Standard Bank Limited Annual Report for the year ended 31 December 2011

ANNUAL REPORT AND FINANCIAL RESULTS 2011

1 Standard Bank Limited Annual Report for the year ended 31 December 2011

ANNUAL REPORT AND FINANCIAL RESULTS 2011

Layout and design: 2 3 FD Communications 01879465 Standard Bank Limited Annual Report for the year ended 31 December 2011

One Vision

We aspire to be the leading African Financial Services Organisation.

Eight values

1. Upholding the highest levels of integrity 2. Guarding against arrogance 3. Delivering to our shareholders 4. Growing our people 5. Respecting each other 6. Working in team 7. Servicing our customers 8. Being proactive

4 5 Standard Bank Limited Annual Report for the year ended 31 December 2011

Table of Contents

Chairman’s and Managing Director’s Report...... 12

Corporate Governance Statement...... 16

Risk management and control...... 28

Directors’ Report...... 30

Statement of directors’ responsibilities ...... 32

Report of the independent auditors...... 39

Consolidated and Separate Financial Statements:

Consolidated statement of financial position...... 40

Consolidated income statement...... 41

Consolidated statement of comprehensive income...... 42

Consolidated statement of changes in equity...... 43 AT YOUR OWN CONVENIENCE Consolidated statement of cash flows...... 44 IN A QUICKSECURE WAY WITH Notes to the consolidated and separate financial statements...... 45

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STANDARD BANK MALAWI

LOANS AND ADVANCES PROFIT AFTER TAX 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 11,868 16,910 21,186 25,225 39,434 PAT MK 360 2,072 2,852 2,424 3,546

45,000 4,000 40,000 3,500 35,000 3,000 30,000 2,500 25,000 2,000 MK’m 20,000

1,500 MK’m 15,000 1,000 10,000 500 5000 0 2007 2008 2009 2010 2011 0 YEARS 2007 2008 2009 2010 2011

YEARS

EARNINGS AND DIVIDENDS PER SHARE

408 648 1,350 DIVIDEND 890 2,900

2007 2008 2009 2010 2011 DEPOSITS 2007 2008 2009 2010 2011 Earnings per share 1.8 10.4 14.3 11.4 16.7 20,281 28,916 36,738 42,631 57,702 Dividend Per Share 2.0 3.2 4.5 6.3 13.6

18.0

16.0

14.0 70,000

12.0 60,000

10.0 50,000

MK 8.0 40,000 MK’m 6.0 30,000

4.0 20,000

2.0 10,000

0.0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

YEARS YEARS

Earnings per share Dividend Per Share 8 9 Standard Bank Limited Annual Report for the year ended 31 December 2011

Board of Directors

Alex Chitsime Charles Mudiwa Andrew Chioko Etness Chanza Jayesh Patel Temwani Simwaka Chairman Managing Director Director Company Secretary Director Director MBA, M. Sc Computer, Diploma in BSc (Econ) Honours, Institute of Banking FCCA, ACMA ACIS (UK), Bachelor of Law Hons. M.A Economics, B.A (Hons) Economics BCOM (Accountancy), FCCA, CPA Biometrics, B. Sc (Mathematics & Physics) (Certificate)

Patrick Khembo Rosemary Mkandawire Roderick Phiri Rex Harawa Director Director Director Director Bachelor Of Science (Agriculture) FCCA Financial Programme For Non PhD. (Finance & Economics), M.A (Finance Financial Managers, Iata Fiata & Economics), MSc. (Economics), B.Soc.Sc. Diploma For Airfreight, (Honors, Economics), Chartered Institute of Bachelor Of Social Science (Ecomics & Arbitrators, Registered Practicing Public Statics) Accountant & Auditor - Malawi, Certified Public Accountant - USA, Certified Management Accountant - USA, Certified Financial Manager - USA. 10 11 Standard Bank Limited Annual Report for the year ended 31 December 2011

Leadership Chairman’s and Managing The successful performance achieved by the Group this year is testimony to the ability of our people to execute our strategic objectives effectively and consistently. Therefore in the increasingly competitive environment in which we operate, managing talent is a critical factor in maintaining competitive advantage. As a result, the Director’s report Group will invest significant resources in talent management. During the year, many staff members were trained in various aspects of their areas of work in order for us to maintain our competitive advantage in terms of business performance by our staff. Leadership development and training was provided by The Standard Bank’s Global Leadership Centre to our managers as part of our continu- ous efforts to give our leaders focused development to enable the transitions required from one level to another.

Economic Overview Corporate Governance and Directorship

The Malawi Government has revised downwards Malawi’s projected GDP growth for The Group continues to maintain high standards of Corporate Governance and complies with the requirements 2011 to 6% from 6.9% on the back of a number of economic challenges facing the of the Malawi code of best practice in corporate governance. Compliance with applicable legislation, regulation economy. Continuing energy generation challenges and foreign currency scarcity pose and standards is an essential part of the Group’s operations. The Board monitors regulatory compliance through a threat to the country’s economic growth. These problems were compounded by this management reporting. year’s poor tobacco selling season which has seen revenues dropping by over 30%. Alex Chitsime The Malawi Kwacha was devalued by 10% in early August 2011 to trade at around Prospects MK165/1 USD. Chairman The business environment has been very challenging in 2011 due to the serious foreign currency shortages fol- The inflation rate has maintained an upward trend during the year, with the inflation lowing the dismal tobacco performance and the withholding of budgetary support by donors. This in turn has rate for December 2011at 8.9%. The rise is mainly due to the rise in non-food infla- affected fuel availability which has had an adverse impact on some key sectors, with transport, manufacturing, tion. It is expected that the rate will continue to go up given the recent increase in fuel agriculture, construction and mining sectors being the most affected. pump prices. The bank rate remained flat in 2011 and is expected to remain the same in the short term but will continue to be under pressure given trends in the inflation rate Looking ahead, reduction in economic growth is expected in 2012, inflation is expected to continue its upward and the foreign exchange rate. High liquidity levels characterised the money markets trend and foreign currency shortages will continue. However the economic activity may pick up later in the year for most part of 2011 with the interbank rate fluctuating below 5% for the most part depending on government economic policy. of the year. Treasury bill yields remained low for the most part of 2011, with more volatility manifesting on the 91-day tenor yields. The average yield for all tenors was at As a Bank, we expect to maintain our market share. We will introduce new products in the coming year while 6.95% with no significant movement from 2010. keeping our focus on customer service. We will ensure continued profitability by having an efficient Statement Perfomance of Financial Position and prudent cost control measures. The main areas of focus for the business in 2012 will be retaining our customers. The Corporate and Invest- The Group achieved a remarkable growth in 2011 notwithstanding the challenging ment Banking (CIB) team will continue to be built around customer centric solutions with a growing focus on environment that it was operating in. The Statement of Financial Position grew by 37% the energy, agriculture, telecoms sectors, government initiated projects and transactional banking. The Personal when compared to prior year. This growth has been enabled by an increase in customer and Business Banking (PBB) unit of the Group will pay attention to personal banking, business banking, wealth deposits of 35% and increase in loans and advances to our customers of 56%. management and improving efficiencies in the branch network. The profit after tax of MK3, 546million is 46% higher than prior year. Our total revenue Appreciation for 2011 has grown by 18% as a result of the growth in our Statement of Financial Position. Our cost base has reduced by 12% from prior year mainly because of our cost We would like to thank the executive team and the staff for the great results delivered in 2011. We thank our control measures implemented during the year. The reversal of severance provisions customers for their continued support. We also thank our colleagues on the Board for their sound guidance and due to the change in legislation of MK693 million, also contributed to the reduction in support during the year. the cost base. Charles Mudiwa Our earnings per share has therefore grown from MK11.38 in 2010 to MK16.65 in Managing Director 2011, a positive change of 46%. ………………………………… …………………………………... P A Chitsime C M Mudiwa Strategy Chairman Managing Director

Our strategy continues to focus on ensuring prudent capital management, superior customer service, and competitive pricing whilst containing costs. We will also focus 28 February 2012 on efficiency in our processes and timely execution in our service and product offer- ing. Investing in our people is key to preparing the Bank for changes in the economic environment.

The Bank, as part of its strategy to increase its footprint in foreign currency trading, registered a subsidiary during the year. Standard Bank Bureau de Change Limited is a 100% owned subsidiary of Standard Bank Limited whose line of business is foreign exchange trading. Standard Bank Bureau de Change Limited started its operations in Sept 2011.

12 13 Standard Bank Limited Annual Report for the year ended 31 December 2011

Executive Committee

Charles Mudiwa Dan Mbozi Etness Chanza Frank Chantaya Kondwani Mlilima Martin Siwu Managing Director Head of Operations Head of legal / compliance and com- Director Global Markets Head of Risk Head of Credit Bachelor of Science Economics Chartered Management Accountant pany secretary Bachelor of Business Administration Master of Science Economics Master of Science Finance ACIS (UK), Bachelor of Law Hons.

Phillip Madinga Paul Omara William Nuka Temwani Simwaka Director Corporate and Investment Director Personal and Business Banking Head of Iinformation Technology Head of Finance Banking Master of Business Administration Bachelors Degree in Electrical Fellow of Chartered Certified Accountants Master of Business Administration Engineering

14 15 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued)

• Assume ultimate responsibility for systems of financial, operational and internal controls, the adequacy and review of which is delegated to sub-committees, and the Board ensures that reporting on these issues is Corporate Governance Statement adequate; • Take ultimate responsibility for regulatory compliance and ensure that reporting to the Board is compre- hensive; • Ensure balanced reporting to stakeholders on the Group’s position and that such reporting is done in a Codes and regulations manner that can be understood by stakeholders; • Review non-financial matters that have not been specifically delegated to any sub-committee. The review Compliance with applicable legislation, regulations, standards and codes remains an essential characteristic of the includes code of ethics, environmental issues and social issues. Group’s culture. The Board of Directors monitors compliance with these by means of management reports, which include information on the outcomes of any significant interaction with key stakeholders such as the Group’s various Strategy regulators. The Group complies with all applicable legislation, regulations, standards and codes in Malawi. During the year, the Group complied with the corporate governance guidelines. The Board is responsible for setting the Group’s strategy, which is considered and approved at an annual meet- ing with the executive committee. Once the financial and governance objectives for the following year have Board and directors been agreed, the Board monitors performance on an ongoing basis. Performance against financial objectives is monitored by way of management quarterly reports and representations at board meetings. Ultimate responsibility for governance rests with the Board of Directors. The Group has a unitary Board structure and the roles of Chairman and Managing Director are separate and distinct. The Chairman is an independent non- Board effectiveness and evaluation executive director. The number and stature of independent non-executive directors ensures that sufficient independ- ence is brought to bear on decision making. There are seven non-executive directors on the Board and two executive The Board assesses itself against its objectives by conducting an annual Board Self Evaluation. The aim of the directors. evaluation is to assist the Board in improving its effectiveness. The outcome of the evaluation is discussed at board meetings and any areas of concern are addressed. Relevant action points are also noted for implementa- It is the Board’s responsibility to ensure that effective management is in place to implement the Group’s strategy, and tion. The performance of the Chairman, Managing Director and the Board Committees are also assessed annu- to consider issues relating to succession planning. The Board is satisfied that the current pool of talent available within ally. the Group and the ongoing work to deepen the talent pool provide adequate succession plan, in both the short and long term. During the year, the Board also considered other key people-related challenges including talent retention. Board meetings

Regular interaction between the Board and Executive Management is encouraged. Directors are provided with unre- The Board meets quarterly with an additional annual meeting to consider the Group’s Strategy. Ad hoc meetings stricted access to management and Group information, as well as the resources required to carry out their responsibili- are held when necessary. The directors are provided with comprehensive board documentation at least four days ties at the Group’s expense. prior to each of the scheduled meetings.

A feature of the way the Board operates is the role played by Board committees which facilitate the discharge of Board’s responsibilities. Each Committee has a Board approved mandate that is regularly reviewed. Details on how Board OF DIRECTORS - Meeting Attendance these committees operate are provided below. Member 22-Mar-11 07-Jun-11 28 Jun-11* 06-Sep-11 06-Dec-11 Skills, knowledge, experience and attributes of directors P A Chitsime (Chairman) √ √ √ √ √

The Board ensures that directors possess the skills, knowledge and experience necessary to fulfil their obligations. The P W Khembo √ √ A √ √ directors bring a balanced mix of attributes to the Board, including: • international and domestic experience; J P Patel √ √ A √ √ • operational experience; • knowledge and understanding of both the macroeconomic and the microeconomic factors affecting the Group; R K Phiri √ √ √ √ √ and • Financial, legal, entrepreneurial and banking skills. A A Chioko √ √ √ √ √ Board responsibilities R M Mkandawire √ A A √ A R Harawa √ √ √ A √ The key terms of reference in the Board’s mandate, which forms the basis for its responsibilities, are to: • Agree on the Group’s objectives, strategies and plans for achieving those objectives; C Mudiwa √ √ √ √ √ • Annually review the corporate governance process and assess achievement against objectives; • Delegate to the Managing Director or any director holding any executive office or any senior executive, any of T Simwaka √ √ √ √ √ the powers, authorities and discretions vested in the Board’s directors, including the power of sub-delegation. Delegate, similarly, such powers, authorities and discretions to any committee and subsidiary company boards as may exist or be created from time to time; • Determine the terms of reference and procedures of all board committees in consultation with Standard Bank KEY Africa (“SBAF”); 3 = Attendance • Consider and evaluate reports submitted by management; • Ensure that an effective risk management process exists and is maintained throughout the Group; A = Apology • Monitor the performance of the Managing Director and the executive team; * = Adhoc Meetting • Establish, review annually and approve major changes to the Group’s policies; • Ensure that an adequate budget and planning process exists, that performance is measured against budgets and plans and approves annual budgets for the Group, in line with the policies and procedures of the Group; Board Committees • Consider and approve capital expenditure recommended by management; • Consider and approve any significant changes proposed in accounting policy or practice and consider the recom- Board committees are established to assist the Board in discharging its responsibilities. They operate in terms mendations of the audit committee; of Board approved mandates which are reviewed and approved by the Board on an annual basis. The mandates set out their roles, responsibilities, scope of authority, composition and procedures for reporting to the Board. 16 17 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued) Board Credit Committee

Board Audit Committee The role of this Committee is to ensure that effective credit governance is in place in order to provide for the adequate management, measurement, monitoring and control of credit risk including country risk. This involves The role of this Committee is to review the Group’s financial position and make recommendations to the Board ensuring that all committees within the Credit governance structure operate within clearly defined mandates on all financial matters. This includes assessing the integrity and the effectiveness of the audit, accounting, fi- and delegated authorities, as delegated to them by the Board, and that an appropriate credit framework and nancial, compliance and internal control systems. The Committee also ensures effective communication between structure exists. The responsibilities of the Committee also include: - the internal auditors, external auditors, the Board, management and regulators. The Committee’s key terms of • Annual review and recommendation to the Board for approval of the Board Credit Committee mandate, the reference comprises various categories of responsibilities and include the following: Credit Risk Management Committee mandate and delegated authorities; and • Review the audit plan with the external auditors, with specific reference to the proposed audit scope and • Quarterly review of the credit and country risk portfolio reports; the credit and country risk impairment approach to the Group’s activities falling within the high risk areas, the effectiveness of the audit and audit adequacy; and the credit and country risk sections of the report to the Board. fee. Consider with management areas of special concern and the procedures being developed to monitor and contain risks in those areas; The membership of this committee comprises: • Review with management copies of reports and letters received from the external auditors concerning Mr P W Khembo - Chairman deviations from and weaknesses in accounting and operational controls, and ensure that prompt action is Mr P A Chitsime - Member taken by management and that issues are satisfactorily resolved; Mr J P Patel - Member • Obtain assurance from the external auditors that adequate accounting records are being maintained; • Review the adequacy of capital, provisions for bad debts and diminution in the value of other assets, and The committee met four times during the year. the formulae applied by the Group in determining charges for and levels of general debt provisions, within the framework of the Group policy; • Review the accounting policies adopted by the Group and all proposed changes in accounting policies and Board CREDIT - Meeting Attendance practices, and recommend such changes where these are considered appropriate in terms of International Financial Reporting Standards. Consider also the adequacy of disclosures in the financial statements; Member 08-Mar-11 17-May-11 16-Aug-11 21-Nov-11 • Review the Group’s interim and audited annual financial statements and all financial information intended for distribution to the shareholders and the general public, prior to submission to the full Board; P W Khembo (Chairman) A A √ √ • Assess the performance of financial management and review the quality of internal accounting control sys- tems and reports produced by management; P A Chitsime √ √ √ √ • Review the basis on which the Group has been determined as a going concern and make recommendations to the Board; J P Patel √ √ √ √ • Review written reports furnished by the internal audit department of the Bank and of the Standard Bank Group, detailing the adequacy and overall effectiveness of the Group’s internal audit function and its im- plementation by management, the scope and depth of coverage, reports on internal control and any recom- KEY mendations and confirmation that appropriate action has been taken; 3 = Attendance • Consider reports and letters received from the banking supervisory authorities and other regulatory bod- A = Apology ies, and management’s responses thereto where they concern matters of compliance and the duties and responsibilities of the boards of directors of the Group; • Monitor the compliance with the Companies Act, Banking Act and the Stock Exchange Listings Require- ments and all other applicable legislation and Code of best practices and corporate governance and the Group’s Code of Ethics; • Consider the development of standards and requirements and review statements on ethical standards or Board Risk Committee requirements for the Group; and The role of this Committee is to ensure quality, integrity and reliability of the Group’s risk management proce- • Review and make recommendations on any potential conflicts of interest relating to situations of a material dures. This Committee also assists the Board in the discharge of its duties relating to the corporate accountabil- nature. ity and associated risks in terms of management, assurance and reporting. The committee reviews and assesses the integrity of the risk control systems and ensures that risk policies and strategies are effectively identified and The membership of this committee comprises: managed. The responsibilities of the committee also include: Dr. R. Harawa - Chairman • Reviewing with the Group’s legal Counsel, any legal matters that could have a significant impact on the Mr A A Chioko - Member Group’s business; Mr PW Khembo - Member • Reviewing of reports by the Compliance Manager on matters of regulatory and reputational risk including Ms R M Mkandawire - Member such areas as breaches, fines, material malfunctions and changes in legislation; • Monitoring of external developments relating to the practice of corporate accountability and reporting of The committee met four times during the year. specifically associated risk, including emerging and prospective impact; Board Audit - Meeting Attendance • Reviewing the adequacy and effectiveness of the enterprise risk management framework which includes the risk strategy, standards, policies, procedures, practices and controls as implemented; Member 09-Mar-11 18-May-11 15-Aug-11 22-Nov-11 • Ensuring compliance with such policies, and with the overall risk profile of the Group including market risk, credit risk, operational risk, legal risk, compliance risk, liquidity risk, reputational risk, country risk and other Dr. R. Harawa (Chairman) √ √ A √ risks appropriate to the business which may be identified from time to time; and • Monitoring procedures to deal with and review the disclosure of information to customers, the resolution of A.A Chioko √ A √ √ major customer complaints and compliance with the Group’s code of banking practices and ethics.

R.M Mkandawire A √ √ A The membership of this committee comprises Mr A A Chioko - Chairman P.W Khembo A A √ √ Mr R K Phiri - Member Dr R Harawa - Member

KEY The committee met four times during the year. 3 = Attendance A = Apology 18 19 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued) Corporate Governance Statement (continued)

Board RISK - Meeting Attendance Management Committees Member 08-Mar-11 17-May-11 16-Aug-11 22-Nov-11 Credit Risk Management Committee A.A Choko (Chairman) √ √ √ √ The main role of this Committee is to ensure compliance with the Group’s Credit standards. The Committee is an R. Harawa √ √ √ √ autonomous credit decision-making function within a defined delegated authority as determined by the Board from time to time. This Committee effectively enhances the credit disciplines within the Group and is responsible R.K Phiri √ √ √ √ for controlling inter alia delegated authorities, concentration risk, and distressed debt, regulatory issues that pertain to credit, credit audits, policy and governance. This Committee comprises of the Managing Director, Regional Credit Director, Head of Credit, Head of Personal and Business Banking, Head of Corporate and Invest- KEY ment Banking, Head of Global Markets, Head of Personal and Business Banking Credit, Head of Corporate and Investment banking Credit, Personal and Business Banking Chief Credit Officer and Corporate and Investment √ = Attendance Banking Credit Director as voting members. The Head of Finance is a non-voting member of this Committee. A = Apology The Committee reports to the Board through the Board Credit Committee. Board Human Resources Committee Asset and Liability Committee (ALCO)

The role of this Committee is to ensure that appropriate human resource policies are in place to enable the This Committee is responsible for the management and monitoring of the trading book risk, market risk, the Group source and maintain staff with appropriate skills (and mix of skills) in the right jobs and to have back up banking liquidity and interest rate risks. It comprises the Managing Director and the Departmental Heads for skills and resources available at all times. The Committee also ensures that management have put in place meas- Credit, Finance, Global Markets, Risk, Corporate and Investment Banking, Personal and Business Banking, Op- ures to ensure that reward packages are fair and in accordance with the market forces; to reward performance erations and the Compliance Manager. initiatives and also motivate the work force. The responsibilities of the Committee also include:- Executive Committee (EXCO) • Annual review and recommendation to the Board for approval of the Board Human Resources Committee mandate; This committee comprises of senior executives of the Group and its main role is to guide and control the overall • Recommending to the Board for approval the Group’s Human Resources Policies, Strategy and Manual and direction of the business of the Group including the day to day running of the Group and it is responsible to the any amendments on an annual basis, such strategy and policies shall require that Management put in place Board. effective mechanisms for recruiting, management and reward systems to ensure motivation and retention of quality staff; Company Secretary • Review and approval of proposals for amendments to the organisational structure in conjunction with Standard Bank Group standards; It is the role of the Company Secretary to ensure that the Board remains cognisant of its duties and responsibili- • Recommend for Board approval, major changes in employee benefit structures for the Group; ties. In addition to providing the Board with guidance on its responsibilities, the Company Secretary keeps the • Ensuring that employees of the Group are provided with appropriate incentives to encourage performance Board abreast of relevant changes in legislation and governance best practices. The Company Secretary oversees and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the the induction of new directors, as well as the ongoing training of directors. All directors have access to the ser- Group; vices of the Company Secretary. • Providing insight to the recruitment and termination of employment of Senior Management Staff or as may be required by the Reserve Bank of Malawi or any regulatory Authority with the power to regulate such Going Concern appointments; and • Making recommendations to the Board on the reinforcement, through transparency of sound corporate On the recommendation of the Board Audit Committee, the board annually considers and assesses the going governance principles covering among other things, information about the incentive structure of the Group, concern basis for the preparation of financial statements at the year end. At the interim reporting period, a simi- including compensation policies, executive compensation etc. lar process is followed to enable the Board consider whether or not there is sufficient reason for this conclusion to be affirmed. The membership of this committee comprises: Mr R K Phiri - Chairman Relationship with shareholders Mr P A Chitsime - Member Mr J P Patel - Member The shareholders’ role is to appoint the Board of Directors and the External Auditors. This role is extended to holding the Board accountable and responsible for efficient and effective corporate governance. The committee met four times during the year. Sustainability reporting

Management of the Group’s economic, social and environmental impacts and responsibilities is being systemati- Board HR - Meeting Attendance cally entrenched in the Group’s culture through the emphasis placed on the application of the Group’s vision Member 09-Mar-11 18-May-11 15-Aug-11 21-Nov-11 and values in all its operations. R K Phiri √ √ √ √ Ethics and organisational integrity

P A Chitsime √ √ √ √ The Group’s code of ethics is designed to empower employees and enable faster decision making at all levels of our business according to defined ethical principles. It also aims to ensure that, as a significant organisation in J P Patel √ √ √ √ the financial services industry, we adhere to the highest standards of responsible business practice.

The code interprets and defines Standard Bank’s values in detail and provides values-based decision making KEY principles to guide our conduct. It is aligned with other Standard Bank policies and procedures, and supports the relevant industry regulations and laws of the country. √ = Attendance A = Apology

20 21 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued) Corporate Governance Statement (continued)

The code of ethics is supported by the appropriate organisational structure namely an ethics advice process Management and staff and an ethics reporting process. These processes link into existing human resources and compliance structures Terms of service wherever possible, including grievance processes and a fraud hotline. New structures and roles, including those of business unit ethics officers, have been created to ensure that our values and ethics are effectively embedded. The terms and conditions of employment of managers are guided by the legislation in Malawi and are aligned The code includes targeted communications, coaching, reference guides and induction packs distributed to all to Standard Bank Group practice. Notice periods vary from one month to three months depending on seniority. members of staff. Notice periods also depend on the level of responsibility of a particular manager and whether or not they are leaving to join a competitor. New members of staff are taken through the Code of Ethics and each is given a soft copy. In the year there were no material breaches to the Code of Ethics. Most general staff are unionised. Their terms and conditions of employment are therefore guided by collective agreement(s) signed with the Commercial, Industrial and Allied Workers’ Union of Malawi. Remuneration Remuneration philosophy Fixed remuneration

The Group’s remuneration philosophy aligns with its core values, including growing our people and delivering Managerial remuneration is moving towards a total cost-to-company structure. Cost-to-company comprises a value to our shareholders. The philosophy continues to emphasise the fundamental value of our people and fixed cash portion, compulsory benefits (medical aid and retirement fund membership) and optional benefits. their role in ensuring sustainable growth. This approach is crucial in an environment where skills remain scarce. Market data is used to benchmark salary levels and benefits. Salaries are normally reviewed annually in March.

The Group’s board of directors sets the principles for the remuneration philosophy in line with approved business For all employees, performance-related payments have formed an increasing proportion of total remuneration strategy and objectives. The philosophy aims to maintain an appropriate balance between employee and share- over time to achieve business objectives and reward individual contribution. holder interests. All employees (executives, managers and general staff) are rated on the basis of performance and potential and A key success factor for the Group is its ability to attract, retain and motivate the talent it requires to achieve its this is used to influence performance-related remuneration. strategic and operational objectives. Rating and the consequent pay decision is done on an individual basis. There is therefore a link between rating, Remuneration governance measuring individual performance and reward. The remuneration of board members is approved in-country and reviewed by the Standard Bank Group Remu- Short-term incentives neration Committee (“REMCO”). The remuneration of executive management in-country is reviewed by Stand- ard Bank Africa and, in some instances, approved by REMCO. All members of staff participate in a performance bonus scheme. Individual awards are based on a combination of business unit performance, job level and individual performance. In keeping with the remuneration philoso- The following key factors have formed the implementation of reward policies and procedures that support the phy, the bonus scheme seeks to attract and retain high-performing employees. achievement of business goals: • the provision of rewards that enable the attraction, retention and motivation of employees and the devel- opment of a high performance culture; Long-term incentives • maintaining competitive remuneration in line with our markets, trends and required statutory obligations; It is essential for the Group to retain key skills over the longer term. This is done particularly through group • rewarding people according to their contribution; share-based incentive plans. The purpose of these is to align the interests of the Group and its employees, as • allowing a reasonable degree of flexibility in remuneration processes and choice of benefits by employees; well as to attract and retain skilled and competent people. • moving to a cost-to-company remuneration structure; and • educating employees on the full employee value proposition. Post-retirement benefits Remuneration structure The Group operates a contributory pension fund to provide for retirement benefits. Non-executive directors The group’s highlights for the year Terms of service The following are the highlights of the year: Directors are appointed by the shareholders at the annual general meeting (“AGM”) and interim board appoint- • The Group won the banker of the year award in Malawi, and this is the sixth year the Group has won this ments are allowed between AGMs. The interim appointees are required to retire at the next AGM where they award; make themselves available for re-election by shareholders. In addition, one third of the non-executive directors • The Group won the Best Investment Banking of the year award for a second year running, awarded by are required to retire at each AGM and may offer themselves for re-election. There is no limitation to the number EMEAfinance Magazine (Europe, Middle East Africa); of times a non-executive director may stand for re-election. • The Group continued to be the lead provider of seasonal financing facilities to major tobacco merchants; • The Group was the lead and major financier of Malawi Government’s Input Subsidy Program; Fees • The Group introduced Trusteeship Services business in partnership with Old Mutual Malawi; • The Group completed the largest syndication in Malawi for one of the mobile telephone operators; Non-executive directors receive fixed fees for their service on the board and board committees. This includes • The Group was a key partner for Malawi Governments’ USD50million Kapichila Hydro Electric Power a retainer that has been calculated in line with market practices. There are no contractual arrangements for Station Phase II; compensation for loss of office. Non-executive directors do not receive short-term incentives, nor do they par- • The Group established an agriculture unit which has been focusing on major export oriented industries like ticipate in any long-term incentive schemes. cotton, tobacco, animal husbandry, fertilizer etc; • The Group launched a subsidiary company a Bureau de Change to support its foreign exchange operations; • The Group increased its footprint by opening service centres in Karonga, Bwaila, and Nchalo. The Group also launched two mobile vans to broaden its customer outreach across the country. •

22 23 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued) Corporate Governance Statement (continued)

In Personal and Business Banking (PBB) we continue to provide personalised banking solutions through our Group snapshot private banking unique proposition and branch network franchise, where achiever and priority banking services are offered. We have also taken particular initiative to serve our personal customers where they work through 2011 2010 our robust Work Place Banking proposition. In this regard, we now provide and have become the leading Bank Points of representation 25 22 in providing unsecured personal loans to civil servants and corporate employees. ATMs 56 46 In Business Banking (both Commercial and SME markets), relationship building and management has been key Headcount 648 634 to how we relate with our customers. We are now in the process of providing our SME customers with opportunities to access affordable loans in form of working capital or bridging finance to move their businesses forward.

Whilst we continue to expose our customers to top class banking solutions that are commensurate with latest Our stakeholders offerings in the developed world, we strive to remain locally relevant by framing our solutions with a complete understanding of the local dynamics. Shareholders

Delivering to our shareholders – We understand that we earn the right to exist by providing appropriate Employees long-term returns to our shareholders. We try extremely hard to meet our various targets and deliver on our commitments. Growing our people – We encourage and help our people to develop to their full potential, and measure our leaders on how well they grow and challenge the people they lead. As our existing and prospective shareholders are providers of capital to the Group, we are responsible for providing them with reliable, relevant and timely information to help them make informed investment decisions. Our Talent Management shareholder base is diverse, including individuals and institutional shareholders both locally and internationally. The composition of the Groups shareholders is analysed on page 31. The Group believes that critical to the achievement of its business objectives now and into the future is the effective attraction, retention of critical talent, and the development of executive talent. Our strategy in this To ensure effective and meaningful shareholder engagement, we have developed various communication channels regard primarily relies on internal development and assessment of our staff in order to build and strengthen our to meet different shareholders’ information needs, and to manage shareholders’ expectations positively and future talent pool. transparently. Those that are identified to have high potential are engaged in more intensive development processes which In addition to the various press releases that are published in the papers, the Group’s Chairman encourages amongst others include being placed in mentoring and coaching relationships with senior level executives outside shareholders to attend the annual general meetings where interaction is welcomed. The other Directors and their reporting structure as well as offering them developmental cross functional and international experience to Group Executives are also available at the meetings to respond to questions from shareholders. maximise their development opportunities.

Customers Graduate Development Program The Group runs a Graduate Development Programme and in the last 4 years, the programme has offered Serving our customers – We do everything in our power to ensure that we provide our customers with an opportunity to some top performing University Graduates who were yet to start their careers and wished to the products, services and solutions to suit their needs provided that everything we do for them is based pursue a career in banking as well as those Graduates who had been working with the Group for not more than on sound business principles. 2 years. The main objective of the Programme is for the successful participants to gain the knowledge, unique skills, authority and confidence necessary to operate successfully within the Group. Our customers range from individuals and small businesses to large corporate and government entities. Sustainable business performance depends on our ability to engage meaningfully with our customers, to be sensitive to Leadership Development their different needs and to provide relevant products and services. Extensive research is conducted to better Leadership remains our core competency in order for the Group to continue to have a competitive edge in business understand customer needs and market dynamics. performance. With the support of our Global Leadership Centre, we continue to develop and offer the entire spectrum of appropriate leadership development and training interventions at all levels of leadership in the Our customers’ worlds are defined largely by the economic and competitive particulars of their industry sectors Group. These are customised according to individual development needs, aimed at giving our leaders focused and local market circumstances. Where we are able to bring insight through deep sector knowledge, drawn globally development propositions to enable the transitions required from one level to another. from across a range of companies, together with local market knowledge, we do so. We have also introduced certain risk-sharing arrangements to improve access to credit for Small and Medium Enterprises (SME’s). Occupation-Directed Education, Training and Development The Group recognizes that to maintain a committed and competent workforce, it needs to ensure that there is Our Corporate and Investment Banking (CIB) division serves a wide range of customer requirements for banking, adequate training and development provided for all employees. All education, training and development activities finance, trading, investment and risk management. In line with the growing sophistication of customers’ requirements, the are directed at meeting business objectives, developing a culture of continuous improvement, and more importantly, division has built a deep understanding of Malawi’s market and economic dynamics. This is served by operating enabling our staff realizes their full potential, develop and grow in the organization. Through its Banking Education a client-centric and distribution-focused business model, supported by a culture that prioritizes client relationships scheme and support to tertiary education, the Group has continued to support staff that are keen to further and economic returns, and a business structure that enables an integrated, multi-product service offering. CIB their studies provided the further study is considered necessary by the Group and will be beneficial to both the offers this comprehensive range of products and services through our Investment Banking, Global Markets and Group and employee. Transactional Products & Services divisions.

Our Client relationship managers develop close relationships with clients and link in our specialist product and Health Risk Management global distribution teams to deliver innovatively and appropriately on individual requirements. We maintain a All employees are able to access this service through the intranet. The service enables employees to engage specific focus on industry sectors that are most relevant to emerging markets and have strong sector value online with specialists such as doctors, pharmacists, physiotherapists, personal trainers and nutritionists, with all propositions in: mining & metals; oil, gas & renewables; telecommunications & media; power & infrastructure; queries being responded to within 24 hours. agribusiness and financial institutions.

24 25 Standard Bank Limited Annual Report for the year ended 31 December 2011

Corporate Governance Statement (continued) Corporate Governance Statement (continued)

Independent Counselling and Advisory Services Through its corporate social responsibility programme, the Group provides support in sports, education, health, environment and other socio-economic activities that uplift people’s lives in the country. Independent Counselling and Advisory Services confidentially assists and supports employees and their immediate families with many personal issues including stress management, trauma, HIV/Aids, divorce, bereavement and In the year under review, the Group continued to provide support to the education sector particularly in the legal issues. area of basic education, which is key to the attainment of Millennium Development Goals (MDG’s). The Group donated desks worth MK2 million and learning materials such as notebooks, pens, rulers, chalk and dusters to The Group receives a country report for all staff in Malawi and Standard Bank Africa receives a combined report Ntsiliza LEA in Lilongwe, St Mary’s Boys and Karonga CCAP Primary school in Karonga, thereby providing a on what issues are prevalent across the continent. This enables the Group to plan the required interventions conducive environment for pupils to learn. around the behavioural risk issues it is facing. In the health sector, the Group renovated Chintheche Hospital and bought various medical equipment for the Staff Recognition program hospital to the tune of MK14million. The Group also supported the breast cancer screening day at Mwaiwathu Private Hospital where hundreds of women were offered free breast cancer screening services. The Group has a recognition program where we publicly recognise achievements that are considered to be beyond what is expected from an individual or teams. Recognition remains key to the upholding of the Group’s values Further, the Group also supported various sporting activities in the country. During the reporting period, the and achievement of its strategic goals. To this end, over and above the incentive programmes that it runs which Group continued with its sponsorship of the MK15 million Standard Bank Knockout Trophy. This sponsorship are based on performance and behaviour, the Group encourages a culture of recognition on an ongoing basis was provided with the aim of complimenting the Malawi Government’s efforts in developing sports in the country. formally and informally to acknowledge and reinforce desired behaviour. The Group also sponsored two golf tournaments, one in Nchalo and another in Lilongwe and total investment into these activities was MK 4.5 million. Regulators Environment Being proactive – We strive to stay ahead by anticipating rather than reacting, but our actions are always carefully considered. We have the highest regard for the dignity of all people. We respect each other and that is what Standard Bank Limited stands for. We recognise that there are corresponding obligations associated with our individual rights. We view regulatory compliance not only as a requirement by law, but also as one of the key components of sustainable development. The Reserve Bank of Malawi is our primary regulator and supervisor, and the relationship is one of mutual trust built through regular and open communication. Various other supervisory bodies also As a provider of financial services, the Group has a responsibility and an opportunity to promote sustainable monitor our compliance with specific pieces of legislation. development in areas where it has influence. For instance, project financing operations can potentially indirectly expose the Group to material environmental and social impacts. While customers are directly responsible for managing these impacts, the Group must protect its assets and reputation by selecting customers and allocating Suppliers capital responsibly. The ongoing challenge is to maintain the balance between meeting our customers’ needs and protecting our assets. Working in teams – All aspects of our work are interdependent. We appreciate that, as teams, we can achieve much greater things than as individuals. We value teams within and across business units, divisions and countries.

The Group is committed to procure from all levels of suppliers ranging from large corporations to individuals. The Group set up a Procurement committee that looks at supplier relationships to ensure that that the Group deals with all suppliers equitably and facilitate a governed process of procuring goods and services from qualified and accredited suppliers in our Group.

Community

We will ensure long-term sustainability by harmonising the needs of our customers, our people and our shareholders and by being relevant to the societies in which we operate.

It makes sense for us to invest in the communities in which we operate as healthy and economically active communities have a direct impact on our long-term business growth. As our stakeholders live and work in the communities in which we operate, it follows that by supporting and investing in the wellbeing of these communities, the Group is investing in its own sustainability.

The Group supports local communities through various corporate social investment initiatives and encourages employee participation in community investment through structured opportunities as well as matching personal donations made by employees to social development. In addition, sponsorships complement and enhance our brand and help to build positive relationships with all stakeholder groups. They also demonstrate our commitment to the development of sports, arts and other activities in the communities in which we operate.

26 27 Standard Bank Limited Annual Report for the year ended 31 December 2011

Risk Management and Control Standard Bank’s

The effective management of risk is fundamental to the business activities of the Group as we remain committed to the Personalised Solutions objective of increasing shareholder value by developing and growing business that is consistent with agreed risk appetite. We seek to achieve an appropriate balance between risk and reward in our business, and continue to build and enhance the risk management capabilities that will assist in delivering our growth plans in a controlled environment.

Risk management is at the core of the operating and management structures of the Group. The Group seeks to limit adverse variations in earnings and equity by managing the balance sheet and capital within agreed levels of risk appetite. Managing and controlling risks, and in particular avoiding undue concentrations of exposure, limiting potential losses from stress events, and restricting significant positions in less quantifiable risk areas, are essential elements of the Group’s risk management and control framework which ultimately leads to the protection of the Group’s reputation.

Responsibility and accountability for risk management resides at all levels within the Group, from the executive down through the organisation to each business manager, risk specialist and staff.

Key aspects of risk management are the risk governance and the organisational structures established by the Group to manage risk according to a set of risk governance standards which are implemented across the Group and are supported by appropriate risk policies and procedures.

Risk Management Framework

The Group’s approach to risk management is based on well established governance processes and relies on both individual responsibility and collective oversight, supported by comprehensive reporting. This approach balances strong corporate oversight at the Board level with independent risk management structures.

Unit heads are specifically responsible for the management of risk within their areas. As such, they are responsible for ensuring that there are appropriate risk management frameworks that are adequate in design, effective in operation and meet minimum Group standards.

The Group has developed a set of risk governance standards for each major risk type. The standards set out and ensure alignment and consistency in the manner in which the major risk types across the Group are governed, identified, measured, managed, controlled and reported. It is the responsibility of each unit’s head to ensure International MAZIKO ACHIEVER PRIORITY PRIVATE that the requirements of the risk governance standards, policies and procedures are implemented within their VISA debit BANKING BANKING BANKING BANKING unit while independent oversight is provided by the Risk Function, Operational Risk and Compliance Management card (VFAs) Become a Private Banking Become an Achiever Become a Priority Banking Committee and Board Risk Committee. Each standard is supported by policy and procedural documents as Become a Maziko Banking customer get: customer get: customer get: Banking customer get: required. The Group is required to self assess at least annually its compliance with risk standards and policies. Used internationally and • A private Banking money is loaded within 2 • A silver Cheque • A Gold Cheque Book, • A Maziko VISA Debit and a local and Cheque Account, with weeks of application Card that works on all Book, and a local and an international VISA international Debit international debit VISA compliant ATM’s card for use on all VISA Card that works on any in Malawi Card for use on all VISA branded ATMs Basel II VISA branded ATM’s branded ATM’s world • Fixed term loan with wide • A dedicated private automatic loan world wide banker Basel II incentivises banks through lower capital requirements, to improve their risk management processes. The • A revolving term loan • A dedicated priority settlement upon your banker • Automatic overdraft of focus of the Basel II framework is mainly on improving the quantification and management of credit, market and death • Overdraft on up to two times your application • Automatic overdraft of operational risks, enhancements to the supervisory review process and more extensive risk disclosure by banks. • Free death benefit up to your monthly net monthly net salary • affordable banking • Home loans • Apersonal loan of up to • Automatic death loan salary • Pre approved Vehicle MK5 Million settlement on Vehicle • Attractive home loans Under the leadership of the Reserve Bank of Malawi, initiative programs were launched in preparation for Basel and Asset Finance, and Asset Finance and homne loans and Vehicle Asset II implementation in 2014 – the key one being bank risk-capability self-assessments. Home loans and Finance Personnal loans • A personnal loan of up to K2.5 million • A secondary account • Internet and for your partner Cellphone banking • Automatic loan settle- ment upon your death • New business online • Internet and Cellphone • Automatic loan settle- banking ment upon your death

28 29 Standard Bank Limited Annual Report for the year ended 31 December 2011

DIRECTORS REPORT (continued) Directors’ Report Shareholding analysis The shareholders of the Group as at 31 December 2011 are as below:

Name Holding (%) Stanbic Africa Holdings Limited 60.18 NICO Holdings Limited 20.00 Old Mutual Life Assurance Company Limited 4.82 Incorporation and registered office Press Trust 2.30 Standard Bank Limited is a company incorporated in Malawi under the Malawi Companies’ Act, 1984 and is Standard Bank Pension Fund 2.05 domiciled in Malawi. It was listed on the Malawi Stock Exchange on 28 June 1998. The address of its registered Public 10.65 office is: Total 100.00

Standard Bank Centre Africa Unity Avenue. Auditors P O Box 30380 Lilongwe 3 The Group’s auditors, KPMG Certified Public Accountants and Business Advisers, have indicated their willing- Malawi ness to continue in office and a resolution will be proposed at the forthcoming Annual General Meeting to re- appoint them as auditors. Principal activities

Standard Bank Limited is registered as a financial institution under the Banking Act, 2009. It is in the business of banking and the provision of other related services. …………………………. ………………………………. P A Chitsime Dr R Harawa Financial performance Chairman Director

The results and state of affairs of the Group and the Company are set out in the accompanying statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, 28 February 2012 statement of cash flows, and notes to the financial statements. Dividend

The net profit for the year of MK3.5 billion (2010: MK2.4 billion) has been added to retained earnings. An interim dividend of MK4.21 (2010: MK2.67) per ordinary share was paid in September 2011 representing MK900 million (2010: MK570m). The directors recommend a final dividend of MK9.38 (2010: MK3.66) per ordinary share representing MK2.0 billion (2010: MK780 million) to be tabled at the forthcoming Annual General Meeting. Directorate

Details of directors and company secretary as at the date of the annual report are as follows:

Mr P A Chitsime*** - Chairman and all year Ms R M Mkandawire*** - All year Mr R K Phiri*** - All year Mr P W Khembo*** - All year Dr R Harawa*** - All year Mr A A Chioko*** - All year Mr J Patel** - All year Mr C M Mudiwa* - Managing Director and all year Mrs T Simwaka*** - Executive Director and all year Mrs E Chanza*** - Company Secretary and all year Ms P Nyandoro* - Resigned with effect from 1st January 2011

* Zimbabwean ** British *** Malawian

30 31 Standard Bank Limited Annual Report for the year ended 31 December 2011

Statement of Directors’ Responsibilities

The Directors are responsible for the preparation and fair presentation of the annual financial statements of Standard Bank Limited and the Group, comprising the statement of financial position as at 31 December 2011, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, and the directors’ report, in accordance with International Financial Reporting Standards, and in the manner required by the Malawi Companies act, 1984.

The Act also requires the directors to ensure that the Company keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and ensure the financial statements comply with the Malawi Companies Act, 1984.

In preparing the financial statements, the directors accept responsibility for the following:- • Maintenance of proper accounting records; • Selection of suitable accounting policies and applying them consistently; • Making judgements and estimates that are reasonable and prudent; • Compliance with applicable accounting standards when preparing financial statements, subject to any material departures being disclosed and explained in the financial statements; and • Preparation of financial statements on a going concern basis unless it is inappropriate to presume the company will continue in business.

The directors are also responsible for such internal controls as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate accounting records and an effective system of risk management.

The Directors’ responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The Directors have made an assessment of the Group’s ability to continue as a going concern and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

The Directors have made an assessment and they attest to the adequacy of accounting records and effectiveness of the systems of internal controls and effective risk management for the Group.

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance with applicable financial reporting framework.

Approval of financial statements

The financial statements of the Group, as indicated above, were approved by the Board of Directors on 28 February 2012 and are signed on its behalf by.

By order of the Board.

…………………………………. ……………………………………… PA Chitsime Dr R Harawa Chairman Director

28 February 2012

32 33 Standard Bank Limited Annual Report for the year ended 31 December 2011

Our Events / Corporate

The immaculate customer waiting room.

Lilongwe City Assembly Chief Executive Mr. Kelvin Standard Bank Board Director Dr. Rex Harawa (L) and Her Excellency Ntombile Ivy Mabude, South Standard Bank Limited launched its head office in the capital city, M’mangisa (L) and other patrons being served with African High Commissioner (C), chats with Reserve Bank Governor Dr. Perks Ligoya (Above) Patrons watch a documentary of the development of Standard Bank in Malawi (below) Lilongwe, strategically and centrally placing its services within easy snacks reach of customers in the country’s three regions. Establishment of the new head office base follows its relocation from Blantyre City.

The colourful launch ceremony was graced by Minister of Finance and Economic Development Dr. Ken Lipenga, MP and Reserve Bank of Malawi (RBM) Governor Dr. Perks Ligoya.

Minister of Finance and Economic Development Dr. Ken Lipenga, MP, cuts the ribbon to officially open the new head office. Assisting him is Reserve Bank Governor Dr. Perks Ligoya (Right above) The imposing new head office (Right) Standard Bank Board Chairman Mr. Alex Chitsime (L) RBM Governor Dr. Perks Ligoya (2nd L), Standard Bank Board Director Mr. Andrew Chioko (C), Standard Bank Malawi MD Mr. Charles Mudiwa, Standard Bank Group Regional MD Mr. Kitili Mbathi 34 35 Standard Bank Limited Annual Report for the year ended 31 December 2011

Our Events / Corporate Social Responsibility

Standard Bank Managing Director Mr. Charles Mudiwa officially handing over the refurbished hospital, drugs, fridges, computers, PABX machine and assorted items to former Minister of Health and Population, Prof. David Mphande M.P.

Standard Bank Head of Corporate Banking Mr. Edward Issa handing over an electric pot to T/A Malanda

Desks donated to St Marys Girls Primary and Karonga CCAP Primary in Karonga

Standard Bank continues to touch the lives of people at all levels through financial support and sponsorship to various worthy causes across Malawi. In the 2010/11 financial year, such causes cut across the country’s socio-economic sectors of health, education and youth develop- ment through sport.

In the health sector the bank reached out to Chintheche and Chilipa Rural hospitals, by refur- bishing and donating medical equipment to the maternity wing and under 5 wards.

In the education sector, Standard Bank built classroom blocks at Mulunguzi Primary School in Thyolo and handed over assorted learning materials to Ntsiriza Primary School in Lilongwe, Kaviware CCAP Primary School in Mzuzu, St Mary and Karonga primary schools in Karonga.

In sport, the bank continued with its tradition of supporting the cause of youth and social devel- Standard Bank MD Mr Charles Mudiwa presents a K15 Million cheque to Fam president Mr Walter Nyamilandu and Minister of Sports Mr Vuwa Kaunda (Pix top) opment through sponsorship of football, netball and golf. For your greens! MD Charles Mudiwa seems to be saying to Nchalo Golf Club as he hands over the dummy cheque (pix above) In 2012, Standard Bank will continue to support social causes that move communities foward.

36 37 Standard Bank Limited Annual Report for the year ended 31 December 2011

Report of the independent auditors to Banks never offer anything the members of Standard Bank Limited MYTH that’s free, there’s always a hidden cost { Report on the Financial Statements We have audited the financial statements of Standard Bank Limited which comprise the statement of financial position as at 31 December 2011, the income statement, the statement of comprehensive income, the statement of changes in equity and statement of cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes as set out on pages 45 to 94.

Directors’ Responsibility for the Financial Statements

Standard Bank offers The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Malawi ATM transactions, on counter cash Companies Act 1984, and for such internal control as management determines is necessary to enable the withdraws, cheque encashment preparation of financial statements that are free from material misstatement, whether due to fraud or error. and mini statement, all for Auditors’ Responsibility FACT Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making (even on counter balance enquiry) } those risk assessments, the auditor considers internal control systems relevant to the entity’s preparation and K0.00 fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, these financial statements fairly present, in all material respects, the financial position of Move to real banking value TODAY Standard Bank Limited at 31 December 2011, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the provisions of the Malawi SMS “Value” and your name to 0999 11 11 77 to find out more Companies Act 1984 so far as concerns members of the company.

KPMG Certified Public Accountants and Business Advisers Blantyre

TM Moving Forward 28 February 2012

38 42 39 Standard Bank Limited Annual Report for the year ended 31 December 2011

Consolidated Income statement Consolidated statement of financial position

GROUP COMPANY COMPANY

2011 2011 2010 GROUP COMPANY COMPANY Note MKm MKm MKm 2011 2011 2010 Assets Note MKm MKm MKm Cash and cash equivalents 8 8,541 8,489 7,738 Interest income 24 5,834 5,834 5,266 Trading assets 9 7,683 7,683 5,499 Interest expense 24 (854) (854) (627) Loans and advances to banks and other financial institutions 10 4,984 4,984 6,900 Loans and advances to customers 11 39,434 39,434 25,225 Net interest income 24 4,980 4,980 4,639 Financial investments 12 6,157 6,157 4,234 Investment in subsidiary 13 - 52 - Net fee and commission income 25 2,302 2,302 1,804 Other assets 14 2,159 2,159 922 Net trading income 26 4,213 4,213 3,227 Property and equipment 15 6,097 6,097 4,012 Other operating income 27 24 24 92 Intangible assets 16 24 24 25 Total operating income 11,519 11,519 9,762 Deferred tax assets 17 541 541 597 Impairment losses on loans and advances 11 (998) (998) (474) Total assets 75,620 75,620 55,152 Income after credit impairment losses on loans and advances 10,521 10,521 9,288

Liabilities Staff costs 28 (2,067) (2,067) (2,282) Deposits and loans from banks 18 361 361 384 Depreciation and amortisation 29 (496) (496) (478) Deposits from customers 19 57,702 57,702 42,631 Other operating expenses 30 (2,417) (2,417) (2,906) Other liabilities 20 2,955 2,955 455 Income tax payable 409 409 166 Total expenditure (4,980) (4,980) (5,666) Provisions 21 535 535 408 Profit before income tax expense 5,541 5,541 3,622 Employee benefits liabilities 38 159 159 690 Deferred tax liabilities 17 1,098 1,098 741 Income tax expense 31 (1,995) (1,995) (1,198)

Total liabilities 63,219 63,219 45,475 Profit for the year 3,546 3,546 2,424

Shareholders’ equity Earnings per share Share capital 22 213 213 213 Basic and diluted (MK per share) 32 16.65 16.65 11.38 Share premium 22 854 854 854 Revaluation reserve 23 2,381 2,381 1,429

Available for sale reserve 23 31 31 127 Share-based payment reserve 23 117 117 114 Retained earnings 8,805 8,805 6,940 Total shareholders’ equity 12,401 12,401 9,677 Total equity and liabilities 75,620 75,620 55,152

The financial statements of the Group were approved for issue by the Board of Directors on 28 February 2012 and were signed on its behalf by:

______PA Chitsime Dr R. Harawa Chairman Director

28 February 2012

The notes on pages 45 to 94 are an integral part of these financial statements. The notes on pages 45 to 94 are an integral part of these financial statements. The Independent Auditors’ report is on page 39. The Independent Auditors’ report is on page 39.

40 41 Standard Bank Limited Annual Report for the year ended 31 December 2011

Consolidated statement of Comprehensive income Consolidated statement of changes in equity

GROUP COMPANY COMPANY Share Available based Share Share for sale payment Revaluation Retained 2011 2011 2010 capital premium reserve reserve reserve earnings Total MKm MKm MKm GROUP AND COMPANY MKm MKm MKm MKm MKm MKm MKm Profit for the year 3,546 3,546 2,424 2011 Balance at 1 January 213 854 127 114 1,429 6,940 9,677 Other comprehensive income Transaction with owners of the company Net revaluation gain on property and equipment 952 952 - Dividends paid - - - - - (1,681) (1,681) Net change in fair value on available for sale financial assets (96) (96) 88 Share ownership scheme - - - 3 - - 3 Other comprehensive income for the year, net of tax 856 856 88 Total transaction with owners of the company - - - 3 - (1,681) (1,678) Total comprehensive income for the year 4,402 4,402 2,512 Other comprehensive income Net revaluation Surplus - - - - 952 - 952 Change in fair value of available-for-sale Financial assets net of tax - - (96) - - - (96) Total other comprehensive income - - (96) - 952 - 856 Profit for the year - - - - - 3,546 3,546 Total comprehensive income for the year - - (96) - 952 3,546 4,402 Balance at 31 December 213 854 31 117 2,381 8,805 12,401

Share Available based Share Share for sale payment Revaluation Retained capital premium reserve reserve reserve earnings Total GROUP AND COMPANY MKm MKm MKm MKm MKm MKm MKm 2010 Balance at 1 January 213 854 39 70 1,429 5,576 8,181 Transaction with owners of the company Dividends paid - - - - - (1,060) (1,060) Share ownership scheme - - - 44 - - 44 Total transaction with owners of the company - - - 44 - (1,060) (1,016)

Other comprehensive income Change in fair value of available – for – sale Financial assets, net of tax - - 88 - - - 88 Total other comprehensive income - - 88 - - - 88 Profit for the year - - - - - 2,424 2,424 Total comprehensive income for the year - - 88 - - 2,424 2,512

Balance at 31 December 213 854 127 114 1,429 6,940 9,677

The notes on pages 45 to 94 are an integral part of these financial statements. The Independent Auditors’ report is on page 39. The notes on pages 45 to 94 are an integral part of these financial statements. The Independent Auditors’ report is on page 39.

42 43 Standard Bank Limited Annual Report for the year ended 31 December 2011

Consolidated statement of Cash Flows Notes to the financial statements 1. Reporting entity (d) Use of estimates and judgements The preparation of consolidated and separate financial statements GROUP COMPANY COMPANY Standard Bank Limited is a company domiciled in Malawi. The address of the Group’s registered office is Standard Bank in conformity with IFRS requires the use of accounting estimates. Centre, African Unity Avenue, P O Box 30380, Lilongwe 3, It also requires management to exercise its judgement in the Malawi. The Group is primarily involved in investment, corpo- application of policies and reported amounts in assets and 2011 2011 2010 rate and retail banking, and in providing asset management liabilities, income and expenses. The estimates and associated Note MKm MKm MKm services. The consolidated and separate financial statements assumptions are based on historical experience and various Cash flows from operating activities: comprise the Group and its subsidiary, Standard Bank Bureau other factors that are believed to be reasonable under the Interest received 6,005 6,005 5,166 de Change Limited, (collectively known as The Group). When circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities reference is made to the Group in the accounting policies, it Interest paid (825) (825) (639) that are not readily apparent from other sources. Actual Fee and commission receipts 25 2,302 2,302 1,804 should be interpreted as referring to the company where the results may differ from these estimates. context requires, and unless otherwise noted. Trading income receipts 26 4,237 4,237 3,319 Recoveries from impairment losses 102 102 35 The estimates and underlying assumptions are reviewed on General Information an ongoing basis. Revisions to accounting estimates are Payments to employees and suppliers (5,431) (5,431) (5,173) recognised in the period in which the estimate is revised if Standard Bank Limited provides retail and corporate banking Cash flows from operating activities before the revision affects only that period or in the period of the changes in operating assets and liabilities 6,390 6,390 4,512 services through its 25 (2010: 22) service centres located revision and future periods if the revision affects both current across Malawi. The Group is listed on the Malawi Stock and future periods. Exchange. Changes in operating assets and liabilities: Judgements made by management in the application of the Loans and advances (14,209) (14,209) (4,040) The Group’s ultimate parent company is Standard Bank IFRSs that have significant effect on the consolidated and Liquidity reserve requirements 36 (2,010) (2,010) (1,167) Group Limited, which is a limited liability company separate financial statements and estimates on the amounts Treasury bills (2,550) (2,550) (104) incorporated in South Africa and listed on the recognised are discussed in Note 5. Johannesburg Securities Exchange with a secondary listing Other investments (1,924) (1,924) 598 on the Namibian Stock Exchange. (e) Changes in accounting policies Other assets (1,239) (1,239) (480) This is the first year that the Group is presenting consolidated Deposits from customers 15,341 15,341 5,622 Standard Bank Bureau de Change Limited is a 100% owned and separate financial statements. Deposits and loans from banks (61) (61) (988) subsidiary of Standard Bank Limited whose line of business is The group has adopted the following revised IFRSs Other liabilities 1,893 1,893 (556) foreign exchange trading. Standard Bank Bureau de Change Limited started its operations in September 2011such that prospectively as of 1 January 2011: • IAS 1 Presentation of Financial Statements (2011 Net cash from operating activities before this is the first year for the Group to make consolidated income tax 1,631 1,631 3,397 Improvements to IFRS); financial statements. • IAS 24 Related Party Transactions (revised); and Income tax paid (1,340) (1,340) (1,518) • IFRS 7 Financial Instruments: Disclosures (2010 2. Basis of preparation Improvements to IFRS); Net cash from operating activities 291 291 1,879 (a) Statement of compliance These consolidated and separate financial statements have None of the revised IFRSs have had any effect on the group’s Cash flows to investing activities been prepared in accordance with International Financial reported earnings or financial statement position but have Reporting Standards (IFRS) published by the International affected the group’s disclosures with no material impact on Investment in subsidiary 13 - (52) - Accounting Standards Board (IASB), that were relevant to its the group’s accounting policies. Purchase of property and equipment 15 (2,415) (2,415) (959) operations and effective for accounting periods beginning on Proceeds from sale of property and equipment 315 315 137 1 January 2011. These consolidated and separate financial 3. Significant accounting policies statements have also been prepared in accordance with the The principal accounting policies adopted in the preparation Net cash used in investing activities (2,100) (2,152) (822) provisions of Malawi Companies Act, 1984. of these consolidated and separate financial statements are set out below. These policies have been consistently applied to all the years presented except as explained in note 2(e) Cash flows to financing activities (b) Basis of measurement The Consolidated and separate financial statements have which addresses changes in accounting policies. Dividends paid (1,681) (1,681) (1,060) been prepared on the historical cost basis except for the (a) Basis of consolidation following:- The consolidated and separate financial statements comprise Net (decrease)/ increase in cash and • investment held for trading are measured at fair value • derivative financial instruments are measured at fair the Bank and its subsidiary, Standard Bank Bureau de Change cash equivalents (3,490) (3,542) (3) value Limited, which is controlled by the Bank. Under the Malawi Companies Act, 1984, control is presumed to exist where a • financial instruments at fair value through profit or loss Cash and cash equivalents at 1 January 11,614 11,614 11,617 Company holds more than one half of the nominal share capital are measured at fair value Cash and cash equivalents at 31 December 36 8,124 8,072 11,614 directly or indirectly; or the Group can appoint or prevent • available-for-sale financial assets are measured at fair the appointment of not less than half of the directors of the value subsidiary company. Under IAS 27, Consolidated and Separate • property is measured at revalued amounts. Financial Statements, control exists when an entity has the Additional statutory requirements power to govern the financial and operating policies of (c) Functional and presentation currency another entity so as to benefit from its activities. Net movement in working capital 2,724 2,724 1,496 These consolidated and separate financial statements are The consolidated and separate financial statements of presented in Malawi Kwacha, which is the Group’s functional subsidiaries are included in the consolidated and separate currency. Except as indicated, financial information presented financial statements from the date that control commences The notes on pages 45 to 94 are an integral part of these financial statements. in Malawi Kwacha has been rounded to the nearest million. until that control ceases. The financial statements have been The Independent Auditors’ report is on page 39. prepared using uniform accounting policies for like transactions and other events in similar circumstances.

44 45 Standard Bank Limited Annual Report for the year ended 31 December 2011

Available-for-sale financial assets are subsequently (g) Loans and advances Transactions eliminated on consolidation measured at fair value. Any unrealised gains and losses Loans and advances are non-derivative financial assets Intra-company balances and transactions and any unrealised arising from changes in the fair values are recognised in other with fixed or determinable payments that are not quoted income and expenses arising from intra-company transactions (d) Cash and cash equivalents comprehensive income. Foreign exchange gains and losses in an active market and that the Group does not intend to are eliminated in preparing the consolidated and separate For the purposes of the cash flow statement, cash and cash on available-for-sale monetary items are recognised in the sell immediately or in the short term. Loans and advances financial statements. Unrealized losses are eliminated in the equivalents comprise balances with less than three months’ profit or loss. Interest income is recognised in profit or loss are recognised when cash is advanced to borrowers. Loans same way as unrealized gains, but only to the extent that maturity from the date of acquisition, including cash and using the effective interest method. When assets classified and advances are initially recognised at fair value (plus any there is no evidence of impairment. non-restricted balances with central banks, treasury bills and as available-for-sale are disposed of or impaired, the related directly attributable transaction costs). Subsequent to initial other eligible bills, loans and advances to banks, amounts due accumulated fair value adjustments previously recognised in recognition, loans and advances are measured at amortised (b) Foreign currency transactions from other banks and short-term government securities. other comprehensive income are reclassified to profit or loss cost, using the effective interest method. Transactions in foreign currencies during the year are as a reclassification adjustment. converted into Malawi Kwacha at rates ruling at the Cash and cash equivalents are measured at amortized cost in Allowance for loan impairment is established if there is transaction dates. Monetary assets and liabilities at the the statement of financial position. The fair values of held-for-trading and available-for-sale financial assets are based on quoted bid prices or amounts objective evidence that the Group will not be able to collect reporting date, which are expressed in foreign currencies, are all amounts due according to the original contractual terms of translated into Malawi Kwacha at rates ruling at that date. (e) Trading assets and trading liabilities derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/ earnings or the loans. The amount of the allowance is the difference The resulting differences from translation are recognised in Trading assets and liabilities are those assets and liabilities between the carrying amount and the present value of the profit or loss in the year in which they arise. that the Group acquires or incurs principally for the purpose price/ cash flow ratios refined to reflect the specific circumstances of the issuer. expected cash flows, including amounts recoverable from Non-monetary assets and liabilities that are denominated in of selling or repurchasing in the near term, or holds as part of guarantees and collateral, discounted at the original effective foreign currencies that are measured at fair value are a portfolio that is managed together for short-term profit or Unquoted equity securities for which fair values cannot be interest rate of loans. translated into functional currency at the spot exchange rate position taking. at the date that the fair value was determined. On measured reliably are measured at cost less any impairment A general allowance for loan impairment is established to retranslation, the resulting differences are recognised in profit Trading assets and trading liabilities are initially recognised losses. or loss. and subsequently measured at fair value in the statement cover losses that are judged to be present in the lending of financial position with transaction costs taken directly A review for impairment indicators is carried out at each portfolio at the reporting date, but which have not been reporting date If impairment indicators are present; an impairment (c) Financial assets and financial liabilities to profit or loss. All changes in fair value are recognised as specifically identified as such. This allowance is based on the test is carried out. By comparison, the recoverable amount of an part of net trading income in profit or loss. Trading assets directors’ assessment of the latent risk of default known to and liabilities are not re-classified subsequent to their initial instrument measured at fair value is the quoted market price be present in the portfolio of the Group’s advances. (i) Recognition for listed instruments and for unquoted instruments, present A financial asset or financial liability is measured initially at recognition, except that non-derivative trading assets, other than those designated at fair value through profit or loss value of expected future cash flows discounted at the current The Group considers evidence of impairment at both a fair value plus, for an item not at fair value through profit market rate of interest for a similar financial asset. or loss, transaction costs that are directly attributable to its upon initial recognition, may be reclassified out of the fair specific asset and collective level. All individually significant acquisition or issue. The Group initially recognises loans and value through profit or loss (i.e. trading) category if they are financial assets are assessed for specific impairment. All When a decline in the fair value of an available-for-sale financial advances, deposits; debt securities issued and subordinated no longer held for the purpose of being sold or repurchased significant assets found not to be specifically impaired are liabilities on the date that they are originated. All other in the near term and the following terms are met: asset has previously been recognised in other comprehensive then collectively assessed for any impairment that has been financial assets and liabilities (including assets and liabilities income and there is objective evidence that the asset is incurred but not yet identified. Financial assets that are not designated at fair value through profit or loss) are initially • If the financial asset would have met the definition of impaired, the cumulative loss that had been recognised in individually significant are then collectively assessed for recognised on the trade date at which the Group becomes a loans and receivables (if the financial asset had not been other comprehensive income is transferred to profit or loss as impairment by grouping together financial assets (carried at party to the contractual provisions of the instrument. required to be classified as held for trading at initial reclassification adjustment. amortised cost) with similar risk characteristics. recognition), then it may be reclassified if the Group has (ii) Derecognition the intention and ability to hold the financial asset for Impairment losses in respect of financial assets are measured When a loan is deemed uncollectible, it is written off and The Group derecognises a financial asset when the contractual the foreseeable future or until maturity. at amortised cost are calculated as the difference between its recognised in profit or loss. Subsequent recoveries are rights to the cash flows from the asset expire, or it transfers carrying amount and the present value of estimated future recognised in profit or loss. the rights to receive the contractual cash flows on the financial • If the financial asset would not have met the definition cash flows discounted at the original effective interest rate. of loans and receivables, then it may be classified out of asset in a transaction in which substantially all risks and Impairment losses are recognised in profit or loss. Impairment If the amount of the impairment subsequently decreases due the trading category only in ‘rare circumstances’. rewards of ownership of the financial asset are transferred or losses are reversed through profit or loss if the subsequent to an event occurring after the write-down, the release of the in which the Group neither transfers nor retains substantantially all increase in the financial asset amount can be related objectively to allowance is recognised in profit or loss. risks and rewards of ownership and it does not retain control (f) Treasury bills, bonds and investment securities an event occurring after the impairment loss was recognised. of the financial assets. Any interest in a transferred asset that The Group classifies its treasury bills and bonds and (h) Property and equipment is created or retained by the Group is recognised as a separate investment securities into the following three categories: held Impairment losses in respect of an investment in an equity asset or liability. for trading, held to maturity and available-for-sale assets. instrument classified as available-for-sale are not reversed (i) Recognition and measurement Financial assets that the Group holds for short-term profit through the profit or loss but recognised in other The Group derecognises a financial liability when its taking are classified as assets held for trading. Financial assets All property and equipment is initially recorded at cost. comprehensive income. If the fair value of a debt instrument Buildings and freehold land are subsequently carried at contractual obligations are discharged or cancelled or expire. with fixed maturity where management has both the intent classified as available-for- sale increases and the increase can and the ability to hold to maturity are classified as held-to- revalued amount, being its fair value, based on valuations by On derecognition of a financial asset, the difference between be objectively related to an event occurring after the the carrying amount of the asset and the sum of the maturity. Financial assets intended to be held for an indefinite external independent valuers, less subsequent accumulated impairment loss was recognised in the profit or loss, the consideration received and any cumulative gain or loss that period of time, which may be sold in response to needs for depreciation, and subsequent accumulated impairment losses. has been recognised in other comprehensive income is liquidity or changes in interest rates, exchange rates or equity impairment loss is reversed, with the amount of the reversal All other property and equipment is stated at historical cost recognised in profit or loss. prices are classified as available-for-sale. Management recognised in the profit or loss. less accumulated depreciation and impairment losses. determines the appropriate classification of its investments (iii) Offsetting at the time of the purchase. All financial assets are initially Interest earned on financial assets classified as held-to- Cost includes expenditures that are directly attributable to the Financial assets and financial liabilities are offset and the recognised at fair value (plus, for an item not at fair value maturity or available-for-sale is recognised as interest income. acquisition of the asset. The cost of self-constructed assets net amount presented in the statement of financial posi- through profit or loss, any directly attributable transaction Dividends receivable on held-to-maturity or available-for-sale includes the cost of materials and direct labour plus any other tion when, and only when, the Group has a legal right to set costs). financial assets are included separately in dividend income cost directly attributable to bringing the asset to a working off the recognised amounts and it intends either to settle when a dividend is declared. Interest earned and dividends condition for its intended use. on a net basis or to realise the asset and settle the liability Subsequent to initial recognition held-for-trading assets are received on financial assets classified as held-for-trading are simultaneously. measured at fair value. All related realised and unrealised included in trading income. Increases in the carrying amount arising on revaluation are gains and losses arising from the change in fair value are recognised in other comprehensive income and accumulated included in the profit or loss. Income and expenses are presented on a net basis only when in equity under the heading revaluation reserve. Decreases permitted under IFRSs, or for gains and losses arising from a that offset previous increases of the same asset are recognised group of similar transactions such as in the Group’s trading Financial assets classified as held-to-maturity are carried at in other comprehensive income and charged against the activities. amortised cost using the effective interest method, less any impairment losses. valuation reserve in equity; all other decreases are charged to 46 47 Standard Bank Limited Annual Report for the year ended 31 December 2011

profit or loss. The revaluation reserve is a non-distributable manner that will generate future economic benefits; When an operating lease is terminated before the lease period (o) Interest income and expense reserve and therefore not available for distribution as • the Group can reliably measure the costs to complete the has expired, any payment required to be made to the lessor Interest income and expense are recognised in the profit or loss dividends. development; by way of penalty is recognised as an expense in the period in for all instruments measured at amortised cost using the • it is technically and commercially feasible; and which the termination takes place. effective interest method. (ii) Subsequent costs • there are sufficient resources to complete development The cost of replacing part of an item of property or and to use the asset. (l) Provisions The effective interest method is a method of calculating the equipment is recognised in the carrying amount of the item Provisions are recognised when the Group has a present legal amortised cost of a financial asset or financial liability and of if it is probable that the future economic benefits embodied The capitalised cost of internally developed software includes or constructive obligation as a result of past events and it is allocating the interest income or interest expense over the within the part will flow to the Group and its cost can be all costs directly attributable to developing the software, probable that an outflow of resources embodying economic relevant period. The effective interest rate is the rate that measured reliably. The cost of the day-to-day servicing of and are amortised over its useful life. Internally developed benefits will be required to settle the obligation and a reliable exactly discounts estimated future cash flows through the property and equipment are recognised in profit or loss as software is stated at cost less accumulated amortisation and estimate of the amount of the obligation can be made. If such expected life of the financial instrument or, when appropriate, incurred. impairment losses. an estimate cannot be made, a contingent liability is disclosed. a shorter period to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate (iii) Depreciation Subsequent expenditure on software is capitalised only if When the effect of discounting is material, provisions are the Group estimates future cash flows considering all the Depreciation is calculated on the straight line basis to write it increases the future economic benefits embodied in the discounted using a pre-tax discount rate that reflects current contractual terms of the financial instrument but does not down the carrying value or the revalued amounts of each specific asset to which it relates. All other expenditure is market assessments of the time value of money and, where consider future credit losses. The calculation includes all fees asset, to its residual value over its estimated useful life. The expensed as it is incurred. appropriate, the risks specific to the liability. and points paid or received between parties to the contract following are the estimated useful lives for the current and that are an integral part of the effective interest rate, comparative periods: Amortisation is recognised in the profit or loss on a straight A provision for onerous contracts is recognised when the transaction costs and all other premiums or discounts. line basis over the estimated useful life of the software, from expected benefits to be derived by the Group from the contract Buildings 13 - 40 years the date it is available for use. The estimated useful life of are lower than the unavoidable cost of meeting its obligations Interest income includes coupons earned on fixed income Capitalised leased assets 5 years software is between three to five years for the current and under the contract. The provision is measured at the present investments and trading securities loans and receivables, and Fixtures, fittings and equipment 3 – 13 years comparative periods. value of the lower of the expected cost of terminating the accrued discount and premium on treasury bills and other Motor vehicles and computer equipment 5 years contract and the expected net cost of continuing with the discounted instruments. When loans and advances become The carrying amount of intangible assets, useful lives and contract. Before the provision is established, the Group doubtful of collection, they are written down to their Freehold land is not depreciated as it is deemed to have an residual values are reviewed at each reporting date to recognises any impairment loss on the assets associated with recoverable amounts and interest income is thereafter indefinite life. determine whether there is any indication of impairment. the contract. recognised based on the rate of interest that was used to If any such indication exists then the asset’s recoverable discount the future cash flows for the purpose of measuring Capitalised leased assets are depreciated over the shorter amount is estimated. An impairment loss is recognised if the (m) Income tax expense the recoverable amount. of the lease term and their useful lives, except where it is carrying amount exceeds its recoverable amount. Intangible Income tax on the profit or loss for the year comprises current reasonably certain that the Group will obtain ownership at the assets that are not yet available for use are tested for and deferred tax. Income tax is recognised in the profit or loss Interest income and expense presented in the profit or loss end of the lease term. impairment on an annual basis. except to the extent that it relates to items recognised directly include: in equity or in other comprehensive income in which case it is • Interest on financial assets and liabilities at amortised cost Where parts of an item of property and equipment have (k) Leases recognised in equity or other comprehensive income. on an effective interest basis. different useful lives, they are accounted for as separate items • Interest on interest bearing available-for-sale investment of property and equipment. (i) Finance lease Current tax is the expected tax payable on the taxable income securities on an effective interest basis. Lessee for the year, using tax rates enacted or substantively enacted Depreciation methods, useful lives and residual values of Leases where the Group assumes substantially all the benefits at the reporting date, and any adjustment to tax payable in Interest income and expense on all trading assets and liabilities property and equipment are reviewed annually at each and risks of ownership are classified as finance leases. Finance respect of previous years. are considered to be incidental to the Group’s trading reporting date. Gains and losses on disposal of property and leases are capitalised at the lower of the fair value of the operations and presented together with the changes in the fair equipment are determined by comparing the proceeds from leased asset and the present value of the minimum lease Deferred tax is recognised in respect of temporary differences value of trading assets and in net trading income. disposal with the carrying amount of the item of property payments. Subsequent to initial recognition, the asset is arising between the tax bases of assets and liabilities and their and equipment and are recognised in other income/other accounted for in accordance with the accounting policy carrying values for financial reporting purposes. The following Fair value changes on other financial assets and financial expense in profit or loss. On disposal of revalued assets, applicable to the asset. Lease payments are separated using temporary differences are not provided for: initial recognition liabilities carried at fair value through profit or loss, are amounts in the revaluation reserve relating to that asset are the effective interest method to identify the finance cost, of goodwill and the initial recognition of assets or liabilities in a presented in net income on other financial instruments at fair transferred to retained earnings. which is charged as expense over the lease period and the transaction that is not a business combination and that value through profit and loss in the income statement. capital repayment which reduces the liability. affects neither accounting nor taxable profits. Tax rates (i) Work in progress enacted or substantively enacted at the reporting date are used (p) Employee benefits Work in progress represents costs incurred on capital projects Lessor to determine deferred tax, taking consideration of the expected Employee entitlements to gratuity and long service awards are relating to refurbishment of the Group’s branch network. It When assets are held subject to a finance lease, the present manner of recovery or realisation or settlement of the carrying recognised as they accrue to employees. A liability is is measured at cost accumulated to the reporting date. Costs value of the lease payments is recognised as a receivable at an amount of the assets and liabilities. recognised for such entitlements as a result of services include all expenditure related directly to the specific projects amount equal to the net investment in the lease. The rendered by employees up to the reporting date. and an allocation of fixed and variable overheads incurred in difference between the gross receivable and the present value Deferred tax assets are recognised only to the extent that it normal operating capacity. of the receivable is recognised as unearned finance income. is probable that future taxable profits will be available against (i) Short-term benefits Finance income is recognised over the term of the lease using which temporary differences can be utilised. Deferred tax Short term employee benefit obligations are measured on an Work in progress is presented under property and equipment the effective interest method (before tax), which reflects a assets are reduced to the extent that it is no longer probable undiscounted basis and are expensed as the related service is in the statement of financial position and is transferred to constant periodic rate of return. Lease payments are applied that the related deferred tax benefit will be realised. provided. respective class of assets upon completion of the projects. against the gross investment in the lease to reduce both the principal and the unearned finance income. An accrual is recognised for the amount expected to be paid (j) Intangible assets Additional income taxes that arise from the distribution of under short-term cash bonus if the Group has a present legal Software acquired by the Group is stated at cost less (ii) Operating lease dividend are recognised at the same time as the liability to pay or constructive obligation to pay this amount as a result of past accumulated amortisation and accumulated impairment Lessee the related dividend is recognised. service provided by the employee and the obligation can be losses. Leases of assets are classified as operating leases if the lessor measured reliably. effectively retains substantially all the risks and benefits of (n) Dividends Expenditure on internally developed software is recognised as ownership. Payments made under operating leases are Dividends are recognised in the period in which they are de- (ii) Leave pay liability an asset when: recognised in profit or loss on a straight-line basis over the clared. Dividends declared after reporting date are disclosed in Employee benefits in the form of annual leave entitlements are • the Group is able to demonstrate its intention and ability period of the lease. the dividends note. provided for when they accrue to employees with reference to to complete the development and use the software in a services rendered up to the reporting date

48 49 Standard Bank Limited Annual Report for the year ended 31 December 2011

(iii) Termination benefits syndication has been completed and the Group has retained (v) Fair value measurement mined by dividing the profit or loss attributable to ordinary Termination benefits are recognised as an expense when the no part of the loan package for itself or has retained a part at The determination of fair values of financial assets and shareholders of the Group by the weighted average number Group is demonstratably committed, without realistic the same effective interest rate as the other participants. liabilities is based on quoted market prices or dealer price of ordinary shares outstanding during the year. Diluted EPS possibility of withdrawal, to a formal detailed plan to quotations for financial instruments traded in active markets. is determined by adjusting the profit or loss attributable to terminate employment before the normal retirement date. Commission and fees arising from negotiating, or For all other financial instruments fair value is determined by ordinary shareholders and the weighted average number Termination benefits for voluntary redundancies are participating in the negotiation of, a transaction for a third using valuation techniques. Valuation techniques include net of ordinary shares outstanding for the effects of all dilutive recognised if the Group has made an offer encouraging party – such as the arrangement of the acquisition of shares present value techniques, the discounted cash flow method, potential ordinary shares. voluntary retirements, it is probable that the offer will be or other securities or the purchase or sale of businesses - are comparison to similar instruments for which market accepted, and the number of acceptances can be estimated recognised on completion of the underlying transaction. observable prices exist and valuation models. For these (y) Determination and presentation of reliably. Portfolio and other management advisory and service fees are financial instruments, input into models is market observable. operating segments recognised based on the applicable service contracts, The Group determines and presents operating segments (iv) Retirement benefit obligations usually on a time-proportionate basis. Asset management (w) Identification and measurement based on the information that internally is provided to the The Group operates a defined contribution retirement benefit fees related to investment funds are recognised over the of impairment of financial assets Group Executive Committee which is the Group’s chief scheme for employees. A defined contribution plan is a plan period in which the service is provided. The same At each reporting date the Group assesses whether there operating decision maker. under which the entity pays fixed contributions to a separate principle is applied for wealth management, financial planning is objective evidence that financial assets not carried at fair entity and will have no legal or constructive obligations to and custody services that are continuously provided over value through profit or loss are impaired. Financial assets are An operating segment is a component of the Group that pay further amounts. The assets of the schemes are held in an extended period of time. Performance linked fees or fee impaired when objective evidence demonstrates that a loss engages in business activities from which it may earn separate trustee administered funds, which are funded by components are recognised when the performance criteria are event has occurred after the initial recognition of the asset, revenues and incur expenses, including revenue and expenses contributions from both the Group and employees. fulfilled. and that the loss event has an impact on the future cash that relate to transactions with any of the Group’s other flows on the asset that can be estimated reliably such that the components, whose operating results are reviewed regularly The Group’s contributions to the defined contribution Other fees and commission expense relates mainly to carrying value is higher than the net realisable value by the Group’s Executive Committee to make decisions about scheme are recognised in profit or loss in the year to which transactions and service fees which are expensed as the resource allocation to the segment and assess its performance they relate. services are received. Objective evidence that financial assets (including equity and for which discrete information is available. securities) are impaired can include default or delinquency (v) Share-based payment transactions (s) Net trading income by a borrower, restructuring of a loan or advance by the (z) New standards and interpretations not yet adopted The fair value of options granted to employees is recognised Net trading income includes gains and losses from spot and Group on terms that the Group would not otherwise consider, A number of new standards, amendments to standards and as an employee expense, with a corresponding increase in equity, forward contracts, options, futures, and foreign exchange indications that a borrower or issuer will enter bankruptcy, interpretations are not yet effective for the year ended 31 over the period in which the employees become unconditionally differences and gains and losses on trading assets and the disappearance of an active market for a security, or other December 2011, and have not been applied in preparing entitled to the options. The amount recognised as an expense liabilities. Interest rate instruments include the results of observable data relating to Group assets such as adverse these financial statements: is adjusted to reflect the number of share options for which making markets in instruments in government securities, changes in the payment status of borrowers or issuers in the the related service and non-market performance vesting corporate debt securities, money market instruments, interest Group or economic conditions that correlate with defaults in • IFRS 7 Financial Instruments Disclosures; Amendments conditions are expected to be met, such that the amount rate and currency swaps, options and other derivatives. the Group. enhancing disclosures about transfers of financial assets ultimately recognised as an expense is based on the number The amendments will allow users of financial statements of share options that do meet the related service and Equities trading income includes the results of making In assessing collective impairment the Group uses statistical to improve their understanding of transfer transactions non-market performance conditions at the vesting date. markets globally in equity securities and equity derivatives modelling of historical trends of the probability of default, of financial assets (for example, securitisations), such as swaps, options, futures and forward contracts. timing of recoveries and the amount of loss incurred, adjusted including understanding the possible effects of any risks The fair value of employee share options is measured using for management’s judgement as to whether current economic that may remain with the entity that transferred the a binomial lattice model. The fair value of share appreciation (t) Financial guarantees and credit conditions are such that the actual losses are likely assets. The amendments also require additional rights is measured using the Black-Scholes formula. Financial guarantee contracts are contracts that require the to be greater or less than suggested by historical modelling. disclosures if a disproportionate amount of transfer Measurement inputs include share price on measurement issuer (i.e. the Group) to make specified payments to Default rates, loss rates and the expected timing of future transactions are undertaken around the end of a date, exercise price of the instrument, expected volatility reimburse the holder for a loss it incurs because a specified recoveries are regularly benchmarked against actual outcomes reporting period. The effective date is annual periods (based on weighted average historic volatility adjusted for debtor fails to make payments when due, in accordance with to ensure that they remain appropriate. beginning on or after 1 July 2011. changes expected due to publicly available information), the original or modified terms of a debt instrument. Such weighted average expected life of the instruments (base on financial guarantees are given to banks, financial institutions Impairment losses on assets measured at amortised cost are • IFRS 9 Financial Instruments; This standard forms part of historical experience and general option holder behaviour), and other bodies on behalf of customers to secure loans, measured as the difference between the carrying amount of the IASB’s project to replace the existing standard on the expected dividends, and the risk-free interest rate (based on overdrafts and other banking facilities. Financial guarantees the financial assets and the present value of estimated cash recognition and measurement of financial instruments. government bonds). Service and non-market performance are included within other liabilities. flows discounted at the assets’ original effective interest rate. The standard defines two measurement categories for conditions attached to the transactions are not taken into Losses are recognised in profit or loss and reflected in an financial assets: amortised cost and fair value. A financial account in determining fair value. Financial guarantees are initially recognised at fair value allowance account against loans and advances. Interest on asset may only be measured at amortised cost if it has on the date the guarantee is given and the initial fair value the impaired asset continues to be recognised through the basic loan features and is managed on a contractual yield The employee share options are valued by independent ex- is amortised over the life of the financial guarantee. The unwinding of the discount. basis. The standard also differs from existing requirements perts at group level and the values relating to their employees financial guarantee is subsequently carried at the higher of for accounting for financial assets in various other areas, are communicated to the group subsidiaries. this amortised amount and the present value of any expected When a subsequent event causes the amount of impairment such as embedded derivatives and the recognition of payment when a payment under the guarantee has become loss to decrease, the impairment loss is reversed through fair value adjustments in other comprehensive income. (q) Acceptances, guarantees and letters of credit probable. These estimates are determined based on profit or loss. The standard will be applied retrospectively (subject to Acceptances, guarantees and letters of credit are accounted experience of similar transactions and history of past losses, the standard’s transitional provisions). The impact on for as off-statement of balance sheet transactions and supplemented by the judgment of management. Impairment losses on available-for-sale investment securities the financial statements will require reclassification of disclosed as contingent liabilities, unless it is probable that the are recognised by transferring the difference between the financial assets. The effective date is annual periods Group will be required to make payments under these Any increase in the liability relating to guarantees is included acquisition cost and current fair value out of equity to profit beginning on or after 1 January 2015. instruments, in which case they are recognised as provisions. in the profit or loss under other operating expenses. or loss less any previously recognised impairment losses. When a subsequent event causes the amount of impairment • IFRS 10 Consolidated Financial Statements; (r) Fees and commissions (u) Amortised cost measurement loss on an available-for-sale debt security to decrease, the This standard requires a parent entity (an entity that Fees and commissions are generally recognised on an accrual The amortised cost of a financial asset or liability is the impairment loss is reversed through profit or loss. controls one or more other entities) to present basis when the service has been provided. Loan commitment amount at which the financial asset or liability is measured at consolidated financial statements, it defines the principle fees for loans that are likely to be drawn down are deferred initial recognition minus principal repayments, plus or minus (x) Earnings per share of control, and establishes control as the basis for (together with related direct costs) and recognised as an the cumulative amortisation using the effective interest method The Group presents basic and diluted earnings per share consolidation, it set out how to apply the principle of adjustment to the effective interest rate on the loan. Loan of any difference between the initial amount recognised and (EPS) data for its ordinary shares. The basic EPS is deter- control to identify whether an investor controls an syndication fees are recognised as revenue when the the maturity amount, minus any reduction for impairment.

50 51 Standard Bank Limited Annual Report for the year ended 31 December 2011

investee and therefore must consolidate the investee and recognition and measurement of termination benefits, it sets out the accounting requirements for the preparation clarifies miscellaneous issues, including the classification of of consolidated financial statements. The effective date is employee benefits, current estimates of mortality rates, tax annual periods beginning on or after 1 January 2013. and administration costs and risk-sharing and conditional indexation features. The effective date is annual periods 4. Risk Management • IFRS 11 Joint Arrangements; The core principle of IFRS 11 beginning on or after 1 January 2013. is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its • IAS 27 Consolidated and Separate Financial Statements; rights and obligations and accounts for those rights and Reissued as IAS 27 Separate Financial Statements (as (a) Introduction and overview obligations in accordance with that type of joint arrange- amended in 2011), Consolidation requirements previously ment. The effective date is annual periods beginning on or forming part of IAS 27 (2008) have been revised and are The Group has exposure to the following risks from its use of financial instruments: after 1 January 2013. now contained in IFRS 10 Consolidated Financial • Credit risk Statements. The effective date is annual periods beginning • Liquidity risk • IFRS 12 Disclosure of Interest in other Entities; The on or after 1 January 2013. • Market risks objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to • IAS 28 Investments in Associates; Reissued as IAS 28 Also, the Group has exposure to Operational and Compliance risks. evaluate, the nature of, and risks associated with, its Investments in Associates and Joint Ventures (as amended interests in other entities and the effects of those interests in 2011), the objective of IAS 28 (as amended in 2011) is This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and on its financial position, financial performance and cash to prescribe the accounting for investments in associates processes for measuring and managing risk, and the Group’s management of capital. flows. The effective date is annual periods beginning on or and to set out the requirements for the application of the after 1 January 2013. equity method when accounting for investments in Risk measurement and control associates and joint ventures. IAS 28 applies to all entities • IFRS 13 Fair Value Measurement; IFRS 13 applies when that are investors with joint control of, or significant The effective management of risk is critical to earnings and statement of financial position growth within Standard Bank Group another IFRS requires or permits fair value influence over, an investee (associate or joint venture). where the culture encourages sound commercial decision making which adequately balances risk and reward. measurements or disclosures about fair value The effective date is annual periods beginning on or after measurements (and measurements, such as fair value 1 January 2013. Risk Management approach less costs to sell, based on fair value or disclosures about those measurements). The effective date is annual periods The Group has governance standards for all major risk types. All standards are applied consistently across the Group and are beginning on or after 1 January 2013. approved by the board.

• IAS 1 Presentation of Financial Statements; Amendments The standards form an integral part of the Group’s governance infrastructure, reflecting the expectations and requirements of the to revise the way other comprehensive income is presented. board in respect of key areas of control across the Group. The standards ensure alignment and consistency in the manner that major The amendments to IAS 1 retain the ‘one or two risk types across the Group are identified, measured, managed, controlled, and reported. statement’ approach at the option of the entity and only revise the way other comprehensive income is presented: The Group’s Internal Audit Department independently audits the adequacy and effectiveness of the Group’s risk management, requiring separate subtotals for those elements which may control and governance processes. The head of internal audit department provides independent be ‘recycled’ (e.g. cash-flow hedging, foreign currency assurance to the audit committee and has unrestricted access to the managing director and the chairman of the board. translation), and those elements that will not (e.g. fair value through Other Comprehensive Income (OCI) items Risk appetite and risk tolerance under IFRS 9). The effective date is annual periods beginning on or after 1 July 2012. Risk appetite is the quantum of risk the Group is willing to accept in the normal course of business in pursuit of its strategic and financial objectives. Risk taken within “appetite” may give rise to expected losses, but these should be covered by expected • IAS 12 Income Taxes; Amendments to revise the way earnings. other IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity Risk tolerance is an assessment of the maximum risk the Group is willing to sustain for short periods of time. It emphasises the expects to recover the carrying amount of the asset “downside” of the risk distribution, and the Group’s capacity to survive unexpected losses. The capacity to take unexpected losses through use or sale. The amendment provides a practical depends on having sufficient capital and liquidity available to avoid insolvency. Risk tolerance typically provides a useful upper solution to the problem by introducing a presumption that boundary for the Group’s risk appetite. recovery of the carrying amount will, normally, be through sale. As a result of the amendments, SIC-21 Income The Group’s board of directors has ultimate responsibility for risk management, which includes evaluating key risk areas and Taxes—Recovery of revalued Non-Depreciable Assets ensuring the process for risk management and systems of internal control are implemented. It has delegated its risk-related would no longer apply to investment properties carried at responsibilities primarily to three committees, the risk management committee, the audit committee and the credit committee, fair value. The effective date is annual periods beginning with each committee focusing on different aspects of risk management. on or after 1 January 2012. Risk Management • IAS 19 Employee Benefits; Amended Standard resulting from the Post-Employment Benefits and Termination Naturally, the Group faces a number of risks when conducting its business which it may choose to take, transfer or mitigate as Benefits projects, requires recognition of changes in the described in the notes to the financial statements from 4(b) to 4(h). net defined benefit liability (asset) including immediate recognition of defined benefit cost, disaggregation of defined benefit cost into components, recognition of remeasurements in other comprehensive income, plan amendments, curtailments and settlements. It introduces enhanced disclosures about defined benefit plans, Modifies accounting for termination benefits, including distinguishing benefits provided in exchange for service and benefits provided in exchange for the termination of employment and affect the

52 53 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) | (a) Introduction and overview (continued) 4. Risk management (continued) | (b) Credit risk (continued) (b) Credit risk Description of collateral held as security and other credit enhancements, in respect of the exposure above Credit risk is the risk that a loss will be incurred if counterparty to a credit transaction does not fulfil its contractual obligations in a timely manner. Group and Company Company The Group’s Personal and Business Banking and Corporate and Investment Banking credit policies cover the entire credit risk man- agement process within the Group. The polices are more stringent than the Banking Act of Malawi and Reserve Bank of Malawi The Group holds mortgages over property, registered securities and guarantees as collateral within the following classes:: 2011 2010 (RBM) Directives. It is subject to review annually and requires the approval of the Group’s Board of Directors and Standard Bank MKm MKm Africa Credit Committee. The policies outline issues pertaining to delegated lending limits, risk concentrations and internal lending constraints, security and legal documentation, risk weightings applied to lending, excesses and irregular accounts reporting and Personal and Business Banking the treatment of non-performing loans. - Mortgage Lending 3,890 1,848 - Installment sales and finance leases 5,036 2,467 For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure. - Other loans and advances 9,044 5,110 Corporate and Investment Banking Management of credit risk The Board of Directors has delegated the responsibility of the management of credit risk to its Credit Committee. A separate Credit - Corporate lending 14,578 6,045 Department, that reports quarterly to the Credit Committee of the Board, is responsible for oversight of the credit risk, including: 32,548 15,470 Collateral repossessed • Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grad- ing and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. Nature of assets • Establishing the authorisation structure for approvals and renewals of credit facilities. Authorisation limits are provided to Residential property - 25 credit officers and credit committees. Large credit limits require approval by the country Credit Risk Management Committee Other 54 93 and the Head of Credit as delegated by the Board. • Reviewing and assessing credit risk. The Credit Department assesses all credit exposures and prepares a watch list which 54 118 includes all those clients which have exceeded their limits or repayments are in arrears. • Limit concentration of exposure to counterparts’ location and type of customer in relation to the Group loans and advances to customers by carrying a balanced portfolio. • Reviewing compliance so that exposure limits remain within the acceptable range. It is the Group’s policy to dispose off repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In • Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the man- general, the Group does not occupy repossessed properties for business use. agement of credit risk.

Regular audits of business units and credit processes are undertaken by the Internal Audit department. Maximum exposure to credit risk without taking into account any collateral or other credit enhancements The table overleaf shows the maximum exposure to credit risk by class of financial instrument. Financial instruments include fi- nancial instruments defined and recognised under IAS 39 Financial Instruments: Recognition and Measurement as well as other financial instruments not recognised. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral agreements.

Gross maximum exposure Group Company Company 2011 2011 2010 Gross maximum exposure Note MKm MKm MKm

Cash and cash equivalents 8 8,541 8,489 7,738 Trading assets 9 7,683 7,683 5,499 Loans and advance to bank and other financial institutions 10 4,984 4,984 6,900 Personal and Business Banking - Mortgage Lending 11 3,372 3,372 1,430 - Installment sales and finance leases 11 5,036 5,036 4,738 - Other loans and advances net of impairments 11 9,345 9,345 6,749 Corporate and Investment Banking - Corporate lending 11 21,681 21,681 12,308 Financial investments 12 6,157 6,157 4,234 Total recognised financial instruments 66,799 66,747 49,596

Acceptances and letters of credit 34 1,236 1,236 1,863 Guarantees and performance bonds 34 1,106 1,106 833 Total unrecognised financial instruments 2,342 2,342 2,696 Total credit risk exposure 69,141 69,089 52.292 55 54 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) | (b) Credit risk (continued) 4. Risk management (continued) | (b) Credit risk (continued)

Credit quality per class of financial assets Net exposure to credit risk without taking into account any collateral or other credit enhancements

In respect of certain financial assets, the Group has legally enforceable rights to offset them with financial liabilities. However, in normal circumstances, there The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit quality by class of financial asset would be no intention of settling net, or of realising the financial assets and settling the financial liabilities simultaneously. Consequently, the financial as- for credit risk related items, based on the Group’s credit rating system.. sets are not offset against the respective financial liabilities for financial reporting purposes. However, the exposure to credit risk relating to the respective financial assets is mitigated as follows: At 31 December 2011 Group Group and Company Performing Loans Non - Performing Loans security 2011 Carrying Net exposure Past due against Net

Notes amount Offset to credit risk but not Sub- impaired impaired MKm MKm MKm Credit quality Note Standard Impaired Standard Doubtful Loss Total loans loans MKm MKm MKm MKm MKm MKm MKm MKm Cash and cash equivalents 8 8,541 - 8,541 Loans and advances to customers Trading assets 9 7,683 - 7,683 Personal and Business Banking: Loans and advances to banks and other financial institutions 10 4,984 - 4,984 - Mortgage Lending 3,028 294 32 15 3 3,372 43 7 Loans and advances to customers 11 40,771 (1,337) 39,434 Financial investments 12 6,157 - 6,157 - Installment sales and finance leases 3,675 885 299 155 22 5,036 246 2 3 0 - Other loans and advances 8,563 1,291 417 138 273 10,682 471 357 Net exposure to credit risk 68,136 (1,337) 66,799 Corporate and Investment Banking: - Corporate lending 21,300 220 - - 161 21,681 - 161

Company At 31 December 2011 Total recognised financial instruments 11 36,566 2,690 748 308 459 40,771 760 755 Carrying Net exposure amount Offset to credit risk Notes MKm MKm MKm Credit quality per class of financial assets Cash and cash equivalents 8 8,489 - 8,489 Trading assets 9 7,683 - 7,683 The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of financial asset Loans and advances to banks and other financial institutions 10 4,984 - 4,984 for credit risk related items, based on the Group’s credit rating system. Loans and advances to customers 11 40,771 (1,337) 39,434 Performing Loans Non - Performing Loans Financial investments 12 6,157 - 6,157 Company security Past due against Net exposure to credit risk 68,084 (1,337) 66.747 2010 but not Sub- impaired Credit quality Note Standard Impaired Standard Doubtful Loss Total loans MKm MKm MKm MKm MKm MKm MKm MKm Loans and advances to customers Company At 31 December 2010 Personal and Business Banking Carrying Net exposure - Mortgage Lending 1,338 72 20 - - 1,430 15 5 amount Offset to credit risk - Installment sales and finance leases 3,288 1,257 10 181 2 4,738 80 113

MKm MKm MKm - Other loans and advances 6,753 436 152 14 71 7,426 75 163 Corporate and Investment Banking Cash and cash equivalents 8 7,738 - 7,738 - Corporate lending 11,745 375 188 - - 12,308 88 100 Trading assets 9 5,499 - 5,499 Loans and advances to banks and other financial institutions 10 6,900 - 6,900 Total recognised financial instruments 11 23,124 2,140 370 195 73 25,902 258 381 Loans and advances to customers 11 25,902 (55) 25,847 Financial investments 12 4,234 - 4,234

Net exposure to credit risk 50,273 (55) 50,218 The fair value of collateral that the Group holds relating to loans individually determined to be impaired at 31 December 2011 amounts to MK760 million (2010: MK258 million). The collateral consists of securities, mortgages over property and guarantees.

The amount of renegotiated loans as at 31 December 2011 was MK 2,571 million (2010: MK126 million)

56 57 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) | (b) Credit risk (continued) 4. Risk management (continued) | (b) Credit risk (continued)

Impaired loans and securities The Group monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date is shown below: Impaired loans and securities are loans and securities for which the Group determines that it is probable that it will be Group and unable to collect all principal and interest due according to the contractual terms of the loan/securities agreements. Company Company Past due but not impaired loans Loans and advances 2011 2010 Note MKm MKm Loans and securities where contractual interest or principal payments are past due but the Group believes that im- pairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of Segmental analysis – industry amounts owed to the Group. Agriculture 4,763 3,649 Construction 1,493 699 Loans with renegotiated terms Energy 145 23 Finance, real estate and other business services 9,604 5,026 Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Group has made concessions that it would not otherwise consider. Once the loan is restruc- Individuals 10,655 6,368 tured it remains in this category regardless of satisfactory performance after restructuring. Manufacturing 3,785 4,218 Mining 908 142 Allowances for impairment Transport 6,439 4,273 Wholesale 2,979 1,504 The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant 11 40,771 25,902 exposures, and a collective loan loss allowance established for Groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Economic sector risk concentrations within the customer loan portfolio were as follows: Impairment policy Agriculture 12% 14% The Group writes off a loan/security balance (and any related allowances for impairment losses) when Group Credit Construction 4% 3% determines that the loans/securities are uncollectible. This determination is reached after considering information Energy 0% 0% such as the occurrence of significant changes in the borrower/issuer’s financial position such that the borrower/ Finance, real estate and other business services 24% 19% issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire Individuals 26% 25% exposure. For smaller balance standardised loans, charge off decisions generally are based on a product specific past due status. Manufacturing 10% 16% Mining 2% 1% Transport 16% 16% Wholesale 7% 6% 100% 100%

The risk that counterparties to trading instruments might default on their obligations is monitored on an on-going basis. In moni- toring credit risk exposure, consideration is given to trading instruments with a positive fair value and the volatility of the fair value of trading instruments.

To manage the level of credit risk, the Group deals with counter-parties of good credit standing, enters into master netting agree- ments whenever possible, and when appropriate, obtains collateral. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.

58 59 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) 4. Risk management (continued) | (c) Liquidity risk (continued) (c) Liquidity risk

Liquidity risk arises from exposure to daily calls on the Group’s cash resources. It includes both the risk of being unable to fund Up to assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropri- At 31 December 2011 Note 1 month 1-3 months 3-12 months Over 1 year Total ate time frame. Company MKm MKm MKm MKm MKm Assets Management of liquidity risk Cash and cash equivalents 8 8,489 - - - 8,489 The Group has access to a diverse funding base. Funds are raised mainly from deposits and shareholders. This enhances funding Trading assets 9 229 1,981 5,088 385 7,683 flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. The Group strives to maintain a Loans and advances to banks 10 4,984 - - - 4,984 balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. The Group continually Net Loans and advances to customers 11 17,508 3,145 7,453 11,328 39,434 assesses liquidity risk by identifying and monitoring changes in funding required to meeting business objectives. In addition the Group holds a portfolio of liquid assets as part of its liquidity risk management strategy. Investments securities 12 624 4,456 294 783 6,157

The table below analyses financial assets and liabilities into relevant maturity rankings based on the remaining period at 31 Decem- Total assets 31,834 9,582 12,835 12,496 66,747 ber 2011 to the contractual maturity date. All figures are in millions of Malawi Kwacha. Balances due to other banks 18 361 - - - 361 Deposits from customers 19 52,672 4,572 364 94 57,702 Total liabilities 53,033 4,572 364 94 58,063 Up to At 31 December 2011 Note 1 month 1-3 months 3-12 months Over 1 year Total Liquidity gap (21,199) 5,010 12,471 12,402 8,684 Group MKm MKm MKm MKm MKm Assets Cash and cash equivalents 8 8,541 - - - 8,541 Trading assets 9 229 1,981 5,088 385 7,683

Loans and advances to banks 10 4,984 - - - 4,984 Up to At 31 December 2010 Note 1 month 1-3 months 3-12 months Over 1 year Total Net Loans and advances to customers 11 17,508 3,145 7,453 11,328 39,434 Company MKm MKm MKm MKm MKm Investments securities 12 624 4,456 294 783 6,157 Assets Total assets 31,886 - 9,582 12,835 12,496 66,799 Cash and cash equivalents 8 7,738 - - - 7,738 Trading assets 9 464 2,572 2,463 - 5,499 Balances due to other banks 18 361 - - - 361 Loans and advances to banks 10 6,900 - - - 6,900 Deposits from customers 19 52,672 4,572 364 94 57,702 Net Loans and advances to customers 11 5,287 2,592 5,038 12,308 25,225 Total liabilities 53,033 4,572 364 94 58,063 Investments securities 12 199 567 2,512 956 4,234

Total assets 20,588 - 5,731 10,013 13,264 49,596 Liquidity gap (21,147) 5,010 12,471 12,402 8,736

Balances due to other banks 18 384 - - - 384 Deposits from customers 19 41,508 504 191 428 42,631 Total liabilities 41,892 504 191 428 43,015

Liquidity gap (21,304) 5,227 9,822 12,836 6,581

The contractual liquidity gap shows the mismatch before any adjustments are made for product and customer behavioural assumptions. The Group’s asset liability committee manages this mismatch by setting guidelines and limits for anticipated liquidity gaps and monitors these gaps daily. The committee reviews the product and customer behavioural assumptions when there is indication that there is a shift in one or more of the variables.

60 61 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) | (c) Liquidity risk (continued) 4. Risk management (continued) | (c) Liquidity risk (continued)

Analysis of financial assets and liabilities by remaining contractual maturities Analysis of financial assets and liabilities by remaining contractual maturities

The table below summarises the remaining contractual maturities of the Group’s financial assets and liabilities based on undiscounted cash flows: The table below summarises the remaining contractual maturities of the Group’s financial assets and liabilities based on undiscounted cash flows:

Maturing Maturing Maturing Maturing Maturing Maturing after 1 after 6 after 12 after 1 after 6 after 12 Maturing month but months but months but Maturing month but months but months but 2011 Redeemable within 1 within 6 within 12 within 5 2011 Redeemable within 1 within 6 within 12 within 5 Group on demand month months months years Total Company on demand month months months years Financial assets MKm MKm MKm MKm MKm MKm Financial assets MKm MKm MKm MKm MKm MKm Cash and balances with Banks 8 8,541 - - - - 8,541 Cash and balances with banks 8 7,738 - - - - 7,738 Trading assets 9 - 229 4,229 3,225 - 7,683 Trading assets 9 - 497 4,138 864 - 5,499 Loans and advances to banks 10 4,984 - - - - 4,984 Loans and advances to banks 10 6,900 - - - - 6,900 Loans and advances to customers 11 10,904 6,604 3,753 6,845 11,328 39,434 Loans and advances to customers 11 18,795 20 451 1,350 4,609 25,225 Investments securities 12 - 624 4,750 - 783 6,157 Investments securities 12 199 2,448 631 956 4,234

Financial liabilities Financial liabilities Deposits and loans from banks 18 (361) - - - - (361) Deposits and loans from banks 18 (361) - - - - (361) Deposits from customers 19 (40,732) (11,940) (4,753) (183) (94) (57,702) Deposits from customers 19 (40,732) (11,940) (4,753) (183) (94 (57,702)

Total recognised financial instruments (16,664) (4,483) 7,979 9,887 12,017 8,736 Total recognised financial instruments (16,716) (4,483) 7,979 9,887 12,017 8,684

Analysis of financial assets and liabilities by remaining contractual maturities

The table below summarises the remaining contractual maturities of the Group’s financial assets and liabilities based on undiscounted cash flows:

Maturing Maturing Maturing after 1 after 6 after 12 Maturing month but months but months but 2010 Redeemable within 1 within 6 within 12 within 5 Company on demand month months months years Financial assets MKm MKm MKm MKm MKm MKm Cash and balances with banks 8 7,738 - - - - 7,738 Trading assets 9 497 4,138 864 - 5,499 Loans and advances to banks 10 6,900 - - - - 6,900 Loans and advances to customers 11 18,795 20 451 1,350 4,609 25,225 Investments securities 12 - 199 2,448 631 956 4,234

Financial liabilities Deposits and loans from banks 18 (384) - - - - (384) Deposits from customers 19 (38,432) (3,190) (696) (156) (157) (42,631)

Total recognised financial instruments (5,383) (2,474) 6,341 2,689 5,408 6,581

62 63 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) 4. Risk management (continued) | (d) Market risks (continued)

Sensitivity analysis for each type of market risk (d) Market risk Interest rate risk Market risk is the risk that changes in market prices, such as interest rate, foreign exchange rates and other price risk will affect the Group’s income or the value of holdings of financial instruments. The objective of market risk management is to manage and The table below indicates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of control market risk exposures within acceptable parameters, while optimising the return on risk. the Group’s profit or loss:

Management of market risks Increase in Sensitivity of net Group and Company basis points interest income The Group separates its exposure to market risk between trading and non-trading portfolios. Trading portfolios mainly are held by the Global Markets unit, and include positions arising from market making and proprietary position taking, together with financial MKm assets and liabilities that are managed on a fair value basis. 2011 50 (12.6) All foreign exchange risk within the Group is transferred and sold down by the banking book. Accordingly, the foreign exchange position is treated as part of the Group’s trading portfolios for risk management purposes. Company Overall authority for market risk is vested in the Asset and Liability Committee (ALCO). Group Risk is responsible for the devel- 2010 50 (5.7) opment of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation.

Exposure to market risks – Trading portfolios Interest rate risk

The principal tool used to measure and control market risk exposure with the Group’s trading portfolios is Value at Risk (VaR). The The table below indicates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of VaR of a trading portfolio is the estimated loss that would arise on the portfolio over a specified period of time (holding period) the Group’s equity: from an adverse market movement with a specified probability (confidence level). The VaR model used by the Group is based upon a 95% confidence level and assumes a one-day holding period. The VaR Model used is based mainly on historical simulation. Increase in Sensitivity of net Taking account of market data from the one-year data or from at least 250 business days, and observed relationships between Group and Company basis points interest income different markets and prices, the model generates a wide range of plausible future scenarios for market price movements.

Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some MKm limitations, including the following; 2011 200 (345.1) • A one day holding period assumes it is possible to hedge or dispose off positions within that period. This is considered to be Company a realistic assumption in almost all the cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period. 2010 200 (304.6) • A 95% confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a 5% probability that losses could exceed the VaR. • VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day. • The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature. • The VaR measure is dependent upon the Group’s position and the volatility of market prices. • The VaR of an unchanged position reduces if the market price volatility declines and vice versa.

The Group uses VaR limits for specific foreign exchange, Present value (PV01) limit and other price risks. The overall structure of VaR limits is subject to review and approval by ALCO. VaR is measured at least daily. VaR limits are allocated to trading portfolios.

64 65 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) | (d) Market risks (continued) 4. Risk management (continued) | (d) Market risks (continued)

Interest rate gap analysis Up to 1 1-3 3-12 Over 1 Carrying months year amount The table below summarises the exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorized At 31 December 2010 month months by the earlier of contractual re-pricing or maturity dates. The Group does not bear an interest rate risk on unrecognized financial instruments. Company Note MKm MKm MKm MKm MKm Assets Cash and cash equivalents 8 7,738 - - - 7,738 Up to 1 1-3 3-12 Over 1 Trading assets 9 5,499 - - - 5,499 At 31 December 2011 month months months year Carrying Deposits and advance to bank 10 6,900 - - - 6,900 amount Group Note MKm MKm MKm MKm MKm Loans and advances to customers 11 25,225 - - - 25,225 Assets Investments securities 12 - 4,234 - - 4,234 Cash and cash equivalents 8 8,541 - - - 8,541 Total assets 45,362 4,234 - - 49,596 Trading assets 9 229 1,981 5,088 385 7,683 Loans and advances to banks 10 4,984 - - - 4,984 Liabilities and shareholders’ funds Loans and advances to customers 11 39,434 - - - 39,434 Deposits and loans from banks 18 384 - - - 384 Investments securities 12 - 5,374 - 783 6,157 Deposits from customers 19 41,508 504 191 428 2,631

Total assets 53,188 7,355 5,088 1,168 66,747 Total liabilities and shareholders’ funds 41,892 504 191 428 43,015

Interest sensitivity gap 3,470 3,730 (191) (428) 6,581 Liabilities and shareholders’ funds Deposits and loans from banks 18 361 - - - 361 Deposits from customers 19 52,672 4,572 364 94 57,702

Total liabilities 53,033 4,572 364 94 58,063

Interest sensitivity gap 155 2,783 4,724 1,074 8,736

Up to 1 1-3 3-12 Over 1 Carrying months year amount At 31 December 2011 month months Company Note MKm MKm MKm MKm MKm Assets Cash and cash equivalents 8 8,489 - - - 8,489 Trading assets 9 229 1,981 5,088 385 7,683 Loans and advances to banks 10 4,984 - - - 4,984 Loans and advances to customers 11 39,434 - - - 39,434 Investments securities 12 - 5,374 - 783 6,157

Total assets 53,136 7,355 5,088 1,168 66,747

Liabilities and shareholders’ funds Deposits and loans from banks 18 361 - - - 361 Deposits from customers 19 52,672 4,572 364 94 57,702

Total liabilities 53,033 4,572 364 94 58,063

Interest sensitivity gap 103 2,783 4,724 1,074 8,684

66 67 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) 4. Risk management (continued)

(f) Derivatives held for risk management purposes (e) Currency risk The Group’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, This risk relates to the exposure of the Group’s foreign exchange position to adverse movements in foreign acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial exchange rates. These movements may impact on the Group’s future cash flows. The Group manages this risk business, and the operational risks are an inevitable consequence of being in business. The Group’s aim is by adhering to internally set limits and those set by the Reserve Bank of Malawi. Transactions that require the therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects Group to guarantee the provision of foreign currency in future are only undertaken where the Group is certain on the Group’s financial performance. that foreign currency will be available. Occasionally the Group buys appropriate derivative instruments to hedge against the risk. The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date In respect of monetary assets and liabilities in foreign currency, the Group ensures that its net exposure is kept information systems. The Group regularly reviews its risk management policies and systems to reflect changes to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate. in markets, products and emerging best practice.

The Group had the following significant foreign currency positions (all amounts expressed in millions of Malawi Risk management is carried out by a central treasury department (Bank Treasury) under policies approved by Kwacha): the Board of Directors. Bank Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of Group and company derivative financial instruments and non-derivative financial instruments. At 31 December 2011 Derivatives are recognised initially at fair value and subsequently measured at fair value. Fair values are USD GBP Euro ZAR Total obtained from appropriate pricing models. Assets Loans and advances to banks 4,070 237 476 119 4,902 Gains and losses on derivatives are included in net trading income as they arise. Loans and advances to customers 3,695 - - - 3,695 (g) Operational risks

Total assets 7,765 237 476 119 8,597 Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, Liabilities market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted Deposits and loans from banks 77 2 49 37 165 standards of corporate behaviour. Operational risks arise from all of the Group’s operations and are faced by Deposits from customers 6,993 250 471 101 7,815 all business entities. Other liabilities - - - 695 695 The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict Total liabilities 7,070 252 520 833 8,675 initiative and creativity.

The management of this risk is done through the implementation of an Operational Risk Management (ORM) Net position 695 ( 15) (44) (714) (78) Policy and Framework. The ORM model involves use of risk tables, risk control self assessments, key risk indicators, incident management, audit findings, compliance reports, information risk management, loss Company control programmes and business continuity management. Audits and routine control (or operational integrity) processes provide an independent assurance on the adequacy and effectiveness of the At 31 December 2010 management of operational risk, including, but not limited to, the processes, systems and controls. Assets Deposits and loans to banks 4,021 53 18 20 4,112 Compliance with Group standards is supported by a programme of periodic reviews undertaken by the Internal Audit Department. The results of Internal Audit reviews are discussed with the management of the Loans and advances to customers 2,837 - - - 2,837 business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group. Total assets 6,858 53 18 20 6,949

Liabilities Deposits and loans from banks 289 69 13 13 384 Deposits from customers 5,396 407 260 120 6,183 Other liabilities - - - 415 415

Total liabilities 5,685 476 273 548 6,982

7,517 948 312 94 8,871

Net position 1,173 ( 423) (255) (528) (33)

68 69 Standard Bank Limited Annual Report for the year ended 31 December 2011

4. Risk management (continued) 4. Risk management (continued) (ii) Liquidity ratio 2 (h) Compliance risk Net liquidity (total liquid assets less suspense account in foreign currency and cheques in the course of collection) divided by total deposits must be at least 20%. Compliance is an independent core risk management activity, the head of which also has unrestricted access to the Managing Director and the Chairman of the Board. The Group is subject to extensive supervisory and The Group complied with the liquidity ratio requirements in 2011. As at 31 December 2011, the Group’s regulatory regimes, and the executive management remains responsible for overseeing the management of the liquidity ratio 1 was 38.67% (2010: 44.89%) and liquidity ratio 2 was 38.41% (2010: 44.36%). Group’s compliance risk. Implementing current capital requirements of the Reserve Bank of Malawi requires the Group to maintain a Money laundering control and occupational health and safety (including aspects of environmental risk management) prescribed ratio of total capital to total risk-weighted assets. The Group calculates requirements for market risk are managed within the compliance function and there are increasingly onerous legislative requirements being in its trading portfolios based upon the Group’s VaR models and uses its internal grading as the basis for risk imposed in both these areas. The Group has adopted Anti-Money laundering policies including Know Your Customer weightings for credit risk. policies and procedures and adheres to the country’s anti-money laundering legislation and the Reserve Bank of Malawi’s regulations/ directives. The Group has access to a diverse funding base. Funds are raised mainly from deposits and shareholders. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of The management of compliance risk has become a distinct discipline within the Group’s overall risk management funds. The Group strives to maintain a balance between continuity of funding and flexibility through the use of framework. Ultimate responsibility for this risk lies with the Board of Directors. A combination of key activities are liabilities with a range of maturities. The Group continually assesses liquidity risk by identifying and monitoring undertaken to manage the risk such as identifying the regulatory universe and developing compliance management changes in funding required for meeting business objectives. In addition the Group holds a portfolio of liquid plans, training staff and other stakeholders on relevant regulatory requirements, and monitoring compliance. assets as part of its liquidity risk management strategy. Compliance with the Know-Your-Customer and Anti-money Laundering procedures and legislation remains an area of major focus for the Group. The Group has a dedicated Money Laundering Control Officer who consults the (iii) Capital management country’s Financial Intelligence Unit on money laundering and anti-terrorist financing matters. Reserve Bank of Malawi sets and monitors the capital requirements for the Bank. In implementing current capital requirements, the Reserve Bank of Malawi requires the Bank to maintain a minimum ratio of 10% of total capital to risk-weighted assets. The Bank’s regulatory capital is analyzed in two parts: (1) Statutory requirements • Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, and other regulatory reserve after taking out any investment in a subsidiary; and In accordance with the Banking Act, the Reserve Bank of Malawi has established the following requirements as at • Tier II capital, which includes share revaluation reserve investment revaluation reserve, property the reporting date: revaluation reserve and loan loss reserve. The calculation of both of the above ratio is given herein below:- (i) Liquidity reserve requirement The Group is required to maintain a liquidity reserve amount with the Reserve Bank of Malawi, in cash and/or with 2010 2010 registered discount houses, calculated on a weekly basis, of not less than 15.5 % (2010: 15.5%) of the preceding MKm MKm weeks’ average total deposit liabilities. The Group complied with the liquidity reserve requirement in 2011. In the last week of December 2011, the liquidity reserve was 17% (2010: 21%) of average customer deposits. Tier 1 capital

(ii) Capital adequacy requirement Share capital and Share Premium 1,067 1,067 The Group’s available capital is required to be a minimum of 10% of risk weighted assets and contingent liabilities. As at 31 December 2011, the Group’s available capital was 20.36% (2010: 25.08%) of its risk weighted assets Retained earnings 8,953 7,181 and contingent liabilities. The Group has complied with this requirement during the year. Total tier 1 capital 10,020 8,248

(iii) Loan loss Provision The loan loss provision in accordance with Reserve Bank of Malawi guidelines amounts to MK406 million (2010: Tier 2 capital MK666 million). The amount of impairment provisions included in the financial statements in accordance with IAS Loan loss reserve 429 262 39 is MK909 million (2010: MK677 million) which is in excess of the Reserve Bank of Malawi requirement. Revaluation reserve on property 2,381 1,429 Total regulatory capital 12,830 9.939 (2) Prudential aspects of Group’s liquidity Risk weighted assets 49,213 32,885 The Reserve Bank of Malawi has issued the following guidelines on the management of liquidity: Capital ratios (i) Liquidity ratio 1 Net liquidity (total liquid assets less suspense account in foreign currency) divided by total deposits must be at least Total regulatory capital expressed as a percentage of total risk weighted assets 26.07% 30.22% 30%. Total Tier 1 capital expressed as a percentage of total risk weighted assets 20.36% 25.08%

The Group has complied with all capital management requirements during the year ending 31 December 2011.

70 71 Standard Bank Limited Annual Report for the year ended 31 December 2011

5. Accounting estimates 6. Segment reporting and judgements Segment information is presented in respect of the Group’s business segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

Business segments pay and receive interest to and from the Central Treasury on an arm’s length basis to reflect the Management discussed with the Board Audit Committee the development, selection and disclosure of the Group’s allocation of capital and funding costs. critical accounting policies and estimates and the application of these policies and estimates. The Group comprises the following main business segments: Key sources of estimates and uncertainty (i) Corporate and Investment Banking Note 4(b) contains information about the assumptions and their risk factors relating to provision for loan losses. In notes 4(c), 4(d) and 4(e) detailed analysis is given of the exposure to liquidity risk, interest rates and currency risk Includes the Group’s trading and corporate finance activities, central treasury, loans, deposits and other transactions respectively. and balances with corporate customers. Key sources of estimation uncertainty • Commercial and investment banking services to larger corporate companies, financial institutions and international counterparties. (i) Allowances for credit losses • Global markets - includes foreign exchange, commodities, debt securities and equities trading. • Transactional products and services - includes transactional banking, trade finance and investor services. Assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy • Investment banking - includes equity investment, advisory, project finance, structured finance, structured trade 3(f) and 3(g). finance, corporate lending, primary markets, acquisition and finance, property finance and the asset and wealth management units. The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash (ii) Personal and Business Banking flows that are expected to be received. In estimating these cash flows, management makes judgements about counterparties financial situations and the net realisable value of any underlying collateral. Each impaired asset is • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are investment savings products, custody, debit cards, consumer loans and mortgages. independently approved by the Credit Risk function. • Transactional and lending products - transactions in products associated with the various points of contact channels such as ATMs, Internet, telephone banking and branches. This includes deposit taking activities, Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar electronic banking, cheque accounts and other lending products. economic characteristics where there is objective evidence to suggest that they contain impaired claims, but • Installment sale and finance leases - comprises two main areas, installment finance in the consumer market, the individual impaired items cannot yet be identified. A component of collectively assessed allowances is for mainly vehicles, and secondly, finance of vehicles and equipment in the business market. country risks. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required Other Group operations comprise fund management, institutional finance and providing other financial services, input parameters, based on historical experience and current economic conditions. The accuracy of the none of which constitutes a separately reportable segment. allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. Transactions between the business segments are on normal commercial terms and conditions.

(ii) Determining fair values Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in operating income. The determination of fair value for financial assets and liabilities for which there is no observable market price Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income requires the use of valuation techniques as described in accounting policy 3(e) and 3(g). For financial or expense between the business segments. instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing Segment assets and liabilities comprise operating assets and liabilities, being the majority of the statement of assumptions and other risks affecting the specific instrument. financial position, but exclude items such as taxation and borrowings.

Internal charges and transfer pricing adjustments have been reflected in the performance of each business. Revenue sharing agreements are used to allocate external customer revenues to a business segment on a reasonable basis.

72 73 Standard Bank Limited Annual Report for the year ended 31 December 2011

5. Segment reporting (continued) 5. Segment reporting (continued) | Business segments (continued) Business segments Corporate and Personnal and business Corporate and Total Personnal and business Total Investment banking banking Investment banking banking Group and Group and Group and Group and Group and Group and Company Company Company Company Company Company Company Company Company Company Company Company

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 MKm MKm MKm MKm MKm MKm MKm MKm MKm MKm MKm MKm Profit or loss Profit or loss

Interest income 2,854 3,140 2,980 2,126 5,834 5,266 Cash and cash equivalents 7,002 6,468 1,539 1,270 8,541 7,738 Interest expense (513) (406) (341) (221) (854) (627) Trading assets 7,683 5,499 - - 7,683 5,499 Loans and advances to banks 4,984 6,900 - - 4,984 6,900 Net interest income 2,341 2,734 2,639 1,905 4,980 4,639 Loans and advances to customers 20,625 12,308 18,809 12,917 39,434 25,225 Financial investments 6,157 4,234 - - 6,157 4,234 Other assets 864 370 1,295 552 2,159 922 Funding (191) (222) 191 222 - - Property and equipment 2,439 1,615 3,658 2,397 6,097 4,012 Net fee and commission income 141 (211) 2,161 2,015 2,302 1,804 Intangible assets 9 - 15 25 24 25 Net trading income 4,213 3,227 - - 4,213 3,227 Deferred tax assets 216 239 325 358 541 597 Other operating income 9 46 15 46 24 92 Total assets 49,979 37,633 25,641 17,519 75,620 55,152

Operating income 6,513 5,574 5,006 4,188 11,519 9,762 Liabilities Deposits and loans from banks 361 238 146 361 384 Staff costs (558) (914) (1,509) (1,368) (2,067) (2,282) Deposits from customers 36,097 23,413 21,605 19,218 57,702 42,631 Depreciation and amortisation (198) (173) (298) (304) (496) (477) Other liabilities 4,146 455 (1,191) - 2,955 455 Other operating expenses (843) (1,075) (1,574) (1,832) (2,417) (2,907) Current tax payable 163 66 246 100 409 166 Impairment losses on loans and advances (349) (73) (649) (401) (998) (474) Provisions 214 7,083 321 (6,675) 535 408 Employee benefits liabilities 64 276 95 414 159 690 Profit before income tax 4,565 3,339 976 283 5,541 3,622 Deferred tax liabilities 439 296 659 445 1,098 741

Total liabilities 41,484 31,827 21,735 13,648 63,219 45,475 Income tax expense (1,607) (1,066) (388) (132) (1,995) (1,198)

Shareholders’ equity Profit for the year 2,958 2,273 588 151 3,546 2,424 Share capital and Share premium 811 640 256 427 1,067 1,067 Reserves 5,564 922 471 634 6,035 1,556 Retained earnings 2,120 4,244 3,179 2,810 5,299 7,054

Total shareholders’ equity 8,495 5,806 3,906 3,871 12,401 9,677

Total equity and liabilities 49,979 37,633 25,641 17,519 75,620 55,152

74 75 Standard Bank Limited Annual Report for the year ended 31 December 2011

7. Accounting classifications and fair

Other Total values of financial instruments Designated Loans and amortised carrying Group at fair value receivables cost amount Fair value 31 December 2011 Cash and cash equivalents - - 8,541 8,541 8,541 Estimation of fair values Trading assets 7,683 - - 7,683 7,683 The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table: Loans and advances to customers - 39,434 - 39,434 39,434

Investment securities 6,157 - - 6,157 6,157 Malawi Government Treasury Bills Total 13,840 39,434 8,541 61,815 61,815 The fair value is based on quoted market prices, if available, or is calculated based on discounted expected future principal and interest cash flows. Trading liabilities Malawi Government Local Registered Stocks Deposits from customers 57,702 - - 57,702 57,702 The amortised cost is estimated as the present value of future cash flows, discounted at effective interest rates. Total 57,702 - - 57,702 57,702 Loans and receivables Company The amortised cost is estimated as the present value of future cash flows, discounted at effective interest rates. 31 December 2011 For receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other Cash and cash equivalents - - 8,489 8,489 8,489 receivables and other payables are discounted to determine the fair value. Trading assets 7,683 - - 7,683 7,683 Loans and advances to customers - 39,434 - 39,434 39,434 Investment securities 6,157 - - 6,157 6,157

Total 13,840 39,434 8,489 61,763 61,763

Trading liabilities Deposits from customers 57,702 - - 57,702 57,702

Total 57,702 - - 57,702 57,702

Company 31 December 2010 Cash and cash equivalents - - 7,738 7,738 7,738 Trading assets 5,499 - - 5,499 5,499 Loans and advances to customers - 25,225 - 25,225 25,225 Investment securities 4,234 - - 4,234 4,234

Total 9,733 25,225 7,738 42,696 42,696

Trading liabilities Deposits from customers 42,631 - - 42,631 42,631

Total 42,631 - - 42,631 42,631

76 77 Standard Bank Limited Annual Report for the year ended 31 December 2011

8. Cash and cash equivalents 9. Trading assets

Non Non Group Company Company Pledged pledged Total Pledged pledged Total trading trading trading trading trading trading assets assets assets assets assets assets 2011 2011 2010 2011 2011 2011 2010 2010 2010 MKm MKm MKm MKm MKm MKm MKm MKm MKm Government bonds - 385 385 - 1,085 1,085 Cash and balances with banks 1,539 1,487 1,356 Treasury bonds - 7,298 7,298 - 4,414 4,414 Balances with the Reserve Bank of Malawi 7,002 7,002 6,382 - 7,683 7,683 - 5,499 5,499

Balances eligible for Liquidity Reserve Requirement (Note 36) 8,541 8,489 7,738 Trading assets 2 011 2 010 Banks are required to maintain a prescribed minimum balance in cash, with the Reserve Bank of Malawi and licensed Discount houses that are Group & not available to finance the Bank’s day-to-day activities. The amount is determined as 15.5% of the average outstanding local and foreign Company Company currency customer deposits, over liquidity reserve cycle period of two weeks. Listed 7,298 4,414 Unlisted 385 1,085 7,683 5 499

Comprising: Treasury Bills 7,298 4,414 Government bonds 385 1,085 7,683 5,499

Maturity analysis The maturities represent periods to contractual redemption of the trading assets recorded. Redeemable on demand - - Maturing within 1 month 229 464 Maturing after 1 month but within 6 months 4,229 2,427 Maturing after 6 months but within 12 months 2,840 281 Maturing after 12 months 385 - 7,683 5,499

Collateral accepted as security for assets

At 31 December 2011, the fair value of financial assets accepted as collateral that the Group is permitted to sell or repledged in the absence of default is Nil (2010: Nil)

At 31 December 2011, the fair value of financial assets accepted as collateral that have been sold or repledged is Nil (2010: Nil). The Group is obliged to return equivalent securities. .

78 79 Standard Bank Limited Annual Report for the year ended 31 December 2011

11. Loans and advances to customers (continued) 2011 2010 Group & Company Company

10. Loans and advances to banks and other financial institutions MKm MKm 2011 2010 Collective allowances for impairment Group & Balance at 1 January 263 219 Company Company Impairment loss charge for the year 166 44 MKm MKm Balance at 31 December 429 263 Loans and advances to other banks 719 6,368 Loans and advances with group banks (note 36) 4,265 532 Total allowances for impairment 1,337 677 Balances with banking institutions 4,984 6,900 Impairment recognized in profit or loss 11. Loans and advances to customers Balance carried forward 1,337 677 Loans and advances to customers at fair value through profit or loss 1,293 914 Balance brought forward (677) (417) Loans and advances to customers at amortised cost 39,478 24,988 Credit impairment adjustment 336 171 40,771 25,902 Unwind of discount 2 (43) Less: impairment losses on loans and advances ( 1,337) (677) Charge to profit or loss 998 474 39,434 25,225 Impairment losses on loans and advances charged/credited to profit or loss is analysed as follows: At 31 December 2011, MK11,328 million (2010: MK12,308 million) of loans and advances to customers are expected to be recovered more than twelve months after the reporting date. Non-performing loans 832 430 Performing loans 166 44 Loans and advances to customers at amortised cost 998 474 Personal Business Banking Overdrafts 2,440 1,935 Finance lease receivables Term loans 8,242 5,491 Finance leases 5,036 4,738 The loans and advances to customers include the following finance lease receivables, for leases of certain property and equipment where the Group is the Mortgages 3,372 1,430 lessor: 19,090 13,594 Gross investment in finance leases receivable 10,494 7,941 Corporate Investment Banking Unearned future finance income on finance leases (2,334) (1,621) Overdrafts 11,941 6,196 Net investment in finance leases 8,160 6,320 Term loans 6,200 4,234 Impaired loans 475 296 Finance leases 3,540 1,878 8,635 6,616 21,681 12,308 The net investment in finance leases may be analysed as follows: Total gross loans and advances to customers 40,771 25,902 Not later than one year 921 1,091 Later than one year but less than five years 7,675 5,513 Allowances for impairment Later than five years 39 12 Balance at 1 January 414 198 Impairment loss for the year: 8,635 6,616 Charge for the year 585 226 Loans and advances to customers at fair value through profit or loss Write-offs 11 25 Recoveries (102) (35) Loans and advances to customers held by investment banking business have been designated at fair value through profit or loss as the Group manages these loans and advances on a fair value basis in accordance with its documented investment strategy. Internal report- Balance at 31 December 908 414 ing and performance measurement of these loans and advances are on a fair value basis.

At 31 December 2011, the maximum exposure to credit risk on loans and advances at fair value through profit or loss was MK 10,235 million (2010: MK3,642 million).

80 81 Standard Bank Limited Annual Report for the year ended 31 December 2011

15. Property and equipment 12. Financial Investments Group & Motor Company Company vehicles, Freehold Leasehold computers, 2011 2010 land and land and fixtures Work in buildings buildings and fittings Progress Total MKm MKm Financial Investment securities at fair value through profit or loss: Cost or valuation MKm MKm MKm MKm MKm Financial investment securities designated as at fair value through profit or loss 6,157 4,234 Group and Company 6,157 4,234 Balance at 1 January 2010 1,458 1,469 1,809 25 4,761 Additions 119 480 360 959 Tranfers (25) (25) At 31 December 2011 MK783 million (2010: MK956 million) of investment securities are expected to be recovered more than Disposals - - (245) - (245) twelve months after the reporting date. Balance at 31 December 2010 1,577 1,469 2,044 360 5,450 Investment securities have been designated at fair value through profit or loss upon initial recognition when the Group holds related derivatives at fair value through profit or loss and designation therefore eliminates or significantly reduces an accounting mismatch that would otherwise arise. Balance at 1 January 2011 1,577 1,469 2,044 360 5,450 Additions 217 - 438 714 1,369 Revaluations 419 412 - - 831 Financial Investment securities at fair value through profit or loss: Transfers 789 146 100 (1,035) - Government bonds 6,157 4,234 Disposal (139) - (13) - (152) 6,157 4,234 Balance at 31 December 2011 2,863 2,027 2,569 39 7,498 13. Investment in Subsidiary Accumulated depreciation and Company impairment losses 2011 2010 Balance at 1 January 2010 137 133 855 - 1,125 MKm MKm Charge for the year 25 55 357 - 437 Investment in Standard Bank Bureau de Change Limited 52 - Disposals - - (153) - (153) Standard Bank Limited owns 100% of the Shares in Standard Bank Bureau de Change Limited 52 - Write back of depreciation 29 - - - 29

Balance at 31 December 2010 191 188 1,059 - 1,438

Balance at 1 January 2011 191 188 1,059 - 1,438 14. Other assets Charge for the year 57 81 348 - 486 Group & Company Disposals (4) - (14) - (18) Company Write back of depreciation (242) (263) - - (505) 2011 2010 MKm MKm Balance at 31 December 2011 2 6 1,393 - 1,401 Items in transit 149 226 Staff receivables 4 29 Carrying amounts Consumable stocks 13 14 At 31 December 2011 2,861 2,021 1,176 39 6,097 Sundry receivables 909 51 Prepayments 1,084 602 At 31 December 2010 1,386 1,281 985 360 4,012

2,159 922 Mr. Chris Mullock MRICS, MSIM, a Chartered Valuation Surveyor, independent valuer, valued land and buildings as at 31 December 2011. Valuations were made on the basis of the open market value. The carrying values of the properties were adjusted to the revalu- ations and the resultant surplus net of deferred tax was credited to revaluation reserves in shareholders’ equity and this reserve is not distributable until realised.

The additions in the property plant and equipment have resulted in the maintaining of the operating capacity of the Group.

82 83 Standard Bank Limited Annual Report for the year ended 31 December 2011

Deferred tax is calculated, in full, on all temporary differences under the liability method using the enacted tax rate of 30% (2010:30%). If the land and buildings were stated on the historical cost basis, the carrying amounts would be as follows: The movement on the deferred tax account is as follows:

Group & 2011 2010 Company Company MKm MKm 2011 2010 MKm MKm Balance at 1 January (144) (154) Cost 601 601 Profit or loss (Note 31) (39) 81 Accumulated depreciation and impairment losses (490) (350) Fair value adjustment (374) (71)

Net carrying amount 111 251 Balance at 31 December (557) (144)

A register of land and buildings as required by Section 16 of the Malawi Companies Act 1984 is maintained by the Group’s registered office and is available for inspection. Deferred tax assets and liabilities, deferred tax (credit)/ charge in the profit or loss, and deferred tax charge/(credit) on revaluation reserve in equity are attributable to the following items: 16. Intangible assets – software Group & (Charged)/ Company Company credited (Charged)/ As at 2011 2010 to profit credited As at MKm MKm 1 January or loss to equity 31 December MKm MKm MKm MKm Balance at 1 January 217 241 2011 Add: Additions 11 - Other provisions 511 (105) - 406 Less: Disposals (2) (24) Allowances for loan losses 86 50 - 36 Property and equipment (54) (2) - (56) Balance at 31 December 226 217 Fair value adjustments (633) 18 - (615) Accumulated amortisation and impairment losses On revaluation reserve (54) - (374) (428) Balance at 1 January 192 204 (144) (39) (374) (557) Disposals - (24) Charge for the year 10 12 18. Deposits and loans from banks Balance at 31 December 202 192 Group & Carrying amounts 24 25 Company Company 2011 2010 MKm MKm 17. Deferred tax assets and liabilities Balances due to group banks (Note 37) 91 42 Analysis of deferred tax assets and liabilities in the statement of financial position is as follows:- Balances due to other banks 270 342

361 384

Deferred tax asset Deferred tax liability Net Maturity analysis The maturities represent periods to contractual redemption of the deposit from banks recorded. Group and Company 2011 2010 2011 2010 2011 2010 MKm MKm MKm MKm MKm MKm Redeemable on demand 361 384 Other provisions 412 511 - - 412 511 361 384 Allowances for loan losses 129 86 - - 129 86 Property and equipment - - (56) (54) (56) (54) Fair value adjustments - - (2) (633) (2) (633) On revaluation reserve - - (1,040) (54) (1,040) (54)

541 597 (1,098) (741) (557) (144)

84 85 Standard Bank Limited Annual Report for the year ended 31 December 2011

19. Deposits from customers 21. Provisions

Group & Group and Company Employee Company Company leave days 2011 2010 Others & gratuities Total MKm MKm MKm MKm MKm Personal Business Banking Balance at 1 January 2011 32 376 408 Current and demand deposits 9,590 8,325 Provisions made during the year (9) 136 127 Savings accounts 7,447 6,610 Balance at 31 December 2011 23 512 535 Fixed deposit accounts 2,669 1,938 Foreign currency deposit accounts 1,899 2,345 22. (i) Share capital 21,605 19,218 Group & Company Company Corporate Investment Banking 2011 2010 Current and demand deposits 26,229 17,567 Issued and fully paid up as at 1 January and 31 December 2011 213 213 Fixed deposit accounts 834 1,116 At 31 December 2011 the total authorised share capital comprised 213 million ordinary shares of Foreign currency deposit accounts 9,034 4,730 MK1 each (31 December 2010: 213 million ordinary shares of MK1 each). 36,097 23,413 (ii) Share premium Total deposits from customers 57,702 42,631 Issue of shares at a premium 854 854

At 31 December 2011, MK 94million (2010: MK428million) of deposits from customers are expected to be settled more than twelve months after the reporting date. 23. Reserves (i). Revaluation reserve Included in customer deposits were deposits of MK1, 236 million (2010: MK1, 863 million) held as collateral for irrevocable commitments under import letters of credit. Balance at 1 January 1,429 1,429 Revaluation Surplus 1,360 - Some deposits carry fixed interest rates. Most customer deposits are variable rate. Deferred Tax on revaluation surplus (408) - Maturity analysis Balance at 31 December 2,381 1,429 The maturities represent periods to contractual redemption of the deposit and current accounts recorded. (ii). Available-for-sale reserve Redeemable on demand 40,732 38,588 Balance at 1 January 127 39 Maturing within 1 month 11,940 3,190 Net gains/(losses) from changes in fair value (137) 126 Maturing after 1 month but within 3 months 4,572 504 Deferred income taxes 41 (38) Maturing after 3 months but within 6 months 181 191 Balance at 31 December 31 127 Maturing after 6 months but within 12 months 183 156 Total at 31 December 31 1,556 Maturing after 12 months 94 2 (iii). Share-based payment reserve 57,702 42,631 Balance at 1 January 114 70 Current year movement 3 44 Balance at 31 December 117 114 20. Other liabilities All these reserves are non-distributable. Items in transit 232 (340) Trade payables 29 24 The land and buildings revaluation reserve comprises amount that have been revalued on the Groups buildings in accordance with the Group’s policy on buildings. The carrying values of the properties were adjusted to the revaluations and the resultant surplus net of deferred tax was Accruals 939 332 credited to revaluation reserves in shareholders’ equity and this reserve is not distributable until realised. Due to Standard Bank of South Africa (Note 37) 695 415 Unclaimed balances 303 153 The available-for-sale revaluation reserve comprises the banking investment book which is available for sale and is measured at fair value. Any Other 757 (129) unrealised gains and losses arising from such changes in fair values are recognised in equity.

2,955 455 The employee share option scheme is a reserve for share options in Standard Bank Group allocated to the Groups’ employees that can be exercised at any time.

86 87 Standard Bank Limited Annual Report for the year ended 31 December 2011

Group & Company Company 24. Net interest income 28. Staff costs

Group & 2011 2010 Company Company MKm MKm 2011 2010 Salaries and allowances 2,385 2,145 Interest income MKm MKm Severance allowance (531) (36) Loans and advances 5,541 4,318 Share options scheme 192 30 Investment securities 132 147 Retirement benefit costs 21 143 Cash and short term funds 161 801 2,067 2,282 5,834 5,266 Interest expense Customer deposits 820 566 29. Depreciation and amortisation Deposits by banks 15 0 2011 2010 Borrowed funds 19 61 MKm MKm 854 627 Depreciation (Note 15) 486 466 Amortisation of intangible assets (Note 16) 10 12 Net interest income 4,980 4,639 496 478

25. Net fee and commission income

30. Other operating expenses Fee and commission income MKm MKm 2011 2010 Point of representation fees 440 402 MKm MKm Card based commissions 90 77 Franchise fees 347 359 Electronic banking fees 218 144 Auditor’s remuneration - current year 30 25 Foreign currency service fees 437 311 Motor vehicle costs 24 26 Documentation and administration fees 768 543 Software and IT development costs 291 581 Others 385 368 Operating lease rentals - 2 2,338 1,845 Communication costs 178 178 Travel and entertainment expenses 166 179 Fee and commission expense Recurrent expenditure on property and equipment 175 144 Interbank transactions (36) (41) Marketing and advertising expenses 109 228 Stationery and printing expenses 82 70 Net fee and commission income 2,302 1,804 Training expenses 61 88 Insurance and security costs 191 177 26. Net trading income Premises expenses 81 57

Other expenses 682 792

Foreign exchange 3,647 2,807 2,417 2,906 Other 566 420

4,213 3,227

27. Other operating income

Group & Company Company

2011 2010 MKm MKm Profit on sale of property and equipment 5 45 Other income 19 47

24 92

88 89 Standard Bank Limited Annual Report for the year ended 31 December 2011

34. Unrecognised financial instruments, contingent liabilities and commitments Group & 31. Income tax expense Company Company (a) Legal proceedings

2011 2010 There are a number of legal proceedings outstanding against the Group as at 31 December 2011. Provision has been made as professional advice indicates that it is likely that significant losses may arise. If defence against these actions is unsuccessful, the MKm MKm claims and litigation costs could amount to MK301 million (2010: MK241 million). Current tax @ 30% (2010: 30%) 1,956 1,279 (b) Capital commitments and contingent liabilities Deferred tax (Note 17) 39 (81) In common with other banks, the Group conducts business involving acceptances, guarantees, performance bonds and indemni- 1,995 1,198 ties. The majority of these facilities are offset by corresponding obligations of third parties.

The tax on the Group’s profit before tax differs from the theoretical amount that The contractual amounts of the Group’s off statement of financial position financial instruments that commit it to extend credit would arise using the basic tax rate as follows: to customers are as follows:

Profit before tax 5,542 3,622 2011 2010 Tax calculated at the statutory tax rate of 30% 1,662 1,087 MKm MKm Tax effect of: Contingent liabilities Income not subject to tax 10 33 Acceptances and letters of credit 1,236 1,863 Expenses not deductible for tax purposes 330 119 Guarantees and performance bonds 1,106 883 Excess capital depreciation/ (allowances) (7) (30) 2,342 2,696 Tax overprovision (prior year) - (11) Commitments Total income tax expense in profit or loss 1,995 1,198 Undrawn formal stand-by facilities, credit lines and other commitments to lend 7,732 4,871 Authorised but not yet contracted capital commitments on property and equipment 18 38

32.Earnings per share 7,750 4,909

As at 31 December 2011, the authorised but not yet contracted capital commitments were MK18 million (2010: MK38 million). Basic earnings per share are calculated by dividing the net profit attributable to equity holders of the Group by the weighted average number of ordinary (c) Government claim of K287 million shares in issue during the year. The claim made in 2010 by Malawi Government of MK287 million which was outstanding in the Group’s 2011 2010 suspense account due to a system change error from 2003 and was subsequently taken into the Group’s income statement in 2007, pertaining to the Government Credit Ceiling Authority accounts (CCAs) is still outstanding. The Group is still MKm MKm disputing this claim and the issue has gone for arbitration. Net profit attributable to equity holders (MKm) 3,546 2,424 35. Effective interest rates of financial assets and financial liabilities Weighted average number of ordinary shares in issue (millions) 213 213 Basic earnings per share (expressed in MK per share) 16.65 11.38 The effective interest rates for the principal financial assets and liabilities at 31 December were in the following ranges: Note: there are no dilutive potential ordinary shares Group and Company 2011

33. Dividends per share In MK In US$ Assets Interim dividends are accounted for as a separate component of equity until they have been ratified at an annual general meeting. The Government securities 6.38-7.32% - directors proposed a final dividend in respect of the year ended 31 December 2011 of MK9.38 (2010: MK3.66) per ordinary share representing MK2,000 million (2010: MK780 million). Deposits with banking institutions 2.9-12.4% 0.5-5% Loans and advances to customers 4.95-27.98% 5.6-13.99% An interim dividend of MK4.21 (2010: MK2.67) per ordinary share representing MK900 million (2010: MK570 million) was paid in Liabilities the year and therefore total dividend for the year is MK13.62 per share (2010: MK6.33), amounting to a total of MK2, 900 million (2010: MK1, 350 million). Customer deposits 0.25-7% 0.5-2%

Company 2010

In MK In US$ Assets Government securities 7.17-10.11% - Deposits with banking institutions 3-15% 0.5-5% Loans and advances to customers 11.5-22% 4.7-8.2%

Liabilities Customer deposits 0.5-12% 0.2-3%

90 91 Standard Bank Limited Annual Report for the year ended 31 December 2011

36. Analysis of cash and cash equivalents as shown in the cash flow statement

2011 2010 2011 2011 2010 MKm MKm MKm MKm MKm Key management compensation Group and Company Company Group Company Company Salaries and other short term benefits 236 191 Cash and balances with Reserve Bank of Malawi (note 8) 8,541 8,489 7,738 Post-employment benefits - 22 Less: Liquidity reserve requirement (7,612) (7,612) (5,601) Contributions to defined contribution plans 26 66 929 877 2,137 Share options 3 44 Treasury bills and bonds 2,211 2,211 2,577 265 323 Deposits and balances due from banking institutions (Note 10) 4,984 4,984 6,900 8,124 8,072 11,614 Franchise fees – Standard Bank of South Africa 347 359

Directors remuneration For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturity from the Non-Executive Directors Fees 15 12 date of acquisition including: cash and balances with Reserve Bank of Malawi, treasury bills and other eligible bills, and amounts due Executive Directors Salaries 148 61 from other banks. Cash and cash equivalents exclude the liquidity reserve requirement. 163 73

A listing of members of the Board of Directors is shown on first page of the directors’ report. 37. Related party transactions

The Group is controlled by Stanbic Africa Holdings Ltd, a Bank incorporated in the United Kingdom. The ultimate parent company of The fees for the Directors for 2011 was as detailed below: the Group is Standard Bank Group Limited, incorporated in the Republic of South Africa. There are other companies which are related Mr P A Chitsime - MK1.3 million to Standard Bank Limited through common shareholdings. Ms R M Mkandawire - MK1.1 million In the normal course of business, a number of banking transactions are entered into with related parties at arm’s length. These include Mr R K Phiri - MK1.1 million loans, deposits and foreign currency transactions. The parent Bank also provides professional and technical consultancy services for Mr P W Khembo - MK1.1 million which it charges market rates. The outstanding balances at the year end and relating expense and income for the year are as follows: Dr R Harawa - MK1.1 million Mr A A Chioko - MK1.1 million Mr J Patel - MK1.1 million 2011 2010 MKm MKm Balances due from related parties 38. Employee benefits Standard Bank of South Africa - Parent 184 94 Standard Bank of London 1,128 Severance pay provision 2011 2010 Standard Bank Isle of Man – Same ownership 2,953 438 MKm MKm Balances due from related banks (Note 10) 4,265 532 Balances due from directors and other key management personnel 225 181 Balance at 1 January 690 712 Impairment for balance due from directors and key management personnel as per IAS 39 27 (25) Reversal of provision made during the year (531) (10) Payments made during the year - (12) 4,463 688 Balance at 31 December 159 690 Interest income earned 12 7 Severance pay provision is for outstanding court cases and retired employees before the amendment of the Malawi Employment Act The amounts due from related party Banks relate to Nostro accounts and are not secured. 2010.

The loans issued to directors are repayable over two years and are granted at market related interest rates and are secured by the asset being purchased`. The loans issued to key management personnel follow staff loans policy. . Balances due to related parties

Standard Bank of South Africa - Parent 91 42 Balances due to related party banks (Note 18) 91 42 Standard Bank of South Africa – Stanbic Africa – Parent (Note 20) 695 415 786 457 Operating expenses on related party transactions - 41

92 93 Standard Bank Limited Annual Report for the year ended 31 December 2011

39. Inflation and exchange rates

The foreign currencies affecting most the operations of the Group are United States Dollar, British Pound and South African Rand. The average of selling and buying exchange i.e. rate at year end of these currencies and the country’s national index price which presents inflation rate were as follows: 2011 2010 2009 United States Dollar (USD) 163.75 150.80 145.99 Sterling Pound (GBP) 252.44 233.67 237.03 South African Rand (ZAR) 20.03 22.72 20.06 Inflation rates as at 31 December (%) 8.9 6.4 7.9

As at the date of approval of the financial statements, the exchange rates were as follows:

United States Dollar (USD) 167.77 Sterling Pound (GBP) 265.48 South African Rand (ZAR) 22.43

40. Subsequent events Subsequent to year end, nothing has happened requiring adjustments to and/or disclosure in these financial statements.

94 95 Standard Bank Limited Annual Report for the year ended 31 December 2011 POINTS OF SERVICE REPRESENTATION CENTRES Karonga

Mzuzu Balaka Service Centre Ginnery Corner Branch Mwanza Service Centre P.O Box 306 Bala- P.O Box 30050 Blantyre 3. P.O Box 158 Mwanza Mzimba ka. Tel:+265(0)1552422 Tel:+265(0)1871255 Tel:+265(0)1432341 Fax:+265(0)1552593 Fax: +265(0)1876497 Fax:+265(0)1432351 Email: [email protected] Email: [email protected] Email: [email protected]

Blantyre Branch Kanengo Service Centre Mzimba Service Centre P.O Box 1297 P.O Box 1297 Lilongwe P.O Box 138 Mzimba Blantyre. 3 Tel:+265(0)1711740 Tel:+265(0)1342400 Tel:+265(0)1820222 Fax:+265(0)1711740 Fax:+265(0)1342466 Fax:265(0)1824107 E-mail: [email protected] Email: [email protected] Email: Kasungu [email protected] Kasungu Service Centre Mzuzu Branch P.O Box 100 Kasungu P.O Box 104 Kamuzu Capital City Branch Tel:+265(0)1253257 Mzuzu P.O Box 30386 Lilongwe 3. Tel:+265(0)132366 International Fax:265(0)1253570 Tel:+265(0)1770988 Email: [email protected] Fax:+265(0)1312574 Airport Dwangwa Fax:+265(0)1773497 Email: [email protected] Email: [email protected] Lilongwe Branch Ntcheu Service Centre Capital City P.O Box 522 Lilongwe Kanengo Chichiri Service Centre Tel:+265(0)1755277 P.O Box 312 Ntcheu P.O Box 32070 Blantyre 3 Fax:+265(0)1755738 Tel:+265(0)1235455 Salima Tel:+265(0)1878170 Email: [email protected] Fax:+265(0)1235332 Fax:+265(0)1873462 Email: [email protected] Email: [email protected] Salima Branch Bwaila Limbe Branch P.O Box 5091 Limbe P.O Box 26 Salima. Corporate Banking Centre Tel:+265(0)1840166 Tel:+265(0)1262544 P.O Box 5091 Limbe. Fax:+265(0)1844406 Fax+265(0)1262024 Mangochi Tel:+265(0)1670802 Email: [email protected] Email: [email protected] Fax:+265(0)1676591 Email: [email protected] Zomba Branch Lilongwe Dedza Luchenza Service Centre Ntcheu P.O Box 154 Limbe P.O Box 302 Zomba Dedza Service Centre Tel:+265(0)1476448 Tel:+265(0)1524144 Balaka Fax:+265(0)1524088 Zomba P.O Box 5 Dedza Fax:+265(0)1476078 Tel:+265(0)1223346 Email: [email protected] Email: [email protected] Mwanza Fax:+265(0)1223634 Email: [email protected] Mangochi Service Centre Limbe P.O Box 106 Mangochi Dwangwa Service Centre Tel:+265(0)1594377 P.O Box m62 Dwangwa Fax:+265(0)1594764 Tel:+265(0)1295255 Email: [email protected] Ginnery Corner Fax:+265(0)1295255 Luchenza Email: [email protected]

Corporate Banking Centre Chichiri

Nchalo

Blantyre 96 97 Standard Bank Limited Annual Report for the year ended 31 December 2011 NOTES NOTES

98 99 Standard Bank Limited Annual Report for the year ended 31 December 2011 NOTES

100 101 102 www.standardbank.co.mw