TPB PLC

ANNUAL REPORT 2018

TPB Bank PLC

Head Oĸ ce LAPF Towers, Kijitonyama Bagamoyo Road, P. O. Box 9300 Telephone: +255 22 2162940 Fax: +255 22 2114815 E-mail [email protected] Website: www.tpbbank.co.tz ANNUALANNUAL REPREPORTORT 20201818

NEW BOARD CHAIRMAN

His Excellency, the President of the United Republic of Tanzania, Dr. John Pombe Joseph Magufuli appointed Dr. Edmund Bernard Mndolwa as the new Chairman of Board of Directors of TPB Bank PLC. Dr. Mndolwa replaces Professor Lettice Kinunda Rutashobya whose tenure came to an end after nine years in January 2018. The farewell ceremony was held in Tanga where the Board of Directors, Executive Management and members of staff were present to officially bid farewell to the former Board Chairperson Professor Rutashobya and welcome the new Board Chairman Dr. Mndolwa.

Dr. Mndolwa has over 40 years’ experience in audi ng. Dr. Mndolwa holds a Master of Business Administra on degree from Mzumbe University and a Doctorate of Philosophy (Finance) from the Commonwealth Open University. Dr. Mndolwa, a Fellow of the Chartered Associa on Dr. Edmund Bernard Mndolwa of Cer fi ed Accountants is a former partner at Deloi e and a former partner at PwC and is currently a partner at Globe Accountancy Services.

Dr. Mndolwa has previously served as Board Chairman at Na onal Insurance Corpora on and Board Chairman at KCB Bank Tanzania. Professor Rutashobya was also the Guest of Honour at the launch of the relocated Tanga Branch into a new loca on at Simba Mtoto Building that is more spacious and strategically located in the historic port city of Tanga. Over the last eight years the bank has renovated dilapidated branches all over the country while more than doubling its branch network and more than quadrupling its ATMs.

I wish to welcome our new Board Chairman, Dr. Mndolwa to TPB Bank PLC.

Mr. Sabasaba K. Moshingi Chief ExecuƟ ve Oĸ ce 31st March, 2019

iiii TPB Bank PLC

Former TPB Board Chairperson Prof. Leƫ ce Rutashobya handing over bank documents to the new Board Chairman Dr. Edmund Mndolwa as TPB CEO Mr. Sabasaba Moshingi looks on.

Former TPB Board Chairperson Professor Leƫ ce Rutashobya cuts a tape to open new Tanga Branch as the new Board Chairperson, Dr. E. Mndolwa and TPB CEO Mr. Moshingi witness the event.

iiiiii ANNUALANNUAL REPREPORTORT 20201818

OUR VISION “To be the leading bank in the provision of aī ordable fi nancial services and promoƟ ng fi nancial inclusion in Tanzania. ”

OUR MISSION “To improve the economic well being and quality of life of every Tanzanian by acƟ vely promoƟ ng savings, access to credit and the pracƟ ce of sound fi nancial management while creaƟ ng value for our stakeholders”

OUR VALUES TPB’s core values shape the culture, defi ne the character of TPB and guide how TPB’s people behave and make decisions;

Customer Focus: All our ac vi es are primarily focused on customers’ needs and their fulfi llment; we invest to enhance their experience of banking with us. The market we serve determines our choice of products and services and the way we deliver them.

Integrity: Our people conduct themselves ethically and in a manner that is above reproach to win the trust of our customers and stakeholders.

Professionalism: We always aspire to conduct our business to the highest standard and compliance with best banking prac ces and regula ons.

Teamwork: Our business units work to make sure our customers get the best value for money in the services and products we off er.

Quality: Quality is the focus of everything we do. Our con nual innova on, spirit of integra on, and high standards improve quality in every aspect of our bank.

iviv TPB Bank PLC

BANK INFORMATION

LEGAL STATUS TPB bank is a Public Limited company incorporated under the Companies Act, 2002 on 29th March 2016, and awarded a cer fi cate of incorpora on number 125056. The bank is licensed by the .

PHIYSICAL ADDRESS POSTAL ADDRESS

Head Oĸ ce LAPF Towers TPB BANK PLC Bagamoyo Road P. O. Box 9300 Dar Es Salaam Dar Es Salaam Tanzania Tanzania Telephone: +255 22 2162940 Fax: +255 22 2114815 E-mail: [email protected] Website: www.tpbbank.co.tz AUDITORS Controller and Auditor General Na onal Audit House Samora Avenue/Ohio Street P.O. Box 9080 Dar es Salaam.

TPB LAWYERS 1. M.A. Ismail & Company 3. Rex A orneys, Plot No. 16, Malik Road, Upanga Rex House, P.O. Box 1553 145 Magore Street, Upanga, Dar es Salaam. P.O.Box 7495, Dar es Salaam. 2. City Advocate, Suite No. 913, 4. K & M Advocates 9th Floor, Posta House, Malik Road, Upanga P.O. Box 11287, P.O. Box 71394 Dar-es-Salaam. Dar es Salaam

1 ANNUAL REPORT 2018

OUTREACH

BRANCHES

36 Branches 39 Mini-branches

WESTERN UNION MONEY TRANSFER

36 Branches of TPB BANK 39 Mini-branches of TPB BANK 1 Dedicated loca on for Western Union Money Transfers at YWCA Branch 92 Tanzania Posts Corpora on Offi ces 8 Branches of DCB 2 Branches of Mwanga Community Bank 3 Branches of Uchumi Commercial Bank 5 Branch of Mucoba Bank Plc 19 Branches of Limited 8 Branches of 3 Branch of Maendeleo Bank 8 Mkombozi Bank Plc

ATM NETWORK

71 TPB BANK’s own ATMs 250 Umoja ATMs

TPB POPOTE POS NETWORK

45 TPC Agents opera ng via Selcom 670 Selcom Individual Agents, and

381 Mobile Agents operators.

2 TPB Bank PLC

FIVE - YEAR FINANCIAL REVIEW

(Figures stated in Million Shillings)

2018 2017 2016 2015 2014

Dec. Dec. Dec. Dec. Dec. Interest Income 95,945 83,080 66,805 49,425 34,752

Non-Interest Income 22,371 23,702 24,858 25,060 18,358

TOTAL INCOME 118,316 106,782 91,663 74,485 53,217

Impairment for Loans (13,656) (11,196) (7,118) (4,365) (1,987)

PROFIT BEFORE TAX 17,188 18,439 15,669 12,025 10,280

PROFIT AFTER TAX 12,721 12,730 10,808 8,265 6,772

LOANS AND ADVANCES 412,769 325,065 297,595 251,906 190,005

TOTAL DEPOSITS 453,531 382,558 337,390 322,192 265,145

SHAREHOLDERS’ FUNDS 82,920 59,847 51,819 41,057 29,776

TOTAL ASSETS 562,345 458,327 400,708 370,701 297,764

OTHER INDICATORS

Core Capital to total Risk Weighted Assets 13.98% 12.00% 12.10% 12.46% 12.77%

Total Capital to total Risk Weighted Assets 14.86% 12.92% 13.00% 13.32% 12.77%

Return on Average Assets 2.26% 2.87% 4.2% 2.23% 3.45%

Return on average Shareholders’ Funds 15.34% 20.85% 31.5% 20.13% 34.52%

Number of Branches plus Mini branches 75 67 60 59 52

Number of Staff 888 718 700 660 574

3 ANNUAL REPORT 2018

FINANCIAL HIGHLIGHTS

Total Income (in Million Shillings)

Pre-Tax Profit (in Million Shillings)

Loans and Advances (in Million Shillings)

4 TPB Bank PLC

FINANCIAL HIGHLIGHTS

Total Deposits (in Million Shillings)

Total Assets (in Million Shillings)

Shareholders' Fund (in Million Shillings)

5 ANNUAL REPORT 2018

ComposiƟ on of LiabiliƟ es and Equity as at 31 December 2018

ComposiƟ on of Assets as at 31 December 2018

ComposiƟ on of Shareholding as at 31 December 2018

ComposiƟ on of Investments as at 31 December 2018

6 TPB Bank PLC

TABLE OF CONTENTS

CONTENTS Page New Board Chairman ii

Our Vision, Our Mission & Our Values iv

Bank Informa on 1

Outreach 2

Five - Year Financial Review 3

Financial Highlights 4

Le er Of Transmi al 8

Statement By The New Board Chairman 9

Chief Execu ve Offi cer’s Statement 11

Banking Opera ons Review: 13

The Board Of Directors 28

Execu ve Management 31

Abbrevia ons 35

Corporate informa on 36 - 37 Report of the Directors 28 - 48

Statement of Directors’ responsibili es 49

Declara on of Head of fi nance 50 Independent Auditors’ report 51 – 55

Financial statements:

Statement of profi t or loss and other comprehensive income 56

Statement of fi nancial posi on 57 Statement of changes in equity 58

Statement of cash fl ows 59

Notes to the fi nancial statements 60 – 128

7 ANNUALANNUAL REPREPORTORT 20201818

LETTER OF TRANSMITTAL

TPB BANK PLC P. O. Box 9300 Dar es Salaam

31st March 2019

Hon. Dr.Philip Mpango, Minister for Finance and Planning, Treasury Square Building, P.O Box 2802, 40468 DODOMA, TANZANIA.

Honorable Minister,

In accordance with the Companies Act, 2002 I have the honor to submit, on behalf of the Board of Directors, the Annual Report and Audited Statement of Accounts of the TPB BANK PLC for the year ended 31st December, 2018.

Yours sincerely,

TPB Bank PLC.

Dr. Edmund Bernard Mndolwa Board Chairman

8 TPB Bank PLC

STATEMENT BY THE NEW BOARD CHAIRMAN

this, I acknowledge the contribu on of the former Board Chairperson, Professor Le ce Kinunda Rutashobya who began the transforma on we see in TPB today. Professor Rutashobya had the foresight, vision and drive to bring about numerous changes in the bank. Today, the bank is a player that punches well above its height. Professor Rutashobya spearheaded the registra on of the bank under the Companies Act and drove a brand refresh from one that was considered a dying brand to one that is energe c, upli ing and dynamic. The bank’s branch network has more than doubled in the last nine years to 75 outlets with 80% of branches and mini branches renovated.

The bank is now a technology based opera on with an upgraded core banking system, off ering mobile banking, agency banking, cash management solu ons and internet banking. Year-on-year, the bank has grown on every key fi nancial parameter and is now among the top ten most profi table in the country. This is all a testament to the change Professor Rutashobya brought to TPB during her nine year tenure. The change in TPB is also seen from outside the borders of Tanzania. DR. EDMUND BERNARD MNDOLWA The Board of Directors of Botswana Savings Bank came for a benchmark visit in late 2017 to see our Our esteemed customers, business partners, transforma on journey. The Board of Directors shareholders and various stakeholders: It gives me of Kenya Post Offi ce Savings Bank is planning to have a similar benchmark visit in early 2019 to great pleasure to present to you the Annual Report see what they can learn from TPB as they plan of TPB Bank PLC for the year ended 31st December 2018. As I share our 2018 performance, I am their own transforma on from a deposit taking extremely delighted that the bank has maintained ins tu on. TPB was also represented by our CEO, Mr. Sabasaba Moshingi at a conference in Brussels, its track record of outstanding performance. The Belgium hosted by the World Savings and Retail bank’s balance sheet grew by 23% from TZS 458 Banking Ins tute aimed at transforming savings billion to TZS 562 billion while revenue grew by and postal banks globally. Mr. Moshingi shared TZS 11 billion to TZS 118 billion, with a profi t our story with delegates including representa ves before tax of TZS 17.2 billion. from the African Development Bank, World Bank I would like to start by thanking His Excellency, the and Interna onal Monetary Fund in terms of what President of the United Republic of Tanzania, Dr. TPB did to change its trajectory. John Pombe Joseph Magufuli for his confi dence in appoin ng me as the Chairman of Board of 2018 was a challenging but rewarding year for the Directors of TPB. This is an immense honour and I bank. I am proud to say we were able to navigate will strive to serve both him and the na on to the it well. There was the merger between TPB and best of my abili es. the former Twiga Bancorp (Twiga) and the former Tanzania Women’s Bank (TWB). I would like to take This is my second tenure as Board Chairman and I this opportunity to welcome the bank’s newest must confess the diff erence between TPB of then shareholders – Public Service Social Security Fund and now is like day and night. In the mid nineteen (PSSSF) and Worker’s Compensa on Fund (WCF). nine es TPB was s ll evolving and fi nding its place It is my belief that both PSSSF and WCF will off er in the banking sector. Today, the bank is a very immense support in growing and moving TPB respected local bank that is a market leader. For forward.

9 ANNUALANNUAL REPREPORTORT 20201818

STATEMENT BY THE NEW BOARD CHAIRMAN

This merger was important as the Government aimed I am grateful to our loyal customers, who have to achieve two key goals: i) maintain confi dence and con nued to trust TPB and bank with us, taking us to ensure fi nancial stability in the banking sector and, ii) where we are today. In reciprocity, we are commi ed ensure customers of these two former banks did not to serve them and work towards improving the quality lose their deposits. A major bonus for TPB from these of their lives. The Ministry of Finance and Planning, mergers is that it allowed TPB to make greater inroads the Treasury Registrar’s Offi ce have been instrumental into the small and medium enterprise sector via the in suppor ng us. Our regulator, the Bank of Tanzania former Twiga and to greater leverage in serving women has off ered immense support and insights and we are via the former TWB. Our plan in early 2019 is to launch thankful. To our developmental partners, I thank you Tabasamu Account to promote economic ac vity and for your con nued support. I would like to especially empowerment among women. thank my fellow members of the Board of Directors for the reless eff ort and foresight they have been The bank s ll faces a capital challenge and we con nue providing in moving this bank forward. to engage the Government to fi nd a las ng solu on to this challenge. I also had the privilege to appear To the management and staff of the bank, I thank you before both the Parliamentary Investment Commi ee for your spirit of innova on, your dedica on, hard work and the Parliamentary Budget Commi ee to take and for living by our values - making us a value based our honourable Members of Parliament through the organiza on. I extend my sincere gra tude to Mr. current state of the bank, share the challenges we face Sabasaba Moshingi, CEO of the bank for his relentless and what we see as the way forward. drive in transforming the bank and reaching out to the popula ons that have been on the fringes of receiving A key focus of mine is to make the bank more customer- formal fi nancial services. I am confi dent given our staff centric in all we do because our customers are the compliment and the bank’s appropriate strategy, the reason we exist. We plan to reduce turn-around mes, year 2019 will be a remarkable year for the bank. simplify processes and increase automa on of all our tasks. Achieving more by doing less will be a key mantra of TPB as we plan to be more effi cient and eff ec ve in all we do. Furthermore, the members of staff of TPB are a strategic resource the bank will leverage. I have been able to visit some branches and mini branches in various towns across the country. Among other loca ons, I have visited the banks opera ons ______in Kigoma, Bariadi, Nzega, Singida, Kahama, Mwanza, Tanga and Pemba. One common strand has been the Dr. Edmund Bernard Mndolwa level of how posi ve our staff are. Further improving Board Chairman their welfare, training them and ensuring that they are 31st March, 2019 the best in their class is what I am aiming for.

A key step for the bank is now to move upmarket and become a universal bank. While we will stay true to our roots and serve the bo om of the pyramid, whether village savings and loan associa ons or informal groups, the bank is now well poised to truly begin to serve large, small and medium enterprises, and local and foreign corporates. Having visited customers, various loca ons and reviewed our capabili es, I believe this is both the logical and appropriate step to make.

1010 TPB Bank PLC

CHIEF EXECUTIVE OFFICER’S STATEMENT

Board of Directors of TPB Bank PLC. Dr. Mndolwa a seasoned Professional Accountant brings a massive wealth of knowledge and experience from the private sector having been a former partner at Deloi e and PwC. He has previously served as Board Chairman of the Na onal Insurance Corpora on and KCB Bank Tanzania. Under the Leadership of DR. Mndolwa TPB Bank is poised to con nue with its transforma on journey of becoming the leading Bank in provision of aff ordable fi nancial services and promo ng Financial Inclusion in Tanzania, and I am quite op mis c of the future ahead.

I also welcome to the Board of Directors Mr. Amani Ngaga who was appointed to the Board to represent POSTA NA SIMU SACCOSS. Mr. Ngaga who works with Tanzania Telecommunica ons Company Limited is an accountant by profession and replaces Mr. Lawrence Mwasikili, whose tenure come to an end in January 2018. I wish Mr. Mwasikili the very best in all his future endeavours.

A cri cal development in 2018 was the merger between TPB Bank PLC, Twiga Bancorp (Twiga) and MR. SABASABA K. MOSHINGI Tanzania Women’s Bank (TWB). This was a vote of Dear stakeholders of TPB Bank PLC, I am greatly confi dence in the leadership at TPB and I would honoured to present to you once again the Banks like to pass my sincere gra tude to the President of Annual Report for the year ended 31st December The United Republic of Tanzania, His Excellence Dr. 2018. This is the third annual report since incep on Magufuli for entrus ng us with the responsibility of TPB Bank PLC and our brand refresh in 2016. of nurturing these former state owned banks. Among other things, we received 10 fully-fl edged 2018 was a special year that we bid farewell to branches and mini branches, 175 staff and a new our former Board Chairperson, Professor Le ce correspondent banking rela onship with BHF Bank. Kinunda Rutashobya a er 9 years of dis nguished Our merger strategy worked very well and it is now services to TPB Bank PLC. For me, this was both a completed, star ng with system integra on, staff professional and personal farewell. Professionally, from acquired banks now deployed across TPB because I bid farewell to the person who saw branches as well as branches of these acquired the poten al in TPB and began the process of banks branches that have all been re-branded and transforma on in the bank that has helped us customers from these banks enjoying the benefi t evolve into a solid fi nancial ins tu on. Personally, of a wider branch footprint and a broader suite of because I became Chief Execu ve Offi cer of this products to choose from. I would like to re-assure great Bank during her tenure an opportunity that all our stakeholders that we are a solid bank with enabled me to return to Tanzania from abroad in a very strong founda on. From the fi rst day of the Middle East and that enabled me as well to work respec ve mergers, customers of the former Twiga with my fellow Tanzanians, especially my colleagues and former TWB could access their funds from any in TPB in Transforming TPB Bank PLC to the Bank of our loca ons countrywide. that we are seeing today, profi table and a very solid Bank in Tanzania. Against this backdrop we have posted very impressive results again. Revenue rose from TZS 107 billion in Prof. Rutashobya’s departure ushered in a new era 2017 to TZS 118 billion in 2018, a 10% increase. in TPB Bank history, following The President of the Profi t before tax for 2018 was TZS 17.2 billion, less United Republic of Tanzania, His Excellence Dr. John by TZS 1.2 billion from the TZS. 18.4 billion profi t Pombe Joseph Magufuli appoin ng Dr. Edmund realized in 2017. Total deposits for 2018 were TZS Bernard Mndolwa as the new Chairman of The 454 billion, an increment of 19% from the volumes

11 ANNUALANNUAL REPREPORTORT 20201818

STATEMENT BY THE CHAIRMAN

as at close of 2017. TPB’s loan por olio reached TZS As the bank sails in the year 2019, we in TPB are 413 billion in 2018, an increase of 27% from TZS 325 very op mis c about the future. We are prepared billion as of December 2017. The bank’s total assets once again to tailor our new Strategic Plan that grew by 23% in 2018 from TZS 458 billion in 2017 will guide us in the medium term and we believe to TZS 562 billion in 2018, an increment of TZS 104 that the Shareholders will support us in terms of billion. Shareholders fund rose from TZS 60 billion recapitalizing the bank. With op mal capital the to TZS 83 billion, an increase of 38%. bank will complete its outreach targets and TPB will strategically be in all the places where viable business In terms of outreach, the bank relocated its is poten al. The bank will con nue to be crea ve Dodoma and Tanga branches to new loca ons while and innova ve, quickly iden fy opportuni es and its Shinyanga branch was renovated. The Nzega where need be the bank will partner with other and Bariadi mini branches were relocated to new en es to ensure synergy in delivering services. loca ons. Works at returning the Metropolitan branch, reloca ng the USA River, Masasi, Sengerema Several par es contributed to our success in 2018 and Mpanda mini branches are at advanced stage and I wish to express my sincere gra tude to them. and will be completed in 2019. Ten new ATM’s were To our customers, our shareholders, our regulators rolled out in 2018 at Dodoma, Makambako, Nzega, the Bank of Tanzania, the Ministry of Finance and Bariadi, Kibondo, Tarime, Same, Mpwapwa, Newala Planning, the Treasury Registrar’s Offi ce and our and Tunduru helping the bank end the year with 71 partners such as MasterCard Founda on, World ATM’s. The bank also grew its agent network and Savings and Retail Banking Ins tute, the Associa on ended the year with 932 agents across Tanzania. of Savings Banks of East Africa and Germany Savings Bank Founda on for Interna onal Coopera on The bank upgraded its core banking system from - thank you for relentless support you provided Equinox 4.3 to Rubikon which is be er suited during the course of the year. The Board of Directors to support the banks future growth aspira ons. under the leadership of the Chairman, Dr. Mndolwa This was one key project the bank iden fi ed as a provided excellent oversight, insight, support and game changer in the medium term. The bank also guidance. Their wisdom was an invaluable tool as acquired its own mobile gateway which means the we charted the business routes during the year bank can off er a wider suite of pro-poor products 2018. at a lower price. The bank plans to begin to issue VISA enabled cards in 2019 as part of its broader As we con nue this journey of banking the debit-card strategy where have also moved from unbanked and improving the economic well being of magne c stripe cards to chip-based cards. Tanzanians, we are commi ed and dedicated to this cause, and we will stay on the course in making TPB The bank con nued to widen and strengthen its Bank PLC realize its vision of becoming the Leading bilateral rela onships. The US$ 1 million grant Bank in Provision of Aff ordable Fianncial Services from Mastercard FoundaƟ on through (Savings and Promo ng Financial Inclusion in Tanzania. at FronƟ res- SATF) ‘Digi zing Informal Savings Mechanism’ project started with a roll-out in several Thank you. regions - Ruvuma, Njombe, Ifaraka, Morogoro and Mbeya. The project will also be launched in Iringa, Mtwara and Lindi in early 2019. In a bid to increase TPB’s par cipa on in agricultural, the bank entered into separate partnerships with Alliance for Green Revolu on Africa, Private Agricultural Sector Support Trust and the Tanzania Agricultural Mr. Sabasaba K. Moshingi Bank. This is all aimed strengthening the agricultural Chief ExecuƟ ve Oĸ cer value-chain in Tanzania. 31st March, 2019

12 TPB Bank PLC

BANKING OPERATIONS REVIEW:

1.0 Deposit MobilizaƟ on Though indicators in 2018 depicted a recovery from the squeeze in the market con nued to compel the bank to liquidity crunch that hit the country’s economy during signifi cantly rely on corporate Time Deposits. Whereas 2016 and 2017, the impact was reckoned in the growth the ra o of interest expense to interest income as at of deposits in 2018. Eff orts con nued to be directed close of December 2017 was 25%, it reduced to 19% toward fi nancial inclusion and mobiliza on of deposits by end of 2018. Reliance on high interest rate bearing from corporate enƟ Ɵ es meant to boost the volume of Time Deposits subsequently entailed adjustments on deposits. Deposits grew from TZS 383 billion as at end interest rates on loans and deposits. of December 2017 to TZS 454 billion by end of the year. That was growth in deposits of TZS 71 billion (or The bank’s ini a ve in deepening outreach through 18.5%) and the volume was steered signifi cantly by establishing Mini branches was also intended to corporate deposits. enhance the deposit mobiliza on front. The number of mini branches was increased by the merger of On the other hand, the customer base grew along banks to 40, three (3) added by Twiga and TWB. from 1,186,333 (31st Dec. 2017) to 1,251,573 by end During the year the bank executed projects for Masasi, of 2018, a growth by 65,240 customers (or 5.5%). This Pemba, Karagwe, Nzega and Bariadi mini branches; growth was the result of a con nued broad-based Metropolitan branch was refurbished and is to be re- deposits mobiliza on program that involved Group opened in the 1st quarter of 2019. Renova on works lending (Group Account), Village Savings and Lending were also carried out at Tanga and Shinyanga branches. Associa ons (VSLA) and Informal Groups. During the Improvement in the services provision capaci es by year, the Sales Team managed to mobilize deposits mini branches is an cipated to boost deposits bank- worth TZS 14,516,743,047/- through a total of 37,755 wide and serve the mission of fi nancial inclusion. accounts. Sports Account which includes Yanga, Simba and Mbeya City opened total of 1,637 accounts worth TZS 37,545,004/- The Department of Marke ng 2.0 Loans and Advances coordinated a Team of Sales force in an eff ort to The bank’s loan por olio grew by TZS 88 billion (or mobilize deposits, and the performance was as follows; 27%) during the year, from TZS 325 billion to TZS 413 (i) Informal groups opened 3,292 accounts with billion by end of December 2018. A prudent credit cumula ve deposit of TZS 2,129,251,000/- and (ii) management system con nued to be observed during 1,055 accounts were opened under formal groups the year when the challenge of Non Performing and deposits mobilized tallied TZS 384,972,462/- The Loans was s ll haun ng the banking industry along deposits were also mobilized under the MasterCard with the liquidity crunch. The Non-Performing Loan Founda on in the project area in Ruvuma, Njombe, ra o increased a bit from 6.1% of 2017 to 7.9%, indica ng that the challenge the bank was facing in Mtwara and Morogoro. By end of December 2018, a loan repayment was s ll on. A slow growth in cheap total of TZS 302,430,508/- had been mobilized against customer deposits compelled the bank to manage the 1,316 groups formed. By close of 2018, the groups had growth of the por olio carefully. a total of 639 members. During the year, the bank received loans and advances In order to facilitate a smooth payments mechanism from Twiga and TWB banks, and the necessary write for the Bank, 10 new ATMs were installed during off s had to be done to ensure that the NPL rate is not 2018, both at branches and mini branches. Sta s cs on Financial Inclusion segment depict that by end out of the IFRS standards. The challenge the bank of December 2017 VSLA had deposits worth TZS 1.2 faced in terms of its capital base coupled with slow billion against 1,657 groups, Informal Groups recorded growth in deposits con nued to limit growth of the TZS 4.5 billion in deposits against 4,096 groups and loan por olio. VICOBA recorded a total of TZS 2.5 billion against 4,321 groups. Mobiliza on in this segment came up Therefore growth was basically limited to Wastaafu, with new groups as follows; VICOBA 625 groups, VSLAs boosted by awareness campaign between January and 435 groups and 1,720 Informal Groups. May. There was marginal growth in Business Loans, resultant of the Twiga and TWB merger. The situa on in the industry during 2018 was basically a con nua on of the challenges of the previous two years. Growth in deposits was s ll slow due to a curtailed domes c money supply. The running liquidity

1313 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

By close of the year, Wastaafu Loans segment had TZS 4.0 Investment Porƞ olio (46%), Group lending had 190 billion TZS 3.5 billion The bank closed the year 2018 with a por olio volume (0.85%), Consumer Loans TZS 125 billion (30.3%), of , up by from Micro Credits TZS 26 billion (6.3%), Business Loans TZS 486 billion TZS 81 billion TZS 405 as of end of December 2017. The por olio had TZS 44 billion (10.6%) and other products TZS 24.5 billion in Ɵ in and in billion (5.95%). During the year the bank earned TZS 12% debt securi es, 3% Placements 85% and . During the previous year 2017, 90 billion as interest income from loans and advances, loans advances of the investments por olio were and up by TZS 14 billion from TZS 76 billion as of end of 82% loans , in and % assumed by 2017. Lending income accounted for 76% of the bank’s advances 3% Placements 15 Ɵ . The bank generated a total of total revenue of TZS 119 billion. Securi es TZS 96 billion as interest income on Investments, comprising TZS 90 billion from loans and advances, and TZS 6 billion from 3.0 Money Transfer Services Placements and Debt Securi es. The previous year 2017 saw the bank earning as interest TPB Bank Plc con nued for its twenty fi rst year to be TZS 76 billion income on loans and advances and on the lead agent for Western Union TZS 7 billion Securi es and Placements. The volume of investment Interna onal (WUMT). This en ty with a global network and income thereof were much higher in 2018 than in of money transfer services enables Tanzanians to send the previous year 2017. and receive money, both locally and interna onally. The bank off ers this service throughout its branch Though diversifi caƟ on of the por olio is considered network and sub-agents, that includes a network of 92 ideal for risk mi ga on, the logical need to maximize Tanzania Posts Corpora on offi ces and 56 branches of returns through the most lucraƟ ve instruments in 8 agent-banks. During the year, twelve new loca ons a basket of investment op ons (with diff erent rates were opened. TPB Bank holds 73% of the business of return) and the socio-economic demand for loans volume within the TPC Network and agents share 27%. outweighs the concept. So more resources are normally The WUMT window con nued to be challenged by commi ed to lending, for the segment generates the business and outreach of autonomous agents in highest incomes to the bank while the economic the country. During the year, transac ons turnover impact of credit crea on is the most desirable. a ained 234,924 that was lower than previous year total of 265,037. That was a decline in business by 5.0 Earnings 30,113 transac ons (or 11%). Total Income generated Total revenue generated during the year 2018 was TZS during the year also declined to TZS 2,651 million, from 118 billion, carrying an increase by TZS 11 billion (or TZS 3,055 million as of end of 2017. The volume of 10%) from TZS 107 billion that was generated in the inbound transac ons fell again to TZS 117,969 million previous year. The total Income that was realized in from TZS 130,195 million as at end of December 2017 had an increase by TZS 15 billion (or 16%) from 2017, a substan al decline by TZS 12,226 million or the sum of TZS 92 billion generated in 2016. 9%. The volume of outbound transac ons grew from TZS 38,079 million recorded in December 2017 to TZS During the year, the major component of revenues was 45,385 million, an increase in turnover by TZS 7,306 interest income, amoun ng to TZS 96 billion or 81% million or 19%. of total revenue. The remaining 19% or TZS 22 billion was non-interest income. The bank is commi ed to As we noted, the bank’s market leadership is being con nue to diversify both interest and non-interest challenged by compe tors. As it was during 2017, income channels (products) and enhance incomes in the turnovers on inbound remi ances and number both segments. of transac ons were basically moved by the U.N personnel in the Central African na ons of D.R.C Congo, Rwanda, Burundi and Uganda. The presence 6.0 Profi tability of the U.N personnel in those areas gave TPB Bank The bank realized a Pre-tax profi t of TZS 17 billion, less branches in the Western Zone (Kigoma, Kasulu, by from that was generated Kibondo and Ngara) advantage in terms of fl ows of TZS 1 billion TZS 18 billion dollar transfers. So instead of recipients of remi ances in 2017. The 2017 Pre-tax profi t was up by TZS 2 billion sent from diaspora and the U.N Agencies receiving (12.5%) from the 2016 catch of TZS 16 billion. Despite payments in the noted countries, they used Tanzania’s the challenges of capital and growth in deposits that WUMT posi ons in Kigoma and Kagera as safe bases entailed carrying along expensive corporate deposits, for cash receipts. The decline in turnovers also imply the bank took appropriate business ini a ves, while that there was a reduced U.N ac vity and personnel in observing prudence in fi nancial management, and the vola le region of central Africa. managed to generated impressive outcomes. It is

1414 TPB Bank PLC

BANKING OPERATIONS REVIEW: worth no ng that the bank during the year had carried the costs of the defunct Twiga Bank and TWB from the merger process.

7.0 Branch Refurbishment

The bank’s branch network is an integral part of its outreach and fi nancial inclusion strategy. By close of December 2018, the bank had 36 branches and 39 mini-branches na onwide, giving the bank 75 customers’ touch points. The bank merger saw more branches and mini branches coming in. Twiga added to the bank’s network 5 branches and 3 mini branches, as TWB had one branch and one mini branch. With all mini branches and the major number of TPB loca ons connected on-line, the bank’s customers enjoy an ever growing services network. During the year 2018, the Tanga and Dodoma branches, Nzega and Bariadi mini branches were re-located to be er business premises a er comple on of renova ons. The other projects that were executed during the year were the renova on of Metropolitan and Shinyanga branches, Masasi and Pemba Mini branches.

TPB Board Chairman Dr. E. Mndolwa cuts a tape to inaugurate the new Bariadi Mini branch. Standing on his right is the R.C for Simiyu Region Hon. Mr. Mtaka and second from leŌ is the CEO of the bank Mr. Sabasaba Moshingi. Others are Board members (extreme leŌ and right) and the Manager of the mini branch is standing second from right.

15 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

The aƩ racƟ ve banking hall of the new Dodoma branch.

The impressive banking hall of the renovated Shinyanga branch.

8.0 Risk Management

The bank con nued to be very proac ve in its management of risks. During the year, the process of reviewing the bank’s policies and guidelines was taken on and put through to the Board level for approval. Policies and guidelines were subsequently approved by the Board.

The bank has strengthened its opera onal risk func on and put in place mi gants against mobile money risk, cyber security risk, obsoleteness risk, reputa onal risk, compe ve pressures risk and technology risk. The bank con nued to embrace a culture of staff who are sensi ve to risk issues and not complacent to risks. The bank takes ini a ves to educate staff on risk management, eradica ng risk based behaviour and being zero-tolerant to any kind of breach.

1616 TPB Bank PLC

BANKING OPERATIONS REVIEW:

9.0 Respected Local Bank The bank focused on establishing and enriching it’s rela onships with players in both the public and private sector in line with its rich history da ng back to its incep on in 1925. The bank has worked on deepening these rela onships which are built on a basis of mutual respect and common understanding, and are driven by transparency and integrity. The merger of banks between TPB Bank, Twiga and TWB that was effi ciently managed by the bank, a systema c good fi nancial performance, the fi nancial inclusion ini a ves and enhanced customers care quality have taken TPB Bank Plc to a higher level of integrity in the country.

10.0 Corporate Social Responsibility For many years the bank has been working closely with various socio-economic stakeholders in Tanzanian community, with the aim of partaking in engaging their challenges. The focus of this mission is basically in three main areas, namely; health, educa on and social welfare. The mission during 2018 was achieved through par cipa on of the bank in a number of community projects and events. Those philanthropic events, through which the bank commi ed a total of TZS 194 million, the bank earned immense publicity and goodwill.

Flagship projects

During the year 2018 the bank managed to execute two (2) fl agship projects as per plan. A fl agship project is expected to have a big and las ng impact to a benefi ciary community and earn the bank much publicity and goodwill. Those major projects were performed in Kondoa, Dodoma at Misray Primary School and Mbinga, and Ruvuma at Kindimba Primary school.

In Kondoa district, the bank constructed two classrooms, a staff room, donated 50 desks and offi ce furniture for the students and teachers. Prior to TPB’s interven on, the school had two classrooms and a staff room that were built of mud and thatched with grass. The students had no desks but rather sat on long stools made of logs. The classes and staff room were not appropriate to be used by the students and six teachers at the des tute school. The overall project cost was Tanzanian Shillings 63 Million. The guest of honor during the handing over ceremony was the Deputy Minister for Finance and Planning Hon. Dr.Ashatu Kijaji.

Misray Primary School structure before TPB intervenƟ on.

1717 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

The look and quality of Misray Primary School aŌ er project compleƟ on.

Deputy Minister for Finance Hon. Dr. Ashatu Kijaji accompanying TPB Board Chairman Dr. Edmund Mndolwa and CEO Mr. Sabasaba Moshingi in a group photo with staī and members of Misray Primary School during handover of new class rooms built by TPB Bank.

1818 TPB Bank PLC

BANKING OPERATIONS REVIEW:

In Mbinga district in the Southern Highlands of Tanzania, the bank undertook a major renova on project at Kindimba Primary school. The school was built in 1930 and the buildings were very old and dilapidated. The fl oors of the classrooms were old and cracked. So were the walls and windows. The latrines used by students were in a very poor condi on. They were smelly due to the poor sewage system, which was no longer working. So the situa on was pathe c. Ten classrooms, two staff rooms and student’s latrines were renovated to bring on a good new look and feel. The project cost was Tanzanian Shillings 53 million, fully carried by the bank. The guest of honor during the handing over ceremony was the former TPB Chairperson of the Board, Prof. Le ce Kinunda Rutashobya.

The old dilapidated school.

The old school aŌ er renovaƟ on.

1919 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

Grant of donations Apart from the Flagship projects, the bank was involved with many other smaller projects across our branch network, enabling them through donations. The aim was to perform as many CSR programs as possible so as to cement stronger rela ons with the community, and therefore gain much publicity for the bank. Below are some of the projects that the bank was involved in during the year 2018;

The bank donated 50 desks and chairs worth Tanzanian Shillings 3.5 million to Nyashimbi Secondary school in Kahama, Shinyanga. The dona on was handed over to the school by TPB’s Director of Retail and Banking Business Mr.Henry Bwogi.

TPB Director of Retail and Business Banking, Mr. Henry Bwogi donaƟ ng desks and chairs to AdministraƟ ve Staī of Nyashimbi Secondary School in Kahama, Shinyanga.

The bank donated also fi ve beds and ma resses to Singida Regional hospital. Beds worth Tanzanian Shillings 5 Million were handed over to the Doctor in-charge - Ng’hungu Kuzenza by TPB’s Risk Management Director, Mr. Moses Manya a. The bank extended support to a sober house, a home for drug addicts in Kigamboni, Dar es Salaam through a food dona on worth Tanzanian Shillings 1 million. The dona on was received by the Manager of the home Twalib Hassan, handed over by the bank’s Communica on Manager Ms. Chichi Banda.

20 TPB Bank PLC

BANKING OPERATIONS REVIEW:

TPB Bank’s CommunicaƟ ons Manager, Ms.Chichi Banda handing over a donaƟ on of foodstuī s to a Sober house, a home for drug addicts in Kigamboni. The recipient was Mr. Twalib Hassan, the Manager.

The bank donated bed sheets and ma resses worth Tanzanian Shillings 3.3 million to several schools in Ilele district, Songwe region. The dona on was received by the Member of Parliament of Ileje - Hon. Janeth Mbene.

TPB’s Chief of Corporate Aī airs, Ms. Novace Moses, handing over maƩ resses and bed sheets to Ileje MP, Hon. Janeth Mbene to be distributed to various Schools in Ileje district.

One hundred bags of cement were donated by the bank for construc on of a dispensary at Banduka ward in Lindi Region. The dona on was handed over to the DC of Lindi Hon. Shaibu Ndemanga, by the Director of IT and Opera ons Mr. Jema Msuya.

21 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

The Director of OperaƟ ons and IT of TPB Mr. Jema Msuya handing over 100 bags of cement to the DC of Lindi district, Hon. Shaibu Ndemanga for construcƟ on of a dispensary in Banduka ward.

Hospital equipment to be used in theater room were donated to Same district hospital in Same, Kilimanjaro. The items were boots, drapes and blankets. A dona on of 20 white walking s cks used by the blind was also made to Tanzania Associa on of the blind. The s cks are worth Tanzania Shillings 1 million. The bank donated 100 pieces of Iron sheets to Kirengezi Primary in Morogoro, and 50 pieces plus 100 bags of cement to Sovi Secondary School school in Njombe. In endeavor to strengthen the bank’s rela onship with Prisons Force, the bank donated sports gear worth Tanzanian Shillings 3.9 million to Prisons force teams to be used during their annual sports bonanza. Nyakato Primary school in Musoma also received a dona on of 3,500 bricks that would be used to build classrooms for the school.

The Board Chairman Dr. Edmund Mndolwa handing over fi ve (5) blood donaƟ on beds to Simiyu Regional hospital. The beds are worth 4 million shillings.

22 TPB Bank PLC

BANKING OPERATIONS REVIEW:

Other dona ons were made to; Mnazi Mmoja hospital in that received 10 hospital beds for maternity ward and 100 bed sheets, all worth Tanzanian Shillings 6 million; Offi ce furniture to our stakeholders in Tanga. These are re red military service members, Muungano wa Wanajeshi Wastaafu wa Tanzania (MUWAWATA). The offi ce furniture comprised of Offi ce chairs, an offi ce table and offi ce fan. The dona on was handed over by the Chief Manager Corporate Aff airs Noves Moses; 50 iron sheets and 100 bags of cement to Sovi Sec. School in Njombe Region. The dona on was handed over by the Chief Manager Corporate Aff airs Noves Moses.

10.0 International Cooperation

TPB Bank con nued to be an ac ve member of interna onal banking organiza ons in 2018. With co-members Kenya Post Offi ce Savings Bank (KPOSB) and Post Bank Uganda (PBU), the bank played a key role in the Associa on of Savings Banks of East Africa (ASBEA). During the year 2018 the bank’s Execu ve took part in all the mee ngs of the ASBEA and WSBI as per calender. TPB Bank hosted the ASBEA Annual general mee ng at a venue in Zanzibar. Members shared issues of common interest in the areas of training, technology, products and exchange of exper se.

TPB CEO Mr. Sabasaba Moshingi posing in a group photo with outgoing WSBI President, Heinrich Haasis, MD of SBFIC Niclaus Bergmann and Chairman of ESBG Mr.Helmut on the sidelines of WSBI Board meeƟ ng in New Delhi, India.

23 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

TPB CEO Mr. Sabasaba Moshingi posing in a group photo with WSBI Managing Director, Chris De Noose and CEO of La Poste Tunisienne during the AFRGM in Tunis, Tunisia.

TPB CEO Mr. Sabasaba Moshingi in a group photo during the AFRGM 2018 in Tunis, Tunisia.

2424 TPB Bank PLC

BANKING OPERATIONS REVIEW:

TPB CEO Mr. Sabasaba Moshingi (second right) in a group photo with members of the WSBI Presidents’ CommiƩ ee during a meeƟ ng in Barcelona, Spain.

TPB CEO Mr. Sabasaba Moshingi (fi rst from leŌ ) aƩ ending a WSBI Board MeeƟ ng in New Delhi, India.

25 ANNUAL REPORT 2018

BANKING OPERATIONS REVIEW:

TPB CEO Mr. Sabasaba Moshingi posing in a group photo with senior staī from BHF Bank.

TPB CEO Mr. Sabasaba Moshingi in a group photo with Dr. Robert Stone, Director of Oxford Policy Management during a Mastercard Financial Inclusion conference in Kigali, Rwanda.

26 TPB Bank PLC

BANKING OPERATIONS REVIEW:

TPB Management posing in a group photo with the Project Management Team from ‘’Saving at the FronƟ er’’ Programme.

On the other hand, TPB Bank was ac vely playing its part as a member of the WSBI. The World Savings and Retail Banking Ins tutes (WSBI) is a global associa on of savings and retail banks that provides developmental support to its members. This is purely synergizing in resources mobilizaƟ on and disposiƟ on. The bank is a long- me member of this associa on, and con nues to foster deeper es while impor ng some best prac ces from other WSBI member banks. During the year 2018, the bank’s CEO Mr.Sabasaba Moshingi a ended and had a prolifi c par cipa on in the WSBI mee ngs and those of the WSBI Presidents’ Commi ee. The mee ngs were held in Barcelona, Spain, New Delhi in India and Tunis, Tunisia.

During the year, the bank established partnership with Mastercard Founda on, and the organiza on sponsored the bank’s fi nancial inclusion project that covers seven regions in the Southern Highlands and its peripheries. The Savings Banks Founda on for Interna onal Coopera on (SBFIC) con nued to support the bank in developing human capital during the year 2018.

2727 ANNUAL REPORT 2018

THE BOARD OF DIRECTORS

Dr. Edmund Bernard Mndolwa has over 40 years’ experience in audi ng. Dr. Mndolwa has an immense interest and built exper se in tax, strategy, corporate governance, banking and fi nance and policy formula on. Dr. Mndolwa holds a Master of Business Administra on degree from Mzumbe University and a Doctorate of Philosophy (Finance) from the Commonwealth Open University. Dr. Mndolwa is a Fellow of the Chartered Associa on of Cer fi ed Accountants, a Cer fi ed Fraud Examiner and having successfully completed the Corporate Governance Course conducted by the Commonwealth Associa on for Corporate Governance, Dr. Mndolwa is eligible to be appointed a director in any company in the Commonwealth. Dr. Mndolwa is a former partner at Deloi e and a former partner DR. EDMUND MNDOLWA at PwC and is currently a partner at Globe Accountancy Services. Dr. Mndolwa has previously served as Board Chairman at Na onal Board Chairman Insurance Corpora on, Board Chairman at KCB Bank Tanzania and Board Chairman at TPB Bank shortly a er it began opera ons as Tanzania Postal Bank. Dr. Mndolwa has served as Vice Chairman of Consolidated Holdings Company, and has been a Board Member at both the Na onal Bank of Commerce and the Public Procurement Regulatory Authority. Dr. Mndolwa is currently Chairman of Jumuiya ya Wazazi in the Chama cha Mapinduzi.

Mr. Seif Shaaban Seif (1969) Tanzanian - represents the Revolu onary Government of Zanzibar and works as a Commissioner of Public Investments and Stock Verifi ca on in the Ministry of Finance, Revolu onary Government of Zanzibar. Mr. Seif has a Post Graduate Diploma in Tax Management and an Advanced Diploma in Tax Management, both from The Ins tute of Finance and Management. Mr. Seif has vast experience on Tax issues, he has a ended various courses, workshop and short courses inside and outside the country on TAX, Value Added Tax and Revenue collec on.

MR. SEIF SHAABAN SEIF Board Member

28 TPB Bank PLC

THE BOARD OF DIRECTORS

Mr. Aman Mathew Ngaga represents the POSTA NA SIMU SACCOS where he has over ten years experience as Chairman of the Supervisory Commi ee and is also a Board Member. Mr. Ngaga holds a Master of Business Administra on degree in Finance and Banking from Mzumbe University and a Bachelor of Science degree from Makerere University. Mr. Ngaga currently works for Tanzania Telecommunica ons Company Limited as a Revenue Assurance Analyst and Credit Controller with experience in budge ng, investment analysis, fi nancial planning and credit management.

MR. AMAN MATHEW NGAGA Board Member

Mrs. Anne Mbughuni (1959) Tanzanian - represents The Government of United Republic of Tanzania. She holds a Master of Social Science (Accoun ng and Development Finance) from the University of Birmingham, United Kingdom and is a Cer fi ed Public Accountant. She currently works for The Fair Compe on Commission (FCC) as Director of Corporate Aff airs. Prior to that she worked as Director of Finance and Administra on at The Na onal Insurance Corpora on and also as Director of Finance and Administra on of The Na onal Health Insurance Fund. Mrs. Mbughuni has vast experience in Accoun ng and Finance. She was a lecturer at IDM (now Mzumbe University). She is currently the Vice Chairperson of the Na onal MRS. ANNE CLAUDE Board of Accountants and Auditors (NBAA) and is also a Board MBUGHUNI Members of the Ins tute of Accountants Arusha. Board Member

29 ANNUAL REPORT 2018

THE BOARD OF DIRECTORS

Mrs. Sarah Msika (1971) Tanzanian - represents the Government of United Republic of Tanzania. She holds A Master’s in Business Administra on (Marke ng) and a Bachelor of Commerce (Marke ng - Hons) from the University of Dar-es-Salaam. Mrs Msika is a Cer fi ed Director by the Ins tute of Directors Tanzania. She is a Member of the Technical Commi ee - Consumer Financial Educa on of Commission of Insurance Securi es & Non-Banking Financial Authori es for the Southern African Development Community represen ng Tanzania. She currently works as Head of Public Rela ons and Promo ons at the Social Security Regulatory Authority (SSRA). Prior to joining SSRA, Sarah Worked with PPF Pensions Fund as Public Rela ons Manager. MRS. SARAH KIBONDE She has over 13 years experience in the Social Security Industry in MSIKA the fi eld of Marke ng, Public Rela ons & Promo ons. Board Member

Mr. Daniel Macrice Mbodo represents the Tanzania Post Corpora on where he works as General Manager Corporate Resources Management. Mr. Mbodo has an Advanced Diploma in Accoun ng from the Ins tute of Finance Management and is currently pursuing his Masters in Business Administra on (Corporate Management) at Mzumbe University. Mr. Mbodo is a Cer fi ed Public Accountant (CPA T), a Cer fi ed Director, Cer fi ed Procurement and Supplies Professional of Tanzania, Cer fi ed Internal Auditor and a Cer fi ed Fraud Examiner.

MR. DANIEL MACRICE MBODO Board Member

30 TPB Bank PLC

EXECUTIVE MANAGEMENT

Mr. Moshingi joined the bank in 2011 as Chief Execu ve Offi cer. Prior to this Mr. Moshingi was Regional Head of Consumer Banking Opera onal Risk and Sales Governance in Northern Gulf, Levant and Oman based in the Kingdom of Bahrain for Bank from 2007. Mr. Moshingi, a seasoned banker is also a Board Member, President Africa Regional Group and Vice President - Presidents Commi ee of the World Savings and Retail Banking Ins tute (WSBI Headquartered in Brussels, Belgium), Governing Council Member and Representa ve in of the Tanzania Bankers Associa on, Governing Council Member and Chairman Educa on Commi ee of the Tanzania Ins tute of Bankers, Board Member of the Associa on of Savings Banks of East Africa, Board Member and Vice Chairman of the UmojaSwitch, Board Member Associa on of Tanzania Employers (ATE), an Advisory MR. SABASABA KITEWITA Board Member of AIESEC Tanzania and an Eisenhower Fellow. Mr. MOSHINGI Moshingi is a cer fi ed chartered banker with a Master of Business Chief ExecuƟ ve Oĸ cer Administra on (Finance) from the University of Dar-es-Salaam.

Mr. Nyenyembe was appointed as Director of Internal Audit in 2011 and having joined the bank in 2006 as Chief Internal Auditor. He has vast experience in audi ng both banks and fi nancial ins tu ons. Addi onally he performs internal audit reviews for the UmojaSwitch Company which provides ATM services over fi y banks across the country. Mr Nyenyembe also sits on the Audit Commi ee of the E-Government Public Ins tu on as Board Member. He holds a Master of Business Administra on (Finance) from the University of Dar-es-Salaam and professionally is Associate Cer fi ed Public Accountant ACPA (T). MR. SOSTHENES F. NYENYEMBE Director of Internal Audit

Mr. Manya a joined TPB in 1994 as Banking Opera ons Offi cer and rose through the ranks to hold key posi ons such as Chief Economist. In 2009 Mr. Manya a was appointed Director of Risk Management & Compliance. Mr. Manya a holds a Bachelor of Arts (Economics) (Hons) from the University of Dar-es-Salaam, a Post Graduate Diploma (Strategic Planning and Finance) from The Ins tute of Housing and Urban Development Studies in Ro erdam (The Netherlands) and a Master of Science (Economics) from the Inter University Ins tute of Macau (China) (now St. Joseph University). MR. MOSES MANYATTA Director of Risk Management and Compliance

3131 ANNUAL REPORT 2018

EXECUTIVE MANAGEMENT

Mr. Kwiyukwa joined the bank in 2013 as Director of Marke ng and Business Development. Mr. Kwiyukwa has experience from the telecom sector and banking having previously worked at Celtel (now ) as Zonal Sales Manager and Zantel (part of E salat) as Head of Retail Sales. Mr. Kwiyukwa holds an Advanced Diploma (Economic Planning) from Mzumbe University, a Post Graduate Diploma (Business Administra on) from Ins tute of Finance Management and a Master of Business Administra on (Marke ng) from the University of Dar-es-Salaam. MR. DEOGRATIUS KWIYUKWA Director of MarkeƟ ng and Business Development

Mr. Bwogi is a seasoned banker with more than 20 years’ experience. Mr. Bwogi, a Board Member of the Posta na Simu (TP&TC) SACCO’s and a Board Member of Posta Bureau de Change, was appointed Director of Retail and Business Banking in 2015, previously holding key posi ons such as Senior Manager and Chief Manager. Mr.Bwogi holds a Diploma in Business Management (Marke ng Management) and an Advanced Diploma in Business Management (Marke ng Management) from the College of Business Educa on, a Post Graduate Diploma in Financial Management from the Ins tute of Finance Management and a Master of Business Administra on MR. HENRY BWOGI (Marke ng Management) from the Open University of Tanzania. Director of Retail and Business Banking

Ms Diana Myonga joined TPB in 2006 as Senior Manager Administra on. Ms. Diana was promoted to Chief Manager Administra on and Corporate Services in 2009 before being appointed Director of Human Resources and Administra on in 2018. Ms. Diana holds an Advanced Diploma in Materials Management from the Ins tute of Development Management (Mzumbe) and a Masters Degree in Business Administra on from Mzumbe University.

MS. DIANA MYONGA Director of Human Resources and AdministraƟ on

32 TPB Bank PLC

EXECUTIVE MANAGEMENT

Mr. Msuya has 16 years’ experience in the banking industry. Mr. Msuya joined TPB in 2012 as Director of Technology & Opera ons from Standard Chartered Bank Tanzania where he worked as Country Head of Informa on Technology from 2008. Mr. Msuya holds a Bachelor of Science (Computer Science) from the University of Dar-es-Salaam and is a Cer fi ed Systems Security Professional (CSSP). Mr. Msuya is currently pursuing his Master of Business Administra on from the Eastern and Southern African Management Ins tute.

MR. JEMA MSUYA Director of Technology and OperaƟ ons

Ms. Semakafu joined TPB in 1995 as Banking Opera ons Offi cer and rose through the ranks to hold key posi ons such as Chief Manager Treasury. Ms. Semakafu was appointed Director of Finance in 2014. Mrs. Semakafu holds a Bachelor of Commerce (Hons.) from the University of Dar-es-Salaam and a Master’s Degree (Interna onal Banking and Finance) from Birmingham Business School. She is a holder of ACI Financial Market Cer fi cate and also a Cer fi ed Public Accountant (NBAA).

MS. REGINA SEMAKAFU Director of Finance

Mrs. Ngongi is a registered and prac cing advocate and notary public of the High Court of Tanzania and all courts below it save for Primary Courts since 2004. She joined TPB in 2006 as a Senior Manager Legal Services from Tanzania and became Chief Manager Legal Services in 2009. Mrs. Ngongi was appointed Director of Legal Services and Board Secretary in 2013. Mrs. Ngongi is a holder of Bachelor of Le ers in Law (Hons.) from University of Dar-es-Salaam, a Master of Business Administra on (Corporate Management) from Mzumbe University and is also an Associate Member Ins tute of Chartered Secretaries and Administrators (UK Chapter). MRS. MYSTICA MAPUNDA NGONGI Director Legal Services and Company Secretary

33 ANNUAL REPORT 2018

EXECUTIVE MANAGEMENT

Mr. Kaniki joined the bank in 2014 as a Senior Manager Strategic Planning and was promoted to Chief Manager Strategic Planning in 2016 before being appointed Director of Strategic Planning in 2017. Mr. Kaniki has previously worked for Standard Chartered Bank Tanzania and , and has consulted in Marke ng, Brand Management and Business Strategy. Mr. Kaniki holds a Diploma in Commerce (Dis nc on) and Bachelor of Commerce (Marke ng) from the University MR. MUONDAKWELI KANIKI of Swaziland and a Master of Business Administra on degree Director of Strategic Planning with a concentra on in Marke ng from the University of Dar- es-Salaam Business School.

Ms. Moses joined TPB in 2008 as Senior Public Rela ons Manager and she was promoted to Chief Manager Corporate Aff airs in 2012. Ms. Moses has previously worked at ITV / Radio One and Barclays Bank Tanzania. Mrs. Moses holds a Diploma in Interna onal Rela ons and Diplomacy from the Centre of Foreign Rela ons and a Bachelor of Arts (Interna onal Rela ons and Public Administra on) from the University of Dar-es-Salaam. Ms. Noves also holds a Master of Business Administra on degree (MBA - Marke ng) from the Open MS. NOVES MOSES University of Tanzania. Chief Manager Corporate Aī airs

Mr. Zakayo joined TPB in 2015 as a Senior Procurement Offi cer and was promoted to Chief Manager Procurement. Mr. Zakayo has previously worked in the Pharmaceu cals and Construc on industries. Mr. Zakayo holds an Advanced Diploma in Procurement and Supplies Management from the College of Business Administra on and is a Cer fi ed Procurement and Supplies Professional by the Procurement and Supplies Professionals Technical Board. MR. ERICK ZAKAYO Chief Manager Procurement

Mr. Fungamtama is a fi nancial markets professional with almost a decade of experience in Treasury Sales and Opera ons. He joined TPB as a Senior Manager Treasury in 2012 from Standard Chartered Bank where he was responsible for FX Sales. He was promoted to Chief Manager Treasury in 2014. Before that he worked for KCB Bank in Treasury Opera ons and Trade Finance. Mr. Fungamtama received his Bachelor of Science from Sokoine University of Agriculture and an MBA (Finance) from the University of Dar-es-Salaam. He is a cer fi ed member of ACI, a dis nguished Financial Markets Associa on in France. MR. WENCESLAUS FUNGAMTAMA Chief Manager Treasury

3434 TPB Bank PLC

ABBREVIATIONS

(i) AbbreviaƟ ons

HIV/AIDS Human Immunodefi ciency Virus/Acquired Immuno defi ciency Syndrome IFRSs Interna onal Financial Repor ng Standards ISAs Interna onal Standards on Audi ng ISSAI Interna onal Standards of Supreme Audit Ins tu ons NBAA Na onal Board of Accountants and Auditors PAA Public Audit Act No. 11 of 2008 PAR Public Audit Regula ons, 2009 PAC Public Accounts Commi ee PFA Public Finance Act No.6 of 2001 (Revised 2004) PFR Public Finance Regula ons,2001 PPA Public Procurement Act, 2011 PPR Public Procurement Regula ons, 2013 Reg. Regula ons Sect. Sec on URT United Republic of Tanzania BOT Bank of Tanzania ARCC Audit, Risk Management and Compliance Commi ee GRRC Governance, Recruitment and Remunera on Commi ee TP & TC SACCOS Posta na Simu Savings & Credit Coopera ve Society CAG Controller and Auditor General TWB Tanzania Women’s Bank Plc

35 ANNUAL REPORT 2018

CORPORATE INFORMATION

DIRECTORS

Name PosiƟ on Remarks Dr. Edmund B. Mndolwa Chairman Appointed on 23 April 2018 Mr. Seif S. Seif Member Reappointed on 23 June 2017 Mr. Aman M. Ngaga Member Appointed on 1 June 2018 Mr. Lawrence M. Mwasikili Member Term Expired on 26 May 2018 Mrs. Anne C. Mbughuni Member Appointed on 10 May 2016 Mrs. Sarah K. Msika Member Appointed on 10 May 2016 Mr. Macrice D. Mbodo Member Appointed on 5 June 2017

AUDIT, RISK MANAGEMENT AND COMPLIANCE COMMITTEE Name PosiƟ on Mrs. Anne C. Mbughuni Chairperson Mr. Aman M. Ngaga Member Mr. Macrice D. Mbodo Member Mr. Lawrence M. Mwasikili Member

GOVERNANCE, RECRUITMENT AND REMUNERATION COMMITTEE Name PosiƟ on Mr. Seif S. Seif Chairman Mrs. Anne C. Mbughuni Member Mrs. Sarah K. Msika Member

SECRETARY Mys ca Mapunda Ngongi Director Legal Services & Company Secretary TPB Bank Public Limited Company LAPF Millennium Towers Bagamoyo Road P.O. Box 9300 Dar es Salaam

REGISTERED OFFICE AND PRINCIPAL LAPF Towers PLACE OF BUSINESS Bagamoyo Road P.O. Box 9300 Dar es Salaam

PRINCIPAL AUDITORS Controller and Auditor General Na onal Audit Offi ce Samora Avenue/Ohio Street P.O. Box 9080 Dar es Salaam

36 TPB Bank PLC

CORPORATE INFORMATION ΈCONTINUEDΉ

DELEGATED AUDITORS Deloi e & Touche Cer fi ed Public Accountants (Tanzania) 3rd Floor, Aris House, Plot 152 Haile Selassie Road, Oysterbay P.O. Box 1559 Dar es Salaam Tanzania

LAWYERS M. A. Ismail & Co. Advocates Plot No. 356 U.N. Road, Upanga P.O. Box 1553 Dar es Salaam

Rex A orneys Rex House 145 Magore Street, Upanga P.O. Box 7495 Dar es Salaam

K & M Advocates Malik Road, Upanga P.O. Box 71394 Dar es Salaam

City Advocates Posta House 9th Floor Suite No. 913 P.O. Box 11287 Dar es Salaam

3737 ANNUAL REPORT 2018

REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2018

INTRODUCTION The Directors present this annual report together with audited fi nancial statements for the year ended 31 December 2018. The report provides a statement of the Directors on the overall performance and state of fi nancial aff airs of the TPB Bank Public Limited Company (the “Bank”) and Corporate Governance for the year ended 31 December 2018.

ESTABLISHMENT TPB Bank Public Limited Company, is a Company registered under the Companies Act, Cap 212 of 2002 licensed as a fi nancial ins tu on under the Banking and Financial Ins tu ons Act, 2006 and also governed by the Public Finance Act, 2004, the Public Corpora ons Act, 1992 and the Public Procurement Act, of 2011.

VISION AND MISSION The Bank’s Vision is “to be the leading Bank in the provision of aff ordable fi nancial services and promo ng fi nancial inclusion in Tanzania”, and its mission statement is “to improve the economic well-being and quality of life of every Tanzanian by ac vely promo ng savings, access to credit and the prac ce of sound fi nancial management while crea ng value for our stakeholders”. The vision and mission statements direct the Bank to enhance access, usage and understanding of fi nancial services to a wider range of popula on, both in the rural and urban areas, while maintaining sustainability of fi nancial returns and benefi ts to stakeholders.

PRINCIPAL ACTIVITIES The principal ac vi es of the Bank con nued to be provision of banking services as empowered by its establishing Act and the Banking and Financial Ins tu ons Act, 2006. The Bank con nues to promote savings culture among the people, provide credit facili es to pensioners, small and medium enterprises, micro enterprises and salaried employees.

38 TPB Bank PLC

REPORT OF THE DIRECTORS (CONTINUED)

CAPITAL STRUCTURE AND SHAREHOLDING OF THE BANK The capital structure and shareholding posi on of the Bank as at 31 December 2018 and 31 December 2017, respec vely are as follows: 2018 2017 Number of Number of shares Percentage of shares Percentage of Name of Shareholder held shareholding held shareholding Government of the United Republic of Tanzania 23,423,304 83.44% 24,190,643 86.17% Tanzania Posts Corpora on 2,135,540 7.61% 2,240,065 7.98% Revolu onary Government of Zanzibar 816,215 2.91% 857,338 3.05% Posta na Simu Savings & Credit Coopera ve Society Ltd 749,312 2.67% 783,697 2.79% Local Authori es Pension Fund (LAPF) 660,401 2.35% - - Workers’ Compensa on Fund (WCF) 286,971 1.02% - - Individual Shareholders ---- TOTAL SHARES 28,071,743 100.00% 28,071,743 100.00%

39 ANNUAL REPORT 2018

CORPORATE GOVERNANCE

The Board of Directors (the “Board”) is responsible CORPORATE GOVERNANCE (CONTINUED) for the governance of the Bank and is commi ed to ensure that its business and opera ons are The Board of Directors conducted with integrity and in compliance with the laws of the United Republic of Tanzania. The The Board of Directors retains full and eff ec ve Board observes sound corporate governance control of the Bank and monitors execu ve principles and business ethics in managing the management. The Board is also responsible for Bank. In this regard, the Board oversees that the the Bank’s direc on, policies and strategies and Bank complies with all relevant legisla on including all investment and divestment decisions. It also the provisions of the Banking and Financial ensures that the Bank meets its responsibili es Ins tu ons Act, 2006 and the pruden al guidelines to all its stakeholders and is prudently managed issued by the Bank of Tanzania. The Board has two against the major risks inherent in general business commi ees namely, the Governance, Recruitment dynamics. and Remunera on Commi ee; and the Audit, Risk In this respect, the Board makes key decisions to Management and Compliance Commi ee. The ensure that it retains proper direc on and control two Board commi ees discharge their func ons of the Bank. The Directors bring in experience as vested onto each one of them under their and exper se from their own fi elds of business respec ve charters. Each of the Commi ees is to ensure that debate on ma ers of strategy, required to meet at least once quarterly. policy and performance is robust, informed and construc ve. Furthermore, the role of the The Board delegates the day to day management Chairman and the Chief Execu ve Offi cer do not of the Bank business to Chief Execu ve Offi cer vest in one person. who is assisted by senior management. Senior Management are invited to a end board mee ngs The Board structure is such that no one individual and facilitates the eff ec ve control of all the or group dominates the decision making process. Bank’s opera onal ac vi es, ac ng as a medium There is a schedule of ma ers reserved for the full of communica on and coordina on between all Board’s approval and clear delega on of authority the various business units. to Commi ees of the Board and to management. A procedure exists for the determina on of The Bank a aches great importance to sound ma ers arising between scheduled mee ngs. corporate governance prac ce because it There are established procedures in existence ensures integrity and transparency in managing for planning and capital expenditure, for banking the rela onship that exists between the Bank opera ons and lending ac vi es, for management and all its stakeholders. It is in that vein that the of investments, for informa on repor ng systems Bank ensures that it is in compliance with the and for monitoring the Bank’s business and requirements of various legisla ons which govern performance generally. its opera ons including the Companies Act, Cap 212 of 2002, the Banking and Financial Ins tu ons The Bank has in place a charter for the Board of Act, 2006, the Public Corpora ons Act, 1992, the Directors and charters for the Board Commi ees. Public Procurement Act, 2011, the Public Finance The charters provide and guide Members of the Act, 2001 and the Pruden al Regula ons and Board and/or Board Commi ees of the roles, du es Guidelines, Circulars and Rules issued by the Bank and responsibili es of the Board of Directors or of Tanzania. Members of the Management team Commi ees, the rights and liabili es of members also par cipate in various industry ini a ves and and also provide for procedural ma ers rela ng aff airs through the Tanzania Bankers Associa on to the func ons of the Board of Directors or the and the Tanzania Ins tute of Bankers. Board Commi ees.

40 TPB Bank PLC

CORPORATE GOVERNANCE (CONTINUED)

The Chairman and the Chief Execu ve Offi cer in The commi ee meets at least once quarterly consulta on with the Board Secretary agree on to receive and discuss quarterly performance the agenda for Board mee ngs, but all Board reports and ma ers rela ng to Human Resource members are en tled to raise other ma ers. The Management. Chairman ensures that all Board members are properly briefed on all issues transacted through The Commi ee operates under a formal charter Board Commi ees. It is the responsibility of the approved by the Board of Directors and commi ee execu ve management to ensure that the Board members have unlimited access to all informa on. is supplied with informa on in a mely manner in Members of senior management are invited to a form and of a quality appropriate to enable it a end and present quarterly performance reports carry out eff ec vely its du es. and give feedback at commi ee mee ngs. The Commi ee also handles recruitment process for The Board which comprises six non-execu ve senior management posi ons and recommends Directors is confi dent that its members have the to the Board of Directors appointments and knowledge, talent and experience to lead the remunera on of senior Management staff . The Bank. The Board of Directors are independent Commi ee also is responsible for disciplining of management and exercise their independent of senior management members. The Secretary judgement with their in depth knowledge and to the Board provides secretariat services to the experience. During the year, none of the Directors Commi ee. were found to have acted on any ma er on which (i) The Audit, Risk Management and he had confl ict of interest. Refer to Directors’ Compliance CommiƩ ee Report for the Directors who held offi ce in the year under review. The Audit, Risk Management and Compliance Commi ee is chaired by the Chairperson of the Board CommiƩ ees Commi ee and consists of two other Board members. The Chief Execu ve Offi cer and the To enable it discharge its execu ve func ons, the Director of Internal Audit are management in Board has established two standing commi ees, a endance. The commi ee meets at least once each governed by wri en terms of reference, quarterly to evaluate, among others accoun ng defi ning the frequency of mee ngs, power and prac ces, internal control systems and audi ng du es and repor ng obliga on. These commi ees and fi nancial repor ng. Its task includes evalua ng con nuously evaluated progress towards mee ng cri cal risk areas iden fi ed with the help of the the Bank’s overall objec ves in addi on to ensuring internal auditors. effi cient and eff ec ve management of the en re Bank’s core func ons. The Chairperson of the The commi ee operates under a formal charter Commi ees chair the Commi ees mee ngs. approved by the Board of Directors and commi ee The board commi ees are:- members have unlimited access to all informa on. Certain members of management are invited to (i) The Governance, Recruitment and a end and give feedback at Commi ee mee ngs. Remunera on Commi ee; and The Commi ee also nego ates with external (ii) The Audit, Risk Management and auditors’ their remunera on. The Commi ee also Compliance Commi ee. holds separate mee ngs with the head of internal The Governance, Recruitment and Remunera on audit department and the external auditors when Commi ee is chaired by the Board Chairperson and required to ensure ma ers are considered without consists of two other Board Members. The Chief undue infl uence. The Secretary to the Board Execu ve Offi cer and other senior management provides secretariat services to the Commi ee. members are in a endance.

41 ANNUAL REPORT 2018 CORPORATE GOVERNANCE (CONTINUED)

Board MeeƟ ngs

There were eight (8) Board mee ngs, six (6) ARCC mee ngs and ten (10) GRRC mee ngs conducted during the year and were a ended by the Board of Directors as follows:

No. NAME OF DIRECTORS BOARD MEETINGS ARCC GRRC 1. Dr. Edmund B. Mndolwa 7 2 - 2. Mrs. Anne C. Mbughuni 8 6 9 3. Mr. Seif. S. Seif 6 - 10 4. Mr. Aman M. Ngaga 6 4 - 5. Mrs. Sarah K. Msika 6 - 7 6. Mr. Macrice D. Mbodo 8 6 - 7. Prof. Le ce K. Rutashobya 1 - - 8. Mr. Lawrence Mwasikili 1 1 -

Board MeeƟ ngs (conƟ nued) Risk Management and Internal Control The Board of Directors meets on a quarterly basis. The Board accepts fi nal reasonability for the risk Four mee ngs are ordinary and the other four management and internal control systems of the were special due to the merger of the banks. The Bank. It is the task of management to ensure ARCC had four ordinary mee ngs and two special adequate internal fi nancial and opera onal mee ngs due to audit ma ers. GRCC had four control systems are developed and maintained on ordinary mee ngs and six special mee ngs due to an ongoing basis to provide reasonable assurance credit approvals. regarding the:-

Board EvaluaƟ on (i) eff ec veness and effi ciency of opera ons; The Board recognizes that self-evalua on is a (ii) safeguarding of the Bank’s assets best prac ce benchmark of assessing the levels (including informa on); of performance of the Board. On an ongoing (iii) compliance with applicable laws, basis, the Board carries out self-evalua on of its regula ons and supervisory requirements; performance. The review seeks to iden fy specifi c (i) reliability of accoun ng records; areas in need of improvement or strengthening and the result on any ac ons to be taken are discussed (ii) business sustainability under normal as by the full Board. In a similar way, Directors also well as adverse condi ons; and do conduct self-evalua on of their performance as (iii) responsible behaviour towards all members of the Board. stakeholders. Directors’ CompensaƟ on The effi ciency of internal control system is The disclosure of Directors’ fees and remunera ons dependent on the compliance with prescribed are made in fi nancial statements (Refer to note measures. There is always a risk of non-compliance 33(d)). Directors’ fees or any amendments are with such measures by staff . Whilst no system, of approved by shareholders at the Annual General internal control can provide absolute assurance Mee ng and cleared by the Minister for Finance against misstatement or losses, the Bank system and Planning.

42 TPB Bank PLC

CORPORATE GOVERNANCE (CONTINUED) is designed to provide the Board with reasonable requirements of the Banking and Financial assurance that the procedures in place are Ins tu ons Act; 2006 the Public Procurement opera ng eff ec vely. Act, 2011; and Companies Act, 2002; and Na onal Board of Accountants and Auditors Consequently, even a strict and effi cient internal Technical Pronouncements. control system can provide no more reasonable measure of assurance in respect of the above The directors are also sa sfi ed that no material men oned objec ves. Internal auditors monitor event has occurred between the fi nancial year- the opera ons and the internal control systems end and the date of this report. and report to the Audit commi ee of the Board their fi ndings and recommenda ons. All cri cal Company Secretary Informa on Technology (IT) is backed up and the The Board of Directors appoints the Secretary to Bank has put in place well documented Business the Board and all board members have access Con nuity and Disaster Recovery policies and to the services of the Company Secretary. The procedures. The procedures are tested periodically Company Secretary is the principal advisor of the and the Board is of the opinion they meet the Board on legal and corporate governance ma ers. acceptable criteria. Where necessary the Board seeks independent professional advice on some ma ers. The Financial ReporƟ ng Company Secretary ensures that: The Directors accept fi nal responsibility for (i) Annual calendar for Board mee ngs prepara on of the annual nancial statements fi is prepared and circulated to all Board which fairly present: members a er approval. (i) the fi nancial posi on of the Bank as at the (ii) Adequate informa on is provided to all the end of the year under review; members prior to commencement of the Board and sub-commi ee mee ngs. (ii) the fi nancial results of opera ons; as well as (iii) Proceedings of the Board and those of Board (iii) the cash fl ows for that year. Commi ees are recorded and Minutes wri en soon therea er the mee ng. The responsibility for compiling the annual fi nancial statements was delegated to management. The (iv) Resolu ons and direc ves of the Board and/ Statutory Auditor reports on whether the annual or Board Commi ees are communicated to fi nancial statements are fairly presented. The Management for implementa on and status directors confi rm and are sa sfi ed that during the of implementa on is reported to the Board year under review: or Commi ee at the next mee ng.

(i) adequate accoun ng records were (v) To promote a culture of good Corporate maintained; Governance. (iv) Maintaining the statutory registers. (ii) an eff ec ve system of internal control and risk management, monitored by management, (v) Communica on link between the Board of was maintained; Directors and Management.

(i) appropriate accoun ng policies supported Internal Audit by reasonable and prudent judgements and es mates, were used consistently; and Internal audit is an independent, objec ve assurance and consul ng ac vity designed to add (i) The nancial statements were compiled fi value to the Bank and improve opera ons. It helps in accordance with Interna onal Financial the Bank accomplish its objec ves by bringing a Repor ng Standards and comply with systema c, disciplined approach to evaluate and

43 ANNUAL REPORT 2018 CORPORATE GOVERNANCE (CONTINUED)

improve risk management, control and governance The Government of United Republic of Tanzania processes. – Chairman and two Board Members and the appoin ng authority is President of the United Internal audit plans cover ma ers iden fi ed Republic of Tanzania for the Chairman and the in risk management assessments as well as Minister for Finance and Planning for the two issues highlighted by the Board, the Audit, Risk Board Members; Management and Compliance Commi ee and senior management. 1. Tanzania Posts Corpora on – One Board Member; The Internal Audit directorate administra vely 2. Revolu onary Government of Zanzibar – One reports to the Chief Execu ve Offi cer on day-to- Board Member – appoin ng authority is day ma ers, but reports directly to the Chairman Minister for Finance; and of the Audit Commi ee on opera onal ma ers and on a regular basis. The purpose, authority and 3. Posta na Simu Savings & Credit Coopera ve responsibility of the independent internal audit Society Ltd – One Board Member. ac vi es are formally defi ned in an Internal Audit Charter which is updated regularly and approved 4. Public Servant Social Security Fund (formerly by the Audit Commi ee. Signifi cant audit fi ndings Local Authori es Pension Fund (LAPF)* are reported to the audit commi ee. All signifi cant 5. Workers Compensa ons Fund* business opera ons are subject to internal audit. The tenure of Board Members is three years per term and they are eligible for reappointment for Internal CommunicaƟ on and Labor relaƟ ons three terms. Members of staff at all levels are kept fully informed *Note – as a result of merger there will be of developments within the bank using a range addi onal Board Members of communica on mechanism. These include newsle ers, website, circulars as well as regular discussions at diff erent management levels. The emphasis is on two-way communica on to develop a workforce which understands and supports the business philosophy and ethics of the Bank.

Environment and Social Management Policy The Bank recognizes that environmental management is the responsibility of all public and private ins tu ons. As a good corporate ci zen, the Bank has con nued to par cipate and support environmental and social ac vi es through either fi nancial dona ons or employees’ physical par cipa on in the ac vi es. COMPOSITION OF THE BOARD OF DIRECTORS Chairman is appointed by the President of United Republic of Tanzania, other Board Members are appointed by respec ve shareholders. The current composi on of the Board of directors is as per TPB Bank Public Limited Company memorandum and ar cles of associa ons as follows:

4444 TPB Bank PLC ANNUAL REPORT 2018 COMPOSITION OF THE BOARD OF DIRECTORS (CONTINUED)

The Directors of the Bank at the date of this report and who have served since January 2018, except where otherwise stated are:

Date of fi rst PosiƟ on/ Name, Ɵ tle & country of Year of No. appointment/ membership to residence birth ResignaƟ on commiƩ ee OccupaƟ on Qualifi caƟ on NaƟ onality Doctor of Philosophy (Finance, Fellow of the Dr. Edmund B. Mndolwa Partner – Global Accountancy Chartered Associa on of 1. 1949 23 April 2018 Chairman Board Services. Cer fi ed Accountants, Tanzanian Chairman – Tanzania Cer fi ed Fraud Examiner, Banker,(MBA, Finance &Banking), Commissioner for Public 23 June 2014, Re Mr. Seif S. Seif Investments and Stock Postgraduate Diploma in 2. 1969 appointed from 23 - GRRC Tanzanian Chairperson Veri ca ons (Ministry of Tax Management Member – Tanzania June 2017 to 2020 fi Finance, Zanzibar) Masters of Business Mr. Aman M. Ngaga Revenue Assurance Analyst Member - ARCC Administra on in Finance 3. 1969 1 June 2018 and Credit Controller (Tanzania Tanzanian and Banking, B.Sc. Member – Tanzania Telecommunica ons Ltd) (Economics). Masters of Social Mrs. Anne C. Mbughuni Re red. Formerly Director 10 May 2016 Chairperson – ARCC Science (Accoun ng & 4. 1959 Corporate A airs (Fair Tanzania ff Development Finance) n Member – Tanzania Member - GRRC Compe on Commission) CPA (T) B.Com Marke ng, Masters Head of Public Rela ons & Mrs. Sarah K. Msika 10 May 2016 Degree in Business 5. 1971 - GRRC Promo on (Social Security Tanzanian Member Administra on (MBA) Member – Tanzania Regulatory Authority) Marke ng Master’s Degree on General Manager Resources Mr. Macrice D. Mbodo Corporate Management, 6. 1983 5 June 2017 Member - ARC Management (Assistant CEO- Tanzanian Advance Diploma in Member - Tanzania Tanzania Post Corpora on) Accoun ng, CPA (T)

45 ANNUAL REPORT 2018 COMPOSITION OF THE BOARD OF DIRECTORS (CONTINUED)

SECRETARY The Board Secretary is Mrs. Mys ca Mapunda Ngongi (Masters in Corporate Management, LLB (Hons), Associate Member - AMICSA). MANAGEMENT Management of the Bank is under the Chief Execu ve Offi cer and is organized into the following Directorates:

• Finance; • Technology and Opera ons; • Marke ng and Business Development; • Risk Management and Compliance; • Human Resources and Administra on; • Strategic Planning; • Internal Audit; • Retail & Business Banking; and • Legal Services and Company Secretary.

Key management personnel of the Bank are listed below:

Name PosiƟ on Sabasaba K. Moshingi Chief Execu ve Offi cer Sosthenes F. Nyenyembe Director of Internal Audit Regina E. Semakafu Director of Finance Jema A. Msuya Director of Technology & Opera ons Henry J. Bwogi Director of Retail & Business Banking Diana W. Myonga Director of Human Resources & Administra on Moses S. Manya a Director of Risk Management & Compliance Deogra us C. Kwiyukwa Director of Marke ng & Business Development Mys ca M. Ngongi Director of Legal Service & Secretary of the Board Muondakweli Kaniki Director of Strategic Planning

FUTURE DEVELOPMENT PLANS The Bank is the main fi nancial service provider to the last mile in Tanzania. The Bank will con nue to look at ways of improving off erings to this key market segment. During the year, the Bank upgraded its core banking system from Equinox 4.3 to Rubikon and acquired its own mobile banking gateway. This sets a great founda on for the Bank to have greater fl exibility in terms of product off ering and lowering prices. The Bank sees opportunity in improving its group banking off ering by extending more services to mobile but also looking to partner with mobile money operators to scale up the off erings.

With the merger with Twiga Bancorp Limited and Tanzania Women’s Bank PLC on the back of the Bank’s rebrand from Tanzania Postal Bank to TPB Bank PLC, there is opportunity to move aggressively into the SME market, high net worth individuals and create a branded off ering tailor made for women and to ‘own’ this space.

46 TPB Bank PLC

COMPOSITION OF THE BOARD OF DIRECTORS (CONTINUED)

FUTURE DEVELOPMENT PLANS (CONTINUED) received by management from the employees during the year. A dynamic rela onship con nues Over the short-term, SMEs/Corporates, WADU to exist between management and trade union. customers, groups and insurance are key iden fi ed growth areas. The Bank sees opportunity to have The Bank is equal opportunity employer giving a socio-economic impact in these areas ensure equal access to employment opportuni es and that it grows and also create las ng eff ect on the ensuring that the best available candidate is general society. appointed to any given posi on free from any form of discrimina on based on factors like age, gender, PERFORMANCE FOR THE YEAR marital status, tribe, religion and disability which During the year, the Bank registered a profi t do not impair the ability the person to discharge before tax of TZS 17,188,045,000 compared to TZS their du es. 18,438,645,000 in the previous year. Training FaciliƟ es During the year, assets of the Bank grew by TZS 107,446,126,000 or 22.70% from TZS During the year, the Bank spent a sum of TZS 458,326,668,000 at the end of 2017 to TZS 794,710,000 (2017: TZS 975,469,000) for staff 562,344,907,000 at the end of 2018. Customer training in order to improve employees technical deposit base increased from TZS 323,027,153,000 skills and hence eff ec veness. Training programs to TZS 390,599,533,000 while total lending have been and are con nually being developed por olio increased from TZS 325,065,388,000 to to ensure employees are adequately trained TZS 412,768,650,000. at all levels, all employees’ have some form of annual training to upgrade skills and enhance Shareholders’ Funds at the end of 2018 increased development. to TZS 82,920,431,000 from TZS 59,846,532,000 at the end of 2017. Medical Assistance DIVIDENDS All members of staff are availed medical insurance guaranteed by the Board. This is for the members The Board of Directors do not recommend of staff s’ spouse and a maximum number of four payment of dividend for the year 2018 (2017: TZS dependents who are below 18 years. Currently, 1,200,000,000 dividend was proposed). these services are provided by Na onal Health Insurance Fund. BONUS SHARES The Board of Directors propose issue of bonus Health and Safety shares comprising of fully paid ordinary shares at The Bank has a strong health and safety department par value (2017: Nil). which ensures that a strong culture of safety prevails at all mes. A safe working environment SOLVENCY is ensured for all employees and contractors by The Board has reasonable expecta on that the providing adequate and proper personal protec ve Bank will have adequate resources to con nue in equipment, training and supervision as necessary. opera onal existence for the foreseeable future. Financial Assistance to Staī EMPLOYEES’ WELFARE Bank provides various loans to employees in Management and Employees’ RelaƟ onship accordance with Bank’ Staff Loans Policy and Staff regula ons in place. These include motor vehicle There con nued to be a very good and healthy loans, house rent loans, personal loans, Incen ve rela onship between employees and management loan and motor vehicle Insurance loans. in 2018. There were no unresolved complaints

4747 ANNUAL REPORT 2018

COMPOSITION OF THE BOARD OF DIRECTORS (CONTINUED)

Persons with DisabiliƟ es POLITICAL AND CHARITABLE DONATIONS Applica ons for employment by disabled persons Dona ons amoun ng to TZS 194,242,803 (2017: are always considered, bearing in mind the TZS 107,059,984) were made to charitable ap tudes of the applicant concerned. In the event organiza ons. The bank’s primary focus and spend of members of staff becoming disabled, every was on educa on (TZS 156 million), health (TZS 28 eff ort is made to ensure that their employment million) and social welfare (TZS 10 million). The with the Bank con nues and appropriate training key issue here is the fact that the Bank does not is arranged. It is the policy of the Bank that training, operate in a vacuum but needs to have a las ng career development and promo on of disabled and upli ing eff ect on society. During the year, no persons should, as far as possible, be iden cal to poli cal dona ons were made (2017: Nil). that of other employees. The Bank has employed a number of disabled people in services. RELATED PARTY TRANSACTIONS

Employees Benefi t Plan Details of related party transac ons are set out in note 33 to the fi nancial statements. The Bank makes mandatory contribu ons to social security funds which qualify to be a defi ned AUDITORS contribu on plan. The Controller and Auditor-General (“CAG”) is the The number of employees at the end of the year statutory auditor for the TPB Bank Public Limited was 888 (2017: 718) Company pursuant to the provisions of Ar cle 143 of the Cons tu on of the United Republic of GENDER PARITY Tanzania of 1977 (revised 2005), Sec ons 30 -33 The Bank had 888 (2017: 718) employees, out of of the Public Audit Act No. 11 of 2008 and Sec on which 409 (2017: 343) were female and 479 (2017: 20(6) of the Bank of Tanzania Act, 2006. Deloi e 375) were male. & Touche, Cer fi ed Public Accountants (Tanzania) were appointed by the CAG to audit the Bank’s fi nancial statements on his behalf, pursuant to Sec on 33 of the Public Audit Act, No 11 of 2008.

Approved by the Board of Directors and signed on its behalf by:

48 TPB Bank PLC

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Companies Act, 2002 requires the Directors by reasonable and prudent judgements and to prepare fi nancial statements for each fi nancial es mates, in conformity with Interna onal year which give a true and fair view of the state Financial Repor ng Standards and in the manner of the fi nancial aff airs of the Bank as at the end of required by the Companies Act, 2002; the Banking the fi nancial year and of its fi nancial results for the and Financial Ins tu ons Act, 2006; and Na onal year then ended. It also requires the Directors to Board of Accountants and Auditors Technical ensure the Bank keeps proper accoun ng records Pronouncements. The Directors are of the opinion which disclose with reasonable accuracy at any that the fi nancial statements give a true and fair me the fi nancial posi on of the Bank. They are view of the state of the fi nancial aff airs of the also responsible for safeguarding the assets of the Bank and of its opera ng results. The Directors Bank. further accept responsibility for the maintenance of accoun ng records which may be relied upon in The Directors are responsible for the prepara on the prepara on of fi nancial statements, as well as of the fi nancial statements that give true and adequate systems of internal fi nancial control. fair view in accordance with the Interna onal Financial Repor ng Standards, and in manner Nothing has come to the a en on of the Directors required by the Companies Act, 2002; the Banking to indicate that the Bank will not remain a going and Financial Ins tu ons Act, 2006; Na onal concern for at least the next twelve months from Board of Accountants and Auditors Technical the date of this statement. Pronouncements and for such internal controls as Directors determine are necessary to enable the prepara on of the fi nancial statements that are free from material misstatements, whether due to fraud or error. The Directors accept responsibility for the annual fi nancial statements, which have been prepared using appropriate accoun ng policies supported

49 ANNUAL REPORT 2018

DECLARATION OF HEAD OF FINANCE

The Na onal Board of Accountants and Auditors (NBAA) according to the power conferred under the Auditors and Accountants (Registra on) Act. No. 33 of 1972, as amended by Act No. 2 of 1995, requires fi nancial statements to be accompanied with a Statement of Declara on issued by the Head of Finance responsible for the prepara on of fi nancial statements of the Bank concerned.

It is the duty of a professional accountant to assist the Board of Directors to discharge the responsibility of preparing fi nancial statements of a Bank showing true and fair view posi on of the Bank in accordance with Interna onal Accoun ng Standards and statutory repor ng requirements. Full legal responsibility for fi nancial statements rests with the Board of Directors as under Directors Responsibility statement on an earlier page.

I, Regina E. Semakafu, being the Director of Finance of TPB Bank Public Limited Company hereby acknowledge my responsibility of ensuring that fi nancial statements for the year ended 31 December 2018 have been prepared in compliance with applicable accoun ng standards and statutory requirements.

I thus confi rm that the fi nancial statements comply with applicable accoun ng standards and statutory requirements as on that date and that they have been prepared based on properly maintained fi nancial records.

50 TPB Bank PLC

INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL

Board Chairman TPB Bank Public Limited Company P.O. Box 9300 Dar es Salaam, Tanzania

REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF TPB BANK PUBLIC LIMITED COMPANY FOR THE YEAR ENDED 31 DECEMBER 2018 Report on the Financial Statements

Opinion I have audited the fi nancial statements of TPB Bank Public Limited Company (the “Bank”), set out on pages 23 to 92, which comprise of the statement of fi nancial posi on at 31 December 2018, the statement of profi t or loss and other comprehensive income, statement of changes in equity and statement of cash fl ows for the year then ended, and notes to the fi nancial statements, including a summary of signifi cant accoun ng policies. In my opinion, the accompanying fi nancial statements give a true and fair view of the fi nancial posi on of the Bank as at 31 December 2018 and of its fi nancial performance and cash fl ows for the year then ended in accordance with Interna onal Financial Repor ng Standards (“IFRSs”) and the requirements of Companies Act, 2002 and the Banking and Financial Ins tu ons Act, 2006.

Basis for Opinion I conducted my audit in accordance with Interna onal Standards on Audi ng (ISAs). My responsibili es under those standards are further described in the Auditor’s Responsibili es for the Audit of the fi nancial statements sec on of my report. I am independent of the Bank in accordance with the Na onal Board of Accountant and Auditors (NBAA) Code of Ethics, which is consistent with the Interna onal Ethics Standards Board for Accountants Code of Ethics for Professional Accountants, together with other ethical requirements that are relevant to my audit of the fi nancial statements in Tanzania, and I have fulfi lled my other ethical responsibili es in accordance with these requirements. I believe that the audit evidence I have obtained is suffi cient and appropriate to provide a basis for my opinion.

Key audit maƩ ers A key audit ma er is a ma er that, in my professional judgement, was of most signifi cance in my audit of the fi nancial statements of the current period. These ma ers were addressed in the context of my audit of the fi nancial statements as a whole and in forming my opinion thereon. My audit opinion has been expressed in the fi rst sec on of this report and, therefore, I do not provide separate opinion on this key audit ma er.

51 ANNUAL REPORT 2018

INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

Key Audit MaƩ er How my Audit Addressed the Key Audit MaƩ er

Provision for impaired loans and In evalua ng the impairment against loans and advances, I assessed the judgements and assump ons used by the advances Directors and my procedures included the following: IFRS 9 – Financial instruments which became eff ec ve on 1 January 2018, • As IFRS 9 was adopted at the start of the year, I performed introduced impairment based on audit procedures on the opening balances to gain assurance Expected Credit Losses (ECL) model on the transi on from IAS 39. This included evalua ng the rather than the incurred loss model accoun ng interpreta ons for compliance with IFRS 9 and previously applied under IAS 39. tes ng the adjustments and disclosures made on transi on; At 31 December 2018 the Bank • I reviewed the appropriateness and compliance of the reported total gross loans of TZS ECL model to the standard regarding the methods used 430 billion with expected credit loss to determine historical default rates, macroeconomic of TZS 17 billion. variables and adjustments, expected cash fl ows, credit Key judgements and es mates in conversion factors and eff ec ve interest rates; respect of the measurement of ECL • With the support of my credit experts, I tested the include: assump ons and formulas used in the model. This included assessing the appropriateness of model design, considering Alloca on of assets to stage 1, 2, • alterna ve modelling techniques and recalcula ng the or 3 using criteria in accordance Probability of Default (PD), Loss Given Default (LGD) and with the accoun ng standard; Exposure at Default (EAD); • Accoun ng interpreta ons and • To verify data quality, I tested the data used in the ECL modelling assump ons used to calcula on by reconciling it to source systems; build the ECL model; I further assessed the base case and alterna ve economic Completeness and accuracy of • • scenarios including challenging probability weights and data used to calculate the ECL; comparing to other scenarios from a variety of external • Inputs and assump ons used to sources; es mate the impact of mul ple I assessed forecasted macroeconomic variables for economic scenarios; • appropriateness such as Gross Domes c Products (GDP), • Compliance of the model to interest rates and interbank lending rates; the standard in computa on • With the support of my credit experts I challenged the matrices for calcula on of correla on and impact of the macroeconomic factors to Probability of Default (PD), the model including how non-linearity was captured; Loss Given Default (LGD) and Exposure at Default (EAD); and • I assessed the adequacy and appropriateness of disclosures for compliance with the accoun ng standards including the • Accuracy and adequacy of the transi on disclosures; fi nancial statements disclosures. I found that the assump ons and judgements applied in determining impairment against loans and advances were appropriate and that the amount raised was reasonable and adequate.

52 TPB Bank PLC

INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

Other InformaƟ on The Directors are responsible for the other informa on, including the Director’s report. The other informa on does not include the fi nancial statements and my auditor’s report thereon.

My opinion on the fi nancial statements does not cover the other informa on and I do not express any form of assurance conclusion thereon.

In connec on with my audit of the fi nancial statements, my responsibility is to read the other informa on and, in doing so, consider whether the other informa on is materially inconsistent with the fi nancial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work I have performed on the other informa on that I obtained prior to the date of this auditor’s report, I conclude that there is a material misstatement of this other informa on, I am required to report that fact. I have nothing to report in this regard.

ResponsibiliƟ es of the Directors and Those Charged with Governance for the Financial Statements The Directors are responsible for the prepara on of the fi nancial statements that give a true and fair view in accordance with Interna onal Financial Repor ng Standards and the requirements of the Companies Act, 2002 and the Banking and Financial Ins tu ons Act,2006; Na onal Board of Accountants and Auditors Technical Pronouncements and for such internal controls as Directors determine are necessary to enable the prepara on of fi nancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the fi nancial statements, the Directors are responsible for assessing the Bank’s ability to con nue as a going concern, disclosing, as applicable, ma ers related to going concern and using the going concern basis of accoun ng unless the Directors either intend to liquidate the Bank or to cease opera ons, or have no realis c alterna ve but to do so. Those charged with governance are responsible for overseeing the Bank’s fi nancial repor ng process.

ResponsibiliƟ es of the Controller and Auditor General on the Audit of the Financial Statements My objec ves are to obtain reasonable assurance about whether the fi nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these fi nancial statements.

53 ANNUAL REPORT 2018

INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

As part of an audit in accordance with ISAs, I exercise professional judgement and maintain professional skep cism throughout the audit. I also:

• Iden fy and assess the risks of material misstatement of the fi nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for my opinion. The risk of not detec ng a material misstatement resul ng from fraud is higher than for one resul ng from error, as fraud may involve collusion, forgery, inten onal omissions, misrepresenta ons, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ec veness of the Bank’s internal control.

• Evaluate the appropriateness of accoun ng policies used and the reasonableness of accoun ng es mates and related disclosures made by the Directors.

• Conclude on the appropriateness of the Directors’ use of the going concern basis of accoun ng and, based on the audit evidence obtained, whether a material uncertainty exists related to events or condi ons that may cast signifi cant doubt on the Bank’s ability to con nue as a going concern. If I conclude that a material uncertainty exists, I am required to draw a en on in my auditor’s report to the related disclosures in the fi nancial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or condi ons may cause the Bank to cease to con nue as a going concern.

• Evaluate the overall presenta on, structure and content of the fi nancial statements, including the disclosures, and whether the fi nancial statements represent the underlying transac ons and events in a manner that achieves fair presenta on. I communicate with those charged with governance regarding, among other ma ers, the planned scope and ming of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that I iden fy during my audit. In addi on, Sect. 10 (2) of the Public Audit Act No. 11 of 2008 requires me to sa sfy myself that the fi nancial statements have been prepared in accordance with the appropriate accoun ng standards and that; reasonable precau ons have been taken to safeguard the collec on of revenue, receipt, custody, disposal, issue and proper use of public property, and that the law, direc ons and instruc ons applicable thereto have been duly observed and expenditures of public monies have been properly authorized. Further, Sect 48(3) of the Public Procurement Act No. 9 of 2011 requires me to state in my annual audit report whether or not the auditee has complied with the provisions of the Act and Regula ons.

5454 TPB Bank PLC

INDEPENDENT REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

Report on Other Legal and Regulatory Requirements As required by the Companies Act, 2002 I report to you, based on my audit, that:

• I have obtained all the informa on and explana ons which to the best of my knowledge and belief, were necessary for the purposes of my audit;

• in my opinion, proper books of account have been kept by the Bank, so far as appears from my examina on of those books of account; and

• the Bank’s statement of fi nancial posi on (balance sheet) and statement of profi t or loss and other comprehensive income (profi t and loss account) is in agreement with the books of account.

Compliance with Public Procurement Act

In view of my responsibility on the procurement legisla on, and taking into considera on the procurement transac ons and processes I reviewed as part of this audit, I state that I did not fi nd any material divergences by Management from the requirement of Public Procurement Act No. 9 of 2011 and its related Regula ons of 2013.

Prof. Mussa J. Assad CONTROLLER AND AUDITOR GENERAL Na onal Audit Offi ce Dar es Salaam, Tanzania

______2019

55 ANNUAL REPORT 2018

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

2018 2017 Note TZS ‘000 TZS ‘000

Interest income 7 95,944,964 83,079,647 Interest expense 8 (17,870,226) (21,074,102)

Net interest income 78,074,738 62,005,545

Fees and commission income 9 19,754,296 18,661,385 Fees and commission expense 10 (410,897) (768,194)

Net fee and commission income 19,343,399 17,893,191

Foreign exchange income 11 903,584 1,044,042 Other income 12 1,712,874 3,997,140 Loan impairment loss 20(c) (13,655,680) (11,195,605) Administra ve expenses 13 (69,190,870) (55,305,668)

Profi t before tax 17,188,045 18,438,645

Income tax expense 15(a) (5,085,944) (5,709,001)

Profi t for the year 12,102,101 12,729,644

Other comprehensive income

Actuarial gain/(loss) from defi ned benefi t obliga on 34 884,037 (1,292,685) Deferred tax on actuarial gain/(loss) from defi ned benefi t obliga on (265,211) 387,806 Actuarial gain/(loss) net of tax 618,826 (904,879) Past cost on defi ned benefi t obliga on 34 - (3,645,669) Deferred tax on past cost on defi ned benefi t obliga on - 1,093,701

Past cost on defi ned benefi t obliga on net of tax - (2,551,968)

Other comprehensive income/(loss) net of tax 618,826 (3,456,847)

Total comprehensive income for the year 12,720,927 9,272,797

56 TPB Bank PLC

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2018

Notes 2018 2017 Assets TZS ‘000 TZS ‘000

Cash and balances with Bank of Tanzania 16 36,914,013 24,289,024 and items for collec on 231,928 132,712 Placement and balances with other banks 17 15,821,018 20,059,790 Treasury bills 18 43,620,066 46,041,182 Treasury bonds 19 13,199,202 13,830,200 Loans and advances to customers 20(a) 412,768,650 325,065,388 Other assets 21 7,488,941 6,599,958 Deferred tax asset 27 6,242,024 5,772,391 Intangible assets 22 3,035,349 1,311,843 Tax recoverable 15(c) 465,681 202,471 Property and equipment 23 22,558,035 15,021,709

Total assets 562,344,907 458,326,668

LiabiliƟ es and equity

Customer deposits 24 390,599,533 323,027,153 Borrowing and balances due to other banks 25 62,930,870 59,531,345 Other liabili es 26 19,403,952 10,357,652 Revenue grant 547,609 268,490 Staff benefi t obliga on 34 5,942,512 5,295,496

Total liabiliƟ es 479,424,476 398,480,136

Equity Share capital 28(b) 28,071,743 28,071,743 Regulatory reserve 28(c) 135,093 288,078 General reserve 28(c) 3,912,553 3,100,563 Fixed asset revalua on reserve 5,220,318 - Other reserves (acquired in business combina on) 5,041,745 - Defi ned benefi t reserve (2,838,021) (3,456,847) Retained earnings 43,377,000 31,842,995

82,920,431 59,846,532 Total equity 562,344,907 458,326,668 Total liabiliƟ es and equity The fi nancial statements on pages 23 to 92 were approved and authorized for issue by the Board of Directors on…………….2019……………. and signed on its behalf by:

5757 TPB Bank PLC ANNUAL REPORT 2018 STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018 Share Regulatory General Fixed asset Other Defi ned Retained revaluaƟ on benefi t capital Reserve Reserve reserve reserve reserve Earnings Total TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS’000 TZS ‘000 TZS ‘000 At 1 January 2017 23,913,626 776,306 2,851,880 - - - 24,277,445 51,819,257 Issue of bonus shares 4,158,117 - - - - - (4,158,117) - Withholding tax on bonus share issued ------(45,522) (45,522) Dividend paid ------(1,200,000) (1,200,000) Actuarial loss on defi ned benefi t obliga ons net of tax - - - - - (904,879) - (904,879)

Past cost on defi ned benefi t obliga on net of tax - - - - - (2,551,968) - (2,551,968) Profi t for the year ------12,729,644 12,729,644 Transfer (from)/to retained earnings - (488,228) 248,683 - - - 239,545 - At 31 December 2017 28,071,743 288,078 3,100,563 - - (3,456,847) 31,842,995 59,846,532

At 1 January 2018 28,071,743 288,078 3,100,563 - - (3,456,847) 31,842,995 59,846,532 IFRS 9 Transi on adjustment (note 20(c)) ------1,290,909 1,290,909 Transfer to regulatory reserve - 1,290,909 - - - - (1,290,909) -

Adjusted balance at 1 January 2018 28,071,743 1,578,987 3,100,563 - - (3,456,847) 31,842,995 61,137,441 Dividend declared but not paid ------(1,200,000) (1,200,000) Fixed asset revalua on reserve - - - 5,220,318 - - - 5,220,318 Actuarial gain on defi ned benefi t obliga ons net of tax - - - - - 618,826 - 618,826 Profi t for the year ------12,102,101 12,102,101 Transfer (from)/to retained earnings - (1,443,894) 811,990 - - - 631,904 - Acquired in business combina on (Note 35) - - - - 5,041,745 - - 5,041,745

At 31 December 2018 28,071,743 135,093 3,912,553 5,220,318 5,041,745 (2,838,021) 43,377,000 82,920,431

58 TPB Bank PLC

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

2018 2017 Note TZS ‘000 TZS ‘000

Cash generated from operaƟ ons 29 11,408,572 14,003,561

Tax paid 15(c) (6,084,000) (8,250,000) Employee benefi t paid during the year 34 (419,752) (352,120)

Net cash generated from operaƟ ng acƟ viƟ es 4,904,820 5,401,441

Cash fl ow from invesƟ ng acƟ viƟ es

Purchase of intangible assets 22 (2,352,638) (1,211,733) Purchase of property and equipment 23 (6,340,689) (3,628,188) Proceeds from disposal of property and equipment 153,851 6,608

Net cash used in invesƟ ng acƟ viƟ es (8,539,476) (4,833,313)

Cash fl ow from fi nancing acƟ viƟ es

Dividend paid - (1,200,000) Withholding tax paid on bonus shares issued - (45,522) Grant received 526,400 268,490

Net cash generated/(used in) from fi nancing acƟ viƟ es 526,400 (977,032)

Net decrease in cash and cash equivalents (3,108,256) (408,904)

Cash and cash equivalents at 1 January 8,367,820 8,776,724

Cash and cash equivalents at 31 December 5,259,564 8,367,820

Analysis of cash and cash equivalents at 31 December

Cash and balances with Bank of Tanzania 16 36,914,013 24,289,024 Placements with other banks maturing within 3 months 17 11,429,051 20,059,790 Cheques and items for collec on maturing within 3 months 231,928 132,712 Treasury bills maturing within 3 months 18 19,615,442 21,840,000 Treasury bonds maturing within 3 months 19 - 1,577,639 Borrowings and balances due to other banks 25 (62,930,870) (59,531,345) 5,259,564 8,367,820

59 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

1. REPORTING ENTITY TPB Bank Public Limited Company is domiciled in the United Republic of Tanzania. It was incorporated as limited liability company on 29 March 2016 and took over the business of the former Tanzania Postal Bank following the repeal of Tanzania Postal Bank Act No. 11 of 1991 on 29 May 2015. The Bank is licensed under the Banking and Financial Ins tu ons Act, 2006 and regulated by the Bank of Tanzania.The addresses of its registered offi ce and principal place of business are disclosed in the corporate informa on sec on in this report. The principal ac vi es of the Bank are described in the Report of the Directors.

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

(a) New standards, amendments and interpretaƟ on adopted by the Bank The following new and revised IFRS have been applied in the current year and had no material impact on the amounts reported in these fi nancial statements.

Financial Instruments (IFRS 9) The Bank has adopted IFRS 9 as issued by the Interna onal Accoun ng Standards Board (“IASB”) in July 2014 with a date of transi on of 1 January 2018, which resulted in changes in accoun ng policies and adjustments to the amounts previously recognised in the fi nancial statements. The Bank did not early adopt IFRS 9 in any previous periods.

As permi ed by the transi onal provisions of IFRS 9, the Bank elected not to restate compara ve fi gures. Any adjustments to the carrying amounts of fi nancial assets and liabili es at the date of transi on were recognised in the opening retained earnings of the current period. The consequen al amendments to IFRS 7 – Financial Instruments: Disclosures, have also only been applied to the current period. The compara ve period notes disclosures repeat those disclosures made in the prior year.

The adop on of IFRS 9 has resulted in changes in the Bank’s accoun ng policies for recogni on, classifi ca on and measurement of fi nancial assets and fi nancial liabili es, and impairment of fi nancial assets. IFRS 9 also signifi cantly amends other standards dealing with fi nancial instruments such as IFRS 7.

Set out overleaf are disclosures rela ng to the impact of the adop on of IFRS 9 on the Bank. Further details of the specifi c IFRS 9 accoun ng policies applied in the current period (as well as the previous IAS 39 accoun ng policies applied in the compara ve period) are described in more details in Note 3 (h).

60 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued)

Financial Instruments (IFRS 9) (conƟ nued)

(b) Classifi caƟ on and measurement of fi nancial instruments The measurement category and the carrying amount of fi nancial assets and liabili es in accordance with IAS 39 and IFRS 9 at 1 January 2018 are compared as follows:

IAS 39 IFRS 9 Carrying Carrying Financial assets Measurement Measurement category amount amount category TZS’ 000 TZS’ 000 Cash and balances with Amor sed cost Amor sed cost Bank of Tanzania (Loans and receivables) 24,289,024 24,289,024 Cheques and items for Amor sed cost Amor sed cost collec on (Loans and receivables) 132,712 132,712 Placement and Amor sed cost balances with other Amor sed cost (Loans and receivables) 20,059,790 20,059,790 banks Loans and advances to Amor sed cost Amor sed cost 326,500,667 customers (Loans and receivables) 325,065,388 Amor sed cost Treasury bills Amor sed cost (Held to Maturity) 46,041,182 46,041,182 Government stocks Amor sed cost Amor sed cost and other securi es (Held to Maturity) 13,830,200 13,830,200

There were no changes to the classifi ca on and measurement of the Bank’s fi nancial liabili es.

(b) ReconciliaƟ on of statement of fi nancial posiƟ on balances from IAS 39 to IFRS 9

The Bank performed a detailed analysis of its business models for managing fi nancial assets and analysis of their cash fl ow characteris cs. Please refer to 3.(h) for more detailed informa on regarding the new classifi ca on requirements of IFRS 9.

The following table reconciles the carrying amounts of fi nancial assets, from their previous measurement categories in accordance with IAS 39 to their new measurement categories upon transi on to IFRS 9 on 1 January 2018.

6161 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) Financial Instruments (IFRS 9) (conƟ nued)

(c) Reconcilia on of statement of fi nancial posi on balances from IAS 39 to IFRS 9 (con nued)

IAS 39 carrying amount IFRS 9 carrying 31 December 2017 amount Re-measurements (Opening balance 1 January 2018 as at (Allowance for expected credit (Closing balance Note 1 January 2018) loss) under IFRS 9) TZS’ 000 TZS’ 000 TZS’ 000 Amortised Cost Cash and balances with Bank of Tanzania 16 24,289,024 - 24,289,024 Cheques and items for collec on 132,712 - 132,712 Placement and balances with other banks 17 20,059,790 - 20,059,790 Treasury bills 18 46,041,182 - 46,041,182 Government stocks and other securi es 19 13,830,200 - 13,830,200 Loans and advances to customers 20(a) 325,065,388 1,435,279 326,500,667

Total fi nancial assets measured at amorƟ sed cost 429,418,296 1,435,279 430,853,575

62 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued)

Financial Instruments (IFRS 9) (conƟ nued)

(c) Reconcilia on of statement of fi nancial posi on balances from IAS 39 to IFRS 9 (con nued)

The following table reconciles the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment allowance measured in accordance with IFRS 9 expected loss model at 1 January 2018:

Loan loss Loan loss allowance allowance under IAS under 39/Provision Re- Note under IAS 37 measurements IFRS 9 TZS’ 000 TZS’ 000 TZS’ 000 Loan and receivables (IAS 39)/Financial assets at amorƟ sed cost (IFRS 9) Cash and balances with Bank of Tanzania - - - Cheques and items for collec on - - - Placement and balances with other banks - - - Loans and advances to customers 15,401,660 (1,435,279) 13,966,380 Held to maturity (IAS 39)/Financial assets at amorƟ zed cost (IFRS 9)

Treasury bills - - -

Government stocks and other securi es - - - Total fi nancial assets measured at amorƟ sed cost 15,401,660 (1,435,279) 13,966,381

Loan commitments and fi nancial guarantee contracts Loan and advances to customers (Loan Commitments) - 144,370 144,370

Financial Guarantees - - -

Total 20(c) 15,401,660 (1,290,909) 14,110,751

63 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued)

(a) New standards, amendments and interpretation adopted by the Bank (continued)

IFRS 15 Revenue IFRS 15 Revenue from Contracts with Customers (as amended in April 2016) from Contracts with is eff ec ve for an annual period that begins on or a er 1 January 2018. IFRS Customers 15 introduced a 5-step approach to revenue recogni on. Far more prescrip ve guidance has been added in IFRS 15 to deal with specifi c scenarios. IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what might more commonly be known as ‘accrued revenue’ and ‘deferred revenue’, however the Standard does not prohibit an en ty from using alterna ve descrip ons in the statement of fi nancial posi on.

The Bank’s accoun ng policies for its revenue streams are disclosed in detail in note 3 below. Apart from providing more extensive disclosures for the Bank’s revenue transac ons, the applica on of IFRS 15 has not had a signifi cant impact on the fi nancial posi on and/or fi nancial performance of the Bank. IAS 40 (amendments) The amendments clarify that a transfer to, or from, investment property necessitates Transfers of an assessment of whether a property meets, or has ceased to meet, the defi ni on Investment Property of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situa ons listed in IAS 40 are not exhaus ve and that a change in use is possible for proper es under construc on (i.e. a change in use is not limited to completed proper es). Annual Improvements The amendments to IAS 28 included in the Annual Improvements to IFRS to IFRS Standards Standards 2014–2016 Cycle for the fi rst me in the current year. The amendments 2014 – 2016 Cycle clarify that the op on for a venture capital organisa on and other similar en es Amendments to IAS to measure investments in associates and joint ventures at FVTPL is available 28 Investments in separately for each associate or joint venture, and that elec on should be made at Associates and Joint ini al recogni on. In respect of the op on for an en ty that is not an investment Ventures en ty (IE) to retain the fair value measurement applied by its associates and joint ventures that are IEs when applying the equity method, the amendments make a similar

clarifi ca on that this choice is available for each IE associate or IE joint venture.

6464 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued)

(a) New standards, amendments and interpretation adopted by the Bank (continued)

IFRIC 22 Foreign IFRIC 22 addresses how to determine the ‘date of transac on’ for the purpose of Currency determining the exchange rate to use on ini al recogni on of an asset, expense Transac ons or income, when considera on for that item has been paid or received in advance and Advance in a foreign currency which resulted in the recogni on of a non-monetary asset or Considera on non-monetary liability (for example, a non-refundable deposit or deferred revenue).

The Interpreta on specifi es that the date of transac on is the date on which the en ty ini ally recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance considera on. If there are mul ple payments or receipts in advance, the Interpreta on requires an en ty to determine the date of transac on for each payment or receipt of advance considera on.

(b) New and revised IFRSs in issue but not yet effective for year ended 31 December 2018

IFRS 16 Leases Impact of the new defi ni on of a lease

The Bank will make use of the prac cal expedient available on transi on to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the defi ni on of a lease in accordance with IAS 17 and IFRIC 4 will con nue to apply to those leases entered or modifi ed before 1 January 2019.

The change in defi ni on of a lease mainly relates to the concept of control. IFRS 16 dis nguishes between leases and service contracts on the basis of whether the use of an iden fi ed asset is controlled by the customer. Control is considered to exist if the customer has:

• The right to obtain substan ally all of the economic benefi ts from the use of an iden fi ed asset; and • The right to direct the use of that asset.

In prepara on for the fi rst- me applica on of IFRS 16, the Bank has carried out an implementa on project. The project has shown that the new defi ni on in IFRS 16 will not change signifi cantly the scope of contracts that meet the defi ni on of a lease for the Bank.

65 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet eī ecƟ ve for year ended 31 December 2018 (conƟ nued) IFRS 16 Leases Impact on Lessee Accoun ng

Operating leases IFRS 16 will change how the Bank accounts for leases previously classifi ed as opera ng leases under IAS 17, which were off -balance sheet. On ini al applica on of IFRS 16, for all leases (except as noted below), the Bank will:

a) Recognize right-of-use assets and lease liabili es in the consolidated statement of fi nancial posi on, ini ally measured at the present value of the future lease payments; b) Recognize deprecia on of right-of-use assets and interest on lease liabili es in the consolidated statement of profi t or loss; c) Separate the total amount of cash paid into a principal por on (presented within fi nancing ac vi es) and interest (presented within opera ng ac vi es) in the consolidated cash fl ow statement. Lease incen ves (e.g. rent-free period) will be recognised as part of the measurement of the right-of-use assets and lease liabili es whereas under IAS 17 they resulted in the recogni on of a lease liability incen ve, amor sed as a reduc on of rental expenses on a straight-line basis. Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognize a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and offi ce furniture), the Bank will opt to recognize a lease expense on a straight-line basis as permi ed by IFRS 16.

Under IAS 17, all lease payments on opera ng leases are presented as part of cash fl ows from opera ng ac vi es. The impact of the changes under IFRS 16 would be to reduce the cash generated by opera ng ac vi es and to increase net cash used in fi nancing ac vi es by the same amount.

66 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet eī ecƟ ve for year ended 31 December 2018 (conƟ nued)

IFRS 16 Leases Finance leases

The main diff erences between IFRS 16 and IAS 17 with respect to assets formerly held under a fi nance lease is the measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Bank recognizes as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. On ini al applica on the Bank will present equipment previously included in property, plant and equipment within the line item for right-of-use assets and the lease liability, previously presented within borrowing, will be presented in a separate line for lease liabili es.

Based on an analysis of the Bank’s fi nance leases as at 31 December 2018 on the basis of the facts and circumstances that exist at that date, the directors of the Bank have assessed that the impact of this change will not have an impact on the amounts recognised in the Bank’s fi nancial statements.

Impact on Lessor Accoun ng

Under IFRS 16, a lessor con nues to classify leases as either fi nance leases or opera ng leases and account for those two types of leases diff erently. However, IFRS 16 has changed and expanded the disclosures required, in par cular regarding how a lessor manages the risks arising from its residual interest in leased assets.

will be derecognized and fi nance lease asset receivables recognised. This change in accoun ng will change the ming of recogni on of the related revenue (recognised in fi nance income). Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a fi nance or opera ng lease by reference to the right-of-use asset arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17). As required by IFRS 9, an allowance for expected credit losses shall be recognised on the fi nance lease receivables. The leased assets

6767 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet eī ecƟ ve for year ended 31 December 2018 (conƟ nued) IFRS 17 Insurance The new Standard establishes the principles for the recogni on, measurement, Contracts presenta on and disclosure of insurance contracts and supersedes IFRS 4 Insurance Contracts. The Standard outlines a General Model, which is modifi ed for insurance contracts with direct par cipa on features, described as the Variable Fee Approach. The General Model is simplifi ed if certain criteria are met by measuring the liability for remaining coverage using the Premium Alloca on Approach.

The General Model will use current assump ons to es mate the amount, ming and uncertainty of future cash fl ows and it will explicitly measure the cost of that uncertainty, it takes into account market interest rates and the impact of policyholders’ op ons and guarantees.

The implementa on of the Standard is likely to bring signifi cant changes to an en ty’s processes and systems, and will require much greater co-ordina on between many func ons of the business, including fi nance, actuarial and IT.

The Standard is eff ec ve for annual repor ng periods beginning on or a er 1 January 2021, with early applica on permi ed. It is applied retrospec vely unless imprac cable, in which case the modifi ed retrospec ve approach or the fair value approach is applied. For the purpose of the transi on requirements, the date of ini al applica on is the start if the annual repor ng period in which the en ty fi rst applies the Standard, and the transi on date is the beginning of the period immediately preceding the date of ini al applica on. The directors of the Bank do not an cipate that the applica on of the Standard in the future will have an impact on the Bank’s consolidated fi nancial statements.

68 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet eī ecƟ ve for year ended 31 December 2018 (conƟ nued) Amendments The amendments to IFRS 9 clarify that for the purpose of assessing whether a to IFRS 9 prepayment feature meets the SPPI condi on, the party exercising the op on may pay Prepayment or receive reasonable compensa on for the prepayment irrespec ve of the reason for Features with prepayment. In other words, prepayment features with nega ve compensa on do not Nega ve automa cally fail SPPI. Compensa on The amendment applies to annual periods beginning on or a er 1 January 2019, with earlier applica on permi ed. There are specifi c transi on provisions depending on when the amendments are fi rst applied, rela ve to the ini al applica on of IFRS 9.

The directors of the Bank do not an cipate that the applica on of the amendments in the future will have an impact on the Bank’s consolidated fi nancial statements.

Amendments to The amendment clarifi es that IFRS 9, including its impairment requirements, applies IAS 28 Long-term to long-term interests. Furthermore, in applying IFRS 9 to long-term interests, an Interests in en ty does not take into account adjustments to their carrying amount required by Associates and IAS 28 (i.e., adjustments to the carrying amount of long-term interests arising from the Joint Ventures alloca on of losses of the investee or assessment of impairment in accordance with IAS 28).

The amendments apply retrospec vely to annual repor ng periods beginning on or a er 1 January 2019. Earlier applica on is permi ed. Specifi c transi on provisions apply depending on whether the fi rst- me applica on of the amendments coincides with that of IFRS 9.

The directors of the Bank do not an cipate that the applica on of the amendments in the future will have an impact on the Bank’s consolidated fi nancial statements.

69 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet eī ecƟ ve for year ended 31 December 2018 (conƟ nued)

Annual The Annual Improvements include amendments to four standards: Improvements to IFRS Standards IAS 12 Income Taxes 2015–2017 Cycle Amendments to The amendments clarify that an en ty should recognize the income tax consequences IFRS 3 Business of dividends in profi t or loss, other comprehensive income or equity according to where Combina ons, the en ty originally recognised the transac ons that generated the distributable profi ts. IFRS 11 Joint This is the case irrespec ve of whether diff erent tax rates apply to distributed and Arrangements, undistributed profi ts. IAS 12 Income Taxes and IAS 23 IAS 23 Borrowing Costs Borrowing Costs The amendments clarify that if any specifi c borrowing remains outstanding a er the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an en ty borrows generally when calcula ng the capitaliza on rate on general borrowings.

IFRS 3 Business CombinaƟ ons

The amendments to IFRS 3 clarify that when an en ty obtains control of a business that is a joint opera on, the en ty applies the requirements for a business combina on achieved in stages, including re-measuring its previously held interest (PHI) in the joint opera on at fair value. The PHI to be re-measured includes any unrecognized assets, liabili es and goodwill rela ng to the joint opera on.

IFRS 11 Joint Arrangements

The amendments to IFRS 11 clarify that when a party that par cipates in, but does not have joint control of, a joint opera on that is a business obtains joint control of such a joint opera on, the en ty does not re-measure its PHI in the joint opera on.

All the amendments are eff ec ve for annual periods beginning on or a er 1 January 2019 and generally require prospec ve applica on. Earlier applica on is permi ed. The directors of the Bank do not an cipate that the applica on of the amendments in the future will have an impact on the Bank’s consolidated fi nancial statements.

70 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued)

(b) New and revised IFRSs in issue but not yet effective for year ended 31 December 2018 (continued)

Amendments The amendments clarify that the past service cost (or of the gain or loss on se lement) is to IAS 19 calculated by measuring the defi ned benefi t liability (asset) using updated assump ons Employee and comparing benefi ts off ered and plan assets before and a er the plan amendment Benefi ts Plan (or curtailment or se lement) but ignoring the eff ect of the asset ceiling (that may Amendment, arise when the defi ned benefi t plan is in a surplus posi on). IAS 19 is now clear that Curtailment or the change in the eff ect of the asset ceiling that may result from the plan amendment Se lement (or curtailment or se lement) is determined in a second step and is recognised in the normal manner in other comprehensive income.

The paragraphs that relate to measuring the current service cost and the net interest on the net defi ned benefi t liability (asset) have also been amended. An en ty will now be required to use the updated assump ons from this re-measurement to determine current service cost and net interest for the remainder of the repor ng period a er the change to the plan. In the case of the net interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by mul plying the net defi ned benefi t liability (asset) as re-measured under IAS 19.99 with the discount rate used in the re-measurement (also taking into account the eff ect of contribu ons and benefi t payments on the net defi ned benefi t liability (asset)).

The amendments are applied prospec vely. They apply only to plan amendments, curtailments or se lements that occur on or a er the beginning of the annual period in which the amendments to IAS 19 are fi rst applied.

The amendments to IAS 19 must be applied to annual periods beginning on or a er 1 January 2019, but they can be applied earlier if an en ty elects to do so. The directors of the Bank do not an cipate that the applica on of the amendments in the future will have an impact on the Bank’s consolidated fi nancial statements.

71 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (ConƟ nued) (b) New and revised IFRSs in issue but not yet effective for year ended 31 December 2018 (continued)

IFRS 10 The amendments to IFRS 10 and IAS 28 deal with situa ons where there is a sale Consolidated or contribu on of assets between an investor and its associate or joint venture. Financial Specifi cally, the amendments state that gains or losses resul ng from the loss of Statements control of a subsidiary that does not contain a business in a transac on with an and IAS 28 associate or a joint venture that is accounted for using the equity method, are (amendments) recognised in the parent’s profi t or loss only to the extent of the unrelated investors’ Sale or interests in that associate or joint venture. Similarly, gains and losses resul ng Contribu on of from the re-measurement of investments retained in any former subsidiary (that Assets between has become an associate or a joint venture that is accounted for using the equity an Investor and its method) to fair value are recognised in the former parent’s profi t or loss only to the Associate or Joint extent of the unrelated investors’ interests in the new associate or joint venture. Venture The eff ec ve date of the amendments has yet to be set by the IASB; however, earlier applica on of the amendments is permi ed. The directors of the Bank an cipate that the applica on of these amendments may have an impact on the Bank’s consolidated fi nancial statements in future periods should such transac ons arise. The directors of the Bank do not an cipate that the applica on of the amendments in the future will have an impact on the Bank’s consolidated fi nancial statements.

IFRIC 23 IFRIC 23 sets out how to determine the accoun ng tax posi on when there is Uncertainty uncertainty over income tax treatments. The Interpreta on requires an en ty to: over Income Tax Treatments • determine whether uncertain tax posi ons are assessed separately or as a Bank; and • assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an en ty in its income tax fi lings: 9 If yes, the en ty should determine its accoun ng tax posi on consistently with the tax treatment used or planned to be used in its income tax fi lings. 9 If no, the en ty should refl ect the eff ect of uncertainty in determining its accoun ng tax posi on.

72 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Interpreta on is eff ec ve for annual (i) Interest and similar income periods beginning on or a er 1 January Interest income includes interest on loans 2019. En es can apply the interpreta on and advances, interest on placements with with either full retrospec ve applica on or other banks, and interest and discounts on modifi ed retrospec ve applica on without government securi es which is recognised restatement of compara ves retrospec vely or on a me basis by reference to the principal prospec vely. outstanding and at the eff ec ve interest rate The directors of the Bank do not an cipate that applicable. the applica on of the amendments in the future When an account is classifi ed as non-performing will have an impact on the Bank’s consolidated the interest on the account is suspended un l it fi nancial statements. is realised in cash. (c) Early adoption of standards (ii) Fees and commission income The Bank did not early-adopt any new or revised standards in 2018. Fees and commissions are generally recognised on an accrual basis when the service has been a) Statement of compliance provided. The Bank earns fees and income from diverse range of services it provides to The fi nancial statements have been prepared its customers and services off ered to various in accordance with Interna onal Financial mobile companies and some banks as agent on Repor ng Standards (IFRSs) and interpreta ons Mobile Pesa and cash collec ons. as issued by the IFRS Interpreta ons Commi ee (IFRS IC) applicable to companies repor ng d) Interest expense under IFRS. Addi onal informa on required by regulatory bodies is included where Interest expense is recognized in the profi t or appropriate. loss using the eff ec ve interest method. The ‘eff ec ve interest rate’ is the rate that b) Basis of preparaƟ on exactly discounts the es mated future cash payments through the expected life of fi nancial The fi nancial statements have been prepared liability (or, where appropriate, a shorter period) on the historical cost basis except for certain to the carrying amount of the fi nancial liability. fi nancial instruments that are measured at When calcula ng the eff ec ve interest rate, the amor sed costs. Bank es mates future cash fl ows considering c) Revenue recogniƟ on all contractual terms of the fi nancial liability.

The Bank recognizes revenue when the amount The calcula on of the eff ec ve interest rate of revenue can be reliably measured, and it is includes transac on costs and fees paid that probable that future economic benefi ts will are an integral part of the eff ec ve interest rate. fl ow to the Bank. The amount of revenue is Transac on costs include incremental costs not considered to be reliably measured un l all that are directly a ributable to the acquisi on con ngencies rela ng to the transac on have of the fi nancial liability. been resolved. The Bank bases its es mates on historical results, taking into considera on the type of transac on and specifi cs of each arrangement.

73 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

e) Fees and commission expense Under this plan the Bank contributes a sum determined as equivalent to the es mated Fees and commission expense that are integral annual liability on monthly instalment for all to the e ec ve interest rate on a nancial ff fi who are in the scheme. The amounts are paid liability are included in the measurement of the to a Trust namely the Ex-East African Posts and eff ec ve interest rate period. Telecommunica ons Corpora on Staff Pension Other fees and commission expense relate Fund, which manages the fund on behalf of the mainly to transac on and service fees, which are employer. expensed as the services are received.

f) Employee benefi ts Defi ned benefi t plan For defi ned benefi t plans, the cost of providing Short term benefi ts benefi ts is determined using the Projected Unit Credit Method, with actuarial valua ons being The cost of all short-term employee benefi ts carried out at the end of each repor ng period. such as salaries, employees’ en tlements to Remeasurement, comprising actuarial gains and leave pay, medical aid, other contribu ons, losses is refl ected in the statement of fi nancial provision of housing to senior management posi on with a charge or credit recognised in staff , etc. are recognized during the period other comprehensive income in the period in in which the employees render the related which they occur. Remeasurement recognised services. in other comprehensive income is refl ected immediately in retained earnings and will not Pension ObligaƟ on be reclassifi ed to profi t or loss. Service cost is The Bank and its other employees contribute to recognised in profi t or loss in the period of a the Na onal Social Security Fund (NSSF), Public plan amendment. Net interest is calculated by Service Pensions Fund (PSPF), Local Authority applying the discount rate at the beginning of Pension Fund (LAPF), Government Employee the period to the net defi ned benefi t liability or Provident Fund (GEPF) or Parastatal Pensions asset. Defi ned benefi t costs are categorised as Fund (PPF), which are defi ned contribu on follows: schemes. For NSSF and GEPF both employees • Past service cost; and the Bank contribute 10% of the employees’ • Net interest expense or income; and salary to the scheme, while for PPF, LAPF and • Remeasurement. PSPF, Bank and employees contributes 15% and 5% respec vely. The Bank has no further The Bank presents the fi rst two components of obliga on a er such payment. defi ned benefi t cost in profi t or loss in the line item Staff costs. The Bank’s contribu ons to the defi ned g) Income tax expense contribu on schemes are recognized to the profi t or loss in the year to which they relate. Income tax expense represents the sum of the current tax payable and the deferred taxa on. ReƟ rement benefi t obligaƟ ons (i) Current tax The Bank has a defi ned benefi t scheme for staff who were absorbed from the forerunner Current taxa on is provided on the basis of the Postal Savings Bank, who had worked results for the year as shown in the fi nancial with the defunct East African Community. statements, adjusted in accordance with the tax legisla on using enacted tax rates.

7474 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(ii) Deferred tax h) Financial instruments Deferred tax is recognised on temporary A fi nancial instrument is defi ned as any diff erences between the carrying amounts of contract that gives rise to both a fi nancial assets and liabili es in the fi nancial statements asset of one en ty and a fi nancial liability and the corresponding tax bases used in the or equity instrument of another en ty. The computa on of taxable profi t or loss. Deferred Bank recognizes all fi nancial instruments on tax liabili es are generally recognised for all its statement of fi nancial posi on when it taxable temporary diff erences. Deferred tax becomes a party to the contractual provision of assets are generally recognised for all deduc ble the instrument. temporary diff erences to the extent that it is probable that taxable profi ts will be available Measurement Methods against which those deduc ble temporary diff erences can be u lised. Amor sed cost and eff ec ve interest rate

The carrying amount of deferred tax assets is The amor sed cost is the amount at which the reviewed at the end of each repor ng period fi nancial asset or fi nancial liability is measured and reduced to the extent that it is no longer at ini al recogni on minus the principal probable that suffi cient taxable profi ts will be repayments, plus or minus the cumula ve available to allow all or part of the asset to be amor za on using the eff ec ve interest method recovered. of any diff erence between that ini al amount and the maturity amount and, for fi nancial Deferred tax liabili es and assets are measured assets, adjusted for any loss allowance. at the tax rates that are expected to apply in the year in which the liability is se led or the asset The eff ec ve interest rate is the rate that exactly realised, based on enacted tax rates by the end discounts es mated future cash payments of the repor ng period. or receipts through the expected life of the fi nancial assert or liability to the gross carrying Current and deferred tax are recognised in amount of a fi nancial asset (i.e. its amor sed profi t or loss, except when they relate to items cost before any impairment allowance) or that are recognised in other comprehensive to the amor sed cost of a fi nancial liability. income or directly in equity, in which case, the The calcula on does not consider expected current and deferred tax are also recognised credit losses and includes transac on costs, in other comprehensive income or directly in premiums or discounts and fees. For purchased equity, respec vely. or originated credit-impaired (‘POCI’) fi nancial assets-assets that are credit-impaired at (iii) Value Added Tax ini al recogni on- the Group calculates the credit-adjusted eff ec ve interest rate, which Revenues and expenses and capital items are is calculated based on the amor sed cost of recognised inclusive of the amount of value the fi nancial asset instead of its gross carrying added tax except where the value added tax amount and incorporate the impact of expected incurred on a purchase of assets or services credit losses in es mated future cash fl ows. is recoverable from the taxa on authority, in which case the value added tax is recognised as an asset.

75 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

When the Group revises the es mates of – held for trading; or future cash fl ows, the carrying amount of the – designated at fair value through profi t or respec ve nancial assets or nancial liability fi fi loss. is adjusted to refl ect the new es mate discount using the original eff ec ve interest rate. Any All fi nancial liabili es were measured at changes are recognised in profi t or loss. amor sed cost. a) Loans and receivables Interest income Loans and receivables are non-deriva ve Interest income is calculated by applying the fi nancial assets with fi xed or determinable eff ec ve interest rate to the gross carrying payments that are not quoted in an ac ve amount of fi nancial assets, except for: market. Loans and receivables are ini ally a) POCI fi nancial assets, for which the recognised at fair value plus any directly original credit-adjusted eff ec ve interest a ributable transac on costs and measured rate is applied to the amor sed cost of the subsequently at amor sed cost using the fi nancial asset. eff ec ve interest method. Interest on fi nancial assets is included in profi t or loss and is reported b) Financial assets that are not ‘POCI’ as interest income”. but have subsequently become credit- impaired (or ‘stage 3’), for which interest The Bank uses se lement date accoun ng for revenue is calculated by applying the regular way contracts when recording fi nancial asset transac ons. Financial assets, consis ng eff ec ve interest rate to their amor sed cost (i.e. net of the expected credit loss of investment securi es, that are transferred to a third party but do not qualify for de- provision). recogni on remain within investment securi es but disclosed as “pledged as collateral”, if the i) IniƟ al recogniƟ on of fi nancial assets and liabiliƟ es transferee has the right to sell or re-pledge them. Financial assets and fi nancial liabili es are recognised when the en ty becomes a party to b) Financial assets at fair value through profi t the contractual provisions of the instrument. or loss Regular way purchases and sales of fi nancial Fair value through pro t or loss category assets are recognised on trade-date, the date fi comprises of nancial assets designated at fair on which the Bank commits to purchase or sell fi value through pro t or loss. These are ini ally the asset. fi recognised at fair value, with transac on costs j) Classifi caƟ on and subsequent measurement of recognised in profi t or loss and subsequently fi nancial assets measured at fair value. Interest on fi nancial assets is included in pro t or loss and is Up to 31 December 2017, the Bank classifi ed fi reported as interest income. Dividend income is its fi nancial assets into one of the following categories: recognised in profi t or loss on the date on which the right to receive payment is established. • as loans and receivables; or • at fair value through profi t or loss, and within this category as:

76 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h) Financial instruments (continued)

(iv) Classifi caƟ on and subsequent measurement of cash fl ows and cash fl ows arising from the sale fi nancial assets (conƟ nued) of assets. If neither of these is applicable (e.g. fi nancial assets are held for trading purposes), Fair value through profi t or loss category then the fi nancial assets are classifi ed as part of comprises of fi nancial assets designated at fair ‘other’ business model and measured at FVTPL. value through profi t or loss. These are ini ally Factors considered by the Bank in determining recognised at fair value, with transac on costs the business model for a group of assets include recognised in profi t or loss and subsequently past experience on how the cash fl ows for measured at fair value. Interest on fi nancial these assets were collected, how the asset’s assets is included in profi t or loss and is reported performance is evaluated and how risks are as “Interest income”. Dividend income is assessed and managed. recognised in profi t or loss on the date on which the right to receive payment is established. Solely Payments of Principal and Interest (“SPPI”) test From 1 January 2018, the Bank has applied IFRS 9 and classifi es its fi nancial assets in the Where the business model is to hold assets following measurement categories: to collect contractual cash fl ows or to collect • Amor sed cost; contractual cash fl ows and sell, the Bank assesses whether the fi nancial instruments’ • Fair value through profi t or loss (“FVTPL”); cash fl ows represent solely payments of or principal and interest (the SPPI test). In making • Fair value through other comprehensive this assessment, the Bank considers whether income (FVOCI) the contractual cash fl ows are consistent with a basic lending arrangement i.e. interest includes fi The classi cation requirements for debt and only considera on for the me value of money, equity instruments are described below: credit risk, other basic lending risks and a profi t Debt instruments margin that is consistent with a basic lending arrangement. Where the contractual terms Debt instruments are those instruments that introduce exposure to risk or vola lity that are meet the defi ni on of a fi nancial liability inconsistent with a basic lending arrangement, from the issuer’s perspec ve, such as loans the related fi nancial asset is classifi ed and and government bonds. Classifi ca on and measured at FVTPL. subsequent measurement of debt instruments The Bank reclassifi es debt instruments when depend on: and only when its business model for managing • the Bank’s business model for managing those assets changes. The reclassifi ca on the asset; and takes place from the start of the fi rst repor ng period following the change. Such changes the cash ow characteris cs of the asset. • fl are expected to be very infrequent and none Business model occurred during the period.

The business model refl ects how the Bank manages its assets in order to generate cash fl ows. That is, whether the Bank’s objec ve is solely to collect the contractual cash fl ows from the assets or is to collect both the contractual

7777 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h) Financial instruments (conƟ nued)

(v) Classifi caƟ on and subsequent measurement of received that are integral to the eff ec ve fi nancial assets (conƟ nued) interest rate, such as origina on fees. When the Bank revises the es mates of (b) Financial assets at fair value through profi t or loss (con nued) future cash fl ows, the carrying amount of the respec ve fi nancial assets or fi nancial Based on these factors, the Bank classifi es its liability is adjusted to refl ect the new debt instruments into one of the following es mate discounted using the original measurement categories: eff ec ve interest rate. Any changes are recognised in profi t or loss. AmorƟ sed cost Assets that are held for collec on of Fair value through profi t or loss contractual cash ows where those cash ows fl fl Assets that do not meet the criteria for represent SPPI, and that are not designated amor sed cost or fair value through other at FVTPL, are measured at amor sed cost. comprehensive income (“FVOCI”) are The carrying amount of these assets is measured at FVTPL. A gain or loss on a debt adjusted by any expected credit loss (“ECL”) instrument that is subsequently measured allowance recognised and measured as at FVTPL is recognised in profi t or loss and described in Note 3.(a) Interest income from presented in profi t or loss within gains arising these fi nancial assets is included in interest from fair valua on of fi nancial assets at fair income using the eff ec ve interest method. value through profi t or loss in the period in The amor sed cost is the amount at which which it arises. the fi nancial asset or fi nancial liability is Equity instruments measured at ini al recogni on minus the principal repayments, plus or minus the Equity instruments are instruments that cumula ve amor za on using the eff ec ve meet the defi ni on of equity from the interest method of any diff erence between issuer’s perspec ve; that is, instruments that ini al amount and the maturity amount that do not contain a contractual obliga on and, for fi nancial assets, adjusted for any to pay and that evidence a residual interest loss allowance. in the issuer’s net assets. The eff ec ve interest rate is the rate that The Bank subsequently measures all equity exactly discounts es mated future cash instruments at FVTPL. Dividends, when payments or receipts through the expected represen ng a return on such investments, life of the fi nancial asset or fi nancial liability con nue to be recognised in profi t or loss to the gross carrying amount of a fi nancial under ‘Other income’ when the Bank’s right asset (i.e. its amor sed cost before any to receive payments is established. Gains impairment allowance) or to the amor sed and losses on equity investments at FVTPL cost of a fi nancial liability. The calcula on are included in the ‘Gains arising from fair does not consider expected credit losses valua on of fi nancial assets at fair value and includes transac on costs, premiums through profi t or loss’ line in profi t or loss. or discounts and fees and points paid or

78 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

h) Financial instruments (conƟ nued) assesses whether or not the new terms are substan ally diff erent to the original terms .The (i) Impairment Bank does this by considering, among others, the following factors. Immediately a er ini al recogni on, an ECL • If the borrower is in fi nancial diffi culty, allowance is recognised for nancial assets fi whether the modifi ca on merely reduces measured at amor sed cost and investments the contractual cash fl ows to amounts the in debt instruments measured at FVOCI, which borrower is expected to be able to pay. results in an accoun ng loss being recognised in profi t or loss when an asset is newly originated. • Whether any substan al new terms are At 1 January 2018 and 31 December 2018, the introduced such as a profi t share/equity – Bank did not have any fi nancial assets measured based return that substan ally aff ects the at FVOCI. risk profi le of the loan. As from 1 January 2018, the Bank assesses on • Signifi cant extension of the loan term when a forward-looking basis the ECL associated with the borrower is not in fi nancial diffi culty. its debt instrument assets carried at amor sed • Signifi cant change in the interest rate. cost and with the exposure arising from loan commitments. The Bank recognizes a loss • Inser on of collateral, other security or allowance for such losses at the end of each credit enhancements that signifi cantly a ect the credit risk associated with the repor ng period. The measurement of ECL ff loan. refl ects: • an unbiased and probability-weighted If the terms are substan ally diff erent, the amount that is determined by evalua ng a Bank derecognizes the original fi nancial assets range of possible outcomes; and recognizes a new asset at fair value and recalculates a new eff ec ve interest rate for the the me value of money; and • asset. The date of renego a on is consequently • reasonable and supportable informa on considered to be the date of ini al recogni on that is available without undue cost or for the impairment calcula on purposes, eff ort at the repor ng date about past including for the purpose of determining events, current condi ons and forecasts of whether a signifi cant increase in credit future economic condi ons. risk has occurred .However the Bank also Note 5.(a) provides more detail of how the ECL assesses whether the new fi nancial assets recognised is deemed to be credit-impaired at allowance is measured. ini al recogni on ,especially in circumstances where the renego a on was driven by the (ii) Modifi cation of Loans debtor being unable being unable to make The Bank some mes renego ates or otherwise the originally agreed payments. Diff erences modifi es the contractual cash fl ows of loans in the carrying amount are also recognized in to customers. When this happens, the Bank Profi t or loss as a gain or loss on derecogni on.

79 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

a) Financial instruments (conƟ nued) Financial liabili es are derecognized only when the obliga on is discharged, cancelled (iv) Modifi cation of Loans (continued) or expired.

If the terms are not substan ally diff erent, the (viii) Fair value measurement renego a on or modifi ca on does not result in derecogni on, and the Bank recalculates Fair value is the price that would be received the gross carrying amount based on the to sell an asset or paid to transfer a liability revised cash fl ows of the fi nancial assets in an orderly transac on between market and recognizes a modifi ca on gain or loss in par cipants at the measurement date in profi t or loss. The new gross carrying amount the principal or, in its absence, the most is recalculated by discoun ng the modifi ed advantageous market to which the Bank has cash fl ows at the original eff ec ve interest access at that date. The fair value of liability rate(or Credit –adjusted eff ec ve interest rate refl ects its non-performance risk. for purchased or originated credit –impaired fi nancial assets). When available, the Bank measures the fair value of an instrument using the quoted price in an ac ve market for that instrument. A (vi) Classifi caƟ on and subsequent measurement of fi nancial liabiliƟ es market is regarded as ac ve if transac ons for the asset or liability take place with suffi cient frequency and volume to provide pricing All the fi nancial liabili es are measured at informa on on an ongoing basis. amor sed cost under both IAS 39 and IFRS 9.The Bank recognizes all its fi nancial liabili es If there is no quoted price in an ac ve market, ini ally at the value of the considera on then the Bank uses valua on techniques that received for those liabili es, excluding maximize the use of relevant observable inputs transac on costs and subsequently measures and minimize the use of unobservable inputs. them at amor sed cost. The chosen valua on technique incorporates all of the factors that market par cipants would (vii) De-recogniƟ on of fi nancial assets and liabiliƟ es take into account in pricing a transac on. (i) Oī seƫ ng fi nancial instruments Financial assets are derecognized when the contractual rights to receive cash fl ows from Financial assets and fi nancial liabili es are these assets have ceased to exist or the assets off set and the net amount presented in the have been transferred and substan ally all the statement of fi nancial posi on when there is a risks and rewards of ownership of the assets legally enforceable right to off set the amounts are also transferred (that is, if substan ally all and there is an inten on to se le on a net the risks and rewards of ownership have not basis, or realize the asset and se le the liability been transferred, the Bank tests control to simultaneously. ensure that con nuing involvement on the basis of any retained powers of control does not prevent de-recogni on).

80 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Financial instruments (conƟ nued)

k) Property and equipment Property and equipment is ini ally recorded at cost and therea er stated at historical cost less accumulated deprecia on. Historical cost includes expenditure that is directly a ributable to the acquisi on of the items. Subsequent costs are included in the asset’s carrying amount or are op mized as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profi t or loss during the fi nancial year in which they are incurred. Leasehold improvement costs are related to refurbishment on leased Banking premises. Leasehold improvements are only capitalized when the cost is above TZS 20 million. The cost is amor zed to profi t or loss for the year using straight line method over the remaining lease period or the expected economic useful life of the refurbished costs whichever is shorter.

DepreciaƟ on Deprecia on of other assets is calculated using the straight-line method to write down their cost to their residual values over their es mated useful lives, using the following annual rates:

Buildings 4% Motor vehicles 25% Data communica on equipment 20% Computer hardware 20% Furniture, fi ngs and equipment 10% Leasehold improvement Over the term of the lease or 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each repor ng period. Depreciable assets are reviewed for impairment. Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is wri en down immediately to its recoverable amount if the asset’s carrying amount is greater than its es mated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognized in profi t or loss.

8181 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

i) Property and equipment (conƟ nued) Amor za on is recognised in profi t or loss on a straight-line basis over the es mated useful life Capital work in progress of the so ware, from the date that it becomes available for use. The es mate useful life of Capital work in progress relates to property and so ware is fi ve years. equipment under construc on. Cost includes m) Impairment of tangible and intangible assets materials, direct labor and any other direct expenses incurred in respect of the project At the end of each repor ng period, the Bank less any recognised impairment losses. The reviews the carrying amount of its tangible amounts are transferred to the appropriate and intangible assets to determine whether property and equipment categories once the there is any indica on that these assets have project is completed and the asset is available suff ered an impairment loss. for use. If objec ve evidence on impairment losses l) Intangible assets exists, the recoverable amount of the asset is es mated in order to determine the extent Intangible assets with fi nite useful lives that of the impairment loss. The carrying amount are acquired separately are carried at cost less of the asset is reduced through the use of an accumulated amor za on and accumulated allowance account and the amount of the loss impairment losses. Amor za on is recognised is recognized in profi t or loss. on a straight-line basis over their es mated useful lives. The es mated useful life and Assets that have an indefi nite useful life are amor za on method are reviewed at the end not subject to amor za on and are tested for of each repor ng period, with the eff ect of any impairment annually. changes in es mate being accounted for on a In determining the recoverable amount, the prospec ve basis. Bank considers the higher of the fair value of Intangible assets with indefi nite useful lives the asset less costs to sell, and value in use. In that are acquired separately are carried at cost es ma ng value in use, the Bank is cognizant less accumulated impairment losses. Acquired of the es mated future cash fl ow discounted computer so ware and related licenses are to the present value using a pre-tax discount stated at cost less accumulated amor za on. rate that is refl ec ve of the current market Subsequent expenditure on so ware assets is assessment of me value of money and the capitalized only when it increases the future risks specifi c to the asset itself. economic benefi ts embodied in the specifi c asset to which it relates. All other expenditure Where impairment loss subsequently reverses, the carrying amount of the asset (or cash- is expensed as incurred. Where so ware is not an integral part of the related hardware it is genera ng unit) is increased to the revised recognized as an intangible asset. es mate of its recoverable amount, but so that the increased carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized.

82 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n) Regulatory reserve Each lease payment is allocated between the liability and finance charges. The corresponding IFRS 9 requires the Bank to recognize rental obliga ons, net of finance charges, are immediately a er ini al recogni on, an ECL included in other long term payables. The allowance for fi nancial assets measured interest element of the finance cost is charged at amor zed cost and investments in debt to the income statement over the lease period instruments measured at FVOCI, which results so as to produce a constant periodic rate in an accoun ng loss being recognized in profi t of interest on the remaining balance of the or loss when an asset is newly originated. liability for each period. The property, plant However, Bank of Tanzania pruden al and equipment acquired under finance leases guidelines require the Bank to set aside are depreciated over the shorter of the useful amounts as provision for losses on loans and life of the asset and the lease term. advances in addi on to those losses that p) TranslaƟ on of foreign currencies have been recognized under IFRS 9. Any such amounts set aside represent appropria ons i) Functional and presentation currency of retained earnings and not expenses in determining profi t or loss. The fi nancial statements of the Bank are These amounts are dealt with in the regulatory measured using the currency of the primary reserve. Bank of Tanzania introduced General economic environment in which the Bank provision of 1% on current loans which the operates (‘the func onal currency’). The Bank has set aside from retained earnings with fi nancial statements are presented in Tanzania eff ect from August 2015. Shillings rounded to the nearest TZS ‘000. Tanzania Shillings is the Bank’s func onal and o) Leases presenta onal currency.

Leases in which a significant por on of the ii) Transactions and balances risks and rewards of ownership are retained by the lessor are classified as opera ng leases. Foreign currency transac ons that are Payments made under opera ng leases (net transac ons denominated, or that requires of any incen ves received from the lessor) are se lement, in a foreign currency are charged to the income statement on a straight- translated into the func onal currency using line basis over the period of the lease. the exchange rates prevailing at the dates of the transac ons. Leases of property, plant and equipment where the Bank has substan ally, all the risks At the end of each repor ng period, monetary and rewards of ownership are classified as items denominated in foreign currencies are finance leases. Finance leases are capitalized retranslated at the rates prevailing at that date. at the lease’s commencement at the lower of Foreign exchange gains and losses resul ng the fair value of the leased property and the from the se lement of such transac ons and present value of the minimum lease payments. from the transla on at year end exchange rates of monetary assets and liabili es denominated in foreign currencies are recognised in profi t or loss.

83 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Non-monetary items carried at fair value that off -balance sheet transac ons and disclosed are denominated in foreign currencies are as con ngent liabili es. retranslated at the rates prevailing at the date s) Provisions when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not Provisions are recognised when the Bank has retranslated. a present obliga on (legal or construc ve) as a result of a past event, it is probable Grants that the Bank will be required to se le the obliga on, and a reliable es mate can be Grants related to assets are treated as deferred made of the amount of the obliga on. The income and released to the profi t or loss amount recognised as a provision is the best over the expected useful lives of the assets es mate of the considera on required to concerned. se le the present obliga on at the end of the Grants towards improvement of Bank’s repor ng period, taking into account the risks processes are recognized to profi t or loss over and uncertain es surrounding the obliga on. the periods necessary to match them with the When a provision is measured using the related costs. cash fl ows es mated to se le the present obliga on, its carrying amount is the present q) Cash and cash equivalents value of those cash fl ows.

For the statement of cash fl ow purposes, t) ComparaƟ ves cash and cash equivalents includes cash on hand, unrestricted balances held with Bank Where necessary, compara ve fi gures have of Tanzania and short-term liquid investments been adjusted to conform with changes in with maturi es of three months or less from presenta on in the current year. the acquisi on date, less advances from other 4. CRITICAL ACCOUNTING ESTIMATES AND banks repayable within three months from JUDGEMENTS IN APPLYING THE BANK’S ACCOUNTING date of the advance. POLICIES Restricted cash balances are those balances that the Bank cannot use for working capital In applica on of the Bank’s accoun ng policies, purposes as they have been placed as a lien to the Directors are required to make judgements, secure borrowings. es mates and assump ons about the carrying amount of assets and liabili es that are not r) ConƟ ngent liabiliƟ es readily apparent from other sources. The es mates and associated assump ons are Le ers of credits, acceptances and guarantees based on historical experience and other are generally wri en by the Bank to support factors that are considered to be relevant. performance of the customer to third par es. Actual results may diff er from these es mates. The Bank will only be required to meet these The es mates and underlying assump ons are obliga ons in the event of the customer’s reviewed on an on-going basis. default. These obliga ons are accounted for as

8484 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING THE BANK’S ACCOUNTING POLICIES (CONTINUED)

Measurement of the Expected Credit Losses Allowance. Property and equipment and intangible assets The measurement of the expected credit loss allowance for fi nancial assets measured Cri cal es mates are made by the Directors at amor sed cost and FVOCI is an area in determining useful lives, residual values, that requires the use of complex models and deprecia on and amor za on rates of and signifi cant assump ons about future property and equipment, and intangible assets economic condi ons and credit behavior (e.g. respec vely. the likelihood of customers defaul ng and the resul ng losses). Explana on of the inputs, Defi ned benefi t plan assump ons and es ma on techniques used in measuring ECL to changes in these elements The Bank operates an unfunded defi ned benefi t are explained in note 5(a). re rement plan for all employees. Employees do not contribute to the plan, the Bank bears A number of signifi cant judgements are all cost. A provision is made in the fi nancial also required in applying the accoun ng statements for the es mated cost of the future requirement for measuring ECL, such as benefi ts. The accuracy and completeness of • Determining criteria for signifi cant increase such provisions is confi rmed periodically by an of credit risk. independent actuarial valua on. Refer to note 35 of the fi nancial statements for uncertainty • Choosing appropriate models and and sensi vity disclosure. assump ons for measuring ECL; • Establishing the number and rela ve Taxes weigh ngs of forward-looking scenarios for The Bank is subjected to a number of taxes each por olio segmenta on and associated and levies by various government and quasi- ECL; and government regulatory bodies. As a rule of thumb, the Bank recognizes liabili es for the • Establishing por olio segmenta on of an cipated tax/levies payable with utmost care similar fi nancial assets for the purpose of and diligence. However, signifi cant judgement measuring ECL. is usually required in the interpreta on and Detailed informa on about judgements and applicability of those taxes/levies. Should it es mates made by the Bank in the above areas come to the a en on of management, in one is set out in note 5(a). way or the other, that the ini ally recorded liability should be reassessed or re-es mated, any diff erences from the liabili es are dealt Business models and SPPI as Signifi cant with through profi t or loss for the year. Judgements.

As well as ECL determining the appropriate business models and assessing the SPPI requirements for fi nancial assets may require signifi cant impact on the fi nancial statements as discussed in 3(h).

85 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Bank’s ac vi es expose it to a variety of The Audit, Risk Management and Compliance fi nancial risks and those ac vi es involve Commi ee of the Board of Directors of the the analysis, evalua on, acceptance and Bank have the responsibility for monitoring management of some degree of risk or compliance with the Bank’s risk management combina on of risks. Taking risk is core to policies and procedures, and review of the the fi nancial business, and the opera onal adequacy of risk management framework in risks are an inevitable consequence of being rela on to the risks faced by the Bank. On the in business. The Bank’s aim is therefore to other hand, the Governance, Recruitment and achieve an appropriate balance between risk Remunera on Commi ee among other issues and return and op mize poten al adverse also has the mandate to review performance eff ects on the Bank’s fi nancial performance. of the Bank through various reports submi ed The Bank’s risk management policies are by Management. These Board commi ees designed to iden fy and analyses these risks, are assisted in these func ons by various to set appropriate risk limits and controls, and management commi ees which undertake to monitor the risks and adherence to limits by both regular and ad-hoc reviews of risk means of reliable and up-to-date informa on management controls and procedures, the systems. The Bank regularly reviews its risk results of which are reported to the Board. management policies and systems to refl ect The most important types of risks which the changes in markets, products and emerging Bank manages on a day-to-day basis are: best prac ce. • Credit risk; The Board of Directors has overall responsibility • Liquidity risk; for the establishment and oversight of the Bank’s risk management framework. As part • Market risk; of its governance structure, the Board of - Interest rate risk; and Directors has embedded a comprehensive risk - Foreign exchange/currency risk. management framework for iden fi ca on, measuring, monitoring, controlling and • Opera ons Risk. mi ga on of the Bank’s risks. The policies are integrated in the overall management The notes below provide detailed informa on on each of the above risks and the Bank’s informa on systems of the Bank and objec ves, policies and processes for supplemented by a management repor ng structure. measuring and managing the risks. u) Credit risk Risk management policies and systems are reviewed regularly to refl ect changes in market Credit risk refers to the risk that a counter condi ons, products and services off ered, and party will default on its contractual obliga ons emerging best prac ce. The Bank, through resul ng in fi nancial loss to the Bank. It arises its training and management standards and principally from lending and treasury ac vi es. procedures, aims to develop a disciplined and The amounts presented in the statement construc ve control environment, in which of fi nancial posi on are net of impairment all employees/ stakeholders understand their for doub ul debts, es mated by the Bank’s roles and obliga ons. management based on prior experience and their assessment of the current economic environment.

86 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

a) Credit risk (conƟ nued) (i) Credit Risk measurement Loans and advances (including loan The Board of Directors has delegated commitments and fi nancial guarantees) responsibility for the management of credit risk to its Audit, Risk management and Compliance The es ma on for credit exposure for risk Commi ee which is responsible for oversight management purposes is complex and requires of the Bank’s credit policy, including among the use of models as the exposure varies others: with the changes in the market condi ons, expected cash fl ows and the passage of me. • formula ng the policies, covering risk The assessment of credit risk of a por olio acceptance procedures, collateral of assets entails further es ma on as the requirements, credit appraisal, risk grading likelihood defaults occurring, of associated and repor ng, documentary and legal loss ra os and defaults correla on between procedures, and compliance with regulatory counterpar es .The Bank measures credit risk and statutory requirements; using Probability of Default (PD), Exposure at • establishing the op mized structure for the Default (EAD) and Loss Given Default (LGD). approval of credit facili es; This is similar to the approach used for the purposes of measuring Expected Credit Loss reviewing and assessing credit risk on • (ECL) under IFRS 9. all exposures in excess of approval limits of the management prior to facili es Expected credit loss measurement being commi ed to customers; limi ng concentra ons of exposure to counterpar es IFRS 9 outlines a ‘three-stage’ model for and industries (for loans and advances). impairment based on changes in credit quality since ini al recogni on as summarized below: • Developing and maintaining the Bank’s risk grading system in order to categories • A fi nancial instrument that is not credit- exposures according to the degree of impaired on ini al recogni on is classifi ed in risk of fi nancial loss faced and to focus ‘Stage 1’ and has its credit risk con nuously management on the a endant risks. The risk monitored by the Bank. grading system is used in determining where impairment provisions may be required • If a signifi cant increase in credit risk (‘SICR’) against specifi c credit exposures; and since ini al recogni on is iden fi ed, the fi nancial instrument is moved to ‘Stage 2’ but Reviewing reports on compliance with • is not yet deemed to be credit-impaired. agreed exposure limits, including those for selected industries and product types. • If the fi nancial is credit-impaired, the fi nancial instrument is then moved to ‘Stage 3’. Day to day management of the Bank’s credit risk is vested on the Director of Risk Management • Financial instruments in Stage 1 have their ECL and Compliance who reports to the Chief measured at an amount equal to the por on Execu ve Offi cer of the Bank. Regular audits of life me expected credit losses that result of the credit processes and management are from default events possible within the next undertaken by Internal Audit. 12 months. Instruments in stage 2 or 3 have their ECL measured based on expected credit losses on a life me basis.

8787 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

a) Credit risk (conƟ nued)

• Expected credit loss measurement QualitaƟ ve criteria (conƟ nued)A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should The borrower meets unlikeliness to pay criteria, consider forward-looking informa on. which indicates the borrower is in signifi cant fi nancial diffi culty. These are instances where: • Purchased or originated credit-impaired The borrower is in long-term forbearance fi nancial assets are those fi nancial assets that • are credit-impaired on ini al recogni on. • The borrower is deceased Their ECL is always measured on a life me • The borrower is insolvent basis (Stage 3). • It is becoming probable that the borrower • Further explana on is also provided of how will enter bankruptcy the Group determines appropriate groupings • Financial assets are purchased or when ECL is measured on a collec ve basis. originated at a deep discount that refl ects the incurred credit losses. • The following diagram summaries the important requirements under IFRS 9 (other The criteria above have been applied to all fi nancial than purchased or originated credit-impaired instruments held by the Bank and are consistent fi nancial assets): with the defi ni on of default used for internal credit risk management purposes. The default Signifi cant Increase in Credit Risk (SICR) defi ni on has been applied consistently to model The Bank considers a fi nancial instrument the Probability of default (PD), Exposure at Default to have experienced a signifi cant increase in (EAD) and loss given Default (LGD) throughout the credit risk when the borrower is more than 5 Group’s expected loss calcula ons. days past due on contractual repayments for microfi nance products and 30 days past due Measuring ECL – Explana on of inputs, assump ons on its contractual payments for products other and es ma on techniques than microfi nance The Expected Credit loss (ECL) is measured on either a 12-month (12M) or life me basis depending on Defi ni on of default and credit-impaired assets whether a signifi cant increase in credit risk has The Bank defi nes a fi nancial instrument as in occurred since ini al recogni on or whether an default, which is fully aligned with the defi ni on of asset is considered to be credit-impaired. Expected credit-impaired, when it meets one or more of the credit losses are the discounted product of the following criteria: Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defi ned as QuanƟ taƟ ve criteria follows: The borrower is more than 90 days past due on its • The PD represents the likelihood of a borrower contractual payments (with the sole excep on of defaul ng on its fi nancial obliga on (as per microfi nance por olio where 30 days past due on “Defi ni on of default and credit-impaired” contractual repayment is default). above), either over the next 12 months (12M PD), or over the remaining life me (Life me PD) of the obliga on.

88 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉΉ a) Credit risk (conƟ nued)

Measuring ECL – ExplanaƟ on of inputs, assumpƟ ons and esƟ maƟ on techniques (conƟ nued)

• EAD is based on the amounts the Bank • For amor zing products and bullet expects to be owed at the me of default, repayment loans, this is based on the over the next 12 months (12M EAD) or over contractual repayments owed by the the remaining life me (Life me EAD). For borrower over 12 month or life me basis. example, for a revolving commitment, the This will also be adjusted for any expected Bank includes the current drawn balance plus overpayments made by the borrower. any further amount that is expected to be Early repayment/refi nance assump ons drawn up to the current contractual limit by are also incorporated into the calcula on. the me of default, should it occur. • For revolving products such as overdra s, the exposure at default is predicted by • Loss Given Default (LGD) represents the Bank’s taking current drawn balance and adding a expecta on of the extent of loss on a defaulted “credit conversion factor” which allows for exposure. LGD varies by type of counterparty, the expected drawdown of remaining limit type and seniority of claim and availability by the me of default. These assump ons of collateral or other credit support. LGD is vary by product type and current limit expressed as a percentage loss per unit of u liza on band, based on an analysis of exposure at the me of default (EAD). LGD is the Bank’s recent default data. calculated on a 12 –month or life me basis, where 12 month-month LGD is the percentage • The 12-month and life me LGDs are of loss expected to be if the default occurs in determined based on the factors which the next 12-months and life me LGD’s the impact the recoveries made post default. percentage of loss expected to be made if the These vary by product type. default occurs over the remaining expected • For secured products, this is primarily life me of the loan. based on collateral type and projected The ECL is determined by projec ng the collateral values, historical discounts to PD, LGD and EAD for each future month for market/book values due to forced sales, collec ve segments. These three components me to repossession and recovery costs are mul plied together and adjusted for the observed. likelihood of survival (i.e. the exposure has not • For unsecured products, LGD’s are typically prepaid or defaulted in an earlier month). set at product level due to the limited diff eren a on in recoveries achieved This eff ec vely calculates an ECL for each across diff erent borrowers. Probability of future quarters, which is then discounted loans ge ng back to performing is also back to the repor ng date and summed. adjusted to obtain LGD parameter. The discount rate used in the ECL calcula on is the original eff ec ve interest rate or an Forward-looking economic informa on is also approxima on thereof. included in determining the 12-month and life me PD and LGD. The 12-month and life me EADs are determined based on the expected payment The assump ons underlying the ECL calcula on profi le, which varies by product type. – such as how the maturity profi le of the PDs and how collateral values change etc. – are monitored and reviewed on a quarterly basis.

89 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

a) Credit risk (conƟ nued)

Measuring ECL – ExplanaƟ on of inputs, assumpƟ ons and esƟ maƟ on techniques (conƟ nued)

There have been no signifi cant changes in es ma on techniques or signifi cant assump ons made during year.

Forward-looking informa on incorporated in the ECL models

The assessment of SICR and the calcula on of ECL both incorporate forward-looking informa on. The Bank has performed historical analysis and iden fi ed the key economic variables impac ng credit risk and expected credit losses for each por olio.

These economic variables and their associated impact on the PD and LGD vary by fi nancial instrument. Expert judgement has also been applied in this process. Forecasts of these economic variables (the “base economic scenario”) are obtained from independently published informa on on a quarterly basis and provide the best es mate view of the economy over the next ten years.

The impact of the economic variables on the PD and LGD has been determined by performing sta s cal logis c regression analysis to understand the impact changes in these variables have had historically on default rates and on the components of LGD.

In addi on to the base economic scenario, the Bank es mates other scenarios along with scenario weigh ngs. The number of other scenarios used is set based on the analysis of each major product type to ensure non- linearity are captured. The number of scenarios and their a ributes are reassessed at each repor ng date. At 1 January 2018 and 31 December 2018, for all por olios the Bank concluded that three scenarios appropriately captured non-linearity. The Bank concluded that two addi onal scenarios, best case and worst case scenarios were required. The scenario weigh ngs are determined by a combina on of sta s cal analysis and expert credit judgement, taking account of the range of possible outcomes each chosen scenario is representa ve of.

These probability –weighted ECLs are determined by running each scenario through the relevant ECL model and mul plying it by the appropriate scenario weigh ng. As with any economic forecasts, the projec ons and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be signifi cantly diff erent to those projected. The Bank considers these forecasts to represent its best es mate of the possible outcomes.

v) Economic variables assumpƟ ons

The most signifi cant year end assump ons used for ECL es mate as at 31 December 2018 are set out below. The scenarios “Base”, “Best Case” and “Worst Case” were used for all por olios

EsƟ mates Variable Scenarios 2019 2020 2021 2022 2023 Base 15.6% 15.7% 15.6% 15.9% 15.5% Interest Best case 15.9% 16.0% 15.9% 16.2% 15.8% rates Worst case 15.3% 15.4% 15.3% 15.6% 15.2%

90 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

a) Credit risk (conƟ nued)

Forward-looking informa on incorporated in the ECL models (con nued)

The weigh ngs assigned to each economic scenario as at 31 December 2018 were as follows:

Porƞ olio Scenarios WeighƟ ngs Base 50% All por olios Best case 25% Worst case 25%

The most signifi cant year end assump ons used for ECL es mate as at 1 January 2018 are set out below. The scenarios “Base”, “Best Case” and “Worst Case” were used for all por olios

Es mates Variable Scenarios 2019 2020 2021 2022 2023 Base 15.5% 15.6% 15.7% 15.6% 15.9% Lending rate Best case 15.8% 15.9% 16.0% 15.9% 16.2% Worst case 15.2% 15.3% 15.4% 15.3% 15.6%

The weigh ngs assigned to each economic scenario as at 1 January 2018 were as follows:

Porƞ olio Scenarios WeighƟ ngs Base 50% All por olios Best case 25% Worst case 25%

Groupings of instruments for losses measured on collec ve basis

For expected credit loss provisions modelled on collec ve basis, a grouping of exposures is performed on the basis of shared risk characteris cs, such that risk of exposures within a group are homogenous. In performing this grouping, there must be suffi cient informa on for the group to be sta s cally credible. The Bank has grouped its loans based on loan product type.

9191 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

Exposure to credit risk

2018 2017 TZS’000 % TZS’000 % On balance sheet items Note

Cash balance with Bank of 16 Tanzania 13,195,948 2.59% 2,204,961 0.53% TPB Mobile Money Balance 5,858,011 1.15% 6,460,004 1.55% Cheques and items for collec on 231,928 0.05% 132,712 0.03% Placements and balances 17 with other banks 15,821,018 3.11% 20,059,790 4.80% Treasury bills 18 43,620,066 8.57% 46,041,182 11.02% Treasury bonds 19 13,199,202 2.59% 13,830,200 3.31% Loans and advances to 20 412,768,650 81.06% 325,065,388 77.81% customers Other assets 21 4,493,508 0.88% 3,967,276 0.95% 509,188,331 100.00% 417,761,513 100.00%

92 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) a) Credit risk (conƟ nued) Classifi ca on of loans and advances The table below contains an analysis of the risk exposure of fi nancial instruments for which an ECL allowance is recognized. The gross carrying amount of fi nancial assets below also represents the Bank’s maximum exposure to credit risk on these assets.

ECL Staging 2018 2017 Stage 1 Stage 2 Stage 3 TZS ‘000 TZS ‘000 Purchased credit 12- month ECL LifeƟ me ECL LifeƟ me ECL Impaired Total Total Neither past due nor impaired 335,969,681 - - - 335,969,681 318,718,285 Past due but not impaired 45,931,700 21,684,580 - - 67,616,280 4,619,440 Impaired - - 25,024,861 6,065,394 31,090,255 21,131,218 Gross 381,901,381 21,684,580 25,024,861 6,065,394 434,676,216 344,468,943 Less: allowance for impairment (3,612,886) (1,119,899) (9,641,909) (3,431,417) (17,806,111) (15,401,660) Less: Interest in suspense - - (4,101,455) - (4,101,455) (4,001,895)

Total (note 20) 378,288,495 20,564,681 11,281,497 2,633,977 412,768,650 325,065,388

93 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) a) Credit risk (conƟ nued)

Classifi ca on of loans and advances (con nued)

Loans and advances that are neither past due nor impaired The Bank classifi es loans and advances under this category for those exposures that are up to date, in terms of repayment with contractual agreements as well as quality of legal and loan documenta on. Such loans would have demonstrated fi nancial condi ons, risk factors, quality of documenta on and capacity to repay that are acceptable. These exposures will normally be maintained largely within approved product programs and with no signs of impairment or distress. These exposures are categorized as normal accounts in line with the Bank of Tanzania (BOT) regula ons.

Past due but not impaired This category includes loans that are superior in quality in repayment to those classifi ed as substandard but they are poten ally weak in terms of documenta on thus, require closer management supervision.

Impaired loans and advances Impaired loans are loans for which the Bank determines that it is probable that it will not be able to collect all outstanding principal and interest due according to the contractual terms of the advance. These accounts under BOT guidelines are termed as non-performing loans.

Loss allowance The loss allowance recognised in the period is impacted by a variety of factors as described below: • Transfer between stage 1 and stage 2 or due to fi nancial instruments experiencing signifi cant increase (or decrease) of credit risk or becoming credit-impaired in the period, and the consequent “step up”( or step down”) between 12-months and life me ECL: • Addi onal allowance for new fi nancial instruments recognised during the period, as well as releases for fi nancial instruments de-recognised in the period; • Impact on the measurement of ECL due to changes in PDS and LGDs in the period, arising from regular refreshing of inputs to models: • Impact on the measurement of ECL due to the passage of me, as ECL is measured on present values basis; • Foreign exchange retransla on for assets denominated in foreign currencies and other movements: and • Financial assets derecognized during the period and write off s of allowance related to assets that were wri en off during the period.

9494 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) a) Credit risk (conƟ nued)

Loss allowance (con nued)

The following tables explain the changes in the loss allowance between the beginning and the end of the annual period due to these factors:

Stage 1 Stage 2 Stage 3 Purchased 12-month Credit Loss allowance – Loans and LifeƟ me ECL LifeƟ me ECL Total advances to ECL Impaired customers at amorƟ sed cost TZS 000s TZS 000s TZS 000s TZS 000s TZS 000s Loss allowance as at 31 3,166,233 511,623 10,432,895 - 14,110,751 December 2017 Restatement of the prior - - - - - year Loss allowance as at 01 3,166,233 511,623 10,432,895 - 14,110,751 January 2018 Provision allowance (Twiga - - - 524,777 524,777 and TWB) Changes in the loss

allowance - – Transfer to stage 1 30,636 (147,642) (661,233) - (778,239) – Transfer to stage 2 (59,642) 263,857 (166,753) - 37,462 – Transfer to stage 3 (73,239) (74,189) 4,617,191 - 4,469,763 New nancial assets fi 2,898,876 785,965 2,781,569 2,906,640 9,373,050 originated or purchased Changes in models/risk (415,140) (3,156) (204,140) - (622,436) parameters Financial assets that have been derecognized other (1,934,943) (216,316) (4,061,724) (6,212,983) than write off P&L Charge during the year 446,548 608,519 2,304,910 2,906,640 6,266,617

Other Movements with no

P&L Impact – Write-off s (227) (279) (3,095,528) - (3,096,034) Loss allowance as at 31 3,612,554 1,119,863 9,642,277 3,431,417 17,806,111 December 2018

95 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) a) Credit risk (conƟ nued) Loss allowance (con nued The table below explains changes in the gross carrying amount of Loans and advances to help explain their signifi cance to the changes in the loss allowance for the same por olio.

Stage 1 Stage 2 Stage 3 Purchased 12-month ECL LifeƟ me ECL LifeƟ me ECL Credit Impaired Total Loans and advances to customers at amorƟ zed cost TZS 000s TZS 000s TZS 000s TZS 000s TZS 000s

Gross carrying amount as at 31 December 2017 298,409,234 18,968,886 27,090,823 - 344,468,943 Restatement of the prior year - - - - - Gross carrying amount as at 01 January 2018 298,409,234 18,968,886 27,090,823 - 344,468,943 Changes in the gross carrying amount - – Transfer to stage 1 5,493,836 (4,475,615) (1,018,221) - - – Transfer to stage 2 (5,241,772) 5,475,011 (233,239) - - – Transfer to stage 3 (10,084,826) (3,182,766) 13,267,592 - - New fi nancial assets originated or purchased 288,229,596 16,623,967 8,052,960 6,065,394 318,971,917 Financial assets that have been derecognized (159,856,661) (9,037,429) (7,135,237) - (176,029,327) Write-off s (54,020) (222,732) (12,252,309) - (12,529,061) Other changes (34,994,007) (2,464,741) (2,747,508) - (40,206,256)

Gross carrying amount as at 31 December 2018 381,901,380 21,684,581 25,024,861 6,065,394 434,676,216

96 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) a) Credit risk (conƟ nued)

Write-off policy

The Bank writes off fi nancial asset, in whole or in part, when it has exhausted all prac cal recovery eff orts and has concluded there is no reasonable expecta on of recovery. Indicators that there is no reasonable expecta on of recovery include (i) ceasing enforcement ac vity and (ii) where the Bank recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expecta on of recovering in full. The Bank may write-off fi nancial assets that are s ll subjected to enforcement ac vity. The Bank s ll seek to recover amounts it is legally owed in full, but which have been par ally wri en off due to no reasonable expecta on of full recovery.

Concentra on of risk The Bank monitors concentra on of loans by economic sector in line with set limits per sector. The objec ve is to ensure diversifi ca on of risk by always maintaining a well-diversifi ed product-mix. An analysis of concentra ons within the loan and advances to customers.

2018 2017 TZS ‘000 % TZS ‘000 % Loans and advances to customers (gross) Agriculture fi shing, forestry and hun ng 14,645,212 3.37% 784,044 0.23% Building & construc on 667,636 0.15% 1,931,465 0.56% Educa on 15,265,474 3.51% 424,823 0.12% Electricity 17,345 0.00% 221,685 0.06% Financial Intermediaries 1,497,245 0.35% 279,726 0.08% Fishing - 0.00% 38,730 0.01% Gas 30,520 0.01% 126,037 0.04% Forest - 0.00% 497,133 0.14% Health 1,769,764 0.41% 3,470,179 1.01% Hotels & Restaurants 3,632,108 0.84% 260,735 0.08% Leasing - 0.00% 480,222 0.14% Manufacturing 200,162 0.05% 27,171 0.01% Mining quarrying 130,430 0.03% 277,250,039 80.49% Personal 160,626,989 36.95% 52,957,333 15.37% Trade 41,073,281 9.54% 5,623,408 1.63% Transport & Communica ons 2,499,412 0.58% 96,213 0.03% Warehousing & storage 55,137 0.01% - - Real Estate 17,556,443 4.04% - - Water 35,122 0.01% - - Other Services 174,973,936 40.25% - - 434,676,216 100.0% 344,468,943 100.0%

9797 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

w) Liquidity risk

Liquidity risk is the risk that the Bank will encounter diffi culty in mee ng obliga ons from fi nancial liabili es. The Assets and Liabili es Commi ee (ALCO), a management commi ee is tasked with the responsibility of ensuring that all foreseeable funding commitments and deposits withdrawals can be met when due, and that the Bank will not encounter diffi culty in mee ng obliga ons from its fi nancial liabili es as they occur. ALCO relies substan ally on the Bank’s Treasury Department to coordinate and ensure discipline across the Bank, cer fy suffi cient liquidity under both normal and stressed condi ons, without incurring unacceptable losses or risking damage to the Bank’s reputa on.

Liquidity and funding management The Bank manages the liquidity risk by ensuring among others that: • suffi cient funds are maintained to meet demand by customers as well as any statutory obliga ons; • There is adequate investment in highly liquid assets at all mes as well as tracking mismatches in its statement of fi nancial posi on to iden fy any liquidity needs; all investments made in fi nancial assets are aimed at diversifying the investment por olio, ming of cash fl ows and balancing the maturity ladders of fi nancial assets and fi nancial liabili es; • monitoring depositor concentra on in order to avoid undue reliance on large individual depositors and ensure a sa sfactory funding mix; and • Maintaining liquidity con ngency plan which iden fi es early warning indicators of stress condi ons and describes ac ons to be taken in the event of diffi cul es arising from systemic or other crises while op mizing adverse long-term implica ons.

Source of funding The Bank’s major source of funding is from customer deposits. To this end, the Bank maintains a diversifi ed and stable funding base comprising current/demand, savings and me deposits. The Bank borrows from the interbank market through transac ons with other banks for short term liquidity requirements. Exposure to liquidity risk The key measure used by the Bank for managing and measuring liquidity risk is the ra o of liquid assets to demand deposit. For this purpose liquid assets consist of cash and interbank deposits, investment in securi es maturing within one year and clearing accounts maintained with the Bank of Tanzania (BOT). The Bank’s maturing liabili es comprises all deposits and other liabili es with maturity period of less than one year. The Bank’s exposure to liquidity risk at 31 December, 2018 is summarized below.

98 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) b) Liquidity risk (conƟ nued)

The following is the liquidity profi le of the Bank as at 31 December 2018:

Up to 1 1-3 3-6 6-12 Over month months months months 1 year Total Financial assets TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000

Cash and balances with Bank of Tanzania 31,056,012 - - - - 31,056,012 TPB Mobile Money Balance 5,858,001 - - - - 5,858,001 Cheques and items for collec on 231,928 - - - - 231,928 Placements and balances with other banks 7,194,591 4,234,460 - 4,391,967 - 15,821,018 Treasury bills 4,110,731 15,504,711 1,466,564 22,538,060 - 43,620,066 Treasury bonds - - 565,907 1,312,004 11,321,291 13,199,202 Loans and advances to customers 9,151,094 3,535,575 9,334,990 29,443,652 361,303,339 412,768,650 Other assets 4,493,508 - - - - 4,493,508

Total fi nancial assets 62,095,865 23,274,746 11,367,461 57,685,683 372,624,630 527,052,385

Financial liabiliƟ es Customer deposits 280,659,261 13,803,851 35,657,407 46,905,912 13,573,102 390,599,533

Borrowing and balances due to other banks 47,606,162 10,766,441 3,048,404 1,509,863 - 62,930,870 Other liabili es 11,137,937 - - 7,966,016 - 19,103,953

Total fi nancial liabiliƟ es 339,403,360 13,803,851 46,423,848 59,430,195 13,573,102 472,634,356

Net liquidity gap (277,307,495) (1,295,546) (27,338,350) 1,303,893 359,051,528 54,414,029

At 31 December 2017 Total fi nancial assets 49,222,963 25,033,292 9,882,560 56,497,828 292,748,929 433,385,572 Total fi nancial liabili es 231,810,555 8,174,556 13,023,016 80,876,188 53,489,027 387,373,341

Net liquidity gap (182,587,592) 16,858,736 (3,140,456) (24,378,360) 239,259,902 46,012,231

99 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

x) c) Market risk

Market risk is the risk that movement in market factors, including interest rates and foreign currency exchange rates, will reduce income or value of por olio. The objec ve of market risk management process is to manage and control market risk exposures in order to op mize return on risk while maintaining a market profi le as a provider of fi nancial products and services.

Overall responsibility for management of market risk rests with ALCO. Market Risk Management Policies are in place to guide management of this risk and are subject to review and approval by the Board on a regular basis.

Market risk can be further subdivided into interest rate risk and currency risk.

Interest rate risk

The Bank is exposed to the risk that the value of a fi nancial instrument will fl uctuate due to changes in market interest rates. The maturi es of asset and liabili es and the ability to replace at an acceptable cost as they mature are important factors in assessing the Bank’s exposure to changes in interest rates.

In addi on to maintaining an appropriate mix between fi xed and fl oa ng rates deposit base, interest rates on advances to customers are pegged to the Bank’s base lending rate. The base rate is adjusted from me to me to refl ect the cost of deposits whereas loans with a maturity of more than one year are re-priced regularly to ensure that the Bank is not exposed to interest rate risk.

Interest rate risk – stress tests

The Bank monitors the impact of risks associated with the eff ects of fl uctua ons in prevailing interest rates. At 31 December 2018, the following table summarizes the es mated impact on profi t or loss of an immediate increase or decrease in interest rates of 125 basis points on current interest rate risk profi le to the Bank’s before tax profi t.

2018 2017 TZS ‘000 TZS ‘000

125 basis points increase or decrease in interest rates 50,211 38,547

100100 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) c) Market risk (conƟ nued) Interest Rate Risk (continued) The table summarizes the exposure to interest rate risk. Assets and liabili es are categorized by the earliest of contractual repricing or maturity dates. The Bank does not bear interest rate risk on off balance sheet items. Non interest Up to 1 2-3 4-6 7-12 Over Total bearing month months months months 1 year Financial assets TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 Cash and balance with Bank of Tanzania 31,056,012 31,056,012 - - - - - TPB Mobile Money balance 5,858,001 5,858,001 - - - - - Cheques and items for collec on 231,928 231,928 - - - - - Placements and balances with other banks 15,821,018 - 7,194,591 4,234,460 - 4,391,967 - Treasury bills 43,620,066 - 4,110,731 15,504,711 1,466,564 22,538,060 - Treasury bonds 13,199,202 - - - 565,907 1,312,004 11,321,291 Loans and advances to customers 412,768,650 - 9,151,094 3,535,575 9,334,990 29,443,652 361,303,339 Other assets 4,493,508 4,493,508 ------

Total fi nancial assets 527,052,385 41,639,449 20,456,416 23,274,746 11,371,461 57,685,683 372,624,630 Financial liabiliƟ es Customer deposits 390,599,533 8,290,538 272,368,723 13,803,851 35,657,407 46,905,912 13,573,102 Borrowing and balances due to other banks 62,930,870 - 47,606,162 10,766,441 3,048,404 1,509,863 - Other liabili es 19,103,953 19,103,953 - - - - -

Total fi nancial liabiliƟ es 472,634,356 27,394,491 319,974,885 24,570,292 38,705,811 48,415,775 13,573,102

Net Liquidity gap 54,414,029 14,244,957 (299,518,470) (1,295,545) (27,334,350) 9,269,908 359,051,528 At 31 December 2017 Total fi nancial assets 433,385,572 28,389,012 20,833,951 25,033,292 9,882,560 56,497,828 292,748,929 Total fi nancial liabili es 387,373,341 13,214,345 209,429,543 9,007,889 13,856,349 81,709,521 60,155,693

Net posiƟ on 46,012,231 15,174,667 (188,595,592) 16,025,403 (3,973,789) (25,211,693) 232,593,236

101101 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

c) Market Risk (conƟ nued)

Foreign Exchange Risk

Foreign exchange- Exposure risk

The Bank is exposed to the risk on earnings and capital arising from adverse movement of foreign exchange rates. The bank’s exposure risk is managed within the Bank of Tanzania (BOT) exposure guideline of 7.50% of core capital.

The Bank’s transac onal exposures give rise to foreign currency gains and losses that are recognized in profi t or loss. The Bank also has monitoring and control system for its posi ons in major currencies in which it is ac ve. The Bank ensures that its net exposure is kept to an acceptable level by selling and buying foreign currencies when considered appropriate.

Foreign exchange risk – stress test

At 31 December 2018, if the TZS had weakened or strengthened by 10% against the USD and EURO with all other variables held constant, the impact on the profi t before tax for the year would have been lower or higher by TZS 89,324,000 (2017: TZS 41,460,000).

The carrying amounts of the Bank’s material foreign currency denominated monetary assets and liabili es that will have an impact on profi t or loss when exchange rates change, as at 31 December 2018 and 31 December 2017 were as follows:

2018 2017 TZS ‘000 TZS ‘000

Cash and balance with Bank of Tanzania 4,400,674 2,890,087 Placements and balances with other banks 5,991,280 11,407,704 Loans & Advances to customers 4,269,137 - Other assets 377,027 308,812 Borrowing and balances due to other banks - (8,607,188) Customer deposits (15,909,504) (5,579,311) Other liabili es (21,850) (5,509)

(893,236) 414,595

102102 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ c) Market Risk (conƟ nued) Foreign Exchange risk (continued) The Bank operates wholly within Tanzania and its assets and liabili es are reported in the local currency. The bank’s currency risk is managed within the Bank of Tanzania exposure guideline of 7.5% of core capital. The bank’s currency posi on as at 31 December 2018 was as follows:

Total USD GBP EURO KENYA RAND TZS TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 Financial assets Cash and balance with Bank of Tanzania 31,056,012 3,637,345 57,271 699,076 6,983 - 26,655,337 TPB Mobile Money balance 5,858,001 - - - - - 5,858,001 Cheques and items for collec on 231,928 29,940 - - - - 201,988 Placements and balances with other banks 15,821,018 5,991,280 - - - - 9,829,738 Treasury bills 43,620,066 - - - - - 43,620,066 Treasury bonds 13,199,202 - - - - - 13,199,202 Loans and advances to customers 412,768,650 4,269,137 - - - - 408,499,513 Other assets 4,493,508 377,027 - - - - 4,116,481 Total fi nancial assets 527,048,385 14,304,729 57,271 699,076 6,983 - 511,980,326

Financial liabiliƟ es Customer deposits 390,599,533 15,901,796 2,329 5,378 - - 374,690,030 Borrowing and balances due to other banks 62,930,870 - - - - - 62,930,870 Other liabili es 19,103,953 26,440 (1,754) (2,836) - - 19,082,103 Total fi nancial liabiliƟ es 472,634,356 15,928,236 575 2,542 - - 456,703,003

Net posiƟ on 54,414,029 (1,623,507) 56,696 696,534 6,983 - 55,277,323 At 31 December 2017 Total fi nancial assets 433,385,572 14,192,021 - 414,582 - - 418,778,968 Total fi nancial liabili es 387,373,341 14,192,008 - - - - 373,181,333

Net posiƟ on 46,012,231 13 - 414,582 - - 45,597,635

103103 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

d) CategorizaƟ on of fi nancial assets and liabiliƟ es

All the Bank’s fi nancial assets are categorized as loans and receivables except for treasury bills and government stocks which were classifi ed as fi nancial assets held to maturity. All the fi nancial liabili es are carried at amor zed costs using the eff ec ve interest rate method. e) Fair value esƟ maƟ on

IFRS 13 requires the Bank to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Bank specifi es a hierarchy of valua on techniques based on whether the inputs to those valua on techniques are observable or unobservable. Observable inputs refl ect market data obtained from independent sources; unobservable inputs refl ect the Bank’s market assump ons. These two types of inputs have created the following fair value hierarchy:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in ac ve markets for iden cal assets or liabili es. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valua on techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valua ons where possible. Fair value of the Bank’s fi nancial assets and fi nancial liabilities that are measured at fair value on recurring basis.

The Bank did not have any fi nancial asset and fi nancial liabili es that are measured at fair value (2017: Nil).

104104 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) e) Fair value esƟ maƟ on (conƟ nued)

Financial instruments not measured at fair value

The following table analyses within the fair value hierarchy the Bank’s assets and liabili es (by class) not measured at fair value at 31 December 2018.

Level 1 Level 2 Level 3 Total TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 ASSETS

Cash and balances with Bank of Tanzania 31,056,012 - - 31,056,012 TPB Mobile Money balance 5,858,001 - - 5,858,001

Cheques and items for collec on 231,928 - - 231,928 Placements and balances with other Banks - 15,821,018 - 15,821,018 Treasury bills - 43,620,066 - 43,620,066

Government stocks and other securi es - 13,199,202 - 13,199,202 Loans and advances to customers - 412,768,650 - 412,768,650 Other assets (excluding prepayments) - 4,493,508 - 4,493,508

Total 37,145,941 489,902,444 - 527,048,385

LIABILITIES

Deposits from customers - (390,599,533) - (390,599,533) Borrowings and balances due to other banks - (62,930,870) - (62,930,870) Other liabili es - (10,794,909) - (10,794,909) Total - (464,325,312) - (464,325,312)

Most of the fi nancial assets and liabili es are short term in nature and those which are long term bear interest at prevailing market rate therefore the carrying amounts approximate fair value.

105105 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

e) Fair value esƟ mate (conƟ nued)

Financial instruments not measured at fair value ( continued)

The following table analyses within the fair value hierarchy the Bank’s assets and liabili es (by class) not measured at fair value at 31 December 2017.

Level 1 Level 2 Level 3 Total TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 ASSETS

Cash and balances with Bank of Tanzania 17,829,020 - - 17,829,020 TPB Mobile Money balance 6,460,004 - - 6,460,004

Cheques and items for collec on 132,712 - - 132,712 Placements and balances with other Banks - 20,059,790 - 20,059,790 Treasury bills - 46,041,182 - 46,041,182

Government stocks and other securi es - 13,830,200 - 13,830,200 Loans and advances to customers - 325,065,388 - 325,065,388 Other assets - 3,967,276 - 3,967,276 Total 24,421,736 408,963,836 - 433,385,572

LIABILITIES

Deposits from customers - (323,027,153) - (323,027,153) Borrowings and balances due to other banks - (59,531,345) - (59,531,345) Other liabili es - (4,814,843) - (4,814,843) Total - (387,373,341) - (387,373,341)

106106 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

Most of the fi nancial assets and liabili es are short term in nature and those which are long term bear interest at prevailing market rates therefore the carrying amounts approximate fair value.

6. CAPITAL MANAGEMENT OBJECTIVES AND POLICIES

The Bank’s objec ve when managing capital are driven by the broader concept of capital as defi ned by the Bank of Tanzania (BOT) which substan ally relies on the guidelines developed by the Basel Commi ee, for supervisory purposes. Those objec ves are intended to:

• sustain a strong capital base to support the development of business; • safeguard the Bank’s ability to con nue as a going concern; and • comply with the capital requirements set out by the BOT; • to provide an adequate return to shareholders by pricing products and services commensurate with the level of risk; and

• to maintain an op mal capital structure to reduce the cost of capital. As per the Banking and Financial Ins tu ons (Capital Adequacy) Regula ons, 2015, the Bank’s total regulatory capital is divided into two ers:

• Tier 1 Capital (Core Capital): share capital, share premium, capital grants plus retained earnings less prepaid expenses and intangible assets;

• Tier 2 Capital (Supplementary Capital): subordinated debts. The Bank monitors the adequacy of its capital using ra os established by BOT. These ra os measure capital adequacy by comparing the Bank’s eligible capital with its balance sheet assets, off - balance sheet commitments and market and other risk posi ons at a weighted amount to refl ect their rela ve risk.

107107 ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

The risk-weighted assets are measured by means of a hierarchy of four risk weights classifi ed according to the nature of assets and refl ec ng an es mate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off - balance sheet exposure, with some adjustments to refl ect the more con ngent nature of the poten al losses.

The composi on and the ra os of the Bank’s regulatory capital and the details of the risk weighted assets for the year ended 31 December 2018 and 2017 are summarized hereunder.

6. CAPITAL MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Capital adequacy

2018 2017 Tier 1 Capital TZS ‘000 TZS ‘000

Share capital 28,071,743 28,071,743

Disclosed reserves Retained earnings (excluding profi t for the year) 30,656,073 22,570,198 Qualifying year to date profi t 12,720,927 9,272,797 Defi ned benefi t reserve (2,838,021) (3,456,847) Fixed asset revalua on reserve 5,220,318 - Other reserves - acquired in business combina on 5,041,745 -

78,872,785 56,457,891 Less deducƟ ons from capital Prepaid expenses (2,995,433) (2,632,681) Intangible assets (3,035,349) (1,311,843) Deferred tax asset (6,242,025) (5,772,391) Lease hold (5,001,673) (4,540,949)

Total deduc ons from capital (17,274,480) (14,257,864) Core capital 61,598,305 42,200,027

108108 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

6. CAPITAL MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Capital adequacy (conƟ nued)

2018 2017 TZS ‘000 TZS ‘000 Tier 2 Capital Regulatory reserve-general provisions (note 28(c)) 3,912,553 3,100,564 Total regulatory capital 65,510,858 45,300,591

Risk-weighted assets

On-balance sheet 431,973,716 348,901,295 Off -balance sheet exposure (Note 32 (c)) 3,060,054 1,832,400 Opera onal risk 5,689,099 -

Total risk-weighted assets 440,722,869 350,733,695

Capital adequacy ra os

Tier 1 (BOT minimum – 12.5%) 13.98% 12.00% Tier 1 + Tier 2 (BOT minimum – 14.5%) 14.86% 12.92%

As at 31 December 2018, the Bank’s core capital and total regulatory capital were both above the required minimum of 12.5% and 14.5% respec vely, under sec ons 16 and 17 of the Banking and Financial Ins tu ons Act, 2006.

7. INTEREST INCOME

2018 2017 TZS ‘000 TZS ‘000 Interest on loans and advances 89,746,913 76,092,417 Interest on government securi es 5,602,504 6,704,005 Interest on placement with other banks 595,547 283,225 95,944,964 83,079,647

109109 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

8. INTEREST EXPENSE

Interest on savings accounts 7,762,223 7,453,290 Interest on me deposits 10,108,003 13,620,812 17,870,226 21,074,102

9. FEES AND COMMISSION INCOME

2018 2017 TZS ‘000 TZS ‘000 2,487,162 Net Western Union transfer fees and se lement gain 2,732,607 17,267,134 Other fees and commissions 15,928,778

19,754,296 18,661,385

10. FEES AND COMMISSION EXPENSE

Agency service fees to Tanzania Posts Corpora on (TPC) 300,000 400,000 Umoja switch fees 110,897 368,194 410,897 768,194

11. FOREIGN EXCHANGE INCOME

Net gain on foreign exchange transac ons 11,810 1,705 Net revalua on gain 891,774 1,042,337

903,584 1,044,042

12. OTHER INCOME

Tender income 7,001 9,802 Revenue Grant recognised in the profi t/loss 247,280 - Gain on disposal of property and equipment 149,090 878 Other income 1,309,503 3,986,460 1,712,874 3,997,140

110110 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

13. ADMINISTRATIVE EXPENSES

2018 2017 TZS ‘000 TZS ‘000 Staff costs (note 14) 34,693,507 26,335,378 Telephone and electronic mail expenses 2,099,932 1,527,731 Security expenses 2,646,169 1,907,682 Prin ng, sta onery and hire of note coun ng machines 955,859 775,736 Auditors’ remunera ons 600,000 395,000 Board of directors expenses 456,109 338,619 Deprecia on and amor za on of assets ( Note 23) 4,110,829 3,087,029 Amor za on of intangible assets (Note 22) 629,132 309,618 Repairs and maintenance 1,429,395 470,831 Offi ce rent expense 6,160,829 4,174,989 Adver sement and promo on expenses 1,138,630 1,925,357 Travelling on duty 1,617,297 1,365,044 Insurance expenses 1,304,073 1,136,770 Consultancy fees 2,000,242 839,428 License fees 994,346 864,360 Non-claimable taxes 772,369 3,902,402 Electricity and cleaning expenses 1,353,166 1,082,081 Other opera ng expenses 6,228,986 4,867,613

69,190,870 55,305,668

14. STAFF COSTS

Salaries and wages 18,348,910 14,671,612 Bonus 2,400,000 1,500,000 Leave travel and transport allowance 1,663,758 1,276,340 Pension funds contribu ons 2,376,832 1,878,413 Responsibility allowances 1,446,163 1,052,398 Medical expenses 963,396 1,417,323 Post-employment benefi t (note 35) 1,950,805 709,262 Training 794,710 975,469 Skills and development levy 990,860 795,197 Other staff costs 3,758,073 2,059,364 34,693,507 26,335,378

111 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

15. TAXATION (a) Income tax expense

2018 2017 TZS ‘000 TZS ‘000 Current taxa on at applicable rate of 30% (2017: 30%) 5,820,790 8,122,608

Deferred tax credit - (Note 27) (734,476) (2,413,394) Prior year deferred tax under provision (Note 27) (370) (213) 5,085,944 5,709,001 (b) ReconciliaƟ on of income tax expense

Profi t before tax 17,188,045 18,438,645

Tax at the applicable rate of 30% (2017: 30%) 5,156,414 5,531,594 Eff ect of expenses not allowable for tax purposes 195,111 177,620 Deferred tax on actuarial gain from defi ned benefi t obliga on (265,211) - Prior year deferred tax under provision (370) (213) 5,085,944 5,709,001 (c) Tax movement

Balance at beginning of the year 202,471 75,079 Current tax charge for the year (5,820,790) (8,122,608) Tax paid during the year 6,084,000 8,250,000

Balance as at 31 December 465,681 202,471

16. CASH AND BALANCES WITH BANK OF TANZANIA

Cash on hand 17,860,064 15,624,059 Balance with Bank of Tanzania 13,195,948 2,204,961 TPB Mobile Money balance 5,858,001 6,460,004 36,914,013 24,289,024

112 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2018 2017 TZS ‘000 TZS ‘000

17. PLACEMENTS AND BALANCES WITH OTHER BANKS

Placements with other local banks 8,626,427 12,521,174 Balances with other local banks 5,111,619 6,925,261 Balances with foreign banks 2,082,972 613,355

15,821,018 20,059,790

Placements and balances with other banks of TZS 11,429,051,000 (2017: TZS 20,059,790,000) had maturity of less than 3 months. The weighted average interest rate on placements was 6.26% (2017: 8%).

18. TREASURY BILLS

2018 2017 TZS ‘000 TZS ‘000 Treasury bills - Held to maturity Maturing within 3 months 19,615,442 21,840,000 Maturing between 3 months to 1 year 24,004,624 24,201,182

43,620,066 46,041,182

These are classifi ed as held to maturity and are stated at amor zed cost. Treasury bills of TZS 19,615,442,000 (2017: TZS 21,840,000,000) with maturi es of less than 3 months from repor ng date form part of cash and cash equivalents for the purpose of the statement of cash fl ows. Treasury bills amoun ng to TZS 10,738,880,000 were pledged as security to Bank of Tanzania to secure interbank borrowings (Note 30). The weighted average eff ec ve interest rate on treasury bills during the year was 7.65% (2017: 8.82%).

19. TREASURY BONDS

2018 2017 Treasury bonds - Held to maturity: TZS ‘000 TZS ‘000 Maturing within 1 to 3 months - 1,577,639 Maturing within 4 to 6 months 565,907 689,379 Maturing within 7 to 12 months 1,312,004 - Maturity over 1 year 11,321,291 11,563,182 13,199,202 13,830,200

Treasury bonds amoun ng to TZS 12,951,800,000 (2017: TZS 12,123,619,000) were pledged as security (Note 30). The weighted average eff ec ve interest rate of Treasury Bond at 31 December, 2018 was 14.35% (2017: 14.86%).

113113 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

20. LOANS AND ADVANCES TO CUSTOMERS

2018 2017 TZS ‘000 TZS ‘000 (a) Loans and advances

Loans and advances to customers 419,490,766 332,612,964 Loans and advances to staff 15,185,450 11,855,979

Gross loans and advances 434,676,216 344,468,943

Interest in suspense (4,101,455) (4,001,895) Provision for impairment of loans and advances

(note 20(c)) (17,806,111) (15,401,660)

Net loans and advances 412,768,650 325,065,388

(b) Analysis of loans and advances to customers by maturity Maturing:

Within 1 year 54,994,404 30,229,806 Between 1 year and 3 years 87,869,559 136,213,482 Over 3 years 269,904,687 158,622,100 412,768,650 325,065,388

114114 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

(c) Movement of provision for impairment of loans and advances

At the beginning of the year 15,401,660 7,508,255 IFRS 9 Transi on adjustment (1,290,909) -

At 1 January 14,110,751 7,508,255 Write off during the year (10,485,097) (3,302,200) Provision allowance (Twiga and TWB) 524,777 - Loan impairment loss 13,655,680 11,195,605 Write off without prior year provision 7,389,063 - Movement in provision during the year 6,266,617 11,195,605

At the end of the year 17,806,111 15,401,660

The eff ec ve interest rate on loans and advances to customers during the year was 23.55% (2017:24% ).

2018 2017 TZS’000 TZS’000

21. OTHER ASSETS

Prepayments 2,995,433 2,632,682 Staff receivables 1,715,698 1,372,913 Western Union Interna onal receivable 377,027 602,791 Tanzania Posts Corpora on excess deposits - 201,173 Tanzania Posts Corpora on Western Union Agents 738,798 744,877 Others receivables 1,661,985 1,045,522

7,488,941 6,599,958

115 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

22. INTANGIBLE ASSETS

Equinox Computer POPOTE Channel YEAR 2018 SoŌ ware Project cost Manager Total TZS ‘000 TZS ‘000 TZS’000 TZS ‘000

COST

At 1 January 4,002,794 11,060 40,464 4,054,318 Addi ons 823,126 - - 823,126 Addi ons (Twiga and TWB) 3,763,610 - - 3,763,610 At 31 December 8,589,530 11,060 40,464 8,641,054

AMORTISATION At 1 January 2,690,951 11,060 40,464 2,742,475 Transferred from Twiga and TWB 2,234,098 - - 2,234,098 Charge for year 629,132 - - 629,132 At 31 December 5,554,181 11,060 40,464 5,605,705 NET BOOK VALUE At 31 December 3,035,349 - - 3,035,349

Equinox Computer POPOTE Channel YEAR 2017 SoŌ ware Project cost Manager Total TZS ‘000 TZS ‘000 TZS’000 TZS ‘000

COST At 1 January 2,791,061 11,060 40,464 2,842,585 Addi ons 1,211,733 - - 1,211,733 At 31 December 4,002,794 11,060 40,464 4,054,318

AMORTISATION At 1 January 2,383,343 9,724 39,790 2,432,857 Charge for year 307,608 1,336 674 309,618 At 31 December 2,690,951 11,060 40,464 2,742,475 NET BOOK VALUE At 31 December 1,311,843 - - 1,311,843

116116 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

22. PROPERTY AND EQUIPMENT

Oĸ ce ResidenƟ al Data furniture, communi- furniture Leasehold Land and Motor caƟ on fi ƫ ngs & fi ƫ ngs & Work in YEAR 2018 improvements buildings vehicles Computers equipment equipment equipment Progress Total TZS’000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 COST At 1 January 10,012,386 3,083,525 696,436 5,198,709 1,784,962 8,808,975 140,275 - 29,725,268 Addi ons 1,717,616 161,027 463,830 656,705 161,278 1,598,162 - - 4,758,618 Transfer (Twiga and TWB) 582,493 850,470 1,056,771 1,493,777 12,803 3,230,496 7,226,810 Transfer - revalua on - 5,363,147 ------5,363,147 Disposals - - (265,496) - - (4,761) - - (270,257)

At 31 December 12,312,495 9,458,169 1,951,541 7,349,191 1,959,043 13,632,872 140,275 - 46,803,586

DEPRECIATION

At 1 January 5,471,437 602,962 612,473 3,207,568 1,197,014 3,548,186 63,919 - 14,703,559 Transfer (Twiga & TWB) - 676,288 811,551 1,353,535 12,803 2,790,562 - - 5,644,739 Transfer - revalua on - 51,920 ------51,920 Charge for year 1,839,383 239,112 186,434 702,997 224,268 904,958 13,677 - 4,110,829

Eliminated on Disposals - - (265,496) - - - - - (265,496) At 31 December 7,310,820 1,570,282 1,344,962 5,264,100 1,434,085 7,243,706 77,596 - 24,245,551 NET BOOK VALUE At 31 December 5,001,675 7,887,887 606,579 2,085,091 524,958 6,389,166 62,679 - 22,558,035

117117 TPB Bank PLC ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

23. PROPERTY AND EQUIPMENT (CONTINUED)

ResidenƟ al Data Oĸ ce furniture, communi- furniture Leasehold Land and Motor caƟ on fi ƫ ngs & fi ƫ ngs & Work in YEAR 2017 improvements buildings vehicles Computers equipment equipment equipment Progress Total TZS’000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 TZS ‘000 COST 1,317,927 At 1 January 7,402,787 3,069,976 726,131 4,186,667 1,646,972 7,805,280 139,295 26,295,035 - Addi ons 1,291,672 13,549 26,800 1,113,634 137,990 1,043,563 980 3,628,188 (1,317,927) Transfer in/(out) 1,317,927 ------Disposals - - (56,495) (101,592) - (39,868) - (197,955)

At 31 December 10,012,386 3,083,525 696,436 5,198,709 1,784,962 8,808,975 140,275 - 29,725,268

DEPRECIATION - At 1 January 4,134,125 494,114 599,403 2,761,984 963,812 2,805,022 50,295 11,808,755 - Charge for year 1,337,312 108,848 68,960 549,018 233,202 776,065 13,624 3,087,029

Eliminated on Disposals - - (55,890) (103,434) - (32,901) - - (192,225)

At 31 December 5,471,437 602,962 612,473 3,207,568 1,197,014 3,548,186 63,919 - 14,703,559

NET BOOK VALUE At 31 December 4,540,949 2,480,563 83,963 1,991,141 587,948 5,260,789 76,356 - 15,021,709

118118 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2018 2017 TZS ‘000 TZS ‘000

24. CUSTOMER DEPOSITS

(a) Customer deposits

Domicile savings 192,562,540 167,397,497 Time deposits 143,227,872 111,098,862 Call accounts 30,240,304 19,989,170 “WADU” savings 13,977,676 13,343,211 Dormant accounts 8,290,538 8,399,502 Postal savings 2,173,488 2,659,116 Group savings 127,115 139,795

390,599,533 323,027,153

(b) Analysis of customer deposits by maturity

Maturing:

Within 1 year 377,026,431 322,680,198 Between 1 year and 3 years 13,573,102 346,955

390,599,533 323,027,153

The weighted average interest rate on savings was 3.25% (2017: 1.0%) whereas that on term deposits was 10.27% (2017: 12.99%).

2018 2017

TZS ‘000 TZS ‘000 25. BORROWINGS AND BALANCES DUE TO OTHER BANKS

Maturing within 90 days: Balances due to banking ins tu ons 62,930,870 59,531,345

The weighted average interest rate on balances due to other banking ins tu ons was 9.05% (2017: 10.42%).

119119 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2018 2017 TZS ‘000 TZS ‘000

26. OTHER LIABILITIES

Reten on money 120,635 108,316 Payroll liabili es 192,268 231,070 Taxes payable 585,806 265,439 “Mirathi” suspense - 13,274 Accrued expenses 2,396,255 476,624 Agency fees payable 300,000 400,000 Supplier liabili es 2,326,312 592,536 Indemnity Fund 4,585,969 2,333,989 Un-earned loan administra on fee 3,380,047 2,427,076 Other payables 5,516,660 3,509,328 19,403,952 10,357,652

27. DEFERRED TAX

Deferred taxa on is calculated on all temporary diff erences under the liability method using corpora on tax rate of 30% (2017: 30%).

2018 2017 TZS’000 TZS’000 The movement on the deferred tax account is as follows: At the beginning of the year 5,772,390 1,877,277 Deferred tax credit (Note 15) 734,476 2,413,394 Prior year deferred tax under-provision ( Note 15) 370 213 Deferred tax on actuarial gain from defi ned benefi t (265,211) 387,806 Deferred tax on past cost of defi ned benefi t obliga on - 1,093,701 6,242,025 5,772,391

The deferred tax asset is aƩ ributable to:

Accelerated tax allowances (213,139) (329,614) Temporary diff erence on provisions for loan impairment 5,184,400 4,620,498 Deferred tax on actuarial gain from defi ned benefi t 265,211 387,806

Deferred tax on past cost of defi ned benefi t obliga on - 1,093,701 Deferred tax on fi xed asset revalua on 1,005,553 -

6,242,025 5,772,391

120120 TPB Bank PLC NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2018 2017 TZS’000 TZS’000 28. SHARE CAPITAL a. Authorized share capital

500,000,000 (2017: 500,000,000) ordinary shares of TZS 1,000 each

500,000,000 500,000,000 b. Paid up capital

The issued and paid up share capital is 28,071,743 (2017: 28,071,743) ordinary shares of TZS 1,000 each 28,071,743 28,071,743

Following the repeal of Tanzania Postal Bank Act No. 11 of 1991, the Bank was licensed under the Banking and Financial Ins tu ons Act, 2006 and regulated by the Bank of Tanzania. The Bank was registered under the Companies Act, 2002 as a public limited company on 29 March 2016 with authorized share capital of 500,000,0000 shares at a par value of TZS 1,000 each.

28. SHARE CAPITAL (CONTINUED) During the year bank did not issue bonus shares to shareholders (2017: TZS 4,158,117,000) but Board of directors proposed payment of dividend amoun ng to TZS 1,200,000,000 (2017: 1,200,000,000), which were approved at the Annual General Mee ng held on 7 June 2018.

2018 2017 TZS’000 % TZS’000 % The share capital is held by the following shareholders: Government of the United Republic of Tanzania 23,423,304 83.44 24,190,643 86.17 Tanzania Posts Corpora on 2,135,540 7.61 2,240,065 7.98 Revolu onary Government of Zanzibar 816,215 2.91 857,338 3.05 Posta na Simu Savings & Credit Coopera ve Society Ltd 749,312 2.67 783,697 2.79 Local Authori es Pension Fund (LAPF) 660,401 2.35 -- Workers’ Compensa on Fund (WCF) 286,971 1.02 -- 28,071,743 100.0 28,071,743 100.0 c. Regulatory reserve

2018 2017 TZS’000 TZS’000 Regulatory reserve* 135,093 288,078 General reserve** 3,912,553 3,100,563 4,047,646 3,388,641

*Regulatory reserve is a statutory reserve that represents the surplus of loan provision computed as per the Bank of Tanzania regula ons over the impairment of loans and advances as per Interna onal Financial Repor ng Standards (IFRS).

**General reserve represents a provision of 1% on current loan and advances which is made as per the Banking and Financial Ins tu ons (Management of Risk Assets) Regula ons, 2014.

121 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

2018 2017 TZS ‘000 TZS ‘000 29. CASH GENERATED FROM OPERATIONS

Profi t before taxa on 17,188,045 18,438,645

Adjustment for:

Deprecia on on plant and equipment (note 23) 4,110,829 3,087,029 Amor za on of intangible assets (note 22) 629,132 309,618 Loss on disposal of plant and equipment (149,090) (878) Loan impairment charges (note 20(c)) 2,404,451 7,893,405 Other reserve (Acquired in business combina on) 5,041,745 - Defi ned benefi t cost recognized in profi t or loss 1,950,805 709,262 Grant income (247,280) - 30,928,637 30,437,081 Movement in working capital:

Decrease/(increase) in treasury bills maturing a er 3 months 196,558 (11,861,312)

(Increase)/decrease in investment in treasury bonds maturing a er 3 months (946,641) 5,930,574 Increase in loans and advances to customers (90,107,713) (35,363,943) Increase in other assets (888,983) (906,365) Increase in deposits from customers 67,572,380 25,778,484 Increase in placements maturing over 3 months (4,391,966) - Increase/(decrease) in other liabili es 9,046,300 (10,958) Cash generated from operaƟ ons 11,408,572 14,003,561

30. ASSETS PLEDGED AS SECURITY As at 31 December 2018, there were seven securi es worth TZS 11,157,680,000 (2017:TZS 21,858,694,000) pledged as securi es to the Bank of Tanzania (BOT) to secure bank borrowing. Six pledged securi es worth TZS 10,738,880,000 (2017: TZS 9,735,075,000) were treasury bills and one securi es worth TZS 418,800,000 (2017:TZS 12,123,619,000) was Treasury bond.

There were another twelve securi es, pledged to two banks to secure borrowings; eleven securi es worth TZS 12,533,000,000 were treasury bonds pledged as securi es to Na onal Bank of Commerce (NBC) and one security worth TZS 2,300,000,000 were treasury bills pledged as security to Bank of Africa (BOA). Two securi es worth TZS 9,900,000,000 were treasury bills pledged as security to Self-Micro-fi nance to secure borrowing. At the end of the year 2018, the outstanding interbank borrowings was TZS 62,930,870,000 (2017: TZS 59,531,345,000).

122 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

31. CONTINGENT LIABILITIES

As at 31 December 2018, there were a number of commercial and labor cases the Bank is involved. In the opinion of the Directors the amount which may be awarded against the Bank in the event of the Bank losing the cases is not likely to be material. Consequently, no provision has been made in the fi nancial statements.

2018 2017 TZS ‘000 TZS ‘000

32. COMMITMENTS

a) Capital commitments Authorized and contracted for 5,788,294 2,609,100 Authorized but not contracted for 10,151,819 11,247,942 15,940,113 13,857,042

b) OperaƟ ng lease commitments

Future minimum lease payments in respect of lease of Bank premises:

Payable within 1 year 4,618,392 4,159,078 Payable between 1 year and not later than 5 years 18,473,568 16,636,312 23,091,960 20,795,390

The rent paid in the year was TZS 6,160,829,000 (2017: TZS 4,174,989,000). c) Commitments to extend credit

Commitments to extend credit are agreements to lend to a customer in future subject to certain condi ons. Such commitments are normally made for a fi xed period. The Bank may withdraw from its contractual obliga on to extend credit by giving reasonable no ce to the customer. At 31 December 2018, outstanding commitments to extend credit were TZS 3,060,054,000 (2017: TZS 1,832,399,536).

33. RELATED PARTY TRANSACTIONS

During the year, the Bank entered into several related party transac ons in the normal course of business. The transac ons were between the Bank and its key management staff and the members of the Board. These include loans, key management compensa ons and Directors fees. The summary of the transac ons is as shown hereunder:

123123 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

33. RELATED PARTY TRANSACTIONS (CONTINUED)

a) Directors and key management personnel-Loans:

2018 2017 TZS ‘000 TZS ‘000

Balance at beginning of the year 810,199 3,178,884 Loans issued 839,239 1,460,852 Loans repayment (185,611) (3,829,537)

Balance as at 31 December 1,463,827 810,199

Interest rate on loans to Directors and key management personnel is 5% (2017: 5%) per annum.

2018 2017 TZS ‘000 TZS ‘000

b) Directors and key management - Deposits:

Balance at beginning of the year 539,940 606,217 Deposits during the year 5,867,720 6,065,043 Withdrawals during the year (5,051,772) (6,131,320)

Balance as at 31 December 1,355,888 539,940

Interest rates on deposits from Directors and key management personnel are at applicable bank commercial rates.

c) Related companies:

Tanzania Post CorporaƟ on:

2018 2017 TZS ‘000 TZS ‘000 Balance at beginning of the year - - Deposits during the year - - Withdrawals during the year - -

Balance as at 31 December - -

124124 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

33. RELATED PARTY TRANSACTIONS (CONTINUED)

2018 2017 TZS ‘000 TZS ‘000 Savings and Credit Society:

Balance at beginning of the year 7,434 4,909 Deposits during the year 738,019 1,041,430 Withdrawals during the year (734,136) (1,038,905)

Balance as at 31 December 11,317 7,434

d) Directors’ and key management personnel compensaƟ on

Salaries and other benefi ts 1,441,072 1,158,849 Social security contribu ons 292,567 232,656 Terminal benefi ts - - Directors’ fees 86,880 98,775 Other Board expenses 369,229 239,844 e) Outstanding balances

Tanzania Posts Corpora on Western Union Agents (Note 21) 738,798 774,877 Tanzania Posts Corpora on excess deposits (Note 21) - 201,173

The transac ons entered into with related par es were at arm’s length and in accordance with laid down regula ons.

34. EMPLOYMENT BENEFIT OBLIGATION

On 1 February 2017 the Bank entered in to a collec ve bargaining agreement (CBA) with the Tanzania Union of Industrial and Commercial Workers (TUICO). The CBA includes benefi ts under defi ned benefi ts plan whereby, a re ring employee having six years of service is en tled to a lump sum of twelve months basic salary for grade 1 to 3 TPB salary scale and ten months basis salaries for grade 4 and above. Other benefi ts covered included in are provision of building materials, repatria on benefi t, long service awards to permanent employees and funeral services benefi t.

The Bank provides for defi ned benefi t obliga on cost based on assessments made by independent actuaries. The Bank is recognizing the obliga on for the fi rst me in current year. The present value of the defi ned benefi t obliga on, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method as required by IAS 19.

125125 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

34. RELATED PARTY TRANSACTIONS (CONTINUED)

The signifi cant assump ons used for the purposes of the actuarial valua ons were as follows:

2018 2017

2011 2010 Discount rate 17.7% 15.9% Future salary increases - Management staff 8.0% 8.0% - General staff 10.0% 10.0%

Amount recognised in statement of profi t or loss and other comprehensive income in respect of this defi ned benefi t obliga on:

2018 2017 TZS ‘000 TZS ‘000

Recognised in profi t or loss (note 14) 1,950,805 709,262 - Service cost 58,468 48,886 - Interest cost 813,262 660,376 - Past service cost 1,079,075 -

Recognised in other comprehensive income - Actuarial (gain)/loss recognised in other comprehensive income

Actuarial (gain)/loss in experience 32,497 - Actuarial (gain)/loss in assump ons (916,534) 1,292,685 Net cost for the year 1,066,768 2,001,947

The movement in the Bank defi ned benefi t obliga on is as follows:

2018 2017 TZS ‘000 TZS ‘000

Net obliga on (asset) at start of period 5,295,496 3,645,669 Service cost 1,137,543 48,886 Interest cost 813,262 660,376 Benefi t paid during the year (419,752) (352,120) Actuarial (gain)/loss recognised in other comprehensive income (884,037) 1,292,685 Closing balance 5,942,512 5,295,496

126126 TPB Bank PLC

NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

35. MERGER During the year, the Bank of Tanzania approved the merger of TPB Bank Plc with Twiga Bancorp Limited and Tanzania Women’s Bank Plc on 16 May 2018 and 3 August 2018 respec vely. This is in line with the Banking and Financial Ins tu on Regula on, 2006. The Directors concluded that this transac on was outside the scope of IFRS 3 - Business Combina ons because it involved en es under common control as defi ned by the standard. As such, assets acquired and liabili es assumed were recognized and measured at carrying amounts and the Company recognized a gain from a bargain purchase. Below are the shareholding structure as of date of merger for each bank:

Twiga Bancorp Limited

Sn Shareholders % Ownership 1 Government of the United Republic of Tanzania (“the Government”) 63.95% 2 LAPF Pension Fund 25.13% 3 Workers’ Compensa on Fund 10.92% Total shares 100%

Tanzania Women’s Bank Plc

Sn Shareholders % Ownership 1 Government of the United Republic of Tanzania (“the Government”) 98% 2 Private ins tu ons and individuals 2% Total shares 100%

The Bank performed an assessment to determine the appropriate shareholding structure of TPB Bank Public Limited Company incorpora ng shareholders of both Twiga Bancorp Limited and Tanzania Women Bank. See revised shareholding structure presented under Note 28 (b).

2018 TZS’000 The carrying amount of assets and liabili es purchased are as follows: Twiga Bancorp Limited 8,824,973 Tanzania Women’s Bank Plc (3,783,228)

Net asset transferred 5,041,745 Less: Purchase considera on -

Gain on acquisi on of assets and liabili es 5,041,745

Other reserve represents total net asset value of Twiga Bancorp Limited and Tanzania Women Bank (TWB) following the merger with TPB Bank during the year.

127127 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS ΈCONTINUEDΉ

36. FAIR VALUE

The Directors consider that there is no material diff erence between the fair value and carrying value of the Bank’s fi nancial assets and liabili es where fair value details have not been presented.

37. CURRENCY

Except where indicated otherwise, these fi nancial statements are presented in Tanzania Shillings, rounded to the nearest thousand (TZS’000), which is also the func onal currency.

38. EVENTS SUBSEQUENT TO FINANCIAL YEAR END

At the date of signing the fi nancial statements, the Directors are not aware of any other ma er or circumstance arising since the end of the fi nancial year, not otherwise dealt with in these fi nancial statements, which signifi cantly aff ect the fi nancial posi on of the Bank and results of its opera ons.

39. COMPARATIVES

Where necessary compara ve fi gures have been adjusted to conform to changes in presenta on in the current year.

128128 TPB Bank PLC

BRANCHES

BRANCH PHYSICAL ADDRESS E-mail Mkwepu Mkwepu Street [email protected] Kariakoo Msimbazi /Mhonda Street [email protected] Manzese Morogoro Road [email protected] Zanzibar Malawi/Malindi Street [email protected] Njombe KKKT Building/Songea Road [email protected] Arusha Uhuru Street [email protected] YWCA Azikiwe Street [email protected] Dodoma DSM Road, Uhindini [email protected] Moshi NSSF Plaza [email protected] Mbeya Karume Street [email protected] Mtwara TANU Road [email protected] Songea Sokoine Street [email protected] Tabora Jamhuri Street/Shule Road [email protected] Tanga Kenyata Road [email protected] Kigoma TRA Building [email protected] Shinyanga Nkomo Street [email protected] Bukoba TRA Building/Uganda Kawawa Road [email protected] Ilala Uhuru Street [email protected] Iringa Uhuru Road [email protected] Mwanza Kenyata Road [email protected] Morogoro Luna Building [email protected] Ubungo Ubungo Plaza [email protected] Sumbawanga Sumbawanga Post Offi ce [email protected] Musoma Musoma Post Offi ce [email protected] Manyara Baba Town baba @tpbbank.co.tz Kijitonyama LAPF Millenium Towers [email protected] Lindi TRA Building [email protected] Samora Samora Avenue Next to TRA [email protected] Singida NIC Building [email protected] Tunduma Tunduma Post Offi ce [email protected] Sokoine Arusha Sokoine Road [email protected] Liberty Mwanza Liberty Street [email protected] Metropolitan Opposite Askari Monument [email protected] Mlimani City Mlimani City [email protected] Mkwepu Women’s Mkwepu St. - Sokoine Rd Junc on [email protected] Soko Kuu Dodoma 11th Road Uhuru St. [email protected]

129129 ANNUAL REPORT 2018 MINI BRANCHES

BRANCH PHYSICAL ADDRESS E-mail Bagamoyo Bagamoyo Post Offi ce [email protected] Temeke Temeke Post Offi ce [email protected] Kigamboni Kigamboni Post Offi ce [email protected] Korogwe Korogwe Post Offi ce [email protected] Mpanda Mpanda Post Offi ce [email protected] Karagwe Karagwe Post Offi ce [email protected] Pemba Pemba Post Offi ce [email protected] Pamba Post Offi ce/Pamba Road [email protected] Kilwa Masoko Kilwa Masoko Post Offi ce kilwa [email protected] Nachingwea Nachingwea Post Offi ce [email protected] Usa River Usa River Post Offi ce usa [email protected] Nzega Nzega Post Offi ce [email protected] Mafi nga Mafi nga Post Offi ce mafi [email protected] Makambako Makambako Post Offi ce [email protected] Masasi Masasi Post Offi ce [email protected] Kahama Nyasubi Street (Near Nsagali Petrol Sta on) [email protected] Geita Geita Post Offi ce [email protected] Tegeta Tegeta Wema House (Along Bagamoyo Road) [email protected] Kyela Kyela Post Offi ce [email protected] Sengerema Telecentre Building (Radio Sengerema) [email protected] Ifakara Ifakara Post Offi ce [email protected] Ikwiriri Ikwiriri Post Offi ce [email protected] Mbinga Mbinga Post Offi ce [email protected] Tarime Tarime Post Offi ce [email protected] Kimara Kimara Mwisho (Dawasco Road) [email protected] Bariadi Bariadi Post Offi ce [email protected] Kondoa Kondoa Post Offi ce [email protected] Execu ve Kijitonyama (LAPF) execu ve [email protected] Kwa Mrombo Kwa Mrombo Road [email protected] Mpwapwa Mpwapwa Post Offi ce [email protected] Same Same Post Offi ce [email protected] Newala Newala Post Offi ce [email protected] Chato Central Chato Post Offi ce Building [email protected] Mto wa Mbu Migombani Street, Opp. Arusha - Karatu Road [email protected] Tunduru Kalanje Post Offi ce [email protected] Mbeya Karume Street, NSSF Building [email protected] JNIA DIA - Terminal II [email protected] Bunda Ukerewe Road [email protected] Aggrey Kariakoo Aggrey Street Kariakoo Business area, [email protected]

130130

TPB Bank PLC LAPF Towers, Kijitonyama Bagamoyo Road, P. O. Box 9300 Dar es Salaam, Tanzania E–mail: corporateaff [email protected]