance across multiple environments to enable remote working during the COVID-19 pandemic; the deployment of The Bank is governed by the Banks Act and the Regulations relating to banks, which are based on the the network to enable the use of cost effective broadband solutions to connect the branch office network requirements of the Basel III framework. Within this regulatory environment, the Bank is required to and corporate sites and in future the Cloud; commissioning a new DR server hosting facility for Cloud hold adequate capital against its assets to safeguard its solvency and overall economic stability. The Bank compatibility; commencing the Cloud initiatives and upskilling staff; establishing structures for the Cloud maintains a strong relationship with the Prudential Authority of the SARB, and communication and journey. transparency are regarded as key factors in this relationship. The objectives of the Regulators are considered The coming year IT infrastructure focus will be the implementation of the first Cloud platform/solution. in the preparation of policies, operating procedures and in system development. These objectives are:

Cyber security initiatives completed during the 2019/2020 FY included various information security policies ▶▶ financial stability; and procedures; PCI certification for Bidvest Merchant Services; threat sharing with the South African Reserve ▶▶ appropriate market conduct and treating customers fairly; Bank (SARB) and the South African Banking Risk Information Centre; deploying a security information and event management solution and integrated Active Directory, SWIFT and Remote Desktop Protocol logs; ▶▶ combatting of financial crime; and SWIFT Customer Security Programme; improved Cloud security for Office 365; DDoS protection and malware/ ▶▶ financial inclusion. virus analysis. The Bank complies with the Net Stable Funding Ratio and Liquidity Coverage Ratio and views these The cyber security focus for the coming year will be to deploy the latest rating systems, including the EOF requirements as an improvement in the financial regulatory environment in promoting a more resilient replacement project; enhancing email security; Domain-based Message Authentication, Reporting and banking sector. Conformance compliance and Mimecast integration. The remote access solution will be replaced to allow enhanced functionality. The Bank continuously strives to improve its regulatory processes and regulatory awareness by ensuring on-going upgrading and improvement of the internal governance structures, risk management systems, Compliance: supporting the Bank as an ethical good corporate citizen business models, capital strategies and disclosure standards through compliance with the Basel frameworks Compliance, as part of the second line of defence, functions independently of operations and enjoys the and all other applicable laws, regulations and codes. support and cooperation of the Board and executive management. The Board is ultimately responsible for ensuring that the Bank identifies and complies with applicable laws, rules, codes and standards. Remuneration: fair, responsible and transparent, promoting strategic objectives and positive outcomes Processes supporting generally accepted compliance practice are mature and risk management Remuneration Philosophy methodology is used to prioritise the meeting of high-risk regulatory requirements. The Bank strives to be an employer of choice in its chosen market by creating an environment where people The requirements of the Companies Act for assessment of the Bank’s adherence to legislation and codes of deliver great results and share in the value they create. Remuneration and reward policies and practices are good practice in the areas of good corporate citizenship, social and economic development, the environment, structured to attract, motivate and retain high-performance individuals, and those with scarce and critical labour and consumer relations are the responsibility of the Governance, Social and Ethics Committee. skills. The philosophy is underpinned by the following principles:

Continuous compliance monitoring is conducted to assess the levels of compliance with regulatory Support for strategic objectives requirements specific to banking, and to meet the social and ethics requirements of Regulation 43 to the The Compensation Management Policy supports and reinforces the achievement of the vision and strategy. Companies Act. Transparent communication The Head: Compliance reports to the Chief Risk Officer and to the Risk and Capital Management Committee, with unfettered access to the chairman of that Committee, and corresponds with the regulators for the The Bank is committed to open communication with employees about the design of its remuneration financial services industry, including the Prudential Authority, SARB and the Financial Sector Conduct programmes, and of ongoing changes to them, with clear statements of what remuneration is designed to Authority (FSCA). achieve. The Bank maintains discretion and confidentiality regarding the specific and individual details of remuneration, to improve the quality of decision-making, promote openness and honesty, and ensure that Other compliance function initiatives include: ownership and accountability are accepted.

▶▶ being the custodian and creating awareness of, and driving adherence to the Bank’s compliance culture; Non-discriminatory practices ▶▶ monitoring that the Bank takes appropriate action to manage its regulatory and reputational risks and All remuneration policies and practices will be free of unfair distinction. The Bank has zero tolerance for unfair complies with applicable laws, rules, codes and standards; discrimination based on race, gender, pregnancy, marital status, family responsibility, ethnic or social origin, sexual orientation, age, disability, HIV status, political orientation, culture, language and birth. Distinction ▶▶ identifying the Bank’s regulatory universe; based on scarcity factors and skills will be applied. ▶▶ monitoring adherence to compliance risk parameters; Internal equity ▶▶ initiating and monitoring corrective action where appropriate; The Bank remunerates all employees fairly and consistently according to their role and individual value and ▶▶ assessing the impact of any new regulatory requirements and legislation across the Bank and overseeing has commenced a project to eliminate unjustified and historic pay discrepancies. The consistent application the successful implementation thereof; of the remuneration system is mandatory.

▶▶ providing reasonable assurance to the Board that the compliance risks to which the Bank is exposed are External equity identified and appropriately managed and controlled. The Bank continuously considers sectorial and national remuneration trends, to ensure competitive total remuneration within the parameters of affordability, as far as is achievable and sustainable.

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Affordability and sustainability ▶▶ Reconfiguration of the workplace In accordance with the business plan and strategy, and in consideration of the annual budgetary scope, ▶▶ Virtual training and development strategies limits are set for remuneration and other human resource costs. The annual adjustment in the remuneration account and components of the remuneration adjustments are made with due allowance for: ▶▶ Innovative ways of performance management

▶▶ the necessity for competitive remuneration; Changes in the ways of work require the Bank to reimagine its ways of work related to workforce, workplace, occupational health and safety and remuneration practices. ▶▶ the budget; Internal and External Assurance: enabling an effective control environment and the ▶▶ approval from the Board and Remuneration Committee; integrity of information ▶▶ the inflation rate; Internal Audit is the third line of defence, providing independent assurance to the Board of the effectiveness ▶▶ the desirability and extent of performance bonuses; and of the other lines of defence in the achievement of the objectives of sound risk management and corporate governance. The department is staffed by professionals in the auditing and internal auditing disciplines. ▶▶ the need for structural adjustments in the remuneration of individuals and occupational groups. Internal Audit uses a risk-based methodology, and the annual audit plan is approved by the Audit Committee. Annual salary increases are based on a cost-to-company package and consider: Quarterly changes to the plan are presented to the Committee. The Internal Audit charter specifies adherence to international best practice methods, and the department is subject to independent review on ▶▶ Bank performance; a regular basis. The Head: Internal Audit reports to the Managing Director and has unrestricted access to the ▶▶ affordability; Chairman of the Audit Committee; the King IV guidelines on independence, status and recognition of the Internal Audit function are applied. ▶▶ external market (forecast increases); The fourth line of defence, the external auditors, provide assurance on the integrity of the financial ▶▶ inflation and market movements; and statements, facilitating informed decision-making, both by the Board and by external stakeholders, such as ▶▶ recognition agreements. the shareholder, regulators and public.

Remuneration is based on the cost of employment, offering certain flexible structuring choices to employees, PwC are the external auditors and Francois Prinsloo the lead audit partner. which is the fairest way of managing remuneration and costs within tax legislation. The Board is satisfied that assurance services promote an effective control environment, supporting the Performance incentive (Bonus Scheme) integrity of information for decision-making, and the quality of external reports. The assurance model effectively addresses significant risks and material issues. The scheme is linked directly to the performance management system, and any award is paid annually based on the results of the performance review. The performance incentive is a component of variable A stakeholder-inclusive approach: balancing the needs, interests and expectations remuneration, based on the following: of material stakeholders in the Bank’s best interests ▶▶ a zero base each year with no carry-through effect; The management of stakeholder relationships and implementation of the stakeholder policy is the ▶▶ quantum in any year is a direct function of the availability of funds; and responsibility of executive management.

▶▶ achievement of annual strategic goals. Employees The Bank’s most important stakeholder group is its employees. In addition to fair and transparent The principles of the bonus pool are year-on-year growth in trading profit; and non-financial measures being remuneration practices, the Bank talent management review ensures that critical talent is rewarded, innovation; acquisitions; B-BBEE rating and employee climate survey results. developed and retained. Governance The Bank paid salaries and benefits of R430 528 051 during the year and contributed R3 640 104 in terms of The Remuneration Committee approves director and senior management remuneration and ensures the Skills Development Levies Act. compliance with principles of good governance. The Bank does not offer a share incentive scheme, but executives participate in the share incentive scheme of The Bidvest Group Limited. The transformation of the workforce continues: at June 2020 Black, Asian and Coloured men composed 27% and Black, Asian and Coloured women 45% of the total workforce of 1 118. 2020 achievements Customers The Bank added a temporary disability cover to the employee risk benefits as part of the employee value proposition. A new ‘employee wellness’ service provider was appointed to enhance the employee benefit The Bank acknowledges its moral and legal obligation to treat customers fairly. The ‘Treating Customers offering. A tax saving benefits program for employees earning R600 000 p.a. or less was implemented. Fairly’ (TCF) statement sets out how the Bank meets the Standards of Conduct required by the FSCA. The aim of these standards is to improve customer experience with financial services providers and to ensure fair The Bank received recognition for its Youth Development programme and upgraded the choice for medical treatment. In addition, the Bank has developed policies and procedures to ensure the fair treatment of its care. Electronic salary increase letters were introduced. customers: the customer should be confident that he or she is dealing with a bank where TCF is central to 2021 focus areas its corporate culture. The way a customer is first treated and the continued after-sales service provided, are the deciding factors in the Bank’s customer retention strategy. The Product Approval Policy, applicable to the ▶▶ Exploring diverse remuneration practices implementation of new products or significant changes to existing products, ensures that products meet ▶▶ Flexible work implementation customers’ expectations and are suitably designed. The Bank further has processes to ensure that the proper disclosures are made to customers and that customers receive correct advice. All complaints are dealt with ▶▶ Reviewing risk benefits in accordance with a formal complaints’ handling policy, and customers are kept engaged throughout the ▶▶ Health and safety measures to protect remote workers process.

▶▶ Technology to enable permanent remote working where possible

▶▶ Remote work morale and productivity measures

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Governance report continued Directors’ responsibilities and approval statement

Regulators and government The directors are required in terms of the Companies Act 71 of 2008, as amended (Companies Act) to The following taxes were paid during the year: maintain adequate accounting records, and they are responsible for the content and integrity of the consolidated and separate annual financial statements and related financial information included in this Group Company report. It is their responsibility to ensure that the consolidated and separate annual financial statements fairly present the state of affairs of The Group (Bidvest Bank and its subsidiaries) as at the end of the 30 June 30 June 30 June 30 June financial year and the results of its operations and cash flows for the period then ended, in conformity 2020 2019 2020 2019 with IFRS. The external auditors are engaged to express an independent opinion on the consolidated and R000 R000 R000 R000 separate annual financial statements.

Employees’ tax 108 992 88 189 103 209 83 598 The consolidated and separate annual financial statements are prepared in accordance with IFRS and are Value added tax 53 191 139 445 48 091 133 694 based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. Rates and taxes 4 315 3 602 4 308 3 602 Skills development levies 3 640 3 899 3 447 3 712 The directors acknowledge that they are ultimately responsible for the system of internal financial control Unemployment insurance fund 1 762 3 529 1 686 3 401 established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the Board sets standards for internal control aimed Workman’s compensation 208 325 177 197 at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation Net income taxation paid 46 130 98 158 46 130 98 158 of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the 218 238 337 147 207 048 326 362 Group, and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk Shareholder management in the Group is on identifying, assessing, managing and monitoring all known forms of risk Dividends totaling R182 864 134 were paid to the sole shareholder. across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by Community ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The Bank contributed R3 461 585 in its corporate social investment initiatives, focusing on training, education and small business development. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on Conclusion for the preparation of the consolidated and separate annual financial statements. However, any system The Board confirms that nothing has come to its attention to suggest that the structures and processes listed of internal financial control can provide only reasonable, and not absolute, assurance against material do not adequately and appropriately address the Bank’s corporate governance obligations. misstatement or loss. The directors have reviewed the Bank’s cash flow forecast for the 12 months after the date of this report and, in light of this review and the current financial position, they are satisfied that the Group has access to adequate resources to continue in operational existence for the foreseeable future.

The external auditors are responsible for independently auditing and reporting on the Group’s consolidated and separate annual financial statements. The consolidated and separate annual financial statements have been examined by the Group’s external auditors, and their report is presented on pages 85 to 86.

The consolidated and separate annual financial statements set out on pages 91 to 183 have been prepared on the going concern basis, were approved by the Board on 18 November 2020 and were signed on its behalf by:

Nigel George Payne Marthinus Johannes Liebenberg Chairman Financial Director and Acting Managing Director

82 83 Annual financial statements

Audit Committee report Independent auditor’s report

The Committee is composed of three independent non-executive directors. The work of the Committee To the Directors of Bidvest Bank Limited is specified by its charter, the provisions of the Banks Act, 1990 and King IV. The Committee is specifically Report on the audit of the consolidated and separate annual financial statements tasked with the review of the activities of the Bank. The Committee reviewed the Bank’s consolidated and separate annual financial statements, assessed their integrity and whether they accurately represented the Our opinion financial position of the Bank. The Committee assessed the directors’ opinion that the Bank has adequate In our opinion, the consolidated and separate annual financial statements present fairly, in all material resources available to continue in operational existence for the foreseeable future, and the directors’ respects, the consolidated and separate financial position of Bidvest Bank Limited (the Company) and its decision to adopt the going concern basis in the preparation of the consolidated and separate financial subsidiaries (together the Group) as at 30 June 2020, and its consolidated and separate financial performance statements. and its consolidated and separate cash flows for the year then ended in accordance with IFRS and the requirements of the Companies Act of South Africa. The Committee is satisfied that the Financial Director has the appropriate expertise and experience to fulfil his obligations in terms of all applicable legislation, and that the finance function is effective. What we have audited Bidvest Bank Limited’s consolidated and separate annual financial statements set out on pages 91 to 182 comprise: PwC are the external auditors and Francois Prinsloo the lead audit partner. ▶▶ the Consolidated and separate statement of financial position as at 30 June 2020; The Committee reviewed the work of the external auditors, including the Internal Audit Plan and budget, ▶▶ the Consolidated and separate statement of comprehensive income for the year then ended; and recommended to the Board and shareholders the appointment of the auditors. The Committee is satisfied that the external auditors are independent of the Bank, and of the quality of the audit work. ▶▶ the Statement of changes in equity for the year then ended; Key audit matters considered by the external auditors in June 2020 were fraud in revenue recognition, ▶▶ the Consolidated and separate statement of cash flows for the year then ended; management override of controls and credit risk. ▶▶ the Accounting policies related to the consolidated and separate annual financial statements; Separate meetings are held by the Committee with the external auditors or management on matters ▶▶ the Notes to the consolidated and separate annual financial statements; and relevant to the Committee’s obligations when required. ▶▶ Annexure A. The Committee reviewed details of non-audit services provided by the external auditors and satisfied itself Basis for opinion that the nature and extent of the work was within the Committee’s guidelines on auditor independence. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities The Committee reviewed reports submitted by Internal Audit and approved the Internal Audit Plan. The under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated Committee is satisfied with the internal audit arrangements, the effectiveness of the Head: Internal Audit, and separate financial statements section of our report. and the quality of assurance provided by Internal Audit and other assurance providers. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. The Committee satisfied itself of the effectiveness of internal financial controls, and that no material losses Independence were attributable to weaknesses in the functioning of such controls. The Committee reviewed the activities of the Bank’s Credit Committee. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements The Committee met five times during the year, including the trilateral meeting with representatives of the applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical Prudential Authority. The chairman of the Committee reported quarterly on the work of the Committee to responsibilities in accordance with the IRBA Code and other ethical requirements applicable to performing the Board. The Committee is satisfied that it has discharged all its responsibilities. audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International On behalf of the Audit Committee: Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). Other information The directors are responsible for the other information. The other information obtained at the date of this auditor’s report comprises the information included in the document titled “Consolidated and Separate Annual Financial Statements”, which includes the Six-year review, the Governance report, the Directors’ A Cunningham responsibility and approval statement, the Audit Committee report, the Directors’ report, and the Company Chairman Secretary’s Certificate as required by the Companies Act of South Africa. The other information does not Audit Committee include the consolidated or the separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate annual financial statements in accordance with IFRS and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate annual financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate annual financial statements, the directors are responsible for 84 85 Annual financial statements

Independent auditor’s report continued Directors’ report

assessing the Group and the Company’s ability to continue as a going concern, disclosing, as applicable, matters The directors have pleasure in submitting their report on the consolidated and separate annual financial related to going concern and using the going concern basis of accounting unless the directors either intend to statements of Bidvest Bank Limited and its subsidiaries for the year ended 30 June 2020. liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so. General information Auditor’s responsibilities for the audit of the consolidated and separate annual financial statements The Bank is a wholly owned subsidiary of Bidvest Bank Holdings Limited. The Bank’s ultimate holding Our objectives are to obtain reasonable assurance about whether the consolidated and separate annual company is The Bidvest Group Limited (Bidvest), which is listed on the Johannesburg Stock Exchange. The financial statements as a whole are free from material misstatement, whether due to fraud or error, and to Bank and its direct subsidiaries, Bidvest Merchant Services Proprietary Limited, Viamax Proprietary Limited issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is and McCarthy Retail Finance Proprietary Limited and its indirect subsidiaries Cash Axcess Proprietary not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement Limited, Viamax Fleet Solutions Proprietary Limited and Bidvest Leasing Proprietary Limited, (the Group) are when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in incorporated and domiciled in South Africa. the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate annual financial statements. Nature of business As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional The Bank is a registered commercial bank. scepticism throughout the audit. We also: Financial results ▶▶ Identify and assess the risks of material misstatement of the consolidated and separate annual financial The financial results are set out in the consolidated and separate financial statements and accompanying statements, whether due to fraud or error, design and perform audit procedures responsive to those notes for the year ended 30 June 2020. risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from Share capital error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Details of the authorised and issued share capital appear in note 15 to the financial statements. ▶▶ Obtain an understanding of internal control relevant to the audit in order to design audit procedures Interest of directors and officers that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the No contracts were entered into in which directors or officers of the Bank had an interest and which affected effectiveness of the Group’s and the Company’s internal control. the business of the Bank. The emoluments and services of executives are determined by the Remuneration ▶▶ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Committee. No long-term service contracts exist between executive directors and the Bank. Transactions estimates and related disclosures made by the directors. with directors are entered into in the normal course of business, under terms that are no more favourable than those with third parties. ▶▶ Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or Directorate conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a During the financial year and up to the date of this report, the Board consisted of the following members: going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate annual financial statements Executive Directors or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit Jacob Jozua van Niekerk evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause BA; MBA (UCT) the Group and/or Company to cease to continue as a going concern. Managing Director appointed 1 October 2013 and resigned 29 February 2020.

▶▶ Evaluate the overall presentation, structure and content of the consolidated and separate annual financial Marthinus Johannes Liebenberg statements, including the disclosures, and whether the consolidated and separate annual financial BComm; BCompt Hons; CA(SA) statements represent the underlying transactions and events in a manner that achieves fair presentation. Financial Director appointed 1 January 2013. ▶▶ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or Non-executive directors business activities within the Group to express an opinion on the consolidated financial statements. Eric Kevin Diack We are responsible for the direction, supervision and performance of the Group audit. We remain solely BAcc; CA(SA); AMF responsible for our audit opinion. Appointed 23 May 2011 and resigned 31 March 2020. We communicate with the directors regarding, among other matters, the planned scope and timing of the Mr. Diack is a director of various companies, including Aveng Limited, African Consolidated Resources Plc, audit and significant audit findings, including any significant deficiencies in internal control that we identify and McConnel Dowell Corporation Limited, The Bidvest Group Limited and Bidvest Holdings Limited. during our audit. Alastair Dunsmore Cunningham Report on other legal and regulatory requirements BComm; CA(SA); AMP In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we Appointed 1 June 2015. report that PricewaterhouseCoopers Inc. has been the auditor of Bidvest Bank Limited for two years. Mr. Cunningham is a director of Bidvest Bank Holdings Limited and Bidvest Insurance Limited.

Renosi Denise Mokate (Lead Independent Director) BA; MA; PhD PricewaterhouseCoopers Inc. Appointed 1 July 2013 and resigned 31 July 2020. Director: Francois Prinsloo Dr Mokate is a director of companies including Vukile Property Fund Limited and The Bidvest Group Limited Registered auditor and is the chairperson of the Government Employees Pension Fund. Johannesburg 18 November 2020

86 87 Annual financial statements

Directors’ report continued

Nigel George Payne but also to address the reduction in revenues and contain costs. The restructuring process comprises the CA(SA) consolidation of certain teams and the reduction of our physical branch numbers from 65 to 21. In addition Chairman, appointed 1 August 2009. to reducing the expensive branch network, we have organised sales teams around our biggest opportunities, replacing the regional structure with a national structure and centralising sales into focused teams. This will Mr. Payne is a director of various listed and unlisted companies, including Bidcorp Limited, Mr Price Group align our operating model with the strategy to reduce cost, focus on profitability and fast track digitisation. Limited, Alexander Forbes Ltd and Vukile Property Fund Limited. In future, the chairman’s independence will be assessed by the Board in accordance with King IV recommendations. The impact of the closure of the branches and restructure on the results for 2020 is:

Lindsay Peter Ralphs ▶▶ R13,1 million provision for staff retrenchment costs; BCom; BAcc; CA(SA) ▶▶ R20 million branch property, plant and equipment impairment; and Appointed 8 December 2016 and resigned 30 September 2020. ▶▶ R40 million EVO intangible assets impairment. Mr Ralphs was the Chief Executive of the Bidvest Group Limited and a director of McCarthy Ltd and Adcock Ingram Limited. Further, Master Currency branches were not generating sufficient future profits and benefit to the value of the goodwill on balance sheet (R14,8 million) and the goodwill value has been impaired. Nompumelelo Themekile Madisa BSc; BComm Hons; MMFI This restructuring has been possible as a result of our focus over the past few years on migrating systems Appointed 8 December 2016. and customers to digital platforms and products and will support this focus going forward in alignment with our digital strategy. More broadly, our strategy – to build a sustainable base that will enable us to continue Mrs. Madisa is Chief Executive of The Bidvest Group Limited with effect from 1 July 2020. growing our four pillars (Fleet, Business Banking, Retail Banking and Treasury) – remained in place in the year Zodwa Reshoketsoe Pearl Matsau under review. MPhil Company Secretary and registered office Appointed 21 May 2020. DJ Crawley Ms. Matsau is an non-executive director of PSG Konsult. Bidvest House Andile Mancobo Mazwai 18 Crescent Drive, BComm Hons Melrose Arch Appointed 15 July 2020. Johannesburg 2196 Mr. Mazwai is currently CEO of the iKhala Property Fund and iKhala Asset Managers, and a non-executive South Africa director of St. Mary’s School Foundation. Registration number 2000/006478/06 Dividend declaration Corporate office Dividends declared and paid for the period under review 4th Floor, Katherine Towers A cumulative dividend of 88,34 cents per share was declared and paid for the current financial year. 1 Park Lane A cumulative dividend of 76,09 cents was declared and paid for the previous financial year. Wierda Valley Group financial performance Sandton 2196 Profit after tax decreased by 67% to R103 million (2019: R312,5 million) while net interest income increased to Johannesburg R195,2 million (2019: R193,3 million). Net fee, commission, trading and other income was lower at R516,9 million (2019: R560,4 million) and net income from leasing activities decreased to R503 million (2019: R596 million). Postal address

Deposits grew by 12,9% to R7,4 billion (2019: R6,6 billion). Loans and advances increased by 2,5% to R2,9 billion PO Box 185 (2019: R2,8 billion) and leased assets decreased by 13,3% to R1,4 billion (2019: R1,6 billion). Total loans and Johannesburg advances and leased assets ended on R4,2 billion (2019: R4,4 billion). Negotiable securities decreased by 22,4% 2000 to R254,7 million (2019: R328,3 million). The Bank’s total assets increased to R11,3 billion (2019: R10,3 billion). Telephone Cash generated from operations before dividends and taxation remained constant at R1,2 billion year on year. Corporate Office A low risk appetite was maintained. The overall credit quality remained good and impairments were well +27 (0)11 407 3000 managed. However, due to the impact of COVID-19 on the global economy, the credit loss ratio deteriorated to 1,5% (2019: 0,2%). Call Centre +27 (0)860 11 11 77 The return on assets and return on equity were 1% and 4% respectively. A low financial leverage ratio of 4,2 times was maintained. The Bank’s capital adequacy ratio was 22%. The Bank’s liquidity coverage ratio was Telefax 241% and the Net Stable Funding Ratio was 149%. +27 (0)11 407 3322 Branch restructuring Website Our Personal and Business Banking strategy has been to develop digital channels to migrate physical www.bidvestbank.co.za branch transactions over the next few years. The COVID-19 pandemic and the impact of the lock downs has Auditors accelerated the demand for digital access to financial services and reduced the need for traditional ways of interacting with banks and other service providers. A strong digital platform in the current environment will PwC be crucial to remaining sustainable, competitive and relevant. We have accordingly accelerated our channel migration strategy and reduced the need for physical branches, not only to adhere to social distancing

88 89 Annual financial statements

Directors’ report continued Consolidated and separate statement of comprehensive income for the year ended 30 June 2020

Events after the reporting date Group Company Hannah Sadiki has been appointed as the Managing Director of the Bank, effective 1 November 2020. 2020 2019 2020 2019 Certificate from the Company Secretary Notes R000 R000 R000 R000 In terms of Section 88(2)(e) of the Companies Act, 71 of 2008, as amended, I certify that, to the best of my Interest income 23 588 708 507 496 588 002 506 137 knowledge and belief, the Bank has lodged with the Registrar of Companies, for the financial year ended 30 June 2020, all such returns and notices as are required of a public company in terms of the Companies Act Interest expense (393 511) (314 195) (394 189) (314 196) and that all such returns are true, correct and up to date. Net interest income 23.1 195 197 193 301 193 813 191 941 Fee and commission income 691 645 661 696 486 090 475 581 Fee and commission expense (483 450) (442 779) (335 244) (309 145)

Net fee and commission income 23.2 208 195 218 917 150 846 166 436

DJ Crawley Leasing income 23.3 1 044 873 1 053 973 1 044 873 1 053 973 Company Secretary Depreciation of leased assets (166 980) (175 912) (166 980) (175 912) 18 November 2020 Other leasing costs 23.3 (374 941) (282 099) (374 905) (282 053)

Net income from leasing 502 952 595 962 502 988 596 008 Net trading income 24 223 217 277 739 221 779 272 873 Other income / (loss) 23.4 85 529 63 721 85 247 63 721

Operating income 1 215 090 1 349 640 1 154 673 1 290 979 Net credit impairment (charge) 4, 7 (42 574) (4 495) (42 608) (4 495)

Operating income after credit impairment (charge) 1 172 516 1 345 145 1 112 065 1 286 484 Employment costs 26 (454 857) (469 558) (431 372) (449 955) Operating leases 27.1 (6 404) (90 494) (5 746) (89 307) Other non-operating losses (31 436) (15 749) (30 747) (15 512) Information technology costs (67 359) (68 728) (65 294) (66 923) Impairments and provisions 25 (36 094) – (36 094) – Depreciation and amortisation 9, 12 (222 728) (65 542) (219 153) (63 157) Other operating expenditure 27.2 (159 910) (186 519) (138 926) (161 323)

Operating expenditure (978 788) (896 590) (927 332) (846 177) Operating income before finance costs 193 728 448 555 184 733 440 307 Finance costs 10 (25 852) – (25 351) –

Operating income before indirect taxation 167 876 448 555 159 382 440 307 Indirect taxation 28.1 (25 707) (16 531) (25 514) (16 344)

Profit before direct taxation 142 169 432 024 133 868 423 963 Direct taxation 28.2 (39 115) (119 528) (40 568) (132 053)

Profit for the year 103 054 312 496 93 300 291 910 Other comprehensive income: net of income tax Items that will not be reclassified to profit or loss: Fair value reserve for assets measured at fair value through other comprehensive income (15 888) 23 849 (15 888) 23 849

Total comprehensive income for the year 87 166 336 345 77 412 315 759

90 91 Annual financial statements

Consolidated and separate statement of financial position Consolidated and separate statement of cash flows as at 30 June 2020 for the year ended 30 June 2020

Group Company Group Company

2020 2019 2020 2019 2020 2019 2020 2019 Notes R000 R000 R000 R000 Notes R000 R000 R000 R000

Assets Cash flows from operating activities Cash and cash equivalents 2 4 520 336 4 126 987 4 520 325 4 125 984 Cash generated from operations 29.1 1 060 780 1 028 167 1 062 277 1 026 638 Derivative financial assets 3 8 556 13 496 8 556 13 496 Interest received 571 356 488 732 570 650 487 373 Negotiable securities 4 254 658 328 317 254 658 328 317 Interest paid (398 809) (295 237) (398 986) (295 237) Investment securities 5 996 626 563 990 996 626 563 990 Cash generated by operations after interest 1 233 327 1 221 662 1 233 941 1 218 774 Other assets 6 353 175 277 929 307 572 192 515 Dividends (182 864) (157 500) (182 864) (157 500) Current tax receivable 36 838 18 314 36 532 18 008 Tax paid 6.1 (46 130) (98 158) (46 130) (98 158) Loans and advances 7 2 862 773 2 792 067 2 863 188 2 842 101 Proceeds on disposal of leased assets 202 656 102 315 202 656 102 315 Intergroup loans 8 212 337 189 989 212 509 190 161 Acquisition of leased assets 11 (163 637) (152 211) (163 637) (152 211) Property, plant and equipment 9 99 415 124 902 99 100 124 392 Right-of-use assets 10 258 342 – 252 311 – Net cash from operating activities 1 043 352 916 108 1 043 966 913 220

Leased assets 11 1 360 612 1 569 074 1 360 612 1 569 074 Cash flows from investing activities Intangible assets 12 170 450 220 068 134 656 182 195 Dividends from investment securities 6 234 5 111 5 952 5 111 Investments in subsidiaries 13 – – 94 078 94 078 Acquisition of equipment 9 (35 599) (82 337) (35 463) (82 057) Inventories 14 175 357 38 111 175 357 38 111 Acquisition of intangible assets 12 (36 618) (31 755) (36 477) (31 101) Total assets 11 309 475 10 263 244 11 316 080 10 282 422 Acquisition of investment securities 29.2 (4 143 735) (680 971) (4 143 735) (680 971) Proceeds on sale of investment securities 3 702 031 517 532 3 702 031 517 532 Equity and liabilities Equity Net cash from investing activities (507 687) (272 420) (507 692) (271 486) Share capital 15 2 070 2 070 2 070 2 070 Cash flows from financing activities Share premium 525 709 525 709 525 709 525 709 Acquisition of floating rate notes 19 100 257 – 100 257 – Fair value reserve 8 485 24 373 8 485 24 373 (Increase) / decrease in intergroup loans 25.3 (172 449) (131 180) (172 449) (131 184) Share-based payment reserve (23 662) (1 807) (23 662) (1 807) Finance lease payments 10 (70 124) – (69 741) – Retained income 2 178 431 2 295 543 2 146 949 2 273 438 Net cash from financing activities (142 316) (131 180) (141 933) (131 184) 2 691 033 2 845 888 2 659 551 2 823 783 Total cash movement for the year 393 349 512 508 394 341 510 550 Liabilities Cash at the beginning of the year 4 126 987 3 614 479 4 125 984 3 615 434 Deposits 17 7 427 334 6 576 907 7 451 258 6 609 001 2 4 520 336 4 126 987 4 520 325 4 125 984 Derivative financial liabilities 3 21 934 8 635 21 934 8 635 Total cash at the end of the year Trade and other payables 18 582 474 493 436 528 011 428 985 Intergroup loans 8 – 150 101 64 651 214 752 Floating rate notes 19 100 257 – 100 257 – Lease liabilities 10 285 937 – 279 470 – Deferred tax 20 200 194 187 758 210 636 196 747 Defined benefit liability 312 519 312 519

Total liabilities 8 618 442 7 417 356 8 656 529 7 458 639

Total equity and liabilities 11 309 475 10 263 244 11 316 080 10 282 422

92 93 Annual financial statements

Statement of changes in equity for the year ended 30 June 2020

Share- Share Total Fair based Total Fair based Share Share share value payment Total Retained Total Share Share share value payment Total Retained Total R000 capital premium capital reserve* reserve reserves income equity R000 capital premium capital reserve* reserve reserves income equity

Group Company Balance at 01 July 2018 2 070 525 709 527 779 524 86 610 2 140 547 2 668 936 Balance at 01 July 2018 2,070 525,709 527,779 524 86 610 2,139,028 2,667,417

Profit for the year – – – – – – 312 496 312 496 Profit for the year – – – – – – 291 910 291 910 Other comprehensive Other comprehensive income – – – 23 849 – 23 849 – 23 849 income – – – 23 849 – 23 849 – 23 849

Total comprehensive Total comprehensive income for the year – – – 23 849 – 23 849 312 496 336 345 income for the year – – – 23 849 – 23 849 291 910 315 759 Share-based payment Share-based payment expense – – – – 15 387 15 387 – 15 387 expense – – – – 15 387 15 387 – 15 387

Settlement of share Settlement of share options exercised – – – – (19 339) 19 339) – (19 339) options exercised – – – – (19 339) (19 339) – (19 339) Deferred tax on share- Deferred tax on share- based payments based payments recognised directly in recognised directly in equity – – – – 2 059 2 059 – 2 059 equity – – – – 2 059 2 059 – 2 059 Dividends – – – – – – (157 500) (157 500) Dividends – – – – – – (157 500) (157 500)

– – – – (1 893) (1 893) (157 500) (159 393) – – – – (1 893) (1 893) (157 500) (159 393)

Opening balance as Opening balance as previously reported 2 070 525 709 527 779 24 373 (1 807) 22 566 2 295 543 2 845 888 previously reported 2 070 525 709 527 779 527 779 (1 807) 22 566 2 273 438 2 823 783 Adjustments Adjustments Prior year adjustments – – – – – – (37 302) (37 302) Prior year adjustments – – – – – – (36 925) (36 925)

Balance at 01 July 2019 Balance at 01 July 2019 as restated 2 070 525 709 527 779 24 373 (1 807) 22 566 2 258 241 2 808 586 as restated 2 070 525 709 527 779 24 373 (1 807) 22 566 2 236 513 2 786 858

Profit for the year – – – – – – 103 054 103 054 Profit for the year – – – – – – 93 300 93 300 Other comprehensive Other comprehensive income – – – (15 888) – (15 888) – (15 888) income – – – (15 888) – (15 888) – (15 888)

Total comprehensive Total comprehensive income for the year – – – (15 888) – (15 888) 103 054 87 166 income for the year – – – (15 888) – (15 888) 93 300 77 412

Share-based payment Share-based payment expense – – – – 4 771 4 771 – 4 771 expense – – – – 4 771 4 771 – 4 771 Settlement of share Settlement of share options exercised – – – – (25 147) (25 147) – (25 147) options exercised – – – – 25 147) (25 147) – (25 147) Deferred tax on share- Deferred tax on share- based payments based payments recognised directly recognised directly in equity – – – – (1 479) (1 479) – (1 479) in equity – – – – (1 479) (1 479) – (1 479) Dividends – – – – – – (182 864) (182 864) Dividends – – – – – – (182 864) (182 864)

– – – – (21 855) (21 855) (182 864) (204 719) – – – – (21 855) (21 855) (182 864) (204 719)

Balance at Balance at 30 June 2020 2 070 525 709 527 779 8 485 (23 662) (15 177) 2 178 431 2 691 033 30 June 2020 2 070 525 709 527 779 8 485 (23 662) (15 177) 2 146 949 2 659 551

Notes 15 15 15 Notes 15 15 15

* The fair value reserve comprises fair value adjustments relating to investments in debt instruments and equity * The fair value reserve comprises fair value adjustments relating to investments in debt instruments and equity investments that are subsequently measured at fair value through other comprehensive income. investments that are subsequently measured at fair value through other comprehensive income.

94 95 Annual financial statements

Accounting policies

Reporting entity 1. Significant accounting policies continued Bidvest Bank Limited and its subsidiaries (the Bank) are domiciled in South Africa. The Bank is indirectly 1.2 Consolidation continued a wholly owned subsidiary of The Bidvest Group Limited. Business combinations 1. Significant accounting policies The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities The principal accounting policies applied in the preparation of these consolidated and separate incurred or assumed and equity instruments issued. Costs directly attributable to the business consolidated and separate annual financial statements are set out below. combination are expensed as incurred, except the costs to issue debt, which are amortised as part of 1.1 Basis of preparation the effective interest and costs to issue equity which are included in equity. The consolidated and separate consolidated and separate annual financial statements have been Any contingent consideration is included in the cost of the business combination at fair value as at the prepared on the going concern basis in accordance with, and in compliance with IFRS and IFRIC date of acquisition. Subsequent changes to the assets, liability or equity which arise as a result of the interpretations issued and effective – at the time of preparing these consolidated and separate annual contingent consideration are not affected against goodwill, unless they are valid measurement period financial statements – and the Companies Act 71 of 2008 of South Africa, as amended. adjustments. Otherwise, all subsequent changes to the fair value of contingent consideration that is deemed to be an asset or liability are recognised in either profit or loss or in other comprehensive The consolidated and separate annual financial statements have been prepared on the historic cost income, in accordance with relevant IFRSs. Contingent consideration that is classified as equity is not convention, unless otherwise stated in the accounting policies which follow and incorporate the remeasured, and its subsequent settlement is accounted for within equity. principal accounting policies set out below. The consolidated and separate financial statements are presented in South African Rand (ZAR) which is the Bank’s functional currency. All financial The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition information presented has been rounded to the nearest thousand. conditions of IFRS 3 Business combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with These accounting policies are consistent with the previous period, except for the changes set out in IFRS 5 Non-current assets Held For Sale and Discontinued Operations, which are recognised at fair note 36. value less costs to sell. 1.2 Consolidation Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where Basis of consolidation there is a present obligation at acquisition date. Subsidiary undertakings are those entities that are controlled by the Bank. The Bank’s financial On acquisition, the acquiree’s assets and liabilities are reassessed in terms of classification and statements include the assets, liabilities and results of the Bank, plus subsidiaries controlled by the are reclassified where the classification is inappropriate for group purposes. This excludes lease Bank, from the date of acquisition until the date the Bank ceases to control the subsidiary. Control agreements and insurance contracts which classification remains as per their inception date. is defined as follows: An investor consolidates an investee when it controls the investee. The investor controls an investee when it is exposed to, or has rights to variable returns from its involvement Goodwill is not amortised but is tested on an annual basis for impairment and if there is any indication with the investee and has the ability to affect those returns through its power over the investee. This of impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed. principle applies to all investees, including structured entities. 1.3 Acquisitions from entities under common control The Group has control of an entity when it is exposed to, or has rights to variable returns from Business combinations arising from the acquisition of entities that are under the control of the involvement with the entity and it has the ability to affect those returns through use of its power over shareholder that controls the Bank are accounted for at the date transfers of interests were the entity. established. The assets and liabilities acquired are recognised at the carrying amounts recognised An investor must possess all of the following elements to, be deemed to control an investee: previously in the Bank’s controlling shareholder’s consolidated financial statements. Goodwill and intangible assets that form part of the carrying amount that was recognised previously in the Bank’s ▶▶ Power over the investee, which is described as having existing rights that give the current ability controlling shareholder’s consolidated financial statements are also recognised. Any excess of to direct the activities of the investee that significantly affect the investee’s return (such activities the purchase consideration over the net asset value obtained is recognised in equity as a notional are referred to as the “relevant activities”) distribution to owners and presented in the common control reserve. If the net asset value exceeds ▶▶ Exposure, or rights, to variable returns from its involvement with the investee the consideration, the credit is recognised in equity as a capital contribution and presented in the common control reserve. ▶▶ Ability to exert power over the investee to affect the amount of the investor’s returns 1.4 Foreign currency All inter-company transactions, balances, and unrealised gains on transactions between group Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value companies are eliminated in full on consolidation. Unrealised losses are not eliminated to the extent are translated to ZAR at foreign exchange rates ruling at the dates the fair value was determined. that they provide objective evidence of impairment. Foreign currency transactions are translated at the exchange rate ruling at the transaction date. Investments in subsidiaries in the consolidated and separate financial statements Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange In the Company’s consolidated and separate financial statements, investments in subsidiaries are ruling at the statement of financial position date. Gains and losses arising on translation are carried at cost less any accumulated impairment losses. recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, which are recognised directly in other comprehensive income.

96 97 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.5 Significant judgements and sources of estimation uncertainty 1.8 Property, plant and equipment continued The preparation of consolidated and separate annual financial statements in conformity with IFRS The estimated useful lives of equipment for the current and comparative financial year are as follows: requires management, from time to time, to make judgements, estimates and assumptions that Item Depreciation method Average useful life affect the application of policies and reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on past experience and various other factors Computer equipment Straight line 3 – 5 years that are believed to be reasonable under the circumstances. Actual results may differ from these Motor vehicles Straight line 5 years estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future Office equipment Straight line 1 – 10 years periods affected. Furniture and fittings Straight line 2 – 10 years

Further information is provided in note 32 with regard to key assumptions applied. Assets held under finance leases are depreciated over their expected useful lives on the same basis as 1.6 Financial guarantee contracts owned assets or, where shorter, the term of the relevant lease. A financial guarantee contract is a contract that requires the Bank to make specified payments to The gain or loss on the disposal or retirement of an item of equipment is determined as the differences reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in between the sales proceeds and the carrying amount of the asset, and is recognised in profit or loss. accordance with the terms of a debt instrument. There has been no change to useful lives from those applied in the previous financial year. A liability is recognised when it is probable that an outflow of resources embodying economic 1.9 Intangible assets benefits will be required to settle the contract and a reliable estimate can be made of the amount of the obligation. The amount recognised is the best estimate of the expenditure required to settle the Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. contract at the statement of financial position date. Where the effect of discounting is material, the An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, liability is discounted. The discount rate used is a pre-tax rate that reflects current market assessments there is no foreseeable limit to the period over which the asset is expected to generate net cash of the time value of money and, where appropriate, the risks specific to the liability. inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment The Bank performs liability adequacy tests on financial guarantee contract liabilities to ensure that the annually and whenever there is an indication that the asset may be impaired. For all other intangible carrying amount of the liabilities is sufficient in view of estimated future cash flows. When performing assets amortisation is provided on a straight-line basis over their useful life. the liability adequacy test, the Bank discounts all expected contractual cash flows and compares this The amortisation period and the amortisation method for intangible assets are reviewed every amount to the carrying value of the liability. Where a shortfall is identified, an additional provision is period-end. made through profit or loss. Goodwill 1.7 Leased assets Goodwill arises on the acquisition of subsidiaries and is recognised as an asset on the date that control The leased assets are moveable assets rented to customers under operating leases. The leased assets is acquired. Goodwill is measured as the excess of the sum of the consideration transferred, the are depreciated over the shortest period of the lease or the useful life of the asset. The maintenance amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously costs are borne by the Bank and are expensed as they are incurred. Rental income is suspended when held interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable an account exceeds 90 days in arrears. assets acquired and liabilities assumed.

Leased assets’ residual values are reviewed and adjusted if appropriate, at each reporting date. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired 1.8 Property, plant and equipment and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non- controlling interest in the acquiree and the fair value of the acquirer’s previously held interest in the Equipment comprises fixed property, furniture, motor vehicles and other tangible assets and is stated acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of equipment. Goodwill is tested for impairment annually and whenever there is an indication that the tangible asset may be impaired. Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Bank and the Computer software cost of the item can be measured reliably. Maintenance and repairs, which do not meet these criteria, Computer software that is acquired by the Bank is stated at cost less accumulated amortisation and are recognised in profit or loss as incurred. Depreciation, impairment losses, and gains and losses on accumulated impairment losses. disposal of assets are recognised in profit or loss. Subsequent expenditure Assets with a cost under R7 000 are expensed in the period in which they are acquired. Subsequent expenditure on software assets is capitalised only when it increases the future economic Depreciation of an asset commences when the asset is available for use as intended by management. benefits embodied in the specific asset to which it relates. All other expenditure is expensed as Depreciation is charged to write off the asset’s carrying amount over its estimated useful life to its incurred. estimated residual value. Items of equipment are depreciated on the straight-line basis over the estimated useful lives of the assets to their expected residual values. The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Leased assets are depreciated in a consistent manner over the shorter of their expected useful lives and the lease term. Depreciation is not charged to an asset if its estimated residual value exceeds or is equal to its carrying amount. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale or derecognised.

98 99 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.9 Intangible assets continued 1.10 Financial instruments continued Development costs 1.10.1 Financial assets continued Expenditure on research activities undertaken with the prospect of gaining new technical knowledge The specific accounting policies for the classification, recognition and measurement of each type of and understanding is recognised in profit or loss as an expense as incurred. financial instrument held by the Group are presented below:

Expenditure on development activities, whereby research findings are applied to a plan or design Financial assets which are equity instruments: for the production of new or substantially improved products and processes, is capitalised if the ▶▶ Mandatorily at FVTPL or product or process is technically and commercially feasible, cost can be measured reliably, future economic benefits are probable and the Bank has sufficient resources to complete development. ▶▶ Designated as at FVOCI for equity instruments which are neither held for trading nor for The expenditure capitalised includes all directly attributable costs necessary to create, produce contingent consideration in a business combination and prepare the asset to be capable of operating in the manner intended by management. Other On initial recognition the Group may irrevocably designate a financial asset otherwise meeting the development expenditure is recognised in profit or loss as an expense as incurred. Capitalised requirements for measurement at amortised cost or FVOCI (‘FVOCI’), or as fair value through profit/loss development expenditure is stated at cost less accumulated amortisation and accumulated (‘FVTPL’), if doing so eliminates or significantly reduces a measurement or recognition inconsistency. The impairment losses. election is made on an investment by investment basis. When the product or process is ready for use, the development cost is capitalised and Financial assets which are debt instruments: amortised accordingly. The classification of investments in debt instruments depends on the business model within which Customer contracts the financial assets are held and managed and the contractual cash flow characteristics of the Customer contracts arose on acquisition of Bidvest Merchant Services (Pty) Ltd and have a contract financial assets. period of 10 years. ▶▶ Financial assets are measured at amortised cost if the contractual terms of the instrument Amortisation give rise, on specified dates, to cash flows that are solely payments of principal and interest on Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of principal, and where the instrument is held under a business model whose objective is met by intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are holding the instrument to collect contractual cash flows; or systematically tested for impairment at each reporting date or whenever there is an indication that ▶▶ FVOCI when the contractual terms of the instrument give rise, on specified dates, to cash flows they are impaired. Other intangible assets are amortised from the date they are available for use. There that are solely payments of principal and interest on principal, and where the instrument is held have been no changes to useful lives from those applied in the previous financial year. The estimated under a business model whose objective is achieved by both collecting contractual cash flows and useful lives of intangible assets for the current and comparative financial year are as follows: selling the instruments or Item Depreciation method Average useful life ▶▶ Mandatorily at FVTPL automatically to all debt instruments which do not qualify as at amortised Computer software Straight line 2 months – 10 years cost or at FVOCI or Customer contracts Straight line 2 – 10 years ▶▶ Designated at FVTPL applied when such classification eliminates or significantly reduces an accounting mismatch 1.10 Financial instruments Derivatives which are not part of a hedging relationship: Financial instruments include all financial assets and liabilities. All financial instruments are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of ▶▶ Mandatorily at FVTPL the instrument. All financial instruments are initially measured at fair value. In the case of financial assets or liabilities not at fair value through profit or loss (FVTPL), transaction costs that are directly Cash and cash equivalents attributable to the acquisition or issue of the financial asset or liability. Cash and cash equivalents comprise cash balances on hand, cash and balances with central banks and short-term highly liquid investments with maturities of three months or less when purchased, 1.10.1 Financial assets as well as call, notice and fixed deposits placed at other banking institutions. Bank overdrafts that are Classification and measurement repayable on demand and form an integral part of the Group’s cash management are included as a IFRS 9 requires all financial assets to be classified and measured on the basis of the entity’s business component of cash and cash equivalents for the purpose of the statement of cash flows. Where legal model for managing the financial assets and the contractual cash flow characteristics of the financial right of setoff can be applied and the intention exists to settle on a net basis, bank balances have been assets. The accounting for financial assets differs in various other areas to the International Accounting shown net of overdraft. Standards (IAS) 39 requirements such as embedded derivatives and the recognition of fair value Cash and cash equivalents are carried at amortised cost in the statement of financial position. adjustments in other comprehensive income. All changes in the fair value of financial liabilities that are designated at FVTPL due to changes in own credit risk are required to be recognised within other Impairment comprehensive income. As a result of the adoption of IFRS 9 on 1 July 2018, the Group changed from the incurred credit loss model detailed in IAS 39 to the expected credit loss (ECL) model to calculate impairments of financial The Group classifies its financial assets in the following measurement categories: instruments. This standard outlines a ‘three-stage’ model (general model) for impairment based on ▶▶ Amortised cost changes in credit quality since initial recognition. The Group applies the general ECL impairment method to all its financial assets that are subject to IFRS 9 impairment requirements. Summarised ▶▶ FVOCI below are the aforementioned changes and additional disclosures. ▶▶ FVTPL

100 101 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.10 Financial instruments continued 1.10 Financial instruments continued 1.10.1 Financial assets continued 1.10.1 Financial assets continued ECL impairment requirements Credit loss IFRS 9’s ECL impairment model’s requirements represented the most material IFRS 9 transition Credit loss is the difference between all contractual cash flows that are due to an entity in accordance impact for the Group. The ECL model applies to financial assets measured at either amortised cost with the contract and all cash flows that the entity expects to receive, discounted at the original or at FVOCI, loan commitments when there is a present commitment to extend credit (unless these effective interest rate or credit-adjusted effective interest rate. are measured at FVTPL) and guarantees. ECL is, at a minimum, required to be measured through a When estimating cash flows for determination of ECL, the Group has taken the following into account: loss allowance at an amount equal to the 12-month ECL. However, where the lifetime is less than 12 months, lifetime ECL will be measured for the financial asset. A loss allowance for full lifetime ECL is ▶▶ Expected life of a financial instrument required for a financial asset if the credit risk of that financial instrument has increased significantly ▶▶ All contractual terms of the financial instrument since initial recognition. The indicators applied to determine as to whether the credit risk has increased are: ▶▶ Other credit enhancements integral to the contractual terms

▶▶ the credit watchlist; 12-month ECL

▶▶ the ageing of the financial asset (if it has been outstanding for more than 60 days, it is The Group defines 12-month ECL as a portion of the lifetime ECL and represents the lifetime ECL that automatically added to the watchlist); and will result if a default occurs in the 12 months after the reporting date weighted by the probability of that default occurring. The 12 month ECL is seen as neither the lifetime ECL that the Group will incur ▶▶ the significant increase in credit risk (SICR) indicator which is an internal credit risk rating on financial instruments that it predicts will default in the next 12 months nor the cash shortfalls that measuring system. are predicted over the next 12 months. The Group has measured the ECL of all financial instruments in Measurement of ECL a way that reflects an unbiased and probability-weighted amount that is determined by evaluating a The Group calculates and recognises ECL on financial instruments while taking into consideration the range of possible outcomes. following factors: IFRS 9 introduced an expected credit loss impairment model that differs from the incurred loss model ▶▶ An unbiased and probability-weighted amount that is determined by evaluation a range of under IAS 39. Provision for credit losses is recorded to recognise estimated credit losses on all financial possible outcomes assets, except for financial assets classified or designated as FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. ▶▶ The time value of money Under IFRS 9 loss allowances are measured on either of the following bases: ▶▶ Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions ▶▶ Twelve-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and Time value of money ▶▶ Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a The Group discounts the calculated ECL to the reporting date. Calculated ECL considers the amount financial instrument. and timing of payments. Therefore, the Group deems a credit loss to arise even if the Group expects to be paid in full but later than when contractually due. Provision for credit losses

The discount rate for calculating ECL is based on the following: The amount charged to income necessary to bring the allowance for credit losses (ACL) to a level determined appropriate by management. Under IFRS 9, this includes provisions on performing and ▶▶ for fixed rate assets, the effective interest rate determined at initial recognition or an impaired financial instruments. approximation thereof; Expected loss models are used for both regulatory capital and accounting purposes. Under both ▶▶ for variable interest rate assets, the current effective interest rate. models, expected losses are calculated as the product of probability of default (PD), loss given default Group assessments (LGD) and exposure at default (EAD). However, there are certain key differences under current Basel Expected credit losses reflects the Group’s own expectations of credit losses. The Group assesses SICR and IFRS 9 reporting frameworks which could lead to significantly different expected loss estimates, without taking into account any collateral values. For financial instruments that do not contain a including: significant financing component, the loss allowance is measured at initial recognition and throughout ▶▶ Basel PDs are based on long-run averages over an entire economic cycle. IFRS 9 PDs are based the life of the instrument at an amount equal to the lifetime ECL. The Group considers that its on current conditions, adjusted for estimates of future conditions that will impact PD under cash and cash equivalents have a low credit risk as the cash is deposited with reputable financial probability-weighted macroeconomic scenarios; institutions, and thus no ECL is raised on this balance. ▶▶ Basel PDs consider the probability of default over the next 12 months. IFRS 9 PDs consider the The probability of default used in the calculation of ECL is a point-in-time probability (that is, PD probability of default over the next 12 months only for instruments in Stage 1. Expected credit in current economic conditions) and does not contain any adjustment for prudence. The Group losses for instruments in Stage 2 and Stage 3 are calculated using lifetime PDs; expects that, with all other things staying constant, the probability of default of a financial instrument should reduce with the passage of time, and therefore the Group considers the relative maturities ▶▶ Basel LGDs are based on severe but plausible downturn economic conditions. IFRS 9 LGDs are of a financial instrument at inception and at the reporting date when comparing PD’s. The Group based on current conditions, adjusted for estimates of future conditions that will impact LGD estimates its probability of default at a point in time. Point-in-time PD estimates incorporate under probability-weighted macroeconomic scenarios. macroeconomic and the obligors own credit quality. The Group computes point-in-time PDs over the expected life of a financial instrument.

102 103 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.10 Financial instruments continued 1.10 Financial instruments continued 1.10.1 Financial assets continued 1.10.1 Financial assets continued Credit loss continued Credit loss continued Allowance for credit losses: Measurement of expected credit losses

An ACL is established for all financial assets, except for financial assets classified or designated as Expected credit losses are based on a range of possible outcomes and consider all available reasonable FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. and supportable information including internal and external ratings, historical credit loss experience, Assets subject to impairment assessment include certain loans, debt securities, interest-bearing and expectations about future cash flows. The measurement of expected credit losses is based deposits with banks, customers’ liability under acceptances, accounts and accrued interest receivable, primarily on the product of the instrument’s probability of default, LGD, and EAD discounted to the and finance and operating lease receivables. Off-balance sheet items subject to impairment reporting date. The main difference between Stage 1 and Stage 2 expected credit losses for performing assessment include financial guarantees and undrawn loan commitments. The Group measures the financial assets is the respective calculation horizon. Stage 1 estimates project PD, LGD and EAD over ACL on each balance sheet date according to a three-stage expected credit loss impairment model: a maximum period of 12 months while Stage 2 estimates project PD, LGD and EAD over the remaining lifetime of the instrument. An expected credit loss estimate is produced for each individual exposure. The three-stage model Relevant parameters are modelled on a collective basis using portfolio segmentation that allows for Stage 1 – Performing appropriate incorporation of forward looking information. To reflect other characteristics that are not already considered through modelling, expert credit judgment is exercised in determining the final Stage 1 includes financial instruments that have not had a SICR since initial recognition or that have expected credit losses. These approaches have been designed to maximise the available information low credit risk at the reporting date. For these assets, 12-month ECL are recognised, and interest that is reliable and supportable for each portfolio and may be collective in nature. Expected credit revenue is calculated on the gross carrying amount of the asset (that is, without deduction for credit losses are discounted to the reporting period date using the effective interest rate. allowance). 12-month ECL are the expected credit losses that result from default events that are possible within 12 months after the reporting date. It is not the expected cash shortfalls over the Expected life 12-month period but the entire credit loss on an asset weighted by the probability that the loss will For instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected occur in the next 12 months. From initial recognition of a financial asset to the date on which the asset remaining lifetime of the instrument. For most instruments, the expected life is limited to the has experienced a SICR relative to its initial recognition, a loss allowance is recognised equal to the remaining contractual life. credit losses expected to result from defaults occurring over the 12 months following the reporting date. Assessment of SICR

Stage 2 – Underperforming The Group will assess, at each reporting date, whether the credit risk on a financial instrument has increased significantly since initial recognition. The assessment of SICR requires significant judgment. Stage 2 includes financial instruments that have had a SICR since initial recognition (unless they Movements between Stage 1 and Stage 2 are based on whether an instrument’s credit risk as at have low credit risk at the reporting date) but that do not have objective evidence of impairment. the reporting date has increased significantly relative to the date it was initially recognised. Where For these assets, lifetime ECL are recognised, but interest revenue is still calculated on the gross a client’s ageing exceeds 60 days it is automatically added onto the Bank’s watchlist, and where a carrying amount of the asset. Lifetime ECL are the expected credit losses that result from all possible client’s risk rating increases by two or more internal risk rating notches from its risk rating at inception, default events over the expected life of the financial instrument. Following a SICR relative to the initial the client has experienced a SICR event and the SICR indicator will be flagged. recognition of the financial asset, a loss allowance is recognised equal to the credit losses expected over the remaining lifetime of the asset. The assessment is generally performed at the instrument level. The assessment of SICR and the calculation of ECL both incorporate forward looking information. The Group has performed historical Stage 3 – Non-performing analyses and identified the key economic variables impacting credit risk and the calculation of a ECL. Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. These economic variables and their associated impact on the PD, EAD and LGD vary by financial For these assets, lifetime ECL are recognised and interest revenue is calculated on the net carrying instrument. Significant judgement and estimates are applied in this process of incorporating forward- amount (that is, net of credit allowance). When a financial asset is considered to be credit-impaired, a looking information into the SICR assessment and ECL calculation. The thresholds for movement loss allowance is recognised equal to credit losses expected over the remaining lifetime of the asset. between Stage 1 and Stage 2 are symmetrical. After a financial asset has transferred to Stage 2, if its Interest revenue is calculated based on the carrying amount of the asset, net of the loss allowance, credit risk is no longer considered to have significantly increased relative to its initial recognition, the rather than on its gross carrying amount. financial asset will move back to Stage 1.

The ECL is a discounted probability-weighted estimate of the cash shortfalls expected to result from For instruments with low credit risk as at the reporting date, it is presumed that credit risk has defaults over the relevant time horizon. For loan commitments, credit loss estimates consider the not increased significantly relative to initial recognition. Credit risk is considered to be low if the portion of the commitment that is expected to be drawn over the relevant time period. For financial instrument has a low risk of default, and the borrower has the ability to fulfil their contractual guarantees, credit loss estimates are based on the expected payments required under the guarantee obligations both in the near term and in the longer term, including periods of adverse changes in the contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with economic or business environment. When assessing whether the credit risk on a financial instrument the cash flows used in measuring the lease receivable. The ACL represents an unbiased estimate of has increased significantly since initial recognition, management looks at the change in the risk of a expected credit losses on our financial assets as at the balance sheet date. Judgment is required in default occurring over the expected life of the financial instrument rather than the change in the ECL. making assumptions and estimations when calculating the ACL, including movements between the The Group compares the risk of a default as at the reporting date with the risk of a default occurring three stages and the application of forward looking information. The underlying assumptions and on the financial instrument as at the date of initial recognition. estimates may result in changes to the provisions from period to period that significantly affects the Group’s results of operations.

104 105 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.10 Financial instruments continued 1.10 Financial instruments continued 1.10.1 Financial assets continued 1.10.1 Financial assets continued Credit loss continued Credit loss continued Assessment of SIC continued Key inputs and assumptions

When making that assessment, the Group uses the change in the risk of a default occurring over the The measurement of expected credit losses is a complex calculation that involves a large number of expected life of the financial instrument instead of the change in the amount of ECL. To achieve this, interrelated inputs and assumptions. The key drivers of changes in expected credit losses include the the Group compares the risk of a default occurring on the financial instrument as at the reporting following: date with the risk of a default occurring on the financial instrument as at the date of initial recognition ▶▶ Changes in the credit quality of the borrower or instrument, primarily reflected in changes in and considers reasonable and supportable information, and that is available without undue cost internal risk ratings or effort, that is indicative of significant increases in credit risk since initial recognition. A SICR is an event that happens before a financial asset becomes credit-impaired or an actual default occurs. ▶▶ Changes in forward-looking macroeconomic conditions, specifically the macroeconomic variables When making the assessment, the Group uses the change in the risk of a default occurring over the to which the Group’s models are calibrated expected life of the financial instrument, instead of the change in the amount of expected credit ▶▶ Transfers between stages, which can be triggered by changes to any of the above inputs losses (i.e. collateral and security are not considered). The Group will then raise lifetime expected credit losses on all financial instruments for which there has been significant increases in credit risk since Further information is provided in note 33. initial recognition. Internal risk ratings Further information is provided in note 33. Internal risk ratings are assigned according to the internal risk management framework. Changes Use of forward-looking information in internal risk ratings are primarily reflected in the PD parameters, which are estimated based on our historical loss experience at the relevant risk segment or risk rating level, adjusted for forward- The measurement of expected credit losses for each stage and the assessment of SICR considers looking information. information about past events and current conditions as well as reasonable and supportable projections of future events and economic conditions. The estimation and application of forward- Forward looking macroeconomic variables looking information requires significant judgment. The PD, LGD and EAD inputs used to estimate The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled Stage 1 and Stage 2 credit loss allowances are modelled based on the macroeconomic variables based on the macroeconomic variables (or changes in macroeconomic variables) that are most closely (or changes in macroeconomic variables) that are most closely correlated with credit losses in the correlated with credit losses in the relevant portfolio. Further information is provided in note 33. relevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all relevant macroeconomic variables used in our models for a five year period, Allowance for credit losses subsequently reverting to long-run averages. The Group’s assessment of significant increases in credit The amount deemed adequate by management to absorb expected credit losses as at the balance risk is based on changes in probability-weighted forward-looking lifetime PD as at the reporting sheet date. The allowance is established for all financial assets subject to impairment assessment. The date, using the same macroeconomic inputs as the calculation of expected credit losses. Further allowance is changed by the amount of provision for credit losses recorded. information is provided in note 33. Expected credit losses Definition of default The difference between the contractual cash flows due to us in accordance with the relevant The definition of default used in the measurement of expected credit losses is consistent with the contractual terms and the cash flows that we expect to receive, discounted to the balance sheet date. definition of default used for our internal credit risk management purposes. Our definition of default may differ across products and consider both quantitative and qualitative factors, such as the terms 1.10.2 Financial liabilities of financial covenants and days past due. The Group deems a default to occur when the borrower The accounting for financial liabilities remains largely unchanged under IFRS 9, except for financial is more than 90 days past due on any material obligation, and/or the Group considers the borrower liabilities designated as FVTPL. All changes in the fair value of financial liabilities that are designated unlikely to make their payments in full without recourse action, such as taking formal possession of at FVTPL due to changes in own credit risk are required to be recognised within other comprehensive any collateral held. income. The Group classifies its financial liabilities in the following measurement categories: Probability of default is the risk that the borrower will be unable or unwilling to repay its debt in full or ▶▶ amortised cost; or on time. The risk of default is derived by analysing the obligor’s capacity to repay debt in accordance with contractual terms. Probability of default is generally associated with characteristics such as ▶▶ mandatorily at FVTPL. in the case of contingent consideration in a business combination or to inadequate cash flow to service debt, declining revenues or operating margins, high leverage and liabilities which are held for trading; or declining or marginal liquidity. In addition to these quantifiable factors, the borrower’s willingness to ▶▶ designated at FVTPL when such classification eliminates or significantly reduces measurement or repay is also evaluated. The probability of default is an estimate of the likelihood that the default event recognition inconsistency; the liability forms part of a group of financial instruments managed on will occur and it applies to a particular assessment horizon, usually one year. a fair value basis; or it forms part of a contract containing an embedded derivative and the entire contract is designated as at FVTPL.

106 107 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.10 Financial instruments continued 1.11 Taxation continued 1.10.2 Financial liabilities continued Deferred tax Deposits Deferred tax is recognised in respect of all temporary differences arising between the tax bases Deposits are initially measured at fair value plus transaction costs and subsequently at their amortised of assets and liabilities, and their carrying values, for financial reporting purposes. Deferred tax is cost using the effective interest method. measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Derivative financial instruments Deferred tax assets are recognised to the extent that it is probable that future taxable income will The Bank holds derivative financial instruments to hedge its foreign currency exposures. Derivatives be available against which the temporary difference and the unused tax losses can be utilised. The are recognised initially at fair value. Attributable transaction costs are recognised in profit or loss when amount of deferred tax provided is based on the expected manner of realisation or settlement of the incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein carrying amount of the asset or liability and is not discounted. Deferred tax assets are reviewed at each are recognised in profit or loss. reporting date and are reduced to the extent that it is no longer probable that the related tax benefit Floating rate notes will be realised. The Bank issued three-month floating rate notes that are measured at amortised cost. These notes Current and deferred taxes are recognised in profit or loss except to the extent that it relates to a are rolling notes. These instruments are set to mature on 16 September 2020. The floating rate notes’ business combination, or items recognised directly in equity or other comprehensive income. interest rate is linked to three month JIBAR plus 100 basis as at inception. Indirect tax Offsetting Indirect taxes, including non-recoverable value added tax and skills development levies, are separately Financial assets and liabilities are set off and the net amount is presented in the statement of financial disclosed in the statement of comprehensive income. position when, and only when, the Bank has a legal right to set off the amounts and intends either to 1.12 Leases settle on a net basis or to realise the asset and settle the liability simultaneously. As at 30 June 2020 the Bank did not have any financial instruments of this nature. IFRS 16 Leases was issued in January 2016 and replaces IAS 17 Leases and its related interpretations for reporting periods that began on or after 1 January 2019. Collateral Effective 1 July 2019 the company adopted IFRS 16. In transitioning to IFRS 16 the company elected Financial and non-financial assets are held as collateral in respect of recognised financial assets. to make use of the modified retrospective approach where the right-of-use asset is recognised at Such collateral is not recognised by the Bank, as the Bank does not retain the risks and rewards of the date of initial application (1 July 2019) as an amount equal to the lease liability. These values are ownership, and is obliged to return such collateral to counterparties on settlement of the related calculated by using the company’s incremental borrowing rate as at the date of initial application, obligations, except where collateral has been ceded to the Bank. Should a counterparty be unable to adjusted for any prepaid or accrued lease payments recognised in the statement of financial position settle its obligations, the Bank takes possession of collateral or calls on other credit enhancements as immediately before the date of initial application. full or part settlement of such amounts. These assets are recognised when the applicable recognition criteria under IFRS are met, and the Bank’s accounting policies are applied from the date of Transitional approach recognition. Cash collateral is recognised when the Bank receives the cash and is reported as amounts The company has elected to apply IFRS 16 retrospectively, using the modified approach. The modified received from depositors. approach allows for comparatives under the previously effective accounting requirements of IAS 17, IFRIC Determining whether an arrangement contains a lease and SIC 27: Evaluating the substance of Derecognition transactions in the legal form of a lease, not to be restated. At 1 July 2019 corresponding transitional The Bank derecognises a financial asset when the contractual rights to the cash flows from the adjustments were made by offsetting balances of previous IAS 17 straight-line lease liabilities against asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in the values of the newly recognised right of use asset values. a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is On adoption of IFRS 16 the company recognised a right-of-use asset and accompanying lease liability recognised as a separate asset or liability. in relation to all enforceable leases (previously classified as operating leases under the principles of IAS 17) as at 1 July 2019. The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expired. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time on exchange for a consideration. Under IAS 17 the company 1.11 Taxation assessed whether arrangements contained a lease based on establishing whether fulfilment of the Direct tax arrangement was subject to the use of a specific asset and conveyed a right to use the asset. On Income tax transition the company elected not to reassess whether a contract is or contains, a lease. Instead, for Income tax expense comprises current and deferred tax. Current tax represents the expected tax contracts entered into before the date of initial application, the company relied on the process applied payable on taxable income for the year, using tax rates enacted or substantively enacted at the when those leases were still subject to the IAS 17 framework. The new lease definition under IFRS 16 reporting date, and any adjustments to tax payable in respect of previous years. has been applied only to contracts entered into on or after 1 July 2019.

108 109 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.12 Leases continued 1.12 Leases continued Transitional approach continued Transitional impact continued In applying IFRS 16 for the first time, the company has applied the following practical expedients In determining the incremental borrowing rates (both on transition date of IFRS 16 and after permitted by the standard: transition), the company has made use of significant judgements, estimation techniques and assumptions surrounding inputs used in constructing the incremental borrowing rates. The company ▶▶ The company accounted for operating leases with a remaining lease term of less than 12 months has applied rates in accordance with The Bidvest Group policy. Refer to the accounting policies in at 1 July 2019 as short-term leases. respect of the initial and subsequent measurement of right-of-use assets and for the initial and ▶▶ The company applied the use of hindsight in determining the lease term where the contract subsequent measurement of lease liabilities. contains options to extend or terminate the lease. There were no material cashflows related to low-value leases, contracts reassessed to service ▶▶ For all leases the company invoked the practical expedient election of adopting a single discount arrangements and non-IFRS variable cashflows. rate to a portfolio of homogenous leases with reasonably similar characteristics. The Bank is party to the following type of lease contracts: ▶▶ The company has applied the practical expedient to separate the non-lease components from the The Bank as lessor: lease components on a lease-by-lease basis. The company accounts for the lease and non-lease components as separate lease components. ▶▶ Moveable assets rented to customers under operating leases.

IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and accordingly, the The Bank as lessee: company, in its capacity as lessor, continues to classify and account for leases as operating leases using ▶▶ Branches. substantially the same principles as under IAS 17. ▶▶ Office space. Critical judgements and assumptions Discount rates The Bank as lessor The following discount rates, as the company’s incremental borrowing rates in accordance with The The company determines at lease inception whether each lease is a finance lease or an operating Bidvest Group policy, were adopted in measuring lease liabilities: lease. To classify each lease the company assesses whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying assets. In this case the lease is classified as ▶▶ Where the lease period terminates before 01/07/2022 – 7,68% (leases between zero and three years) a finance lease, otherwise it is classified as an operating lease. If the arrangement contains lease and ▶▶ Where the lease period terminates between 01/07/2022 and 30/06/2024 (inclusive) – 7,96% (leases non-lease components, the company allocates the consideration in the contract to each component between three and five years) on the basis of their relative standalone prices.

▶▶ Where the lease period terminates between 01/07/2024 and 30/06/2029 (inclusive) – 8,78% (leases Lease and instalment sale contracts are primarily financing transactions, with rentals and instalments between five and 10 years) receivable, less unearned finance charges, included in loans and advances on the statement of financial position. Finance charges earned are computed using the effective interest method which ▶▶ Where the lease period terminates between 01/07/2029 and 30/06/2034 (inclusive) – 9,24% (leases reflects a constant periodic return on the investment in the finance lease. Initial direct costs paid are between 10 and 15 years) capitalised to the value of the lease amount receivable and accounted for over the lease term as an ▶▶ Where the lease period terminates after 30/07/2034 – 9,28% (leases >15 years) adjustment to the effective rate of return. Leases of assets under which the Bank effectively retains all the risks and benefits of ownership are classified as operating leases. Rentals received under operating With the exception of the adoption of IFRS 16 Leases (effective on 1 January 2019) these financial leases, are accounted for as income on the straight-line basis over the period of the lease. When an statements have been prepared on a basis consistent with the prior year. operating lease is terminated before the lease period has expired, any payment required by the lessee Right-of-use assets in accordance with IFRS 16 are carried at cost less accumulated depreciation and by way of penalty is recognised as income in the period in which termination takes place. impairment. The leased assets are moveable assets rented to customers under operating leases. The leased assets Transitional impact are depreciated on a straight-line basis over the period of the lease. The maintenance costs are borne by the Bank and are expensed as they are incurred. Leased assets’ residual values are reviewed and On transition, lease liabilities were measured at the present value of all future lease payments, adjusted if appropriate, at each reporting date. from 1 July 2019, discounted using the company’s transition date incremental borrowing rate. The right‑of-use assets were measured at the present value of all future lease payments, from 1 July 2019, The Bank as lessee discounted using the company’s transition date incremental borrowing rate. The discounted Lease liabilities right‑of‑use assets calculated from transition date were adjusted by the amounts of prepaid and/or Initial and subsequent measurement accrued lease payments relating to IAS 17 balances recognised in the statement of financial position as at 30 June 2019. The lease liability is initially measured at a present value of unpaid lease payments on the commencement date (the date the underlying asset is available for use). The lease payments are The policy election resulted in the company recognising lease liabilities of R327,8 million and discounted using the interest rate implicit in the lease. If that rate cannot be determined, the company accompanying right-of-use assets of R323 million. Except for the adjustment of the straight-line lease uses the incremental borrowing rate being the rate that the company would have to pay to borrow liability relating to IAS 17 against the value of the right-of-use asset on initial application there was no the funds necessary to obtain an asset of similar value in a similar economic environment with similar recognition differential between the lease liabilities and the right of use assets at initial recognition. terms and conditions. This differential gave rise to a deferred tax asset of R1,3 million which was recognised directly through the income statement and on the balance sheet.

110 111 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.12 Leases continued 1.12 Leases continued The Bank as lessee continued The Bank as lessee continued Lease liabilities continued Lease modifications continued Initial and subsequent measurement continued For a lease modification that does not meet the criteria to be recognised as a separate lease at the effective date of the lease modification, the company accounts for the lease by: The lease payments include: ▶▶ allocating the consideration in the modified contract between lease and non-lease components; ▶▶ fixed payments (including in-substance fixed payments) less any lease incentives receivable; ▶▶ determining the lease term of the modified lease; and ▶▶ amounts expected to be payable by the company under residual value guarantees; ▶▶ remeasuring the lease liability by discounting the revised lease payments using a revised discount ▶▶ variable lease payments that are based on an index or a rate; rate. The revised discount rate is determined as the interest rate implicit in the lease for the ▶▶ the exercise price of a purchase option if the company is reasonably certain to exercise that option; remainder of the lease term if that rate can be readily determined, or the company’s incremental and borrowing rate at the effective date of the modification, if the interest rate implicit in the lease cannot be readily determined. ▶▶ payments of penalties for terminating the lease, if the company is reasonably certain to exercise that option. Additionally, for a lease modification that is not accounted for as a separate lease, the company accounts for the remeasurement of the lease liability by: The lease liability is subsequently measured under IFRS 9 at amortised cost using the effective-interest method. Interest expense is recognised in profit and loss and capitalised to the lease liability. ▶▶ decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease. The company recognises in Reassessment of lease liability profit or loss any gain or loss relating to the partial or full termination of the lease. After the commencement date the company remeasures the lease liability to reflect changes to the ▶▶ making a corresponding adjustment to the right-of-use asset for all other lease modifications. lease payments. The carrying amount of the lease liability is remeasured by discounting the revised lease payments using a revised discount rate if: Variable lease expense ▶▶ there is a change in the lease term; or The company recognises variable lease expenses not contingent or dependent on an index or a rate as an expense in profit or loss in the period in which the event or condition that triggers the ▶▶ the company changes its assessment of whether it will exercise an option to purchase the payment occurs. underlying asset. Right-of-use asset (initial and subsequent measurement) The carrying amount of the lease liability is remeasured by discounting the revised lease payments The right-of-use asset is initially measured at cost, which comprises: using the original discount rate if there is a change in: ▶▶ the initial amount of the lease liability, adjusted for any lease payments made at or before the ▶▶ the amounts expected to be payable under a residual value guarantee; or commencement date; ▶▶ future lease payments resulting from a change in an index or a rate used to determine ▶▶ less any lease incentives received; those payments. ▶▶ plus, any initial direct costs incurred; If the change in lease payments results from a change in floating rates, the company uses a revised discount rate that reflects changes in the interest rate. The company recognises the amount of the ▶▶ less all previously recognised amounts of prepaid and/or accrued lease payments relating to IAS 17 remeasurement of the lease liability as an adjustment to the right-of-use asset. When corresponding balances; and adjustments to the right-of-use asset reduce the carrying amount to zero, the company recognises ▶▶ an estimate of costs to dismantle and remove the underlying asset or to restore the site on which any remaining amount of the remeasurement in profit or loss. it is located, less any lease incentives received.

Lease modifications Right-of-use assets are subsequently measured at cost less any accumulated depreciation and The company accounts for modifications as a separate lease using a new discount rate if the impairment losses, adjusted for certain remeasurements of the lease liability. Impairment losses are modification is a material economic alteration of the initial contract. This would occur if the determined in accordance with IAS 36 Impairment of Assets. If the lease transfers ownership of the modification in question: underlying asset to the company by the end of the lease term, or if the cost of the right-of-use asset ▶▶ increases the scope of the lease by adding the right to use one or more underlying assets; and reflects that it is reasonably certain that the company will exercise a purchase option, the company depreciates the right-of-use asset over the useful life. ▶▶ the consideration for the lease increases by an amount commensurate with the standalone price for the increase in scope and any appropriate adjustments to that standalone price to reflect the The company depreciates the right-of-use asset over the lease term. The company’s principles circumstances of the particular contract. governing estimating useful lives of the right-of-use assets are determined using the same principles as those ascribed for property and equipment.

112 113 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.12 Leases continued 1.12 Leases continued The Bank as lessee continued The Bank as lessee continued Short-term leases and leases of low-value assets Onerous leases (impairment assessment) continued Payments associated with short-term leases and leases of low-value assets are recognised as The company assesses for impairment indicators in the right-of-use asset, considering a combination expenses directly in profit or loss. Short-term leases are leases with a lease term of 12 months or less. of the following factors: The company classifies its month-to-month leases as short-term leases. Low-value assets comprise ▶▶ when a significant decline in expected economic benefits from the full operational effects of the computer equipment and small items of office furniture. Leases with values of less than R100 000 lease contract has occurred. are considered as low values leases. The company does not recognise right-of-use assets and lease liabilities for short-term and low-value leases. ▶▶ when the leased asset is underutilised, renounced, relinquished or abandoned.

The company considers a short-term lease to be a new lease if: ▶▶ combined with an array of factors to conclude on the presences of an onerous lease.

▶▶ there is a lease modification; or Each case is assessed and weighed based on its prevailing merits, facts and circumstances. Impairment losses reduce the right-of-use asset and are recognised in profit and loss. In most cases ▶▶ there is any change in the lease term (for example, the company exercises an option not previously an onerous lease does not discharge or extinguish the existing lease liability at time of occurrence of included in its determination of the lease term). the impairment event. Any additional penalties to cancel the lease are present-valued and included as Contract assessment and allocation of consideration part of the lease liability in accordance with IFRS 16. At the inception of a new contract, the company assesses whether the contract is or contains a Derecognition lease. In assessing whether a contract conveys the right to control the use of an identified asset, the Termination of a lease, partial or fully, results in derecognition of the right-of-use asset and the company considers whether: corresponding lease liability. The company recognises any profit and loss in the period in which the ▶▶ the contract involves the use of an asset explicitly or implicitly identified in the contract. This asset termination occurs. must be physically distinct or represents substantially all the capacity of the asset. If the supplier 1.13 Inventories has a substantive substitution right, then the asset is not identified; The Group, in the course of its ordinary activities, routinely sells items of property, plant and equipment ▶▶ the company has the right to obtain substantially all the economic benefits from the use of the (end-of-term leased assets) that it initially holds for rental to customers. The Group transfers such asset throughout the period of use; and assets to inventories at their carrying amount when they cease to be rented and become held for ▶▶ the company has the right to direct the use of the asset, i.e. to direct how and for what purpose sale. The proceeds from the sale of such assets are recognised as revenue in accordance with IFRS 15 the asset is used. Revenue from Contracts with Customers.

At inception or on reassessment of a modified contract that contains a lease component, the Inventory consists of end-of-term leased assets and card stock (card stock consists of physical cards company allocates the consideration in the contract to each lease component on the basis of their held). Lease asset inventory is measured at the lower of cost and net realisable value, and card stock is relative standalone prices and the aggregate standalone price of the non-lease components. Non- measured at cost. lease components are recognised as an expense in profit or loss in the period in which they arise. The costs of purchase of inventories comprise the purchase price, transport costs, handling and other costs directly attributable to the acquisition of the goods. Trade discounts, rebates and other similar Lease term items are deducted in determining the costs of purchase. The company determines the lease term as the non-cancellable period of a lease, together with both: Estimates of net realisable value are based on the most reliable evidence available at the time the ▶▶ periods covered by an option to extend the lease if the company is reasonably certain to exercise estimates are made, of the amount the inventories are expected to realise. These estimates take into that option; and consideration fluctuations of price or cost directly relating to events occurring after the end of the ▶▶ periods covered by an option to terminate the lease if the company is reasonably certain not to period to the extent that such events confirm conditions existing at the end of the period. A new exercise that option. assessment is made of net realisable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist, or when there is clear In assessing whether the company is reasonably certain to exercise an option to extend a lease, or not evidence of an increase in net realisable value because of changed economic circumstances, the to exercise an option to terminate a lease, the company considers all relevant facts and circumstances amount of the write-down is reversed (i.e. the reversal is limited to the amount of the original write- that create an economic incentive for the company to exercise the option to extend the lease, or not down) so that the new carrying amount is the lower of the cost and the revised net realisable value. to exercise the option to terminate the lease. As an example, the company would consider rent-free periods, low(er) value leases in future, refundable leasehold improvements and the area in which the underlying asset is leased and future prospects for that are as economic incentive.

Onerous leases (impairment assessment) Onerous leases are dealt with in IAS 36 Impairment of Assets, except for short-term leases, low-value leases and leases that became onerous before commencement date of the lease, which are dealt with in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

114 115 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.14 Impairment of non-financial assets 1.16 Employee benefits continued The carrying amounts of the Bank’s non-financial assets are reviewed at each reporting date to Employee benefits of the Bank continued determine whether there is any indication of impairment. If any such indication exists, then the asset’s The Bank’s liability for post-retirement benefits, accruing to past and current employees in terms of recoverable amount is estimated. defined benefit schemes, is actuarially calculated. Where the plan is funded, the obligation is reduced An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit by the fair value of the plan assets. Unfunded obligations are recognised as a liability in the financial exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that statements. generates cash flows that largely are independent from other assets and groups. Impairment losses The Bank’s obligation for post-retirement medical aid to past and current employees is actuarially are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are determined and provided for in full. allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The projected unit credit method is used to determine the present value of the defined benefit obligations and the related current service cost and, where applicable, past service cost. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their 1.17 Provisions and maintenance contracts present value using a pre-tax discount rate that reflects current market assessments of the time value Provisions of money and the risks specific to the asset. Provisions are recognised when the Bank has a present legal or constructive obligation as a result of a An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment past event which can be estimated reliably, and it is probable that an outflow of economic benefits will losses recognised in prior periods are assessed at each reporting date for any indications that the be required to settle the obligation. If the effect is material, provisions are determined by discounting loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the expected future cash flows at a pre-tax rate that reflects current market assessments of the time the estimates used to determine the recoverable amount. An impairment loss is reversed only to the value of money and, where appropriate, the risks specific to the liability. extent that the asset’s carrying amount does not exceed the carrying amount that would have been Maintenance contracts determined, net of depreciation or amortisation, if no impairment loss had been recognised. The Group provides for its future maintenance obligations attributable to revenue that has already An entity assesses at each reporting date whether there is any indication that an impairment loss been earned in terms of maintenance contracts for leased assets. recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. Capital impairment provision If any such indication exists, the recoverable amounts of those assets are estimated. A constructive obligation to restructure arises only when an entity: The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no ▶▶ has a detailed formal plan for the restructuring, identifying at least: impairment loss been recognised for the asset in prior periods. »» the business or part of a business concerned; A reversal of an impairment loss of assets carried at cost less accumulated depreciation or »» the principal locations affected; amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase. »» the location, function, and approximate number of employees who will be compensated for 1.15 Share-based payments terminating their services; The Bidvest Group Limited Share Incentive Scheme allows the Bank’s employees to acquire shares in »» the expenditures that will be undertaken; and the ultimate holding company. The fair value of options granted is recognised as an employee expense »» when the plan will be implemented; and with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value ▶▶ has raised a valid expectation in those affected that it will carry out the restructuring by starting to of the options is measured using a binomial method taking into account the terms and conditions implement that plan or announcing its main features to those affected by it. upon which the options were granted. The amount recognised as an expense is adjusted to reflect the 1.18 Revenue actual number of share options that vest. The Group recognises revenue from the following major sources: 1.16 Employee benefits Revenue from contracts with customers recognised under IFRS 15 Employee benefits of the Bank The Group adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 July 2018, The Bank contributes to a defined contribution pension fund and provident fund for all its employees which resulted in changes in accounting policies. No adjustments were made to the amounts based on a percentage of pensionable earnings funded by both employer and employees. The recognised in the financial statements. The adoption of IFRS 15 did not result in any adjustments Bank has no further payment obligations once the contributions have been paid. The contributions or changes to how the Group measures revenue income and did not require any adjustment to the are recognised as employee benefit expenses when they are due for payment and are included in statement of financial position, statement of comprehensive income, statement of changes in equity operating expenditure. or the statement of cash flows for either the current or previous reporting periods. Leave benefits due to employees are recognised as a liability in the financial statements. Short-term Revenue from Contracts with Customers, requires entities to recognise revenue in a manner which employee benefit obligations are measured on an undiscounted basis and are expensed as the related depicts the transfer of promised goods or services to customers in an amount that reflects the service is provided. consideration to which the entity expects to be entitled in exchange for those goods or services A liability is recognised for the amount expected to be paid as short-term cash bonus as if the Bank and excludes amounts collected on behalf of third parties. The transaction price is allocated to each has a present legal or constructive obligation to pay this amount as a result of past service provided by identified performance obligation, and revenue is recognised once the performance obligation is the employee and the obligation can be estimated reliably. satisfied, either over time or at a point in time.

116 117 Annual financial statements

Accounting policies continued

1. Significant accounting policies continued 1. Significant accounting policies continued 1.18 Revenue continued 1.18 Revenue continued Revenue from contracts with customers recognised under IFRS 15 continued Revenue recognised under IFRS 9 The performance obligations, as well as the timing of their satisfaction, are identified, and determined, Net Interest Income at the inception of the contract. The Bank’s revenue contracts do not typically include multiple Interest income and expense to be recognised in profit or loss using the effective interest method. performance obligations. When the Bank provides a service to its customers, consideration is invoiced The effective interest rate is the rate that exactly discounts the estimated future cash payments and and generally due immediately upon satisfaction of a service provided at a point in time or over receipts through the expected life of the financial asset or liability to the carrying amount of the time. The Bank has concluded that it is the principal in its revenue arrangements because it typically financial asset or liability. Interest income and expense includes the amortisation of any discount or controls the services before transferring them to the customer. premium or other differences between the initial carrying amount of an interest-bearing financial Fee and commission income instrument and its amount at maturity calculated on an effective interest rate basis. The Bank earns fee and commission income from the diverse range of financial services it provides to The calculation of the effective interest rate includes all fees, transaction costs, and discounts or its customers. Fee and commission income is recognised at an amount that reflects the consideration premiums that are an integral part of the effective interest rate. Transaction costs are incremental to which the Bank expects to be entitled in exchange for providing the services. The revenue relating costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. to fee and commission income is recognised upon service delivery completion. Interest income on Stage 1 or Stage 2 financial assets is calculated by multiplying the effective Acquiring income interest rate by the gross carrying amount of such assets, whereas interest income on Stage 3 Acquiring income comprises transactional banking fees such as point of sale acquiring at merchants, financial assets to be calculated based on the net carrying value of the exposure (the gross carrying online payment processing services and ATM transactions where the Group is the owner of the ATM. value less the ECL allowance). Point of sale acquiring and online payment processing revenue is earned when a customer transacts Interest income and expense presented in the statement of comprehensive income includes: at one of the Company’s merchants (either Ecommerce or Point of Sale) and a rate is levied on the transaction. This rate is levied on any transaction that goes through one of the Company’s devices ▶▶ interest on financial assets and liabilities at amortised cost on an effective interest basis; and (Point of Sale and Ecommerce). ATM revenue is earned when a customer interacts at an ATM. ▶▶ interest on FVOCI investment securities on an effective interest basis.

Acquiring income is earned on the execution of a significant act which takes place at a point in time Interest income is earned and recognised as interest payments fall due. and for which performance and settlement generally takes place on the same day. Each service provided is priced separately and there is no variable consideration involved. None of the services Net trading income contain a significant financing component. In terms of IFRS 9, trading positions are measured at fair value, with fair value gains and losses being recognised within profit or loss. Card issuing income The Bank is an issuer of travel-related and transactional-based cards through card settlement Net trading income comprises gains and losses related to trading assets and liabilities, and includes all schemes, where the Bank is entitled to earn fees and commissions based on services provided realised and unrealised foreign exchange differences. in relation to such cards. Services provided would include card reloads and processing of card Foreign exchange income includes gains and losses from spot and forward contracts. transactions. The Bank also provides its customers with card processing services (ie authorisation and settlement of transactions executed with the Bank’s cards) where it is entitled to an interchange fee Revenue recognised under IFRS 16 for each transaction. Most of those services are provided at a point-in-time for which performance and Net leasing income comprises revenue and expenses directly attributable to full maintenance leasing settlement generally takes place on the same day. The above fees vary based on the number and type activities. Rental income arising on leased assets is accounted for on a straight-line basis over the lease of transactions processed and are structured as either a fixed rate per transaction processed or at a term on ongoing leases. fixed percentage of the underlying cardholder transaction. Revenue related to the maintenance portion of the full maintenance leasing activities is assessed in Income from annual card fees is recognised on an accrual basis as the services are rendered and terms of IFRS 15. Revenue from maintenance contracts has been recognised over time and accounted the Bank’s performance obligation is satisfied. Revenue is recognised over time as the performance for as and when they fall due. The Group has performed an assessment of the impact on these obligation is satisfied evenly over the period (ie one year) and straight-line recognition over the financial statements and as majority of the full maintenance leasing activities book is currently at the contract period is deemed to be reasonable. Given that the payment of such fees are deducted at middle-to-end of its life cycle no contract liabilities or contract assets are raised in terms of IFRS 15 as the end of each month for services provided, there is no contract assets/liabilities arising on this the amounts were found to be immaterial. performance obligation. Revenue recognised as other income Other fees Other income comprises dividend income and unclaimed balances written back. Other fees include fees charged on international money transfer services, where the customer is Dividend income (measured under IFRS 9) is recognised in profit or loss on the date that the right to charged a rate based on the value of the amount sent or received, and transactional fees charged on receive payment is established. negotiable securities. 1.19 Deposits, intergroup loans and trade payables The Bank has a single performance obligation with respect to these services, which is to successfully complete the transaction specified in the contract. The fees earned in exchange for these services are Deposits, intergroup loans and trade payables are initially measured at fair value plus transaction cost recognised at the point in time. and subsequently at their amortised cost using the effective interest method. 1.20 Distributions to the shareholder Distributions to the shareholder are accounted for once they have been approved by the Board.

118 119 Annual financial statements

Notes to the consolidated and separate annual financial statements for the year ended 30 June 2020

Group Company Group Company

2020 2019 2020 2019 2020 2019 2020 2019 R000 R000 R000 R000 R000 R000 R000 R000

2. Cash and cash equivalents 4. Negotiable securities Cash and cash equivalents consist of: Investments carried at amortised cost Cash on hand 195 198 220 622 195 198 220 622 Bills of exchange 275 821 343 082 275 821 343 082 Interbank investments: Less: interest in suspense (9 574) (2 395) (9 574) (2 395) Money on call 2 912 523 2 792 411 2 912 568 2 792 448 Less: allowance for impairment (11 589) (12 370) (11 589) (12 370) Current accounts 1 178 436 919 844 1 178 436 918 838 254 658 328 317 254 658 328 317 Money market and preference share portfolio 2 512 7 095 2 456 7 061 South African Reserve Bank 83 587 82 994 83 587 82 994 Restricted cash held at South African Current assets 254 658 328 317 254 658 328 317 Reserve Bank 148 080 104 021 148 080 104 021 The bills of exchange consist of customer deals financed by the Bank on behalf of Tradeflow (Pty) Ltd 4 520 336 4 126 987 4 520 325 4 125 984 (Tradeflow). Tradeflow draws up the bills containing the invoice amount and all interest costs fees and charges agreed with the customer after which the Bank purchases the bill from Tradeflow and settles Cash is held with Tier 1 A rated banks. the supplier. The customer undertakes to pay the Bank the amount of the bill on the due date. 3. Derivative financial instruments 5. Investment securities Forward exchange contracts At FVOCI Derivative financial assets 8 556 13 496 8 556 13 496 Investment in RSA government bonds Derivative financial liabilities (21 934) (8 635) (21 934) (8 635) and treasury bills 645 579 490 173 645 579 490 173 (13 378) 4 861 (13 378) 4 861 Listed preference shares and equities 75 755 72 734 75 755 72 734 Unlisted equities 1 301 1 067 1 301 1 067 Notional amount of derivative financial assets 127 920 636 732 127 920 636 732 Hedge fund 337 – 337 – Notional amount of derivative financial Negotiable certificates of deposit 273 638 – 273 638 – liabilities 111 751 429 456 111 751 429 456 Unlisted shares at directors’ valuation 16 16 16 16 The notional amount is the value of all bought and sold contracts respectively and is presented in ZAR 996 626 563 990 996 626 563 990 at the ruling exchange rate at 30 June 2020. The amount does not represent the market risk or credit risk exposure of the Bank and should only be used in assessing the Bank’s participation in derivative Government bonds, listed preference shares and listed equities are held at fair value and are valued contracts. by using market quoted prices. The movement in the fair value is recognised directly in other The Group deems 10% of the carrying amount of the derivative exposure to be the maximum comprehensive income. exposure to credit risk. The RSA government bonds carry interest at an available rate. The Bank did not hold any RSA Current assets 8 556 13 496 8 556 13 496 government bonds June 2020. The weighted average rate of bonds held as at 30 June 2019 was 8,69%. Current liabilities (21 934) (8 635) (21 934) (8 635) The listed preference shares’ weighted average rate is 8,34% per annum (2019: 9,05%). Market quoted prices are used only where the instrument is liquid. (13 378) 4 861 (13 378) 4 861 Non-current assets Held at FVOCI 77 409 563 990 77 409 563 990

Current assets Held at FVOCI 919 217 – 919 217 –

120 121 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company Unearned finance 2020 2019 2020 2019 Gross charges Net R000 R000 R000 R000 R000 R000 R000

6. Other assets 7. Loans and advances continued Trade and other receivables 269 860 146 993 288 074 173 504 7.1 Analysis of loans and advances continued Value added tax – 131 – 2 042 Maturity of finance leases Prepayments in advance 19 640 17 069 19 498 16 969 Group – 2020 Merchant Services interchange receivables 63 675 113 736 – – Due within one year 611 237 (91 343) 519 894 353 175 277 929 307 572 192 515 Between one and five years 944 590 (84 001) 860 589 More than five years 1 586 (172) 1 414 Leasing debtors and sundry debtors included in trade and other receivables above are the only exposures disclosed under other assets that are subject to an expected credit loss. The Bank has 1 557 413 (175 516) 1 381 897 individually assessed these exposures for credit impairment. An allowance for credit loss was raised on Group – 2019 these exposures as at 30 June 2020, totalling R4,5 million (2019: R0). Due within one year 430 594 (89 059) 341 535 All the other assets are current assets with an expected settlement period of less than 12 months after Between one and five years 780 294 (104 396) 675 898 reporting period. More than five years 2 212 (400) 1 812 6.1 Taxation paid 1 213 100 (193 855) 1 019 245 Balance at the beginning of the year 18 314 6 545 18 008 6 239 Current tax for the year recognised in profit Company – 2020 or loss (28 158) (86 389) (28 158) (86 389) Due within one year 611 237 (91 343) 519 894 Interest receivable 552 – 552 – Between one and five years 944 590 (84 001) 860 589 Balance at the end of the year (36 838) (18 314) (36 532) (18 008) More than five years 1 586 (172) 1 414

(46 130) (98 158) (46 130) (98 158) 1 557 413 (175 516) 1 381 897

7. Loans and advances Company – 2019 7.1 Analysis of loans and advances Due within one year 430 594 (89 059) 341 535 Loans and advances to customers Between one and five years 780 294 (104 396) 675 898 Call and term loans 902 123 1 197 552 902 538 1 247 586 More than five years 2 212 (400) 1 812 Mortgage loans 621 111 584 267 621 111 584 267 1 213 100 (193 855) 1 019 245 Finance leases and instalment finance 1 377 579 1 009 074 1 377 579 1 009 074 Income from leasing includes contingent rentals that relate to variable rental income on full 2 900 813 2 790 893 2 901 228 2 840 927 maintenance leasing contracts, details are set out in note 23.3. Less: allowance for impairment (42 358) (8 997) (42 358) (8 997)

2 858 455 2 781 896 2 858 870 2 831 930 Loans and advances to banks Finance leases 4 318 10 171 4 318 10 171

2 862 773 2 792 067 2 863 188 2 842 101

The increase in allowance for impairment of loans and advances relating to the 2020 financial year, totalling R33,3 million (2019: R0,75 million) was recognised as part of net credit impairment charges within the Bank’s consolidated and separate statement of comprehensive income for the year ended 30 June 2020.

122 123 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

2020 2019 Group Company Accumu- Accumu- 2020 2019 2020 2019 lated lated R000 R000 R000 R000 Cost or depre- Carrying Cost or depre- Carrying revaluation ciation value revaluation ciation value 8. Intergroup loans 9. Property, plant and Intergroup loans payable equipment Bid Industrial Holdings (Pty) Ltd – 150 101 – 150 101 Group Bidvest Leasing (Pty) Ltd – – 34 106 34 106 Furniture and fixtures 146 587 (111 570) 35 017 146 302 (76 686) 69 616 Viamax Fleet Solutions (Pty) Ltd – – 15 050 15 050 Motor vehicles 17 993 (10 830) 7 163 17 836 (7 531) 10 305 Viamax (Pty) Ltd – – 15 495 15 495 Office equipment 25 748 (24 725) 1 023 25 049 (21 961) 3 088 – 150 101 64 651 214 752 IT equipment 127 401 (71 189) 56 212 98 419 (56 526) 41 893

The Bid Industrial Holdings (Pty) Ltd loan bears interest at prime less 2%. The facility of R500 million Total 317 729 (218 314) 99 415 287 606 (162 704) 124 902 remains available should it be required. The loans from Bidvest Leasing (Pty) Ltd, Viamax Fleet Company Solutions (Pty) Ltd and Viamax (Pty) Ltd are interest free with no fixed terms of repayment. Furniture and fixtures 146 574 (111 557) 35 017 146 289 (76 670) 69 619 Intergroup loans receivable Motor vehicles 17 993 (10 830) 7 163 17 836 (7 531) 10 305 Bidvest Bank Holdings Limited 126 648 125 536 126 648 125 536 Office equipment 24 531 (23 680) 851 23 832 (21 188) 2 644 Bid Finserv Capital (Pty) Ltd 85 689 64 453 85 689 64 453 IT equipment 127 157 (71 088) 56 069 98 310 (56 486) 41 824 McCarthy Retail Finance (Pty) Ltd – – 172 172 Total 316 255 (217 155) 99 100 286 267 (161 875) 124 392 212 337 189 989 212 509 190 161 Group The Bid Finserv Capital (Pty) Ltd loan bears interest at prime and has no repayment terms. Opening Deprecia- Impair- The McCarthy Retail Finance (Pty) Ltd loan bears no interest and has no repayment terms. balance Additions Disposals tion ment Total The Bidvest Bank Holdings Limited loan bears no interest and has no repayment terms. R000 R000 R000 R000 loss R000

All intergroup loans, except the loan from Bid Industrial Holdings (Pty) Ltd, are non-current. Reconciliation of property, plant and equipment – 2020 Furniture and fixtures 69 616 3 968 (66) (20 000) (18 501) 35 017 Motor vehicles 10 305 875 – (3 387) (630) 7 163 Office equipment 3 088 1 124 (36) (2 336) (817) 1 023 IT equipment 41 893 29 632 (95) (15 033) (185) 56 212

124 902 35 599 (197) (40 756) (20 133) 99 415

Opening Deprecia- balance Additions Disposals tion Total R000 R000 R000 R000 R000

Reconciliation of property, plant and equipment – 2019 Furniture and fixtures 48 909 39 915 (2 494) (16 714) 69 616 Motor vehicles 3 100 10 113 (33) (2 875) 10 305 Office equipment 4 801 1 308 (54) (2 967) 3 088 IT equipment 23 910 31 001 (245) (12 773) 41 893

80 720 82 337 (2 826) (35 329) 124 902

124 125 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Company 10. Leases (company as lessee) Right-of-use assets Opening Deprecia- Impair- The company adopted IFRS 16 for the first time in the current financial period. Comparative figures balance Additions Disposals tion ment Total have been accounted for in accordance with IAS 17 and accordingly, any assets recognised under R000 R000 R000 R000 loss R000 finance leases in accordance with IAS 17 for the comparative period have been recognised as part of 9. Property, plant property, plant and equipment. The information presented in this note for right-of-use assets therefore and equipment only includes the current period. continued The Group leases buildings and IT equipment Reconciliation of Depreciation recognised on each class of right-of-use assets, is presented below. It relates to property, plant and depreciation which has been expensed as part of the total depreciation charge in profit or loss. equipment – 2020 The carrying amounts of right-of-use assets are as follows: Furniture and fixtures 69 619 3 968 (72) (19 997) (18 501) 35 017 Motor vehicles 10 305 875 – (3 387) (630) 7 163 Group Company

Office equipment 2 644 1 124 (32) (2 068) (817) 851 Accumu- Accumu- IT equipment 41 824 29 496 (298) (14 768) (185) 56 069 lated lated depre- Carrying depre- Carrying 124 392 35 463 (402) (40 220) (20 133) 99 100 Cost ciation value Cost ciation value R000 R000 R000 R000 R000 R000 Opening Deprecia- balance Additions Disposals tion Total Summary – 2020 R000 R000 R000 R000 R000 Property 349 288 (90 946) 258 342 342 438 (90 127) 252 311

Reconciliation of property, plant Opening Depre- and equipment – 2019 balance Additions Disposal ciation Total Furniture and fixtures 48 887 39 915 (2 476) (16 707) 69 619 R000 R000 R000 R000 R000 Motor vehicles 3 100 10 113 (33) (2 875) 10 305 Reconciliation of right-of-use Office equipment 4 231 1 070 (48) (2 609) 2 644 assets IT equipment 23 856 30 959 (452) (12 539) 41 824 Group – 2020 80 074 82 057 (3 009) (34 730) 124 392 Property – 349 288 – (90 946) 258 342

Company – 2020 Property – 342 438 – (90 127) 252 311

Lease liabilities Lease Opening reassess- Finance Lease Closing balance Additions ment charges payments balance

Reconciliation of lease liabilities Group – 2020 Property – 352 665 1 464 25 852 (94 044) 285 937

Company – 2020 Property – 345 815 1 464 25 351 (93 160) 279 470

The lease reassessment relates to the closure of certain branches and thus having to cancel the selected leases’ agreements and pay a cancellation fee within the final month of the cancellation term. The cancellation fee that was taken into account within the revaluation of the lease liability was equal to the remaining lease payments after branch closure date, discounted back as per the relevant borrowing rates disclosed above. The discount rate applied is for the shortest-term lease agreement as the branches are expected to be closed down on 31 December 2020.

126 127 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

10. Leases (company as lessee) continued 2020 2019 The maturity analysis of lease liabilities is as follows: Accumu- Accumu- lated lated 1 to 12 1 to 5 More than Total amorti- amorti- months years 5 years R000 sation sation Group – 2020 Cost/ and Carrying Cost/ and Carrying Valuation Impairment value Valuation Impairment value Property 58 938 119 623 107 376 285 937

Company – 2020 12. Intangible assets Group Property 58 438 117 390 103 642 279 470 Computer software 225 368 (168 798) 56 570 224 626 (99 253) 125 373 11. Leased assets Development costs 79 261 – 79 261 44 679 – 44 679 Customer contracts 5 661 (1 651) 4 010 5 661 (1 085) 4 576 Operating leases relate to moveable assets rented to customers for a fixed term. The Bank retains all the risk and benefits of ownership of these leased assets. Rentals received under operating leases are Goodwill at cost 30 609 – 30 609 45 440 – 45 440 accounted for as income on a straight-line basis over the period of the lease. Total 340 899 (170 449) 170 450 320 406 (100 338) 220 068 Group Company Company 2020 2019 2020 2019 Computer software 220 938 (165 283) 55 655 219 674 (96 007) 123 667 R000 R000 R000 R000 Development costs 79 001 – 79 001 43 697 – 43 697 Goodwill at cost – – – 14 831 – 14 831 Cost 2 253 573 2 316 150 2 253 573 2 316 150 Accumulated depreciation (684 499) (629 022) (684 499) (629 022) Total 299 939 (165 283) 134 656 278 202 (96 007) 182 195 Carrying value at the beginning of year 1 569 074 1 687 128 1 569 074 1 687 128 Group Movement for the year Additions 182 503 81 536 182 503 81 536 Impair- Disposals (205 119) (94 353) (205 119) (94 353) Opening Amorti- ment balance Additions Disposals sation loss Total Depreciation (166 980) (175 912) (166 980) (175 912) Capital work in progress (18 866) 70 675 (18 866) 70 675 Reconciliation of intangible assets – Carrying value at the end of the year 1 360 612 1 569 074 1 360 612 1 569 074 2020

Cost 2 076 078 2 253 573 2 076 078 2 253 573 Computer software 125 373 2 036 (511) (30 320) (40 008) 56 570 Accumulated depreciation (715 466) (684 499) (715 466) (684 499) Development costs 44 679 34 582 – – – 79 261 Customer contracts 4 576 – – (566) – 4 010 Carrying value at the end of the year 1 360 612 1 569 074 1 360 612 1 569 074 Goodwill at cost 45 440 – – – (14 831) 30 609

Leased assets have a remaining lease period of between one to six years. 220 068 36 618 (511) (30 886) (54 839) 170 450

Capital work in progress comprises leased assets in the process of completion, not yet brought into use. Opening Amorti- balance Additions Transfers sation Total

Reconciliation of intangible assets – 2019 Computer software 114 517 685 39 818 (29 647) 125 373 Development costs 53 427 31 070 (39 818) – 44 679 Customer Contracts 5 142 – – (566) 4 576 Goodwill at cost 45 440 – – – 45 440

218 526 31 755 – (30 213) 220 068

128 129 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Company 13. Investment in subsidiaries The following table lists the entities which are controlled by the Group, either directly or indirectly Impair- through subsidiaries. Opening Amorti- ment balance Additions Disposals sation loss Total Ownership Ownership of ordinary of ordinary Carrying Carrying 12. Intangible assets Nature of shares shares amount amount continued Name of company business 2020 2019 2020 2019

Reconciliation of Company intangible assets – Viamax (Pty) and subsidiaries Dormant 10 000 000 10 000 000 56 387 56 387 2020 McCarthy Retail Finance (Pty) Ltd Dormant 99 99 – – Computer software 123 667 1 130 (511) (28 666) (40 008) 55 612 Merchant Development costs 43 697 35 347 – – – 79 044 Bidvest Merchant Services (Pty) Ltd Services 133 133 37 691 37 691 Goodwill at cost 14 831 – – – (14 831) – 94 078 94 078 182 195 36 477 (511) (28 666) (54 839) 134 656 All subsidiaries are wholly owned and have the same financial year end as the Bank. The carrying Opening Amorti- amount of Viamax and its subsidiaries and McCarthy Retail Finance amount to the net asset value of balance Additions Transfers sation Total the companies and as such no impairment is required.

Reconciliation of Group Company intangible assets – 2019 Computer software 111 424 852 39 818 (28 427) 123 667 2020 2019 2020 2019 R000 R000 R000 R000 Development costs 53 266 30 249 (39 818) – 43 697 Goodwill at cost 14 831 – – – 14 831 14. Inventories 179 521 31 101 – (28 427) 182 195 Gold coin stock 238 238 238 238 Production supplies 1 329 1 329 1 329 1 329 During the financial year intangible assets were impaired, totalling R40 million. The impairment Used vehicle 168 831 32 641 168 831 32 641 relates to the branch restructuring provided for. No further impairment of intangible assets was Card Stock 4 959 3 903 4 959 3 903 deemed necessary and all the intangible assets are expected to be recovered more than 12 months after reporting period. Intangible assets have a remaining amortisation period of one to eight years. 175 357 38 111 175 357 38 111

Basis of assessment of carrying value of goodwill Carrying value of used vehicles carried at Goodwill is not amortised and is tested for impairment on an annual basis. During the 2020 financial fair value less costs to sell 168 831 32 641 168 831 32 641 year, the total goodwill balance relating to Master Currency Branches (R14,8 million) was impaired. The remaining goodwill relates to the goodwill as a result of the Bidvest Merchant Services Group that was Vehicle stock is held at fair value less cost to sell. Please refer to note 33 for further details. acquired within the 2018 financial year. The remaining inventories held by the Bank is consumable in nature and is held at cost.

For the basis of the impairment assessment refer to note 33. 15. Share capital Authorised 360 000 000 ordinary shares of 1c each 3 600 3 600 3 600 3 600

Issued 207 000 000 (2019: 207 000 000) ordinary shares of 1c each 2 070 2 070 2 070 2 070

All issued shares are fully paid up. Holders of ordinary share capital hold one vote per ordinary share at the Group’s annual general meeting. The unissued ordinary shares are under the control of the directors who may issue them on such terms and conditions as they deem fit until the Group’s next annual general meeting.

16. Share premium Closing balance 525 709 525 709 525 709 525 709

130 131 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company Group Company

2020 2019 2020 2019 2020 2019 2020 2019 R000 R000 R000 R000 R000 R000 R000 R000

17. Deposits 19. Floating rate notes Deposits from customers Amortised cost Fixed and notice 3 104 981 2 857 694 3 110 419 2 865 430 Floating rate notes 100 257 – 100 257 – Call 4 322 353 3 719 213 4 340 839 3 743 571 Floating rate notes comprise R100 million, three-month Jibar linked unsecured debt instrument 7 427 334 6 576 907 7 451 258 6 609 001 maturing on 14 September 2020. The market-related interest rate as at year-end is 4,94% and an interest expense of R0,3 million was accrued for as at 30 June 2020 (2019: R0). The maturity analysis of deposits is based on the contractual period to maturity from the statement of financial position date as reflected in note 21. The average interest rate on deposits is 3,8% (2019: 5,4%). 20. Deferred tax

All the deposits are current liabilities with an expected settlement period of less than 12 months after Deferred tax liability reporting period. Equipment and leased assets 314 715 265 437 314 715 265 437 Accruals and provisions (80 421) (54 875) (80 421) (54 571) 18. Trade and other payables Straight-lining of leases – (1 356) – (1 356) Trade payables 87 027 36 806 79 805 39 637 Intangible assets (15 355) – (15 355) – Nostro creditors 179 335 184 666 179 335 184 666 IFRS 16 Leases (7 727) – (7 605) – VAT 7 212 – 13 603 – Prepayments 2 678 3 368 2 678 3 368 Provisions 128 788 78 495 128 788 78 495 Customer contracts acquired 3 074 3 536 – – Accruals 113 581 124 461 118 511 114 807 Tax losses (13 394) (12 221) – – Merchants payable 58 562 57 628 – – Share-based payments (3 376) (16 131) (3 376) (16 131) Outstanding bank credits 7 969 6 538 7 969 6 538 Straight-lining of leases – 4 842 – 4 842 Total deferred tax liability 200 194 187 758 210 636 196 747

582 474 493 436 528 011 428 985 The Group has estimated tax losses that can be set off against future taxable profits. The deferred tax balance includes tax losses carried forward for Bidvest Merchant Services Proprietary Limited and Cash All trade and other payables are current liabilities with an expected settlement period of less than Axcess Proprietary Limited. 12 months after reporting period. The Group has concluded that the deferred tax assets will be recoverable using the estimated Included in trade and other payables are the following provisions in both the Bank and future taxable income based on the current financial year results as well as the approved business Group numbers: plans and budgets for the subsidiaries. The subsidiaries have generated profits in the current year and are expected to continue to generate taxable income into the future. The losses can be carried Branch forward indefinitely and have no expiry date. Profit share Deferred restructure provision revenue costs Total The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, R000 R000 R000 R000 and the law allows net settlement. Therefore, they have been offset in the statement of financial position as follows: Group and Company Balance at 1 July 2019 62 061 16 434 – 78 495 Reconciliation of deferred tax liability Provision raised 13 451 23 679 13 163 50 293 At beginning of year 187 758 159 513 196 747 155 977 Charged to comprehensive income 14 851 33 139 16 304 45 664 Balance at 30 June 2020 75 512 40 113 13 163 128 788 Charged to equity: share-based payments 1 479 (2 059) 1 479 (2 059)

The profit share provision represents a profit sharing arrangement arising throughout the term of the Charged to equity: IFRS 9 transition – 292 – 292 contract on certain leasing contracts whereby the Bank will share a percentage of profits realised on Charged to equity: Foreign withholding tax the sale of the assets and also on the maintenance profit earned over the term of the contract. credits not utilised – (3 127) – (3 127) Prior year overprovision (3 894) – (3 894) – The deferred revenue represents revenue that has been received for future maintenance services to be rendered, therefore this revenue will be earned upon completion of the service in line with IFRS 15. 200 194 187 758 210 636 196 747 The restructuring provision relates to estimated staff retrenchments costs in relation to the restructuring of the branch network, as mentioned in the director’s report.

132 133 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management 21. Financial risk management continued 21.1 Introduction and overview 21.2 Credit risk continued The Bank has exposure to the following major financial and non-financial risks: Management of credit risk continued

▶▶ Credit risk The Board, as a minimum:

▶▶ Liquidity risk ▶▶ approves the credit risk management policy and reviews it at least bi-annually;

▶▶ Market risk ▶▶ ensures that the Bank operates within sound and well-defined credit-granting criteria;

▶▶ Operational risk ▶▶ ensures that senior management is fully capable of managing credit activities conducted by the Bank;

▶▶ Reputational risk ▶▶ ensures through independent inspection and audit adherence to the policy, techniques, controls, procedures and information systems; This note presents information about the Bank’s exposure to each of the above-mentioned risks, the Bank’s objectives, policies and processes for measuring and managing risk, and the Bank’s ▶▶ reviews all significant credit exposures of the Bank; management of capital. ▶▶ reviews all significant delinquent credits and management’s actions taken or contemplated for Risk management framework their recovery; The Board has overall responsibility for the establishment and oversight of the Bank’s risk ▶▶ reviews any credit granted in conflict of the written credit risk management policy; management framework. The Board has established the Risk and Capital Management Committee, ▶▶ reviews trends in the quality of, and concentration in the Bank’s credit portfolio, to identify Asset and Liability Committee, and Credit Committee, which are responsible for developing and emerging problems and take action to deal with the problems; and monitoring the Bank’s risk management policies in specified areas. The Risk and Capital Management Committee comprises non-executive directors, and executives attend by invitation. The Asset and ▶▶ ensures that the Bank’s remuneration policy is in line with the credit risk strategy and does not Liability Committee and the Credit Committee each have a non-executive chairman and executives as reward imprudent activities of credit staff. members. The Board has delegated responsibility for the management of credit risk to its Credit Committee, In addition, an Operational Risk Committee comprises executive members from key business areas in which is chaired by a non-executive director. The role and responsibilities of the Credit Committee, the Bank, and reports quarterly to the Risk and Capital Management Committee. as reported in the Credit Committee Charter, is to support the Board in fulfilling its duties and responsibilities regarding the management of credit risk. Senior management who are members of The Bank’s risk management policies are established to identify and analyse the risks faced by the the Credit Committee have the responsibility of implementing the credit risk strategy approved by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk Board and of developing policies and processes for identifying, measuring, monitoring and controlling management policies are reviewed regularly to reflect changes in strategy, and products and services credit risk. Such policies and processes address credit risk in all of the Bank’s credit activities and offered. The Bank, through its training and management standards and procedures, aims to maintain at both the individual credit and portfolio levels. A separate Credit Department is responsible for a disciplined and constructive control environment, in which all employees understand their roles and oversight of the Bank’s credit risk, including: obligations. ▶▶ formulating credit policies in consultation with business units, covering collateral requirements, The Risk and Capital Management Committee is responsible for monitoring compliance with credit assessment, risk grading and reporting, documentary and legal procedures, and the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk compliance with regulatory and statutory requirements; management framework in relation to the risks faced by the Bank. The Audit Committee assesses the appropriateness of risk-related provisions. ▶▶ establishing the authorisation structure for the approval and renewal of credit facilities. All facilities require approval by the Head of Credit, Credit Committee or the Board of Directors according to 21.2 Credit risk authorisation limits; Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and ▶▶ reviewing and assessing credit risk. The Credit Department assesses all credit exposures prior to advances to customers. facilities being committed to customers. Renewals and reviews of facilities are subject to the same review process; Credit risk is managed within the risk appetite of the Bank. Acceptable credit risk identified in a credit application is mitigated through sufficient underlying security. To enhance the return on funds, and ▶▶ limiting concentration of exposure to counterparties, geographies, products and industries; therefore shareholder value, a certain amount of risk has to be taken in the lending activities of the ▶▶ reviewing compliance of business units with agreed exposure limits, including those for selected Bank. The risk tolerance of the Bank is, however, low, and, therefore, all credit is mitigated through industries, country risk and product types. Regular reports are provided to the Credit Committee sound credit principles, and all lending done against appropriate security, except where other factors on the credit quality of portfolios and appropriate corrective action is taken; and deem it not necessary to obtain specific security. ▶▶ providing advice, guidance and specialist skills to business units to promote best practice The basic principle governing the Bank’s lending philosophy is the need for management to satisfy throughout the Bank in the management of credit risk. itself that the business of the borrower has the capacity to deploy its assets in a way that will generate the earnings/cash flows on a sustainable basis to facilitate the repayment of any facilities granted. The Bank operates within sound, well-defined credit-granting criteria. These criteria include a clear indication of the Bank’s target market and a thorough understanding of the borrower or counterparty. Management of credit risk The Bank adopted the standardised approach for the measurement of its exposure to credit risk and The Bank’s Board of Directors is ultimately responsible for the maintenance of effective risk applies the requirements of Regulations 23 and 24 of the regulations relating to banks to its credit management in the Bank. In discharging its responsibilities, the Board has to play a critical role exposures. Information disclosed is consistent with the manner in which the Board of Directors and in overseeing the credit granting and credit risk management functions of the Bank. senior management assess and manage risk exposures.

134 135 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Group Stage 1 Stage 2 Stage 3 2020 2019 Stage 1 Stage 2 Stage 3 12-month lifetime lifetime Carrying Carrying ECL ECL ECL amount amount 12-month Lifetime Lifetime ECL ECL ECL Total 21. Financial risk management continued R000 R000 R000 R000 21.2 Credit risk continued Exposure to credit risk 21. Financial risk management continued The following provides a breakdown 21.2 Credit risk continued of the Group’s assets that are exposed to credit risk and are subject to Reconciliation of changes in the gross impairment requirements in IFRS 9. carrying amount Loans and advances Loans and advances Performing book stage 1 2 042 386 – – 2 042 386 2 322 436 Gross carrying amount as at 1 July 2019 2 398 370 359 117 43 577 2 801 064 Performing book stage 1 (Banks) 4 853 – – 4 853 75 934 Increase in credit risk stage 2 – 840 438 – 840 438 359 117 Transfer from Stage 1 (500 428) 493 810 6 618 – Non-performing book stage 3 – – 17 454 17 454 43 577 Transfer from Stage 2 132 804 (133 946) 1 142 – Gross carrying amount 2 047 239 840 438 17 454 2 905 131 2 801 064 Transfer from Stage 3 – 13 930 (13 930) – Loss allowance (19 249) (21 918) (1 191) (42 358) (8 997) Increase in exposure 16 493 107 527 (19 953) 104 067 Net carrying amount 2 027 990 818 520 16 263 2 862 773 2 792 067 Gross carrying amount as at 30 June 2020 2 047 239 840 438 17 454 2 905 131 Negotiable securities Performing Book Stage 1 137 157 – – 137 157 304 677 Negotiable securities Increase in Credit Risk Stage 1 – 68 566 – 68 566 4 439 Gross carrying amount as at 1 July 2019 304 677 4 439 33 966 343 082 Non-performing Book Stage 3 – – 60 524 60 524 33 966 Transfer from Stage 1 (42 630) 16 503 26 127 – Gross carrying amount 137 157 68 566 60 524 266 247 343 082 Loss allowance (1) – (11 588) (11 589) (14 765) Transfer from Stage 2 – (55) 55 – (Decrease)/increase in exposure (124 890) 47 678 377 (76 835) Net carrying amount 137 156 68 566 48 936 254 658 328 317 Investment securities at FVOCI Gross carrying amount as at 30 June 2020 137 157 68 565 60 525 266 247 Good and average credit quality 996 626 – – 996 626 563 990 Reconciliation of changes in Net carrying amount 996 626 – – 996 626 563 990 impairment provision Cash and cash equivalents Loans and advances Performing Book Stage 1 423 531 – – 423 531 221 663 Loss allowance as at 1 July 2019 (6 468) (179) (2 350) (8 997) Performing Book Stage 1 (Banks) 3 809 469 – – 3 809 469 3 905 324 Increase in Credit Risk Stage 2 287 337 – – 287 337 – Transfer from Stage 1 12 689 (12 049) (640) – Gross carrying amount 4 520 337 – – 4 520 337 4 126 987 Transfer from Stage 2 2 (2) – – Loss allowance (1) – – (1) – Impairment (raised)/released (25 472) (9 688) 1 799 (33 361) Net carrying amount 4 520 336 – – 4 520 336 4 126 987 Loss allowance as at 30 June 2020 (19 249) (21 918) (1 191) (42 358) Intergroup loans Performing Book Stage 1 212 337 – – 212 337 189 989 Negotiable securities Net carrying amount 212 337 – – 212 337 189 989 Loss allowance as at 1 July 2019 (4 123) – (10 642) (14 765)

Other assets Impairment released/(raised) 4 122 – (946) 3 176 Performing Book Stage 1 338 087 – – 338 087 260 860 Negotiable securities as at 30 June 2020 (1) – (11 588) (11 589) Gross carrying amount 338 087 – – 338 087 260 860 Loss allowance (4 552) – – (4 552) – On adoption of IFRS 9, the Bank now includes the collateral values (reflected in the LGD %) in the Net carrying amount 333 535 – – 333 535 260 860 calculation of expected credit losses. The collateral values were incorporated in calculating prior year’s impairment loss. As a result, although the gross exposure increased in Stage 3, the impairment The Group applies the general ECL impairment method to the financial assets measured at loss decreased. amortised cost and at FVOCI. The Group calculated an ECL allowance on financial assets at FVOCI, intergroup loans and other assets and found the value to be immaterial.

The Group closely monitors collateral held for financial assets that are considered to be credit- impaired, as it becomes more likely that the Group will take possession of collateral to mitigate potential credit loss. The Group holds collateral of R1,9 billion against loans and advances across the three stages of impairments.

136 137 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Company Company Stage 1 Stage 2 Stage 3 2020 2019 Stage 1 Stage 2 Stage 3 12-month lifetime lifetime Carrying Carrying ECL ECL ECL amount amount 12-month lifetime lifetime ECL ECL ECL Total 21. Financial risk management R000 R000 R000 R000 continued 21.2 Credit risk continued 21. Financial risk management continued Exposure to credit risk continued 21.2 Credit risk continued The following provides a breakdown Reconciliation of changes in the gross of the Bank’s assets that are exposed carrying amount to credit risk and are subject to impairment requirements in IFRS 9. Loans and advances Loans and advances Opening balance 1 July 2019 2 448 405 359 117 43 576 2 851 098 Performing book stage 1 2 042 801 – – 2 042 801 2 372 471 Performing book stage 1 (Banks) 4 853 – – 4 853 75 934 Transfer from Stage 1 (500 428) 493 810 6 618 – Increase in credit risk stage 2 – 840 438 – 840 438 359 117 Transfer from Stage 2 132 804 (133 946) 1 142 – Non-performing book stage 3 – – 17 454 17 454 43 576 Transfer from Stage 3 – 13 930 (13 930) – Gross carrying amount 2 047 654 840 438 17 454 2 905 546 2 851 098 Increase in exposure (33 541) 107 527 (19 953) 54 033 Loss allowance (19 249) (21 918) (1 191) (42 358) (8 997) Gross carrying amount as at 30 June 2020 2 047 240 840 438 17 453 2 905 131 Net carrying amount 2 028 405 818 520 16 263 2 863 188 2 842 101 Negotiable securities Negotiable securities Performing Book Stage 1 13 717 – – 137 157 304 677 Opening balance 1 July 2019 304 677 4 439 33 966 343 082 Increase in Credit Risk Stage 2 – 68 566 – 68 566 4 439 Non-Performing Book Stage 3 – – 60 524 60 524 33 966 Transfer from Stage 1 (42 630) 16 503 26 127 – Transfer from Stage 2 – (55) 55 – Gross carrying amount 13 717 68 566 60 524 266 247 343 082 Loss allowance (1) – (11 588) (11 589) (14 765) Decrease in exposure (124 890) 47 678 377 (76 835)

Net carrying amount 13 716 68 566 48 936 254 658 328 317 Gross carrying amount as at 30 June 2020 137 157 68 565 60 525 266 247 Investment securities at FVOCI Reconciliation of changes in Good and average credit quality 996 626 – – 996 626 563 990 impairment provision Net carrying amount 996 626 – – 996 626 563 990 Loans and advances Cash and cash equivalents Loss allowance as at 1 July 2019 (6 468) (179) (2 350) (8 997) Performing Book Stage 1 423 520 – – 423 520 220 660 Performing Book Stage 1 (Banks) 3 809 469 – – 3 809 469 3 905 324 Transfer from Stage 1 12 689 (12 049) (640) – Increase in Credit Risk Stage 2 287 337 – – 287 337 – Transfer from Stage 2 2 (2) – – Gross carrying amount 4 520 326 – – 4 520 326 4 125 984 Impairment (raised)/released (25 472) (9 688) 1 799 (33 361) Loss allowance (1) – – (1) – Loss allowance as at 30 June 2020 (19 249) (21 918) (1 191) (42 358) Net carrying amount 4 520 325 – – 4 520 325 4 125 984 Intergroup loans Negotiable securities Performing Book Stage 1 212 509 – – 212 509 190 161 Loss allowance as at 1 July 2019 (4 123) – (10 642) (14 765) Net carrying amount 212 509 – – 212 509 190 161 Impairment released/(raised) 4 122 – (946) 3 176 Other assets Performing Book Stage 1 292 484 – – 292 484 175 546 Loss allowance as at 30 June 2020 (1) – (11 588) (11 589) Gross carrying amount 292 484 – – 292 484 175 546 On adoption of IFRS 9, the Bank now includes the collateral values (reflected in the LGD %) in the Loss allowance (4 552) – – (4 552) – calculation of expected credit losses. The collateral values were incorporated in calculating prior Net carrying amount 287 932 – – 287 932 175 546 year’s impairment loss. As a result, although the gross exposure increased in Stage 3, the impairment loss decreased. The Group applies the general ECL impairment method to the financial assets measured at amortised cost and at FVOCI. The Group calculated an ECL allowance on financial assets at FVOCI, intergroup loans and other assets and found the value to be immaterial. The Group closely monitors collateral held for financial assets that are considered to be credit- impaired, as it becomes more likely that the Group will take possession of collateral to mitigate potential credit loss. The Group holds collateral of R1,9 billion against loans and advances across the three stages of impairments.

138 139 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company 21. Financial risk management continued 21.2 Credit risk continued 2020 2019 2020 2019 Security held R000 R000 R000 R000 The Bank holds financial collateral and other security against loans and advances to customers in 21. Financial risk management the form of cash, mortgage bonds over property, assets financed, and other registered securities over continued assets, and guarantees. Estimates of fair value are based on the value of security assessed at the time of borrowing, and are updated regularly. The Bank applies the comprehensive approach for credit risk 21.2 Credit risk continued mitigation as set out in Regulation 23 of the Regulations relating to banks. Non-financial assets as per statement Credit insurance on negotiable securities of financial position Property, plant and equipment 99 415 124 902 99 100 124 392 In determining the provision for impairment, the Bank has recognised the expected recovery on the insurance policy it has in place for negotiable securities. Intangible assets 170 450 220 068 134 656 182 195 Leased assets 1 360 612 1 569 074 1 360 612 1 569 074 Group Company Current tax receivable 36 838 18 314 36 532 18 008 2020 2019 2020 2019 Inventory 175 357 38 111 175 357 38 111 R000 R000 R000 R000 Payments in advance 19 640 17 069 19 640 16 969 Investment in subsidiaries – – 94 078 94 078 Loans and advances Right-of-use assets 258 342 – 252 311 – Non-performing book: Stage 3 Moveable assets 5 685 244 439 5 685 244 439 Total of non-financial assets 2 120 654 1 987 538 2 172 286 2 042 827 Cash, debtors, stock – 30 516 – 30 516 Property – 39 169 – 39 169 Exposure to credit risk Guarantees 10 578 23 454 10 578 23 454 The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivatives, in the statement of financial position. Instalment sales and finance lease Unsecured – 1 399 – 1 399 agreements have been included in the above credit risk analysis. Total 16 263 338 977 16 263 338 977 Where a company has a rating issued by a recognised rating agency, that rating has been applied. If not, an internal risk-based rating process has been applied. In the latter case, the Bank determines the Increase in Credit Risk Stage 2 financial condition of a borrower by calculating certain financial ratios and changes to certain ratios in Moveable assets 363 950 879 014 363 950 879 014 order to determine the internal credit rating allocated to the borrower. Cash, debtors, stock 70 234 150 321 70 234 150 321 Leased assets Property 131 859 518 294 131 859 518 294 The leased assets are moveable assets rented to customers under operating leases. The majority of the Guarantees 5 955 18 709 5 955 18 709 leases are in the range of three to five years tenor. The leased assets are depreciated over the period of Unsecured 246 521 249 915 246 521 299 949 the lease or the useful life of the asset, whichever is the lesser period. The maintenance costs are borne by the Bank and are expensed as they are incurred. The leased assets’ residual values are reviewed and Total 818 519 1 816 253 818 519 1 866 287 adjusted if appropriate, at each reporting date. Performing book Stage 1 Trade finance Moveable assets 1 078 454 55 653 1 078 454 55 653 Trade finance includes such activities as lending, issuing letters of credit, factoring, export credit Cash, debtors, stock 502 346 1 798 502 346 1 798 and insurance. Companies involved with trade finance include importers and exporters, banks and Property 373 688 43 105 373 688 43 105 financiers, insurers and export credit agencies, as well as other service providers. The Bank applies the standard credit assessment in line with the credit policy in the granting of trade finance to assist Guarantees – 470 319 – 470 319 businesses to grow or meet specific contracts. Total secured 1 954 488 570 875 1 954 488 570 875 Impaired loans Unsecured 73 503 65 962 73 918 65 962 An impaired loan is a loan in respect of which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the terms of the loan agreement. Total 2 027 991 636 837 2 028 406 636 837

Impairment policy Total net carrying amount of The Bank writes off loans (and any related allowance for impairment losses) when the Credit loans and advances 2 862 773 2 792 067 2 863 188 2 842 101 Committee determines that the loan is uncollectible. This determination is reached after considering information such as significant changes in the borrower’s financial position such that the borrower There has been no significant change in the overall quality of the collateral held and there has been no can no longer pay the obligation, or that proceeds from collateral will not be sufficient to settle the change in the Bank’s collateral policies. entire exposure. For smaller balance loans, impairment decisions generally are based on a product- specific past due status.

140 141 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.2 Credit risk continued 21.2 Credit risk continued The Bank monitors concentration of credit risk by sector. An analysis of concentration of credit risk at Company the reporting date is shown hereafter: Loans and advances Negotiable securities Other financial assets Group 2020 2019 2020 2019 2020 2019 Loans and advances Negotiable securities Other financial assets R000 R000 R000 R000 R000 R000

2020 2019 2020 2019 2020 2019 Gross maximum R000 R000 R000 R000 R000 R000 exposure Gross maximum Agriculture, hunting, forestry exposure and fishing 218 426 – – 2 555 Agriculture, hunting, forestry Community, social and and fishing 218 426 – – 2 555 personal services 407 424 190 673 – – 325 232 Community, social and Construction 102 438 69 191 – 382 – – personal services 407 424 190 673 – – 325 232 Electricity, gas and Construction 102 438 69 191 – 382 – – water supply 237 795 725 – – 21 Electricity, gas and Financial intermediation, water supply 237 795 725 – – 21 insurance and real estate 833 226 1 158 762 – – 6 021 069 5 057 313 Financial intermediation, Manufacturing 240 532 252 791 13 195 76 198 1 143 1 854 insurance and real estate 832 811 1 158 762 – – 6 066 512 4 970 628 Mining and quarrying 72 566 4 228 – 2 153 – – Manufacturing 240 532 252 791 13 195 76 198 1 143 1 854 Transport, storage and Mining and quarrying 72 566 4 228 – 2 153 – – communication 229 614 176 797 2 549 3 129 16 301 Private households 392 600 260 954 – – – 48 Private households 392 600 260 954 – – – 48 Transport, storage and Wholesale and retail trade 359 252 224 732 220 461 228 019 2 400 8 344 communication 229 614 176 797 2 549 3 129 16 301 Business services 225 081 502 752 17 728 18 436 992 509 Wholesale and retail trade 359 252 224 732 220 461 228 019 2 400 8 344 Total 2 863 188 2 842 101 254 658 328 317 6 025 947 5 069 177 Business services 225 081 452 718 17 728 18 436 992 509 Of which: Total 2 862 773 2 792 067 254 658 328 317 6 071 390 4 982 492 Sovereign 177 886 43 760 – – 2 906 490 173 Of which: The Bank monitors concentration of credit risk by geographical area and apart from accounts at Sovereign 177 886 43 760 – – 2 906 490 173 foreign banks. The majority of all other credit exposure is in South Africa.

Settlement risk The Bank’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a counterparty to honour its obligations to deliver cash, or other assets as contractually agreed.

External credit assessment In calculating the required amount of capital to be held against credit risk, the Bank applies the long‑term international credit ratings as published by Moody’s Investors Services.

142 143 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.2 Credit risk continued 21.2 Credit risk continued

Credit risk collateral Credit risk collateral continued The Bank nets its exposures with counterparty banks where there are formal legal netting Detailed view agreements in place. Group Carrying amount (gross value less impairment) of loans and advances: Guaran- Carrying Consolidated view tees value for and which no Guaran- Carrying Impair- surety- Pledge of collateral tees value for Gross ment Net ships assets Total is held Net and which no R000 R000 R000 R000 R000 R000 R000 R000 Impair- surety- Pledge of collateral Gross ment Net ships assets Total is held Net 2020 R000 R000 R000 R000 R000 R000 R000 R000 Stage 1 – Performing

Group 0 to 30 days 1 995 764 (18 876) 1 976 888 – 1 903 387 1 903 387 73 502 1 976 889 2020 31 to 60 days 51 475 (373) 51 102 – 51 101 51 101 – 51 101

Performing Book Total Stage 1 2 047 239 (19 249) 2 027 990 – 1 954 488 1 954 488 73 502 2 027 990 Stage 1 2 047 239 (19 249) 2 027 990 – 1 954 488 1 954 488 73 502 2 027 990 Increase in Credit Risk Stage 2 – Increase in Stage 2 840 438 (21 918) 818 520 5 955 566 044 571 999 246 521 818 520 Credit Risk Non-Performing Book 0 to 30 days 839 102 (21 811) 817 291 5 955 564 816 570 771 246 521 817 292 Stage 3 17 454 (1 191) 16 263 10 578 5 685 16 263 – 16 263 31 to 60 days 972 (106) 866 – 866 866 – 866 Total 2 905 131 (42 358) 2 862 773 16 533 2 526 217 2 542 750 320 023 2 862 773 61 to 90 days 364 (1) 363 – 362 362 – 362

2019 Total Stage 2 840 438 (21 918) 818 520 5 955 566 044 571 999 246 521 818 520 Performing Book Stage 1 2 538 785 (6 987) 2 531 798 507 415 1 935 718 2 443 133 315 922 2 759 055 Stage 3 – Non- Performing Increase in Credit Risk Stage 2 229 150 (170) 228 980 – 357 357 – 357 0 to 30 days 2 054 (182) 1 872 – 1 872 1 872 – 1 872 Non-Performing Book 31 to 60 days 4 140 (416) 3 724 – 3 724 3 724 – 3 724 Stage 3 33 129 (1 840) 31 289 5 046 26 211 31 257 1 398 32 655 61 to 90 days 78 (7) 71 – 71 71 – 71 Total 2 801 064 (8 997) 2 792 067 512 461 1 962 286 2 474 747 317 320 2 792 067 91 to 120 days 29 (1) 28 – 28 28 – 28 121 to 150 days 260 (62) 198 – 198 198 – 198 Company 180 plus 10 893 (523) 10 370 10 370 – 10 370 – 10 370 2020 Performing Book Total Stage 3 17 454 (1 191) 16 263 10 370 5 893 16 263 – 16 263 Stage 1 2 047 654 (19 249) 2 028 405 – 1 954 904 1 954 904 73 501 2 028 405 Increase in Credit Risk Total 2 905 131 (42 358) 2 862 773 16 325 2 526 425 2 542 750 320 023 2 862 773 Stage 2 840 438 (21 918) 818 520 5 955 566 044 571 999 246 521 818 520 2019 Non-Performing Book Stage 3 17 454 (1 191) 16 263 10 370 5 893 16 263 – 16 263 Stage 1 – Performing 0 to 30 days 2 538 785 (6 987) 2 531 798 507 415 1 935 718 2 443 133 315 922 2 759 055 Total 2 905 546 (42 358) 2 863 188 16 325 2 526 841 2 543 166 320 022 2 863 188 Stage 2 – Increase in Credit Risk 2019 Performing Book 31 to 60 days 227 831 (147) 227 684 – 302 302 – 302 Stage 1 2 816 879 (6 391) 2 810 488 507 401 1 843 781 2 351 182 458 369 2 809 551 61 to 90 days 1 319 (23) 1 296 – 55 55 – 55 Increase in Credit Risk Stage 2 526 (169) 357 – 357 357 – 357 Total Stage 2 229 150 (170) 228 980 – 357 357 – 357 Non-Performing Book Stage 3 to Non- Stage 3 33 097 (1 841) 31 256 5 046 26 211 31 257 936 32 193 Performing Total 2 850 502 (8 401) 2 842 101 512 447 1 870 349 2 382 796 459 305 2 842 101 Past due 181 to 365 days 33 129 (1 840) 31 289 5 046 26 211 31 257 1 398 32 655

Total 2 801 064 (8 997) 2 792 067 512 461 1 962 286 2 474 747 317 320 2 792 067

144 145 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.2 Credit risk continued 21.2 Credit risk continued

Credit risk collateral continued Credit risk collateral continued Detailed view continued Carrying amount (gross value less impairment) of negotiable securities.

Company Consolidated view Guaran- Carrying Guaran- Carrying tees value for tees value for and which no and which no Impair- surety- Pledge of collateral Impair- surety- Pledge of collateral Gross ment Net ships assets Total is held Net Gross ment Net ships assets Total is held Net R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000

2020 Negotiable securities Stage 1 – Performing Group 0 to 30 days 1 996 180 (18 876) 1 977 304 – 1 903 803 1 903 803 73 501 1 977 304 2020 Performing Book 31 to 60 days 51 474 (373) 51 101 – 51 101 51 101 – 51 101 Stage 1 137 157 (1) 137 156 – 137 155 137 155 – 137 155 Total Stage 1 2 047 654 (19 249) 2 028 405 – 1 954 904 1 954 904 73 501 2 028 405 Increase in Credit Risk Stage 2 68 567 – 68 567 – 68 567 68 567 – 68 567 Stage 2 – Increase in Non-Performing Book Credit Risk Stage 3 60 523 (11 588) 48 935 20 062 18 483 38 545 10 392 48 937 0 to 30 days 839 102 (21 811) 817 291 5 955 564 816 570 771 246 521 817 292 Total 266 247 (11 589) 254 658 20 062 224 205 244 267 10 392 254 659 31 to 60 days 972 (106) 866 – 866 866 – 866 61 to 90 days 364 (1) 363 – 362 362 – 362 2019 Performing Book Total Stage 2 840 438 (21 918) 818 520 5 955 566 044 571 999 246 521 818 520 Stage 1 304 677 (1) 304 676 – 304 676 304 676 – 304 676 Stage 3 – Non- Increase in Credit Risk Performing Stage 2 4 439 – 4 439 – 4 439 4 439 – 4 439 0 to 30 days 2 054 (182) 1 872 – 1 872 1 872 – 1 872 Non-Performing Book Stage 3 33 966 (14 764) 19 202 – 19 202 19 202 – 19 202 31 to 60 days 4 140 (416) 3 724 – 3 724 3 724 – 3 724 61 to 90 days 78 (7) 71 – 71 71 – 71 Total 343 082 (14 765) 328 317 – 328 317 328 317 – 328 317 91 to 120 days 29 (1) 28 – 28 28 – 28 Company 121 to 150 days 260 (62) 198 – 198 198 – 198 2020 180 plus 10 893 (523) 10 370 10 370 – 10 370 – 10 370 Performing Book Stage 1 137 157 (1) 137 156 – 137 155 137 155 – 137 155 Total Stage 3 17 454 (1 191) 16 263 10 370 5 893 16 263 – 16 263 Increase in Credit Risk Stage 2 68 567 – 68 567 – 68 567 68 567 – 68 567 Total 2 905 546 (42 358) 2 863 188 16 325 2 526 841 2 543 166 320 022 2 863 188 Non-Performing Book 2019 Stage 3 60 523 (11 588) 48 935 20 062 18 483 38 545 10 392 48 937 Stage 1 – Performing Total 266 247 (11 589) 254 658 20 062 224 205 244 267 10 392 254 659 0 to 30 days 2 816 879 (6 391) 2 810 488 507 401 1 843 781 2 351 182 458 369 2 809 551 2019 Stage 2 – Increase in Credit Risk Performing Book Stage 1 304 677 (1) 304 676 – 304 676 304 676 – 304 676 31 to 60 days 456 (154) 302 – 302 302 – 302 Increase in Credit Risk 61 to 90 days 70 (15) 55 – 55 55 – 55 Stage 2 4 439 – 4 439 – 4 439 4 439 – 4 439 Non-Performing Book Total Stage 2 526 (169) 357 – 357 357 – 357 Stage 3 33 966 (14 764) 19 202 – 19 202 19 202 – 19 202 Stage 3 – Non- Total 343 082 (14 765) 328 317 – 328 317 328 317 – 328 317 Performing Past due 181 to 365 days 33 097 (1 841) 31 256 5 046 26 211 31 257 936 32 193 Capital requirements for credit risk are calculated by making use of daily average balances for all overdraft, corporate, money market and overnight loan exposures as required in terms of Total 2 850 502 (8 401) 2 842 101 512 447 1 870 349 2 382 796 459 305 2 842 101 Regulation 23(3) of the Regulations relating to banks.

The gross month-end exposures reflected above are representative of these average balances.

146 147 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.3 Liquidity risk 21.3 Liquidity risk continued

Liquidity risk is the risk that the Bank may be unable to meet its payment obligations when they fall Contrac- due and to replace funds when they are withdrawn without incurring unacceptable losses. Liquidity tual risk can be divided into two sub-categories: undis- Gross counted 6 months 6 – 12 More than ▶▶ Market liquidity risk: The ease with which assets can be liquidated value cash flows or less months 1 – 5 years 5 years ▶▶ Funding liquidity risk: The ease with which additional funding can be raised, eg in the interbank or R000 R000 R000 R000 R000 R000 wholesale markets Contractual maturities Effective liquidity risk management is a daily process to monitor and project cash flows to ensure of financial liabilities adequate liquidity is maintained. The mismatch of cash flows could lead to situations where cash Group outflows exceed cash inflows in a given period. This may result in the Bank’s failure to meet its 30 June 2020 obligations to pay creditors, repay depositors and fulfil commitments to lend. Non-derivative In summary, liquidity management is the process to meet the Bank’s commitments as they fall due, at liabilities an appropriate cost, while maintaining market confidence in the Bank. Deposits (7 427 334) (7 427 334) (6 119 299) (1 308 035) – – Lease liabilities (285 937) (285 937) (43 697) (15 241) (119 623) (107 376) Management of liquidity risk Trade and other payables* (453 686) (453 686) (453 686) – – – Active management of liquidity is critical to the continued solvency of the Bank. At all times, the Bank Floating rate notes (100 257) (100 257) (100 257) – – – must be able to meet its financial commitments as they fall due. In this context, the Bank is concerned Derivative liabilities with the management of future cash flows so that at no stage is the Bank unable to fund net cash Trading: outflow (liabilities) (21 934) (21 934) (21 715) (219) – – outflows from either the market or through the sale of liquid assets. (8 289 148) (8 289 148) (6 738 654) (1 323 495) (226 999) (226 999) Liquidity management is applied on an overall balance sheet approach, which consolidates all sources 30 June 2019 and uses of liquidity and aims to maintain a balance between liquidity and cost of funding. The Bank Non-derivative measures, monitors and manages on-balance sheet and off-balance sheet liquidity mismatch risk liabilities taking cognisance of contractual and business-as-usual liquidity conditions, stress liquidity scenarios, Intergroup loans (150 101) (150 101) (150 101) – – – guidelines and limits as set by the ALCO, regulatory requirements and requirements in terms of best Deposits (6 576 907) (6 576 907) (5 188 316) (1 388 591) – – practice liquidity risk management. Trade and other payables* (414 941) (414 941) (414 941) – – – The Bank recognises that the analysis of net funding requirements is only one aspect of a sound Derivative liabilities liquidity management framework. The Bank’s ability to withstand a net funding requirement in a Trading: outflow (liabilities) (8 635) (8 635) (8 568) (67) – – liquidity crisis also depends on the calibre of its formal contingency plans. Another critical liquidity (7 150 584) (7 150 584) (5 761 926) (1 388 658) – – management practice is the maintenance of sufficiently diversified sources of funding to limit the exposure to any particular segment of the market. The Bank distinguishes between day-to-day and Company stress liquidity management. 30 June 2020 Non-derivative At 30 June 2020, the Bank held a committed borrowing facility of R500 million (2019: R500 million) liabilities from The Bidvest Group Limited. This is renewed on a yearly basis. Any unutilised portion of this Intergroup loans (64 651) (64 651) (64 651) – – – committed facility remains available on demand and can be accessed to meet liquidity needs. Deposits (7 451 258) (7 451 258) (6 143 223) (1 308 035) – – The Bank also has a standing internal limit (referred to as the Liquidity Cushion) that the greater of Lease liabilities (279 470) (279 470) (43 445) (14 993) (117 390) (103 642) R200 million, or 25% of its call deposits plus next day notice deposits pay-outs, will be covered at all Trade and other payables* (399 223) (399 223) (399 223) – – – times by immediately available funds. At 30 June 2020, immediately available funds (comprising Floating rate notes (100 257) (100 257) (100 257) – – – central bank, interbank, current accounts and money market placements) totalled R4,1 billion Derivative liabilities (2019: R4,1 billion). Trading: outflow (liabilities) (21 934) (21 934) (21 715) (219) – –

There are a number of other liquidity management techniques, which contribute to the overall (8 316 793) (8 316 793) (8 095 761) (8 095 761) (117 390) (103 642) soundness of the Bank’s liquidity. These include daily monitoring of the liquidity position, adequate 30 June 2019 diversification of funding, building strong relationships with providers of funding, investment of Non-derivative surplus liquidity, and internal control processes and contingency plans for managing liquidity risk. liabilities Management, in conjunction with ALCO, recommends changes to the Bank’s liquidity risk policy Intergroup loans (214 752) (214 752) (214 752) – – – documents, and these policy changes are reviewed by the Risk and Capital Management Committee Deposits (6 609 001) (6 609 001) (5 220 410) (1 388 591) – – for recommendation to the Board for approval. All policy and strategy changes require Board approval Trade and other payables* (350 490) (350 490) (350 490) – – – prior to implementation. Derivative liabilities Trading: outflow (liabilities) (8 635) (8 635) (8 568) (67) – – (7 182 878) (7 182 878) (5 794 220) (1 388 658) – –

* Other liabilities exclude provisions. The cash flows are included as per the contract and are not discounted for the time value of money. The gross value of the liabilities will therefore differ from the total contractual cash flows. In circumstances where there are no fixed terms of repayment, the liability is included on the basis of the earliest date on which the Bank may be required to pay. 148 149 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.3 Liquidity risk continued 21.4 Market risk

Carrying Less than 3 3 – 12 More than Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign amount months months 1 – 5 years 5 years exchange rates and credit spreads will affect the Bank’s income or the value of its holdings of R000 R000 R000 R000 R000 financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Maturity analysis of financial assets held for managing liquidity risk Overall authority for market risk is vested in ALCO. The risk department is responsible for the Group development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day implementation. 30 June 2020 Loans and advances 2 862 773 264 470 149 402 1 990 722 458 179 Exposure to interest rate risk – non-trading portfolios Negotiable securities 254 658 236 576 18 082 – – The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in Derivative financial assets 8 556 7 487 1 069 – – the future cash flows or fair values of financial instruments because of a change in market interest Investment securities 996 626 996 626 – – – rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having Intergroup loans 212 337 212 337 – – – pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these Other assets 353 175 353 175 – – – limits and is assisted by the risk department in its day-to-day monitoring activities. Cash and cash equivalents 4 520 336 4 520 336 – – – The table on the next page shows our non-trading interest rate mismatch at 30 June 2020. These 9 208 461 6 591 007 168 553 1 990 722 458 179 exposures affect the interest rate margin realised between lending income and borrowing costs assuming no management intervention. 30 June 2019 Loans and advances 2 792 067 818 367 70 391 1 371 386 531 923 Negotiable securities 328 317 294 894 33 423 – – Derivative financial assets 13 496 10 022 3 474 – – Investment securities 563 990 222 535 – – 341 455 Intergroup loans 189 989 189 989 – – – Other assets 260 860 260 860 – – – Cash and cash equivalents 4 126 987 4 126 987 – – –

8 275 706 5 923 654 107 288 1 371 386 873 378

Company 30 June 2020 Loans and advances 2 863 188 264 468 149 402 1 990 722 458 596 Negotiable securities 254 658 236 576 18 082 – – Derivative financial assets 8 556 7 487 1 069 – – Investment securities 996 626 996 626 – – – Intergroup loans 212 509 212 509 – – – Other assets 307 572 307 572 – – – Cash and cash equivalents 4 520 325 4 520 325 – – –

9 163 434 6 545 563 168 553 1 990 722 458 596 30 June 2019 Loans and advances 2 842 101 868 401 70 391 1 371 386 531 923 Negotiable securities 328 317 294 894 33 423 – – Derivative financial assets 13 496 10 022 3 474 – – Investment securities 563 990 222 535 – – 341 455 Intergroup loans 190 161 190 161 – – – Other assets 175 546 175 546 – – – Cash and cash equivalents 4 125 984 4 125 984 – – –

8 239 595 5 887 543 107 288 1 371 386 873 378

150 151 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

21. Financial risk management continued Group and Company 21.4 Market risk continued 2020 2019 2020 2019 Carrying Less than 3 3 – 12 More than % % R000 R000 amount months months 1 – 5 years 5 years R000 R000 R000 R000 R000 21. Financial risk management continued Group 30 June 2020 21.4 Market risk continued Financial assets/(liabilities)* Analysis based on interest terms Loans and advances 2 862 773 2 658 855 6 180 197 738 – Loans and advances Negotiable securities 254 658 236 576 18 082 – – Loans and advances with floating Investment securities 996 626 996 626 – – – interest rates* 8,21 10,04 2 700 016 2 679 150 Intergroup loans receivable 212 337 212 337 – – – Loans and advances with fixed interest rates 11,63 12,41 205 109 121 914 Cash and cash equivalents 4 520 336 4 520 336 – – – 2 905 125 2 801 064 Floating rate notes (100 257) (100 257) – – – Deposits (7 427 334) (5 325 597) (2 101 737) – – Less: allowance for impairment provisions (42 352) (8 997) 1 319 139 3 198 876 (2 077 475) 197 738 – 2 862 773 2 792 067 30 June 2019 Financial assets/(liabilities)* Deposits Loans and advances 2 792 067 868 401 70 391 1 371 386 481 889 Deposits with floating interest rates* 3,95 3,78 (4 835 662) (4 230 943) Negotiable securities 328 317 294 893 33 424 – – Deposits with fixed interest rates 8,68 7,55 (2 591 672) (2 345 964) Investment securities 563 990 222 535 – – 341 455 (7 427 334) (6 576 907) Intergroup loans receivable 189 989 189 989 – – – Cash and cash equivalents 4 126 987 4 126 987 – – – * Based on the floating interest rate as at 30 June 2020. Intergroup loans payable (150 101) (150 101) – – – Interest rate sensitivities Deposits (6 576 907) (4 350 640) (2 226 267) – – The Bank performs well in an environment of high interest rates (increasing the return on its lending 1 274 342 1 202 064 (2 122 452) 1 371 386 823 344 book). As this market indicator has a significant impact on the Bank, fluctuations in the Bank’s prime Company lending rates are closely monitored. 30 June 2020 Average prime lending rate % % Financial assets/(liabilities)* Loans and advances 2 863 188 2 659 270 6 180 197 738 – For the year ended 30 June 2020 and 30 June 2019 9,35 10,15 Negotiable securities 254 658 236 576 18 082 – – For the year ended 30 June 2019 and 30 June 2018 10,15 10,21 Investment securities 996 626 996 626 – – – Interest rate sensitivity on a lending rate adjustment of 25 basis points (bp). Intergroup loans receivable – 212 509 – – – Cash and cash equivalents 4 520 325 4 520 325 – – – Group Company Intergroup loans payable (64 651) (64 651) – – – 25 bp 25 bp 25 bp 25 bp Deposits (7 451 258) (5 325 596) (2 125 662) – – increase decrease increase decrease Floating rate notes (100 257) (100 257) – – – R000 R000 R000 R000 1 018 631 3 134 802 (2 101 400) 197 738 – Impact on interest income before tax 30 June 2019 As at 30 June 2020 1 472 (1 472) 1 472 (1 470) Financial assets/(liabilities)* Loans and advances 2 842 101 868 401 70 391 1 371 386 531 923 As at 30 June 2019 1 462 (1 462) 1 492 (1 492) Negotiable securities 328 317 294 894 33 423 – – * Effect of year-on-year prime rate changes on a constant statement of financial position. Investment securities 563 990 222 535 – – 341 455 Intergroup loans receivable 190 161 190 161 – – – Cash and cash equivalents 4 125 984 4 125 984 – – – Intergroup loans payable (214 752) (214 752) – – – Deposits (6 609 001) (4 350 640) (2 258 361) – –

1 226 800 1 136 583 (2 154 547) 1 371 386 873 378

* Interest-bearing assets and liabilities only.

152 153 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.4 Market risk continued 21.4 Market risk continued

Interest rate sensitivities continued Foreign exchange risk

The management of interest rate risk against interest rate gaps is accomplished through monitoring Group the sensitivity of the Bank’s financial assets and liabilities to various standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 200 bp parallel fall or rise. An ZAR GBP USD EUR Other Total analysis of the sensitivity to an increase or decrease in market interest rates for a six-month period R000 R000 R000 R000 R000 R000 (assuming no asymmetrical movement in yield curves and a constant statement of financial position) Currency profile is as follows: 2020 Group Company Assets Property, plant and 200 bp 200 bp 200 bp 200 bp equipment 99 415 – – – – 99 415 parallel parallel parallel parallel Intangible assets 170 450 – – – – 170 450 increase decrease increase decrease Right-of-use assets 258 342 – – – – 258 342 R000 R000 R000 R000 Leased assets 1 360 612 – – – – 1 360 612 Loans and advances 2 862 234 84 409 19 27 2 862 773 Impact on interest income before tax Negotiable securities 254 658 – – – – 254 658 As at 30 June 2020 3 092 (3 092) 2 591 2 591 Derivative financial assets 8 556 – – – – 8 556 Investment securities 996 626 – – – – 996 626 As at 30 June 2019 3 769 (3 769) 3 124 (3 124) Intergroup loans 212 337 – – – – 212 337 Current tax receivable 36 838 – – – – 36 838 Overall non-trading interest rate risk positions are managed by the Treasury Department, which uses Other assets 327 798 327 19 220 1 538 4 292 353 175 investment securities, advances to banks, deposits from banks, and derivative instruments to manage Inventories 175 357 – – – – 175 357 the overall position arising from the Bank’s non-trading activities. Cash and cash equivalents 3 068 311 88 494 785 785 455 577 122 169 4 520 336 9 831 534 88 905 805 414 457 134 126 488 11 309 475 Commitments to purchase – 11 217 457 063 62 557 44 052 574 889 Total assets 9 831 534 100 122 1 262 477 519 691 170 540 11 884 364 2019 8 588 994 89 755 969 289 511 585 103 621 10 263 244 Commitments to purchase – 25 335 508 516 206 213 41 578 781 642 Total assets 8 588 994 115 090 1 477 805 717 798 145 199 11 044 886 2020 Equity and liabilities Share capital 2 070 – – – – 2 070 Share premium 525 709 – – – – 525 709 Reserves 2 163 254 – – – – 2 163 254 Intergroup loans 100 257 – – – – 100 257 Derivative financial liabilities 21 934 – – – – 21 934 Deposits 6 009 118 85 469 872 144 356 452 104 151 7 427 334 Other liabilities 567 084 2 427 4 677 5 863 2 423 582 474 Deferred tax 200 194 – – – – 200 194 Lease liabilities 285 937 – – – – 285 937 Defined benefit liability 312 – – – – 312 9 875 869 87 896 876 821 362 315 106 574 11 309 475 Commitments to sell foreign currency – 12 313 350 611 157 323 65 826 586 073 Total equity and liabilities 9 875 869 100 209 1 227 432 519 638 172 400 11 895 548 2019 8 785 256 97 906 823 796 465 798 90 488 10 263 244 Commitments to sell foreign currency – 17 988 674 573 220 626 46 701 959 888 Total equity and liabilities 8 785 256 115 894 1 498 369 686 424 137 189 11 223 132

154 155 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.4 Market risk continued 21.4 Market risk continued

Foreign exchange risk continued Foreign exchange risk continued

Company GBP USD EUR Other Total R000 R000 R000 R000 R000 ZAR GBP USD EUR Other Total R000 R000 R000 R000 R000 R000 Net open position 30 June 2020 (87) 34 836 87 (1 860) 32 976 Currency profile 2020 30 June 2019 (803) (20 564) 31 373 8 009 18 015 Assets Closing spot exchange rate Property, plant and 30 June 2020 R21,41 R17,39 R19,52 equipment 99 100 – – – – 99 100 30 June 2019 R17,85 R14,08 R15,94 Intangible assets 134 656 – – – – 134 656 Right-of-use assets 252 311 – – – – 252 311 Average exchange rate Leased assets 1 360 612 – – – – 1 360 612 For the year ended June 30 2020 R19,73 R15,67 R17,31 Loans and advances 2 862 649 84 409 19 27 2 863 188 For the year ended June 30 2019 R18,36 R14,19 R16,19 Negotiable securities 254 658 – – – – 254 658 For the year ended June 30 2018 R17,29 R12,85 R15,32 Derivative financial assets 8 556 – – – – 8 556 Investment securities 996 626 – – – – 996 626 Foreign currency sensitivity based on movements in exchange rate: Current tax receivable 36 532 – – – – 36 532 Investment in subsidiaries 94 078 – – – – 94 078 Group and Company Intergroup loans 212 509 – – – – 212 509 Other assets 282 195 327 19 220 1 538 4 292 307 572 2020 2019 Inventories 175 357 – – – – 175 357 R000 R000 Cash and cash equivalents 3 068 300 88 494 785 785 455 577 122 169 4 520 325 Increase/(decrease) in operating profit before tax for the year* (34 071) 664 9 838 139 88 905 805 414 457 134 126 488 11 316 080 Foreign currency net open position sensitivity based on a 10% Commitments to movement in exchange rates: purchase – 11 217 457 063 62 557 44 052 574 889 GBP (9) (80) Total assets 9 838 139 100 122 1 262 477 519 691 170 540 11 890 969 USD 3 484 (2 056) EUR 9 3 137 2019 8 608 172 89 755 969 289 511 585 103 621 10 282 422 Commitments to Other (186) 801 purchase – 25 335 508 516 206 213 41 578 781 642 3 298 1 802 Total assets 8 608 172 115 090 1 477 805 717 798 145 199 11 064 064 2020 * Effect of foreign exchange rate fluctuations on a constant statement of financial position. Equity and liabilities Price risk Share capital 2 070 – – – – 2 070 Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate Share premium 525 709 – – – – 525 709 because of changes in market prices (other than those arising from interest rate risk or currency Reserves 2 131 773 – – – – 2 131 773 risk), whether those changes are caused by factors specific to the individual financial instrument or Intergroup loans 64 651 – – – – 64 651 its issuer or by factors affecting all similar financial instruments traded in the market. Investment in Derivative financial various equity securities expose the Group and Company to equity price risk due to volatility in the liabilities 21 934 – – – – 21 934 share price. The Group and Company have in place appropriate risk management strategies and Deposits 6 033 042 85 469 872 144 356 452 104 151 7 451 258 reporting processes in respect of this risk and its view is that, unlike other types of risk, price risk Other liabilities 612 877 2 427 4 677 5 863 2 423 628 267 can be reduced and achieves this through diversification. The decline in the market price of one Deferred tax 210 636 – – – – 210 636 investment is compensated by the increase in the price of another. To further lessen risk, stocks of Lease liabilities 279 470 – – – – 279 470 various companies within different industries or in different geographical locations are invested in. Defined benefit liability 312 – – – – 312 A 200 basis points upward and downward shock is applied to interest rate risk in the banking book, 9 882 474 87 896 876 821 362 315 106 574 11 316 080 in line with regulatory requirements. In order to apply a consistent risk approach, a similar 2% shock Commitments to sell is applied to pricing risks. The table below sets out the current equity price risk stressed with a 2% foreign currency – 12 313 350 819 157 288 65 826 586 246 movement for both the Group and Company: Total equity and liabilities 9 882 474 100 209 1 227 640 519 603 172 400 11 902 326 2020 2019

2019 8 804 434 97 906 823 796 465 798 90 488 10 282 422 2% increase 2% decrease 2% increase 2% decrease Commitments to sell R000 R000 R000 R000 foreign currency – 17 988 674 573 220 626 46 701 959 888 Total equity and Investment securities 19 933 (19 933) 11 280 (11 280) liabilities 8 804 434 115 894 1 498 369 686 424 137 189 11 242 310

156 157 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 21. Financial risk management continued 21. Financial risk management continued 21.5 Operational risks 21.7 Capital management Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with Regulatory capital and economic capital the Bank’s processes, personnel, technology and infrastructure, and from external factors other than The SARB sets and monitors capital requirements for the Bank as a whole. In implementing current credit, market and liquidity risks, such as those arising from legal and regulatory requirements, and capital requirements the SARB requires the Bank to maintain a prescribed ratio of total capital to generally accepted standards of corporate behaviour. total risk-weighted assets, market risk exposure and operational risk exposure. The Bank follows the standardised approach under Basel III and calculates requirements for market risk in its banking The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses portfolios based on the Bank’s market risk models and uses both external and internal grading as the not part of operational risk with overall cost effectiveness and to avoid control procedures that restrict basis for risk weightings for credit risk. initiative and creativity. The Operational Risk Committee is responsible for oversight of the Bank’s operational risks. The Bank’s regulatory capital is analysed into two categories:

The primary responsibility for the development and implementation of controls to address operational ▶▶ Tier I capital, which includes ordinary share capital, share premium and appropriated retained risk is assigned to senior management within each business unit. This responsibility is supported by the earnings development of overall Bank standards for the management of operational risk in the following areas: ▶▶ Tier II capital, which includes collective impairment allowances ▶▶ Requirements for appropriate segregation of duties, including the independent authorisation of Banking operations are categorised as either trading book or banking book, and risk-weighted assets transactions are determined according to specified requirements that seek to reflect the varying levels of risk ▶▶ Requirements for the reconciliation and monitoring of transactions attached to assets and off-statement of financial position exposures.

▶▶ Compliance with regulatory and other legal requirements The Bank’s internal capital adequacy assessment process (ICAAP) is formalised and approved by the Board. The Bank’s policy is to maintain a strong capital base so as to maintain investor, credit and ▶▶ Documentation of controls and procedures market confidence and to sustain future development of the business. The impact of the level of ▶▶ Requirements for the periodic assessment of operational risks faced, and the adequacy of controls capital on shareholders’ return is also recognised, and the Bank recognises the need to maintain a and procedures to address the risks identified balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. ▶▶ Requirements for the reporting of operational losses and proposed remedial action The Bank and its operations have complied with all externally imposed capital requirements ▶▶ Development of contingency plans throughout the year and previous year. There have been no material changes in the Bank’s ▶▶ Training and professional development management of capital during the period.

▶▶ Ethical and business standards The Bank’s ICAAP reflects its internal assessment of risk. The ICAAP determines the most suitable level of economic capital, i.e. the capital required to remain solvent under conditions that are extreme in 21.6 Reputational risk nature. For potential losses arising from risk types that are statistically quantifiable, economic capital The Bank manages reputational risk by an integrated strategy, understanding the correlation between reflects the worst-case loss, taking risk-adjusted returns on capital into account. sustainable performance and reputation, and between corporate image and corporate reputation. The final economic capital level determined through the ICAAP reflects the capital to be held for risks The following basic strategies are followed to manage reputational risk: as assessed by management instead of implied by a prescribed regulatory formula. The economic capital requirement is then compared to the regulatory capital requirement to determine the buffer ▶▶ Fostering a reputation-conscious culture to be held for uncertainties to ensure adequate capitalisation for the Bank. ▶▶ Linking corporate social responsibility to reputation Statement of financial position forecasting based on business and strategy planning allows ▶▶ Measuring the impact of media coverage, perceptions and stakeholder impressions management to ensure that minimum required capital ratios are adhered to.

▶▶ Developing plans to develop and protect reputation

▶▶ Monitoring potential reputation damaging issues

▶▶ Proactively exploiting good news and having a crisis communication plan to respond in times of bad news

▶▶ Transforming potential disasters into opportunities

158 159 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

22. Related parties Group Company Related party information 2020 2019 2020 2019 Parent company R000 R000 R000 R000 The holding company of the Group is Bidvest Bank Holdings Limited. The ultimate holding company is The Bidvest Group Limited. 22. Related parties continued

Related party transactions Related party transactions – fellow subsidiaries The Group, in the ordinary course of business, enters into various financial services transactions with other divisions and subsidiaries within The Bidvest Group Limited as well as with directors and key Income management of the Bank. No impairment of loans at year-end was considered necessary. Net interest income (53 680) (89 121) (53 680) (89 121)

Key management personnel Commission and fees (4 270) (2 846) (4 270) (2 846) Administration fees received (16 174) (16 174) Key management personnel have been identified as Bidvest Bank Limited’s Board of Directors. (16 055) (16 055) Leasing income (5 634) (6 255) (5 634) (6 255) Group Company Expenses 2020 2019 2020 2019 Advertising 226 181 226 181 R000 R000 R000 R000 Administration fees paid 27 565 26 483 27 565 26 483 Loan accounts – owing (to)/by IT charges 611 468 611 468 related parties Property rentals 41 779 2 984 41 779 2 984 Bid Industrial Holdings (Pty) Ltd – (150 101) – (150 101) Security fees 12 367 10 847 12 367 10 847 Bid Finserv Capital (Pty) Ltd – fellow Dividends paid 182 864 157 500 182 864 157 500 subsidiary 85 689 64 453 85 689 64 453 Stationery 3 038 3 552 3 038 3 552 Bidvest Leasing (Pty) Ltd – subsidiary – – (34 106) (34 106) Office services 344 1 201 344 1 201 Viamax Fleet Solutions (Pty) Ltd – subsidiary – – (15 050) (15 050) Travel 1 039 897 1 039 897 Viamax (Pty) Ltd – subsidiary – – (15 495) (15 495) Other 55 681 46 432 55 681 46 432 McCarthy Retail Finance (Pty) Ltd – subsidiary – – 172 172 Bidvest Bank Holdings Ltd 126 648 125 536 126 648 125 536 Assets purchases Equipment 756 11 191 756 11 191 Advances Leased assets and financing equipment 310 002 125 294 310 002 125 294 Loans to fellow subsidiaries 107 519 518 571 107 519 518 571 Loans to subsidiaries – – 417 50 034 Related party transactions – Derivative financial assets with fellow key management personnel subsidiaries 2 577 5 487 2 577 5 487 and senior employees Loans to key management personnel 3 566 4 456 3 566 4 456 Interest paid – deposits (81) (112) (81) (112) Interest received – loans and advances 338 979 338 979 Leased assets Net new loans and advances (6 345) 9 911 (6 345) 9 911 Assets under operating leases to fellow subsidiaries 62 520 70 857 62 520 70 857 Related party off-balance sheet transactions – fellow subsidiaries Deposits Letters of credit issued on behalf of group Deposits from fellow subsidiaries (137 750) (250 638) (137 750) (250 638) companies (50 229) (32 928) (50 229) (32 928) Deposits from subsidiaries – – 23 925 32 094 Guarantees issued on behalf of group Deposits from key management personnel (1 131) (4 096) 1 131 (4 096) companies (66 724) (165 972) (66 724) (165 972) Derivative financial liabilities with fellow Notional value of derivative liabilities with subsidiaries (2 961) (297) (2 961) (297) fellow subsidiaries (142 367) (23 726) (142 367) (23 726) Accounts receivable from fellow subsidiaries 23 960 11 054 23 960 11 054 Notional value of derivative assets with fellow Accounts payable to fellow subsidiaries (9 630) (1 490) (9 630) (1 490) subsidiaries 125 123 257 072 125 123 257 072

For further details relating to amounts owing (to) by related parties please refer to note 8.

160 161 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Post- Group Company employ- Benefits Salaries ment arising on 2020 2019 2020 2019 and other and long- exercise R000 R000 R000 R000 short-term term of share Services as benefits benefits options directors Total 23. Income R000 R000 R000 R000 R000 23.1 Net interest income Interest income 22. Related parties continued Cash and cash equivalents 141 988 133 582 141 988 132 222 Key management compensation Loans and advances to customers 321 159 272 807 320 453 272 807 2020 Interest on negotiable securities 17 938 31 202 17 938 31 202 A Cunningham – – – 1 369 1 369 Interest on investment securities 96 329 56 943 96 329 56 943 Intergroup loan 5 384 5 603 5 384 5 603 EK Diack – – – 386 386 Other interest 5 910 7 359 5 910 7 359 MJ Liebenberg 4 811 343 10 641 – 15 795 Interest expense R Mokate – – – 660 660 Deposits from banks (8 320) (1 851) (8 320) (1 851) NG Payne* – – – 1 245 1 245 Deposits from customers (385 191) (312 242) (385 869) (312 242) JJ van Niekerk 8 899 292 – – 9 191 Intergroup loan – (102) – (102)

13 710 635 10 641 3 660 28 646 195 197 193 301 193 813 191 941

2019 Interest income from financial instruments at amortised cost 568 289 480 166 567 583 478 806 A Cunningham – – – 1 090 1 090 Interest income from financial instruments EK Diack* – – – 793 793 at FVOCI 20 419 27 330 20 419 27 330 MJ Liebenberg 5 409 177 – – 5 586 Interest expense on financial instruments R Mokate* – – – 859 859 at amortised cost (393 511) (314 195) (394 189) (314 195) NG Payne* – – – 1 157 1 157 195 197 193 301 193 813 191 941 JJ Van Niekerk 7 306 444 – – 7 750 23.2 Net fee and commission income 12 715 621 – 3 899 17 235 Fee and commission income Acquiring income 202 747 195 116 – – * Directors that serve on the Board of The Bidvest Group Limited. Card issuing income 445 826 419 012 443 259 428 298 Executives participate in The Bidvest Group Limited’s share incentive scheme (see note 31). Other fees 43 072 47 568 42 831 47 568

The aforementioned key management compensation only reflects compensation paid by Bidvest Fee and commission expense Bank Limited. The full directors’ remuneration, including remuneration paid to directors of The Bidvest Acquiring expense (140 670) (152 501) – – Group Limited, can be viewed in Annexure A. Card issuing expense (329 791) (274 818) (322 266) (293 970) Other fees (12 989) (15 460) (12 978) (15 460) Details of executive directors’ outstanding replacement rights and share appreciation rights as at 30 June 2020 are as follows: 208 195 218 917 150 846 166 436

MJ Liebenberg: 7 500 replacement rights (average price R262,88) and 110 000 share appreciation rights 23.3 Income from leasing (average price R167,25). Leasing income Director-related transactions Admin fees 181 754 188 264 181 754 188 263 Operating lease income 690 265 739 441 690 265 739 441 There are no contracts with directors. Executive directors are permanently employed on the same terms and conditions as other employees. Other income 20 475 6 306 20 475 6 306 Short-term operating lease income 79 435 32 785 79 435 32 785 Directors have no long-term service contracts. Vehicle sales 72 944 87 177 72 944 87 178

1 044 873 1 053 973 1 044 873 1 053 973 Other leasing costs Admin fees (31 070) (29 380) (31 070) (29 380) Operating lease expense (211 479) (152 145) (211 479) (152 145) Short-term operating lease expense (56 985) (21 358) (56 949) (21 313) Vehicle cost of sales (75 407) (79 216) (75 407) (79 215)

(374 941) (282 099) (374 905) (282 053)

Depreciation of leased assets (166 980) (175 912) (166 980) (175 912)

502 952 595 962 502 988 596 008

162 163 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Up to 1 1 to 2 2 to 3 3 to 4 4 to 5 More than Group Company year years years years years 5 years Total 2020 2019 2020 2019 23. Income continued Notes R000 R000 R000 R000 23.3 Income from 24. Net trading income leasing continued Foreign exchange margin (including Future leasing revaluations) 173 504 191 174 173 504 191 175 income Branch revenue margin 38 806 54 008 38 806 54 008 2020 Product margins 6 717 (7 946) 6 717 (7 947) Group and company 308 092 234 974 77 841 27 387 12 774 22 789 683 857 Profit and loss accounts 5 954 41 395 4 516 36 529 2019 Other (1 764) (892) (1 764) (892) Group and company 341 712 166 958 73 721 25 305 4 485 1 177 613 358 223 217 277 739 221 779 272 873

Contingent rentals relate to variable rental income on full maintenance leasing contracts. Variable 25. Impairments and provisions factors would include excess kilometres as determined in individual leasing contract parameters. Provisions are recognised within Included in leasing income are contingent rentals of R9,1 million (2019: R3,1 million) for both Group profit or loss, and comprises: and Company. Branch restructuring provision 18 13 163 – 13 163 – Group Company Master Currency goodwill impairment 14 831 – 14 831 – 2020 2019 2020 2019 R000 R000 R000 R000 Used vehicles – impairment overlay 14 8 100 – 8 100 –

23.4 Other income 36 094 – 36 094 – Dividends from investment securities 6 234 5 111 5 952 5 111 Other investment income 21 200 – 21 200 – The branch restructuring provision relates to estimated staff retrenchments costs in relation to the Unclaimed balances written back 42 540 58 610 42 540 58 610 restructuring of the branch network, as mentioned in the directors’ report. Profit on sale of investments 15 555 – 15 555 – The Master Currency goodwill impairment relates to goodwill fully impaired in the current financial year, as mentioned in the directors’ report. The used vehicles impairment overlay comprises a 85 529 63 721 85 247 63 721 conservative 5% overlay on the estimated selling value of used vehicles held for resale due to the COVID-19 pandemic.

26. Employment costs Employee costs Basic 417 610 402 566 395 334 383 946 Performance incentive 9 420 27 533 9 420 27 533 Contribution to the provident fund 23 056 21 612 21 847 20 629 Contribution to the defined contribution pension fund – 2 460 – 2 460 Share-based payment 4 771 15 387 4 771 15 387

454 857 469 558 431 372 449 955

164 165 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company Group Company

2020 2019 2020 2019 2020 2019 2020 2019 R000 R000 R000 R000 R000 R000 R000 R000

27. Operating expenditure 28. Taxation 27.1 Operating leases Major components of the tax expense: Premises 6 247 92 421 5 591 91 237 28.1 Indirect taxation Equipment 157 177 155 174 Value added tax expense 22 067 12 619 22 067 12 619 Straight-lining of leases – (2 104) – (2 104) Skills development levy expense 3 640 3 912 3 447 3 725

6 404 90 494 5 746 89 307 25 707 16 531 25 514 16 344

The operating leases disclosed with regard to the 2020 financial year relate to variable lease payments, 28.2 Direct taxation short-term leases and low value leases as per IFRS 16. These lease expenses were not taken into account Current to determine the Bank Consolidated and Bank Separate’s lease liability as at 30 June 2020. Current year 28 903 75 422 28 903 75 422 The operating lease expenses included above as part of the 2020 financial year disclosure are the Prior year overprovision (745) 10 967 (745) 10 967 operating lease expenses as per IAS 17 as at 30 June 2019. 28 158 86 389 28 158 86 389 27.2 Other operating expenditure includes: Deferred Auditors’ remuneration Originating and reversing temporary Audit fees 7 005 6 180 6 514 5 712 differences 16 145 45 360 16 304 45 664 Fees for other services 1 473 518 1 473 518 Deferred tax asset (1 294) (12 221) – – 8 478 6 698 7 987 6 230 Prior year overprovision (3 894) – (3 894) –

Consulting and professional fees 19 635 13 644 18 568 13 644 10 957 33 139 12 410 45 664

Directors’ emoluments 39 115 119 528 40 568 132 053 For services as non-executive directors 3 660 3 899 3 660 2 700 Reconciliation of the tax expense For services as executive directors 24 986 13 336 24 986 13 336 Reconciliation between standard tax rate and average effective tax rate 28 646 17 235 28 646 16 036 Applicable tax rate 27,51 % 27,66 % 30,30 % 31,15 % Administration fees 24 090 24 090 22 770 Disallowable charges 0,20 % 1,19 % 0,22 % 1,21 % Property-related expenses 44 833 44 476 36 453 Non-taxable income (1,17)% (1,18)% (1,24)% (1,21)% Prior year adjustment (3,26)% (2,54)% (3,47)% (2,59)% Marketing expenses 22 662 22 377 37 793 Other SBP and tax loss recognised 4,72 % 2,87 % 2,19 % (0,56)%

Standard tax rate 28,00 % 28,00 % 28,00 % 28,00 %

166 167 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company Group Company

2020 2019 2020 2019 2020 2019 2020 2019 R000 R000 R000 R000 R000 R000 R000 R000

29. Cash generated from operations 30. Contingent liabilities and 29.1 Reconciliation of cash generated by commitments operations Capital commitments Profit before taxation 142 169 432 024 133 868 423 963 Authorised and contracted for 116 672 148 574 116 672 135 255 Adjustments for Funds to meet capital expenditure Depreciation of equipment and leased assets 207 736 211 241 207 200 210 642 commitments will be provided from Amortisation of intangible assets 30 886 30 213 28 666 28 427 the Bank’s internal resources. Loss on disposal of equipment and intangible assets 708 2 826 913 3 011 Contingent liabilities Depreciation of right-of-use asset 90 946 – 90 127 – Undrawn facilities 2 159 714 1 658 297 2 159 714 1 658 297 Profit on disposal of investments (6 820) – (6 820) – Guarantees issued on behalf of group Dividends from investment securities (6 234) (5 111) (5 952) (5 111) companies 66 724 165 972 66 724 165 972 Interest received (571 356) (488 732) (570 650) (487 373) Guarantees issued on behalf of third parties 69 087 46 572 69 087 46 572 Interest paid 374 889 295 237 375 567 295 237 Letters of credit issued on behalf of third Loss/(profit) on disposal of leased assets 2 463 (7 962) 2 463 (7 962) parties 365 6 513 365 6 513 Share-based payments (20 376) (3 953) (20 376) (3 953) Letters of credit issued on behalf of group Impairment of equipment and intangible assets 74 972 – 74 972 – companies 50 229 32 928 50 229 32 928 Adoption of IFRS 16 Leases 4 841 – 4 841 – 2 346 119 1 910 282 2 346 119 1 910 282 Interest relating to lease liabilities 25 852 – 25 351 – Other non-cash items through retained income (37 302) – (36 925) – Guarantees comprise both payment and performance-related guarantees on behalf of customers. Management has assessed the probability that a liability should be raised and are satisfied that the Interest received from SARS (552) – (552) – liability adequacy test indicate that there is no present obligation to raise a liability. Impairment charge 42 574 4 495 42 608 4 495 Letters of credit include documentary letters of credit with customers regarding imports and exports. Operating profit before changes in working capital 355 397 470 278 345 301 461 374 Increase in loans and advances (113 280) (416 929) (63 695) (433 951) The Bank, in the normal course of business, enters into transactions that expose it to tax, legal and business risk. Provisions are made for known liabilities that can be reasonably estimated and that are Decrease in negotiable securities 73 659 63 405 73 659 63 405 expected to materialise. (Increase)/decrease in net derivative financial instruments 18 239 (35 619) 18 239 (35 619) Group Company (Increase)/decrease in other assets and inventory (212 492) 70 038 (252 303) 92 455 2020 2019 2020 2019 Increase in deposits 850 427 877 962 842 257 887 792 R000 R000 R000 R000 Increase/(decrease) in trade and other payables 89 038 (968) 99 026 (8 818) Decrease in defined benefit liability (207) – (207) – Future operating lease commitments Payable within one year 78 199 93 894 77 152 93 894 1 060 780 1 028 167 1 062 277 1 026 638 Payable between one and five years 155 304 203 353 151 379 203 353 29.2 Net acquisition of investment securities Payable between five and ten years 161 699 197 393 157 231 197 393 Opening balance at fair value 563 990 376 702 563 990 376 702 395 202 494 640 385 762 494 640 (Decrease)/increase in fair value adjustment during the year (15 888) 23 849 (15 888) 23 849 Some property rentals include a turnover clause as additional rental. Additions during the year 4 143 735 680 971 4 143 735 680 971 Escalations are between 8% and 10% per annum. Profit on disposal of investments 6 820 – 6 820 – Closing balance at fair value (996 626) (563 990) (996 626) (563 990)

Movement during the year 3 702 031 517 532 3 702 031 517 532

29.3 Movement in intergroup loans Opening balance of net intergroup loans (39 888) 91 293 24 591 155 772 Intergroup loans received (22 348) 150 101 (22 348) 150 101 Intergroup loans paid (150 101) (281 282) (150 101) (281 282)

Closing balance of net intergroup loans (212 337) (39 888) (147 858) 24 591

168 169 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

31. Share-based payments 31. Share-based payments continued The Bidvest Group Limited (the Bidvest Group) has an incentive scheme that grants options and Replacement rights scheme continued advances loans to employees of The Bidvest Group. Both the share option scheme and share purchase Replacement rights outstanding at 30 June by year of grant are: scheme have been classified as equity-settled schemes, and therefore an equity-settled share-based payment reserve has been recognised. 2020 2019 A Conditional Share Plan, which awards employees with a conditional right to receive shares in The Average Average Bidvest Group, free of any cost, is also operated by the Group. As it is anticipated that the participants Number price Number price will receive shares in settlement of their rewards, a share-based payment reserve has been recognised. R R R R Replacement rights scheme 2012 5 000 134,56 7 500 134,56 Following the unbundling of Bid Corporation Limited (Bidcorp), Bidvest Group option holders 2013 4 500 208,91 17 375 208,91 exchanged each one of their existing options for one right over one Bidcorp share and one Bidvest 2014 20 000 229,47 45 000 231,91 share (replacement right). In terms of the amended scheme rules, the original option price was not 2015 24 250 260,34 45 386 271,56 adjusted, but on exercise of the replacement right, the original option price will be deducted from the 2016 46 750 301,54 68 500 301,54 combined value of the Bidcorp share and the Bidvest share. The vesting date and lapse dates of the replacement rights will be the same as those of the original options. 100 500 262,88 183 761 232,09 The terms and conditions of the options are: The fair value of services received in return for shares allotted is measured based on a binomial model. Replacement right holders are only entitled to exercise their rights if they are in the employ of the The contractual life of the replacement right is used as an input into this model. Group in accordance with the terms referred to hereafter, unless otherwise recommended by the Board The number and weighted average exercise prices of the share appreciation rights issued to employees of the Bank to the Trustees of the Bidvest Share Incentive Trust. of the Bank are: Replacement right holders may exercise the rights at such times as the right holder deems fit, but 2020 2019 not so as to result in the following proportions of the holder’s total number of instruments being Average Average purchased prior to: 50% of total number of instruments at the expiry of three years; 75% of total number Number price Number price of instruments at the expiry of four years; and 100% of total number of instruments at the expiry of five R R R R years from the date of the holder’s acceptance of an option. All rights must be exercised no later than the 10th anniversary on which they were granted unless approval is obtained from the trustees of the SARs (share appreciation rights) Bidvest Share Incentive Trust. Beginning of the year 1 006 000 164,59 683 000 152,68 The number and weighted average exercise prices of share options issued to employees of the Bank are: Granted 163 000 173,43 346 000 188,42 Lapsed (298 000) 165,57 (23 000) 152,68 2020 2019 Exercised (60 000) – – –

Average Average End of the year 811 000 167,25 1 006 000 164,59 price price Number R Number R The terms and conditions of the SARs are:

Beginning of the year 183 761 253,22 268 145 253,22 Share appreciation right holders are only entitled to exercise their rights if they are in the employment Exercised/lapsed (83 261) 250,32 (84 384) 253,22 of the Group in accordance with the terms referred to hereafter, unless otherwise recommended by the Board of the Bank to the Trustees of the Bidvest Share Incentive Trust. 100 500 262,88 183 761 232,09 Share appreciation right holders in the scheme may exercise the SARs at such time as the holder deems The replacement rights outstanding at 30 June 2020 have an exercise price in the range of R134,56 fit, but not so as to result in the following proportions of the holder’s total number of instruments being to R301,54 (2019: R134,56 to R301,54) and a weighted average remaining contractual life of 0,4 to 5,4 purchased prior to: 50% of total number of instruments at the expiry of three years; 75% of total number (2019: 1,3 to 8,4) years. The average combined value of the Bidvest Group and Bidcorp shares as at of instruments at the expiry of four years; and 100% of total number of instruments at the expiry of five 30 June 2020 was R567,58 (2019: R496,34). years from the date of the holder’s acceptance of an appreciation right. All SARs must be exercised no later than the seventh anniversary on which they were granted unless approval is obtained from the trustees of the Bidvest Share Incentive Trust.

The fair value of the appreciation rights allotted during the current year and the assumptions are:

2020 2019

Fair value at measurement date (Rand) 192,70 209,35 Exercise price (Rand) 173,43 188,42 Expected volatility (%) 28,35 29,16 Option life (years) 4,00 – 6,00 4,00 – 6,00 Distribution yield (%) 3,2 2,83 Risk-free interest rate (based on national government bonds) (%) 7,22 7,6

The volatility is based on the historic volatility.

170 171 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 32. Events after the reporting period 33. Key assumptions continued The following events took place after reporting date: Measurement of expected credit losses ▶▶ Lindsay Ralphs resigned as a non-executive director on 30 September 2020. Expected credit losses (ECL) are based on a range of possible outcomes and consider all available ▶▶ Hannah Sadiki was appointed as the Managing Director of the Bank effective 1 November 2020. reasonable and supportable information including internal and external ratings, historical credit loss experience, and expectations about future cash flows. The measurement of ECL is based primarily on 33. Key assumptions the product of the client’s probability of default (PD), loss given default (LGD), and exposure at default (EAD) discounted to the reporting date. The main difference between Stage 1 and Stage 2 ECL for Deferred tax assets performing financial assets is the respective calculation horizon. Stage 1 estimates project PD, LGD and In preparing the financial statements, estimates and assumptions are made that could affect the EAD over a maximum period of 12 months while Stage 2 estimates project PD, LGD and EAD over the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are remaining lifetime of the instrument. An expected credit loss estimate is produced for each individual continually evaluated and are based on factors such as historical experience and current best estimates exposure. Relevant parameters are modelled on a collective basis using portfolio segmentation that of uncertain future events that are believed to be reasonable under the circumstances. allows for appropriate incorporation of forward looking information. To reflect other characteristics that The Group has estimated tax losses of R122,8 million that can be set off against future taxable profits. are not already considered through modelling, expert credit judgment is exercised in determining the The deferred tax balance includes an amount of R13,4 million which relates to carried forward tax losses final ECL. For a small percentage of our portfolios which lack detailed historical information and/or of Bidvest Merchant Services Proprietary Limited and Cash Axcess Proprietary Limited. loss experience, we apply simplified measurement approaches that may differ from what is described above. These approaches have been designed to maximise the available information that is reliable The Group has concluded that the deferred assets will be recoverable using the estimated future and supportable for each portfolio and may be collective in nature. ECL are discounted to the reporting taxable income based on the current financial year results as well as the approved business plans period date using the effective interest rate. and budgets for the subsidiaries. The subsidiaries have generated profits in the current year and are expected to continue to generate taxable income into the future. The losses can be carried forward Use of forward looking information indefinitely and have no expiry date. The measurement of ECL for each stage and the assessment of SICR considers information about past Allowance for credit losses – IFRS 9 events and current conditions as well as reasonable and supportable projections of future events and economic conditions. The estimation and application of forward-looking information requires significant An allowance for credit losses (ACL) is established for all financial assets, except for financial assets judgment. The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are classified or designated as FVTPL and equity securities designated as FVOCI, which are not subject to modelled based on the macroeconomic variables (or changes in macroeconomic variables) that are impairment assessment. Assets subject to impairment assessment include, but not limited to, certain most closely correlated with credit losses in the relevant portfolio. Each macroeconomic scenario used in loans, debt securities, interest-bearing deposits, accounts and accrued interest receivable, and finance our expected credit loss calculation includes a forward looking projection of all relevant macroeconomic and operating lease receivables. variables used in our models. Macroeconomic variables used in our expected credit loss models include, We measure the ACL on each balance sheet date according to a three-stage expected credit loss but are not limited to, gross domestic product (GDP) growth rates and the foreign exchange rate between impairment model: South Africa and the United States of America. The Company’s estimation of ECL in Stage 1 and Stage 2 is a discounted probability-weighted estimate that considers three potential macroeconomic scenarios. ▶▶ Performing financial assets Upside and downside scenarios vary relative to the base case scenario, based on reasonably likely Stage 1 – From initial recognition of a financial asset to the date on which the asset has alternative macroeconomic conditions. Additional and more severe downside scenarios are designed experienced a SICR relative to its initial recognition, a loss allowance is recognised equal to the to capture a broader range of potential credit losses in certain sectors. Scenario design, including the credit losses expected to result from defaults occurring over the 12 months following the reporting identification of additional downside scenarios, occurs at least on an annual basis and more frequently date. if conditions warrant. Scenarios are designed to capture a wide range of possible outcomes and are weighted according to our best estimate of the relative likelihood of the range of outcomes that each Stage 2 – Following a SICR relative to the initial recognition of the financial asset, a loss allowance is scenario represents. Scenario weights take into account historical frequency, current trends, and forward- recognised equal to the credit losses expected over the remaining lifetime of the asset. looking conditions and are updated at least annually. All scenarios considered are applied to all portfolios ▶▶ Impaired financial assets subject to ECL with the same probabilities. Our assessment of significant increases in credit risk is based on changes in probability-weighted forward-looking lifetime PD as at the reporting date, using the same Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognised macroeconomic scenarios as the calculation of ECL. equal to credit losses expected over the remaining lifetime of the asset. Interest revenue is calculated based on the carrying amount of the asset, net of the loss allowance, rather than on Forward looking information used by the Company its gross carrying amount. ▶▶ Probability-weighted market scenarios in a base case, bear case and a bull case The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from ▶▶ GDP growth factors (IMF, World Bank, African Economic outlook, SARB, SA National Treasury) defaults over the relevant time horizon. For loan commitments, credit loss estimates consider the for the following five years (where available) portion of the commitment that is expected to be drawn over the relevant time period. ▶▶ Exchange rate growth percentage, 6% based on Purchasing Power Parity over the last 27 years Application of the effective interest method In scenario testing we tested three different scenarios (bull, bear, base) changing only the probability Interest is recognised in interest income and interest expense in the consolidated statements of income weights in the market scenarios, and the resultant impact on the final ECL and ACL was negligible. generally for all interest-bearing financial instruments using the effective interest method. The effective Many of the factors have a high degree of interdependency, and there is no single factor to which interest rate is the rate that discounts estimated future cash flows over the expected life of the financial impairment allowances as a whole are sensitive. asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in determining the effective interest rate due to uncertainty in the timing and amounts of future cash flows. The book at exposure is highly collateralised and thus the carrying amounts are not extremely sensitive to changes in inputs and methods applied.

172 173 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

33. Key assumptions continued 34. New standards and interpretations Assessment of SICR Standards and interpretations effective and adopted in the current year The following, non-exhaustive disclosure of qualitative factors are considered when assessing a SICR: In the current year, the Bank has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: ▶▶ Direct debit cancellation Effective date: Years ▶▶ Previous arrears within the last 12 months Standard/interpretation beginning on or after Expected impact ▶▶ Adverse changes in business/financial and/or economic conditions in which the borrower operates IFRS 16 Leases 1 January 2019 The impact of the standard is set out in ▶▶ Actual or expected significant adverse change in operating results of the borrower note 36 Changes in accounting policy ▶▶ Significant value in collateral value Group ▶▶ Early signs of cashflow/liquidity problems of the borrower

▶▶ A backstop is applied and the financial instrument is considered to have experienced a SICR if the Financial instruments Non- borrower is more than 30 days past due on its contractual payments at Other financial Goodwill and other intangible assets amortised amortised assets/ Goodwill is not amortised and is tested for impairment on an annual basis, or more frequently if there At FVTPL cost At FVOCI cost liabilities Total are objective indications of impairment. The Group tests for impairment by comparing the recoverable R000 R000 R000 R000 R000 R000 amount with its carrying amount. If goodwill is assessed to be impaired, that impairment is not subsequently reversed. 35. Classification of assets and liabilities The Group made use of two different valuation techniques in order to estimate the value in use of the underlying cash generated units: 2020 Cash and cash equivalents – 4 520 336 – – – 4 520 336 ▶▶ The value in use of the Master Currency branches was determined by making to use of the price to Derivative financial assets 8 556 – – – – 8 556 earnings valuation method. The value in use was calculated by making use of the profit after tax relating to the respective branches multiplied by a JSE related price to earnings ratio after adjusting Negotiable securities – 254 658 – – – 254 658 for various industry related factors, i.e. COVID-19. Investment securities – – 996 626 – – 996 626

▶▶ The value in use of Bidvest Merchant Services was determined by making use of the discounted Other assets – – – 333 535 19 640 353 175 cashflow method. The discounted cash flow of Bidvest Merchant Services was determined by making Current taxation – – – – 36 838 36 838 use of two financial years’ actual cash flows and three years’ estimated cash flows. The estimated cash Loans and advances – 2 862 773 – – – 2 862 773 flows were determined by making use of an annual 8% growth rate. The discount rate applied was the Intergroup loans – 212 337 – – – 212 337 Bank’s weighted average cost of capital that provides for the country related risks. Equipment – – – – 99 415 99 415 Residual value of leased assets Right-of-use assets – – – – 258 342 258 342 Residual values of leased assets are assessed on a yearly basis for purposes of determining the depreciable Leased assets – – – – 1 360 612 1 360 612 amounts of leased assets. Any changes to the depreciable amounts are accounted for as a change in estimate. Intangible assets – – – – 170 450 170 450 The residual value estimation is based on a combination of the historical resale profits and losses on Inventories – – – – 175 357 175 357 leased assets as well as industry valuation guides. This estimation requires significant judgement. 8 556 7 850 104 996 626 333 535 2 120 654 11 309 475 Leased assets – deferred revenue During the financial year, the Group changed the estimate for calculating the fund liability relating to Deposits – – – 7 427 334 – 7 427 334 the leased assets, in order to align the revenue recognised to the actual costs incurred. The fund liability Derivative financial is based on historical maintenance cost to leasing income ratios and estimated future leasing income liabilities 21 934 – – – – 21 934 escalations for each full maintenance leased asset category. Trade and other payables – – – 582 474 – 582 474 The historical cost-to-leasing-income ratios have been revised to depict the usage on an asset class basis, Floating rate notes – – – 100 257 – 100 257 where previously these were calculated per leasing customer contract type. Current information gathered allows for a more accurate recognition of revenue against the actual costs incurred. The effect in future Lease liabilities – – – 285 937 – 285 937 periods is expected to follow the similar pattern of revenue recognition. Deferred taxation – – – – 200 194 200 194

The impact of the change in estimate has resulted in a R23,4 million increase in the fund liability during Defined benefit liability – – – – 312 312 the current year. 21 934 – – 8 396 002 200 506 8 618 442

174 175 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Group Company

Financial Financial instruments Non- instruments Non- at Other financial at Other financial amortised amortised assets/ amortised amortised assets/ At FVTPL cost At FVOCI cost liabilities Total At FVTPL cost At FVOCI cost liabilities Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000

35. Classification of 35. Classification of assets and liabilities assets and liabilities continued continued 2019 2020 Cash and cash equivalents – 4 126 987 – – – 4 126 987 Cash and cash equivalents – 4 520 325 – – – 4 520 325 Derivative financial assets 13 496 – – – – 13 496 Derivative financial assets 8 556 – – – – 8 556 Negotiable securities – 328 317 – – – 328 317 Negotiable securities – 254 658 – – – 254 658 Investment securities – – 563 990 – – 563 990 Investment securities – – 996 626 – – 996 626 Other assets – – – 260 860 17 069 277 929 Other assets – – – 288 074 19 498 307 572 Current tax – – – – 18 314 18 314 Current taxation – – – – 36 532 36 532 Loans and advances – 2 792 067 – – – 2 792 067 Loans and advances – 2 863 188 – – – 2 863 188 Intergroup loans – 189 989 – – – 189 989 Intergroup loans – 212 509 – – – 212 509 Equipment – – – – 124 902 124 902 Equipment – – – – 99 100 99 100 Leased assets – – – – 1 569 074 1 569 074 Right-of-use asset – – – – 252 311 252 311 Intangible assets – – – – 220 068 220 068 Leased assets – – – – 1 360 612 1 360 612 Inventories – – – – 38 111 38 111 Intangible assets – – – – 134 656 134 656 Investment in subsidiaries – – – – 94 078 94 078 13 496 7 437 360 563 990 260 860 1 987 538 10 263 244 Inventories – – – – 175 357 175 357 Deposits – – – 6 576 907 – 6 576 907 8 556 7 850 680 996 626 288 074 2 172 144 11 316 080 Derivative financial liabilities 8 635 – – – – 8 635 Deposits – – – 7 451 258 – 7 451 258 Trade and other payables – – – 410 099 83 337 493 436 Derivative financial Intergroup loans – 150 101 – – – 150 101 liabilities 21 934 – – – – 21 934 Deferred tax – – – – 187 758 187 758 Trade and other payables – – – 528 011 – 528 011 Defined benefit liability – – – – 519 519 Intergroup loans – 64 651 – – – 64 651 Floating rate notes – – – 100 257 – 100 257 8 635 150 101 – 6 987 006 271 614 7 417 356 Lease liability – – – 279 470 – 279 470 Deferred taxation – – – – 210 636 210 636 Defined benefit liability – – – – 312 312

21 934 64 651 – 8 358 996 210 948 8 656 529

176 177 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020

Company 35. Classification of assets and liabilities continued 35.2 The following table presents the Group’s and Company’s assets and liabilities that are Financial measured at fair value at 30 June instruments Non- Level 1 Level 2 Level 3 Total at Other financial R000 R000 R000 R000 amortised amortised assets/ At FVTPL cost At FVOCI cost liabilities Total 2020 R000 R000 R000 R000 R000 R000 Assets 35. Classification of Investment securities 995 603 1 002 21 996 626 assets and liabilities Derivative financial assets – 8 556 – 8 556 continued 995 603 9 558 21 1 005 182 2019 Cash and cash equivalents – 4 125 984 – – – 4 125 984 Liabilities Derivative financial assets 13 496 – – – – 13 496 Derivative financial liabilities – 21 934 – 21 934 Negotiable securities – 328 317 – – – 328 317 2019 Investment securities – – 563 990 – – 563 990 Other assets – – – 175 546 16 969 192 515 Assets Investment securities 563 197 773 20 563 990 Current tax – – – – 18 008 18 008 Derivative financial assets – 13 496 – 13 496 Loans and advances – 2 842 101 – – – 2 842 101 Intergroup loans – 190 161 – – – 190 161 563 197 14 269 20 577 486 Equipment – – – – 124 392 124 392 Liabilities Leased assets – – – – 1 569 074 1 569 074 Derivative financial liabilities – 8 635 – 8 635 Intangible assets – – – – 182 195 182 195 Investment in subsidiaries – – – – 94 078 94 078 The fair value of financial instruments traded in active markets is based on quoted market prices at Inventories – – – – 38 111 38 111 the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, or industry group, pricing market transactions on an arm’s-length 13 496 7 486 563 563 990 175 546 2 042 827 10 282 422 basis. The quoted market price used for financial assets held by the Bank is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily listed equity Intergroup loans – 214 752 – – – 214 752 investments classified as available-for-sale securities. Derivative financial The fair value of financial instruments that are not traded in an active market (for example, over-the- liabilities 8 635 – – – – 8 635 counter derivatives) is determined by using valuation techniques. These valuation techniques maximise Deposits – – – 6 609 001 – 6 609 001 the use of observable market data where it is available and rely as little as possible on entity-specific Trade and other payables – – – 345 648 83 337 428 985 estimates. If all significant inputs required to fair value an instrument are observable, the instrument is Deferred tax – – – – 196 747 196 747 included in level 2. Defined benefit liability – – – – 519 519 If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. 8 635 214 752 – 6 954 649 280 603 7 458 639 35.3 Fair value of financial instruments 35.1 Fair value estimation The following represents the fair values of financial instruments not carried at fair value on the Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly statement of financial position. For all other instruments the carrying value is equal to or a reasonable transaction between market participants at the measurement date. The Bank adopted the amendment approximation of fair value. to IFRS 7 and IFRS 13 regarding the fair value measurement of financial instruments in the statement Group Company of financial position on July 1 2009 and July 2013 respectively. These statements require disclosure of fair value measurements by using the following fair value measurement hierarchy: Carrying Carrying amount Fair value amount Fair value ▶▶ Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can R000 R000 R000 R000 access at the measurement date (level 1)

▶▶ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, 2020 either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) Assets ▶▶ Inputs for the asset or liability that are not based on observable market data (that is, unobservable Loans and advances at amortised cost 2 862 773 2 862 773 2 863 188 2 863 188 inputs) (level 3) 2019 All financial instruments that are mandatorily measured at FVTPL in accordance with IFRS 9 are Assets measured as such and financial instruments designated upon recognition is measured through other comprehensive income. Loans and advances at amortised cost 2 792 067 2 729 944 2 842 101 2 778 864

178 179 Annual financial statements

Notes to the consolidated and separate annual financial statements continued for the year ended 30 June 2020 36. Changes in accounting policy 36. Changes in accounting policy continued The consolidated and separate annual financial statements have been prepared in accordance with Leases where Group is lessor IFRS on a basis consistent with the prior year except for the adoption of the following new or revised IFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues standards. to classify leases as either finance leases or operating leases and account for those two types of leases differently. However, IFRS 16 has changed and expanded the disclosures required, in particular Application of IFRS 16 Leases regarding how a lessor manages the risks arising from its residual interest in the leased assets. These In the current year, the company adopted IFRS 16 Leases (as issued by the International Accounting additional disclosures have been made by the Group. Standards Board (IASB) in January 2016) with the date of initial application being 1 July 2019. IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, Standard Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate Interpretations Committee (SIC) – 15 Operating Leases – Incentives and SIC 27 – Evaluating the contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by Substance of Transactions Involving the Legal Form of a Lease. reference to the right-of-use asset arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17). Because of this change, the Group has reclassified certain of its IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces sublease agreements as finance leases. As required by IFRS 9, an allowance for expected credit loss has significant changes to the lessee accounting by removing the distinction between operating and been recognised on the finance lease receivables. finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets. In contrast to Impact on financial statements lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of On transition to IFRS 16, the Group recognised an additional R349 million of right-of-use assets and these new requirements are described in the accounting policy for leases. The impact of the adoption of R353 million of lease liabilities, the difference is attributable to the straight lining of operating lease IFRS 16 on the Group’s consolidated and separate annual financial statements is described below. liabilities balance calculated as per the requirements of IAS 37. The balance of the straight-line lease The Group has applied the practical expedient available in IFRS 16 which provides that for contracts liability as at 30 June 2019 was deducted from the right-of-use assets balance recognised on inception which exist at the initial application date, an entity is not required to reassess whether they contain a as per the requirements of IFRS 16. lease. This means that the practical expedient allows an entity to apply IFRS 16 to contracts identified When measuring lease liabilities, Group discounted lease payments using its incremental borrowing by IAS 17 and IFRIC 4 as containing leases; and to not apply IFRS 16 to contracts that were not previously rate at 01 July 2019. For details surrounding the application of the incremental borrowing rate to the identified by IAS 17 and IFRIC 4 as containing leases. various operating leases, please refer to note 10. IFRS 16 has been adopted by applying the modified retrospective approach, whereby the comparative figures are not restated. Instead, cumulative adjustments to retained earnings have been recognised in retained earnings as at 1 July 2019.

Leases where Group is lessee Leases previously classified as operating leases The Group undertook the following at the date of initial application for leases which were previously recognised as operating leases:

▶▶ Recognised a lease liability, measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate at the date of initial application.

▶▶ Recognised right-of-use assets measured on a lease-by-lease basis, at either the carrying amount (as if IFRS 16 applied from commencement date but discounted at the incremental borrowing rate at the date of initial application) or at an amount equal to the lease liability adjusted for accruals or prepayments relating to that lease prior to the date of initial application.

The Group did not apply IAS 36 to consider if these right-of-use assets are impaired, but rather applied the practical expedient of IFRS 16 par C10(b). In accordance with this practical expedient, the carrying amounts were adjusted with the amount of any onerous provision which existed immediately prior to the date of initial application.

The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases in terms of IAS 17. Where necessary, they have been applied on a lease-by- lease basis:

▶▶ When a portfolio of leases contained reasonably similar characteristics, the Group applied a single discount rate to that portfolio

▶▶ Leases which were expiring within 12 months of 1 July 2019 were treated as short-term leases, with remaining lease payments recognised as an expense on a straight-line basis or another systematic basis which is more representative of the pattern of benefits consumed

▶▶ Initial direct costs were excluded from the measurement of right-of-use assets at the date of initial application

▶▶ Hindsight was applied where appropriate. This was specifically the case for determining the lease term for leases which contained extension or termination options

180 181 Corporate information

Bidvest Bank Limited (Registration number 2000/006478/06)

Registered office 1 Park Lane Wierda Valley Sandton 2196 South Africa

Postal address PO Box 185 Johannesburg 2000 South Africa

Telephone Corporate office +27 011 407 3000 Service Centre of Excellence +27 0860 11 11 77 Telefax +27 011 407 3322

Company Secretary DJ Crawley

Auditors PricewaterhouseCoopers Inc

Consolidated and separate annual financial statements for the year ended 30 June 2020 The preparation of these consolidated and separate annual financial statements was supervised by: G Oxford CA(SA), Head: Financial Control.

These consolidated and separate annual financial statements have been audited in compliance with the applicable requirements of the Companies Act 71 of 2008. These financial statements represent the consolidated and separate annual financial statements for the year ended 30 June 2020. A copy of the full set of consolidated and separate financial statements can be obtained from the Company Secretary Di Crawley, by sending a request to [email protected].

www.bidvestbank.co.za

GREYMATTERFINCH # 14457

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