WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b - WorldReginfo Standard Bank Group Bank Standard REPORT 2019 REPORT ANNUAL INTEGRATED INTEGRATED ANNUAL
ANNUAL INTEGRATED REPORT 2019 Standard Bank Group CONTENTS
INTRODUCTION 2 About our integrated report 4 Our reporting suite 6 Who we are Our leaders discuss the dynamics in our markets, LEADERSHIP INSIGHT and how these are influencing our priorities and our progress in becoming a truly human, truly digital 10 Chairman’s statement and fully integrated financial services group. 12 Gr oup chief executive’s review OUR VALUE CREATION STORY The emerging trends and issues that matter most 18 Our operating context to our stakeholders, how these are reflected in 24 O ur material issues our strategy, and how we are organised to deliver 26 Our strategy measurable progress against our strategy in the short to medium term, creating sustainable value 28 O ur execution model over the long term. 32 O ur strategic progress 34 Our value proposition DELIVERING OUR STRATEGY Our progress for the year and prospects for 38 Client focus the year ahead according to our strategic 52 Employee engagement value drivers. 62 Risk and conduct 72 Financial outcome 84 SEE impact HOLDING OURSELVES
ACCOUNTABLE How we drive good governance outcomes, 96 Governance overview and assess and reward our leaders, to ensure we continue to create and protect 106 Remuneration overview sustainable value. ADDITIONAL INFORMATION 122 Pro forma financial information 122 St andard Bank Group Limited credit ratings 122 Restatements 123 Glossary ibc Contact and other details
AIR For information on forward-looking statements, refer to the inside back cover. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 1
OUR APPROACH TO INTEGRATED THINKING
Our operating context Our material issues We operate in a constantly changing environment where Issues that are important to our stakeholders and a complex and inter-related spectrum of existing and impact on our ability to create value in the short, INFORMING emerging threats and opportunities influence our business medium and long term. OUR THINKING activities and shape our future sustainability. AIR page 24. AIR page 18.
Our strategy is unchanged. It is underpinned by our purpose and revolves around the principle of doing valuable things for our clients.
Our purpose is Our vision is to Our values are Our culture Our key focus Africa is our be the leading the behaviours is underpinned areas home, we drive financial services that define us. by the principle enable us to DIRECTING OUR her growth. organisation in, of doing the right prioritise the STRATEGY for and across business, the allocation of our Africa, delivering right way. resources and exceptional client focus our efforts. experiences and superior value.
AIR page 26.
Our execution model ORGANISING Our business model enables us to respond dynamically to our operating environment while executing OUR BUSINESS our strategic priorities.
AIR page 28.
Our value drivers measure our strategic progress and allow us to focus our efforts on achieving the value we aspire to create for all our stakeholders.
MEASURING + + = OUR STRATEGIC PROGRESS
Client Employee Risk and Financial SEE* focus engagement conduct outcome impact
AIR page 32.
* Social, economic and environmental.
The successful execution of our strategy will deliver a robust business capable of creating sustainable value for all our OUR VALUE stakeholders over the long term. PROPOSITION AIR page 34. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 2
ABOUTUR O INTEGRATED REPORT
We report on the progress we have Reporting boundary assets, allows us to facilitate investment made in the period 1 January 2019 flows and commercial relationships The financial and non-financial data in to 31 December 2019 to achieve the between Africa and China. The financial this report pertains to the Standard Bank objectives related to the group’s strategic impact of this relationship is included Group (the group), as the financial focus areas. We evaluate our financial in our reporting as part of our business reporting entity. It therefore includes all and non-financial performance against activities. entities over which the group has control the outcomes associated with our or significant influence. Our banking and strategic value drivers. This report The reporting boundary includes the wealth management activities are includes material information up to the strategic narrative in this report and consolidated and defined as ‘banking date of board approval on 4 March 2020. pertains mainly to our banking activities activities’ in our annual financial across the continent and internationally, statements. This comprises Personal & The scope of information presented but also includes our subsidiary and Business Banking (PBB), Corporate & is largely medium term from 2020 to associates (including Liberty and our Investment Banking (CIB) and Wealth 2024. It assesses the opportunities, other banking interests) where they are business lines financial results. Our risks and impacts influencing our relevant to the group’s business Wealth business financial results are ability to create sustainable value as we model and strategy, performance and largely included in PBB’s financial results move towards realising our medium-term prospects. Where relevant, the reporting for the current and prior years in this vision while delivering on our multi- boundary also assesses the material risks, report. Our banking activities also include generational purpose. opportunities and outcomes that affect central and other group activities, which our ability to create value, arising from The six capitals defined in the include group hedging activities, capital entities and stakeholders but which are International
Combined assurance consolidated annual financial statements, of the opinion that the report addresses on which an unmodified audit opinion material information on the group’s The group applies a combined assurance has been expressed by the group’s ability to create value over the short, model to assess and assure aspects external auditors, KPMG Inc. and medium and long term. of its operations, including the internal PricewaterhouseCoopers Inc., and controls associated with elements from the group’s reporting to society The board applied its collective mind of external reporting. suite, on which assurance on selected to this report on 4 March 2020 and approved the content provided. It Combined assurance incorporates and information has been provided by delegated the final review and approval of optimises all assurance services and risk PricewaterhouseCoopers Inc. the report for publication to the group functions, to enable an effective control chief executive officer. environment and support the integrity Statement of the board of of information used in decision-making Standard Bank Group Following the global impact of COVID-19, and reporting. the board approved selected updates to Limited the prospects disclosed in this report on Interviews with senior leadership, Group executive committee members 3 April 2020, for publication. together with internal sources of are responsible for preparing the information and relevant external integrated report. research reports, have been used to prepare this report. An internal combined The group audit committee reviewed and assurance review of the internal controls recommended this report to the board of Thulani Gcabashe applied to the information gathering directors for approval. Chairman process was performed, together with reviews by management and our The board acknowledges its responsibility compliance and internal audit functions, to ensure the integrity of the integrated to ensure the accuracy of our reporting. report. The board considers the preparation and presentation of this Sim Tshabalala While this report is not audited, it report as being materially in accordance Group chief executive officer contains certain information that has with the principles of the International been extracted from the group’s audited
CREATING SUSTAINABLE VALUE THROUGH DILIGENT EXECUTION OF OUR STRATEGY
Our purpose – the reason we exist Our vision – what we aspire to be
Our value creation We create value by living our purpose and achieving our vision through the execution of our strategy. Our strategic value drivers measure our strategic progress and allow us to focus on the value we aspire to create for all our stakeholders.
+ + =
Client Employee Risk and Financial SEE focus engagement conduct outcome impact
VALUE FOR OUR VALUE FOR OUR VALUE FOR ALL OUR VALUE FOR OUR VALUE FOR CLIENTS: EMPLOYEES: STAKEHOLDERS: SHAREHOLDERS: SOCIETY: Delivering relevant Shaping a workforce Doing the right business, Striving to meet Driving positive and complete digital that is ready to meet the right way. our medium-term SEE impact. solutions to our clients. our clients’ needs, now financial targets. and in the future. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 4
OUR REPORTING SUITE
THIS REPORT INTENDED READERS ANNUAL INTEGRATED REPORT AIR Primarily investors but relevant to all Provides a holistic assessment of our ability to create sustainable value in our stakeholders the short, medium and long term.
Our integrated report is supplemented by:
Our shareholders, debt providers and GOVERNANCE AND REMUNERATION REPORT GOV regulators Discusses the group’s governance and remuneration priorities, as well REM as the group’s remuneration policy and implementation report.
The invitation to the annual general meeting (AGM) and notice of resolutions to be tabled is sent separately to shareholders and is available online.
Our shareholders, debt providers and RISK AND CAPITAL MANAGEMENT REPORT RCM regulators Sets out the group’s approach to risk management, including our risk universe.
Our shareholders, debt providers and ANNUAL FINANCIAL STATEMENTS AFS regulators Sets out the group’s full audited annual financial statements, including the report of the group audit committee.
Our clients, employees and society REPORTING TO SOCIETY PLATFORM RTS more broadly The report to society (RTS) explains how we contribute to the group’s ability to achieve its purpose through our SEE impacts. Our environmental, social and governance (ESG) report provides an overview of the processes and governance structures the group has in place to support our commitment to do the right business, the right way. The reporting to society suite in our online platform also includes our South African transformation report. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 5
INTENDED READERS SUBSIDIARY ANNUAL REPORTS Our subsidiary To account to their stakeholders, our subsidiaries produce their own annual stakeholders reports and audited annual financial statements, which are available on their respective websites.
•• The Standard Bank of South Africa (SBSA) •• Liberty •• Other subsidiary reports, including legal entities in Africa Regions.
AIR GOV RCM AFS RTS REM
Key frameworks applied
The International Integrated Reporting
Companies Act, 71 of 2008, as amended (Companies Act)
Johannesburg Stock Exchange (JSE) Listings Requirements
King IV Report on Corporate Governance for South Africa 2016*
IFRS
South African Banks Act, 94 of 1990 (Banks Act)
Basel Committee on Banking Supervision’s public disclosure framework
CDP (previously Carbon Disclosure Project)
United Nations (UN) Sustainable Development Goals (SDGs)
Assurance
Certain information extracted from audited reports
Unmodified audit opinion expressed by KPMG Inc. and PricewaterhouseCoopers Inc.
Selected information assured by PricewaterhouseCoopers Inc.
* Also known as the King Code and King IV TM. Copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all of its rights are reserved.
All our reports and latest financial results presentations, booklets and SENS How to navigate our reports announcements are available online, The following icons refer readers to information across our together with financial and other suite of reports: definitions, acronyms and abbreviations used. We urge our stakeholders to make Refers readers to information elsewhere in this report. use of our reporting site at https:// reporting.standardbank.com/ Refers readers to information in our other reports, to assist in the reduction of our which are available online. carbon footprint.
At the time of writing this report COVID-19 had begun spreading more rapidly across the world. Its impact on our communities and business activities is still being quantified. We intend to include these impacts in our strategy and short- and long-term budget plans. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 6
WHO WE ARE
We are an African-focused, client-centric, digitally enabled integrated financial services group with compelling competitive advantages.
Africa Regions contributed 31% of banking activities’ headline earnings
EAST AFRICA 1. South Sudan 2. Ethiopia 3 (representative office) 2 3. Uganda 1 2 1 4. Kenya 5. Tanzania
3 On-the-ground 4 presence in 4
20 sub-Saharan WEST AFRICA 5 African 1. Côte d'Ivoire 2. Ghana countries 3. Nigeria 5 5 4. Democratic 3 6 Republic of Congo (DRC) 5. Angola 4 7 1 2
SOUTH & CENTRAL AFRICA 9
1. Namibia 6. Mozambique 8 SOUTH 2. Botswana 7. Mauritius AFRICA 3. Zambia 8. Lesotho 4. Zimbabwe 9. eSwatini 5. Malawi
Presence in international markets: International financial services: • Beijing • London • São Paulo • Isle of Man • Mauritius • Dubai • New York • Jersey
Fit-for-purpose Fit-for-purpose Valued clients Valued people Digital capabilities Recognised brand Strategic infrastructure channel partnership STANDARD 1 114 8 970 13.4 50 691 BANK** with ICBC MODERNISED BRANCHES ATMs million GROUP BANKING STANBIC BANK PERMANENT PLATFORMS ACTIVE EMPLOYEES SUPPORT CLIENTS DIGITAL TRANSACTIONS
2018: 1 205 2018: 9 224* 2018: 13.0 million 2018: 53 178
* Restated to exclude non-Standard Bank-owned automated teller machines (ATMs) in Africa Regions. ** Voted most valuable brand in the BrandZ Most Valuable SA Brands awards in 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 7
OUR BUSINESS LINES PROVIDE INTEGRATED SOLUTIONS THAT Banking revenue (%) DRIVE THE FINANCIAL WELLBEING OF OUR DIVERSE CLIENTS IN AFRICA.
2019 2018 Personal & Business Banking
Banking and other financial services to individual clients, small- to medium-sized enterprises (SMEs) and commercial banking customers in South Africa, Africa Regions and 2019 2018 the Channel Islands. South Africa 65 66 Africa Regions 32 30 Products and services International and other 3 4 •• Transactional products •• Vehicle and asset finance (VAF) •• Mortgage lending •• Lending products •• Card products
Group headline earnings (%) Corporate & Investment Banking
Corporate and investment banking services to clients, including governments, parastatals, larger corporates, financial institutions 2019 2018 and multinational corporates.
Products and services •• Client coverage •• Transactional products and •• Investment banking services (TPS)
2019 2018 •• Global markets South Africa 59 57 Africa Regions 30 29 Wealth International 4 4 Wealth Liberty 7 6 Other 0 4 Wealth service and offerings include insurance, investments and advisory capabilities to high net worth, retail, business and commercial and corporate clients. (%) Group net asset value Products and services •• Advisory services through Wealth and Investment and Standard Bank Financial Consultants (SBFC), including fiduciary services
2019 2018 •• Short-term and long-term insurance •• Discretionary investments (Melville Douglas), stockbroking, international deposits, pension fund administration and funds (including alternative and passive investment funds)
2019 2018 Liberty South Africa 59 59 Africa Regions 24 23 Life insurance and investment management activities. Wealth International 4 3 Liberty 7 7 Products and services Other 6 8 •• South African Retail •• Business development •• Asset management
AIR page 38. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b LEADERSHIP INSIGHT
Chairman’s statement Group chief executive's review WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 10 LEADERSHIP INSIGHT
CHAIRMAN’S STATEMENT Good governance is about ensuring that an organisation creates and preserves value for all its stakeholders, both right now and into the long-term future.
Thulani Gcabashe Group chairman
“We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now… This is no time for apathy or complacency. This is a time for vigorous and positive action.” – Dr Martin Luther King
Good governance is about ensuring that There are many reasons why the South As this report shows, we aim: an organisation creates and preserves African economy performed so poorly in •• To move quickly to ensure that value for all its stakeholders, both right 2019. One of them has been the slow we are competitive and relevant now and into the long-term future. response by policymakers and the in the digital age. relevant authorities to crises that •• To ensure that our people have the We must be mindful of the broad and confronted the economy. To take only the resources and skills they need in the long-term impacts of the group’s most notable example, by January 2019 it digital economy so that change is decisions. This means that we must listen was clear, and well-articulated, that the welcomed rather than feared attentively, respectfully and patiently to operational and financial crises at Eskom or resisted. all our stakeholders. We must ensure that were posing a severe risk to the South •• Above all, to support inclusive growth all our stakeholders’ current and African economy. It was only late in 2019 and sustainable development in South long-term interests are taken fully that we saw the appointment of a new Africa and throughout the continent as into account. chief executive who seemed to have the we serve and support our clients. mandate to tackle these problems at Equally, though, good governance is their core. As I write this in early 2020, Guided by these principles, the board about insisting on the fierce urgency there are hopeful signs that Eskom is considered a wide range of governance of now. being better managed and that matters during the year. Read more policymakers have started to move more about these in the governance overview quickly to reform the electricity industry. starting on page 96. The following examples illustrate our approach in Rising inequality and worsening poverty a little more detail. % for many in South Africa were, tragically, accompanied by incidents of xenophobic 2 The board considered whether the and gender-based violence. We utterly reconfiguration of PBB South Africa and condemn both. As an Africa-wide group, the subsequent branch closures were whose chief executive is a HeForShe appropriately managed. The board was Champion, we do what we can to prevent clear that the changes were necessary c and to resist both gender-based violence both to respond to changes in our clients’ and xenophobia. 994 preferences and to remain competitive. We satisfied ourselves that everything Standard Bank Group will continue to possible had been done to ensure that advocate for quicker and better our employees were ready for the change, DIVIDEND PER policymaking and for faster, more as described in the PBB review starting ORDINARY SHARE effective execution. But we are also on page 41. mindful of our responsibility to be 2018: 970 cents the change we seek. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 11
It would certainly have been possible to The board is pleased that the group The board approved the appointment of undertake this reconfiguration more became a founding signatory of the Gesina Maria Beatrix (Trix) Kennealy as slowly and to have been less open about United Nations Principles for Responsible the chairman‑designate of group remco. the process. The board concluded, Banking in September 2019. We welcome Upon the retirement of Peter Sullivan in however, that the group’s responsibilities the fact that ESG metrics are becoming May 2020, Trix Kennealy will take over as and values demanded of us that we move increasingly important to investors. We chairman of group remco as well as the quickly and transparently. will continue to ensure that the group board’s lead independent director. We incorporates ESG metrics into our thank each of these board members for Second, we considered how to respond decision-making and reporting in a their contributions to the board. to two resolutions proposed for rigorous, principled and transparent way. consideration by minority shareholders I remain satisfied that the board is at the AGM. We concluded that it was The group will begin to report on appropriately balanced and contains the right that these resolutions, on finance climate-related risks in line with the skills required to ensure that the group is for coal-fired power generation and on recommendations of the Task Force well-governed, and that the interests of exposure to climate change risk, should on Climate-related Financial Disclosures our shareholders, other stakeholders, and be considered at the AGM. We put these (TFCD). However, we will not report the societies in which we do business are resolutions to our shareholders, in a spirit prematurely or in a perfunctory way. well-served. Considered succession of respectful and honest engagement In accordance with our values, it is planning, to maintain the right and in recognition of the importance of important to us that we report on, composition of skills and to meet our hearing multiple perspectives on such and manage, climate change risk with target for gender representation, remains issues. In accordance with our integrity and scientific rigour. a priority. shareholders’ decisions, we subsequently developed and published policies Tomorrow has indeed become today – governing new investment in coal-fired finance is now a thoroughly digital power station finance and new business. During 2019, the board put a lot % investment in thermal coal mining of time and work into ensuring that we finance, both available online. have a sound understanding of how the economy in general – and the financial 37 Thirdly, the group board, as well as sector in particular – are changing as we the boards of the subsidiary companies, enter the digital age. WOMEN ON THE BOARD undertook to improve their ‘digital savviness’ so as to better guide the digital While the board will continue to ensure Ahead of target of 33% by 2021 transformation of the business. The that the group remains securely within undertakings include completing the risk parameters we determine, we a study module facilitated by MIT recognise that it is important to create (Massachusetts Institute of Technology), more room for digital experimentation – Appreciation and as well as executing digital projects where within these parameters – to retain and looking ahead directors have been paired with younger sharpen our competitiveness. I express my deep gratitude to each members of staff. We are equally determined that the group of my fellow directors, and to all continues to make a socially just Standard Bankers. Governance and risk transition into being a truly digital management: key financial services organisation. After all, As we finalised our reporting in the point of digitisation is to make life March 2020, it had become clear that developments in 2019 better and more fulfilling for our clients, many governments were about to adopt The board was seriously concerned by people and other stakeholders. It is very sweeping public health measures against the instability in our IT systems during important to us that unfair discrimination the COVID-19 epidemic. While unarguably 2019. We are satisfied that the underlying does not creep into the group’s artificial necessary to protect human lives, these causes were correctly diagnosed. intelligence (AI) systems. measures will severely disrupt the global, IT system stability recovered in the African and South African economies in second half of the year. We will continue The need to avoid unconscious bias is 2020. Standard Bank Group is a resilient to hold the executive closely to account one of the many reasons why it is and resourceful organisation, and the in this vital area. essential that the board is as board has every confidence that the representative as possible of South group will continue to provide essential A second area of concern for the board African and African society, and also that financial services throughout the has been whether the group’s capital it contains a diversity of perspectives. pandemic and that it will remain sound, allocation is optimal, both with respect The board is delighted to welcome three profitable and sustainable throughout to our minority holding in ICBCS and our new members, Maureen Erasmus, this difficult period. very dynamic Africa Regions portfolio. Nonkululeko Nyembezi, and We are satisfied that the group continues Priscillah Mabelane. We remain equally confident that the to move in the right direction. Africa centred strategy of Standard Bank Dr Hao Hu stepped down from the board Group is correct. We will continue to hold A third concern has been the and as deputy chairman in March 2020. management to account for the urgent effectiveness of the group’s marketing In terms of our agreement, ICBC is and efficient execution of our strategy and communications. Standard Bank entitled to nominate a replacement and and for the fulfilment of our purpose: Group has an admirable tradition of will do so in due course. Peter Sullivan will Africa is our home, we drive her growth. modesty and restraint. We intend to retire from the board at the close of the continue this – but not to the extent of 2020 AGM. His role on the board includes failing to market effectively or to being the chairman of the group communicate achievements of which remuneration committee (remco) and we can be justifiably proud. being lead independent director. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 12 LEADERSHIP INSIGHT
GROUP CHIEF EXECUTIVE’S REVIEW
Despite the difficult macroeconomic and operating environment, the group’s core businesses continued to deliver sustainable growth and returns.
Sim Tshabalala Group chief executive
This year’s financial results contain several reasons for optimism and confidence in our strategy. These include the growth in our Africa Regions businesses, which contributed 31% to our banking activities’ headline earnings, good cost discipline and steadily improving efficiency.
In 2019, the group’s banking activities As always, the group’s capital, liquidity We have a precise framework against grew headline earnings 5% to R27.2 billion and operational risks were cautiously and which we measure our progress in fulfilling and delivered a return on equity (ROE) effectively managed in 2019, as described our purpose and realising our vision: of 18.1%. Strict cost containment in our risk and conduct section starting throughout the year resulted in below on page 62. CLIENT FOCUS inflation cost growth and an improvement (value for our clients): in the group’s cost-to-income ratio to This report creates a valuable delivering relevant and 56.4% from 57.0%. Group headline opportunity to consider questions about complete digital solutions earnings was R28.2 billion, 1% up on the the group’s performance in a broader to our clients. prior year and ROE was 16.8%. The context and to take a longer-term view. group’s share of headline earnings from We are unshakably committed to our Liberty was up 16% on the prior year. EMPLOYEE ENGAGEMENT purpose: Africa is our home, we drive The loss associated with the group’s 40% (value for our employees): her growth. But it is always useful to ask shareholding in ICBCS was a significant shaping a workforce that whether we are doing enough to make drag on the group’s results. is ready to meet our clients’ valuable and sustainable contributions needs, now and in the future. Overall, while I consider the performance to the societies in which we do business, of the group’s core businesses to be and whether we are responding effectively good, I view the group’s overall financial to the most pressing issues facing them. RISK AND CONDUCT outcome as somewhat disappointing. (value for all our stakeholders): More detail on the group’s short-term It is equally important to ask every year doing the right business, financial performance is available whether our decisions and actions have the right way. in our financial outcome section starting contributed effectively to the realisation on page 72. of our vision: to be the leading financial services organisation in, for and across FINANCIAL OUTCOME % Africa, delivering exceptional client (value for shareholders): 1 experiences and superior value. striving to meet our medium- term financial targets. There is always some tension between immediate financial and tactical imperatives on the one hand and SEE IMPACT R bn long-term strategy execution and (value for society): investment on the other. This tension driving positive SEE impact. 28.2 was particularly acute in 2019. While we are not satisfied with the group’s financial GROUP HEADLINE EARNINGS results for 2019, we believe that we made good progress in implementing our strategy, and particularly in digitising 2018: R27.9 billion the group. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 13
Fulfilling our purpose We also need a just transition through education and education. Our contributions to supporting better For the first time in history, the human the other major change the world is education are discussed in impact on the climate is such that there facing, which is often called the our SEE impact, on page 84. is a real risk that large parts of the world ‘Fourth Industrial Revolution’. It is helpful could become uninhabitable, that the to recall that, unlike the unprecedented lives of our children and grandchildren changes to our climate, we have seen could be significantly worse than our this kind of technological change at least own, and that Africa’s progress towards three times before – in the 1820s and % prosperity could be stalled or reversed. 30s (steam-powered factories), the 1880s and 90s (grid electricity, highly 16.8 As the Swahili proverb reminds us, standardised production lines, telephone networks) and the 1970s and 80s ‘Itunze arthi vyema; hukupewa na wazazi; GROUP ROE bali umekopeshwa na wazao wako.’ – (microprocessors, software usable ‘You must treat the earth well. It was not by non-experts). This time around, the given to you by your parents. It is loaned revolution is driven by a combination 2018: 18.0% to you by your children.’ of near-universal broadband internet, huge increases in the accessibility and affordability of processing power, We already have the necessary legal and Standard Bank’s approach to technological infrastructure in place to and further impressive leaps in the slow down and ultimately reverse sophistication of software to enable, climate change human-caused climate change. The legal for example, real-time natural We know the current trajectory of climate infrastructure has been created by the language translation. change is very dangerous, perhaps even UN Framework Convention on Climate catastrophic. We know that we have an Change, and the subsequent Kyoto As we learn from the earlier industrial important part to play in changing that Protocol and Paris Agreement, which revolutions, looked at on a national or trajectory. And we believe that through a require that richer countries reduce their global scale and over a decade or two, combination of well-designed regulation, absolute output of greenhouse gasses technological progress increases technological progress, and responsible and that developing countries reduce the incomes, creates jobs and raises the conduct by firms like ours the world can carbon-intensity of their growth paths. overall standard of living. For example, overcome the climate crisis. according to the World Bank, the arrival Technological solutions are equally of faster internet in many parts of Africa As you can see in our ESG report, available. We need to use them. For over the past decade has increased the available online, we reduce our own instance, solar electricity generation probability of employment by between carbon footprint as much as possible is now cheaper per kilowatt-hour than 3% and 13%, compared to areas not each year. We have funded far more coal-powered generation. There are connected to undersea internet cables. renewable energy generation than similar opportunities in many other areas. coal-fired power. We will apply very Relatively small changes in the design Technological progress also makes some stringent conditions to any future funding of buildings, cars, fridges and air jobs and some skills obsolete. Larger, of non-renewable energy. We are conditioners can make surprisingly large well‑capitalised firms are more likely to committed to fully understanding, differences. And so can carbon capture. be able to absorb the costs of change accurately reporting on, and reducing Certainly, new technologies will be than smaller ones. And, yes, this means the proportion of our balance sheet required, but we already know how to that, should all other things remain that supports unsustainable plant trees and – even more urgently unchanged, income and wealth are likely economic activity. – we already know how to stop cutting to shift from the less-skilled to the them down. more-skilled, and from workers to owners As a member and past chair for four of capital. years of the Equator Principles, a In making this transition, it will be founding signatory to the United Nations essential to be fair. As international law Just as in previous technological Principles for Responsible Banking, recognises, it is not fair to expect transformations, governments and and as active participants in global developing countries to stop using the corporations have a duty to ensure that debates on the role of the financial technologies that richer countries used, people are able to acquire the new sector in mitigating climate change, we without any restrictions, to work their knowledge and skills they will need. Just will continue to advocate for regulatory way out of poverty. Equally, it is unfair as in the past, societies need to adapt change that reduces carbon-intensive to try to force transitions towards their tax and welfare systems in response activities and that would encourage more environmental sustainability without to new sets of market outcomes. Ideas lending in support of sustainable providing real alternatives to the people like universal basic income or wider development. affected. As the South African distribution of share equity now have government and South African organised serious advocates and I agree that it During the year, we also established a labour say, the transition away from coal would be short-sighted not to start specialised sustainable finance team, must be a just transition. thinking about and debating these ideas. which concluded Africa’s first ESG-linked Having said that, my firm view is that it funding deal with the Curro Group They are absolutely right. Furthermore, would be far better for Africa’s and East Africa’s first green bond unless the transition is just, it will governments to focus on education, for Acorn Group. be resisted. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 14 LEADERSHIP INSIGHT GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
Standard Bank’s approach to Challenges •• SimplyBlu, our online ‘business in digitisation In South Africa, the slow rate of progress a box’ for SMEs in South Africa, an all-in-one payment solution that While we are certainly not blind to on policy reform, on the restructuring enables small businesses to start downsides of progress, we are not of state-owned enterprises (SOEs) and manage an online business. luddites about technological change. We and on restoring Eskom to financial will continue to do everything we can to and operational stability weighed on •• My360 app, which offers our retail ensure that our employees have the skills sentiment. Business and consumer clients a complete, integrated they need as our industry digitises. We confidence remained low. and real-time view of their local work very hard to ensure that changes and international assets on their are made with empathy, as well as While our direct exposure to South mobile devices. efficiency, that the minimum number of Africa’s SOEs is not material to the group, •• African Markets Tracker, which offers jobs are lost, and that people who leave as the chairman points out in his letter, our CIB clients real-time market the group are well-equipped to find new further deterioration in the financial or information, insights and alerts to their jobs or start their own businesses. operational performance of Eskom would mobile device. create severe risks for the economy as •• LookSee, which enables buyers, sellers, As with all major changes, there a whole and, by extension, for the group. homeowners or industry participants were some missteps and unintended in South Africa to research properties, consequences arising from our branch Cybercrime remains a major challenge. providing estimates of a property’s reconfiguration in South Africa, which During 2019, the group’s systems were value and of the monthly costs we have since done everything we subject to many cyber‑attacks every day. of owning it, including insurance can to rectify. Constant vigilance is required. and taxes.
Standard Bank Group has no choice but We had a number of system outages that Our clients continue to migrate to our to become a digital company. An took too long to repair. We recognise that digital channels. In Africa Regions, 92% overwhelming majority of our clients prolonged system outages severely of our transactions by volume took place prefer to do almost all of their inconvenienced our clients, undermined online. In South Africa, the figure was transactions online. Our competition is their trust in us and damaged our 99%. In 2019, we made excellent increasingly digital and often does reputation. I am pleased to report that we progress in digitising the group. not bear the costs of a large and made encouraging progress in restoring Importantly, our progress in digitisation is long-established incumbent. If we fail system stability and reducing recovery no longer just about speed or efficiency. to digitise urgently, efficiently and time in the second half of the year. But Digitisation is now clearly supporting successfully, our clients will leave us, we are not declaring victory. Our systems our focus on client centricity and offering and our shareholders will shift their are complex and are likely to experience an integrated set of financial products investments to more competitive downtime again in the future. However, and services. In South Africa, 80% of the alternatives. Both clients and ensuring that we recover much more transactions and enquiries that used to shareholders would be quite right quickly – and that the impact is require a branch visit can now be done to do so. contained when the system does go online and we have reduced the time it down – is one of my highest priorities for takes to complete certain transactions Having said this, we remain mindful that 2020 and beyond. We recognise that online. In addition, in partnership with digitisation is not an end in itself. It is a client expectations on system stability Amazon Web Services and Microsoft, tool we use to serve our clients and our are set by the extremely stable services we have begun to move some of our communities better, to make more provided by the BigTech firms, and processing to the cloud, a transition efficient and profitable use of the capital our aspiration must be to match that we will accelerate over the entrusted to us by our investors, and this experience. coming years. to fulfil our purpose. Strategic progress ICBCS reported a considerable loss in Executing our strategy As you will note reading through 2019; the group’s 40% share of which this year’s report, the new, equated to R1.4 billion. The loss included in 2019 digitally enabled offerings launched operational losses, as well as costs In 2019, we faced a number of challenges, this year are numerous and span our associated with a single client event. including but not limited to a very weak businesses and geographies. Here are ICBC and the group, as shareholders, economy in South Africa, ongoing a some examples: have had robust conversations and made meaningful progress with ICBCS regulatory change, an increasing number •• MyMo, our competitively priced, fully management with regards to how best to of sophisticated cyber‑attack attempts, digital transactional account that put the business on a path to sustainable and intensifying competition. enables digital account opening on profitability. These discussions resulted in mobile devices within a few minutes Despite these challenges, the group a number of management actions in with no physical documentation made good strategic progress. Driven ICBCS, including significant headcount required, data and airtime offerings and by changing client expectations, we reductions and a reduction by ICBCS of immediate virtual card functionality. launched a variety of new products, business lines and locations in 2019. •• OneFarm, currently being piloted in continued to digitise our services and Closer integration into and cooperation Uganda, uses a smartphone app to processes, and took major steps to with the ICBC group is an important integrate financing for inputs, right-size our infrastructure. element of the plan to achieve weather-related advice, and sustainable profit. purchasing of crops. The farmers who participated in the pilot have already doubled their plantings. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 15
It is very important to emphasise that programme, as can be seen from page 84 difficulties in ICBCS do not detract from and in more detail in our RTS online. Our immediate priorities are to: the much broader strategic partnership •• Do everything in our power between ICBC and the group, which Here, however, I would like to highlight to keep our clients and continues to be of great mutual benefit. just one example. Among all our many people safe and healthy. For instance, since 2016, we have jointly joint initiatives with ICBC in 2019, I am •• Continue serving our clients with supported investment banking deals particularly proud of our Africa China excellence, efficiency worth over USD3.6 billion. Our staff Export Proposition, which we launched at and empathy. exchange programme continues to the China International Import Expo in •• Contribute to the resilience and expand, our joint work to replace Shanghai in November 2019. This service recovery of the economies and cumbersome paper trails with blockchain connects African exporters with Chinese societies we serve. is making good progress, and our joint importers and it offers our exporter marketing across Africa continues clients support at every stage of the •• Defend the soundness, to accelerate. export process, from establishing market sustainability and profitability access to navigating regulatory of the group. As described in the PBB review on requirements, preparing the product page 41, in South Africa well over 4 000 for export, and transporting the product Over the short- to medium-term, people were retrained from narrower and, to China. We invited 91 clients from our priorities are to: often, less fulfilling roles so they are able all over Africa to join us in Shanghai, •• Accelerate digitisation to meet to meet a wider range of our clients’ and many returned home with full clients’ needs. needs with greater efficiency – and order books. •• Improve resource allocation to greater understanding and empathy. At support growth in Africa Regions. management level, we have focused on Looking forward •• Continue to improve our reducing bureaucratic rituals and on efficiency by generating While writing this in March 2020, the reinforcing personal accountability and meaningful positive jaws. a sense of urgency. During the course scale and severity of the coronavirus •• Make progress in returning of the year, I had the great pleasure pandemic were becoming apparent. our ROE to the 18% to 20% of visiting most of our Africa Regions Standard Bank Group wholeheartedly target range. businesses with a simple message: the supports the public health measures against the spread of COVID-19 adopted group as a whole is no longer in the Over the medium-term, our by governments throughout Africa and business of command-and-control, but strategic priorities are to: exists to enable these dynamic and the world. As our contribution to slowing innovative companies to serve their the spread of the virus and to keep our •• Ensure that our clients remain clients and to win market share. Precisely people safe, we have improved our at the centre of everything we do. the same is true for our South African hygiene practices, split many of our •• Use digital technology and business, under the very able leadership teams into separate locations, required human skill to offer an integrated of Lungisa Fuzile. everyone who can, to work from home, and comprehensive set of and increased physical distance between products and services. Unsurprisingly in a year containing colleagues who have to work together. •• Reshape our infrastructure and challenges and change for our people, resources to remain relevant and our employee net promoter score (eNPS) Pandemics create huge economic costs. competitive in the digital age. dropped to +18 from +23 in 2018. Already in early March, we are seeing •• Create SEE value for the Although our score remains strong, we sharply reduced business and consumer communities and countries have not taken this decline lightly, and confidence, reduced revenues for many where we do business. we will continue to work hard to ensure types of business, and pressure on the that our people are valued, supported prices of many assets. We expect all To become and empowered, as described in our these trends to worsen considerably Truly human – providing services, employee engagement section, before they start to improve. As Africa’s solutions and opportunities that from page 52. largest financial services group by assets, our clients and employees need we are very much aware that we work at to achieve growth, prosperity 2019 was also an excellent year as the centre of the economy and that it is and fulfilment. measured by our SEE impact value driver. our duty to do everything we can to help It is a great honour to represent the our clients to keep their businesses and Truly digital – serving clients group as a thematic champion of the UN their lives on track. We have therefore predominantly online, processing Women HeForShe Movement for Gender taken all the necessary steps to ensure in the cloud, embracing open Equality, and I am delighted to be able that our most essential services will be innovation underpinned by data to report that HeForShe has inspired us able to function even in a worst-case and insights. to set a target of at least 20% female scenario. chief executives within the group by 2021. Standard Bank Group has sometimes It is high time we set – and beat – such As always, I am very grateful to the been criticised in the past for being too a target, and I am pleased to say that board, my colleagues, our clients, our cautious in how we manage our capital our executive in general is already shareholders and other stakeholders and liquidity. But we have always insisted considerably more gender-equal, for your support. We are entering a very that our cautiousness was appropriate. at 32.3% women. difficult time. We will endure, and we We therefore confidently expect that the will emerge wiser, more resilient and Every year, the group makes large group will remain well capitalised and more capable. contributions to sustainable human highly liquid and that, as always, we will development in the ordinary course of continue to hold capital and liquidity our business, and on a smaller scale, in excess of the regulatory requirements through our corporate social investment throughout the crisis. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b OUR VALUE CREATION STORY
Our operating context 18 Our material issues 24 Our strategy 26 Our execution model 28 Our strategic progress 32 Our value proposition 34 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 18 OUR VALUE CREATION STORY
OUR OPERATING CONTEXT
We operate in a constantly changing environment where a complex and inter-related spectrum of existing and emerging threats and opportunities influence our business activities and shape our future sustainability.
Our approach We identify our emerging threats and opportunities based on an ongoing assessment of global trends that are likely to have a material bearing on the group’s operating environments and business models. Early identification enables us to leverage related opportunities and proactively mitigate negative impacts.
EMERGING THREATS AND OPPORTUNITIES Issues on the horizon that represent external influences, which could impact the group in a multitude of ways but may not have materialised as yet.
In considering the group’s operating environment and changes in the financial services industry, the following emerging threats and opportunities face the world, the continent, our clients and our operations. Technological advancement in particular is shaping how we operate.
1 Economic pressures
2 Political and geopolitical shifts
3 Social threats
4 Technological advancement
5 Environmental threats
6 Competitive landscape
7 Regulatory oversight WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 19
EMERGING THREATS AND OPPORTUNITIES
1 Economic pressures Opportunities Client impact: adverse impact on revenue, constrained ability The African Continental Free to access finance, unemployment and higher levels of debt Trade Agreement – effective 30 May 2019 – has created Related risks for the group: financial crime risk, conduct risk, a free trade area covering 52 of Africa’s 54 countries, with a credit risk, market risk, liquidity and funding risk total gross domestic product (GDP) of USD2 trillion. The Global removal of non-trade barriers currently inhibiting the •• The global growth path for 2019 was largely shaped by the adverse effects of trade cross-border movement of tensions between the United States (US) and China. Germany, the primary growth goods will be a critical driver driver of the European Union (EU), experienced recession in the manufacturing sector. of long-term growth. •• China is Africa’s single largest trading partner for exports of oil, gas and minerals. Initiatives in China to stabilise the financial sector, particularly shadow banking, and Economic growth prospects for the impact of the trade tensions, together resulted in a slowdown in Chinese the continent will be supported economic growth, injecting volatility into commodity prices and significantly by one billion people with rising impacting African markets. For some African countries, as much as 79% of their total purchasing power. African foreign exchange earnings are from commodity exports. consumers are projected to spend USD2 trillion by 2025. •• The Organisation for Economic Cooperation and Development (OECD) expects global trade to slow and the International Monetary Fund (IMF) expects an increase in Africa has vast sources of global growth of only 3.3% in 2020. However, as relations between the US and China power and access to renewable thaw meaningfully, aiding China, and central banks in developed world markets energy – hydro, thermal and implement monetary policy easing, this will support global growth to some degree. solar. 30% of the globe’s Better liquidity flows into emerging markets will buoy their financial markets, reserves of mineral resources potentially strengthening currencies and dousing inflation, allowing central banks are found on the continent. to also ease monetary policy. Together these forces could create an environment of accelerated growth for emerging markets and sub-Saharan Africa. As economic reform in South Africa gains momentum, Africa sentiment, investment •• The World Bank expects a slower recovery in sub-Saharan African economic and economic growth growth, lowering their 2019 GDP forecast to 2.4% from 3.3%, largely due to faltering should improve. growth in Nigeria, Angola and South Africa, which together contribute about 60% of the region’s annual economic output. The dominant economic risks for the region include rising public debt, economic fragility, insufficient job creation, lack of infrastructure, low labour productivity and widespread poverty. •• The full impact of the COVID-19 outbreak on global growth remains unknown, however a further slowdown in China’s growth and a disruption of Africa- China trade is likely to negatively impact the trade balances of sub-Saharan African commodity exporters and be inflationary for importers. •• The doubling of oil prices from very low prices in 2015/16 has meant that Angola and Nigeria have emerged from recession. •• Africa’s low-resource eastern economies are not subject to volatility in commodity prices, and are likely to remain resilient with economic growth Strong for Kenya, Tanzania and Uganda projected at around 6% by the IMF. Mozambique will add gas to their GDP from 2022/23. In time, the discovery growth of oil in the Great Lakes region will put Kenya, Tanzania and Uganda on course to become hydro-carbon extracting and exporting economies. prospects •• South Africa’s structural reform programme, aimed at reviving the country’s struggling economy, is seeing incremental gains at a slow pace. Record unemployment, particularly among the youth (53% of people under the age of 35 are unemployed), poses serious risks to economic recovery and social cohesion. The financial health of SOEs, especially Eskom, is likely to put additional pressure on public finances and ongoing power outages are curbing economic growth and placing the sustainability of smaller businesses at risk. The government’s reform programme requires the rebuilding of state institutions, pragmatic public finance management, policymaking that supports investment and aims to make doing business easier and less costly.
References: •• Standard Bank internal research and analysis. •• OECD – Economic outlook, Interim report March 2020. •• IMF – World Economic Outlook, update January 2020. •• World Bank – Global Economic Prospects: Slow growth, policy challenges. •• Statistics South Africa – Quarterly labour force survey, Q1 2019. •• World Economic Forum (WEF) on Africa 2019 – various articles. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 20 OUR VALUE CREATION STORY OUR OPERATING CONTEXT CONTINUED
2 Political and geopolitical shifts Opportunities Client impact: adverse impact on revenue, disruption, constrained The group interacts with ability to access finance and unemployment governments directly and through various associations, Related risks for the group: regulatory impact risk advocating for enabling policy environments that promote national and regional •• Political dissatisfaction and associated civil unrest in many countries, as well as rising objectives, and beneficial populism and nationalism leading to protectionist policies and heightened socioeconomic outcomes. geopolitical tension, are affecting trade, technology, migration and availability of skills. •• 20 African nations held elections in 2019, with some countries experiencing discontent over the results. Election-based civil unrest may indicate dwindling trust in free and fair elections, increasing the risk of conflict and instability. •• Political discontent raises the risk of reactionary policymaking and inconsistent implementation, leading to deteriorating sovereign credit ratings and foreign direct investment required to stimulate economic growth. In addition, persistent uncertainty undermines business confidence. Purpose- •• Africa continues to face the challenges of poor governance, weak institutions and corruption. driven •• There is increased social pressure on corporations to speak out on political issues. organisation
3 Social threats Opportunities Client impact: unemployment created by digitisation, a need It is estimated that meeting to update skill sets and adapt business practices the UN’s SDGs could generate USD12 trillion in market Related risks for the group: technology risk, regulatory impact opportunities in the areas of food and agriculture, energy risk, conduct risk, credit risk, people risk and materials, cities, health and wellbeing, and could create •• There is a need for higher public and private investment in people capabilities, up to 380 million jobs globally by 2030. as well as labour-intensive economic sectors to improve productivity, promote lifelong learning and generate wider benefits for society. Fair remuneration, gender equality Innovations in several industries, and transparency in remuneration, fair working hours and health and safety protection including healthcare and food will be required. production, as well as the •• Violations of human rights and sexual and gender-based violence fuel conflict advancement of smart cities, and instability. will open up new markets with •• ESG considerations are increasingly being integrated into investment processes and Africa representing an untapped there is growing pressure from stakeholders for lenders and investors to restrict market for these solutions. the financing of unsustainable business practices and to hold corporates, particularly financial services organisations, accountable for the impacts of their business Protecting the health and rights of women and young people activities. strengthens the rule of law and •• There is demand for better transparency in ESG indicators. Additionally, regulators drives equity, equality and are looking to prescribe how key ESG issues are managed by business. inclusive growth. •• Millennials, now the largest generation in the workforce, along with Generation Z, will form the largest voting bloc in 2020. These generations want to do business Developing strong relationships with and work for institutions that operate transparently and with socially conscious with our clients, as well as a business practices. holistic understanding of their •• ‘Triple Balance Sheet’ institutions – those that focus on people, planet, and profits – businesses and our broader are on the rise. impact, will allow the group to embed the SEE framework throughout our business as a viable and significant commercial opportunity.
Established franchise with a large, growing client base WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 21
4 Technological advancement Opportunities Client impact: individuals, enterprises and corporates expect Improvement to embedded financial services, intuitive experiences, real-time communication networks, individualised interactions and seamless service regardless the advent of 5G and the digitisation of many industries of location will give rise to substantially more opportunities for Related risks for the group: cyber risk, technology risk, individuals and businesses. information risk, business disruption risk, third-party risk In addition, communication is becoming cheaper and providing greater access to •• Technology continues to redefine modern living. Consumers have access to a rural areas and unbanked multitude of digital tools to simplify decision-making, shop online, pay bills communities. and invoices, and transfer money. Technology is also being used to provide better estimates of business performance. International trade is still driven by paperwork. Investment in •• Smartphone penetration is now at more than 51% of global consumers and is digitisation is expected to expected to reach at least 66% in sub-Saharan Africa by 2025. reduce costs by up to •• Improving client experience is becoming more challenging as businesses are USD6 billion within five years and increasingly expected to respond to clients with the same level of speed and boost trade revenues by 10%. consistency, irrespective of channel (email, SMS, Facebook Messenger etc). •• Blockchain has emerged as a payment mechanism and AI and cloud are The future of urbanisation is transforming many aspects of banking. Algorithms have, however, been shown smart cities, which combine to perpetuate bias with demographic and gender targeting, and AI researchers infrastructure and technology are now pursuing technical fixes for machine learning bias. to improve quality of life. These cities enhance citizen •• It is estimated that more than one billion people do not have official identity interaction with the documents, a barrier to financial inclusion for low-income economies. This is environment and more further compounded by the increasing use of digital identities to deliver secure and accurately allocate resources seamless transactions. However, as the cashless future develops, it reduces the using connected devices and payment of smaller, more personal amounts (like charitable donations and cash tips), the internet of things. which further constrain financial inclusion. •• The rise of cleverly designed misinformation (fake news) distributed via social Using both non-traditional and media has the potential to damage reputations, negatively impact financial decisions traditional data points, new and have unknown consequences on politics. ways of creating reliable credit scores for previously unbanked individuals and businesses are being developed, enabling them to access finance. Similarly, the automation of identity verification will revolutionise the client experience, reduce friction and provide more people and informal businesses Appetite to invest, with better access to deliver and partner financial services.
References: •• Standard Bank internal research and analysis. •• WEF – www.weforum.org/agenda/2019/06/3-ways-countries-can-boost-social-inclusion-and-economic-growth. •• GSMA Intelligence – The Mobile Economy 2019. •• Euromoney.com – Banks digital deficit, by Kanika Saigal (February 2019). •• MIT Technology Review – This is how AI bias really happens – and why its so hard to fix, by Karen Hao (February 2019). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 22 OUR VALUE CREATION STORY OUR OPERATING CONTEXT CONTINUED
5 Environmental threats Opportunities Client impact: traditional business practices and consumer The emergence of new clean behaviour will need to adapt to manage changing weather patterns technologies and renewable and pollution, as well as to pressure from environmental activists energy programmes. The growth rate for renewable energy exceeds those for oil, gas and Related risks for the group: technology risk, regulatory impact coal, and by 2050 is expected to risk, conduct risk, climate change risk, credit risk be seven times higher than the average for other fuels.
•• Unpredictable weather patterns, dry conditions and drought impact agriculture Renewable energy is crucial to production, resulting in food scarcity, diminished spending on non-food items and meeting global carbon reduction inflation. In addition, more than half of sub-Saharan African power, excluding South goals and is fast becoming the Africa, is hydro-electric based, therefore lower rainfall affects power supply, impacting cheapest form of power all industries. generation in many markets as •• All fields of human activity, from agriculture to energy supply, are changing as demand for renewables grows. awareness of the need to transform the way business is conducted to protect Other elements include the the environment grows. Corporates are responding by better-managing services and re-engineering of infrastructure financial support to and from businesses that pollute the environment, have large to create a smart grid, the electrification of entire industries, carbon footprints and follow questionable practices. This could potentially lead to and the introduction of significant changes in loan portfolio mix and revenue outlook for financial services e-mobility across the transport organisations. sector. Digitisation, the •• New research from MIT indicates that the environmental cost of AI is more emergence of smart devices, and substantial than anticipated, particularly as the use of AI models grows exponentially. the smart grid are opening up •• Ongoing degradation of natural capital impacts the availability of resources, as possibilities for consumers to well as livelihoods and human development. A reduction in the quality of soil, gain direct access to the market biodiversity and water impacts food security, the value of land and resettlement and manage their consumption of people, and a degraded environment has further impact on health, nutrition or feed any surplus electricity and susceptibility to disease. generated into the grid. •• Volumes of oceanic plastic waste are expected to more than double by 2030 60% of the world’s uncultivated and requires a global revolution in recycling and waste management. The EU will land is in Africa, with between implement a wide-ranging ban on single use plastics from 2021. In Africa, bans 480 million and 840 million on plastic bags have already been implemented in some countries. Activist investors hectares of unused agricultural may soon transition their focus to environmental pollutants in addition to the recent land that could be used to activism on coal-fired power funding. increase production up to three times the current output if this is done using ‘climate-smart’ solutions for the sector.
Diversified revenue streams
References: •• Standard Bank internal research and analysis. •• McKinsey & Co – Fueling the energy transition: opportunities for financial institutions, and Winning in Africa’s agricultural market. •• MIT Technology Review – Training a single AI model can emit as much carbon as five cars in their lifetime, by Karen Hao. •• The Banker – Pioneering an open future. •• African Development Bank – Economics Intelligence Unit. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 23
6 Competitive landscape Opportunities Client impact: clients will move to competitors with lower-cost, Partnerships with FinTechs more convenient offerings, and ecosystem players that are improve the speed and becoming intrinsic to their lives execution of delivery, providing enhanced client experience. We will continue to build a Related risks for the group: cyber risk, technology risk, digital portfolio with future information risk, third-party risk, non-traditional risk models ready low-cost models.
The integration of supply •• AI, automation, blockchain, cloud and the chains and client journeys internet of things are changing traditional to build ecosystems will help banking operating models, giving rise to to protect our client base. The three types of digital competition, namely use of AI, automation and cloud FinTechs, digital only banks and BigTechs to leverage vast pools of data (technology giants with large asset pools, will drive competitive differentiation. distribution capabilities and the ability to apply Unrivalled big data analytics). These entrants have By redesigning the work cheaper startup costs and place pressure environment, companies can on traditional pricing models. To ensure their African- accelerate learning and build relevance, traditional banks must invest in problem-solving skills using replacing legacy systems and in new focused intuition, creativity, judgement, technology to update their offerings and persuasion and empathy in a service channels, driving up costs. machine-dominated world. •• Non-traditional financial services providers are capability focused on the unbanked market, promoting Updated branch environments financial inclusion. Offerings include digitising that appeal to the younger cash, providing basic savings, accepting generation and small deposits, offering payments and remittance businesses and by offering services, and issuing ATM cards. these clients tailored advisory services.
7 Regulatory oversight Opportunities Client impact: onerous, costly and time-consuming processes to Leverage our knowledge of the ensure regulatory compliance different laws, regulations and legislation in the countries Related risks for the group: information risk, regulatory impact in which we operate to assist risk, conduct risk clients to manage their regulatory and compliance risk profiles. •• The regulatory environment continues to evolve as regulators seek to address new and emerging threats in financial services, protect consumers’ assets and ensure Use AI, predictive analytics, consumers are treated fairly. Changes in the already complex regulatory landscape, machine learning and process affect multiple parts of a business and implementing effective controls adds cost and automation to ensure is human resource intensive. compliance and provide clients •• Global financial institutions must diligently monitor and implement change in three with a simplified and regulatory clusters: financial stability, prudent operations and resolution. Across personalised experience. Africa, regulators have implemented more stringent capital requirements. Apply specialist capability •• Growing concerns regarding information protection and privacy are giving rise to to monitor and assess the open banking initiatives – being promoted in the EU – which put consumers in charge implications of regulatory of their own data and could create new data sharing models. developments and engage •• In Africa, most financial regulators are providing a view on data residency, including with relevant external the movement of personal stakeholders to understand information in and out of their and constructively influence respective borders. This type regulation. of legislation will impact on digital and data strategies. Robust capital and liquidity and strong ethical culture WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 24 OUR VALUE CREATION STORY
OUR MATERIAL ISSUES
Our material issues are those that have an impact on our ability to create value in the short, medium and long term.
An issue is considered to be material if it has the potential to Our material issues therefore encompass the emerging threats substantially impact on our commercial viability, our social and opportunities facing the business. While our material issues relevance and the quality of our relationships with our continue to evolve in response to changes in our operating stakeholders. Our material issues are informed by the environment and stakeholder expectations, the broad themes expectations of our stakeholders and the economic, social tend to be relatively stable. and environmental context in which we operate.
HOW WE DETERMINE OUR MATERIAL ISSUES
Wew vie the materiality determination process as a business tool that facilitates integrated thinking.
Identify Prioritise Approve We identify issues based We review our material We discuss the refinements on ongoing engagement issues annually. A list of and adjustments at the group with internal and external issues is shared with executive and the social and stakeholders, as reported executives across the group to ethics management quarterly to the group identify priorities based on committees, before being social and ethics their likelihood and potential discussed and confirmed by committee. These insights impact on the group. the group social and ethics are supplemented committee. The issues by internal research and are then shared with the group risk reports, media board for discussion and coverage, and national approval. and regional developments in our countries of operation.
In 2019, we made minor changes to the group’s material issues.
ENGAGING OUR STAKEHOLDERS
Wee ar committed to building constructive partnerships with all our stakeholders.
Given the scale and complexity of the group, we have adopted a decentralised stakeholder engagement model. This means that different teams within the group meet regularly with their stakeholders on matters of mutual interest. We engage with our stakeholders on a range of diverse issues. We strive to respond to stakeholder concerns appropriately and in a timely manner. Proactive engagement provides us with insights that help to inform our material issues, shape our business strategy and operations and minimise reputational risk.
RTS Read more online in our ESG report. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 25
Stakeholder priorities and concerns 2019 material issues
CLIENTS Focusing on our clients •• Always-on, secure, stable and convenient transactional platforms. •• Deliver a compelling value proposition for •• Value for money. our clients in an increasingly competitive •• Personalised financial solutions. environment. •• Service concerns around branch closures. •• Protect and maintain the integrity of INVESTORS client data. •• Competitiveness in a crowded market. •• Ensure fair outcomes for clients. •• Speed and efficiency of the digitisation journey. REGULATORS •• Fair treatment of clients. •• Affordability of and access to services. •• Managing over-indebtedness. •• Equitable access to credit. •• Protection against unfair discrimination.
EMPLOYEES Engaging our employees •• Redundancy of skills and possible future retrenchments. •• Diversity and inclusion: focus on gender equity •• Branch closures in South Africa. in the group and employment equity in •• Gender equity in top and senior management. South Africa. •• Transformation of top and senior management in South Africa. •• Impact of digitisation and automation on INVESTORS workforce requirements. •• Diversity of the board and workforce, as well as diversity and •• Build and retain local skills and capabilities in anti-discrimination policies. countries of operation. •• Access to appropriate skills and talent. REGULATORS •• Gender equity. •• Employment equity in South Africa. •• Plans for reskilling the workforce and preserving jobs.
CLIENTS Managing our risk and conduct •• Disruption caused by system outages. •• Cybersecurity. INVESTORS •• Stability, security and speed of our IT systems. •• Governance, ethics, market conduct and internal controls. •• Reputational and operational risk associated REGULATORS with third-parties, counterparties and suppliers. •• Deepening of regulatory scrutiny and requirements in several •• Impact of fraud on clients and the group. African countries. •• Risk management across geographies with •• Protecting clients from fraud and cybercrime and processes varied and evolving policy and regulatory for compensation. frameworks. •• Potential interest rate or fee cap structures. •• Building trust with regulators through constructive engagement.
INVESTORS AND SHAREHOLDERS Achieving our financial outcomes •• Revenue pressure from competition. •• Sustainable revenue growth. •• Low-fee competition from new entrants. •• Maintain resilience of our balance sheet. •• Poor South African macroeconomic outlook (loan growth •• Improve efficiencies and manage the cost base. and cost of risk). •• Returns on IT investment. •• ICBCS performance. •• Profitability, earnings and ROE.
CLIENTS AND REGULATORS Driving positive SEE impact •• Solutions for SMEs, entrepreneurs and the informal sector. •• Contribute to job creation, enterprise •• Impacts and potential impacts of severe weather events. development, education and skills development •• Sustainable finance products. in countries of operation. INVESTORS •• Financial inclusion across Africa with •• ESG performance. appropriate digital offerings. •• Transparency on climate-related risk exposure and ESG impacts. •• Mitigate negative environmental impacts •• Task force on climate-related financial disclosures. associated with direct and indirect •• Sustainable finance products business activities. COMMUNITIES •• Social and environmental impacts of fossil fuel projects. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 26 OUR VALUE CREATION STORY
OUR STRATEGY
Our strategy is underpinned by our purpose and revolves around delivering simple, relevant and holistic solutions to our clients through their channel of choice in a seamless manner. Our strategy provides us with the path to get there.
The group is large and complex and requires focus to deliver on our strategic objectives. We have defined three key strategic focus areas and articulated our expectations and aspirations for each, over the short, medium and long term. The focus areas, related priorities and timeframes have been cascaded to the business lines and corporate functions for execution.
OUR PURPOSE OUR VISION THE REASON WE EXIST WHAT WE ASPIRE TO BE Africa is our home, we drive her growth. To be the leading financial services organisation in, for and across Africa, delivering exceptional client experiences and superior value.
OUR VALUES-DRIVEN CULTURE
•• Being proactive Our culture Our values •• Growing our people Our purpose, vision, values and approach to ethics Our values are •• Constantly raising the bar inform our culture. Our culture comprises specific the behaviours •• Working in teams characteristics required to achieve our strategy and is underpinned by the principle of doing the right and qualities •• Delivering to our stakeholders business, the right way. that define us •• Respecting each other at our best. •• Serving our clients •• Upholding the highest levels of integrity
OUR KEY FOCUS AREAS WHAT WE NEED TO DO TO DELIVER OUR STRATEGY These direct our efforts and enable us to prioritise the allocation of our resources.
OUR EXECUTION TIMEFRAMES WHEN WE NEED TO DO WHAT These outline our expectations so that our business lines can plan and deliver against our short-term priorities and medium- and long-term aspirations.
OUR STRATEGIC VALUE DRIVERS HOW WE TRACK OUR STRATEGIC PROGRESS These enable us to measure our progress against our stated medium-term targets. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 27
CLIENT DIGITISATION INTEGRATION CENTRICITY
Deliver exceptional Leverage our digital Deliver Standard client experiences platforms Bank Group
CLIENT CENTRICITY PLACES DIGITISING OUR PRODUCTS OUR INTEGRATED OUR CLIENTS AT THE AND PROCESSES IMPROVES OFFERING DELIVERS CENTRE OF EVERYTHING HOW WE MEET OUR CLIENTS’ COMPLETE SOLUTIONS WE DO. AND EMPLOYEES’ NEEDS. TO OUR CLIENTS. FOCUS AREAS FOCUS We do valuable things for our Digitisation is about delivering We are organising the group clients as their needs and secure, personalised, relevant to work as an integrated expectations change. experiences and a full range whole to seamlessly and of solutions, in real-time, all efficiently service our clients’ the time. financial needs.
Horizon 1 The short term, •• Deliver consistent, excellent client experience. managing the •• Accelerate digitisation to meet clients’ needs. present •• Improve resource allocation to support growth in Africa Regions. 2020 •• Continue to improve our efficiency by generating meaningful positive jaws. •• Make progress in returning our ROE to the 18% to 20% target range.
Horizon 2 The medium •• Ensure that our clients remain at the centre of everything we do. term, •• Use digital technology and human skill to offer an integrated and comprehensive set of products and services. becoming •• Reshape our infrastructure and resources to remain relevant and competitive in the digital age. future ready •• Create SEE value for the communities and countries where we do business. 2021 – 2024
Horizon 3 The long term, Become a truly human, truly digital financial services group EXECUTION TIMEFRAMES EXECUTION creating the future Truly human – providing services, Truly digital – serving clients 2024 onward solutions and opportunities that our predominantly online, processing clients and employees need to achieve in the cloud, embracing open growth, prosperity and fulfilment. innovation underpinned by data and insights. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 28 OUR VALUE CREATION STORY
OUR EXECUTION MODEL
Our business model enables us to respond dynamically to our operating environment while executing our strategic priorities. OUR INPUTS AND HOW WE ORGANISE OURSELVES We manage our resources and relationships responsibly in what we do and how we do it. This allows us to deliver the best outcomes for our clients, our people, our shareholders and other stakeholders.
OUR INPUTS HOW WE ORGANISE We manage our resources and relationships responsibly in what we do and how we do it, to deliver the best outcomes for OURSELVES our stakeholders.
SC/MC Clients Implementing our strategy •• Over 13 million clients Our strategy is unchanged. Our business lines •• 1 114 branches and corporate functions are responsible for executing •• 8 970 ATMs the strategy and, in turn, delivering the outcomes in the desired timeframes.
AIR page 26. HC Employees
•• Over 50 000 group employees •• High-performance ethical culture Managing our risks and opportunities •• Positive employee engagement survey score We align our risk appetite to changes in our operating •• Strong executive and leadership teams environment, instil a risk-aware culture throughout the •• Engaged and proficient employees group and proactively enhance our risk management capabilities.
AIR page 62. IC Stakeholders
•• Reputable and ethical brand •• Strong relationships with regulators and governments •• Modern banking platform supporting innovative Embedding good governance client solutions Our governance approach promotes strategic decision- •• Strong strategic partnerships include ICBC, making that combines short-term and long-term outcomes Microsoft and Amazon to reconcile the interests of the group and society in our pursuit of sustainable value. Our governance framework supports ethical and effective leadership, corporate FC Providers of financial capital citizenship and a sustainable organisation.
AIR page 96. •• EQUITY •• POLICYHOLDERS’ R209bn LIABILITIES •• DEPOSITS R324bn R1.4tn Measuring our performance We track the progress we make in executing our strategy according to the outcomes and metrics associated with our value drivers. SC/NC Society AIR page 32. •• Working with clients to manage environmental risk •• Dedicated sustainable finance unit to drive sustainable finance investment + + = •• Founding signatory of the United Nations Principles for Responsible Banking
SC Social and relationship capital HC Human capital IC Intellectual capital FC Financial capital NC Natural capital MC Manufactured capital WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 29
Business activities Our business lines and corporate functions work together to deliver our banking and insurance solutions.
As an integrated financial services group with a broad offering of products and services, we are organised to do valuable things for our clients in an integrated way.
OUR VALUES
P rin Shared Services c ip s le ic s th GRES E s B n Governance u
U 30 . o IT s i 1 n t iv in c PBB e n r e s page u Finance s f a s l l
c AIR
e i t Human Capital a n a CIB p e a r ERVIC s S E b o T T E il p N i r Marketing A t E i and Comms I M e o L S s C C Compliance OUR Wealth and EDO 2 CLIENTS Risk are at the centre Liberty
of everything OUTCOMES AND OUTPUTS OUR Internal Audit we do
Legal
S l o a u n t o h ti Af a ric rn a nte I Africa Regions
Le s gal trie entities and coun
Behaviours
1 Group Real Estate Services. 2 Enterprise Data Office.
EXTERNAL ENVIRONMENT The drivers of our strategy – the market forces impacting financial services in Africa, AIR page 18 to 25. and the expectations of our stakeholders. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b
30 OUR VALUE CREATION STORY OUR EXECUTION MODEL CONTINUED
OUR OUTPUTS AND OUTCOMES We deliver complete solutions that help our clients to transact, earn, grow, insure, save and leave lasting legacies for future generations. We act in a socially responsible manner to drive the financial wellbeing of individuals, businesses and economies, creating sustainable value for the group, our stakeholders and for Africa.
WHAT WE DO FINANCIAL IMPACT AND VALUE SHARED Business activities and outputs ASSOCIATED RISK BETWEEN ALL STAKEHOLDERS AIR page 72. What this means for the group
Lend money to our clients Net interest income Interest earned on loans granted to clients less loans Individual clients can access financing to buy houses and cars and Interest income and credit not repaid. fund their children’s education. Business clients can borrow to grow impairments and invest in their businesses, supporting employment and inclusive economic growth.
Source funding from client Interest expense Costs incurred on funds raised from depositors and Depositors earn a return on the funds they place with the group. deposits and other funders other funders, used by the group to lend to clients who need finance.
Provide transactional Net fee and commission Fee and commission revenue earned for services provided. Transactional banking facilitates the movement of money, providing banking facilities and revenue clients with convenient access to their funds. Our knowledge-based knowledge-based services services allow our clients to benefit from our experience and track to clients CLIENTS record on the continent, and enables us to connect them to global INFLOWS R126bn pools of capital. BANKING ACTIVITIES BANKING Market access and risk Trading revenue 2018: R121bn Fees earned from clients who use our platforms to access Market access enables businesses to grow, providing a conduit for mitigation products to and trade foreign exchange, commodity, credit, interest rate investment into Africa, helping economies monetise resources and businesses and equity instruments. diversify. Risk mitigation products enable financial protection and diversification through risk transfer.
Revenue from other sources Other revenue Revenue earned from other sources, including income from Strategic investments support inclusive economic activity and enable linked to core businesses property, private equity and investments in FinTechs. wealth creation, while also contributing to investments that drive and strategic investments Africa’s socioeconomic development.
Long- and short-term Income from investment Brokerage fees and underwriting profits generated Insurance, investment and advisory services enable clients to build, insurance, investment management and life from the wealth offerings provided to clients and earns diversify and protect their wealth and offer protection from loss of products and advisory insurance activities commission on Liberty and STANLIB risk and investment income due to illness, retirement and death. products held by clients.
INSURANCE services – EMPLOYEES Invest in our people Staff costs Cost of the people we rely on to consistently deliver Employees derive value from remuneration and other benefits exceptional client experiences and the cost of reskilling and received, including training that equips them with relevant skills. OUR OUTPUTS AND OUTCOMES AND OUTPUTS OUR R35bn upskilling our people to deal with a changing world of work. 2018: R34bn SUPPLIERS AND THIRD-PARTIES Invest in our operations Other operating expenses Cost of our day-to-day operations, both internal and We hire locally wherever possible and, through our activities, sustain R47bn outsourced. other jobs in local economies. 2018: R43bn GOVERNMENTS Direct and indirect Direct and indirect taxes
OUTFLOWS Cost of operating in the various jurisdictions in which taxes to governments Governments earn revenues which support local development. and regulators R13bn we do business. 2018: R12bn BANKING AND BANKING INSURANCE SHAREHOLDERS Returnso t shareholders Dividends Shareholders earn a return for their investment in the group, Charge for the capital made available to the group to in the form of dividends, consistent dividend policy and R16bn enable it to operate. capital appreciation. 2018: R15bn = Reinvested to sustain and Retained equity grow our business Capital reinvested to support the future growth of the business, which R15bn Capital retained to leverage growth going forward. benefits all stakeholders. 2018: R17bn REINVEST
Associated risks: Credit risk Interest rate risk Insurance risk Business and reputational risk Funding and liquidity risk Market risk Operational risk, including compliance, environmental and/or social risk WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 31
WHAT WE DO FINANCIAL IMPACT AND VALUE SHARED OUTCOMES Business activities and outputs ASSOCIATED RISK BETWEEN ALL STAKEHOLDERS AIR page 72. What this means for the group What this means for our stakeholders
Lend money to our clients Net interest income Interest earned on loans granted to clients less loans Individual clients can access financing to buy houses and cars and Interest income and credit not repaid. fund their children’s education. Business clients can borrow to grow impairments and invest in their businesses, supporting employment and inclusive economic growth.
Source funding from client Interest expense Costs incurred on funds raised from depositors and Depositors earn a return on the funds they place with the group. deposits and other funders other funders, used by the group to lend to clients who need finance.
Provide transactional Net fee and commission Fee and commission revenue earned for services provided. Transactional banking facilitates the movement of money, providing banking facilities and revenue clients with convenient access to their funds. Our knowledge-based knowledge-based services services allow our clients to benefit from our experience and track to clients CLIENTS record on the continent, and enables us to connect them to global R126bn pools of capital. Market access and risk Trading revenue 2018: R121bn Fees earned from clients who use our platforms to access Market access enables businesses to grow, providing a conduit for mitigation products to and trade foreign exchange, commodity, credit, interest rate investment into Africa, helping economies monetise resources and businesses and equity instruments. diversify. Risk mitigation products enable financial protection and diversification through risk transfer.
Revenue from other sources Other revenue Revenue earned from other sources, including income from Strategic investments support inclusive economic activity and enable linked to core businesses property, private equity and investments in FinTechs. wealth creation, while also contributing to investments that drive and strategic investments Africa’s socioeconomic development.
Long- and short-term Income from investment Brokerage fees and underwriting profits generated Insurance, investment and advisory services enable clients to build, insurance, investment management and life from the wealth offerings provided to clients and earns diversify and protect their wealth and offer protection from loss of products and advisory insurance activities commission on Liberty and STANLIB risk and investment income due to illness, retirement and death. services products held by clients.
EMPLOYEES Invest in our people Staff costs Cost of the people we rely on to consistently deliver Employees derive value from remuneration and other benefits exceptional client experiences and the cost of reskilling and received, including training that equips them with relevant skills. R35bn upskilling our people to deal with a changing world of work. 2018: R34bn SUPPLIERS AND THIRD-PARTIES Invest in our operations Other operating expenses Cost of our day-to-day operations, both internal and We hire locally wherever possible and, through our activities, sustain R47bn outsourced. other jobs in local economies. 2018: R43bn GOVERNMENTS Direct and indirect Direct and indirect taxes Cost of operating in the various jurisdictions in which taxes to governments Governments earn revenues which support local development. and regulators R13bn we do business. 2018: R12bn SHAREHOLDERS Returns to shareholders Dividends Shareholders earn a return for their investment in the group, Charge for the capital made available to the group to in the form of dividends, consistent dividend policy and R16bn enable it to operate. capital appreciation. 2018: R15bn
Reinvested to sustain and Retained equity grow our business Capital reinvested to support the future growth of the business, which R15bn Capital retained to leverage growth going forward. benefits all stakeholders. 2018: R17bn WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 32 OUR VALUE CREATION STORY
OUR STRATEGIC PROGRESS
We continue to improve the coverage, accuracy, depth and consistency of the metrics used to measure the outcomes associated with our strategic value drivers. These metrics enable us to measure our strategic progress against our defined targets.
CLIENT EMPLOYEE RISK AND FOCUS + ENGAGEMENT + CONDUCT
Actual Medium- Actual Actual Medium- term Bench- term 2018 2019 target Progress 2018 2019 marks Progress 2018 2019 target Progress
Net promoter score Employee net promoter score Risk (%) PBB South 70 67 Continually Standard +23 +18 +171 Common 13.5 14.0 11.0% – Africa improve Bank Group equity tier 1 12.5% channel ratio (CET 1) Employee turnover (%) PBB Africa 25 25 Continually Overall 8.3 10.8 14.42 Total capital 16.0 16.7 Regions improve employee adequacy ratio Wealth 68 70 Over 60 turnover Return on 3.0 2.8 Client satisfaction index Voluntary 2.3 2.3 – regrettable risk- CIB 8.0 8.1 Continually employee weighted improve turnover assets (RoRWA) Gender equity (%) PBB SA and Wealth net promoter score Liquidity 116.8 138.4 Minimum Women in 32.2 32.3 >40% by 80 coverage >100% executive 2023 ratio (LCR) 60 positions Net stable 118.6 119.5 Minimum 1 Pure Survey for South African financial services: 2019. 40 funding ratio >100% 2 Gartner CEB Global benchmarks: 2018. (NSFR) 20 Employee net promoter score Conduct 0 2016 2017 2018 2019 25 We have formal measurements in place that are 53 66 70 67 used for management information and decision- 61 70 68 70 20 making purposes. PBB South Africa channel Wealth 15 Africa Regions net promoter score Common equity tier 1 ratio 10 % 30 16 25 5 20 15 0 15 2016 2017 2018 2019 14 10 N/A 14 23 18 13 5 12 0 2016 2017 2018 2019 2016 2017 2018 2019 Employee turnover % 13.9 13.5 13.5 14.0 15 16 25 25 12 Africa regions 10 Return on risk-weighted assets CIB client satisfaction index 8 % 6 10 4 4.0 8 2 3.5 6 0 2016 2017 2018 2019 3.0 4 9.1 8.8 8.3 10.8 2.5 2 2.1 2.3 2.3 2.3 2.0 2016 2017 2018 2019 2016 2017 2018 2019 Overall employee turnover Voluntary regrettable employee turnover 2.7 3.1 3.0 2.8 7.8 7.8 8.0 8.1 CIB client satisfaction index
Progress key: Not achieved On track Achieved WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 33
FINANCIAL SEE = OUTCOME IMPACT
Member sustainability indices Actual ESG indices Medium- Our ability to create sustainable 2018 2019 term target Progress value is inextricably linked to Emerging Markets ESG Index Headline 27.9 28.2 Sustainable the prosperity and wellbeing of earnings growth our clients and the societies in (Rbn) which we operate. We track our performance on independent ROE (%) 18.0 16.8 18% – 20% indices and will continue to develop meaningful additional Dividend 970 994 Sustainable metrics. (cents per growth Principles for share) ESG rating responsible banking Cost-to- 57.0 56.4 Approaching income 50% ratio (%)
Jaws (basis (276) 113 Positive points (bps)) jaws ESG RATING AA last update: June 29, 2018 Credit loss 56 68 70 – 100 ratio (CLR) bps3 (bps)
3 Through-the-cycle CLR. Our SEE management approach is guided by our purpose, drivers that support Africa’s growth, our core business and the needs of African societies. We are further guided by the UN SDGs, the African Union Headline earnings and ROE Agenda 2063 and the South African National Development Plan. Rbn % 30 30 Our SEE impact areas 25 25
20 20
15 15
10 10 Financial Job creation Infrastructure Africa 5 5 inclusion and enterprise trade and growth investment 0 0 2016 2017 2018 2019 ¢ 23.0 26.3 27.9 28.2 15.3 17.1 18.0 16.8 ¢ Headline earnings (Rbn) Return on equity (%) Climate change Education Health and sustainable Dividend (cents per share) finance 1 200 1 000 Relevant UN SDGs 800 600 400 200 0 2016 2017 2018 2019 ¢ 780 910 970 994 ¢ Dividend per share
Progress key: Not achieved On track Achieved AIR More detail on our strategic progress starting on page 38. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 34 OUR VALUE CREATION STORY
OUR VALUE PROPOSITION
The successful execution of our strategy will deliver a robust business capable of creating sustainable value for all our stakeholders Unrivalled, African- focused capability over the long term. Our on-the-ground capabilities across the 20 countries in which we operate in sub-Saharan Africa, links to international capital and funding pools and a unique partnership ALLOCATION OF OUR with ICBC. RESOURCES We apply a formal decision-making framework to optimally deploy our resources. Established franchise with a large, growing client base Our franchise strength is underpinned by our strong brand, excellent people, a fit-for-purpose Strategy branch and ATM network and our •• Does the investment or opportunity modern digital platforms. align with our strategy? •• Does it create value for our clients NO and support our ability to deliver an integrated financial services offering? •• Does it drive Africa's growth? Diversified revenue streams YES Our businesses and revenue streams are well-diversified across client, Capability sector, product and geography, •• Does the investment or opportunity which provides protection in times fall within our risk appetite and of volatility. available resources, and can we NO deliver it through our existing expertise, processes and digital platforms? Robust capital and YES liquidity position Value Our strong and liquid balance sheet provides flexibility to manage •• Will the investment or opportunity uncertainty, change and growth. provide us with an adequate return NO and/or unlock future opportunities to create value?
YES NO
The investment or opportunity The investment or opportunity will either be ranked lower in is assessed taking into account priority, subject to trade-off trade-offs between decisions or will not our resources. be pursued. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 35
Strong growth prospects Our prospects for future growth are driven by regional economic fundamentals and increasing financial inclusion and penetration, and opportunities to increase our market shares, particularly in some of the large markets in which we operate where we have relatively small market shares.
Appetite to invest, deliver and partner We have the resources and appetite to expand on our own and through partnerships and alliances.
Attractive medium-term financial targets We remain committed to delivering on our medium-term financial targets of sustainable headline earnings growth and an ROE in our target range of 18% to 20%.
Purpose-driven organisation We are committed to driving sustainable and inclusive growth across Africa. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b DELIVERING OUR STRATEGY
Client focus 38 Employee engagement 52 Risk and conduct 62 Financial outcome 72 SEE impact 84 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b DELIVERING OUR STRATEGY
Client focus 38 Employee engagement 52 Risk and conduct 62 Financial outcome 72 SEE impact 84 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 38 DELIVERING OUR STRATEGY
HOW WE PERFORMED
Net promoter score (NPS) for PBB CLIENT FOCUS and Wealth NPS indicates the likelihood of a client recommending Standard Bank to their friends, family and others as a provider of Our clients are at the centre of products and services. It is calculated by subtracting detractors from promoters. everything we do. We strive to meet their This value can range from -100 (if every client is a detractor) to +100 (if every client is a individual needs by seamlessly delivering promoter). Any score above zero means there relevant and complete solutions using are more promoters than detractors.
their preferred channel. Client satisfaction index (CSI) for CIB CSI is a measure of the extent to which our clients are satisfied with the service CIB MEASURING OUR provides. This is calculated using a ten-point STRATEGIC PROGRESS rating scale.
What success looks like PBB NPS
We understand our clients and provide them with solutions to support their goals. 67 SOUTH AFRICA – CHANNEL
We serve our clients quickly, efficiently, reliably 2018: 70 | 2017: 66 | 2016: 53 | 2015: 58 and respectfully. 25 We earn and keep our clients’ trust. AFRICA REGIONS 2018: 25 | 2017: 16 | 2016: 15 | 2015: 30 How we measure our progress To understand how satisfied our clients are with our service and to improve on areas of specific concern, internally facilitated client Wealth NPS surveys, appropriate for each business line, are conducted throughout the year. 70 OVERALL 2019 KEY 2018: 68 | 2017: 70 | 2016: 61 PRIORITIES
•• Interact with our clients to deepen our understanding of their evolving needs and preferred ways of accessing our CIB CSI services, so we can deliver exceptional experiences. •• Offer clients access to relevant products across channels 8.1 of their choice, taking into consideration the substantial adoption by many of our clients of digital platforms OVERALL and channels. 2018: 8.0 | 2017: 7.8 | 2016: 7.8 | 2015: 7.6 •• Improve the quality of our digital offerings by improving the stability of our platforms, increasing adoption. •• Leverage data and analytics to proactively deliver personalised offerings to our clients. •• Extend our direct offering capability into small businesses and middle market clients within South Africa. •• Mature our value chain (ecosystem) approach across all markets. •• Continue to review our distribution capabilities given the growing preference for digital transactional services, while also responding to client demand for digital services that extend beyond purely transactional services. •• Continue to offer redesigned physical channels to serve the needs of clients who prefer this means of access. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 39
RECOGNITION FOR OUR ACHIEVEMENTS
We received a number of industry awards in recognition of our client-centric approach. + PBB EMEA Finance Best Treasury Service 2019 Global Finance Magazine 2019 •• Best Cash Management Services – Africa •• Safest Bank in Africa •• Best FX Services – Africa + •• Best Bank in Africa •• Best Trade Finance Services – •• Best Bank in Botswana, Africa South Africa and Uganda The Banker Investment The Banker Tech Awards Banking Awards 2019 •• Best Payments Innovation – •• Most Innovative Investment Bank = VirtualCard for Equity Raising
EMEA Finance African The Banker Transaction Banking Awards Banking Awards 2019 •• Most Innovative Bank in Africa •• Best Transaction Bank in Africa •• Best Bank in Botswana, Uganda and Zambia TRADE-OFFS •• Best Foreign Bank in Ghana Wealth •• Best Local Bank in South Africa Morningstar Awards 2019 •• Melville Douglas awarded Ombudsman for Banking •• ‘Always on and always secure’ Best Global Equity Fund Services Awards services require greater in South Africa investment in infrastructure, •• Overall Winner – Innovation in which leads to higher Dispute Resolution Euromoney Awards for running costs. Excellence 2019 The Banker •• Innovative and secure digital •• Africa’s Best Bank for Wealth development is critical to •• Bank of the Year in Angola, Management respond to changing client Lesotho, South Africa, Zambia needs and demand for instant and Zimbabwe International Investment fulfilment, leading to reduced Awards 2019 branch visits, reduction in CIB •• Excellence in International traditional revenue streams Private Banking and active prioritisation Global Finance Magazine of IT spend. 2019 Private Banker International •• The fundamental review •• Best Investment Bank in Africa, •• Outstanding Global Private and development of new Angola and South Africa Bank – Africa capabilities and skillsets, to •• Best Trade Finance Provider in •• Best Next Generation Offering deepen our understanding Angola, Kenya and South Africa of our clients and serve their The Banker Global Private •• Best FX Provider in Africa, Kenya, needs better, temporarily Nigeria and Uganda Banking Awards 2019 impacts the working •• Best Private Bank in Kenya environment and productivity Euromoney Awards for and Nigeria of our people, and may affect Excellence 2019 •• Best Private Bank for Customer client experience as the Service in Africa required changes are made. •• Africa’s Best Investment Bank •• Best Investment Bank in Angola, •• Introducing innovative Global Wealth & Society Malawi, South Africa and Zambia products in response to client Awards 2019 demand and competitor EMEA Finance African •• Best Private Bank in Wealth and activity leads to improved Society – Nigeria client retention, albeit at the Banking Awards 2019 cost of traditionally higher •• Best Investment Bank in Angola, •• Best Asset/Fund Management yielding revenue streams. Kenya, Mozambique, Namibia Company in Wealth and Society •• Branch reconfigurations and and Uganda – Nigeria •• Best Local Investment Bank branch closures resulting from Isle of Man Newspaper changing client behaviour, in Ghana Awards for Excellence require headcount reductions •• Best Foreign Investment Bank •• Company of the year that impact on staff morale, in Ghana and Nigeria and temporarily escalate •• Best Bond House in Ghana costs to accommodate a Global Finance Magazine •• Best Debt House in Nigeria strategically aligned and more 2019 cost-effective outcome for the •• Best Equity House in Nigeria •• Best Private Bank in Africa longer term. •• Best Loan House in Nigeria WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 40 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
OUR BUSINESS LINES DELIVER ON THE GROUP STRATEGY ACCORDING TO OUR THREE KEY FOCUS AREAS OF CLIENT CENTRICITY, DIGITISATION AND INTEGRATION.
PBB strategy
We are transforming our capabilities in banking and other financial services to ensure a singular focus on our clients: to deeply Our purpose: understand their needs and gain and keep their trust by partnering Changing lives and with them to fulfil their individual and business aspirations. fulfilling aspirations across Africa. Our vision: We enable clients to take control of all their Our fit-for-purpose presence in To radically redefine financial needs, including transacting, 15 countries across Africa, combined client experiences by saving, borrowing or planning by using our with our committed people and digital understanding and products, either through face-to-face platforms, support the banking and other delivering what matters interaction or digitally enabled, according financial services needs of our large, most to clients. to their preference. diverse client base of individuals and SMEs in South Africa, Africa Regions and the Channel Islands.
CIB strategy
We serve the banking, finance, trading, transactional, investment Our purpose: and advisory needs of a wide range of multinational companies, We dream of Africa local and regional businesses, financial institutions, governments realising her potential. and parastatals. Our vision: We aspire to be the We combine our market knowledge and appropriately to changes in our operating leading corporate and stakeholder relationships, gained through context by allocating resources to investment banking our on-the-ground presence in 20 opportunities that drive revenue growth, business in, for and sub-Saharan countries, with a deep within the parameters of carefully across Africa, with a understanding of our clients’ businesses considered risk-taking. This allows us to focus on sectors driving and sectors to serve their growth support the financial wellbeing of the Africa’s growth. strategies. Our footprint, networks and businesses and institutions that drive real sector diversity enable us to respond economic activity within and across Africa.
Wealth strategy
Wealth continues to transform the group’s capabilities in insurance, investments and advisory capabilities into a value proposition that enhances our service offerings to our clients and drives additional share in our target markets.
We are trusted advisors to high net worth, recognised. Our markets outside South Our purpose: retail, business and commercial, and Africa now exceed 50% of our headline Champion of Aspirations. corporate clients, leveraging the group’s earnings, and we are scaling and further footprint in 15 sub-Saharan African diversifying our operations to capitalise countries, and with an international service on significant growth opportunities offering facilitated through our offices in across our African footprint. London, Jersey, Isle of Man and Mauritius. Our strategy, purpose and story have been We are well-entrenched in our markets, further refined with clear focus and and are a leader in Africa, while our accountabilities, and are clustered within generational wealth offering is globally the framework of ‘Advise, Insure, Invest’.
The strategic progress made by each business line and their priorities are reported in the pages that follow. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 41
PERSONAL & BUSINESS BANKING Zweli Manyathi + Chief executive, PBB CHIEF EXECUTIVE’S REVIEW
+
“Despite difficult market conditions across many of our markets, we maintained our growth momentum in most asset categories and deposits, and improved our ROE. We continued to make strides in digitising services to ensure they are available to our clients 24/7/365, but more work = must be done to deliver ‘always on and always secure’ client access to these services. We remain committed to deliver what matters most to our clients, our people and our other stakeholders.”
Our largest franchise, South Africa, was Significant effort in 2019 went into remained within our targeted range, impacted by sustained economic strengthening our client relationships, despite the challenging economic weakness, subdued consumer spending understanding our client value chains environment. and credit demand, low business and growing our client base. confidence and intense competition, We experienced multiple and costly compounded by higher unemployment Digital adoption has been strong, with regulatory interventions in a few of reducing the number of bankable clients. 99% of transaction volumes in South our Africa Regions markets and Ongoing load shedding is having a Africa and 92% in the Africa Regions made absorbed the financial impact. We significant impact on our business, on our digital channels and platforms. expect regulators to continue to put specifically on the confidence of our pressure on banks to reduce the cost commercial clients to invest further in We continue to invest in our people. In of banking to improve financial their businesses. South Africa, 4 225 employees are being inclusion and will respond constructively retrained as universal bankers to broaden to this important objective. We are working During 2019, we responded to changing their skills so that they are better equipped on several innovative solutions to client behaviour and the continued to deal with the changing world brought proactively foster inclusion for both migration of transactions from branches about by the Fourth Industrial Revolution. personal and business clients. to digital platforms and channels by These colleagues will graduate from the reconfiguring our branch footprint, closing programme with a nationally recognised We continue to embrace FinTech 90 branches and, through an enhanced National Qualifications Framework level partnerships to support innovative client voluntary severance package, reducing our five (NFQ5) qualification. solutions, with notable examples being: related headcount by 1 001 people. As one •• Founders Factory, where we are would expect, this had a negative impact In Africa Regions, the number of branches co-investing in start-ups and businesses on morale, productivity and client increased marginally to 586 as we continued that need capital to accelerate to the experience. To ensure that the branch to expand our representation in growing next growth stage, focusing on target closures did not affect client access to markets and reposition or resize our businesses in the financial sector. the services they need, we first focused footprint in others. Our headcount has •• Nomanini, enabling stock advances on digitising the residual ‘go to branch’ decreased notwithstanding this marginal and working capital loans for traders services and experienced a phenomenal increase in branches, enabled by the in Africa Regions. uptake of these services by clients. I am progress we continue to make in digitising •• One identity, to support digital happy to report that staff morale, our processes and improving our technology. know your customer (KYC) and client productivity and client experience began onboarding. to improve in the last quarter of 2019. PBB recorded strong asset growth driven by our digitisation of personal loans in both •• 4Sure, a digital claim process for burst PBB South Africa also launched new South Africa and Africa Regions, which saw geysers (water boilers). products and online features in an strong client adoption. This increased loan •• Amazon Web Services, to enable increasingly agile manner. A good example self-origination by clients and higher loan data-driven personalisation, among of this was the launch of MyMo – an disbursement to clients was executed other areas of collaboration. innovative, low cost, paperless account within our risk appetite. with access to mobile data, which we The benefits to our clients of the brought to market within a few weeks. We As anticipated, given the accounting extensive work we have done to align have seen a gradual uptake of both MyMo impact of IFRS 9, the higher unsecured our organisational design, reshape our and in our mobile virtual network operator lending growth led to an increase in resources and shift our culture is discussed (MVNO) offering. performing book impairments on the in more detail in the pages that follow. portfolio, while a more normalised Looking ahead, we will continue to grow PBB Africa Regions experienced margin impairment was seen in VAF. This was our client franchises within specific value compression due to declining interest felt mainly in the South African franchise. chains, and I am confident that PBB will rates, regulatory interventions In Africa Regions, the portfolio performed show resilience and improved performance that restricted fee increases, as well as well despite the pressure in certain in the coming years as we master the art of lethargic performances in some economies. There are a handful of delivering what truly matters to our clients. economies. Even with these challenges, exposures that we are concerned about, We do, however, expect the economic PBB Africa Regions delivered an and we continue to manage our credit risk environment to remain challenging across impressive 8% growth in client numbers carefully, with a focus on rehabilitation all our markets, particularly in a severe and growth in headline earnings of 53%. and recoveries. Pleasingly, the CLR has COVID-19 scenario. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 42 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
PERFORMANCE AGAINST STRATEGY PBB’s strategy remains unchanged.
We believe that digital adoption requires clients in South Africa, with positive the human touch to succeed and have responses from clients. Some of the key realigned our organisation and culture to metrics that we track, like NPS, together enable our employees to improve client with positive feedback from clients DELIVERING experiences. The traditional siloed suggests that we are on the right track. approach is shifting to cross-functional EXCEPTIONAL teams that focus on agile delivery of PBB South Africa’s NPS score has client solutions. Client relationship teams recovered, following the impact of the CLIENT are being empowered by business and IT branch reconfiguration to our clients processes to enable innovative, cost- and employees. In Africa Regions, NPS EXPERIENCES effective and personalised digital services remained stable with an uplift among to our clients. These processes also clients we serve within specific support the servicing of clients within ecosystem value chains. PBB continues to leverage defined value chains (ecosystems), its digital transformation to an approach that has become central better understand our personal to client acquisition, servicing and NPS and business clients and respond retention in Africa Regions and has SOUTH AFRICA – quickly to their needs across subsequently been adopted in our CHANNEL the full spectrum of financial 67 South African franchise. services. We continuously 2018: 70 | 2017: 66 | 2016: 53 improve our use of technology, Enterprise Direct, a telephone-based data and AI to meet our relationship management channel objective to deliver exceptional manned by experienced bankers, which AFRICA REGIONS client experiences. We originated in Africa Regions to service 25 understand that our success SME clients, is now being made available 2018: 25 | 2017: 16 | 2016: 15 depends on the success of to small enterprise and middle market our clients and we undertake to partner with them on their growth journeys.
To facilitate the branch reconfiguration in South Africa, key branch activities were digitised, including electronic account payment limit changes, debit order reversals, real-time clearance, access to statements older than six months and pin view. In addition, LEVERAGING several innovative new products were introduced during 2019.
OUR DIGITAL The new MyMo account is a competitively priced account that enables digital account opening on mobile devices. Benefits include: PLATFORMS •• Ease of origination with no physical documentation required. TO MEET OUR •• It takes a few minutes to open an account. •• Data and airtime offerings. CLIENTS’ NEEDS •• Virtual cards functionality.
MyMo has more than 100 000 clients. We continue to develop digital capabilities and new platforms that give clients and employees access to new service solutions. Our core banking systems have Standard Bank Mobile was launched in 2018. It has benefitted from the launch of MyMo enabled us to deliver these and alternative origination channels. solutions quicker than we were Our clients can now purchase Apple and Huawei smartphones on a 24-month finance able to in the past. arrangement for clients with Standard Bank credit cards. A convenient alternative to a contract with a mobile network operator, the offering provides the additional benefit of free voice and data to the value of the client’s monthly banking fees.
10% 1MB of data UCount rewards tiered points DISCOUNT ON for every R20 swipe up to 2GB of free data HANDSETS WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 43
We launched the LookSee tool which gives property buyers, sellers or homeowners access to free guides that help them make informed decisions when buying or selling property. We had 490 000 unique visitors to the site during the year. + SimplyBlu is an innovative all-in-one payment solution, launched together with one of our FinTech partners. SimplyBlu enables small businesses to start and manage an online business from a single secure platform. + BizFlex loans offer small businesses fast, paperless digital loan origination, with flexible repayments linked to revenue flows.
BizFlex Repayments Disbursement Cost Origination
Previous Fixed One week Variable interest Documents and additional fees required in branch =
Current Varying with Two hours Fixed interest and Digital – paperless, revenue no additional fees available 24/7
In addition, our data on existing business clients enables us to approve and disburse business working capital loans of up to R6 million in three minutes. We have originated and disbursed working capital loans totalling R345 million to date.
The increased pace of digital adoption has been evident on the SBG mobile app where active users increased by 55% to 2 million and the value of transactions via online banking increased by 9.3% to R1.1 trillion. In addition, there has been significant appetite for our value-added services, including lotto and real-time payments.
A number of our existing products were enhanced to improve client experience, drive retention and attract new-to-bank clients.
Highlights •• Instant personal loans and credit cards are now available online for existing clients. •• Tiered price home loans where the interest rate decreases as clients pay off the loan. These loans now form 67% of new mortgage loans disbursed in our South African franchise. •• Our foreign exchange digital app, Shyft, was extended to non-Standard Bank clients and in 2019, there were over 28 000 downloads of the app and foreign currency exchange transactions amounting to R2.6 billion. •• Instant Money, our digital wallet and money transfer platform, increased transactional volumes by 18% to 27 million, with turnover of R20 billion. •• Payment solutions have been extended to include Samsung and Garmin Pay offerings. •• Online origination of personal lending and current accounts improved speed and convenience for clients, as follows:
Online origination Availability Documents required Disbursement
Previous Branch hours Proof of income An hour to several days
Current Digital 24/7 None for Standard Bank clients Five minutes WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 44 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
In Africa Regions, our growing client base countries and around 14 400 new clients combined with strong adoption of mobile have been onboarded since going live. banking drove transaction volumes up by MobyBanker provides a transactional 18% to 371 million. Our market-leading card and account with full ATM digital solutions such as MobyBanker, transactability. Making banking easy and the remote onboarding, digital and seamless for our clients, we expect this paperless channel; SlydePay, our platform to perform well in future. digital card/wallet; and instant unsecured lending (in some countries) contributed to client and asset growth. MobyCash – innovative digital cash management During the year, MobyBanker was Our market-leading MobyCash solution was recognised as the enhanced with additional features. Clients most innovative digital product in the cash management sector by Global no longer need to complete any forms Finance Magazine. MobyCash provides clients with secure and convenient during the onboarding process, while full on-location cash management, which brings the cash value chain to wherever KYC compliance is still ensured. This the client is and removes the need to travel to a branch. remote onboarding capability is live in five
Our relationship with ICBC has increased opportunities for our African clients. We engage closely with ICBC, Chinese and African government institutions, as well as relevant industry bodies to link African companies with Chinese importers. This has translated into the Africa China Export Proposition, launched at the China International Import Expo DELIVERING in November 2019, to assist African clients to sell their products in China. As a result of this intervention there are over 90 trade transactions currently underway involving the INTEGRATED export of various items, including wine, nuts, chillies and popcorn from Africa to China.
SOLUTIONS TO Our Africa-China import solution, the Africa China Agent Proposition, has been launched OUR CLIENTS in seven countries. This makes importing goods from China far easier for our clients.
PBB partners with CIB and Wealth to offer our clients LOOKING AHEAD integrated solutions across the financial services spectrum. Our strategy of banking clients We will continue to improve and scale our digital platforms and empower our across an entire value chain people to deliver exceptional client experiences, to support the acquisition requires collaboration between and retention of clients in key segments across all our markets. our private and business bankers and continues to attract and We are in a position to adapt to the evolving needs of our clients, to provide human retain quality new-to-bank experiences and convenient distribution models to reach our clients and partner retail clients. with them in achieving their aspirations for individual and enterprise growth. Our priorities include: •• Scalability and execution of ecosystem banking to deliver value chain solutions across the continent. •• Proactive client relationship and solution management to deliver what matters to the client. •• Active progression in delivering relationship connectivity and trade solutions for our Africa-China client base. •• Full digitisation of origination capability while maintaining the human touch. •• Embrace client digital migration by proactively providing relevant innovative digital payment and service capabilities. •• Modernisation of outdated financial systems to leverage cloud and new technological capability. •• Commitment to always on capability and resilience enhancement to ensure 24/7/365 access to services to our clients. •• Address the concerns of the users of the SBG mobile app to further improve adoption and use. •• Proactive footprint management in response to client behaviour and demands. •• Agile, flexible, cross-functional teams that are upskilled on a continuous basis to respond to the Fourth Industrial Revolution. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 45
CORPORATE & INVESTMENT BANKING Kenny Fihla + Chief executive, CIB CHIEF EXECUTIVE’S REVIEW
+
“CIB delivered sustained performance in tough markets by consistently implementing our strategy. We focused on creating efficiencies that enabled a better response to our clients’ needs, including the digitisation of selected processes, improved client interaction and providing solutions to clients = across their industry value chains that benefit them, their customers, suppliers and employees.”
CIB delivered respectable results despite take on new clients, assess pre-credit or Our principle of doing the right subdued economic conditions in our credit applications and in developing new business, the right way is pervasive key markets were exacerbated by global products and services. from our compliance with regulations trade tensions and Brexit-related to our ethical conduct as individuals uncertainty. These conditions impacted A milestone in 2019 was setting up and as a business. As an African our trading activities and Global Markets our sustainable finance team, responsible financial institution with a global business, while currency-related for partnering with our businesses to presence, our operations are required headwinds and regulatory restrictions better serve our clients, drive innovation to adopt global best practice in affected our Africa Regions operations. and capture emerging opportunities financial sector standards. Changing However, we managed to maintain our as the emphasis on inclusive and – and increasingly punitive – strong financial performance, with 5% sustainable growth by investors, regulatory environments in our Africa growth in headline earnings and an institutions and companies intensifies. Regions markets represent a risk for ROE of 18.1%. investors in Africa. Our in-country While we successfully addressed many teams maintain relationships with the Our increased client focus contributed to client frustrations with digital solutions, banking regulators and central banks 2% growth in revenue in South Africa and our people and clients experienced some in all our markets to ensure that we 8% in Africa Regions. This, combined with disruption of our online channels during understand and can proactively the diversification of our business by the process of modernising our business. manage increasing regulatory change. sector, geography and product offering, By accelerating the pace of online drove 5% growth in overall revenue to channel improvement and equipping our While short-term economic risks, R39.1 billion, from R37.4 billion in 2018. people to respond to the changing needs particularly from a severe COVID-19 and expectations of our clients, we scenario, will continue to weigh on our Our extensive market knowledge and expect to realise the full benefits of key markets across our network, we strong client relationships ensured a system upgrades and increased are confident that the medium- to nimble response to both market risk and digitisation during 2020 and beyond. long-term economic prognosis is opportunity. We shifted the allocation of more positive. Oil and gas resources to emerging revenue-generating Our risk appetite is regularly reviewed opportunities in East Africa, and opportunities according to our dynamic and adjusted based on the insights of our particularly natural gas discoveries in risk appetite, reflected in the landmark in-country risk teams and the group risk Mozambique, will prompt increased transactions we closed during the year. management function. Our strategy of activity by corporate clients involved developing relationships with our clients in the development and supply of CIB participated in funding large-scale and knowing the sectors and markets services to the sector. In South Africa, infrastructure development projects that they operate in enables us not only to we are encouraged by the will support economic growth in our select quality clients and projects but government’s economic reform markets, underpinned by our relationships also to avoid risk or anticipate it and agenda but we remain cautious in the with development finance institutions that respond proactively. We adjust our risk short-term. enable appropriate risk-sharing appetite indicators to reflect changes in arrangements. In South Africa, we our clients’ businesses and operating The following pages describe how we continued to contribute to economic environments. are responding to the group’s growth and development by enabling strategic focus areas in an integrated broad-based black economic Although our client risk is well managed way, focusing on those priorities that empowerment (B-BBEE) and black-owned in these challenging economic times, we make the most difference in resolving companies to grow through equity, debt experienced an increase in impairments our clients’ frustrations and improving lending and acquisition finance. of 52%. In South Africa, misstatements their experiences. Ongoing of financial statements remains an area of modernisation of our processes and Importantly, we supported our clients’ concern. This is a worrying trend and we accelerating the pace of digitisation adoption of environmentally and socially will continue to spend appropriate time to improve the experience of our responsible technology in infrastructure and effort in strengthening our KYC and people and thereby equipping them projects, and worked proactively with our other risk management processes, to continually and holistically improve clients in the power sector to support the to proactively identify and manage the client experience, will continue to transition to a lower carbon economy. We such clients. be key priorities in the coming year. assess and manage environmental and social risk at multiple points during transaction lifecycles, such as when we WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 46 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
LANDMARK NOTABLE TRANSACTIONS INCLUDED: TRANSACTIONS Republic of Ghana DRIVING We were joint mandated lead arranger, underwriter and lender on AFRICA’S a USD500 million bridge loan for the Republic of Ghana. The loan was sought GROWTH by Ghana prior to their oversubscribed USD3 billion Eurobond issuance for which we acted as joint lead manager. In 2019, we completed several landmark This transaction highlights our commitment to driving Africa’s growth by transactions across our supporting African governments in raising hard currency funding. African markets, including expansionary funding for Globeleq multinationals and large We were sole mandated underwriter and arranger on a bridge loan and preference corporations to support share structure for Globeleq Africa. The company was successful in bidding for the growth in the oil and gas, South African renewable energy portfolio of Brookfield Asset Management, with power and infrastructure, the ultimate acquisition comprising five renewable energy assets. real estate, consumer products, non-banking The deal supports the growth of South Africa’s renewable energy capability and financial services and demonstrates our ability to finance such transactions across the entire capital telecommunications structure. sectors. Acorn Group We are a material provider We acted as the lead arranger and placing agent on East Africa’s first ever green of foreign currency liquidity bond, issued by Nairobi-based property developer Acorn Group. This five-year and risk management across corporate bond has raised KES4.3 billion in project finance for six student our African footprint. We accommodation properties that boast the International Finance Corporation’s facilitated the raising of hard Excellence in Design for Greater Efficiencies (EDGE) green certification. The new currency funding for African student accommodation will help provide over 5 000 beds to students. governments to alleviate currency shortages, The success of the transaction demonstrates our commitment to embedding our including an oversubscribed SEE framework into our product offering. Eurobond for Ghana. Sanlam CIB remains an integral We acted as sole advisor, third-party lender, external preference share subscriber, participant in financing equity secured funder, bookrunner on delta hedge execution and JSE sponsor trade flows that strengthen for Sanlam’s transformative R8 billion B-BBEE transaction, which aimed to regional and cross- position Sanlam’s South African operations for strong growth through enhanced continental trade links and economic empowerment credentials. We played a key role in explaining the merits facilitate trade and capital and importance of the transaction to Sanlam’s international investors to secure flows within Africa, and the requisite 75% shareholder approval. Thanks to a seamless collaboration across between China and Africa. advisory, corporate broking, equity capital markets, debt and global markets, we In South Africa, we have the were able to provide a fit-for-purpose solution that will enable Sanlam to meet its largest market share of the transformational objectives and create long-term value. issuance of letters of credit. “Standard Bank’s unique combination of local balance sheet, a wide African footprint, strong advisory capabilities and global reach, and most of all, a professional and passionate team with exceptional work ethic, allowed us to appoint them as sole advisor and funder,” said Heinie Werth, Sanlam chief financial officer.
MetroFibre Networx We were the financial advisor on a capital raise deal between South African fibre infrastructure and internet services provider, MetroFibre Networx and French investment company STOA Infra & Energy in which STOA acquired a significant minority equity investment (23.08%) in MetroFibre. We followed up the capital raise by lead arranging R1 billion of term funding for MetroFibre. The capital raised will enable infrastructure expansion that will increase access to fibre for South African businesses and households.
Standard Bank was instrumental in partnering MetroFibre Networx with STOA. Our view of the broader global funding ecosystem enabled us to recognise the right investor being STOA and partner it with a fast-growing company being MetroFibre.
Legae Peresec We acted as the sole financial advisor, structurer and financier on the acquisition of Peregrine Securities by Nkholi to form Legae Peresec, South Africa’s largest securities trading business. Legae Peresec is 51% majority black-owned and managed and has over 30% black female ownership.
As a banking partner to Legae Peresec, we are mandated to manage the company’s custody and clearing business as we continue to support its growth and development. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 47
PERFORMANCE AGAINST STRATEGY CIB’s strategy was reviewed in 2019 and remains unchanged.
Our client focus contributes to a strong and diversified franchise that impacts positively on diversification and growth in African economies. This contributed to + an improvement in client satisfaction and was recognised by Euromoney’s 2019 DELIVERING Excellence Award for Africa’s Leading Investment Bank. EXCEPTIONAL Client satisfaction on the rise CLIENT CIB’s client satisfaction index increased to 8.1, up from 8.0 in 2018. + EXPERIENCES Contributing factors included: •• Overall improvements in the Investment Banking experience and streamlined credit process, with marginal improvements in Global Markets CIB’s mature client relationship and TPS Africa Regions. model is based on proactive •• Positive sentiment offset by continued online channel and foreign payment = client partnerships that enable challenges (particularly in South Africa). our coverage teams to work •• More frequent, strategic engagement by relationship managers, alongside our corporate clients, strengthening client relationships. providing relevant solutions •• The highest CSI rating achieved in Ghana, Uganda and Botswana, with across sectors, regions and Ghana showing significant year-on-year improvements. products to support their growth ambitions. We continued to adjust our risk appetite to reflect changes in clients’ operating environments and were selective in exposures to avoid concentration in certain sectors. Our top revenue earning sectors include financial services, consumer, power and infrastructure, and industrials.
LEVERAGING Many of our digital solutions are These included: informed by feedback from our •• inefficient duplication of clients, either through their information and effort, and OUR DIGITAL engagement with client • fragmentation of client relationship managers or our • information across different PLATFORMS TO annual client satisfaction platforms. MEET OUR surveys. This ensures that we prioritise the things that matter Solutions such as the automation most to our clients. Our client CLIENTS’ NEEDS and simplification of basic onboarding and lending solutions processes, decommissioning of are an example of digital legacy IT systems and migration solutions informed by both client Our strong client relationships help us of clients to more modern and employee feedback. In understand, analyse and address areas of platforms, and the consolidation addition to receiving client client frustration across the spectrum of of client information on one feedback and recognising the their financial needs. As we become more screen, equip our people to strong correlation between client digitised and integrated, we are better able provide more adequate and and employee frustrations, we to achieve the dual outcomes of addressing timely responses to clients. also asked our people to identify client frustrations and matching their Digital capability frees our their primary obstacles to good financial services needs with secure, people to focus on more client service. personalised, relevant experiences, and a value-adding client services full range of solutions, in real time, all the which, in turn, improves time. Our system modernisation and the client experience. digitisation of our processes enables us to provide more efficient client service than our competitors at lower cost, and helps our clients execute their strategies. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 48 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
Improving client experiences •• Digital Solutions Marketplace, a data- with digital technology driven marketplace which connects shoppers, shop-owners and suppliers to accelerate cash flows, and enhance brand Challenges performance. We use brand and point of Our clients told us that they wanted: sale (POS) data to unlock cash flow for •• seamless service on a single digital point both suppliers and shop-owners. of entry; and •• Digital client onboarding and account •• faster credit decisions on commercial loan opening solutions auto populate forms applications. and enable corporate clients to open and activate accounts immediately, provided Benefits Solutions all client documentation is supplied. •• New lending solution reduces the time In response to client concerns, we developed it takes to make credit decisions. By Client experience a solution that uses contextually relevant consolidating data and automating Clients provide KYC documents information about clients to understand how internal documentation needed for once to be used across all they choose to interact with us and the decision-making, we accelerate products; one view of all services they need to meet their current and information flows without compromising facilities with the bank. future financial services needs. the risk assessment process. This initiative will be scaled up early in 2020, resulting The following new digital innovations include in further improvements in our Foreign exchange online the automation of basic processes to lending process. address client frustrations: •• Adoption of disruptive technologies Foreign exchange transactions •• One place to land, a single entry point to such as data analytics, blockchain and and international payments CIB’s services on a digital portal, available robotic process automation is within 24 hours of digital from 2020. This portal will offer clients streamlining complex trade processing account opening. access to services across products and between multiple parties, while information relevant to them as individuals strengthening risk management. within their organisations. •• Partnering with innovative FinTechs Faster trade to leverage disruptive technology enables •• African Market Tracker addresses the Robotic process automation African companies to leapfrog technology challenge of sourcing reliable and accurate reduced turnaround time of advances to improve operational information on African markets by providing trade guarantees by 80%. real-time, accurate data that clients require. efficiencies and client experiences.
By integrating the group’s offerings within this client’s value chain. In we are able to deliver complete Nigeria, Kenya and Uganda, we solutions to our clients. For example, collaborate successfully with Wealth when a client awards CIB a to offer investment and insurance DELIVERING transactional banking mandate – as services to our clients’ shareholders part of our comprehensive financial and executives, while PBB attends to INTEGRATED services offerings – the payment the business banking needs of many collections, POS, credit card and of our clients’ customers, suppliers SOLUTIONS TO cash management services are and service providers. provided by PBB. OUR CLIENTS We continue to leverage our strategic Similarly, we focus on providing cooperation agreement with ICBC. solutions to our clients across their We have partnered on infrastructure Our commitment to client centricity is value chains (ecosystems) projects in oil and gas, and power significantly enhanced by the group’s scale, throughout the continent. An and infrastructure sectors across scope and expertise which enables us to advantage of this integrated the African continent, with projects respond to the diverse needs of many of approach is that a sustainable across West Africa, East Africa our clients more comprehensively than anchor client whose risk is and South & Central Africa. Since CIB could alone. understood not only enhances the 2016, we have jointly supported risk profile of the client but also helps investment banking deals worth over identify additional opportunities USD3.6 billion.
markets, underpinned by effective •• Accelerating API-enabled LOOKING credit management and disciplined infrastructure and intelligent cost control. automation. AHEAD •• Automating selected product Our priorities include: transactions per country to beat •• Digitising core client interaction competitor benchmarks. We will continue to provide services and processes, including client onboarding. •• Rationalising the CIB footprint solutions that help our clients achieve •• Proactively developing solutions to and capability offering to align their strategic ambitions. As we continue resolve client challenges. with client demands. to improve the client experience, we •• Implementing a resilience •• Leveraging cross-functional teams believe we are positioned to sustain the programme for our top ten critical and capacity to deliver complete growth of our client franchises as we digital platforms to improve IT solutions to clients within their capitalise on opportunities across our system stability. value chains. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 49
WEALTH Margaret Nienaber + Chief executive, Wealth CHIEF EXECUTIVE’S REVIEW
+ “Client centricity is at the heart of our strategy. Wealth’s purpose is ‘Champion of Aspirations’ meaning that we, as the best in Wealth on the African continent, are here to champion the aspirations of both our clients and our employees. We continue to focus on nurturing a client engagement philosophy which has been deeply embedded in the business, with a focus on a = culture of excellence, thoughtfulness and ‘before the sun sets’ service.”
Wealth delivered a pleasing set of results refine and personalise both our offering We have instilled a conduct culture despite subdued economic growth and to these clients and the channels through that empowers our people to do the significant global events in our chosen which they receive them. Our digital right business, the right way. This is markets. Our dollar-denominated assets have been built with the client underpinned by our risk governance international deposits delivered positive firmly at the centre of each design. structures and conduct dashboards earnings through higher US dollar which are well-embedded in our interest rates. The United Kingdom and Our active promotion of a culture of businesses. On an ongoing basis, we Channel Island operations continued to savings and wealth preservation in all our assess the risks that our business experience Brexit-related currency markets led to the development of is exposed to so that we effectively volatility and market uncertainty. Political innovative new products and advisory address and mitigate them. and economic instability and the processes that help clients save and consequent sovereign downgrades in invest more effectively for their long-term Looking ahead, we expect tough South Africa affected our local and goals. In 2019, our clients invested more economic conditions to persist, international investment operations, than R500 million in tax-free investment especially if a severe COVID-19 scenario while unpredictable regulatory accounts and we offered financial materialises. Our strategy is clear and restrictions, particularly fee capping, education sessions to more than 11 200 we are on track to achieve the strategic weighed on our African operations. staff members of our corporate clients priorities we set, based on our robust and more than 1 000 Standard Bank financial performance last year and the Consistent implementation of our client employees through our Financial solid strategic strides we have made. engagement strategy and the ability of Fitness Academies. the business to work across silos and deliver a fully integrated offering to Behind every exceptional client clients were rewarded with measurable experience is an engaged and motivated improvements in client satisfaction and employee. Through understanding and Wealth winning over 20 awards from addressing individual employee established industry publications. We aspirations, we saw a pleasing increase in rigorously refined our Wealth purpose employee engagement measures. and positioning, launching a global A highlight of the year was the launch of positioning marketing campaign, our Behavioural Science Academy, which #WealthIsWithin, for Wealth and its reskills staff for the Fourth Industrial offerings. Along with the deployment Revolution, with a strong focus of innovative digital solutions, these on understanding client behaviour strategic initiatives enabled us to and needs. capitalise on significant growth opportunities and extend our reach in most of our markets.
Our digital strategy is critically important in the delivery of a seamless and personalised service and product offering Improving client satisfaction for all our clients. Our culture integrates a combination of human relationships and Our strategic initiatives enabled us to improve our overall digitisation into our core operations to NPS to +70, up from +68 last year and ahead of our target drive internal alignment and ‘before the of greater than +60. sun sets service’. This allows us to better understand our clients, as well as to WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 50 DELIVERING OUR STRATEGY CLIENT FOCUS CONTINUED
PERFORMANCE AGAINST STRATEGY
DELIVERING EXCEPTIONAL CLIENT EXPERIENCES
Wealth tailors personalised solutions for our clients’ unique aspirations, whether these involve buying a funeral policy or protecting income in the event of a disability, saving for a child’s education or embarking on a life-changing trip, protecting family or the lives of employees, diversifying assets internationally, or giving back to the community.
The solutions we offer have now been clustered within the framework of ‘Advise, Insure, Invest’. These three core areas cover the following businesses: ADVISE The trusted relationships we build with our clients are contingent on how satisfied our people are at work. By combining a human touch with digital enablement, We know that when our employees feel engaged, our client teams provide holistic, goal-based advice in empowered and equipped to deliver exceptional client a personalised manner regardless of how our clients experiences, they do just that. In 2019, we focused on choose to interact with us. instilling our purpose, Champion of Aspirations, among our employees, and on empowering them to fulfil our clients’ Digital solutions were central to the implementation of aspirations. A campaign by Wealth leadership included: Advisory services our strategy in 2019, with the successful launch of the through Wealth My360 app and the renewal of Win Web. My360 was •• Providing the necessary business intelligence tools and Investment successfully launched to Standard Bank staff in South and client data in all our markets to strengthen client and SBFC, Africa and in a phased approach to Advisory clients. engagement and service. including fiduciary •• Understanding and addressing individual employee services. Win Web is the omni-channel digital platform for our international clients. Both of these platforms enable aspirations which, in turn, supports their focus us to gather client insights that inform personalised on client aspirations. advice on the most appropriate solutions for their needs and goals. The achievement of our purpose requires a unique level of understanding and expertise from our employees. In We hosted the inaugural Wealth and Investment Family addition to instilling a high-performance culture, we apply Office conference during the year. The conference the same goal-based approach to our employees as we do focused on providing integrated service offerings and to our clients. We partner with them in the achievement of advice on dealing with the complexities that high net their personal financial goals and ambitions through our worth individuals face in creating, preserving and Financial Fitness Academies, which provide advice on transferring generational wealth. financial planning and investments.
INSURE empathy in employee interactions with clients, is key to client retention. To maintain our growth A key focus in 2019 was to grow and diversify our momentum, we are also extending our reach beyond long-term and short-term insurance offerings, which our traditional client base to attract new-to-bank are conducted in collaboration with Liberty. A key clients. An effective means of achieving this is through development was the launch of our Flexible Funeral alternative distribution channels. Plan, which compares well with competing offerings. We will continue to capitalise on growth opportunities Using emerging technologies, we are extending our in insurance in Africa Regions in 2020, with a Short-term and proactive safety features that detect and mitigate particular focus on eight countries. long-term claim events and provide clients with the ability to insurance manage their electricity consumption and save money. Our ‘before the sun sets’ client engagement manufacturing and distribution. philosophy, combined with thoughtfulness and
INVEST Furthermore, Wealth and Liberty continued to leverage the group’s full capability to offer integrated multi- Despite a difficult environment, our boutique generational wealth creation and preservation investment management company, Melville Douglas, solutions to our clients. continued to deliver exceptional client value. Our Global Funds performed in the top quartile and In response to the growing demand for passive or above benchmark in comparison to competitors, other alternative investment funds, Standard Bank and our Domestic Funds in the second quartile and collaborated with STANLIB to create 1nvest which is Discretionary (Melville above benchmark. During the year, stockbroking was a simple, low-cost passive provider. 1nvest specialises Douglas), stockbroking integrated into Melville Douglas to deliver a single in index-tracking unit trusts and exchange traded and international advisory and discretionary service to our clients. funds. It uses the group’s existing funds, experience deposits, pension fund and expertise to provide clients with a comprehensive administration (Nigeria) range of 28 index-tracking funds across multiple asset and funds (including classes and geographies. alternative and passive investment funds). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 51
We are making progress in robotic process automation, and launched the automation of insurance exception reports for our Credit Life product in 2019. We are also exploring using blockchain in our processes. Innovative new digital products LEVERAGING and services which gained traction in 2019, are detailed below: OUR DIGITAL + PLATFORMS Empowering clients to make smart financial decisions: My360 TO MEET OUR Our My360 app gives clients a consolidated view of their CLIENTS’ NEEDS net worth across more than 20 000 global financial institutions on a single easy-to-use dashboard. The app is part of the Standard Bank + digital ecosystem, providing clients with easy access using their banking app sign-in. Our adoption of innovative technology and use of data The ability to instantly shift between onshore and offshore asset allocation analytics to understand and with different financial institutions enables clients and their advisors to respond to our clients’ needs and conveniently track the performance of their assets and liabilities daily, = behaviours is encapsulated in allowing for more informed decision-making. our innovative new client service and insurance products. Using telematics to reward good driving behaviour: Insurance app Our new standalone cloud-based app for car and home insurance gives Features of the app our digitally savvy and millennial client segments a flexible cost-effective solution. The app rates policyholders on their driving ability rather than •• Scans driver’s licences generic underwriting factors. and vehicle licence disks. •• Digital quoting and policy issuance Clients receive a premium discount if they pass a digital driving test built into within eight minutes. the app’s telematics capabilities (the first 300 kilometres and 25 trips are •• Uber vouchers and other rewards tracked). Our discount is guaranteed for 12 months and does not require for good driver behaviour. clients to prove their driving ability monthly. If clients continue to use digital monitoring of their driving patterns, they receive additional rewards.
Let’s talk: skipping the call centre with WhatsApp chat bots We completed a proof of concept and launched chat bots that enable clients to buy funeral insurance and do other basic tasks using WhatsApp. The WhatsApp chat bots allow clients to use a platform they are familiar with to conduct simple transactions, ask questions without having to go through a call centre, and purchase and manage products.
Wealth partners with PBB to offer During 2019, Wealth acquired international banking and lending Liberty’s short-term insurance Centre services and generate advisory, of Excellence and STANLIB’s DELIVERING insurance and investment solutions operations in Ghana. across client segments. Liberty INTEGRATED provides short-term and long-term We made strong progress on the solutions in collaboration with Wealth, Liberty Collaboration Plan during the SOLUTIONS TO particularly in the Africa Regions. year, with a substantial shift in our working relationship to operate as OUR CLIENTS one and win as a collective.
Wealth’s integration with PBB, CIB and Liberty to facilitate comprehensive investment and LOOKING AHEAD insurance solutions for clients remains a key differentiator for The wealth management industry is facing transformational trends in our business and the group. business models, client preferences and technology. In Africa, we are We aim to seamlessly deliver seeing a significant increase in activity in the insurance industry. In an integrated group where South Africa specifically, there is a trend towards a more integrated our clients have access to and financial services industry. The industry-wide focus is on client experience all our propositions centricity, more efficient distribution channels and technology relevant to their needs, in a advancements. digitally-enabled environment that supports quick decision- Although we expect market conditions to remain difficult in 2020, we making and execution. will continue to capitalise on opportunities to grow earnings by offering our clients an innovative value proposition, one that leverages the group’s strength to position Wealth as the market leader, continually raise the bar on client experience and increase our market share. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b SBG AIR April 16, 2020 11:47 AM proof 1 52 DELIVERING OUR STRATEGY
EMPLOYEE ENGAGEMENT HOW WE PERFORMED
eNPS How our people think and feel about their work correlates with how satisfied our clients are, and +18 how successful we are in delivering our strategy eNPS and performance aspirations. 2018: +23 Our 2019 eNPS was +18, which compares favourably with benchmark data. We consider this to be a good result in the context of the MEASURING OUR STRATEGIC PROGRESS restructuring activities that took place during the year in our largest geography, South Africa, and were not surprised that our score declined What success looks like from prior year (2018: +23). 74% of permanent employees across our global footprint participated in the 2019 survey (2018: 62%). We are considered a great place to work and our people feel deeply We drive this participation seriously, as a strong connected to our purpose, their colleagues and our clients. participation rate results in a more credible and representative survey outcome.
Our people are empowered to, and are recognised for, delivering against our strategic priorities and being client-centric in everything that they do. Employee turnover
Our people make the most of every opportunity to embrace new ways 10.8% of working and learn new skills to remain relevant and achieve their OVERALL EMPLOYEE TURNOVER RATE full potential. 2018: 8.3%
Our people are encouraged to speak up and feel heard when they 4.8% voice their views. VOLUNTARY EMPLOYEE TURNOVER RATE 2018: 4.9% How we measure our progress Our anchor measure of employee engagement is our eNPS – an indicator of how 2.3% likely an employee is to recommend the Standard Bank Group as a good place to work. We measure eNPS annually across our global footprint, through a survey VOLUNTARY REGRETTABLE of our people’s perspectives and opinions. We continue to work on improving EMPLOYEE TURNOVER RATE employee engagement in all our countries of operation. 2018: 2.3% During 2019, we evaluated the relevance of the indicators and related metrics that we use to assess our progress. Our eNPS is supplemented by indicators that we believe provide additional insight. During the year, we also introduced new indicators 3.8% to measure our progress in respect of our diversity and inclusion aspirations. VOLUNTARY TURNOVER AT Indicators of banking employee engagement: EXECUTIVE LEVEL •• eNPS: calculated by subtracting the percentage of survey detractors from the 2018: 4.8% percentage of promoters. This value can range from -100 (if every employee is a detractor) to +100 (if every employee is a promoter). Although the eNPS score Overall turnover increased to 10.8% measures the distribution of promotors, insights gained from the responses of (2018: 8.3%). The spike in turnover was due detractors and passives, employees who are satisfied but not necessarily to the regrettable retrenchments from the enthusiastic, are also assessed for further action. closure of our branches in South Africa and the •• Employee turnover: measures the percentage of employees who left our reconfiguration in our IT and Shared Services employ during the year. corporate functions. Voluntary employee turnover declined marginally year-on-year and •• Diversity and inclusion: measures the representation of people from under- our voluntary regrettable turnover remained represented groups and also assesses their qualitative experience of the work stable at a low 2.3%. Our overall and voluntary environment through an in-depth analysis of the employee survey results. turnover remain well below global financial –– Gender equity: measures the representation of women in senior industry benchmarks of 14.4% and 9.3% management and executive positions across the group. respectively (Source: Gartner CEB global –– Employment equity: measures the representation of black people in all benchmarks: 2018). management levels in South Africa.
For more detail on Liberty’s employee engagement measures, refer to their integrated report on their website. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 53
+
Diversity and inclusion Our focus remains centred on the entire workplace ecosystem, driven Gender equity: by the personal needs and aspirations of existing and prospective employees, technological advancements and broader societal and Representation of women (group) economic trends. We expect our leaders to lead differently and ensure a compelling culture that enables all our people to shine. Experimenting + 32.3% with new ways of working and embracing continuous learning are a reality for all our people as they adapt to a constantly evolving and EXECUTIVE POSITIONS highly competitive world of work. A multi-generational workforce, coupled with shifting client expectations, accelerating digital 2018: 32.2% | TARGET: >40% by 2023 transformation, predictive analytics and the introduction of robotics, AI and automation are impacting the future size, shape and capabilities of = 40.3% our workforce, prompting the reshaping of the employee experience in the group in a deliberate way. SENIOR MANAGEMENT 2018: 39.4%
We are continuously working to improve the representation of women in senior positions Number of banking employees across the group. Women currently hold 32.3% of executive positions and 40.3% of senior management positions. When measured against 44 996 3 618 the 2018 McKinsey Women in the Workplace Report, the group compares favourably in PERMANENT EMPLOYEES NON-PERMANENT respect of the representation of women in both EMPLOYEES 2018: 47 419 | 2017: 48 322 executive and senior management positions. 2018: 4 728 | 2017: 5 725 This is the first year we are including gender equity as a metric.
Representation of black people (South Africa) 30 102 620 44.2% SOUTH AFRICA INTERNATIONAL 2018: 32 162 | 2017: 32 876 2018: 639 | 2017: 615 TOP MANAGEMENT 2018: 41.9% 14 274 49.1% AFRICA REGIONS 2018: 14 618 | 2017: 14 831 SENIOR MANAGEMENT 2018: 46.3%
73.2% Tenure breakdown (%) MIDDLE MANAGEMENT Tenure breakdown (%) 2018: 71.3% 2019 2018 ■ Less than 2 years 18.0 21.6 ■ 3 – 5 years 28.9 28.2 ■ 6 – 10 years 20.6 20.0 89.1% 2019 2018 ■ 11 – 20 years 23.8 21.5 ■ 21 – 30 years 6.5 6.5 JUNIOR MANAGEMENT ■ 31 – 40 years 2.1 2.1 2018: 88.3% ■ More than 41 years 0.1 0.1
In South Africa, in line with our employment equity targets, we improved the representation of black people, and African people in particular, at all management levels. The representation of black people in the total South African workforce is 82.0%. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 54 DELIVERING OUR STRATEGY EMPLOYEE ENGAGEMENT CONTINUED
BUSINESS LINE METRICS
NUMBER OF PERMANENT BANKING EMPLOYEES 44 996 2018: 47 419 2017: 48 322
23 327 3 555 2 714 15 400 PBB CIB WEALTH CORPORATE FUNCTIONS 2018: 24 857 2018: 3 751 2018: 2 642 2018: 16 169 2017: 25 526 2017: 3 807 2017: 2 637 2017: 16 352
VOLUNTARY TURNOVER 4.8% 2018: 4.9% 2017: 5.5%
4.2% 5.7% 7.4% PBB CIB WEALTH 2018: 4.3% 2018: 6.5% 2018: 7.8% 2017: 5.1% 2017: 7.4% 2017: 8.2%
eNPS +18 2018: +23 2017: +14
+16 +8 +29 PBB CIB WEALTH 2018: +23 2018: +14 2018: +24 2017: +13 2017: +7 2017: +16 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 55
PERFORMANCE AGAINST STRATEGY The human capital strategy supports the delivery of the group’s three key focus areas with a clear focus on employee engagement. Our performance + and reward practices are aligned to ensure that we recognise and reward the contribution of our people accordingly.
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CLIENT DIGITISATION INTEGRATION CENTRICITY We are ensuring that our people To enable our people to deliver have access to user-friendly digital value to our clients in an Our people management practices solutions ranging from self-service integrated way, a range of culture are continually being aligned to capabilities to people programmes and operating model ensure that our people are management solutions enabled alignment initiatives have been equipped with the right skills and through integrated global systems. introduced to support the required knowledge to best serve the needs Initiatives are underway across the behavioural shifts and ensure that of our clients. group to introduce digital tools we have the right people and that will improve workplace capabilities in place to achieve productivity and employee access integration. We deploy new ways to connectivity and collaboration of working to ensure multi- mechanisms. Tailored skills disciplinary teams can respond to development programmes ensure changing client requirements and the future readiness of employees business demands at speed. for new roles in line with the digital capability requirements.
Ensuring that we have the right people and capabilities A to deliver value to our clients, particularly given that competition for highly specialised skills is intensifying.
Leveraging diversity for commercial value and The following key B ensuring local market expertise and relevance. challenges are addressed by the five human capital Enabling our people to be adaptive and to remain priorities discussed C relevant in a rapidly evolving and increasingly digital in this section environment. of our report.
Creating an environment in which our people are D fully engaged and committed to achieving our purpose – with employee engagement being a lead indicator of client satisfaction, it is incumbent on us to ensure a culture, working environment and value proposition that is compelling for our employees. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 56 DELIVERING OUR STRATEGY EMPLOYEE ENGAGEMENT CONTINUED
AD Challenges addressed
PROMOTE A MORE Achieved in 2019 INTEGRATED AND •• Engaged with employees through multiple channels: PERSONALISED –– Annual employee engagement survey to benchmark key EMPLOYEE EXPERIENCE engagement drivers and inform business strategies and people plans. Online dashboards provided leaders with immediate access to their survey result. 1. –– Nine bespoke surveys based on business demand to obtain input from employees on strategic topics and to enhance design of people practices and tools. 2019 KEY PRIORITIES •• Our experimentation with employee journeys continued and we: –– Piloted the induction journey. •• Deliver compelling employee experiences that –– Implemented the retirement journey in South Africa to resonate with our people and enable the group assist prospective retirees with the transition into the to thrive. next phase of their lives and possibly also their careers. •• Ensure that our employees are deeply •• Ensured hiring decisions are complemented by objective connected with our purpose and place the client data linked to our identified capability areas by completing at the centre of everything they do. the roll out of an outsourced psychometric assessment capability. This has delivered an enhanced candidate and •• Listen to our employees and enable them to line manager experience. share their insights in real‑time to help co-create a conducive work environment. •• Provided wellbeing services to employees to help them manage their emotional, mental, physical and financial wellbeing and build resilience in a rapidly changing socioeconomic and operating environment. •• Introduced a highly competitive Personal Health Insurance benefit offering for all South African employees who become unable to work through illness or injury. •• Finalised a pay equity methodology that assesses the gender pay gap on an ‘equal pay for work of equal value’ basis. This will align us with global best practice and demonstrates our commitment to fair and equitable remuneration practices. ENGAGEMENT INSIGHTS •• Made significant progress on the development of our people In our annual employee engagement survey, eNPS promise to support the Standard Bank brand. (‘I would recommend Standard Bank as a good •• Accomplished the alignment and cascading of performance place to work’) was +18 (2018: +23) and the goals linked to the group’s value driver metrics across all emotional promoter score (‘How I feel about business areas. working for Standard Bank’) was +48 (2018: +58). •• Continued to align reward and recognition schemes with Notably, responses to all questions scored 70% or our key focus areas and value drivers. above, which is the benchmark measure on the survey to identify areas requiring focus and •• Continued to celebrate team and individual excellence improvement. through our Mark of Excellence recognition programme.
Our three highest rated items were: •• 95% of employees have good relationships with Future priorities their colleagues. •• 92% of employees understand their contribution •• Further evolve the design of critical employee journeys to the broader Standard Bank Group purpose. across different employee segments. •• 88% of employees are proud to be associated •• Implement the new people promise and employer brand. with the Standard Bank Group. •• Advance the involvement of our employees in the design of people-centric solutions. Overall, the area highlighted for improvement is to •• Continue to promote personal wellbeing. ensure that employees have opportunities to grow and advance their careers, where only 70% of employees responded positively.
Three new questions were introduced in 2019 to assess the opportunity for innovation, ability to shape work and wellbeing in managing work demands. All three had pleasing results, with scoring ranging from 75% to 80%. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 57
ACCELERATE THE DIGITISATION OF RELIABLE HUMAN CAPITAL + SERVICES THAT ARE CONVENIENT OUR EMPLOYER BRAND FOR OUR PEOPLE
We received a number of industry awards in 2019 in recognition of 2. AC our achievements. + Challenges addressed Our people 2019 KEY PRIORITIES •• Sharon Taylor, the group Head of Human Capital, won the Strategy & Leadership Award and the •• Provide access to advanced technology and tools that support the = Diversity & Transformation future world of work. Award at the inaugural CHRO • Empower our employees and managers to conduct human capital Awards in South Africa. • transactional activities and processes through self-service •• Sue Tosh, the group Head of functionality. Compensation & Benefits, won the • Leverage employee insights and data to enhance decision-making, SARA (South African Reward • inform people plans and drive disruptive changes. Association) President’s Award, recognising her outstanding contribution to the reward profession. •• Funke Amobi, the Human Capital Achieved in 2019 Head of IBTC Nigeria, won the All Africa Employee Engagement •• Used data and analytics to inform people strategies. Professional of the Year Award. •• Ongoing optimisation of manual processes to enhance the employee experience through a digital mechanism. Our business •• Developed an integrated view of all employee data to enable holistic •• Won Best Culture of Learning conversations and line management decision-making in respect of Award at the 2019 LinkedIn our people. Talent Awards. •• Experimented with AI solutions to enhance hiring practices for high •• Finalist for LinkedIn Employer volume roles. of Choice Award, which we •• Introduced robotics and intelligent automation to certain processes, previously won in 2018. delivering improved process efficiencies and employee experience. •• Won Best Digital Campaign and •• Upgraded our cloud-based Learning Management System, Best Integrated Campaign introducing enhanced functionality and supporting personalised categories at the 2019 SAGEA learning anywhere, anytime and on any device. (South African Graduate •• Piloted an innovative, cloud-based micro-learning platform to provide Employers Association Awards) all employees with access to the resources they require to improve and were once again the winner of their current skills and build future skills. The solution uses the Employer of Choice Award behavioural and data science to continuously analyse employees’ in Retail and Commercial skillsets and automatically personalises development pathways for Banking in 2019. them based on their unique skills, roles and learning goals. •• Stanbic Bank Uganda won •• Concluded the roll out of the MyBenefits platform. This app gives the 2019 Employer of the employees a real-time view of their total economic contract with the Year Award organised by the group. Available to employees in 19 countries, we have seen a positive Federation of Uganda Employers impact on retention as our employees are better informed of the in conjunction with the value of both their tangible and intangible benefits. International Labour Organization and Makerere University School of Psychology. Future priorities •• Stanbic IBTC Nigeria won the 2019 Chartered Institute of •• Design and test solutions to enhance the digital workplace. Personnel Management’s •• Implement cloud-based people analytics and predictive insights Strategic HR Award and capability to equip leaders and human capital practitioners with the Diversity and Inclusion Award. right information about our people and specific employee segments, •• Stanbic IBTC Nigeria won the to enable informed forward-looking workforce decision-making. All Africa Customer and •• Review the technology landscape supporting core human capital Employee Experience Award lifecycle processes and implement enhanced technology to support and the Engagement Company the global compensation process. of the Year Award in the major •• Roll out the micro-learning platform to provide a comprehensive view corporate category. of our capabilities and enhance our competitiveness as an employer. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 58 DELIVERING OUR STRATEGY EMPLOYEE ENGAGEMENT CONTINUED
AC Challenges addressed
ENABLE OUR PEOPLE TO GROW AND THRIVE BY OFFERING MEANINGFUL LEARNING AND CAREER EXPERIENCES
3. Achieved in 2019 •• Delivered flexible digital learning solutions, supporting the growth of our employees in 2019 KEY PRIORITIES their current role and enabling them to learn new skills. •• Identified additional capabilities that will be in •• Encourage a culture of continuous learning through access to high demand in the future and implemented ‘relevant, anytime, anywhere’ learning experiences. fit-for-purpose interventions to accelerate •• Implement learning solutions that develop the future skills and skills development in these areas. capability we need. •• Extended a bespoke solution in which retired •• Provide access to accredited and recognised learning, executives are able to contribute to the group contributing to the future employability of our people. by coaching talent. •• Designed and delivered a future-fit talent management approach that is globally scalable. •• Developed a groupwide strategy to ensure alignment and collaboration in the development of key future skills to reduce the duplication of effort and maximise investment. •• Developed and implemented a tailored coaching and mentoring toolkit that tracks the SKILLS DEVELOPMENT INSIGHTS progress of people in coaching relationships. The annual employee survey indicated that close to 80% •• In an increasingly digital context, designed a of respondents are positive about their opportunities for framework for the development of ‘meaningful development. Although the score for career growth is positive, conversation’ skills for application both it is our lowest scoring item and there is scope for improvement internally and with our clients. once we better understand the feedback of our people: •• Piloted a Behavioural Science Academy in •• 77% of employees believe they have opportunities for South Africa, the first of its kind. development. •• 70% have opportunities to grow and advance their careers. Future priorities Investment in learning and development remains a key priority given the transformation of the industry, the importance of •• Continue to invest in innovative learning responding to changing client requirements and the criticality of solutions to bring relevant learning to our building skills for the future. Deeply embedded in our values and people at the right time and place. an indicator of employee engagement, we invested R878 million •• Optimise the use of coaching and mentoring to in the development of our people (2018: R931 million). The assist employee growth and transition to new reduction in spend correlates with our decline in headcount over ways of working. the period. •• Design and implement career management journeys that empower employees to take We experimented with a cloud-based learning platform to enable charge of their careers. self-directed learning, focused on the development of emerging and future skills. This supplemented the introduction of bespoke •• Continue to focus on new emerging skills to skills development pathways to prepare our people to be ensure the organisation remains relevant and future ready. demonstrates the capabilities to win in the marketplace. Bursaries totalling R42.4 million were provided to 1 794 employees across the group to support further formal study at an under- graduate and post-graduate level. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 59
AB CD Challenges addressed Achieved in 2019
•• Completed a tailored leadership development solution for our top leaders. The Journey to Greatness programme supported key outcomes directly linked to the achievement of our strategic priorities. This included delegates from different businesses across Africa, the corporate functions and the business lines working together during the sessions to solve for ENABLE organisation-wide challenges. + •• Incorporated the Leadership Identity successfully in all groupwide BOLD AND management and leadership programmes. It has also been applied in all INSPIRATIONAL culture journeys to ensure that it is widely adopted as our aspirational LEADERSHIP AND behaviour shift charter across the group. A CONDUCIVE •• Designed, developed and implemented a range of bespoke leadership + CULTURE TO and talent development programmes. •• Informed our culture journeys using critical building blocks that included DELIVER THE a deep dive review of our employee comments in the annual engagement GROUP’S survey, as well as a crisp articulation of the business problem that needs to ASPIRATIONS be solved through a meaningful shift in mindset and behaviour. The majority of business lines and countries have been engaged on this methodology. = 4. •• Continued to drive an active and collaborative relationship between the enterprise business agility teams in IT, and the human capital leadership and culture teams, creating an integrated approach in the implementation 2019 KEY PRIORITIES of agile ways of working. •• Approved the revised corporate social investment strategy for South Africa. •• Progressed the development of a diversity and inclusion framework for •• Clearly understand what leadership Africa Regions, with the aim that each country will develop their own attributes and competencies are diversity and inclusion plan in time. required in the future. •• Enhanced our processes for dealing with sexual harassment, harassment •• Develop our leaders to be and unfair discrimination in South Africa by including an option for referral accountable role models and to an external, expert Ombudspanel. catalysts for change. •• The group is committed to maintaining and developing fair employment •• Build a strong client-focused culture practices in all the countries in which it operates. Line managers, human supported by clearly defined capital business partners and employee relations specialists across Africa behaviours. Regions were trained to effectively manage misconduct and poor •• Create an inclusive work performance, as well as being trained to support the group’s digitisation environment and culture. journey through the adoption of a cloud-based employee relations management capability. The potential disruption and employee insecurity •• Ensure consistent and fair caused by organisational restructuring in key markets in Africa Regions were employment practices that are effectively and seamlessly managed with minimal impact to the group and our aligned to regulatory requirements. employees. In our largest market, South Africa, ongoing restructuring to support changing commercial requirements was the topic of joint problem- solving with our representative union, SASBO (the South African Society of Bank Officials). Wage negotiations were settled amicably in all unionised markets.
DEVELOPING LEADERS Future priorities •f 167 o our top leaders attended the Journey to Greatness •• Focus on creating a leadership effectiveness framework that harnesses programme in 2019 aimed at driving all the lead indicators that impact and enable great leadership practices strategic alignment and developing in the group. behaviours articulated by our •• A second wave of leaders will complete the Journey to Greatness chosen leadership identity. development programme, resulting in a critical mass of leaders being • 3 781 employees representing all exposed to, and practicing the aspirational leadership shifts required business areas and geographies to support and implement our strategic priorities. participated in management and •• Support the various business lines and countries in identifying the various leadership development practices that enhance and enable employee engagement, which directly programmes. relates to psychological safety and discretionary effort required to achieve • 1 634 women attended the transformational shifts in mindset and organisational culture. customised development programmes across the group. •• Continue to evolve the various management and leadership journeys in the organisation beyond the development programme offerings to include Beyond our contribution to our own immersions, experiences and practical work exposure, to accelerate the workforce, in South Africa we adopted growth of our leaders. a new corporate social investment •• Enhance data analytics to identify trends and risks that will assist in strategy focusing on early childhood proactively managing employee relations. development (ECD) and foundation •• Continue to promote and build constructive and value-adding relationships phase education. with our representative unions. •• Empower human capital teams and line managers to effectively manage AIR page 92. employee relations through targeted training initiatives. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 60 DELIVERING OUR STRATEGY EMPLOYEE ENGAGEMENT CONTINUED
AB CD Challenges addressed
ENSURING A FUTURE-FIT ORGANISATION AND Achieved in 2019 WORKFORCE IN LINE WITH •• Made steady progress in building depth in our local THE GROUP STRATEGY talent pools. •• Improved our coverage ratio for key positions from 66% to 77% through deliberate focus on cross-functional 5. succession planning. •• Enabled our people to take on new career opportunities within the group through internal transfers and promotions. •• Facilitated international assignments and secondments 2019 KEY PRIORITIES to expose executives and individuals to specialised skills and new markets. •• Maintained our focus on progressing women into senior roles through bespoke development interventions, with •• Accelerate the development of a diverse talent a particular focus on our Africa Regions business. pipeline. •• Delivered talent development initiatives across business •• Deepen the local leadership pipeline across lines and corporate functions. operations to drive a deep understanding of local •• Introduced an enhanced framework to standardise markets and client needs. assessments for employee segments, to enable informed •• Provide opportunities for young people to grow talent acquisition and talent development practices. and thrive, and to build a strong talent pipeline •• Continued to invest in young talent through student for the future. bursaries, scholarships and workplace experience •• Ensure an organisational design that enables us opportunities delivered through our learnership, internship to compete and win in our local markets. and graduate programmes. •• Increased the depth of succession pipelines, aligned to the group’s core capabilities which has informed appointments into key leadership roles. The group talent philosophy and framework was reviewed to ensure that it remains fit-for-purpose and is aligned with future skills and capability requirements. •• Completed a range of talent development initiatives. For example, the Africa Regions Chief Executive Successor INVESTING IN YOUNG TALENT and Female Development Programmes have been officially launched and a structured assessment process is underway Initiatives to develop our young talent pools to ensure to inform bespoke development plans for each of the diverse and skilled talent pipelines include: identified successors. •• Graduate programmes: 183 graduates joined the •• Completed the conceptual design of operating models for group this year on our various programmes and all business areas, in line with our group operating principles. attended our Future Movers Summit. 155 of these •• Drove various initiatives to review operating models, graduates were placed in the South African structure and capability requirements across a number business, with a strong focus on data science and of our business lines and countries, to respond to changing quantitative skills. 61% of our South African client and business requirements. graduates are women and 92% are black. •• Piloted strategic workforce planning in three sites. 28 graduates joined us across Lesotho, Namibia, Nigeria and Mozambique. •• Implemented a unique reverse mentoring programme to support board members’ oversight of our digitisation • Learnerships and internships in South Africa: • progress. In 2019, we enrolled 709 unemployed people in learnership programmes to build new and emerging skills in the group. Our focus expanded to include data science, robotics, behavioural economics Future priorities and cloud computing. •• YES initiative in South Africa: In support of the •• Ensuring succession depth at senior executive level President’s Youth Employment Service initiative, and in highly specialised roles. 56 interns and 171 learners registered in 2019. •• Accelerating transformation at executive and senior •• Reverse mentoring programme: 51 talented, management levels to better reflect the communities young ‘digitally savvy’ employees have been paired in which we operate. with board members across our global footprint •• Design of a future-fit career and succession strategy in a unique reverse mentoring programme. that can be scaled globally and deployed consistently across the group. •• Implement a groupwide approach to strategic workforce planning to ensure future-fit planning and pipelining of skills. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 61
+
GENDER EQUITY + SUPPORTING Sim Tshabalala, our group chief executive, is a Thematic Champion CAREER MOBILITY of the UN Women HeForShe initiative, a global campaign for the •• Career mobility: 60.4% of advancement of gender equity. HeForShe is rooted in the our vacancies in 2019 were understanding that gender equality will only be achieved with the filled through internal involvement of men. The movement invites all people to stand together promotions and transfers. to create a gender equal world. It recognises that fairness is not about = •• Flagship employee treating everyone the same, but about treating people in a way that exchange programme enables them to achieve their full potential. with ICBC: Since inception, In line with the HeForShe ethos, we aim to create an inclusive culture, 43 assignees have participated in short-term and to engage men and women to interrogate and address the assignments which build systemic and societal constraints that many women face. This includes: the skills of local talent and •• Making it easier for all employees, men and women, to manage facilitate a stronger Africa- the demands of work and home life. China relationship through the •• Making it easier for women to integrate back into their positions exchange of knowledge, ideas after maternity leave. and skills. In 2019, six Standard Bank employees •• Offering opportunities for employees to take sabbaticals and commenced assignments in extended leave periods when certain conditions are met. China and two ICBC employees participated A number of initiatives have been implemented to support the in multiple assignments with HeForShe movement. These included Critical Conversations and Standard Bank. It is envisaged debates about various aspects of gender equity, Barbershop sessions that several more assignees to deliberately engage men in the conversation and ongoing focus on from Standard Bank will leadership development programmes for women. participate in the programme in 2020, focusing on scarce Accelerating the representation of women in senior management and skills and business executive positions is a diversity imperative across the group. We have development. included gender equity measures in our employee engagement metrics •• International assignees: for the first time this year and continue to make progress against the In support of our mobility following targets as part of our HeForShe commitment: strategy, 120 assignees are currently posted to various countries in our business.
33% by 2021 40% by 2023
WOMEN ON THE GROUP BOARD WOMEN IN EXECUTIVE POSITIONS ACROSS THE GROUP Achieved in 2019
40% by 2021 20% by 2021
WOMEN IN EXECUTIVE WOMEN CHIEF EXECUTIVES POSITIONS IN SOUTH AFRICA IN AFRICA REGIONS WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 62 DELIVERING OUR STRATEGY
RISK AND CONDUCT
Effective management RISK of risks and our How we manage it personal, market and Our risk management systems are robust with a well-developed risk management framework governed by mandated board and management committees with societal conduct that the relevant expertise.
reflect the highest Our risk measures seek to balance regulatory requirements and shareholder standards of ethical and expectations for risk-adjusted returns. We carefully manage our capital, liquidity and funding levels to support business growth, maintain depositor and creditor confidence, responsible business and create value for our shareholders and other stakeholders. The risks we take are measured and monitored against the risk appetite set at group level, and risk limits practice, is how we set at legal entity and business line levels on a monthly basis and includes more earn the trust that our detailed portfolio limits. stakeholders place in us. Our licence to operate is HOW WE PERFORMED based on this trust, making compliance with Proactive management of our risk environment ensured that our mitigation strategies were mostly effective, including our exposures in all sectors. There all applicable laws and were no breaches of our approved risk appetite and the group remains regulations non- sufficiently capitalised. negotiable. 14.0% 119.5% MEASURING OUR CET 1 NSFR 2018: 13.5% 2018: 118.6% STRATEGIC PROGRESS TARGET: 11.0% – 12.5% TARGET: >100%
Common equity tier 1 ratio Net stable funding ratio is the What success looks like is a measure of solvency that amount of available stable funding assesses capital strength against our relative to the amount of required risk-weighted assets (RWA). stable funding in accordance Doing the right business, the right with Basel III. way, without exception. 16.7% % Contributing to safe financial TOTAL CAPITAL 2.8 systems in the markets in which we ADEQUACY RATIO RoRWA operate. 2018: 16.0% 2018: 3.0%
Resolute compliance with laws Return on risk-weighted assets and regulations. % measures the return we generate 138.4 based on our average RWA, our earnings relative to regulatory LCR capital utilisation. Safeguarding our reputation and protecting it from harm. 2018: 116.8% TARGET: >100%
Liquidity coverage ratio measures our ability to manage a sustained outflow of client funds in an acute stress event over a 30-day period. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 63
CONDUCT How we manage it We manage conduct risk in accordance with our conduct governance Risk reflections framework and are guided by our values and code of ethics. The group operates in a constantly changing environment where a complex and inter- We monitor our conduct and culture through a combination of leading and related spectrum of existing risks and lagging conduct risk indicators. Where deficiencies are identified, we take emerging threats and opportunities influence immediate remedial action. Non-compliance is met with disciplinary our business activities and shape our future processes and appropriate action. Each business line and corporate sustainability. function is responsible for monitoring of conduct risk relevant to its business activities, and for escalating material concerns to the relevant During 2019, we navigated external risks like risk governance committees. the economic growth slowdown and dislocation in global trade associated with the trade tensions between China and the US; HOW WE PERFORMED shifting competitive forces as technology companies seek to disintermediate the value proposition of traditional banks; the impact of All business lines and corporate functions submit quarterly changing weather patterns on insurance conduct and governance dashboards to the group executive claims and risk modelling; increasing committee, providing a barometer of the prevailing ethical regulatory pressure, which included treating climate. The dashboards, together with other mechanisms, customers fairly and caps on rates and fees; enable us to monitor and report regularly on conduct risk using and, the rise of investor and societal activism predictive and retrospective analysis. and expectations for business to manage environmental and social risks. Inside the Our indicators group, we continued to closely manage conduct risk and the risks associated with •• Effectiveness of recruitment processes and employee digitisation, including cyber risks and privacy resourcing. concerns. •• Integration of new employees during onboarding and induction. • Transparency and effectiveness of our whistleblowing processes. • AIR page 18. •• Adherence to compliance training requirements. •• Employee personal conduct. Prevalent risks and emerging threats in our •• Effectiveness of new client product sales. operating environment are articulated in the •• Client satisfaction. group risk management framework and are •• Effectiveness of money laundering prevention practices. managed and monitored as part of day‑to‑day •• Information security processes. processes.
RCM Read more about our risk management framework online. 2019 KEY PRIORITIES Our executives, senior management and compliance teams work together to reinforce a compliance culture across the group. Our combined assurance model includes audit, •• Allocate resources to growth opportunities in key sectors within risk appetite. compliance, risk and business management teams, who collaborate to ensure •• Continue to digitally transform risk management processes a coordinated approach to providing through leveraging data, simplifying processes, automating workflows and using advanced analytics in decision-making. assurance on whether top risks are being effectively managed throughout the group. •• Implement a risk digitisation architecture that enables appropriate risk decision rights to empower our people. AIR page 66. •• Proactive management of regulatory risks and emerging threats. •• Enhance scenario planning to respond to changes in our operating environment. We benchmark best compliance risk •• Continue to embed the conduct risk framework and enhance management practices and continuously conduct risk reporting measures and indicators. mature our compliance function to remain •• Implement our third-party risk management enhancements. abreast of international standards in •• Increase emphasis on the protection of information throughout compliance management and apply enhanced its lifecycle. analytics to ensure that these support the delivery of the group’s strategic priorities.
TRADE-OFFS
•• In managing our exposures responsibly in line with macroeconomic and socio-political realities, it is sometimes necessary to tighten our risk appetite in lending to vulnerable sectors and clients. This reduces the potential for losses but also inhibits client growth and revenue generation. •• We manage the natural tension between client convenience and the speed at which we can fulfil their needs, and the parameters of our mature and continually evolving regulatory, supervisory and control environment. •• The rising cost of compliance, including the training of our people and adapting business systems to comply with new and emerging legislation, is a necessary condition of ensuring we maintain the reputational benefit of being a trusted organisation. •• Globally, investors and regulators require increased transparency on how businesses are managing non-financial risks, particularly those related to climate change. Our size and footprint places us under constant regulator and other external stakeholder scrutiny. It is, therefore, imperative that we are able to demonstrate that our business activities create measurable value for all our stakeholders in a socially and environmentally responsible manner. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 64 DELIVERING OUR STRATEGY RISK AND CONDUCT CONTINUED
MANAGING OUR RISK
We take a holistic, forward-looking view of the risks we face, assessing both the prevalent and emerging threats in our operating environment. Our well-developed framework supports a consistent approach to risk and capital management throughout the group. RISK GOVERNANCE DOCUMENTS, comprising governance GROUP STRATEGY frameworks, standards and policies Our governance of risk is underpinned by a strong control environment and is defined Organisational design in our risk governance and management Risks are identified across the whole enterprise, including all business units, standards and policies. corporate functions and legal entities. REPORTING AND COMMITTEE STRUCTURES Our governance structure enables oversight Risk management approach and accountability through appropriately mandated board and management Our risk management approach ensures consistent and effective management of risk committees. within our board-approved risk appetite and provides for appropriate accountability and oversight.
RISK UNIVERSE Our risk universe represents the risks that are fundamental to our business. We regularly scan our operating environment for changes to ensure that it remains relevant.
STRATEGIC RISKS
Business risks Reputation risk The risk of unexpected earnings variability, as a result of strategic choices The risk of potential or actual damage to our image which may impair and failed strategy execution. This excludes the effects of market risk, credit the profitability and/or sustainability of our business. risk, structural interest rate risk and operational risk.
FINANCIAL RISKS
Credit risk Liquidity and funding risk The risk of loss arising out of the failure of obligors to meet their financial The risk that an entity, although solvent, cannot maintain or generate or contractual obligations when due. It is composed of obligor risk, sufficient cash resources to meet its payment obligations in full as they fall concentration risk and country risk and represents the largest source of due, or can only do so at materially disadvantageous terms. risk to which banking entities in the group are exposed. Country risk Market risk Also referred to as cross-border country risk, is the uncertainty that The risk of a change in the market value, actual or effective earnings, or obligors (including the relevant sovereign, and our branches and future cash flows of a portfolio of financial instruments, including subsidiaries in a country) will be able to fulfil obligations due to the group commodities, caused by adverse movements in market variables such as given political or economic conditions in the host country. equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities Insurance risk in all of these variables. The risk that actual future underwriting, policyholder behaviour and expense experience will differ from that assumed in measuring policyholder contract values and in pricing products. Insurance risk arises due to uncertainty regarding the timing and amount of future cash flows from insurance contracts.
NON-FINANCIAL RISKS
Other non-financial risks
Financial accounting risk People risk Losses arising due to inadequate management and oversight of internal The challenge or failure to attract and retain skilled, committed people financial accounting processes. and the inability to enable people to grow and remain relevant in a rapidly evolving workplace. Physical assets risk The risk of damage to the organisation’s physical assets, client assets, Tax risk or public assets for which the organisation is liable, and (criminal) injury Any event, action or inaction in tax strategy, systems, people, to the organisation’s employees or affiliates. operations, financial reporting, compliance or external events including events that may result in an uncertain tax treatment, which either Model risk adversely affects the group’s tax or business objectives or results in an Incorrect or inappropriate use of a model and fundamental errors in unanticipated or unacceptable level of monetary, financial statement or models that may produce inaccurate outputs that are not aligned to reputational exposure. design objectives and intended business uses. Legal risk Environmental and social risk The potential adverse consequences arising from non-compliance with The direct and indirect impact on the environment and society caused legal or statutory responsibilities and/or legal rights not being binding by the group that might prevent the group from achieving its strategic or enforceable. objectives. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 65
+ RISK LIFE CYCLE THREE LINES OF DEFENCE Our risk universe is managed through We leverage the lines of defence to maintain the risk lifecycle. Our risk a strong and resilient risk culture. measurement process includes + rigorous quantification of risks under Implement an effective risk management 1 RISK OWNERSHIP system and manage risk through all
normal and stressed conditions, up to ASSURANCE entity levels COMBINED and including recovery and resolution. DIRECT, CONTROL Facilitate, advise and oversee business on 2 AND OVERSIGHT activities within risk management Identify Manage Review and report on the adequacy and = RISK ADVISORY 3 effectiveness of the risk management AND ASSURANCE system (process, people and technology) Assess and Monitor and measure report Doing the right business, Risk culture the right way
NON-FINANCIAL RISKS continued
Top risks We continually assess and annually identify the top risks that require focused management due to their potential to have a material impact on our strategy.
Prevalent top risks
Cyber risk Third-party risk The potential destruction, unauthorised or erroneous use of Ineffective management of third-party relationships and the information systems that could result in service disruption, operational, compliance, reputation, strategic and credit risks inherent reputation damage and significant financial loss. in the services and products they provide to the group.
Information risk Financial crime risk The accidental or intentional unauthorised use, access, modification, The risk of economic loss, reputational damage and regulatory disclosure, dissemination or destruction of information resources, sanctions arising from any type of financial crime against the group. which would compromise the confidentiality, integrity and availability. Financial crime includes fraud, theft, money-laundering, bribery, This may result in service disruption, reputational damage and corruption, tax evasion, terrorist financing and sanctions. financial loss. Compliance risk Technology risk The potential legal or regulatory sanction, financial loss or damage to The inability to manage, develop and maintain secure, agile technology reputation that the group may suffer as a result of its failure to comply capability that enables the group to operate efficiently and achieve with laws, regulations, codes of conduct, internal policies and strategic objectives. standards of good practice applicable to its financial services activities. Business disruption risk Losses arising from critical system failures and/or business process failures impacting services provided by us to our stakeholders.
Emerging top risks •• Increasing exposure to •• Increased scrutiny on •• Expanding use of non- environmental threats, conduct to ensure fair client traditional models, including including carbon emissions, practices. those that affect conduct. climate change and stranded assets. AIR page 66. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 66 DELIVERING OUR STRATEGY RISK AND CONDUCT CONTINUED
TOP RISKS CYBER RISK
Potential impacts Drivers Mitigants •• Reputation damage or financial loss •• Evolution of cyber criminals and their •• Monitoring platform health and from compromised client information. sophisticated use of technology network anomaly detection. •• Disruption of services impacts client increases cyber risk. •• Ongoing awareness and training, experience and ability to conduct •• A multi-channel digital experience particularly for high-risk users. transactions effectively. requires ongoing technological •• Ongoing simplification of IT enhancements to remain relevant, landscape and move to cloud up-to-date and safe from computing. cyber‑attacks. •• Intelligence‑led cyber strategies with •• Increased number of devices a risk approach based on learning connected to the network increases from attack trends and incidents. security risks.
TECHNOLOGY RISK
Potential impacts Drivers Mitigants •• Reputation impact of transactions •• Complex and aging legacy •• Simplify IT architecture and reduce not being processed appropriately or infrastructure can be prone to failure. reliance on legacy technology. timeously. •• Shifting consumer technology •• Accelerate migration of data to the •• Outages may negatively impact preferences are increasing the cloud to drive digital transformation, client ability to transact timeously demand for 24/7 services, increasing enhance security and improve and result in unreliable the pressure to be relevant. system stability. communication.
INFORMATION RISK
Potential impacts Drivers Mitigants •• Reputation damage or financial loss •• Securing the growing amount of •• Improve access management from compromised client information. available information from being controls. •• Unlawful use of client data could accessed by unauthorised users. •• Continuously improve user reduce future trust. •• Increased reliance on third-parties, authentication methods. •• Increased controls to mitigate like cloud service providers, who have •• Use predictive risk monitoring and information risk may negatively access to information. mature data leakage prevention impact on client experience. •• Upcoming regulations in different controls. •• System outages or disruption of jurisdictions relating to privacy and services due to compromised the use of client information. information.
REGULATORY IMPACT RISK
Potential impacts Drivers Mitigants •• Loss of clients due to unsuitable •• The volume, pace and scale of •• Dedicated specialists monitor and products and services. regulation together with the assess the implications of regulatory •• Increased regulation on conduct uncertain timelines and cost of developments and engage with principles and standards. implementation. stakeholders to understand and •• Increased costs and documentation •• Increased regulation across Africa constructively influence regulation. requirements from changing and the transmission of personal •• Ongoing investment in surveillance regulatory requirements. information across borders. and reporting systems, as well as business intelligence. •• Ongoing compliance and awareness training.
BUSINESS DISRUPTION RISK
Potential impacts Drivers Mitigants •• Reputation damage and financial •• Increased demands made on •• Review IT infrastructure design and loss arising from disrupted business technology and information systems align disaster recovery approach for services. and the increased threat of end-to-end resolution. •• Disruption of self-service channels cyber‑attacks requires resilient •• Include business recovery capability together with reduction of physical ability to withstand disruption. at initiation stages of initiatives and channels may cause loss of clients •• Consumer demand for services that product development. due to lack of viable alternatives. are always available. •• Continue to develop proactive •• Potential leakage of client data •• Migration to cloud services to monitoring capabilities. during disruptions. improve digital capabilities. •• Dependency on aging infrastructure in Africa. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 67
THIRD-PARTY RISK
Potential impacts Drivers Mitigants •• Service disruptions due to •• Increased regulatory oversight and •• Implement and embed third-party inadequate performance by third focus on third-, fourth- and management framework. parties. fifth-party management. •• Continue to perform appropriate due •• Unauthorised sharing of client •• Emergence of third-party diligence and background checks on information and data breaches by or partnerships and outsourcing as third parties. through third parties. business enablers, particularly •• Ongoing risk management and •• Inferior product and service quality. FinTechs. monitoring of third parties. •• Heightened economic and regulatory pressure resulting in increased outsourcing.
FINANCIAL CRIME RISK
Potential impacts Drivers Mitigants •• Financial losses to clients or the •• Increased financial pressure due to •• Roll out the universal fraud risk group due to scams and tactics like ongoing macroeconomic challenges management model, which includes phishing. and the sophistication of fraud real-time analytics and strong •• Reputation risk due to data breaches practices. authentication protocols. and digital fraud. •• Improving client experience requires •• Ongoing employee and client •• Improving controls may add friction frictionless services and real-time awareness campaigns. that negatively impacts on client processing, increasing risk. experience.
CONDUCT RISK
Potential impacts Drivers Mitigants •• Potential loss of clients due to •• Regulators and other industry •• Manage culture and conduct through conduct failures or inability to deliver stakeholders continue to scrutinise the conduct risk framework. solutions that meet client conduct, ensuring fair client practices. •• Enhance metrics for conduct expectations. •• Increased complexity in regulatory reporting through established •• Inappropriate products and services frameworks addressing conduct, governance structures. and poor sales incentives may drive including the Conduct of Financial •• Invest in culture initiatives and reckless or unfair lending practices. Institutions Bill, the Retail Distribution employee training to ensure that •• Complex fee structures may Review and the Financial Sector good conduct is embedded at all undermine competitiveness and Regulation Act’s new Ombud levels of the group. result in loss of clients. structure.
CLIMATE CHANGE RISK
Potential impacts Drivers Mitigants •• Increased costs associated with •• A rapid shift in public perception and •• Develop a coordinated approach and carbon tax and pricing. growing risks associated with strategy to adequately address •• Business interruptions due to investing in fossil fuel projects due to climate change risk and opportunity. extreme weather events. adverse environmental impact. •• Identify and develop metrics to •• Increased global focus and inform decision-making and regulation relating to climate change. reporting, including climate change •• Investors require more transparency risk stress testing and scenario on ESG performance. analysis. •• Increased consumer demands for low-carbon products and services. •• Changing weather patterns together with more frequent and severe weather events.
NON-TRADITIONAL MODELS RISK
Potential impacts Drivers Mitigants •• Financial loss, poor business and •• Models are being expanded from •• Enhance model risk management strategic decision-making or damage pricing and capital exposure to practices. to the group’s reputation. include business analysis. •• Assess the viability of implementing •• Client risk assessments that are •• Regulators are increasingly focused AI and machine learning in models. inaccurate or do not reflect changes on models that affect conduct. •• Invest in relevant skills for the future, in client circumstances resulting in such as programming and data incorrect credit scoring and science support, and identify investment decisions, unconscious potential model choices relevant for bias and incomplete client profiles. specific processes.
RCM Read more online. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 68 DELIVERING OUR STRATEGY RISK AND CONDUCT CONTINUED
MANAGING DURING 2019, WE FOCUSED ON: EVOLVING Conduct REGULATORY The scope of banking regulation continues to grow. New financial reforms SCRUTINY introduced by the Conduct of Financial Institutions Bill and Conduct In an evolving regulatory Standards for Banks, National Treasury, and the Financial Sector Conduct environment, financial services Authority (FSCA), focus on ensuring financial institutions provide products organisations are taking a more and services that deliver fair client outcomes. The FSCA will also scrutinise strategic view of how to identify, how banks reward employees to establish whether their governance, risk measure and control their management, remuneration and performance management support a non-financial risks. An increasing culture of good conduct. focus on privacy and consumer protection rights, seen in legislative The group has dedicated board and management committees responsible developments such as the for the oversight of conduct and culture. Our initiatives aim to strengthen European General Data Protection good practice in our culture and entrench our values in our day-to-day Regulation (GDPR) and the Final activities by focusing on personal accountability. We are guided by our code Report of the Australian Royal of ethics and values which shape our conduct and encourage appropriate Commission into Misconduct in behaviours that are not harmful to our clients, engender trust and promote a the Banking, Superannuation and good reputation. the Financial Services Industry, influenced our approach to training Exchange control and engagement with business Cross-border payments may be used to facilitate illicit flows of funds or lines to enhance client centricity to evade tax. The group has control measures in place to ensure that while ensuring compliance. cross-border funds serve a legitimate purpose. We participate in a forum of multiple regulators and other stakeholders to design strategies that strengthen the fight against the flow of illicit cross-border funds.
Financial crime The group has policies, processes and controls in place to mitigate against various types of financial crime, including money laundering, terrorist financing, corruption and tax evasion. These are designed to comply with legislation in all jurisdictions in which we operate, while also taking into account the recommendations of various financial crime standards setting bodies like the Financial Action Task Force. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) legislation in the countries in which we operate evolves constantly, and the group's operations align their AML/CFT risk management and compliance programmes as these changes occur.
In South Africa, we signed the South African Anti-Money Laundering Integrated Taskforce charter. The taskforce will promote the exchange of AML information between banks and competent authorities, with the intention of effectively combating financial crime through increased collaboration.
Some group entities, including SBSA, were issued with administrative sanctions relating to AML/CFT deficiencies. These findings are being remediated, with programmes of work overseen by senior executives.
Privacy We have a privacy office to help group entities to comply with their data privacy obligations. Our international entities review and customise the group’s data privacy policy and standards in line with in-country legislative requirements. Our data privacy consent and notification framework supports the free flow of information, allowing each entity to align itself with one consistent commitment to clients to protect their information. To assess the risk posed by GDPR legislation, an impact assessment was conducted across the group to identify business areas impacted by GDPR legislation. The affected business areas will adjust their current data privacy risk management plans to cater for specific GDPR role requirements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 69
PERFORMANCE AGAINST STRATEGY +
We regularly review and amend our risk We have measures in place to mitigate appetite across segments and the impact of fraud on our clients and products, based on the insights of the operations. We continuously improve group risk function and our in-country these measures and in 2019 we + risk committees. As a result, we are implemented a solution to enable a able to select quality clients and quicker and more efficient response to respond proactively to early signs of card fraud reported by our clients. financial stress or market risk. Front-line employees are now able to DELIVERING take the call and, using a single screen, We support our business lines in block the card, identify the fraudulent = EXCEPTIONAL delivering personalised services and transactions, automatically perform a leveraging client value chains to deliver client refund based on pre-defined rules CLIENT exceptional client experiences enabled and open a fraud case for investigation. by modern digital technologies. In doing Our response time for refunds has EXPERIENCES so, we remain cognisant of key issues reduced from two weeks to two days, affecting financial services clients, and the average call time is down from including inappropriate advice and We form relationships with our 30 minutes to five minutes. non-transparent or unnecessarily clients by understanding their complex products or pricing structures. We focused on several key initiatives in needs and making responsible We are using AI, predictive analytics, the year to ensure that our employees offers to them based on their machine learning and robotic process are adequately supported and risk profiles. Building and automation to provide effective risk empowered to do the right business, maintaining trust-based management that matches the group’s the right way. We undertook the relationships with our clients risk appetite. To enable innovative client following initiatives: form the foundation of our solutions, our compliance, IT, risk and risk management. •• An integrated speak-up whistle- business teams collaborate to embed blowing awareness campaign. compliance while removing friction from the process as far as possible. •• Delivered training interventions for all group employees on: During the year, we managed our –– Data privacy and information risk risks within our board-approved risk to protect clients’ personal appetite. Our credit portfolio was information throughout well-controlled and stressed sectors processing activities. are closely monitored. We continued –– Conduct course to familiarise new to enhance and embed our group and employees with the group’s subsidiary recovery plans in line with conduct risk framework. new international developments, while –– Tax evasion, sexual harassment, ensuring that they align to relevant social media and ethics regulatory requirements in the awareness. countries in which we operate. All employees are required to undertake Our capital and liquidity positions annual mandatory compliance training remained sound. We continue to courses, including on the group’s code develop and mature our portfolio risk of ethics. Employees must also management and stress testing complete mandatory business, capability to determine the impact of personal and client conduct training current or emerging stress scenarios annually, with a minimum pass mark and our ability to withstand these risks, set at 80%. Regular training ensures and to inform decision-making our people understand our throughout the group. Stress testing, expectations in terms of ethics which considers both likely and and conduct. remotely possible scenarios, was conducted to assess our potential need for capital and liquidity. The results of our tests indicate that the group is able to handle current and emerging stress scenarios should they materialise. Our risk capital adequacy ratios are well above regulatory minimum requirements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 70 DELIVERING OUR STRATEGY RISK AND CONDUCT CONTINUED
Our cloud technology and data initiatives are critical to ensuring strategic delivery. We manage the risks of digitisation through a deep understanding of digital processes, ensuring that client data and assets are protected without increasing client friction. Our focused approach to support business and operational resilience will aid in addressing the system stability challenges we may face during high risk periods and allow us to deliver ‘always on, always secure’ services.
Measures are being put in place to support opportunity management and ensure that LEVERAGING we are agile enough to adopt new technologies such as cloud computing.
OUR DIGITAL During 2019, we reviewed several innovative new processes and services to ensure PLATFORMS the appropriate level of protection for client data and assets, including: •• PBB’s digitisation of key branch activities to facilitate its branch reconfiguration in TO MEET South Africa. •• New digital innovations for PBB and CIB to originate lending and account opening OUR CLIENTS’ online. •• PBB’s new MyMo account enables account opening on digital devices. NEEDS •• Wealth’s new insurance app that uses telematics to reward good driving behaviour. •• The My360 app provides Wealth clients with a full view of their financial portfolio in By leveraging innovative one place, covering more than 20 000 global financial institutions. technology and new ways of working we are continuously AIR page 38. improving our agility, flexibility and responsiveness to our Technology availability and innovation is at the centre of our initiatives, allowing markets. This allows us to keep us to focus on delivering digitisation and automation, keeping our digital channels doing the right business, the secure and support the group’s strategic migration to the cloud. During the year, we right way. However, while digital deepened understanding of our non-financial risks to clarify our risk management technology represents a material oversight. Overall, our non-financial risk profile remained well within our risk appetite competitive advantage, it and was resilient in an operating environment with a wide range of economic, remains a top risk with the political, social, and regulatory uncertainties. Together with our activities to simplify potential to incur financial loss our non-financial risk landscape, we digitised a number of related risk activities, and reputation damage. maximising the use of data and exploring the potential of machine learning, AI and real-time predictive analytics, to create efficiencies in risk profile management.
We are automating our conduct dashboard to provide forward-looking information on conduct risk trends for improved decision-making. By leveraging data analytics, we will be able to improve our ability to proactively identify, manage, minimise and mitigate conduct risks that may arise from our business activities.
Ensuring an ethical culture During the year, the following initiatives relating to ethical culture were undertaken: As new regulations governing client treatment take effect, conduct risk grows in prominence. Our conduct risk framework •• Continued to strengthen our control environment, promote and policy are designed to ensure that we embed our culture of good business practices and reinforce appropriate behaviours doing the right business, the right way in the execution of our aligned to the group’s values. strategy and business activities. In practice, we aim to deliver •• Used periodic diagnostics and metrics to measure and fair client outcomes and support the transparency and integrity identify areas for improvement. of the financial markets in which we operate. We continue to •• Increased accountability in the first line of defence through embed conduct risk management into our existing processes, communication campaigns and conduct training. procedures and practices and continuously develop and design •• Strengthened the second line of defence by developing tools tools to help improve our focus on good client outcomes. and methodologies to help improve oversight and monitoring of conduct risks.
AIR page 96. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 71
To facilitate an integrated approach to risk and compliance and ensure we meet current and global regulatory developments, we align compliance risk management processes across the group. We regularly conduct self-assessments against best practice compliance risk management strategic approaches in the public domain and consider if our compliance risk management practices are appropriate for an integrated financial services group. + During the year, we matured our combined risk assurance processes DELIVERING with the onboarding of additional internal assurance providers and focused on an improved risk-based approach to current risks. We also used risk analytics AN to better link top risks to operational risk data, thereby improving integrated risk management. INTEGRATED + The group continued to see a reduction in the number of severe IT outages, GROUP however, the impact of these has increased. To manage the risk associated with IT outages, an ‘always on’ programme has been formalised with dedicated responsible executives and teams to support the deliver, with weekly updates We continued to focus provided to the group executive committee. The group IT function is accountable on delivering integrated to the group executive committee and also provides monthly updates on the Africa-wide risk = effectiveness of technology and information management processes. In addition, management services regular reviews are performed by internal audit and an annual external audit across the group to ensure review is performed. The group technology strategy will continue to focus on a consistent approach to accelerating the adoption of cloud-based technology, focus on ensuring IT dealing with challenging system stability and enhance client digital capabilities and experiences. operating environments and the associated threats In 2019, internal audit identified the following as having the potential to impact and opportunities. the effectiveness of the control environment: •• Implementing a holistic non-financial risk approach to understanding the impact of risks on the control environment. •• Balancing the impact of new controls with increased client friction.
We leverage the three lines of defence model to build and maintain a strong risk culture, where resilience is a priority for effective risk management across the group. We focus on a range of drivers to enhance the group’s risk culture, with emphasis on doing the right business, the right way. Our employees are empowered to act with confidence, drive meaningful behavioural changes and place the client at the centre of everything they do.
We engage regularly with our stakeholders to ensure reputational risk matters that are cross-business or jurisdictional follow a similar decision-making process across the group.
Embedding environmental and social risk processes Global societal expectations about the roles and responsibilities of LOOKING AHEAD business continue to increase. We are committed to driving sustainable and inclusive economic growth across Africa, and ensuring that our As we continue to manage our risks and business activities create net positive SEE impacts. Effective opportunities in a rapidly changing financial environmental and social risk management plays a critical role in fulfilling services environment, we will ensure that the this commitment. group’s commitment to doing the right business, Our environmental and social risk assessment process is based on the right way cascades through every part of our international best practice. Our environmental and social risk governance organisation, underpinning every client standard and policy sets out the principles under which we identify, relationship and informing every decision we measure, manage and report on environmental and social risk. We make. This will support our commitment to create regularly review our governance structures to ensure the appropriate sustainable value for all our stakeholders. oversight and management of environmental and social risk, including climate change risk. Our priorities include: •• Ongoing alignment to group architecture and In 2019, we tabled a minority shareholder resolution at our AGM on the decision rights. financing of coal mining and coal-fired power generation and exposure to climate change risk. We recognise the risks posed by a changing climate, •• Deliver value-based risk management clearly together with the environmental impacts of coal-fired power, as material linked to achieving our financial outcomes. concerns for our stakeholders. We have subsequently developed and •• Actively monitor stressed portfolios at a published policies governing new investment in coal-fired power stations group level. and new investment in coal mining. •• Continue to enhance our scenario analysis and stress testing against our strategic The development of a climate related risk strategy is underway, aligned objectives. with the TCFD guidelines. We are collecting and assessing data, and • Focus on further embedding the management ensuring that we consider the African context, in meaningful scenario • planning and stress testing that is appropriate for our complex business of multiple non-financial risks. and geographical presence. •• Continue to leverage data as an asset and develop intuitive risk management through RTS R ead more online in our ESG report. technology. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 72 DELIVERING OUR STRATEGY
FINANCIAL OUTCOME HOW WE PERFORMED
Delivering sustainable returns to our shareholders depends Growth on the extent to which our investments in satisfied clients, engaged employees and managing risk and conduct are effective and efficient. In turn, we need to ensure that we R28.2bn balance the capital we allocate to these strategic investments GROUP HEADLINE EARNINGS with competitive returns. 2018: R27.9 billion | 2017: R26.3 billion TARGET: Sustainable growth MEASURING OUR STRATEGIC PROGRESS R27.2bn What success looks like BANKING HEADLINE EARNINGS 2018: R25.8 billion | 2017: R24.3 billion
We continue to demonstrate value creation for all our stakeholders by delivering headline earnings growth and driving ROE into our 18% to 20% 31% target range. AFRICA REGIONS’ CONTRIBUTION TO BANKING HEADLINE EARNINGS
We maintain the resilience of our balance sheet to support the execution 2018: 31% | 2017: 28% of our group strategy. TARGET: >30% contribution
How we measure our progress 56.4% By delivering positive results on our client focus, employee engagement and risk COST-TO-INCOME and conduct value drivers, we seek to improve our financial outcomes, thereby 2018: 57.0% | 2017: 55.5% ensuring growth, resilience and returns. We measure our financial outcome through TARGET: Approaching 50% the following indicators.
Growth Resilience 113 bps •• Headline earnings: show the •• Our resilience is measured by LCR, profits we make, excluding profits or NSFR and CET 1. More detail can be JAWS: losses from non-recurring events1. found in our risk and conduct 2018: (276 bps) | 2017: 100 bps We seek to improve our headline section from page 62. TARGET: Positive jaws earnings each year by continuing to grow our revenue while managing Returns our costs and risks. •• Return on equity: shows how 68 bps •• Africa Regions headline earnings much profit we generate with the CLR contribution: measures the money shareholders have invested percentage contribution from in us. ROE is the result of all the 2018: 56 bps | 2017: 87 bps2 3 countries outside South Africa to growth and resilience measures TARGET: 70 – 100 bps banking headline earnings. and, therefore, the ultimate •• Cost-to-income ratio: measures measure of our effectiveness in our efficiency in generating executing our group strategy. Returns revenues relative to the costs we •• Dividends: return to shareholders have incurred. Containing our costs on their investment. is key to growing headline earnings 1 and improving ROE. As prescribed by the South African Institute 16.8% of Chartered Accountants (SAICA) circular. 2 •• Jaws: measures total income Based on IAS 39 Financial Investments: GROUP ROE growth minus total operating Recognition and Measurement. 3 expenses growth. We aim to achieve Revised target. 2018: 18.0% | 2017: 17.1% positive jaws to ensure we grow our TARGET: 18% – 20% revenues faster than our costs. •• Credit loss ratio: measures our 18.1% impairment charges as a percentage of average loans and BANKING ROE advances. We aim to maintain our | CLR at an acceptable level in line 2018: 18.8% 2017: 18.9% with our risk appetite. 994 cents DIVIDEND PER SHARE 2018: 970 cents | 2017: 910 cents TARGET: Sustainable growth WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 73
2019 KEY PERFORMANCE PRIORITIES AGAINST STRATEGY We allocate our resources and align our relationships •• Continue to reduce cost to support the disciplined delivery of our strategy, growth and increase efficiency by permanently while continuing to focus on delivering a compelling + reshaping the group’s investment case. cost structure. •• Accelerate digitisation to Achieved in 2019 meet client needs and enhance competitiveness •• Group headline earnings grew by 1%, or 3% on a constant currency (CCY) + and efficiency. basis, supported by the growth and resilience of core operations. The constrained •• Pursue growth macroeconomic environment, particularly in South Africa, and ICBCS losses opportunities. impacted our group results. •• Work with ICBC to find •• Quality top line growth and continued positive operating leverage contributed to lasting solutions to ICBCS 5% growth in the bank’s headline earnings. Good balance sheet growth and ICBC Argentina legacy underpinned net interest income (NII) while non-interest revenue (NIR) was = business. supported by growth in transaction volumes and trading revenues. •• Monitor opportunities to •• Africa Regions’ headline earnings grew 5% (CCY 8%) and contribute 31% to issue senior unsecured banking headline earnings. Top contributors were Angola, Ghana, Kenya, and/or tier II subordinated Mozambique, Nigeria and Uganda. debt in the market to •• Strong focus on cost containment continued, resulting in below inflation cost optimise the group’s capital growth and positive jaw (as per target) of 113 bps. and funding position. •• PBB delivered good results with 6% growth in headline earnings to R16.5 billion. •• Remain committed to our CIB also delivered satisfactory results with 5% growth in headline earnings medium-term targets of to R11.8 billion. delivering sustainable •• SBSA produced resilient, high quality headline earnings growth of 4%, supported earnings growth and an by strong growth in loans and advances to customers of 6% and NII growth of 4%. ROE in our 18% to 20% Costs were well managed, with below inflation growth of 2%. target range. •• Liberty earnings attributable to the group was R1.9 billion, up 16% on the •• Continue to support faster, prior year. more inclusive and more •• Despite tough operating conditions in Argentina, ICBC Argentina continued its sustainable growth strong performance. In August 2019, the group exercised its option to sell its 20% and human development stake in ICBC Argentina to ICBC. The group ceased recognising profits from the in South Africa stake from 1 September 2019. Headline earnings from the group’s 20% stake and across amounted to R583 million for the eight months to 31 August 2019. The sale is the continent subject to Chinese regulatory approvals and we expect to reach completion in 2020. we are proud •• ICBCS recorded a loss of USD248 million, consisting of a single client loss of to call home. USD198 million, USD30 million related to restructuring costs and USD20 million of operating losses related to the business operations. The latter was driven by lower revenues on fixed income and currency trading due to subdued market sentiment. The group’s 40% share of the losses equated to R1.4 billion. Further to this, in September 2019, the group recognised a USD163 million impairment of its stake in TRADE-OFFS ICBCS (reducing the carrying value from USD383 million to USD220 million at that date). This equated to a R2.4 billion impairment which is reported outside of headline earnings. To ensure that we can •• The group’s capital position remained strong with a CET 1 ratio of 14.0%. continue to attract the capital we need to fund the growth in our assets, we Strategy in action must provide an appropriate rate of return to our equity •• Focus on digital has allowed us to reduce inefficiencies and to improve both client and shareholders and debt employee experience, as discussed earlier in this report. funders, including depositors. •• Value drivers have been further embedded in our business, allowing us to This requires that we balance appropriately measure our progress. We continue to refine our metrics for each of the our ability to generate value drivers, and for SEE impact we have commenced tracking our performance on revenue with the costs independent ESG indices. incurred in doing so. •• Remained resilient despite the challenging macroeconomic conditions in most of our countries of operation, supporting steady growth in our headline earnings and a sturdy balance sheet that complies with Basel III capital and liquidity requirements. •• Increased longer term funding in excess of 12 months, raising R51.8 billion through a combination of negotiable certificate of deposits, senior debt and syndicated loans. Successfully issued a USD400 million tier 1 Eurobond as well as R1 billion tier II and R1.9 billion additional tier 1 (AT 1) notes during 2019, the proceeds of which were invested in SBSA on the same terms and conditions. •• Focus on the group’s core business, supporting the decision to exercise our option to sell our stake in ICBC Argentina to ICBC in August 2019. •• ICBC and the group, as shareholders, have had robust conversations and made meaningful progress with ICBCS management to place the business on a path to sustainable profitability. These discussions resulted in a number of management actions in ICBCS, including significant headcount reductions and a reduction by ICBCS of business lines and locations. Closer integration into and cooperation with the ICBC group is an important element of the plan to achieve sustainable profit. •• Successfully listed our Namibian subsidiary on the Namibian Stock Exchange. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 74 DELIVERING OUR STRATEGY FINANCIAL OUTCOME CONTINUED
Net interest income (CAGR: 7%) Rbn bps 100 500 MEASURING 80 400 60 300 OUR FINANCIAL 40 200 OUTCOME 20 100 0 0 2014 2015 2016 2017 2018 2019 Net interest income (Rbn) HEADLINE EARNINGS Net interest margin (bps) Group headline earnings is one component used in determining the group’s ROE and NII grew 6% to R62.9 billion driven by strong loan represents the major lever in lifting the group’s and deposit growth across the portfolio. Net interest margin (NIM) decreased marginally to 431 bps from ROE to meet our medium-term target. Headline 438 bps in 2018. Lower average rates in some of the earnings growth is used as a key reference Africa Regions markets, higher cash reserving costs point in decision-making throughout the group. in Nigeria, and a competitive loan pricing environment in South Africa and Nigeria (following the introduction of the minimum loan-to-deposit ratio) contributed negatively to margin. This was Banking activities’ balance sheet drivers partially offset by stronger growth in higher margin Growth in deposits and funding, and loans and advances unsecured lending (compared with secured) and in supported the group’s headline earnings growth between 2014 Africa Regions (vs South Africa), and effective and 2019 by a compound annual growth rate (CAGR) of 10%. margin management in our offshore operations.
Net loans and advances (CAGR: 5%) Rbn 1 200 + 1 000 800 600 Non-interest revenue 400 +8% (CAGR: 4%) 200 Rbn 0 AVERAGE INTEREST 50 2014 2015 2016 2017 2018 2019 EARNING ASSETS 40
30
Deposits and debt funding 20 (CAGR: 6%) 10 Rbn 1 600 0 +9% 2014 2015 2016 2017 2018 2019 1 400 1 200 AVERAGE INTEREST Net fee and commission-based revenue 1 000 BEARING LIABILITIES Trading revenue 800 Other revenue 600 Other gains and losses on financial 400 instruments 200 0 2014 2015 2016 2017 2018 2019 NIR grew 4% to R47.5 billion in 2019. NIR growth was driven by electronic banking fees, card volumes -7bps and trading revenue. Regulatory restrictions on fees in Africa Regions and competitive pressure in South NET INTEREST Africa weighed on account transaction fees. Our Trading and pledged assets MARGIN new digital products were well-received by our and financial investments clients. Asset-based fees grew on the back of CIB (CAGR: 14%) balance sheet growth. Knowledge-based fee growth Rbn was muted. Increased volatility in the second half of 500 in 2019 aided revenues from fixed income, currency 400 and equity trading.
300
200
100
0 2014 2015 2016 2017 2018 2019 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 75
Banking activities Banking headline headline earnings (CAGR: 13%) earnings grew by 5%
to R27.2 billion, up from
Rbn R25.8 million in 2018, = 30 Operating expenses supported by increased (CAGR: 6%) 25 NII and NIR, offset by Rbn % 20 higher credit 80 60 impairment charges. 15 Africa Regions’ 60 55 10 headline earnings grew 5% and contributed 5 40 50 31% of the banking 0 headline earnings. 2014 2015 2016 2017 2018 2019 20 45
0 40 2014 2015 2016 2017 2018 2019 + Other IT and amortisation Depreciation Sta costs Liberty headline earnings Other banking interests’ Cost-to-income ratio (SBG share) headline earnings (CAGR: -2%) Cost growth was well contained, resulting in Rbn Rbn continued positive operating leverage. Costs 0.60 3.0 increased 4% year-on-year and jaws were 0.35 2.5 positive 113 bps. A decline in headcount 0.10 supported slower growth in staff costs. Other 2.0 0 operating expenses increased 6%. IT costs grew 1.5 (0.15) 17% reflecting higher software licensing and (0.40) maintenance costs, an increase in cloud-related 1.0 (0.65) costs and an increase in outsourcing. The 0.5 (0.90) adoption of IFRS 16 Leases gave rise to an 0 2014 2015 2016 2017 2018 2019 increase in depreciation and decrease in 2014 2015 2016 2017 2018 2019 premises costs. The group’s share of Liberty’s Headline earnings from the headline earnings increased by group’s 20% stake in ICBC 16% to R1.9 billion. Liberty is Argentina amounted to making progress towards R583 million for the eight re-building a competitive and months to 31 August 2019. sustainable business. While the In September 2019, the group focus on new business volumes exercised its option to sell the – continues, normalised operating stake and ceased recognising earnings improved 10% year on ICBC Argentina earnings year. In 2019, the shareholder thereafter. ICBCS recorded a Credit impairments loss of USD248 million; the (CAGR: -2%) investment portfolio benefitted from improved investment group’s 40% share thereof Rbn % market returns, particularly equated to R1.4 billion. 10.0 1.20 in respect of foreign and local equities. 7.5 0.90
5.0 0.60
2.5 0.30
0 0
2014 2015 2016 2017 2018 2019 Total credit impairments = Credit loss ratio
Credit impairment charges increased 23% Group headline earnings off a low base in the prior year. The group (CAGR: 10%) CLR increased to 68 bps from 56 bps in Rbn cents per share – 2018, just below the group’s through-the- 30 1 000 cycle CLR range of 70 – 100 bps. Higher year-on-year post write-off recoveries 25 900 Group headline earnings grew 1% to in card had a favourable impact 20 800 R28.2 billion, up from R27.8 billion in on impairment charges. 2018, supporting a 2% growth in 15 700 dividends per share and the dividend 10 600 pay-out ratio increased to 56.3% (2018: 55.5%). 5 500
0 400 2014 2015 2016 2017 2018 2019 Group headline earnings Dividend per share WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 76 DELIVERING OUR STRATEGY FINANCIAL OUTCOME CONTINUED
Group average risk-weighted assets RETURN ON (CAGR: 4%) Rbn EQUITY 1 200 1 000
800
Our ROE is the most relevant 600 measure of our financial ÷ 400 performance over time as it 200 combines all of our critical drivers, 0 including earnings growth and 2014 2015 2016 2017 2018 2019 capital utilisation, into a single metric. Internally we measure our Group average RWA increased by 9.6% in RoRWA as a more direct measure 2019 to R1 012 billion, up from R923 billion of earnings relative to regulatory in 2018, mainly from an increase in loans and advances, some sovereign ratings capital utilisation. downgrades and rand depreciation of 9% on average against the USD. Average RWA increased for both PBB and CIB, by 3.3% and 14.4% respectively.
Group headline earnings (CAGR: 10%) Rbn cents per share 30 1 000
25 900
20 800
15 700
10 600 Average shareholders’ equity 5 500 (CAGR: 5%) 0 400 2014 2015 2016 2017 2018 2019 Rbn Group headline earnings 180 Dividend per share 150
120
80
40
0 ÷ 2014 2015 2016 2017 2018 2019
The group’s average shareholders’ equity increased by 8% from 2018. During 2019, ordinary shareholders’ equity increased by 4% from the prior year, as a result of higher retained earnings, which was partly offset by dividends paid of R16 billion. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 77
Group average return Group financial leverage on risk-weighted assets times (CAGR: 6%) 8 % 3.5 6
3.0
2.5 4
= 2.0 X 1.5 2 1.0 0 0.5 2014 2015 2016 2017 2018 2019 0 2014 2015 2016 2017 2018 2019 The group’s financial leverage is the ratio of RWA to shareholders’ equity. For 2019, The group’s average RoRWA decreased to the group’s financial leverage was 6 times, 2.8% (2018: 3.0%), driven by the lower consistent with 2018. headline earnings growth of 1%, when
compared to growth in average RWA
of 9.6%. =
Return on equity % In 2019, the group’s ROE decreased to 22 16.8%, falling below the lower end of the
group’s medium-term target range. This
20 result was mainly due to the challenging = operating environment across many of our 18 countries of operation and the loss from ICBCS. 16
14 RCM Read more about the group’s cost of equity online. 12 2014 2015 2016 2017 2018 2019 Lower end of target range Upper end of target range WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 78 DELIVERING OUR STRATEGY FINANCIAL OUTCOME CONTINUED
Our resilient performance The income statement below reflects the revenue generated and costs incurred by our Net interest income banking activities, with material income statement line items explained. A detailed What it is: the interest received on lending products analysis on the group’s financial performance, and the principal headline earnings drivers that we offer to our clients and investment in debt instruments, less the interest paid on the deposits that for growth in our ROE, is on page 74. our clients place with us and debt funding sourced from other lenders, including subordinated debt. GROUP INCOME STATEMENT Drivers: number of clients, product offerings and for the year ended 31 December 2019 pricing, level of economic and client activity, foreign exchange, pricing in commodities and equity capital markets, competition, and market volatility. Change 2019 20181 % Rm Rm
Non-interest revenue Net interest income 6 62 919 59 505 What it is: comprises net fee and commission revenue, trading revenue and other revenue. Non-interest revenue 4 47 542 45 826 Drivers: number of clients, transactional banking volumes Net fee and commission revenue 1 30 622 30 375 and pricing, capital market activity, trading volumes and market volatility, property-related revenue, and income Trading revenue 12 12 075 10 799 from bancassurance and unlisted investments. Other revenue 6 4 089 3 863 Other gains and losses on financial Credit impairment charges instruments (4) 756 789 What it is: losses incurred due to the inability of our clients to repay their debt obligations. Total income 5 110 461 105 331 Drivers: probability of our clients defaulting, and the Credit impairment charges 23 (7 964) (6 489) loss given default, business confidence, and levels of debt-to-disposable income. Income before operating expenses 4 102 497 98 842 Operating expenses 4 (62 335) (60 084)
Operating expenses Staff costs 2 (34 554) (33 773) What it is: costs that are incurred to generate future Other operating expenses* 6 (27 781) (26 311) and current revenues. Drivers: inflation, headcount, investments in branch and Net income before non-trading and IT infrastructure which result in amortisation, general capital related items 4 40 162 38 758 costs to operate (including those related to innovation Non-trading and capital related items (61) (151) (392) and work efficiency programmes), and operational losses, including fraud losses. Net income before equity accounted earnings 4 40 011 38 366 Non-trading and capital related items Share of profit from associates and joint What it is: items typically excluded from headline ventures (23) 333 431 earnings, for example, gains and losses on the disposal Profit before taxation 4 40 344 38 797 of businesses and property and equipment, impairment of goodwill and intangible assets. Direct and indirect taxation 1 (9 894) (9 846) Drivers: obsolescence and asset replacement operational performance and changes in market prices, Profit for the year 5 30 450 28 951 which may result in impairment on goodwill and Attributable to other equity instrument intangible assets, and corporate activity resulting in holders 18 (873) (738) disposal-related gains. Attributable to non-controlling interests (4) (2 528) (2 639) Attributable to ordinary shareholders – banking activities 6 27 049 25 574 Direct and Headline adjustable items – banking indirect taxation activities 39 167 273 What it is: includes both Attributable to direct income taxes (and non-controlling Headline earnings – banking activities 5 27 216 25 847 related deferred tax in interests Headline earnings – other banking terms of IFRS) and What it is: portion of indirect taxes, including interests (>100) (864) 418 profit generated which withholding tax and Headline earnings – Liberty 16 1 855 1 600 is attributable to value-added tax. minority shareholders Drivers: corporate tax Standard Bank Group headline earnings 1 28 207 27 865 in entities in which we rates in the geographies own less than a 100% in which the group * The group has adopted IFRS 16 Leases with effect from 1 January 2019. As permitted by the standard, interest. operates, level of the prior year has not been restated and has been presented in accordance with the previous standard Drivers: level of profitability of our IAS 17 Leases, resulting in comparability not being achieved for the affected line item. profitability of our operations, interest 1 Restated. operations, and other income from certain shareholders’ interest bonds and treasury bills, in our subsidiaries. dividends on AIR Information about restatements and the adoption of investments that are IFRS 16 Leases can be found on page 122. exempt, and costs that are not tax deductible.
For further detail on the group results, including financial definitions, please refer to the Standard Bank Group analysis of financial results 2019 on our website: http://reporting.standardbank.com/resultsreports.php WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 79
Our robust balance sheet The balance sheet or statement of financial position shows the position of the group’s assets, liabilities and equity at 31 December 2019, and reflects what the group owns, owes and the equity attributable to shareholders. Material line items have been disclosed below.
BALANCE SHEET Derivative and trading as at 31 December 2019 assets and liabilities What it is: derivative assets and liabilities include Change 2019 2018 transactions with clients for their trading requirements and hedges of those client positions with other market % Rm Rm positions and hedges of certain group risks. Trading assets and liabilities are held by the group to realise Assets gains from changes in underlying market variables. Cash and balances with central banks (12) 75 288 85 145 Drivers: number of clients, product offerings, level of economic and client activity in debt, foreign exchange, Derivative and trading assets 27 287 234 226 756 commodities and equity capital markets, competition, Pledged assets >100 17 800 7 218 and market volatility. Financial investments (1) 204 703 206 501 Disposal group assets classified as held for sale 100 819 Loans and advances Loans and advances 5 1 181 067 1 119 547 What it is: includes our lending to banks and our clients. Drivers: number of clients, product offerings, Other assets 48 25 919 17 531 competition, level of economic and client activity, Interest in associates and joint ventures 18 2 502 2 122 repayments and level of credit impairments. Property, equipment and right of use asset* 19 19 608 16 509 Goodwill and other intangible assets (6) 21 712 23 006 Goodwill and other intangible assets Total assets – banking activities 8 1 836 652 1 704 335 What it is: represents the excess of the purchase price Total assets – other banking interests (51) 3 841 7 852 over the fair value of business that we acquire, less Total assets – Liberty** 5 435 096 414 775 impairments, where applicable, and the cost of internally developed IT assets less amortisation and impairments Standard Bank Group – total assets 7 2 275 589 2 126 962 (where applicable). Drivers: corporate activity, investment in IT and digital Equity and liabilities capabilities to better serve our clients. Equity Equity attributable to ordinary shareholders 6 155 664 146 360 AT1 capital issued Preference share capital and premium and AT1 capital 21 10 989 9 047 What it is: the group’s Basel III compliant AT1 capital bonds that qualify as tier 1 capital. The capital notes are Equity attributable to non-controlling perpetual, non-cumulative with an issuer call option and interests 23 9 868 8 022 contain certain regulatory prescribed write-off features. Drivers: regulatory capital requirements, and growth Total equity – banking activities 8 176 521 163 429 in RWA. Total equity – other banking interests (51) 3 841 7 852 Total equity – Liberty** 5 29 122 27 782 Standard Bank Group – total equity Standard Bank Group – total equity 5 209 484 199 063 What it is: the total of the group’s ordinary and Liabilities preference share capital, AT1 capital, foreign currency Derivative and trading liabilities 34 148 441 110 853 translation reserve, minority interests and other reserves. Deposits and debt funding 5 1 446 080 1 371 919 Drivers: income statement drivers (refer page 74), changes in foreign exchange rates, and regulatory Deposits from banks 4 121 119 116 727 capital requirements. Deposits and current accounts from customers 6 1 324 961 1 255 192
Deposits and debt funding Subordinated debt 12 23 319 20 819 and subordinated debt Provisions and other liabilities 14 42 291 37 316 What it is: provides the group with the funding to lend Total liabilities – banking activities 8 1 660 131 1 540 906 to clients, fulfilling the group’s role in connecting Total liabilities – Liberty** 5 405 974 386 993 providers of capital with those that require additional capital and thereby contributing to the functioning of the Standard Bank Group – total liabilities 7 2 066 105 1 927 899 broader financial system. Drivers: client demands, transactions and savings. Total equity and liabilities – banking activities 8 1 836 652 1 704 335 Total equity and liabilities – other banking interests (51) 3 841 7 852 Total equity and liabilities – Liberty** (5) 435 096 414 775 Standard Bank Group – total equity and liabilities 7 2 275 589 2 126 962
* The group has adopted IFRS 16 Leases with effect from 1 January 2019. As permitted by the standard, the prior year has not been restated and has been presented in accordance with the previous standard IAS 17 Leases, resulting in comparability not being achieved for the affected line item. ** Includes adjustments on consolidation of Liberty into the group.
The balance sheet presents the group's banking activities separately from the other banking interests and Liberty. It differs to the balance sheet presented in the group's annual financial statements, which is presented on a consolidated basis. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 80 DELIVERING OUR STRATEGY FINANCIAL OUTCOME CONTINUED
MAINTAINING OUR ROBUST BALANCE SHEET
Loans and advances guarantees and working capital facilities account inflows. Our offshore operations in the South & Central and East Regions. in the Isle of Man and Jersey continued to Gross loans and advances to customers The main sectors impacted were provide the group with access to hard grew 6% from the prior year, of which consumer, power & infrastructure and currency funding, totalling GBP5.2 billion PBB’s advances to customers grew 6% mining & metals. as at 31 December 2019. and CIB, 7%. Provisions held against loans and advances declined year-on- year following the write off of certain Composition of loans to Composition of gross deposits stage 3 corporate exposures which were customers (%) to customers (%) provided for in the prior year.
Within PBB South Africa, the mortgage loan portfolio grew in line with the market. Our new mortgage offering 2019 2018 2019 2018 continued to gain traction and represented 66% of the registrations in December 2019. Average monthly mortgage disbursements reached R4.1 billion, 11% higher than 2018. The investment in our retail VAF capability led 2019 2018 2019 2018 to a 7% increase in motor disbursements ■ Mortgage loans 34 35 ■ Call deposits 27 29 year-on-year and positive retail market ■ Term loans 36 36 ■ Term deposits 22 21 share gains. The personal unsecured ■ Vehicle and asset nance 9 9 ■ Current accounts 18 20 lending portfolio grew 9% to ■ Overdraft and other ■ Cash management R44.8 billion, supported by our online demand loans 9 9 and deposits 14 14 origination capability. The business ■ Other term loans 7 7 ■ Negotiable certificates lending portfolio grew 7% year‑on‑year, ■ Card debtors 3 3 of deposit 11 10 aligned with the introduction of new ■ Loans granted under ■ Other deposits 8 6 product offerings and a refreshed resale agreements 2 1 approach to credit limit application. Capital management PBB Africa Regions’ gross loans Funding and liquidity The group maintained strong capital to customers grew to R78.0 billion, During 2019, the group successfully adequacy ratios, with an IFRS 9 driven by disbursements into our client raised R52 billion of longer-term funding. phased-in CET 1 ratio of 14.0% ecosystems supported by digital lending. The group also issued a USD400 million (2018: 13.5%) and a total capital Business lending remains the largest tier II Eurobond, R1.0 billion tier II capital adequacy ratio of 16.7% (2018: 16.0%). contributor, at roughly a third of the and R1.9 billion AT1 notes, the proceeds The CET 1 ratio, including the full IFRS 9 portfolio, followed closely by mortgages, of which were invested in SBSA. All tier I transitional impact, was 13.8%. primarily in Namibia, and thereafter and tier II instruments were Basel III personal unsecured lending. compliant. The group’s liquidity position remained strong and within approved risk appetite Robust new business disbursements in Deposits from customers grew 6% year- and tolerance limits. The group’s retail VAF and personal unsecured on-year to R1.3 trillion. CIB’s deposits fourth quarter average Basel III LCR lending led to higher stage 1 and 2 grew 7% driven by client wins and greater amounted to 138%, exceeding the provisions relative to December 2018, share of wallet in South Africa and a minimum phased-in regulatory partially offset by model enhancements growing franchise in Africa Regions. requirement of 100%. The group in mortgages and early arrears collection PBB customer deposits grew 4%, with maintained its NSFR in excess of the capability improvements in the card stronger growth in savings and 100% regulatory requirement. and personal unsecured businesses. investment products as customers The stage 3 exposure ratio reflects a switched to higher yielding products. moderate increase year‑on‑year, Growth in PBB Africa Regions’ deposits primarily related to protracted legal from customers was underpinned by processes in mortgages. The PBB stage 3 continued strong current and savings coverage remained largely aligned with 2018 levels. Capital adequacy (including unappropriated profit) In CIB, gross loans and advances to customers grew 7%, underpinned by % growth in exposures to clients in the 20 industrial, oil and gas, sovereign & public 18 sector and power & infrastructure sectors. Underlying growth in CIB gross 16 loans and advances to customers, 14 including high quality liquid assets, was 12 8%. In the South Africa portfolio, a 10 deterioration of risk grades resulted in an increase in stage 1 and 2 provisions, while 2014 2015 2016 2017 2018 2019 work-outs led to a decline in stage 3 provisions and a decline in stage 3 Common equity tier 1 capital coverage ratio. In Africa Regions, Tier 1 capital provisions were raised for certain Total regulatory capital WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 81
INSIGHT ON CREDIT LOSS RATIO
IFRS 9’s expected credit loss (ECL) model requires the measurement of ECL using a three stage model as follows:
ON AND OFF-BALANCE IFRS 9 – EXPECTED LOSS APPROACH SHEET EXPOSURES STAGE ONE STAGE TWO STAGE THREE
12 month ECL, being the lifetime ECL that is Lifetime ECL being the ECL that results from all possible expected to result from default events over the expected life of the financial asset default events in the next 12 months ECL model No significant Credit impaired – deterioration in credit Significant deterioration incurred loss (default risk since origination OR in credit risk (SICR) since event) similar to that of low credit risk at the origination IAS 39 reporting date
CLR is used by the group as a mechanism to monitor the level of CLR for the past six years have been depicted in the diagrams credit impairments and credit risk. CLR is calculated as the total below: income statement impairment charges on loans and advances, as a percentage of average daily and monthly gross loans and advances. PBB and CIB bps The group and business lines, following the implementation of 180 IAS 39 PBB guidance range 120 – 160 bps IFRS 9, have determined updated CLR target bands as follows: 150
120 IFRS 9 PBB guidance Guidance range range 90 – 120 bps 90 IAS 39 CIB guidance range 40 – 60 bps IFRS 9 CIB guidance Group 70 – 100 bps 60 range 40 – 60 bps PBB 90 – 120 bps 30 0 CIB 40 – 60 bps 2014 2015 2016 2017 2018 2019 141 127 125 120 81 89 The level of credit impairments is monitored against these 29 39 44 44 20 40 guidance bands. While overall CLR measured over an extended PBB CLR CIB CLR to customers duration will remain unchanged as a result of the adoption of IFRS 9 as the future cash credit losses do not change, it is anticipated that the following factors will, under IFRS 9, result in Credit impairment charges greater volatility of the impairment charge in the income statement: Rm bps •• Larger credit impairments will arise on loan origination (as a 11 800 120
result of the 12-month minimum ECL requirement), following Group IAS 39 guidance range 80 – 100 bps 9 800 100 an increase in credit risk (as a result of IFRS 9’s significant Group IFRS 9 guidance range 70 – 100 bps increase in credit risk requirement) and following the 7 800 80 expectation of deteriorating economic conditions (IFRS 9’s 5 800 60 requirement to include forward looking economic expectations). IFRS 9 will thus result in higher credit 3 800 40 impairments following book growth, a deterioration of credit 1 800 20 quality or worsening economic expectations. (200) 0 •• The abovementioned increase would however be offset in part, 2014 2015 2016 2017 2018 2019 when compared to IAS 39, since on transition to IFRS 9 higher 1 277 (100) 0 0 0 impairments are recognised with respect to loans for which 804 1 279 1 603 1 625 747 1 725 there has been SICR, but under IAS 39 would have been 8 204 7 815 8 030 7 785 5 464 6 351 recognised later following the loan entering an early arrears 100 87 86 87 56 68 status or defaulting. Other CIB PBB CLR
Forward looking economic expectations IFRS 9’s ECL model requires the inclusion of forward looking economic expectations in determining the amount of ECL to recognise. Forward looking economic expectations include macroeconomic information as well as other information that is specific to the exposures that could affect future changes in the credit risk associated with the exposures.
AFS Details on forward looking information considered by the group, which includes: South African economic expectations and the main macroeconomic factors are some of the essentials which are considered, have been detailed in our group annual financial statements.
RCM More detail on how we manage credit risk is available online. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 82 DELIVERING OUR STRATEGY FINANCIAL OUTCOME CONTINUED
Nigeria Operations results: Headline earnings improved by 10.9% (CCY), including the Uganda RESPONDING full year impact of the increase Operations results: Solid in shareholding during 2018. headline earnings growth of 19.8% TO ECONOMIC Improved foreign exchange (CCY), resulting from higher net trading volumes resulted in interest income from higher higher trading revenue. customer balances and yields. This CONDITIONS was partially offset by an increase in impairment provisions aligned Currency impact: The naira to balance sheet growth. The local currency results strengthened by 0.08% against and economic conditions of the US dollar. Currency impact: The Ugandan the countries that are most GDP result: GDP growth estimated material to the group’s results shilling strengthened by 1.1% to be 2.3% (2018: 1.9%). against the US dollar. are provided below. These economic conditions have GDP result: GDP growth estimated a significant impact on the to be 6.2% (2018: 6.1%). results of each of the Angola operations, and therefore Operations results: on the group’s results. Modest headline earnings growth of 2.8% (CCY) despite Kenya the economic recession and the Operations results: Headline non-recurrence of prior year earnings improved by 18.9% impairment reversals. Costs were (CCY), including the effect of the well-managed given currency increase in shareholding during South Africa devaluation, high levels of inflation 2018. Contributing to this result and implementation of the Deposit was strong growth in client Operations results: Guarantee Fund insurance. revenues which was partially offset Despite the persistent by an operational loss on a trade weak performance of the contingency, a voluntary early South African economy over the Currency impact: The kwanza retirement programme and year, as well as increasing depreciated by 56.4% against the impairments to isolated competition, SBSA delivered US dollar. client balances. R16.6 billion headline earnings, an increase of 4% from the prior year. GDP result: GDP contraction estimated to be -0.3% (2018: -1.2%). Currency impact: The Kenyan shilling strengthened 0.59% against Currency impact: The rand the US dollar. depreciated by 3% against the US dollar in 2018. GDP result: GDP growth estimated to be 5.6% (2018: 6.3%). GDP result: GDP growth 0.2% in Namibia 2019 (2018: 0.8%). Operations results: Headline earnings grew by 8.2% (CCY), supported by investment banking fee growth and prudent cost Mozambique Ghana management. This was partly Operations results: Headline Operations results: Headline offset by higher impairments earnings decreased by 11.2% earnings increased by 24.1% from the challenging economic (CCY), mainly due to lower interest (CCY) from the prior year. This was environment. Namibia successfully earned following the impact of the supported by an increase in net listed on the Namibia Stock interest rate cuts in 2018 and interest income and non-interest Exchange on 15 November 2019, 2019, and investment in IT revenue, due to growth in loans reducing the group’s shareholding infrastructure and new branches and financial investments, and from 100% to 84.5%. increased costs. This was partially higher transactional volumes. offset by higher NIR from advisory, commitment and structuring fees. Currency impact: The Namibian dollar, aligned to the South African rand, strengthened by 2.1 % against Currency impact: The cedi Currency impact: The metical the US dollar. weakened by 16.3% against remained at 61.5 against the US dollar. the US dollar. GDP result: GDP growth estimated to be -0.2% (2018: -0.1%). GDP result: GDP growth estimated GDP result: GDP growth estimated to be 7.5% (2018: 6.3%). to be 1.8% (2018: 3.3%).
References: South Africa GDP data: Stats SA. Other GDP data: IMF – World Economic Outlook projections, October 2019 and update January 2020. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 83
LOOKING AHEAD
Global economic growth is expected to for importers. In South Africa, while there is expected to remain challenging. remain slow and downside risks persist. were some positive governance and Trading conditions are expected to These risks include, among others, the growth-related developments in 2019, remain difficult, regulatory-imposed impact of the COVID-19 outbreak, a rise there is still much more to be done. The constraints and technological change are in geopolitical and social unrest, and constraints to growth and productivity set to stay, and competition will continue further weather-related disasters. In are structural and the reforms required to intensify. Our top priority in 2020 is to contrast, subdued inflation and are well understood. In the absence of increase our competitiveness by accommodative monetary policy should tangible progress, we foresee sustained improving client experience through the support financial conditions and, in turn, economic weakness, driven by seamless delivery of relevant and personalised financial solutions to our emerging market flows. Continued strong insufficient electricity supply and low clients, in a secure manner, via their growth in East Africa and an ongoing confidence. Demand, and in turn channel of choice. We will also continue moderate recovery in West Africa should inflation, is likely to remain low. Real GDP to exercise tight cost discipline and seek favour sub-Saharan Africa’s economic growth is currently expected to be 0.4% to allocate resources efficiently and in growth prospects. Conditions are and 1.2% in 2020 and 2021 respectively, support of our strategy to build a expected to remain difficult in Malawi, but a severe COVID-19 scenario future-ready Standard Bank Group. Zambia and Zimbabwe. While the impact would reduce growth substantially. of COVID-19 on global growth remains Stakeholders will be kept informed of Over the medium term, we remain unknown, it is clear that a China the impact of COVID-19 on our progress. committed to delivering sustainable slowdown and a disruption of Africa- earnings growth and an ROE in our 18% China trade will negatively impact the The macroeconomic outlook in the to 20% target range. trade balances of sub-Saharan African countries in which we operate is commodity exporters and be inflationary uncertain and the operating environment
Medium-term targets
Group headline earnings growth Sustainable growth
Cost-to-income ratio Approaching 50% Growth Credit loss ratio 70 – 100 bps
Africa Regions' contribution* >30%
LCR and NSFR >100% Resilience CET 1 ratio** 11.0% – 12.5%
ROE 18.0% – 20.0% Returns Dividend Sustainable growth
* Contribution to banking headline earnings. ** Capital adequacy ratios based on the South African Reserve Bank (SARB) IFRS 9 phased-in approach. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 84 DELIVERING OUR STRATEGY
SEE IMPACT
We are committed to driving sustainable and inclusive economic growth across Africa. To achieve this, we must ensure that the clients we bank, and the projects, partnerships and infrastructural developments we finance, create SEE net positive SEE impacts. These considerations are front and centre when we make business IMPACT AREAS decisions. We have identified seven areas in which we believe we can best achieve our purpose while MEASURING OUR making a substantial positive STRATEGIC PROGRESS impact on society, the economy and the environment through What guides our management of SEE impacts? our core business activities. Our impact areas are informed Our SEE management approach is guided by our purpose, our core business and the by the UN global SDGs and the needs of African societies. It requires us to take a long-term view, and to assess the positive and negative impacts of our business decisions not just for the group, but for African Union’s Agenda 2063. the communities in which we operate. SEE impact management is central to the commercial strategies of our business lines and legal entities. It shapes how we do In 2018, we reported against business, how we generate our income, and the products and services we offer our six impact areas. In 2019, we clients. It also provides the opportunity to grow our business by providing innovative reviewed our impact areas and solutions that address societal, economic and environmental challenges in made some changes to ensure our markets. that they accurately reflect the areas in which we make the greatest impact. The changes What success looks like included merging education and skills development, and adding Generating economic value in a way that produces value for society. two new impact areas: climate change and sustainable finance, Understanding our direct and indirect impacts on the societies, and health. economies and environments in which we operate, and making more informed, responsible decisions as a result.
How we measure progress ESG and sustainability indices We track our performance and inclusion in independent ESG and sustainability indices.
Principles for responsible banking ESG rating Member sustainability indices
Emerging Markets ESG Index
ESG RATING AA last update: June 29, 2018 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 85
Financial inclusion Enable access to financial solutions that + support economic development and reduce inequality.
Job creation and Climate change + enterprise growth and sustainable Partner with clients, including SMEs, to finance deliver appropriate financial solutions. Partner with clients to develop solutions that mitigate and adapt to the effects of climate change and support the green = economy and social development.
Infrastructure Support infrastructure development for Driving Africa’s inclusive and sustainable growth industrialisation, partnering with clients Education to manage and minimise environmental Support access to inclusive, quality and social risks. education and lifelong learning opportunities, and help Africa harness the opportunities of the Fourth Africa Industrial Revolution. trade and investment Facilitate trade and investment flows between African countries, and with key Health global markets using innovative trade Support improved health and wellbeing finance, cross-border payments and through financing and business investment solutions. development support, and investing in our people’s health, safety and wellbeing; and health-focused corporate social investment programmes.
TRADE-OFFS RECOGNITION •• Implementing new solutions that improve access Received the UN’s Sustainable City and Human to finance for small businesses and Settlements Award, together with our project entrepreneurs to enhance their growth and partners, for the South Hills integrated housing potential to create jobs, while managing the project in South Africa. When complete, the default risk which is generally high for these development will comprise 5 845 residential vulnerable clients. units and 112 hectares of green recreational •• Balancing the challenges posed by climate space. The project has been recognised as a change, and the need to facilitate access to global green model community with houses affordable energy to support economic growth built to be energy and water efficient. and poverty alleviation. Over 70% of the units fall within the •• Our decisions consider the most optimal Financial Sector Charter definition strategies to mitigate environmental impacts and of affordable housing. are always made on the strict proviso that human rights are upheld and applicable laws and regulations adhered to. •• Finding ways to restructure debt for sectors impacted by climate change in a way that maintains the integrity of our loan book and the RTS A more detailed view of our contribution in each impact area can be viability of our clients’ businesses. found in our reporting to society suite, available online, which includes our report to society, ESG report and an update on our transformation progress in South Africa. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 86 DELIVERING OUR STRATEGY SEE IMPACT CONTINUED
PROGRESS MADE
Our impact We enable more
people and businesses •• Zimbabwe: Launched BluEase, a to access affordable low-cost transactional account for financial products and low-income earners (including services, enabling university students and informal and them to manage sole traders). Clients receive a debit FINANCIAL card and can access mobile banking, day-to-day online banking and EcoCash to wallet transactions, save and INCLUSION transactions. plan for the future, deal with unexpected Improved convenience emergencies and, for •• South Africa: –– Over 37 000 clients have digitised entrepreneurs, to their cards using Samsung Pay, achieve business enabling them to transact securely growth. with their phones and other digital devices at contactless-enabled merchants and traditional POS devices. Samsung Pay uses technology that mimics the magnetic stripe on a bank card. Almost 500 000 transactions have Highlights been concluded since the product Low-cost digital solutions launch late in 2018. •• Nigeria: Launched the @ease wallet, –– Partnered with iiDENTIFii, enabling which provides a range of financial safe and secure remote account services (including interbank transfers, opening in under 60 seconds using debit card issuance and cardless biometric digital identity verification. withdrawals from ATMs or the agent iiDENTIFii matches the data from a network) to the informally served, selfie and the client’s identity under-banked and unbanked markets document with a facial biometric at LINK TO SDGs on various structured platforms using an issuing authority or government a phone number. department. •• South Africa: •• Various countries: Launched digital lending, reducing the application –– Introduced MyMo, a digital process for new loans from five days to transactional account that enables clients to do their most frequent less than a minute, significantly banking transactions at a low cost. reducing costs. Clients also get free airtime or data every month. Consumer education to –– Grew our mobile phone-based support responsible and money transfer service, Instant effective decision-making Money, with transaction volumes •• South Africa: growing 18% year-on-year. –– Invested R52 million in consumer Businesses use the service to education, through our Walletwise reduce payment costs and speed up programme reaching around turnaround times, with Instant 514 500 people through direct Money for Businesses showing educational interventions and annual growth of over 100%. 235 000 people through our website Recipients do not need a bank and social media, as well as the account and can collect their funds millions of people reached through at a date and time of their our television and radio campaigns. convenience. Financial inclusion has been Our programme explains financial identified as an enabler for products and services and how to seven of the 17 SDGs, use financial services and digital including reduced inequality. platforms effectively and affordably. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 87
+
The programme targets the youth, –– To date, our clients have invested •• Zambia: Dedicated a third of our small enterprises and people over R550 million in 63 000 tax free corporate social investment without formal bank accounts, with investment accounts, and over budget (1% of Stanbic Zambia’s + a focus on rural and non-metro R440 million in 13 000 auto-share annual profit) to the Buy-A-Brick areas. R3.5 million of our WalletWise investment accounts (which enable campaign, which assists spend reached 120 entrepreneurs new investors to access a range of low-income households access and small business owners. In a JSE shares at a reduced cost). decent housing. Our Buy-A-Brick separate initiative, the Wealth •• Nigeria: Support over 1.7 million account allows businesses and = business hosted 22 financial literacy retirement savings account holders the general public to make sessions for our employees. with over R112 billion in assets under donations towards the purchase –– Launched the My360 app, which management. We also held a campaign of building materials. provides clients with a consolidated to encourage informal sector workers, view of their net worth across who are not covered by the current Cross-border banking different financial service Contributory Pension Scheme, to take services organisations and geographies, up our micro-pension product. Partnered with Rewire, an and helps them better understand international FinTech, to offer financial terminology and key Enabling home ownership cross-border banking services to concepts. The app will be rolled out •• South Africa: Holding 34% of migrant workers from across our to Africa Regions in 2020. the home loan market share, during 20 African countries of operation. –– The MiScore app helps clients the year we: The service enables migrant understand their financial Affordable housing workers to deposit money into behaviours, improve their a digital account and transfer –– Held an affordable housing loan creditworthiness and avoid the funds home. book valued at around R26 billion, financial distress. with almost 99 500 clients, and •• Various countries: Delivered Financial 27% market share. Insurance Fitness Academies for the employees –– Registered 5 667 new affordable Launched an app for vehicle and of our corporate clients. In Kenya, for home loans in 2019. home insurance in South Africa, example, we hosted 29 Financial –– 1 037 of our affordable housing designed specifically for millennials. Fitness Academies, reaching over loan clients participated in our The app rates clients on their driving 2 300 people. We also ran financial home loan consumer ability and those who pass the literacy campaigns, including in education programme. digital driver test receive a discount Botswana, Ghana and Nigeria, on their insurance (valid for –– Restructured 2 861 home loans to targeting the youth and general public. 12 months). Our Wealth and Investment business keep families in their homes; hosted 142 online share trading however, regrettably we had to enter education sessions with around legal processes with 1.6% of our 15 640 registered participants clients who were in default after and 36 YouTube videos with all alternative arrangements approximately 5 700 views. had been exhausted. Home services Encouraging savings and –– Launched our sectional title index effective future planning which provides clients with the •• South Africa: necessary information to aid –– Launched 1nvest, a specialist index decision-making when purchasing tracking fund manager that provides a sectional title property. a comprehensive product range of –– Launched LookSee, an online 28 unit trusts and exchange traded property valuation guide, to provide funds with around R12 billion of information to home buyers assets under management across and sellers. 5 667 multiple asset classes and geographies. The product helps clients invest simply, transparently NEW AFFORDABLE HOME and cost-effectively. LOANS REGISTERED WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 88 DELIVERING OUR STRATEGY SEE IMPACT CONTINUED
Our impact We work with our clients to understand their challenges and priorities, to provide Partnering with Africa’s them with appropriate FinTechs financial solutions to JOB •• Kenya, Ghana, Nigeria and Uganda: support their growth Selected the first five businesses for and expansion into CREATION investment as part of our partnership new markets, and with Founders Factory Africa, which AND aims to build and grow over 100 deliver digital disruptive tech startups across Africa solutions to meet ENTERPRISE over five years. Founders Factory Africa their unique needs. will provide specialised tailored support, GROWTH including product design, tech We also provide engineering, data science, branding, targeted support to capital raising, and financial and our SME clients, to operational readiness. help them develop •• South Africa: Provided business their businesses, grow development support to seven technology businesses, including the their skills, manage winner of our Women in ICT cash flow and access competition. new business opportunities. Services for small businesses •• South Africa: Established SimplyBlu, a payment solution for small businesses wanting to trade their products online. Using a mobile app, Highlights entrepreneurs can set up their online store, issue e-invoices and securely Innovative credit solutions accept digital payments. The app is •• Across Africa: Invested USD4 million safe, secure and cost effective, and no (R61 million) in Nomanini, enhancing our coding skills are required. ability to extend credit to small shop •• Zambia: Secured a USD15 million owners and other informal retailers facility from the International Finance across Africa. Nomanini uses electronic Corporation to expand SME lending, wallet technology to connect informal with at least 25% of the loan earmarked merchants with distributors. Using this for women-owned businesses. data we are able to build financial and risk profiles for traders, which supports Enterprise development our ability to make lending decisions. support services •• eSwatini, Lesotho and Zambia: Delivered business development training Launched the Trader Platform Solution, programmes and bootcamps to over enabling informal sector retail traders 2 100 SME owners across seven to apply for stock advance loans. countries. Applications are assessed using trading data obtained from the Nomanini •• South Africa: In addition to our platform and loans are provided quickly WalletWise programme for SMEs, and digitally. The solution will be made provided ten business practice available in several other African seminars for 219 medical professionals countries in 2020. on running a financially sound practice. •• South Africa: Continued to facilitate lending to small businesses through our stake in Merchant Capital, a FinTech that LINK TO SDGs offers collateral-free working capital loans. There are no fixed payment terms, and using software embedded in the client’s point-of-sale machine, 10% of each sale is used to repay the loan, in addition to any monthly loan repayments. Access to sales information enables us to pre-empt any repayment challenges and provide advice and support. Merchant Capital has successfully concluded deals worth R200 million, with a default rate of only 2% – 3% of the book. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 89
INCUBATOR PROGRAMMES Our impact Expanded our network of We work with governments, development finance incubators in Africa, launching institutions and other commercial banks to finance new incubators in Botswana and large-scale infrastructure projects, addressing Zimbabwe. Our incubators – also Africa’s infrastructure gaps and enabling inclusive located in Ghana, Mozambique, + Uganda and an entrepreneurship and sustainable industrialisation. We partner with centre in Nigeria – provide small our clients to ensure environmental and social risks businesses with capacity building are appropriately managed and minimised. and business development support services, access to mentoring and coaching, access to + market opportunities in our value chain and the value chains of our clients, and access to finance. In addition, businesses have free access to working space, Wi-Fi and meeting rooms. We also provide = financial support for SME and entrepreneur development programmes in Angola, Lesotho INFRASTRUCTURE and eSwatini. Together our activities directly benefitted approximately 5 000 SMEs in 2019. Highlights Energy Transport Technological solutions for •• Ghana: Part of a consortium that Mozambique: Co-arranged and provided independent power producer, participated in two funding small-scale farmers Genser Energy, with a USD265 million facilities totalling USD140 million •• Uganda: Piloting the OneFarm Agri term loan facility for debt financing and to support the ongoing expansion Platform, working with five co- further expansion, including increasing and improvement of the Port of operatives, 350 farmers, a maize the total capacity of its plants in Maputo, enabling it to receive aggregator and a local tech startup. We Ghana from 107 megawatts (MW) higher capacity vessels and improving its competitiveness. trained local agents to profile farmers, to 200 MW, and building an additional manage input distribution and provide 255 kilometres of onshore natural gas support. We have provided financing pipeline, increasing the country’s gas Telecommunications for seed, fertiliser and access to pipeline infrastructure by nearly 160%. South Africa: Together with tractors, and the farmers are receiving ICBC, provided Telkom with a •• Namibia: Sole commercial lender in training from an agronomist. funding solution that includes partnership with the African Dashboards use satellite data to a R2 billion buyer’s credit policy Development Bank to the government’s monitor each farm and identify from Sinosure, enabling Telkom national fuel storage facility project at potential risks early. The platform to purchase Huawei equipment Walvis Bay, increasing Namibia’s fuel has helped farmers increase their that will support the expansion reserves by an additional 30 days of capacity significantly. of its mobile phone business. supply and enhancing the country’s •• Zambia: Provided farmers with an app, ability to manage fuel supply Schools Contour, enabling them to access interruptions. satellite data, crop growth models, soil Uganda: Partnered with M-Kopa •• South Africa: Financed Globeleq’s analysis mapping, fertiliser to provide 22 primary schools with acquisition of five renewable energy recommendations and weather data, solar-powered electricity for generation plants. The international supporting informed decision-making, classrooms and administration power company aims to improve planning and responsiveness that in blocks, encouraging better operations, as well as the social and turn helps them save costs and attendance by teachers and economic development programmes improve yields. students, and enabling candidates linked to the plants, which were to study after hours. 105 teachers developed under the renewable energy and 5 300 students have Improving farmer resilience to independent power producer benefitted from the project, climate change procurement programme. including 450 final year students. •• Malawi, Nigeria, South Africa and •• Uganda: Arranger and lender in a Uganda: Working with UN Women to syndicated loan of USD70 million to address gender gaps in the agriculture Umeme Limited, Uganda’s largest sector and improve their resilience to energy distributor, to upgrade the climate change. The initiative aims to country’s electricity network and reach over 50 000 women in three distribution system, and accelerate years, providing them with pre-paid metering. entrepreneurial and financial capabilities, and use of affordable technology to increase access to LINK TO SDGs markets and finance. Our projects are supporting women farmers in The African Union Commission reports that fish farming, aquaculture and the every year around 73 million people must cultivation of nuts, rice, beans be connected to electricity to achieve the and vegetables. goal of affordable and sustainable energy for every African by 2030. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 90 DELIVERING OUR STRATEGY SEE IMPACT CONTINUED
Our impact We facilitate trade and investment flows between African countries, and between African countries and key AFRICA TRADE global markets, including China, AND INVESTMENT through the provision of innovative trade finance solutions and cross-border payment and investment solutions.
Helping African governments and businesses access capital Highlights Raised approximately USD15 billion (R217 billion) on international markets Facilitating investment in for our clients, including almost Africa USD10 billion in total for the governments •• Provided CMA CGM, a leading global of Ghana, Kenya and South Africa. This transport and logistics group, with a includes equity of over USD1 billion in USD75 million (R1 billion) three-year initial public offerings (IPOs) on the loan facility to fund their working capital London Stock Exchange (LSE) for African needs in sub-Saharan Africa, and a companies. We facilitated the largest IPO EUR20 million (R320 million) five-year to close on the LSE in the second half of loan facility to acquire and develop an 2019 for Helios Towers, a leading inland container platform in Côte sub-Saharan telecom towers company d’Ivoire, which will progress the which enhances digital infrastructure and company’s intermodal logistics strategy social connectivity across Brazzaville, in West Africa. Both deals will support Congo, the DRC, Ghana, Tanzania and growth in African trade. South Africa. •• Provided Majid Al Futtaim – Dubai’s Connecting China and Africa leading shopping mall, retail and •• The ICBC partnership has jointly leisure group – with a KES3 billion facilitated deals in Africa valued at (R430 million) loan to expand its USD3.6 billion, with a particular focus retail presence in Kenya. on infrastructure and energy. • Assisted Neumann Coffee Group • •• Partnered with ICBC to help African coordinate its banking activities across importers and exporters build direct Kenya, Uganda and Tanzania. The relationships with buyers and suppliers company supplies 10% of the world’s in China through our Africa China green coffee demand and sources Agent Proposition (assists African its product from small-scale importers source and validate quality LINK TO SDGs farming cooperatives. goods, safely and efficiently) and our Africa China Export Proposition (connects our African clients with suitable Chinese importers from the ICBC client base). •• Launched ICBC’s ‘I Go Global’ credit card reward scheme in Tanzania and Zambia. The reward scheme, now available in five African countries, provides seamless transacting for Africans travelling in China and Chinese citizens travelling in Africa. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 91
Our impact We work with our clients to develop appropriate solutions to mitigate and adapt to the effects of climate change, including the development of innovative financial products and services that support the green economy. +
TAKING THE FRICTION OUT OF + TRADE FINANCE TradeSuite TradeSuite is an end-to-end trade finance service that uses = technology to improve supply CLIMATE CHANGE AND chain reliability by providing: •• A single point of contact for all SUSTAINABLE FINANCE import needs from order to delivery, including liaison with logistics service providers, goods tracking and timeous Highlights customs clearing. •• Began work on a groupwide climate •• Continued to work with the •• Cover for currency fluctuations related risk strategy framework, International Chamber of in line with clients’ hedging including a review of our client Commerce Banking Commission, strategies. portfolio to identify high risk co-leading a working group tasked •• Access to TradeCloud, a exposures, and started enhancing with encouraging banks to employ cloud-hosted business-to- our data gathering to ultimately align sustainable finance trade business import trade with the reporting requirements practices. management platform for of the TFCD. •• Became a founding signatory corporates and SMEs. The •• Established Africa’s first dedicated of the United Nations Principles intelligent integrated platform sustainable finance team, which for Responsible Banking, a global costs an entire shipment of develops bespoke solutions to assist benchmark that recognises that goods across the value chain, clients achieve their social and a bank’s indicators of impact and including logistics rates, environmental goals. Deals concluded success must be broader than customs duties, finance rates during the year include: its financial results. More than and insurance costs, ensuring 100 banks from five continents –– Africa’s first ESG-linked funding accurate pricing. launched the Principles at the arrangement: A R500 million •• Access to the Trade Club, annual UN General Assembly in five-year loan to South Africa’s comprising of more than 15 000 September 2019. Curro schools. trusted businesses from around •• South Africa: Provided asset –– East Africa’s first green bond: A the world ready to trade with finance for 103 small-scale solar R611 million bond for Nairobi-based Africa. The club leverages our photovoltaic projects, totalling property developer, Acorn Group, to African footprint, ICBC 9.5 MW, and helped our clients develop green-certified student partnership and participation in reduce their carbon footprints by the International Trade Alliance accommodation. using the ECO2Fleet web-based data (an alliance of 16 banks globally •• Began developing a Sustainable Bond monitoring and reporting tool which enhances the connection Framework to guide the issuance of to better manage their fleets. of buyers and sellers in the sustainable, green and social bonds for ESG R ead more online. pre-execution phase of trade projects that mitigate environmental finance). impact and reduce economic and social inequality. My Imports My Imports is an end-to-end import management solution that LINK TO SDGs uses a digitised, modularised platform. It tackles a number of challenges faced by importers, including managing supplier delivery, the tracking of goods, availability of adequate facilities, adequate foreign exchange cover and the costing and management Africa is among the most vulnerable continents to climate change, with of banks, clearers and forwarders. major implications for agricultural production, food security, access to water, health and livelihoods. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 92 DELIVERING OUR STRATEGY SEE IMPACT CONTINUED
•• Uganda: –– Held the National School Championship, which equips children with business and enterprise skills. The initiative reached 72 schools and Our impact approximately 21 600 students, 432 business plans were received and 288 We support access to participants took part in a boot camp inclusive, quality which taught personal, business and education, promote life skills. The winning school received lifelong learning cash and a fully installed solar system and the three contestants and their opportunities and teacher received iPads and an enable Africa to EDUCATION educational trip to South Africa. harness the –– Through our partnership with the LéO opportunities Africa Institute, 30 fellows received business leadership training designed associated with the to support self-advancement, Fourth Industrial integrity, social responsibility and Revolution. socioeconomic transformation. Participants are selected based on their efforts to address poverty, climate change and unemployment, and support social justice. –– Partnered with USAID and RTI International to improve literacy in primary schools, providing reading cards to 60 schools across Highlights the country. Corporate social investment Access to student finance Invested over R92 million in education- •• Across Africa: Our bursary focused corporate social investment programmes support our efforts to programmes across our countries LINK TO SDGs achieve positive social and economic of operation. impacts in the areas of education, •• Angola: Elected Chair of the RARSE learning and development, employment, Board, the country’s corporate social and African economic development. We responsibility network, which acts as a are committed to facilitating access to national platform, connecting public higher education to provide and private entities as well as opportunities for young people. This non-governmental organisations. We ongoing investment enables our achieved this position based on our recipients to become economically education and health-related corporate active citizens of Africa and, to the social investment interventions. extent possible, start their careers with the group. We provide support to 163 •• South Africa: Refreshed our tertiary students (141 of whom are corporate social investment strategy, medical students) from households that focusing on ECD and foundation phase earn up to R600 000 per year as part of education to prepare these children for the Ikusasa Student Financial Aid jobs that do not yet exist. Our Programme in South Africa. partnerships support the development of foundation phase teachers and ECD •• South Africa: Raised R35 million practitioners, and the development through the Feenix crowd-funding online and delivery of future skills curricula. platform for over 1 000 tertiary education students since June 2017, helping them to complete their studies. 75% of the fund is allocated to black, Sub-Saharan Africa coloured and indian recipients and 50% has the highest to women. We have extended our global rate of sponsorship of Feenix beyond the education exclusion, original three years committed. with only 77% of children enrolled in primary school.
AIR R ead about employee development on page 52. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 93
+
+ Our impact We support better health outcomes for Africa’s people by financing healthcare providers, infrastructure and equipment, providing business development support to healthcare practitioners, investing in the health, safety = and wellbeing of our people and supporting healthcare- related corporate social investment initiatives.
HEALTH
Highlights Healthcare funding Corporate and social –– In partnership with Together4 A Limb, we support indigent children •• Ghana: Provided a donation from our investment who have lost limbs. We sponsor corporate social investment budget to •• Botswana, Mauritius, Mozambique, their protheses and medical Amiah Hospital to construct a South Africa and Zimbabwe: assessments until they are 18-years three-storey building able to serve Provided funding of over R1.2 million old, and finance their schooling. Ten around 5 000 patients. We also to assist those impacted by Cyclone children joined the programme in financed the construction of a first aid Idai, enabling them to access free 2019, bringing the total number of training room and resource centre for healthcare, as well as critical supplies. children supported to 30 since the Red Cross. •• Angola: Sponsored free medical inception five years ago. •• Kenya: Working with General Electric consultations for 25 communities in •• Uganda: Contributed UXG250 million Healthcare to improve access to poor and difficult to access areas, (R985 000) to sponsor the MTN quality and affordable healthcare. reaching almost 27 000 people. Kampala Marathon, with all funds During the year, this partnership •• Lesotho: Invested R60 000, raised directed toward improving provided finance to Metrocare Imaging benefitting over 1 000 patients, in a maternal health in the country. Limited, enabling it to install a CT scanner in a remote village. collaboration with the Basotho Medical Students Association, where student •• Zimbabwe: Working in collaboration doctors provide basic health services with local and international partners, LINK TO SDGs (including screening for HIV, diabetes providing funds from our corporate and tuberculosis) in rural areas. social investment budget and mobilising crowd funding, raised •• Nigeria: R1.8 million to refurbish a halfway –– Invested R224 000 in preventative house for cancer patients undergoing vaccinations, medical treatment for treatment in Harare and to furnish a adults and children with malaria and home for expectant mothers in high quality, long-lasting insecticide- Mutoko, enabling them to be nearer to treated nets for 3 000 vulnerable The World Health Organization a hospital two weeks prior to their children, pregnant women and aims to reduce malaria cases due date. families across three states. and deaths by 90% by 2030. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b HOLDING OURSELVES ACCOUNTABLE
Governance overview 96 Remuneration overview 106 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 96 HOLDING OURSELVES ACCOUNTABLE
GOVERNANCE OVERVIEW
Our approach to corporate governance promotes strategic decision- making that balances short-, medium- and long-term outcomes to reconcile the interests of the group, stakeholders and society in creating and protecting sustainable value.
As an integral part of the societies in which we operate and on which we depend for our licence to operate, we are morally and legally bound to act in a way that is good for these societies and good for the group. Our corporate governance approach, therefore, rests on the following clear commitments:
•• Promoting transparency, accountability and empathy in managing our stakeholder relationships, and ensuring that our clients are treated fairly and consistently. •• Delivering a positive impact on society, the economy and the environment through our business activities. •• Adherence to the highest applicable regulatory and governance standards, including the voluntary adoption of ESG standards. •• Instil an ethical and risk-aware culture, recognising that the trust our stakeholders have in us is the foundation of our legitimacy and the basis on which we are able to compete, collaborate and change as we become a truly human, truly digital integrated African financial services group.
In line with King IV, we understand good governance as the exercise of ethical and effective leadership. The board is responsible for ensuring good governance, guided by our principle of doing the right business, the right way. What we understand as ‘right’ is informed by our values, code of ethics, and applicable legislation.
GOV/REM R ead more online.
OUR GOVERNANCE FRAMEWORK Our board-approved governance framework is embedded in all the group’s operations. It is designed to provide a clear direction for responsive decision-making across the group and supports responsible behaviour and the implementation of best practices by:
Ensuring the pursuit Providing effective Embedding the Supporting our of strategic control to avoid principle of doing legitimacy as a opportunities within financial loss or the right business, corporate citizen that board-approved risk reputational damage the right way, to enhances the resources appetite, supporting a due to misconduct and ensure ethical and and relationships we rely prudent balance of risk unethical behaviour. defensible business on today for the future and return. practices within and benefit of the group, our across our markets. stakeholders and society. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 97
ACHIEVING OUR GOVERNANCE OUTCOMES
The board retains effective control through the governance framework and delegates certain functions to its committees according to clearly defined Maintaining mandates and decision-making rights set by the framework. This allows the board to allocate sufficient attention to the matters reserved for its effective control decision-making, while also ensuring that delegated matters receive in-depth focus. Committee chairmen are accountable for the effective functioning of board committees.
The board delegates the management of the day-to-day business and affairs of the group to the group chief executive, with full power on behalf of and in the name of the board. The group executive committee provides counsel to the group chief executive, acting as a sounding board and ensuring overall coordination across the group, legal entities, and other key stakeholders. Members of the group executive committee exercise powers in accordance with their delegated authority.
It is intended that every year, one board meeting is held at one of our African Region subsidiaries, giving group non-executive directors the opportunity to interact with in-country board members, executives and key clients in that country, deepening their understanding of local issues.
Board responsibilities Assessing board and committee effectiveness The group board is responsible for the How the board performs and is evaluated ethical and effective leadership of the The annual board evaluation provides an opportunity to identify greater group. Our clearly defined governance efficiencies, maximising strengths and highlighting areas of further development framework enables the board to fulfil its to enable the board to continuously improve its performance and that of the duties, which include: group. Externally facilitated board and board committee evaluations are •• Guiding and approving the group’s performed every two years and internal self-evaluations are performed every strategic direction. alternate year. The board chairman, with the support of the group directors’ •• Overseeing the implementation and affairs committee, leads the board in considering and responding to the annual execution of the strategy. review of its effectiveness, which also includes a review of its committees and •• Overseeing resource allocation and individual directors. Performance evaluation of the chairman is carried out by the risk appetite. board, led by the deputy chairman. •• Approving policy and capital planning. 2019 evaluation of the board’s performance •• Holding executive management to account for the performance of the The 2019 evaluation was internally facilitated by the company secretary and group, including the achievement of overseen by the group directors’ affairs committee and obtained the directors’ financial and non-financial goals. views on what they consider to be working well and areas they identified as needing improvement. The topics assessed included: •• Ensuring executive management sets the tone for good governance based •• Risk and conduct, on the group’s values. •• Financial outcome, •• Group competitiveness and ability to respond in an agile manner, •• SEE impact and stakeholder engagement, •• Employee engagement and board succession plans, Roles and responsibilities •• Transformation/ diversity/ political economy (South Africa ), The roles of chairman and group chief •• Oversight over subsidiaries, executive are separate. The allocation of responsibilities is clearly set out, •• Overall effectiveness of board committees and their reporting to the board, ensuring that no single director has •• Client centricity, unfettered powers in the board decision- •• Digitisation journey, and making process. Executive directors and •• Assessment by committee members on efficacy of each board committee. the group’s prescribed officers attend board meetings, increasing the contact Overall, the board is considered to be functioning well and there is a relationship between the board and management. of trust among board members. The culture of the board is seen as healthy and robust. There is support for the executives and mutual respect between all The group chief executive and the parties. There is alignment on strategy and the board is seen as effective in executive team are held accountable discharging its role. to agreed operational and financial performance targets aligned to our GOV/REM R ead more online. strategy and in the best interests of the group and its material stakeholders. The board monitors their delivery against these targets.
Management is open and transparent with the board and brings to its attention any matters of concern in the appropriate forums and in a timeous manner. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 98 HOLDING OURSELVES ACCOUNTABLE GOVERNANCE OVERVIEW CONTINUED
Board education and training Continuing board education sessions are scheduled a year in advance to ensure full board participation.
A key focus for the board is to become ‘digitally savvy’, develop a common understanding among directors of what it means to be digital and to ensure that it has the capacity and capability to guide executive management, add value to the group’s strategic direction and lead a relevant, competitive, innovative and integrated financial services organisation. Board education and training delivered in 2019 reflected this focus.
Topics covered in 2019 included:
•• Blockchain •• The creation and institutionalisation of a culture Understanding the use and future applications of of ethics and awareness blockchain, and its impact on the banking environment. A presentation to the SARB on the group’s overall approach to ethics. •• Independent review of cyber resilience An in-depth look into the results of the independent •• Conduct risk management assessment conducted on the group’s information An overview of the group’s conduct risk framework, the security programme and practices. eight pillars of conduct and outcomes, and the role of the board as it pertains to conduct risk. •• Artificial Intelligence An overview of the group’s strategy for AI and machine •• My360 app learning, and the opportunities and risks it presents in A demonstration of the My360 app, which tracks a the financial services industry. client’s assets, liabilities and risk cover regardless of financial institution, geography or insurer. •• Internal Audit: assurance in a new digital world A presentation on the group’s digital strategy for the combined assurance function.
Board director skills We apply a skills matrix to ensure our directors have the relevant range of skills and experience in the short-term and to identify specific skills required to protect and create value in the long term.
72% 78% 89% 83% 67% Universal banking/ Financial services/ Doing business in Capital/risk Accounting/auditing banking insurance/asset sub-Saharan Africa management and management controls % % % 83 67 % 89 % 100 95 People development/ IT/digital Voice of the customer/ diversity and inclusion Leadership of a large client centricity Culture/conduct/ % complex organisation ethics 95 % % 83 Remuneration/ 89 reward ESG/stakeholder Governance/regulation engagement /public policy
In addition to standard items on the board agenda, the •• Recommending that shareholders’ vote against the resolutions board’s key focus areas in 2019 included: to report on the group’s assessment of greenhouse gas emission and to adopt and publicly disclose a policy on lending •• Receiving management feedback on the group’s digitisation to coal-fired power projects and coal mining operations. journey, including PBB South Africa service and delivery •• Approving the appointment of three independent non-executive channel optimisation and its impact on business and directors, Maureen Erasmus, Priscillah Mabelane and stakeholders. Nonkululeko Nyembezi. •• Considering competitor analysis reports which focused on •• Considering feedback from the group chief information officer the group’s performance relative to its peers. on IT incidents. •• Considering the audit committee’s recommendation on the •• Resolving to exercise the put option and to authorise Standard re-appointment of external auditors. Bank London Holdings to give the requisite notice to ICBC over •• Noting the group’s corporate activities. the group’s residual 20% shareholding in ICBC Argentina •• Considering business unit deep drills from CIB, PBB and Wealth and its affiliates. chief executives. •• Approving the appointment of Trix Kennealy as the chairman‑ •• Considering the quarterly group chief executive report. designate of group remco. Trix Kennealy will take over as •• Noting the perspective from Australia regarding the Royal chairman of group remco as well as the board’s lead Commission Report on conduct. independent director, when Peter Sullivan retires from the group in May 2020. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 99
In approving the group’s strategy, the board considers the group’s purpose, vision, values and legitimacy, emerging risks and opportunities, the group’s Delivering good operating model, infrastructure and resources, and its performance against the performance metrics associated with our value drivers, to ensure the long-term success and sustainability of the group.
Setting the board agenda
A forward The Care is taken to ensure After each board meeting, a closed planner with chairman the board has the session is held for non-executive directors, standing considers appropriate time to providing them with an opportunity to test agenda items emerging consider matters thoughts and raise matters considered is prepared. issues critical to the group, inappropriate for discussion in the affecting the including compliance, presence of the executive directors. The group. administrative and chairman provides feedback to the group governance matters. chief executive.
The committees in 2019, in relation to their mandates, included:
Group risk and capital management Group social and ethics committee committee
•• Ensure that social conscience is embedded in the way •• Provide independent and objective oversight of risk the group does business. and capital management across the group. •• Ensure the development of appropriate policies relating Purpose •• Review and assess the adequacy and effectiveness to stakeholder and reputation management. Purpose of the risk and capital management governance •• Guide and monitor the group’s social, ethical, framework and ensure that associated standards and economic, environmental, transformation and policies are clear, appropriate and effective. consumer relationship initiatives in line with relevant •• Evaluate and agree the nature and extent of legislation, regulation, standards and codes. opportunities and ensure discipline and control in managing the associated risks in pursuit of group strategic objectives. Group remuneration committee
Group audit committee •• Assist the board to ensure fair and responsible remuneration. •• Develop the group’s remuneration philosophy and Purpose •• Monitor and review the adequacy and effectiveness of policy in line with best practice and engage key accounting policies, financial and other internal control stakeholders in this regard. systems and financial reporting processes. Purpose •• Provide independent oversight of the group’s assurance functions, with focus on combined assurance Group technology and information arrangements, including reviews of the independence and effectiveness of the external audit, internal audit committee and compliance functions. •• Assess compliance with applicable legal, regulatory and accounting standards and policies in the •• Ensure prudent governance of technology and preparation of fairly presented financial statements information and oversee related governance and external reports. mechanisms to support the group in achieving its Purpose strategic objectives.
Group directors’ affairs committee Group model approval committee
•• Determine the appropriate group corporate governance structures and practices. •• Assist the board in managing model risk according to •• Maintain the board continuity programme. the advanced internal ratings-based approach for Purpose measuring exposure to credit risk stipulated by the •• Ensure compliance with all applicable laws, Purpose regulations and codes of conduct and practice. Banks Act. •• Assess and ensure the effectiveness of the board and •• Perform functions set out in the associated regulations, its committees. including inspecting risk evaluation models for approval.
GOV/REM Mor e detail on key deliberations and decisions of board committees online. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 100 HOLDING OURSELVES ACCOUNTABLE GOVERNANCE OVERVIEW CONTINUED
Achieving an ethical culture and ensuring our legitimacy
The chairman and the board set the ethical tone for the group. Our overarching governance framework supports the Our purpose, values and ethics are the basis on which we institutionalisation of an ethical culture (shown below), which institutionalise an ethical culture across the group and in the in its focus on the governance of our conduct as individuals, in delivery of our strategy. Our code of ethics provides our our markets and in society provides the cornerstones for the people with practical guidance on how to behave, outlines group’s legitimacy. This enables the board to oversee and acceptable conduct and empowers them to make faster, more monitor how the consequences of the group’s activities affect confident decisions within clearly defined parameters. The its status as a responsible corporate citizen that understands board and committee effectiveness assessments and the expectations of our stakeholders and acts to balance their executive management and individual employee performance interests, thereby ensuring positive outcomes in each of our evaluations measure conduct against the group’s values and strategic value drivers. code of ethics.
Governance of ethics
Board level
Group board •• Ensures the group conducts itself as a responsible, ethical corporate citizen. •• Monitors the implementation of the values.
Group social and ethics committee Group risk and capital management •• Upholds, monitors and reports on the group’s committee activities relating to conduct and ethical standards. •• Provides independent and objective •• Sets the direction of how ethics is approached and oversight of risk and capital management. approves codes of conduct and policies that give •• Sets risk appetite and considers effect to this direction. reputational risk associated with the •• Oversees engagement with stakeholders and the allocation of capital. management of their material concerns.
Management level
Social and ethics Executive committee Group risk management •• Sets the strategic direction for ethics and conduct. oversight committee •• Oversees the conduct dashboards prepared by each committee •• Reviews matters business unit and corporate function. •• Oversees all risk types, related to ethics, as approving relevant risk well as market, governance policies personal and societal and promoting a risk Supplier risk committee conduct prior to their management culture. submission to the •• Considers ethical and conduct issues related to suppliers group social and and third parties, including conflicts of interest, anti- ethics committee. competitive behaviour, human rights and conduct.
Governance policies and standards
Guidelines, ongoing awareness and reinforcement, and annual mandatory training for all employees
Monitoring and reporting WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 101
Personal conduct Policies Execution (how we behave in the group) •• Conflicts of interest. •• Gifts and entertainment. Tracking metrics related to diversity and Governance framework •• Outside business interests. inclusion, employee trends and wellbeing, and monitoring progress against targets. 1 Board level: group social and •• Personal account trading. ethics, and group risk and capital •• Discrimination. management committees •• Disability. Performance management and Management: executive 2 •• Sexual harassment. remuneration. and social and ethics •• Harassment in the workplace. management committees •• Occupational health and safety. 3 Group standards and policies Recruitment and selection.
Culture. Our annual employee survey: •• Provides employees with a safe way in which to speak out. •• Enables us to assess how employees view the integrity of their Leadership development and group line managers. leadership identity. •• Provides insights on how employees feel about working for the group (eNPS score).
Market conduct Policies Execution (how we behave in the market) •• Anti-bribery and corruption. Business units Dashboard metrics Governance framework •• Whistleblowing. manage conduct and considerations •• Money laundering risk associated with 1 Board level: group social and •• Employee turnover, ethics and group risk and capital control. their businesses. absenteeism and management committees •• FAIS disbarment. employee relations. Management: executive •• Data privacy. •• Compliance training. 2 Business units and social and ethics •• Market abuse control. submit quarterly •• Compliance with management committee •• Treating customers fairly. conduct policies. 3 Group standards and policies dashboards to •• Whistleblowing exco. incidents.
Societal conduct Policies Execution (how we behave in society) •• Respectful, constructive, transparent and responsive stakeholder Group policy advocacy and engagement. Governance framework sustainability function. •• Trade associations and industry 1 Board level: group social and ethics committee memberships. •• Engaging advocacy and lobby groups. Corporate social investment 2 Management: executive and social and ethics •• Environmental and social risk forum. management committee management. Group standards, policies and •• Human rights statement. 3 SBSA’s political economy, statements •• United Nations Principles for Responsible Banking. transformation and black economic empowerment •• UN HeForShe campaign. committee. •• Equator Principles. •• Corporate social investment policy. Leadership and participation in various industry initiatives, associations and forums.
We aim to: The environmental and social •• Understand the impacts of our business activities – direct and indirect – including risk management framework is impacts on the environment, society and economic growth. used to proactively identify, •• Identify and develop opportunities to provide financial products and services that manage and monitor related help our clients overcome economic, social and environmental challenges. risks in our lending processes.
External reporting (report to society and ESG report) and AIR page 70. RTS Read more online. GOV/REM Read more online. ranking on key ESG indices. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 102 HOLDING OURSELVES ACCOUNTABLE GOVERNANCE OVERVIEW CONTINUED
OUR 7/7 7/7 LEADERSHIP OUR GROUP BOARD Our directors have deep experience and diverse skills, enabling the board to provide informed counsel, rigorous oversight and independent interrogation in leading integrated thinking in the Thulani Gcabashe 62 * Jacko Maree 64 # group and guiding the executive committee in the design and Chairman and independent Deputy chairman, SBG delivery of the group’s strategy. non-executive director, and non-executive director, MEETING ATTENDANCE BOARD SBG and SBSA SBG and SBSA KEY STRENGTHS: Business KEY STRENGTHS: Over 35 leadership; executive years’ experience in banking management of a complex and leadership; deep insight business; solid strategic into the role of a chief planning experience. executive and the challenges APPOINTED: 2003 faced; skilled team builder. APPOINTED CHAIRMAN: 2015 APPOINTED: 2016
7/7 7/7 7/7
Peter Sullivan 72 ^ Sim Tshabalala 52 † Arno Daehnke 52 ø Lead independent director, Group chief executive, SBG Group financial director, SBG and independent and executive director, SBSA SBG and executive director, non-executive director, SBSA KEY STRENGTHS: Extensive SBSA KEY STRENGTHS: Seasoned groupwide leadership KEY STRENGTHS: Detailed banker with international experience; leading strategy understanding of banking experience; over ten years formulation and execution; regulations; financial leadership experience in both proven track record of enhancing management, budgeting and Africa and Asia; strong competitiveness and ensuring forecasting skills; balance non-executive director and sustainability; ability to manage sheet management chairman experience with complex stakeholder experience, including capital excellent coaching and relationships. and liquidity management, at mentoring skills. APPOINTED: 2013 group and subsidiary level. APPOINTED: 2013 APPOINTED: 2016 APPOINTED LEAD INDEPENDENT DIRECTOR: 2017
4/4 7/7 7/7
Maureen Erasmus 59 Geraldine Fraser-Moleketi 59 Trix Kennealy 61** Priscillah Mabelane 46 Independent non-executive Independent non-executive Independent non-executive Independent non-executive director, SBG and SBSA director, SBG and SBSA director, SBG and SBSA director, SBG and SBSA KEY STRENGTHS: Seasoned KEY STRENGTHS: Experience in KEY STRENGTHS: Extensive KEY STRENGTHS: Leadership investment banker with international, regional (Africa) operational and strategic in a multinational organisation; international experience and national politics; strong management experience across strategy formulation and in emerging markets; strategic, ethical and oversight a variety of industries and execution; financial acumen. strategy development skills; sustainability and sectors; over 30 years’ APPOINTED: 2020 and execution skills. sustainable development. experience in corporate APPOINTED: 2019 APPOINTED: 2016 governance; broad experience in strategic financial management, including restructuring, acquisitions and integrations. APPOINTED: 2016 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 103
7/7 7/7
Nomgando Matyumza 57 Kgomotso Moroka 65 Nonkululeko Nyembezi 59 Independent non-executive Non-executive director, Independent non-executive director, SBG and SBSA SBG and SBSA director, SBG and SBSA BOARD MEETING ATTENDANCE BOARD KEY STRENGTHS: Strong KEY STRENGTHS: Strong KEY STRENGTHS: Leadership financial and executive business leadership skills; across multiple sectors; management skills; experience extensive experience in strategy planning and in strategy development and governance, regulation and execution. execution; seasoned public policy; significant APPOINTED: 2020 non-executive director in legal experience. several sectors. APPOINTED: 2003 APPOINTED: 2016 Chairman Deputy chairman Lead independent director Executive directors Independent non-executive directors Non-executive directors
7/7 6/7 7/7
RESPONSIBILITIES: * Board governance and performance, and shareholder engagement. # Leading the board performance appraisal of the chairman and advising the chairman on general board matters. ^ Dealing with shareholders’ 63 69 64 concerns where contact through Martin Oduor-Otieno André Parker Atedo Peterside CON the normal channels fails to Independent non-executive Independent non-executive Independent non-executive resolve concerns, or where the director, SBG and SBSA director, SBG and SBSA director, SBG and SBSA chairman may be conflicted. KEY STRENGTHS: Over 18 years’ KEY STRENGTHS: Extensive KEY STRENGTHS: Strong † Strategy and group performance. extensive banking experience; experience of running business and banking ø Group financial performance strategy development and businesses in Africa and Asia; experience, as the founder and and reporting. execution skills, strong strong brand management former chief executive of the leadership and governance experience in fast-moving Investment Bank and Trust Non-executive directors experience. consumer goods markets; Company Limited (IBTC); provide independent and APPOINTED: 2016 non-executive director seasoned investment banker experience in South African and economist. objective judgement. They constructively challenge corporates. APPOINTED: 2014 APPOINTED: 2014 and monitor the executive management’s delivery of strategy within the approval framework and risk appetite agreed by the board. 7/7 6/7 7/7
COMMITTEES: Group directors’ affairs committee Group technology and information committee Group remuneration committee (remco) Group audit committee SBSA large exposure credit 64 67 46 Myles Ruck John Vice Lubin Wang committee, an SBSA Independent non-executive Independent non-executive Non-executive director, sub committee director, SBG and SBSA director, SBG and SBSA SBG and SBSA Group social and ethics committee KEY STRENGTHS: Strong KEY STRENGTHS: Extensive KEY STRENGTHS: Senior banking experience with a experience in auditing, management experience in Group risk and capital career spanning over 30 years; accounting, risk and practice multiple geographies; management committee experience in running a large management; experienced IT experience in a variety of Group model approval and complex business; advisor and consultant in IT corporate functions, including committee extensive risk management strategy, risk, audit and finance, IT, procurement and Committee chairman experience. controls; knowledge and administration; strong ability ** Trix has been appointed APPOINTED: 2002 experience of running to adapt to different businesses in South Africa and environments. as chairman-designate of remco and as the lead independent other African countries. APPOINTED: 2017 director, effective from APPOINTED: 2016 the AGM 2020. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 104 HOLDING OURSELVES ACCOUNTABLE GOVERNANCE OVERVIEW CONTINUED
OUR GROUP EXECUTIVE COMMITTEE
The group chief executive, supported by the group executive committee, is accountable for the implementation of strategy and the performance of the group. The skills and experience of Arno Daehnke group executive committee members underpin the group’s Sim Tshabalala Group financial director, SBG ability to deliver its strategy, measured against our five strategic Group chief executive, SBG and executive director, SBSA value drivers. and executive director, SBSA QUALIFICATIONS QUALIFICATIONS BSc, MSc (UCT2), PhD (Vienna BA, LLB (Rhodes University), University of Technology), LLM (University of Notre MBA (Milpark Business Dame, USA), HDip Tax (Wits1), School), AMP (Wharton) AMP (Harvard)
Sola David-Borha René du Preez Kenny Fihla Jörg Fischer Chief executive, Africa Regions Group general counsel Chief executive, CIB Head, group shared services QUALIFICATIONS QUALIFICATIONS QUALIFICATIONS and group real estate services BSc Economics (University of BProc (cum laude), LLB (cum MSc (University of London), QUALIFICATIONS Ibadan), MBA (University of laude), HDipTax (UJ3) MBA (Wits) BCom (Wits), Bachelor of Manchester), AMP (Harvard), Accountancy (Wits), CA (SA), GCP (IESE, Wharton, CEIBS) Advanced Certificate in Taxation (UNISA4), MIT Global Executive Academy (Cambridge, MA)
Lungisa Fuzile David Hodnett Isabel Lawrence Alpheus Mangale Chief executive, SBSA Group chief risk officer and Group chief compliance and Group chief information officer QUALIFICATIONS group ethics officer data officer QUALIFICATIONS MCom (UKZN5), AMP QUALIFICATIONS QUALIFICATIONS NDip Computer Systems (Harvard) BCom (Wits), BAcc BA (Hons), LLM (Rand Engineering (TUT), (cum laude), CA (SA), Afrikaans University) PG management (Henley), MBA (Manchester Business EDP (CCL), AMP (Harvard) School/Wits), Advanced Diploma in Banking. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 105
Zweli Manyathi Funeka Montjane David Munro Chief executive, PBB Chief executive, PBB SA Chief executive, Liberty QUALIFICATIONS QUALIFICATIONS QUALIFICATIONS BCom (Hons) (Unisa), BCom (Hons) (Wits), MCom BCom, PGDip Accounting PDP (New York), (UJ), CA (SA) (UCT), CA (SA), AMP SEP (Wits & Harvard) (Harvard)
Margaret Nienaber Rod Poole Thulani Sibeko Chief executive, Wealth Group head, change and Group head, marketing and QUALIFICATIONS business transformation communication BCompt (Hons) (University of QUALIFICATIONS QUALIFICATIONS the Free State), CA (SA) BCom (UNISA) BSc Bus Admin (California State University, USA), MBA (Henley), Graduate Certificate (Harvard)
Zola Stephen Sharon Taylor Gert Vogel Group secretary Group head, human capital Chief executive, SB QUALIFICATIONS QUALIFICATIONS International and CIB BProc, LLB (UKZN) BCom (UKZN), BCom (Hons) International (UNISA) QUALIFICATIONS BCom (University of Pretoria), 1 Wits: University of the Witwatersrand. BCompt (Hons), MBL 2 UCT: University of Cape Town. (UNISA), CA (SA) 3 UJ: University of Johannesburg. 4 UNISA: University of South Africa. 5 UKZN: University of KwaZulu-Natal. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 106 HOLDING OURSELVES ACCOUNTABLE
REMUNERATION OVERVIEW
MESSAGE FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Peter Sullivan Chairman, Remco
In this report I will summarise the remuneration committee’s (remco) assessment of the group’s performance for 2019, including matters that have materially impacted performance, the general trading environment in South Africa, Africa Regions and globally, as well as substantial risk incidents and conduct issues.
I will also provide a short summary of decelerated. The average inflation rate levels of penetration in the core performance by geography (South Africa was 4.1% for the year, a five-year low. businesses have driven much faster loan and Africa Regions). The methodology Unemployment, especially youth growth. Inflation and interest rates have agreed by your remuneration committee unemployment remained high and trended down while exchange rates have on how to share the group’s earnings business confidence continued to remained relatively stable except between shareholders, senior executives dwindle. In addition, South Africa is still for Angola, Ghana, Zambia and Zimbabwe and employees will also be discussed. In facing a widening budget deficit driven by where currency rates deteriorated doing so, consideration was once again the poor performance of SOEs. While against the ZAR negatively impacting given to how the group made progress some progress was made on matters of their contributions to the group. against the strategy agreed with governance, much needed policy reform the board. has been slow to materialise. As a result, consumer sentiment weakened and the Performance Operating environment demand for credit subsided in an Despite the difficult macroeconomic The operating environment in 2019 once environment where competition from environment in South Africa and again proved to be challenging. Political traditional and non-traditional sources headwinds in pockets of Africa Regions, uncertainty in the US, Brexit concerns in intensified. the group’s primary business lines the UK and Europe, global warming and produced sustainable, good quality top climate change issues across the globe In contrast, the macroeconomic line growth and positive operating all contributed to a rather unstable and environment in most of the countries leverage. The committee noted that while uncertain economic and political in which the group operates outside of growth in Africa Regions was environment for banks and businesses. South Africa has been more favourable. encouraging, this was not sufficient to Ghana, Kenya and Uganda all grew at offset the muted performance in In South Africa, the group’s largest approximately 6% in 2019. In addition, South Africa. market, the operating environment Nigeria emerged from a recessionary proved to be very challenging indeed. environment. The stronger macroeconomic With this backdrop, banking activities’ GDP growth was a very moderate 0.2% growth across the Africa Regions headline earnings grew by a pleasing for the year and 2019 was the third combined with the group’s increasing 5% to R27.2 billion, generating an ROE consecutive year where GDP growth of 18.1%. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 107
Liberty Positive jaws were achieved and the In terms of the prescribed officers’ STI Liberty showed continued improvement cost-to-income ratio declined, albeit rewards, the calculation of the weighting and headline earnings of R3.3 billion, an marginally. Given the difficult trading between business line results (60%) and increase of 23% over the prior year. conditions, the committee agreed that group results (40%) was discussed and Improved returns from the shareholder this was a good performance. moderated for personal performance investment portfolio exceed the negative against the five value drivers. STIs for the impact of a higher claims experience and Africa Regions CEO and group financial director were a muted performance in the South Africa The Africa Regions business produced a directly linked to group results and retail business. Liberty earnings good set of results in 2019. Headline moderated for personal performance attributable to the group equated to earnings were R8.4 billion, up 5% on the against the five value drivers. More detail R1.9 billion, up 16% on the prior year. prior year (9% on a constant currency on the link between performance and pay basis). Continued instability and currency can be found in the remuneration report. devaluation in Zimbabwe adversely ICBC Argentina The committee discussed the impacted that business’ contribution. ICBC Argentina produced a strong set performance of the banking business Country downgrades led to higher of results. The group’s headline earnings which showed resilience and growth with allocated capital and a lower ROE of attributable to the group’s 20% stake pockets of excellent results in both 20.7% compared to 24.0% in 2018. grew 18% to R583 million. ICBC product lines and geographies and Headline earnings growth above 20% was Argentina is in the process of being sold. agreed that these performances should achieved in Kenya, Malawi, Nigeria, be appropriately rewarded. Tanzania and Uganda. These strong ICBC Standard Bank Plc growth performances indicate that the In South Africa, while the economy At a group level, performance was group’s strategy to invest in key countries declined, the senior team took decisive negatively impacted by the disappointing outside of South Africa is paying off. It action in closing non-strategic branches set of results from ICBCS. These results was pleasing to see that jaws turned and reducing costs in a humane and were significantly impacted by a single positive at 170 bps and the cost-to- dignified manner. The committee noted client loss. ICBCS recorded a loss of income ratio fell to a respectable 51.8%, that despite the very unfavourable USD248 million for full year 2019. The demonstrating continued good cost market conditions, there were a number group’s 40% share of the loss equates management. to R1.4 billion. Further to this, in of strong performances in the South African franchise that should be September 2019, the group recognised appropriately rewarded. a USD163 million impairment of its stake Strategy in ICBCS (reducing the carrying value The group’s strategy remained broadly In the investment banking and global from USD383 million to USD220 million). unchanged. Focus remains on three key markets businesses, results were This equated to a R2.4 billion impairment areas: client centricity, digitisation and excellent. It should be noted that STIs in which is reported outside of headline integration. These areas of focus are these businesses account for a large earnings. The ICBCS losses had a underpinned by five strategic value proportion of the STI pool. detrimental effect on the group’s drivers: client focus, employee engagement, risk and conduct, financial performance. The remco also noted that the STI pool is outcome and SEE impact. More detailed set on a through-the-cycle basis and that Consequently, group headline earnings information can be found in the SEE in 2018, the committee reduced the pool grew by 1% to R28.2 billion and ROE was section of this report. The committee by 1% despite profits in banking activities 16.8%, below expectations. The impact noted good progress was being made. growing by 7%. In addition, executives of the ICBCS losses on ROE was 0.7% earning more than ZAR1.5 million received (i.e. ROE would have been 17.5%). Remuneration outcomes no salary increase in March 2019. Against this backdrop, the committee It was noted that the focus All these factors were debated at length was faced with the difficult task of on cost control by senior management by the committee which also noted the balancing the distribution of earnings continued as a key initiative. Costs rose increased competition for talent from between shareholders, senior executives by 4%, below the average rate of inflation traditional, non-traditional, local and and employees. despite salary increases, the substantial international competitors and agreed costs associated with the branch that to retain and motivate the group’s reconfiguration initiative in South Africa, The committee considered the size and impact of the ICBCS losses on the top executives, the incentive pool growth investments into IT resilience and should land between the growth in stabilisation, continued investment into group’s results. This event has a direct impact on shareholders and was, banking business headline earnings of growing Africa Regions business and 5% and group headline earnings of 1%. client experience enhancements. The therefore, factored into the determination of the short-term incentive (STI) pool for cost-to-income ratio fell to 56.4% with The outcome of this deliberation was to the group. positive jaws of 113 bps showing an agree an increase in the incentive pool of encouraging improvement from the The committee addressed this event by 3%. In terms of salary increases, a 5% previous year. moderating the size of the pool between inflationary increase was agreed for the banking business results, those under managers and executives in South Africa. Standard Bank of South Africa the direct control of senior management, Inflationary increases were agreed for the The SBSA business produced resilient and group results which include ICBCS other geographies resulting in a total headline earnings growth. Headline over which senior management within increase of 6.4% to salaries across the earnings grew by 4% to R16.6 billion banking activities had little control. group. It should be noted, however, that, year-on-year with an ROE of 16.9%, accounting for the reduction in demonstrating continued improvement It is also important to note that the headcount, the year-on-year salary cost over previous years. Total costs grew ICBCS results significantly reduced the will rise by only 2%. by 2%, which was below inflation, despite delivery of the long-term incentive (LTI) salary increases, the branch plan, the performance reward plan (PRP). reconfiguration initiative and ongoing All senior executives who participate investments into IT and staff training. in the plan are materially negatively affected by this event. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 108 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
Shareholder vs employee reward Remuneration outcomes
25.0 for executive directors and prescribed officers 20.0 2015 More detail on performance and 15.0 remuneration outcomes of executive
2014 directors and prescribed officers starts 10.0 2016 2017 on page 112.
5.0 2013 2019 Incentive pool (3% growth) HE up 1% Changes to the 0 2018
Employee: incentive pool growth (%) remuneration committee (5.0) 0 5.0 10.0 15.0 20.0 25.0 30.0 This is my last remuneration letter as chairman as I retire from the board in Shareholder: group headline earnings growth (%) May 2020. I have thoroughly enjoyed the experience, the interaction and helpful ¢ Employee bias ¢ Shareholder bias feedback from our shareholders. Trix Kennealy will be taking over as the The committee felt that this outcome Changes to the remuneration committee chair and I wish was fair and reasonable to all her all the best in her new role. stakeholders under the circumstances remuneration policy described in this letter. effective 1 January 2020 Having conducted a survey of the market, Note: Shareholder engagement remco has decided to extend the notice period on termination for executive The remuneration decisions and In May 2019 at our AGM, 92.2% of our directors and prescribed officers outcomes made by remco and the shareholders supported our remuneration to three months. board, which are contained in this policy and 93.6% of our shareholders remuneration overview and in the supported our implementation report. Remco approved a change in the full remuneration report, were performance weightings of business lines undertaken up to and on 4 March Last year, many shareholders indicated a to group from 60/40 to 50/50 to foster 2020. This was prior to knowing the desire to understand how we arrived at greater intra-group team work and extent and impact that COVID-19 our STI pool and I hope the explanation cooperation. would have on the countries in contained here gives you more clarity on which we operate and the group. the factors remco considered this year. In In the past, the PRP has had absolute Remco and the board will consider addition, we have inserted a diagram in targets for headline earnings per share these impacts in relation to the the remuneration report which describes (HEPS) and ROE. Remco continues to remuneration policy in due course. how the pool is set and cascaded within support the use of an earnings measure the group. Remco values shareholder and a return measure. Following the feedback and endeavours to respond receipt of benchmark data on long-term accordingly. incentive targets in South Africa (conducted by Bowman Gilfillan), we Understanding the link between the have agreed to change our HEPS and performance of each executive director ROE targets from absolute targets to and prescribed officer and their relative measures. HEPS growth will be remuneration outcome is also important. benchmarked to CPI plus GDP calculated This year, we have included in the as a CAGR over the three-year vesting remuneration report a description of the period. ROE will be benchmarked to cost performance outcome in relation to of equity. Vesting ladders have been targets set to clarify the link. In addition, matched as closely as possible to the we have indicated where the current total prior ladders to ensure sufficient stretch remuneration outcome has landed in to attain higher level vesting. Independent relation to the forward-looking scenarios validation of the target outcomes will be for each individual in the remuneration undertaken prior to vesting. See the report. A description of how remco remuneration report online for details of benchmarks remuneration for these these ladders. individuals is set out on page 111.
I trust that this improves your understanding of the rigour your committee applies in setting remuneration for the group, as well as indicating that it needs to exercise judgement in this process due to the complexity of the group, while taking into account both our shareholder and employee expectations. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 109
REMUNERATION POLICY People are at the heart of our business. We need highly skilled and experienced people to drive the growth of our business across Africa and we need to reward them for their performance and the returns they generate for our shareholders. Our employee engagement section, starting on page 52, describes how we develop and retain our people.
We have four key objectives guiding our remuneration policy:
1 2 3 4
We reward our people We measure We aim to be fairly while avoiding a and reward for competitive in bonus-centric culture We promote and value delivered remuneration in that distorts motivations reward teamwork. and adjust for the global marketplace and may encourage risks assumed. for skill. excessive and irresponsible risk taking.
Principles that underpin our remuneration policy
Remco is firmly committed to disclosing •• All elements of pay are influenced by qualitative and behavioural our reward policy, principles and market and internal pay comparisons. performance. We also take into structures to all relevant stakeholders, •• Pay practices encourage a focus on account the need to retain talent, skill including our people, unions, regulators achieving agreed deliverables and and experience. and shareholders. behaviours, rather than hours worked. •• We ensure that key senior executives •• Individual appraisals assess are significantly invested in the group’s The key principles that underpin our performance at all levels in the share price and performance over remuneration policy, reward structures business, enabling fair and competitive time, to align to our shareholders’ and individual reward are as follows: pay. Consequence management, interests. •• We reward sustainable, long-term including reward impact, forms part of •• Pay designs comply with all tax and business results. the review of performance. regulatory requirements. •• We do not unfairly discriminate against •• Individual rewards are determined •• Ongoing oversight prevents our people based on diversity or according to group, business line and irresponsible risk taking by individuals physical difference. individual performance. and we ensure that risk adjustment •• The reward focus is on total reward, •• We reward experience, performance forms part of pay design. being fixed and variable remuneration. relative to others doing similar work •• We endeavour to promote fair and We want to be competitive in both and performance against the market. responsible pay. elements, but annual incentives are not •• We differentiate individual reward in a a function of a guaranteed package. transparent way based on quantitative, •• Fixed remuneration includes compulsory benefits which consist of group benefits as well as compulsory country specific benefits. Promoting progression and career development •• We create a balance between the fixed The group invested R878 million for 46 027 employees in learning and and variable elements of total reward. development. In addition, we spent R42.4 million on bursaries for 1 794 employees. •• A deferral policy affects annual This investment together with development opportunities, internal job incentives above certain levels. opportunities, and promotion opportunities allows individuals to progress their Deferred amounts are indexed to the careers and, therefore, their earning potential. group’s share price and vesting is subject to specific conditions. Ensuring remuneration is fair and responsible, remco undertakes the following activities: •• Vesting conditions of deferred awards and long-term incentives allow for •• Seeking the input of shareholders via an annual shareholder roadshow. forfeiture of unvested awards and •• Continuously improving the extent and transparency of remuneration reporting. clawback on vested or paid awards. •• Ensuring breadth and depth of experience, as well as diversity and independence in remco membership. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 110 OUR VALUE CREATION STORY SECTION HEADING CONTINUED
The group’s approach to fair and responsible remuneration
Decisions are: Decisions are:
•• Impartial, free from discrimination, free from •• Funded by, and linked to, the creation of value over self-interest, favouritism or prejudice on grounds the long term, in a way that is transparently including race, gender and sexual orientation. reported in the full remuneration report. •• Rational and objective. •• Approved by remco and recommended to •• Aligned with the Employment Equity Act’s principle the board. of equal pay for work of equal value in South Africa.
Pay differentiation is fair when the process for Responsible remuneration measuring and rewarding performance and Variable remuneration is clearly correlated with the identifying and matching benchmarks is achievement of criteria that measure performance transparent and trusted. The remuneration system and value creation over the short, medium and long has a trusted process and reporting system that is term, aligned to the group strategy and value drivers. able to present performance outcomes and reward proposals for approval equitably and transparently.
Horizontal fairness – employees performing the Fair remuneration Fair same or similar job requirements at the same or similar level of performance in the organisation Stakeholders (internal and external) are provided with receive the same or similar levels of total evidence of the linkages between remuneration and remuneration, allowing variations according to, for value creation in the full remuneration report. example, seniority/length of service, qualifications, performance, and scarcity of relevant skills.
All remuneration falls under the ambit of remco and Vertical fairness – differences in total remuneration senior executive remuneration is approved by remco between job levels can be explained and justified on and recommended to the board. Senior executive a consistent basis, for example, according to factors remuneration is benchmarked to market, follows a such as risk and complexity of the job, level of rigorous process to review risk and control issues responsibility of decision-making and consequence and all share plans contain forfeiture and clawback and impact on the organisation. clauses. Senior executives are subject to a minimum shareholding requirement.
The wage gap and minimum salaries Gender pay Remco has stated in its policy that it pays for value delivered and that In 2019, in line with global practice, the group remuneration must be externally competitive. The outcome of these two finalised a multivariate regression analysis principles is that remuneration differs across levels, roles and geographies methodology for conducting Pay Equity and, therefore, a vertical wage gap exists. However, remco can satisfy itself Analyses. This methodology assesses any that minimum incomes in the group are fair and enable the lowest levels in differences between what men and women the group to participate with dignity in the economies of the countries where earn (or on an equal pay for work of equal they reside. To this end, remco has undertaken an exercise to determine value basis) which cannot be explained by what the minimum levels of income are in each country that the group neutral job-related measures. We are piloting operates in and continues to monitor this. this methodology in selected jurisdictions during the 2020 March salary review. A comparison has been done on each of these minimums against financial service/banking minimums in each country and against prescribed minimum The group is fully committed to fair and incomes (where these exist). This has shown that in all countries but one, the equitable remuneration practices to ensure group’s minimum salaries are above both market and prescribed norms. that no employees are discriminated In Angola, the minimum salary is above prescribed norms but not against unfairly. above market. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 111
EXECUTIVE DIRECTORS’ AND PRESCRIBED OFFICERS’ REMUNERATION POLICY
Performance management and evaluation of executive Executive directors’ and directors, and prescribed officers prescribed officers’ short-term •• Performance objectives are set at the beginning of each year against the five incentive linked to financial value drivers in relation to the board-approved business plan. results •• Quantitative elements have pre-determined measures. Qualitative elements are measured against achievement of key strategic objectives. STI outcome dependency on •• Achievements against objectives are tracked throughout the year and Description financial outcomes evaluated at the end of the year. Group chief executive The link between performance and the elements of pay of executive directors and prescribed officers Sim Tshabalala 100% group Fixed remuneration Group financial director Set taking into account the size and complexity of the role, benchmarked to market (see note on benchmarking below) and impacted by the performance of the Arno Daehnke 100% group group, relevant business line (if applicable) and individual performance. PBB chief executive
Short-term incentives Zweli Manyathi 60% PBB Directly influenced by group and business line performance (if applicable) (set 40% group out in the table alongside). The formula is applied on the financial outcomes of the group (and business line, if applicable) Remco then applies a disciplined CIB chief executive non-formulaic approach to evaluate the other four value drivers using their Kenny Fihla 60% CIB judgement in assessing the business and individual performance. Each executive director and prescribed officer now has a performance against target table to 40% group indicate the link to their STI payment. Wealth chief executive
Long-term incentives (PRP) Margaret 60% Wealth This is a forward-looking share plan with performance conditions. Awards are Nienaber made in relation to the market pay benchmarks. 40% group
Benchmarking executive In 2019, remco and management used •• Minimum reward outcome directors’ and prescribed external advisors to benchmark Short- and long-term incentives are officers’ pay and access to remuneration and benefits across the awarded at remco’s discretion. The group. External advisors also provided information and advisors minimum reward outcome hence opinions on remuneration regulations represents the scenario in which only In February of each year, remco reviews and compliance. Information and the fixed remuneration of the relevant the following items before considering guidance was received from PwC, PwC individual would be paid. the pay outcome of the senior executives: Remchannel, Bowman Gilfillan, Global •• A consolidated table of executive Remuneration Solutions – Mercer, •• On-target reward outcome director and prescribed officer pay Employment Conditions Abroad, In addition to the fixed remuneration of extracted from the remuneration McLagan and Willis Towers Watson. the relevant individual, remco may reports of the major banks located in Remco uses the input from these award both short- and long-term South Africa (First Rand, Nedbank, external advisors to inform the group’s incentives. The STI would be ABSA and Capitec). remuneration philosophy and policy. The determined by remco on the basis of •• Senior executive reward outcomes and board approves remco’s proposals and, the individual meeting the required reward trends in international banks where necessary, submits proposals to targets and is determined on a extracted from the remuneration shareholders for approval. Certain combination of group, business line reports of institutions such as Standard specialist business lines in the group and individual performance (utilising Chartered Bank, Investec, HSBC provide supporting information and both financial and non-financial Holding, Wells Fargo, JP Morgan Chase, documentation relating to matters metrics over the period). The LTI for Westpac Group, Commonwealth Bank considered by remco. this purpose has been determined on and remuneration trends in India-based the basis of 100% of the conditional banks (for an emerging market Remuneration scenarios for PRP awards, being the achievement of reference). executive directors and the PRP’s ROE and HEPS growth •• A bespoke analysis of South African prescribed officers conditions over the previous three financial years at the 100% banks’ variable pay pools from their Requirement published annual financial statements. achievement level. King IV requires disclosure of the •• PricewaterhouseCoopers (PwC) potential consequences on the forward- •• Stretch reward outcome Remchannel Survey data. looking total remuneration for executive The LTI for this purpose has been directors and prescribed officers on a Members of remco can also access any determined on the basis of 200% of total single figure basis by applying the information that helps inform their the conditional PRP’s maximum ROE remuneration policy under minimum, independent judgement on senior and HEPS growth conditions over the on-target and stretch performance executive remuneration. This includes previous three years. This outcome will outcomes. It should be noted that these any impact that remuneration might have deliver significant value for are hypothetical values of total on risk, regulation or behaviour. shareholders. remuneration under the following assumed performance scenarios: WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 112 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
REMUNERATION OUTCOMES FOR EXECUTIVE DIRECTORS AND PRESCRIBED OFFICERS
SIM TSHABALALA Chief executive, Standard Bank Group
Performance against strategic value Progress was made in the key area of client focus where client satisfaction scores improved across most businesses and many drivers – overall on target rating prestigious awards were won. Employee engagement scores Sim’s performance was assessed by remco against the following remain high in relation to industry norms, despite several criteria: economies, including South Africa, experiencing poor economic •• Evaluation against the group financial results, growth. Focus on SEE continued and several important policies, •• Evaluation against the results of the banking franchise and the including a policy on funding coal-fired power projects, growth and resilience of that franchise, were adopted. •• The extent to which the group is on a trajectory that will enable Sim’s leadership qualities, including his ability to motivate and the achievement of medium-term goals, unite such a large and diverse group, sets him apart in the • The long-term sustainability and profitability of the group, and • industry and in the country. •• Evaluation against the value drivers of client focus, leadership and people, risk and conduct and social, economic and Single figure total reward for FY2019 in relation to environmental impact. minimum, on-target and stretch projected earnings R’000 The established banking franchise has a large, growing client base and the group has diversified revenue streams. Capital and 80 000 71 915 liquidity positions remain robust, the group has the resources 70 000 and appetite to expand. 60 000 44% 50 142 Sim was recognised for his disciplined execution of the strategy 50 000 49 196 and the progress made in client centricity, digitisation and 32% 32% integration within the group. 40 000 21% 30 000 24% Sim is an exceptional leader, instilling hope, values and purpose 26% 20 000 across the group, personally spending time in many countries. 21% 24% 21% 10 222 He is visibly client centered in his behaviour and in his dealings with 10 000 clients, ensuring clients are fairly and respectfully treated. He is the 100% 21% 20% 14% 0 President of the board of the International Monetary Conference Minimum 2019 On-target Stretch and on the board of the International Institute of Finance. ¢ Fixed remuneration ¢ Deferred incentive ¢ Cash incentive ¢ Long-term incentive Tactical cost management in South Africa during 2019, as the economy tightened, resulted in positive jaws.
Link between performance and reward •• Reward reflects the overall ‘on target’ performance rating for 2019, with strategic leadership contribution and client focus being viewed as above target. •• There was no increase to fixed remuneration with effect from 1 March 2019. The increase shown in the tables alongside is due to the introduction of an all-employee permanent health Pay mix on awards insurance plan for the January to December reporting period. made for 2019 •• Remco approved a 5% inflationary increase to fixed remuneration with effect from 1 March 2020. •• In line with all other group exco members, STIs are proposed after considering headline earnings growth and the achievement of strategic value drivers. For executive directors, the financial performance is fully anchored around group performance. •• Cash and deferred STIs were reduced from the prior year. Total STI was down 8.5% on the prior year. •• Remco agreed to change the reward mix between STIs and LTIs, with a greater weight on long-term conditional awards. •• The table on the next page shows that total remco awards of R50.1 million are 1.5% higher than the prior year and in line with the increase in the group’s headline earnings. ■ Deferred for up •• A significant proportion of awards are deferred for up to 3.5 years. 55% of the STI awards are to 3.5 years 59% deferred, 100% of long-term awards are deferred and 59% of 2019 total reward is deferred. ■ Paid in cash 41% •• The graph above shows that this year’s single figure total reward of R49.2 million is just below on target projected earnings of R50.1 million and significantly below the stretch projection of R71.9 million. •• Single figure total remuneration has declined on the prior year due to a decline in LTI delivered. PRP vesting is dependent on group ROE and headline earnings results. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 113
AWARDED FOR 2019 SINGLE FIGURE REMUNERATION FOR 2019
% R’000 2018 2019 R’000 2018 2019 Increase Fixed remuneration1 9 987 10 222 Fixed remuneration1 9 987 10 222 2.4 Cash incentive 11 350 10 525 Cash incentive 11 350 10 525 (7.3) Deferred incentive 14 050 12 725 Deferred incentive 14 050 12 725 (9.4) PRP vesting 23 046 15 724 PRP awarded 14 000 16 650 18.9 Total reward 58 433 49 196 Total reward 49 387 50 122 1.5 Once-off allowance/payments2 632 – Once-off allowance/ Total reward payments2 632 – – (incl once-off allowance) 59 065 49 196 Total reward (incl once-off allowance) 50 019 50 122 0.2
1 No cost-to-company (CTC) increase was granted in March 2019. However, the introduction of a permanent health insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 2 Includes a once-off payment made in respect of death-in-service and permanent health insurance benefits.
CLIENT FOCUS (above target rating) FINANCIAL OUTCOME •• Continued focus on placing the client at the centre of everything, (banking activities – on target; group •• Improved client satisfaction scores across most business lines results – below target) and geographies, •• Headline earnings for the group •• Focus on delivering what matters to clients, enabled through increased by 1% to R28.2 billion, efficient digital solutions, channels and capabilities, notwithstanding the weak South •• Facilitating intra-Africa and Africa-China banking and trade flows, African economy, •• Sim personally responds to many client complaints to ensure that •• ROE reduced to 16.8% issues are fully resolved, (2018: 18.0%), •• SBSA was awarded the overall banking winner by the Ombudsman •• Losses in ICBCS, from a single for Banking Services for resolving complaints, as well as receiving client event, had a R1.4 billion an award for innovation in dispute resolution, impact on headline earnings, •• The group was awarded Best Bank in South Africa, Lesotho, •• Banking activities’ headline Zambia, Zimbabwe and Angola by The Banker, earnings increased by 5% to •• Voted South Africa’s Most Valuable Brand by WPP BrandZ for the R27.2 billion and reported an ROE + second year in a row, and of 18.1% (2018: 18.8%). This reflected strong franchise growth, •• Sim regularly meets with clients formally and informally across growing client numbers and the continent and at international conferences. growing deposits and loans, •• Good cost management led to an improvement in the cost-to-income ratio of 56.4% (2018: 57.0%) and + LEADERSHIP AND PEOPLE (above target rating) positive jaws of 113 bps, •• The group’s eNPS and emotional NPS remain exceptionally high •• Resilient growth by core business by global industry standards at +18 and +48 respectively. These lines, and scores are based on an employee participation rate of 74%, •• The group remains on track to •• South Africa’s new employment equity plan has been adopted meet its medium-term financial and good progress has been made towards achieving all targets, objectives. = •• Visible human leadership across the group has been achieved with a combination of country visits and digital communications, •• Sim continues to represent the group as an appointed global Thematic Champion of the UN’s HeForShe movement SEE IMPACT (on target rating) for gender equity, •• The group is committed to making •• Sim is on the board of the International Monetary Conference as a sustainable contribution to President for 2019-2020, Africa’s growth and development in •• Sim also represented the group at the WEF and on the board of the ordinary course of its business the International Institute of Finance, and operations, •• Attendance at the SA Tomorrow investment promotion conference •• As a member of the International has reinforced the group’s position as the leading source of Institute of Finance and the information and analysis on South Africa and the African International Monetary Conference, continent. Sim has amplified the voice of financial institutions from emerging markets in global regulation making and in mitigating RISK AND CONDUCT (on target rating) climate change, •• All of the group’s capital and liquidity positions remained sound •• Corporate social investment and within or above board-approved ranges, amounted to R84 million in South Africa with the main objective of •• Operational risk losses were within operational risk appetite, improving access to better quality •• Conduct dashboards are now embedded and conduct continues education, and to be monitored across the group, and •• The group spent R20 million across •• Lower IT outages experienced in South Africa and system stability the Africa Regions businesses in continued to improve in Africa regions. support of entrepreneurship, SME development and education. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 114 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
DR ARNO DAEHNKE Group financial director
Performance against strategic value drivers – overall on target rating Link between performance and reward Arno maintained a strong financial and control environment, •• Reward reflects the overall ‘on target’ performance rating while implementing IFRS 9 and IFRS 16. Capital and liquidity for 2019, with strategic leadership contribution and client continue to be well managed. Client metric and client insight focus being viewed as ‘above target’. reporting was improved and digitised. Arno co-chairs the digital •• There was no increase to fixed remuneration with effect transformation committee with the group chief executive, leading from 1 March 2019. The increase shown in the tables on the group’s digital strategy. Development of client reporting and the next page is due to the introduction of an all-employee metrics was notable. Arno played a significant role in the permanent health insurance plan and the January to management of costs across the group in 2019. December reporting period. •• Remco approved a 10.4% increase to fixed remuneration Single figure total reward for FY2019 in relation to from 1 March 2020 but this does not reflect in the 2019 minimum, on-target and stretch projected earnings reward. This increase was partly an inflationary adjustment R’000 (5%) and partly a structural/market adjustment having 60 000 conducted an internal and external salary comparison. External comparison considered published CFO 50 000 43 045 remuneration. The size of the CFO role and the scope and 40 000 complexity of the geographic footprint and regulatory 33 213 30 435 41% environments were taken into account in determining 30 000 26% 29% the appropriate fixed remuneration in relation to market. 20 000 22% 25% 30% •• In line with all other group exco members, STIs are proposed after considering headline earnings growth and 10 000 6 409 25% 25% 22% the achievement of strategic value drivers. For executive 100% 21% 19% 15% 0 directors, the financial performance is fully anchored Minimum On-target 2019 Stretch around group performance. ¢ Fixed remuneration ¢ Deferred incentive •• The 1.6% increase in the cash incentive award is aligned ¢ Cash incentive ¢ Long-term incentive to the group’s results. •• The 12.9% increase in the deferred incentive award reflects Arno’s personal leadership contribution in the board, in group exco and in the digital transformation committee, as well as the focus on client reporting. Given the longer-term impact, this is appropriately deferred for up to 3.5 years. •• The table on the next page shows that total remco awards of R36.4 million are 3.9% higher than the prior year. •• A significant proportion of awards are deferred for up to Pay mix on awards 3.5 years. 55% of the STI awards are deferred, 100% of made for 2019 long-term awards are deferred and in total, 60% of 2019 total reward is deferred. •• The graph alongside shows that this year’s single figure of R33.2 million is above the ‘on target’ projection of R30.4 million and significantly below the stretch projection of R43.0 million. •• Single figure total remuneration has declined on the prior year due to a decline in LTI delivered. PRP vesting is dependent on group ROE and headline earnings results.
■ Deferred for up to 3.5 years 60% ■ Paid in cash 40% WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 115
AWARDED FOR 2019 SINGLE FIGURE REMUNERATION FOR 2019
% R’000 2018 2019 R’000 2018 2019 Increase Fixed remuneration1 6 294 6 409 Fixed remuneration1 6 294 6 409 1.8 Cash incentive 8 025 8 150 Cash incentive 8 025 8 150 1.6 Deferred incentive 8 725 9 850 Deferred incentive 8 725 9 850 12.9 PRP vesting 12 908 8 804 PRP awarded 12 000 12 000 – Total reward 35 952 33 213 Total reward 35 044 36 409 3.9 Once-off allowance/payments2 111 – Once-off allowance/ Total reward (incl once-off allowance) 36 063 33 213 payments2 111 – – Total reward (incl once-off allowance) 35 155 36 409 3.6
1 No CTC increase was granted in March 2019. However, the introduction of a permanent health insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 2 Includes a once-off payment made in respect of death-in-service and permanent health insurance benefits.
CLIENT FOCUS (above target rating) FINANCIAL OUTCOME (banking activities – on target; group •• Appropriate capital and liquidity raising was executed to support results – below target) client growth, •• Capital supply was successfully managed and optimised with an •• Group headline earnings of inaugural USD400 million tier 2 Eurobond successfully placed, R28.2 billion (1% up on prior year), providing a valuable dollar component to the group’s capital base, •• Group ROE of 16.8% (2018: 18.0%), •• Client metric and client insight reporting was improved and •• Banking activities headline earnings digitised, allowing for increased focus on client level reporting, and of R27.2 billion (5% up on prior •• High quality of internal and external reporting was maintained. year), •• Banking activities ROE of 18.1% (2018: 18.8%), •• Cost-to-income ratio of 56.4% LEADERSHIP AND PEOPLE (above target rating) (2018: 57.0%), •• eNPS of +18, •• Arno played a significant role in the + •• Finance culture of learning, energy and innovation was management of costs resulting in embedded, positive jaws of +113 bps, •• Cross-functional, non-hierarchical and empowered teams were •• Successfully listed our Namibian encouraged across finance, subsidiary on the Namibian Stock •• Focused effort was placed on diversity, talent development and Exchange, + succession planning, and •• Argentina exit was well executed •• Strategic leadership contribution in board, on digital and is largely complete, transformation committee and in group exco. •• Delivered credible group financial aspiration, four-year financial plan and 2020 budget, within available financial resources through = RISK AND CONDUCT (on target rating) managing trade-off processes, and •• Financial control processes have been well maintained and •• Finance function costs and increasingly automated, headcount were well managed. •• Balance sheet resilience has been maintained across all banking subsidiaries. All level 1 risk metrics were above regulatory minimum and within board-approved target ranges, SEE IMPACT (on target rating) •• Managed complex IFRS 9 and IFRS 16 transitions, •• The group’s annual integrated •• Achieved compliance with the BCBS239 principles for effective reporting suite continues to be of a risk data aggregation and risk reporting, covering 90% of the high standard, group’s RWA, setting the group up for full compliance by 2021, •• Managed and maintained B-BBEE •• Actively participated at risk and credit committees, financial sector code score at level 1, •• Group tax risk was well managed, and •• Initiated processes for finance systems to be cloud-ready, •• Engaged with 833 black-owned SME •• Significant progress made in modernising the finance function as businesses as suppliers in 2019. evidenced through further automation and digitisation of processes, scaling blockchain solutions and using machine learning for predictive forecasting, and •• Finance conduct dashboard indicated no major breaches. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 116 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
ZWELI MANYATHI Chief executive, PBB
Performance against strategic value Single figure total reward for FY2019 in relation to drivers – overall on target rating minimum, on-target and stretch projected earnings R’000 PBB experienced a challenging 2019 with some of the economies in which PBB operates being under severe strain. 60 000 50 122 50 000 The biggest market, South Africa had lethargic economic growth 33% with low consumer and business confidence. Restructuring and 40 000 36 696 37 196 22% 22% branch closures, while necessary, impacted productivity and 30 000 26% client experience. However, both of these recovered in the second 29% 31% half of the year. Despite this, headline earnings grew by 6% to 20 000 26% R16.5 billion. Continued energy challenges in South Africa 10 000 7 520 29% 27% affected economic growth prospects. 100% 20% 20% 15% 0 Minimum On-target 2019 Stretch PBB Africa Regions delivered good results even though some economies, like Zimbabwe, faced extreme conditions in the ¢ Fixed remuneration ¢ Deferred incentive ¢ Cash incentive ¢ Long-term incentive operating environment.
Zweli demonstrated astute leadership to achieve these results and mapped out a clear growth strategy for PBB into the future.
Link between performance and reward •• Reward reflects the overall ‘on target’ performance rating for 2019. •• There was no increase to fixed remuneration with effect from 1 March 2019. The increase shown in the tables below is due to comparing nine months fixed remuneration as a prescribed officer in 2018 to annual fixed remuneration for 2019. •• Remco approved an inflationary 5% increase to fixed remuneration with effect from 1 March 2020. Pay mix on awards •• In line with all other group exco members, short-term incentives are proposed after considering made for 2019 headline earnings growth and the achievement of strategic value drivers. For chief executives of business lines the financial performance is anchored on 60% business line (PBB) and 40% group. •• The executive team in PBB did not want to receive any increase in STI awards given the difficult operating environment and the fact that branches were closed due to the move to digital banking. Remco supported this proposal. •• The 11.5% increase to the PRP award reflects a focus on the longer-term strategy of the group and brings the total reward increase in line with the PBB growth in earnings. It also aligns the LTI awards for the CIB and PBB chief executives. •• The table below shows that total remco awards of R40.1 million are 8.2% higher than the prior year. However, this is comparing a fixed remuneration for nine months in the prior year 2018 to annual fixed remuneration for 2019. Normalising fixed remuneration results is a 3.1% uplift on the ■ Deferred for up prior year, in line with PBB headline earnings. to 3.5 years 57% •• A significant proportion of awards are deferred for up to 3.5 years. 54% of the STI awards are ■ Paid in cash 43% deferred, 100% of long-term awards are deferred and 57% of 2019 total reward is deferred. •• The graph above shows that this year’s single figure total reward of R37.2 million is just above the on target projected earnings and significantly below the stretch projection of R50.1 million. •• Single figure total remuneration has declined on the prior year due to a decline in LTI delivered. PRP vesting is dependent on group ROE and headline earnings results.
AWARDED FOR 2019 SINGLE FIGURE REMUNERATION FOR 2019
% R’000 2018 2019 R’000 2018 2019 Increase Fixed remuneration1 5 634 7 520 Fixed remuneration1 5 634 7 520 33.5 Cash incentive 9 900 9 900 Cash incentive 9 900 9 900 0.0 Deferred incentive 11 600 11 600 Deferred incentive 11 600 11 600 0.0 PRP vesting 11 062 8 176 PRP awarded 10 000 11 150 11.5 Total reward 38 196 37 196 Total reward 37 134 40 170 8.2
1 ZN Manyathi was appointed as a prescribed officer on 1 April 2018 therefore the fixed remuneration is shown December from 12018. April 2018 to 31 No CTC increase was granted in March 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 117
CLIENT FOCUS (on target rating) •• PBB SA client NPS score of +67, •• PBB Africa Regions client NPS score of +251, •• Ombudsman complaints down 6% year-on-year, •• Internet banking complaints at 20%, (a decrease of 1%) but remains the top complaint category for SBSA, as well as the industry, •• SBSA and channel real-time NPS improved in Prestige, Lifestyle and cellphone banking, •• Average ATM availability was at 95% in South Africa mainly as a result of interrupted electricity supply across the provinces. •• Continued growth momentum on asset disbursements, •• Growth in digital mobile banking users increased by 25% year-on-year which reflects an increased adoption, •• Digitised 80% of personal and 50% of small business branch services, •• Launched instant credit card, •• Introduction of digital client onboarding of MyMo on the app, web and customer first, •• UCount redemptions of more than R2.8 billion since inception the programme until December 2019, •• Maintained positive shift in the 2019 dealer satisfaction score, •• Improved the ease of doing business with our clients through our integration with our dealers, •• Launched new solutions: tiered rate home loans, BizFlex, business loans in three minutes on customer 1st and internet banking, real-time clearing scaled up, instant personal loan on internet banking and app, Simplyblu and Sorted, and •• Instant Money, digital wallet and money transfer platform, continue to show improvements.
1 Client NPS is on track. Stanbic scores are significantly above benchmarks in each country.
LEADERSHIP AND PEOPLE (on target rating) FINANCIAL OUTCOME (on target rating) •• eNPS of +16, •• PBB group has a clear and compelling vision where employees •• Headline earnings of R16.5 billion understand what is required of them and how this links to serving (6% up on prior year), customers and creating value, •• ROE of 22.4% (2018: 21.9%), •• Employment equity targets for black females have been met at the •• Cost-to-income ratio of 59.2% senior management and exceeded at middle and junior management, (2018: 60.4%), + •• Leadership development has focused on leaders through a •• Positive jaws of 210 bps, specialised leadership programme, •• PBB South Africa headline •• Culture and leadership – more than 750 leaders have been through earnings is up 2%, slightly VUKA during 2019 (2018: 100 top leaders), and behind target, and •• Care and growth has been embedded in leadership programmes. •• PBB Africa Regions headline + earnings is up 53%, exceeding target. RISK AND CONDUCT (on target rating) •• Operational risk losses within risk appetite and below 2018 actuals, •• Customer centric PBB South Africa risk appetite framework rolled SEE IMPACT (on target rating) = out, •• Continue to promote and •• Implementing and refining operational risk framework aligned to new support Feenix crowdfunding ways of work/agile in collaboration with group integrated operational platform for students, risk, •• Strive to scale up investments in •• Reporting of customer losses as part of operational risk incident Founders Factory, and process, •• Established strong •• Approval of Thin Bureau strategy for card and overdraft, entrepreneurial development •• FAIS training is largely complete, programs in Mozambique, •• Dealer grading model built by VAF credit, Uganda and Lesotho. Programs •• Developed dealer reviews with all key measurements (with risk focus on all types of mitigation), entrepreneurs, regardless of •• Dealer training and development for both front line and operations, whether they are Standard Bank and customers to access finance, •• Constituted a single risk and control committee in South Africa to tap into new markets and value assess the risk across all segments holistically with enhanced chains, and receive business governance structures with clearly defined three lines of defence. development support. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 118 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
KENNY FIHLA Chief executive, CIB
Performance against strategic value drivers – overall on target rating Link between performance and reward CIB delivered respectable results with headline earnings •• Reward reflects the overall ‘on target’ performance rating increasing by 5% to R11.8 billion and 7% in CCY. Total revenue for 2019, with client focus and SEE being viewed as increased by 5% to R39 billion and 6% in CCY, driven by growth above target. in loans and advances, and deposits. Costs were contained to •• There was no increase to fixed remuneration with effect a 3% increase resulting in a positive jaws of 128 bps and an from 1 March 2019. The increase shown in the tables on improvement in cost-to-income ratio to 53.7% from 54.4%. the next page are due to the introduction of an all- ROE remains respectable at 18.1%. employee permanent health insurance plan and the January to December reporting period. The franchise continues to show resilience against a challenging and a tough macroeconomic climate, with corporate client •• Remco approved a 5% inflationary increase to fixed revenues growing 7% and 8% in CCY. Strong growth was recorded remuneration with effect from 1 March 2020. in the financial institutions, telecoms and media sectors. •• In line with all other group exco members, short-term incentives are proposed after considering headline Despite some notable impairments, CIB’s CLR to customers of earnings growth and the achievement of strategic value 40 bps remains within the planning range. From an employee drivers. For chief executives of business lines, the financial standpoint, the eNPS score decreased from +14 to +8 and the performance is anchored on 60% business line (CIB) and emotional NPS score from +53 to +45, however, participation 40% group performance. increased from 58% to 71%. •• Remco approved an increase in the short-term (cash and deferred) incentive award of 14.5% to R21.75 million taking The formation and delivery of the sustainable finance business the following metrics into account: team has had significant impact. –– 1% growth in the group’s headline earnings, –– 5% growth in CIB’s headline earnings, Single figure total reward for FY2019 in relation to minimum, on-target and stretch projected earnings –– 15% growth in CIB’s South African franchise headline earnings in a tough macroeconomic climate, R’000 –– A robust ROE of 18.1%, 60 000 53 058 –– CIB’s client experience is at the highest recorded level. 50 000 –– An individual assessment against the achievement 29% 40 000 37 032 38 534 of the group’s strategic value drivers, and 20% 20% –– An upward structural adjustment to reflect the 30 000 28% contribution to the group of the CIB business which 32% 30% 20 000 generated R11.8 billion of earnings. Remco considered 28% 27% 30% the published STI of other chief executives of corporate 10 000 7 734 100% 21% 20% 15% and investment banks in South Africa taking note of the 0 size of those comparators (in both financials and Minimum 2019 On-target Stretch footprint) in relation to CIB to inform the adjustment. ¢ Fixed remuneration ¢ Deferred incentive •• The change in the PRP award was to align the awards for ¢ Cash incentive ¢ Long-term incentive the CIB and PBB chief executives. •• The table on the next page shows that total remuneration of R40.6 million awarded by remco has increased by 5.3% in line with CIB’s headline earnings performance. •• A significant proportion of awards are deferred for up to 3.5 years. 54% of the STI awards are deferred, 100% of Pay mix on awards long-term awards are deferred and 56% of 2019 total made for 2019 reward is deferred. •• The graph alongside shows that this year’s single figure total reward of R37.0 million is just below the on target projected earnings of R38.5 million and significantly below the stretch projection of R53.1 million. •• Single figure total remuneration has declined on the prior year due to a decline in LTI delivered. PRP vesting is dependent on group ROE and headline earnings results.
■ Deferred for up to 3.5 years 56% ■ Paid in cash 44% WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 119
AWARDED FOR 2019 SINGLE FIGURE REMUNERATION FOR 2019
% R’000 2018 2019 R’000 2018 2019 Increase Fixed Remuneration1 7 588 7 734 Fixed Remuneration1 7 588 7 734 1.9 Cash incentive 8 650 10 025 Cash incentive 8 650 10 025 15.9 Deferred incentive 10 350 11 725 Deferred incentive 10 350 11 725 13.3 PRP Vesting 11 062 7 548 PRP Awarded 12 000 11 150 (7.1) Total Reward 37 650 37 032 Total Reward 38 588 40 634 5.3 Once-off allowance/payments2 710 – Once-off allowance/ Total Reward (incl once-off allowance) 38 360 37 032 payments2 710 – – Total Reward (incl once-off allowance) 39 298 40 634 3.4
1 No CTC increase was granted in March 2019. However the introduction permanent of healtha insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 2 Includes a once-off payment made in respect of death-in-service and permanent health insurance benefits.
CLIENT FOCUS (above target rating) FINANCIAL OUTCOME •• CSI of 8.11, (on target rating) •• Domestic client segment grew by 14%, highlighting relevance •• Headline earnings of R11.8 billion in markets wherein CIB operates, (5% up on prior year), •• Actively responded to client needs with bespoke solutions •• ROE of 18.1% (2018: 19.3%), and were the largest issuer of credit linked notes in Africa as •• Cost-to-income ratio of 53.7% we responded to a low return environment for asset (2018: 54.4%), managers, •• Positive jaws of 128 bps, •• Opened a new prime brokerage business in the year, and •• CIB South Africa headline earnings is up •• In advancing the group’s strategic priority of ecosystems and 15%, albeit behind target, partnerships, Kenny led the SBG Client Ecosystems initiative •• CIB Africa Regions headline earnings is to establish and align investment gateways for the scaling of up 1%, exceeding target, and select ecosystem initiatives. Across the group, ten initiatives •• CIB International headline earnings is have been identified as potential client ecosystems, of which significantly down and below target. six have been reviewed by the steerco, including two that are being assessed for commercialisation. +
1 CSI is calculated on a ten point rating scale. Medium-term target of above 8 has been achieved. SEE IMPACT (above target rating) •• As part of CIB’s journey to further embed the SEE framework into its + LEADERSHIP AND PEOPLE (on target rating) product offering, the sustainable finance team was formed. This unit will be •• eNPS of +8, responsible for capturing emerging •• Refocused the learning and talent strategy aimed to improve opportunities as sustainable growth the culture of learning and to increase the focus on talent becomes more top of mind for readiness for key roles, investors, institutions and companies •• Successfully completed the Leading Culture programme globally. Despite being a relatively new = across all CIB geographies, to drive the connection of people business unit, sustainable finance has to CIB’s strategy and build committed and empowered collaborated with various teams within teams, the group to close several landmark •• Continued priority focus on embedding diversity, inclusion deals: and transformation initiatives and deriving positive impact –– First green infrastructure bond issued on people, by corporate in Nigeria – North South •• Celebrated exceptional employee contribution through Power NGN8.6 billion, recognition programmes: Beyond Excellence, Mark of Excellence (MoE), and –– First sovereign green bond in Africa – Federal Republic of Nigeria •• Continued the transformation and modernisation of internal NGN15 billion, processes to improve employee experience. –– First green bond in East Africa – Acorn Project (Two) Limited Liability Partnership KES4.26 billion, and RISK AND CONDUCT (on target rating) –– First ESG linked facility in Africa •• Credit impairment charges increased 52% driven by offered by a local African bank – impairments in TPS. The increase resulted in a CLR to Curro Holdings ZAR500 million. customers of 40 bps, which is at the lower end of the guidance range of 40 to 60 bps. Nonetheless, CIB’s continued proactive and forward-looking risk management helped stay within this range with no significant reputational risks, and •• Ongoing reinforcement of a culture of compliance with relevant campaigns and learning programmes. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 120 HOLDING OURSELVES ACCOUNTABLE REMUNERATION OVERVIEW CONTINUED
MARGARET NIENABER Chief executive, Wealth
Performance against strategic value drivers – overall on target rating Link between performance and reward Wealth delivered an excellent set of financial results. Margaret led •• Reward reflects the overall ‘on target’ performance rating a significant shift in the Wealth culture and in the ability of the for 2019 with client focus and leadership and people being business to deliver an integrated offering to clients. The client viewed as above target. engagement philosophy is deeply embedded resulting in a client •• There was no increase to fixed remuneration with effect NPS score of +70 and Wealth winning over 20 awards from from 1 March 2019. The increase shown in the tables below established industry publications. The partnership with Liberty is are due to the introduction of an all-employee permanent strong and productive. The Wealth eNPS score rose to +29 from health insurance plan and the January to December +24 in the prior year with 85% of employees participating. reporting period. •• Remco approved a 10.2% increase to fixed remuneration Single figure total reward for FY2019 in relation to as a corrective adjustment to align with internal and minimum, on-target and stretch projected earnings external published comparators. R’000 •• In line with all other group exco members, STI are 60 000 proposed after considering headline earnings growth and 50 628 the achievement of strategic value drivers. For chief 50 000 executives of business lines the weighting is 60% business 40 000 36 498 line (Wealth) and 40% group. 34 249 49% 30 000 34% •• Remco approved an increase in the STI (cash and 37% deferred) award of 15.7% taking the following metrics 20 000 19% 22% 26% into account: 10 000 6 431 22% 22% 19% –– 1% growth in the group’s headline earnings, 100% 19% 18% 13% –– 14% growth in Wealth’s headline earnings, 0 Minimum On-target 2019 Stretch –– A strong ROE in Wealth of 35%,
¢ Fixed remuneration ¢ Deferred incentive –– An individual assessment against the achievement ¢ Cash incentive ¢ Long-term incentive of the group’s strategic value drivers, and –– An upward adjustment above the 14% growth in headline earnings for Wealth to reflect the above target client focus and leadership and people performance. •• The 5% increase to the PRP award reflects inflationary growth. •• The table on the next page shows that total remco awards of R34.4 million are 9.7% higher than the prior year. •• A significant proportion of awards are deferred for up to 3.5 years. 55% of the STI awards are deferred, 100% of Pay mix on awards long-term awards are deferred and 58% of the 2019 total made for 2019 reward is deferred. •• The graph alongside shows that this year’s single figure total reward of R36.5 million is just above the on target projected earnings of R34.2 million and significantly below the stretch projection of R50.6 million. •• Single figure total remuneration has increased on the prior year. This is due to the LTI award made to Margaret in March 2017 being higher than the award made in March 2016, reflecting her appointment as a prescribed officer.
■ Deferred for up to 3.5 years 58% ■ Paid in cash 42% WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 121
AWARDED FOR 2019 SINGLE FIGURE REMUNERATION FOR 2019
% R’000 2018 2019 R’000 2018 2019 Increase Fixed remuneration1 6 257 6 431 Fixed remuneration1 6 257 6 431 2.8 Cash incentive 7 212 7 900 Cash incentive 7 212 7 900 9.5 Deferred incentive 7 913 9 600 Deferred incentive 7 913 9 600 21.3 PRP vesting 6 443 12 567 PRP awarded 10 000 10 500 5.0 Total reward 27 825 36 498 Total reward 31 382 34 431 9.7 Once-off allowance/payments2 78 – Once-off allowance/ Total reward (incl once-off allowance) 27 903 36 498 payments2 78 – – Total reward (incl once-off allowance) 31 460 34 431 9.4
1 No CTC increase was granted in March 2019. However the introduction of a permanent health insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 2 Includes a once-off payment made in respect of Death in Service and Permanent Health Insurance benefits.
CLIENT FOCUS (above target rating) FINANCIAL OUTCOME •• Client NPS score of +701, (on target rating) •• Melville Douglas Global Funds and Domestic Funds are above the •• Headline earnings of benchmark, R3.6 billion (14% up on •• Wealth Africa Regions’ universal client value propositions successfully prior year), launched in collaboration with PBB, CIB, and Liberty in Ghana, •• ROE of 35% (2018: 38%), Mozambique, Namibia and Zambia, •• Cost-to-income ratio of 53% •• 1nvest, a specialist index tracking fund, was successfully launched in (2018: 54%), collaboration with STANLIB and CIB, •• Positive jaws of 92 bps, + •• My360 app successfully launched to SBSA staff and released in a •• Wealth South Africa headline phased approach to Wealth and Investment and SBFC clients, earnings is up 4%, slightly •• Cloud-based insurance app launched, and behind target, •• Win Web has successfully deployed the retail proposition for the Wealth •• Wealth Africa Regions International client base. headline earnings is up 23%, exceeding target, and + 1 Client NPS can have an outcome from -100 to +100. •• Wealth International headline earnings is up 25%, slightly behind target. LEADERSHIP AND PEOPLE (above target rating) •• eNPS of +29, = •• Behavioural Science Academy launched focuses on reskilling staff for SEE IMPACT (on target rating) the Fourth Industrial Revolution, emphasising general principles that •• Continue to focus on underlie economic and consumer behaviour, with a strong focus on promoting a culture of digital, savings and financial •• Wealth has facilitated a number of rotations of senior executives across inclusion, both divisions and jurisdictions in order to cultivate a multi-disciplinary •• Cultivating financial literacy leadership team, (including generational •• Wealth has reconstituted the diversity and inclusion forum to attract and transfer of wealth), develop a more diverse staff complement and ensure effective •• Insurance procurement succession planning across all business units, and (continue supporting small •• Numerous talent development programmes exist to nurture Wealth staff. business development), and •• Standard Trust Limited provides beneficiary care to RISK AND CONDUCT (on target rating) approximately 13 000 orphaned children, providing •• Operational risk within risk appetite, much needed monthly •• No significant incidents or compliance breaches, distributions to guardians, •• Wealth continues to have a strong focus on implementing a conduct funding basic education and culture where employees feel empowered to do the right thing, and other needs. •• Wealth had deep dive visits from regulators in South Africa and Wealth International, all with satisfactory outcomes. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 122 ADDITIONAL INFORMATION
ADDITIONAL INFORMATION
Pro forma information Standard Bank Group Limited Pro forma constant currency information credit ratings The pro forma constant currency information has been As at 5 March 2020 presented to illustrate the impact of changes in currency rates on the group’s results of operations. In determining the change Long in constant currency terms, the comparative financial year’s Short term term Outlook results for the year ended 31 December 2018 has been adjusted for the difference between the current and prior period’s average Fitch Ratings exchange rates (determined as the average of the daily exchange Foreign currency rates). The measurement has been performed for each of the issuer default rating B BB+ Negative group’s material currencies. The following average exchange Local currency issuer rates were used in the determination of the pro forma constant default rating BB+ Negative currency information and were calculated using the average of National rating F1 + (ZAF) AA (ZAF) Stable the average monthly exchange rates (determined on the last Moody’s Investor day of each of the 12 months in the period). Services Issuer rating Ba1 Negative 2019 2018 average average Read more online. For further details regarding the group’s credit ratings, exchange exchange including credit ratings for key subsidiaries, refer to the group website. rate rate
US dollar 14.44 13.23 Pound sterling 18.43 17.63 Argentine peso 0.31 0.50 Angolan kwanza 0.04 0,04 Ghanaian cedi 2.70 2.86 Nigerian naira 0.04 0.04 Kenyan shilling 0.14 0.13 Mozambican metical 0.23 0.22 Zambian Kwacha 1.12 1.27
Restatements During 2019, certain financial information published in 2018 was restated to correct errors identified in the classification of certain information. These are detailed below.
Correction of prior period income statement presentation error During 2019, the group restated trading revenue to exclude gains and losses that do not comprise gains and losses from changes in the fair value of trading assets and liabilities, including related interest income, expense and dividends. These gains and losses that have been presented in other revenue as being more representative of their nature and aligns to the group’s gains and losses presentation policy. This correction has no impact on the group’s consolidated income statement, total income, profit for the year and earnings per share. The impact on the non-interest revenue disclosure is as follows:
As previously presented Restated income/ income/ (expense) Restatement (expense) Rm Rm Rm
2018 Trading revenue 11 129 (330) 10 799 Other revenue 3 533 330 3 863
Correction of the classification of investment in unit trust and portfolio managed funds During 2019, the group identified that on transition to IFRS 9, certain investments in unit trusts and portfolio managed funds were incorrectly classified as loans and advances (at amortised cost) instead of financial investments (at fair value through profit and loss). However, due to the fact that the carrying amount of these assets approximate their fair values, they did not impact the group’s total assets, profit for the year or credit impairment charges. The impact of the reclassification on the statement of financial position and income statement line items disclosure is as follows: WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual integrated report 2019 123
As Restate- reported ment Restated
2018 Statement of financial position Financial investment 547 405 1 121 548 526 Loans and advances 1 120 668 (1 121) 1 119 547 Income statement Net interest income (59 622) 117 (59 505) Other gains and losses on financial instruments (672) (117) (789)
Changes in accounting policies The adoption of new and amended accounting standards on 1 January 2019 did not affect the group’s previously reported financial results, disclosures or accounting policies. IFRS 16 Leases replaced IAS 17 Leases, as well as the related interpretations, on 1 January 2019, introducing a single lease accounting model for leases. The group retrospectively adopted IFRS 16 on 1 January 2019 with an adjustment to opening reserves and, as permitted by IFRS 16, did not restate its comparative financial results. Accordingly, the group’s results up to 31 December 2018 are presented in accordance with IAS 17, while for 2019 and future reporting periods, are presented in terms of IFRS 16.
The key financial impact on the group’s results were an R4.8 billion increase in total assets, R4.7 billion increase in total liabilities and R190 million increase in reserves, mainly due to the release of the IAS 17 straight-line lease liability provision.
31 IFRS 16 December transition 1 January 2018 adjustment 2019 Rm Rm Rm
Statement of financial position Property, equipment and right-of-use asset 19 194 5 394 24 588 Other financial and non-financial assets 2 107 768 (508) 2 107 260 Total assets 2 126 962 4 886 2 131 848 Equity – equity attributable to ordinary shareholders 199 063 190 199 253 Liabilities 1 927 899 4 696 1 932 595 Total equity and liabilities 2 126 962 4 886 2 131 848
AFS More detailed information relating to our restatements and the impact of changes in our accounting policies, particularly the IFRS 16 transition, is available online in the group’s annual financial statements.
Glossary
A C AGM Annual general meeting CCY Constant currency AI Artificial intelligence CET 1 Common equity tier 1 ratio AML/CFT Anti-Money Laundering and Combating the CIB Corporate & Investment Banking Financing of Terrorism CLR Credit loss ratio API Application programming interface Companies Companies Act, 71 of 2008, as amended AT1 Additional tier 1 capital Act ATMs Automated teller machines CPI Consumer price inflation CSI Client satisfaction index B CT Computerised tomography Banks Act South African Banks Act, 94 of 1990 CTC Cost-to-company Basel III Basel Committee on Banking Supervision’s third Basel Accords D B-BBEE Broad-based black economic empowerment DRC Democratic Republic of Congo bps basis points E ECD Early childhood development ECL Expected credit loss EDGE Excellence in Design for Greater Efficiencies EDO Enterprise data office eNPS Employee net promoter score ESG Environmental, social and governance EU European Union WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 124 ADDITIONAL INFORMATION GLOSSARY CONTINUED
F P FinTech Financial technology PBB Personal & Business Banking FAIS Financial Advisory and Intermediary Services POS Point of sale FSCA Financial Sector Conduct Authority PRP Performance reward plan FX Foreign exchange R G remco Remuneration Committee GDP Gross domestic product ROE Return on equity GDPR General Data Protection Regulation RoRWA Return on risk-weighted assets GRES Group Real Estate Services RTS Report to society RWA Risk-weighted assets H HEPS Headline earnings per share S HR Human resources SA South Africa SAGEA South African Graduate Employers Association I SAICA South African Institute of Chartered ICBC Industrial and Commercial Bank of China Accountants ICBCS ICBC Standard Plc SARA South African Reward Association ICT Information, communication and technology SARB South African Reserve Bank IFRS International Financial Reporting Standards SASBO South African Society of Bank Officials IMF International Monetary Fund SBFC Standard Bank Financial Consultants IPO Initial public offering SBSA The Standard Bank of South Africa Limited IR Integrated reporting SDG Sustainable Development Goals IT Information technology SEE Social, economic and environmental SENS Stock exchange news service J SME Small- and medium-sized enterprises JSE Johannesburg Stock Exchange SMS Short message service K SOE State-owned enterprises King IV King IV Report on Corporate Governance for STI Short-term incentive South Africa 2016, also King Code KYC Know your customer T The group Standard Bank Group Limited L TB Tuberculosis LCR Liquidity coverage ratio TCFD Task Force on Climate-related Financial Liberty Liberty Holdings Limited Disclosures LSE London Stock Exchange TPS Transactional products and services LTI Long-term incentive U M UN United Nations MIT Massachusetts Institute of Technology UNEP FI United Nations Environment Programme MVNO Mobile virtual network operator Finance Initiative MW Megawatts UNICEF United Nations Children’s Fund US United States N NPS Net promoter score V NSFR Net stable funding ratio VAF Vehicle asset finance NII Net interest income W NIM Net interest margin WEF World Economic Forum NIR Non-interest revenue
Y O YES Youth Employment Services OECD Organisation for Economic Cooperation and Development
More information about financial and other definitions used is available online. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b CONTACT AND OTHER DETAILS
Standard Bank Group Limited Registration No. 1969/017128/06 Incorporated in the Republic of South Africa
Investor relations Group financial director Group secretary Sarah Rivett-Carnac Arno Daehnke Zola Stephen Tel: +27 11 631 6897 Tel: +27 11 636 3756 Tel: +27 11 631 9106
Registered office Please direct all annual report 9th Floor, Standard Bank Centre queries and comments to: 5 Simmonds Street, Johannesburg 2001 [email protected] PO Box 7725, Johannesburg 2000 Please direct all customer-related www.standardbank.com queries and comments to: [email protected]
Please direct all investor relations queries and comments to: [email protected]
Disclaimer This document contains certain statements that are ‘forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward- looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b
ANNUAL INTEGRATED REPORT 2019 Standard Bank Group WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b - WorldReginfo standardbank.com WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b - WorldReginfo Standard Bank Group Bank Standard STATEMENTS 2019 STATEMENTS ANNUAL FINANCIAL ANNUAL
ANNUAL FINANCIAL STATEMENTS 2019 Standard Bank Group CONTENTS
ANNUAL FINANCIAL ANNEXURES TO THE ANNUAL STATEMENTS FINANCIAL STATEMENTS 2 Our reporting suite 122 Annexure A – Subsidiaries, consolidated 4 Directors’ responsibility for financial reporting and unconsolidated structured entities 4 Group secretary’s certification 136 Annexure B – Associates and joint ventures 5 Report of the group audit committee 140 Annexure C – Risk and capital management 8 Directors’ report – IFRS disclosures 11 Independent auditors’ report 164 Annexure D – Group share incentive schemes 20 Statement of financial position 170 Annexure E – Emoluments and share incentives of directors and prescribed officers 21 Income statement 186 Annexure F – Detailed accounting policies 22 Statement of other comprehensive income 224 Annexure G – Six-year review 23 Statement of cash flows 230 Annexure H – Third-party funds under management 24 Statement of changes in equity ibc Contact and other details 28 Accounting policy elections, IFRS 16 transition and restatements 32 Key management assumptions 43 Notes to the annual financial statements
STANDARD BANK GROUP LIMITED – COMPANY ANNUAL FINANCIAL STATEMENTS 113 Statement of financial position 114 Statement of comprehensive income 115 Statement of cash flows 116 Statement of changes in equity 118 Notes to the company annual financial statements WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 1
The consolidated and separate annual financial statements were audited in terms of the Companies Act 71 of 2008.
The preparation of The Standard Bank Group Limited (SBGL) consolidated and separate annual financial statements was supervised by the group financial director, Arno Daehnke BSc, MSc, PhD, MBA, AMP.
A summary of these results was made publicly available on 5 March 2020. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 2 ANNUAL FINANCIAL STATEMENTS
OUR REPORTING SUITE
THIS REPORT INTENDED READERS Our shareholders, ANNUAL FINANCIAL STATEMENTS AFS debt providers and Sets out the group’s full audited annual financial statements, including regulators the report of the group audit committee.
Primarily investors but relevant to all our ANNUAL INTEGRATED REPORT AIR stakeholders Provides a holistic assessment of our ability to create sustainable value in the short, medium and long term.
Our shareholders, debt providers and GOVERNANCE AND REMUNERATION REPORT GOV regulators Discusses the group’s governance and remuneration priorities, as well as REM the group’s remuneration policy and implementation report.
The invitation to the annual general meeting (AGM) and notice of resolutions to be tabled is sent separately to shareholders and is available online.
Our shareholders, debt providers and RISK AND CAPITAL MANAGEMENT REPORT RCM regulators Sets out the group’s approach to risk management, including our risk universe.
Our clients, employees and society REPORTING TO SOCIETY SUITE RTS more broadly The report to society (RTS) explains how we contribute to the group’s ability to achieve its purpose through our SEE impact. Our environmental, social and governance (ESG) report provides an overview of the processes and governance structures the group has in place to support our commitment to do the right business, the right way. The reporting to society suite also includes our South African transformation report. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 3
INTENDED READERS SUBSIDIARY ANNUAL REPORTS Our subsidiary To account to their stakeholders, our subsidiaries produce their own annual stakeholders reports and audited annual financial statements, which are available on their respective websites.
•• The Standard Bank of South Africa (SBSA) •• Liberty •• Other subsidiary reports, including legal entities in Africa Regions.
AIR GOV RCM AFS RTS REM
Frameworks applied
The International Integrated Reporting
Companies Act, No 71 of 2008, as amended (Companies Act)
Johannesburg Stock Exchange (JSE) Listings Requirements
King IV™ Report on Corporate Governance for South Africa 2016*
International Financial Reporting Standards (IFRS)
South African Banks Act 94 of 1990 (Banks Act)
Basel Committee on Banking Supervision’s public disclosure framework
CDP (previously Carbon Disclosure Project)
United Nations (UN) Sustainable Development Goals (SDGs)
Assurance
Certain information extracted from audited reports
Unmodified audit opinion expressed by KPMG Inc. and PricewaterhouseCoopers Inc.
Selected information assured by PricewaterhouseCoopers Inc.
* Also known as the King Code and King IV TM. Copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all of its rights are reserved.
All our reports and latest financial results presentations, booklets and SENS How to navigate our reports announcements are available online, The following icons refer readers to information across our together with financial and other suite of reports: definitions, acronyms and abbreviations used. We urge our stakeholders to make Refers readers to information elsewhere in this report. use of our reporting site at https:// reporting.standardbank.com/ Refers readers to information in our other reports, to assist in the reduction of our which are available online. carbon footprint.
At the time of writing this report, COVID-19 had begun spreading more rapidly across the world. Its impact on our communities and business activities is still being quantified. We intend to include these impacts into our strategy and short- and long-term budget plans. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 4 ANNUAL FINANCIAL STATEMENTS
Directors’ responsibility for financial reporting
In accordance with the Companies Act, the directors are Based on the information and explanations provided responsible for the preparation of the annual financial by management and the group’s internal auditors, the directors statements. These annual financial statements conform to are of the opinion that the internal financial controls are adequate IFRS as issued by the International Accounting Standards Board and that the financial records may be relied upon for preparing (IASB), the South African Institute of Chartered Accountants’ the financial statements in accordance with IFRS and to (SAICA) Financial Reporting Guides as issued by the Accounting maintain accountability for the company and the group’s assets Practices Committee, the JSE Listings Requirements, and fairly and liabilities. Nothing has come to the attention of the directors present the affairs of SBGL and Standard Bank Group (SBG) as to indicate that a breakdown in the functioning of these controls, resulting in material loss to the company and the group, has at 31 December 2019, and the net income and cash flows for occurred during the year and up to the date of this report. the year then ended. The directors have a reasonable expectation that the company The directors are ultimately responsible for the internal controls and the group will have adequate resources to continue of the company and the group. Management enables in operational existence and as a going concern in the financial the directors to meet these responsibilities. Standards year ahead. The 2019 annual financial statements which appear and systems of internal controls are designed, implemented on pages 20 to 230 were approved by the board on and monitored by management to provide reasonable assurance 4 March 2020 and signed on its behalf by: of the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for shareholder investments and company and group assets. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective Thulani Gcabashe Sim Tshabalala accounting procedures and adequate segregation of duties. Chairman Group chief executive 4 March 2020 4 March 2020 It is the responsibility of the independent auditors to report on the fair presentation of the financial statements.
Group secretary’s certification Compliance with the Companies Act In terms of the Companies Act and for the year ended 31 December 2019, I certify that Standard Bank Group Limited has filed all returns and notices required by the Companies Act with the Companies and Intellectual Property Commission and that all such returns and notices are true, correct and up to date.
Zola Stephen Group secretary 4 March 2020 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 5
Report of the group audit committee
This report is provided by the group audit committee, in respect and experience to execute their duties effectively. To ensure that of the 2019 financial year of Standard Bank Group Limited, in risk-related matters of relevance to the audit committee are compliance with section 94 of the Companies Act, as amended considered, the chairman is a member of and attended the group from time to time, and in terms of the JSE Listings Requirements. risk and capital management committee meetings held during The committee’s operation is guided by a detailed mandate that the financial year. John Vice and Peter Sullivan, both independent is informed by the Companies Act, the Banks Act, the JSE non-executive directors and chairmen of the group technology Listings Requirements and the King IV Code on Corporate and information committee and group remuneration committee Governance and is approved by the board. Section 94(2) of the respectively, are both members of the group audit committee, Companies Act determines that, at each annual general meeting, which further enhances collective and integrated oversight a public company must elect an audit committee comprising at and ensures that key matters are considered in the respective least three members. In view of the exemption granted in section committees’ deliberations. All members were present for all 94(1), this section does not apply to the group audit committee meetings held during 2019. and, accordingly, the appointment of its members is approved annually by the board. The committee met eight times during 2019, including two meetings to consider quarterly financial results for publication The committee comprises six independent non-executive on SENS and the annual meeting with the Prudential Authority directors. All members have the necessary financial literacy, skills of the SARB.
MEETINGS HELD DURING THE YEAR
May 2019 April 2019 Annual meeting with the Prudential Authority of November 2019 Meeting to the SARB where, amongst other matters, the consider Q1 committee discussed their views regarding the Governance meeting adequacy of controls geared towards mitigating – oversight of Q3 2019 February 2019 2019 financial results for risks related to adverse regulatory sanctions and assurance provided an overview of envisaged enhancements Governance meeting publication of the controls; and discussed the key outcomes – oversight of Q4 2018 on SENS from the risk culture assessment, including assurance activities details of further work planned.
August 2019 October 2019 March 2019 May 2019 Meeting to consider Governance 2019 interim Q3 2019 financial 2018 year-end financial meeting – financial results results for results meeting oversight of Q1 meeting; and publication on SENS 2019 assurance oversight of Q2 2019 activities assurance activities
Information on the committee’s role and responsibilities; its composition, including members’ qualifications and experience; the date of members’ appointment to the committee; the number of meetings held during the year and attendance at those meetings; as well as key areas of focus during the reporting period is provided in greater detail in the corporate governance statement which is included in the group’s governance and remuneration report available at www.standardbank.com/reporting. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 6 ANNUAL FINANCIAL STATEMENTS REPORT OF THE GROUP AUDIT COMMITTEE CONTINUED
Execution of functions •• noted that there were no material reports or complaints received concerning accounting practices, internal audit, The audit committee has executed its duties and responsibilities internal financial controls, content of annual financial during the financial year in accordance with its mandate as it statements, internal controls and related matters relates to the group’s accounting, internal and external auditing, compliance, internal control and financial reporting practices. •• reviewed any significant legal and tax matters that could have a material impact on the financial statements During the year under review, the committee, among other, •• reviewed the content of the JSE’s annual proactive monitoring considered the following: report, including specific considerations in the preparation of financial statements In respect of the external auditors and the •• reviewed and discussed the independent auditors’ report. external audit: •• considered and recommended the reappointment of KPMG As part of the group audit committee’s responsibilities, notably Inc. and PricewaterhouseCoopers Inc. as joint external auditors its review of financial results, reports from internal and external for the financial year ended 31 December 2019, in accordance audit, finance and internal financial control reports, the group’s with all applicable legal requirements accounting policies, as well as the annual financial statements, •• approved the external auditors’ terms of engagement, the the audit committee took cognisance of the key audit matters audit plan and budgeted audit fees payable as reported in the independent auditors’ report. In addition, •• reviewed the audit process and evaluated the effectiveness the audit committee reviewed management’s judgements of the audit, taking into consideration the group finance on significant accounting and external reporting issues and function’s assessment of the audit and respective audit firms confirmed external audit’s agreement with the treatment thereof. •• assessed and obtained assurance from the external auditors that their independence was not impaired In respect of financial accounting and reporting •• confirmed that no amendments were required to the non-audit developments: services policy, which governs the use of the group’s external •• reviewed management’s process and progress with respect auditors for non-audit services to new financial accounting and reporting developments. •• approved proposed contracts with the external auditors for the provision of non-audit services and pre-approved proposed In respect of external reporting: contracts with the external auditors for the provision of •• recommended the annual reporting suite, including the annual non-audit services above an agreed threshold amount integrated report, to the board for approval •• considered the nature and extent of all non-audit services •• evaluated management’s judgements and reporting decisions provided by the external auditors in relation to the annual integrated report and ensured that •• monitored that the non-audit service fees for the year ended all material disclosures had been included 31 December 2019 were within the threshold set by the group •• reviewed both financial and non-financial information, audit committee for such engagements forward-looking statements and sustainability information •• confirmed that no reportable irregularities were identified and reported by the external auditors in terms of the Auditing In respect of internal control and internal audit: Profession Act 26 of 2005 •• reviewed and approved the annual internal audit charter and •• through the group’s governance structures, considered reports audit plan and evaluated the independence, effectiveness and from subsidiary audit committees and from management performance of the internal audit department and compliance on the activities of subsidiary entities. with its charter •• considered reports of the internal and external auditors on the In respect of the financial statements: group’s systems of internal control, including internal financial •• confirmed the going concern basis for the preparation controls, and maintenance of effective internal control systems of the interim and annual financial statements •• reviewed significant issues raised by the internal audit •• examined and reviewed the interim and annual financial processes and the adequacy of corrective action taken in statements prior to submission and approval by the board response to such findings •• reviewed external audit’s report on the adequacy of credit •• noted that there were no significant differences of opinion provisions for performing and non-performing loans and between the internal audit function and management impairment tests with respect to assets and considered •• assessed the independence and effectiveness of the group feedback from the external auditors regarding the models chief audit officer, the internal audit function and adequacy applied by management in determining such impairments of the available internal audit resources and found them •• ensured that the annual financial statements fairly present to be satisfactory the financial position of the company and of the group as at •• considered the outcome of the group’s external auditors’ the end of the financial year and the results of operations annual assessment of internal audit against the requirements and cash flows for the financial year of International Standards on Auditing (ISA) 601, which •• ensured that the interim and annual financial statements confirmed that the external auditors could place reliance conform with IFRS, the requirements of the JSE Listings on internal audit’s work for the purpose of external Requirements, the Companies Act and all other applicable audit engagements accounting guides and pronouncements •• noting that King IV and the Institute of Internal Audit •• considered accounting treatments, significant unusual Standards require an external and independent quality review transactions and accounting judgements of internal audit every five years, the committee confirmed •• considered the appropriateness of the accounting policies that all actions in relation to areas of improvement as reported adopted and changes thereto in the 2014 review of internal audit had been completed; and •• considered and made recommendations to the board on noted that the results of the 2019 review would be presented the interim and final dividend payments to shareholders to the audit committee in April 2020 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 7
•• based on the above, the committee formed the opinion that, Independence, skills and expertise at the date of this report, there were no material breakdowns in internal control, including internal financial controls, of the external auditors resulting in any material loss to the group The audit committee is satisfied that KPMG Inc. and PricewaterhouseCoopers Inc. are independent of the group •• over the course of the year, met with the chief audit officer, and that KPMG Inc. and PricewaterhouseCoopers Inc. and the the group chief compliance and data officer, group chief partners who are responsible for signing the group’s financial financial crime compliance officer, the group financial director, statements have the requisite skills and expertise. This management and the external auditors conclusion was arrived at, inter alia, after considering the •• considered quarterly reports from the group’s internal financial following factors: control committee. •• the representations made by KPMG Inc. and In respect of legal, regulatory and compliance PricewaterhouseCoopers Inc. to the audit committee, including confirmation of the firms’ and individual auditors’ accreditation requirements: on the JSE List of Auditors •• reviewed and approved the annual compliance mandate •• the auditors do not, except as external auditors or in rendering and compliance plan permitted non-audit services, receive any remuneration or •• reviewed, with management, matters that could have a other benefits from the group material impact on the group •• the auditors’ independence was not impaired by any •• monitored compliance with the Companies Act, the Banks Act, consultancy, advisory or other work undertaken by the auditors JSE Listings Requirements, King IV and other applicable •• the auditors’ independence was not prejudiced as a result legislation and governance codes and reviewed reports of any previous appointment as auditor from internal audit, external auditors and compliance •• in accordance with regulatory requirements, the group’s detailing the extent of these engagement partners rotated during 2016 •• reviewed the findings from the SARB Prudential Authority’s •• the criteria specified for independence by the Independent anti-money laundering/combating the funding of terrorism Regulatory Board for Auditors and international regulatory (AML/CFT) compliance inspection as conducted during 2018 bodies were met. •• noted that no complaints were received through the group’s ethics and fraud hotline concerning accounting matters, The audit committee noted the Independent Regulatory Board internal audit, internal financial controls, contents of financial for Auditors’ announcement of its Mandatory Audit Firm Rotation statements, potential violations of the law and questionable (MAFR) ruling on 2 June 2016 which determined that an audit accounting or auditing matters. firm may not be appointed auditor of a public interest entity for more than ten years. As a result, the group would, at a minimum, In respect of risk management and information be required to rotate one of the audit firms for its 2024 financial technology: year end, and the other for its 2026 financial year. •• through the chairman and three other group audit committee members’ membership on the group risk and capital In conclusion, the audit committee is satisfied that it has fulfilled management committee, as well as interaction with the its responsibilities and complied with its legal, regulatory and chairman of the group risk and capital management governance responsibilities as set out in its mandate. committee, considered risks as they pertained to the control On behalf of the group audit committee: environment, financial reporting and the going concern assessment •• considered updates on key internal and external audit findings in relation to the IT control environment, significant IT programmes and IT intangible assets Trix Kennealy Chairman In respect of the coordination of assurance 2 March 2020 activities, the committee: •• reviewed the plans and work outputs of the external and internal auditors, as well as compliance and the internal financial control function, and concluded that these were adequately robust to place reliance on the combined assurance underlying the statements made in external reports •• considered the expertise, resources and experience of the finance function and senior members of management responsible for this function and concluded that these were appropriate •• considered the appropriateness of the experience and expertise of the group financial director and concluded that these were appropriate. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 8 ANNUAL FINANCIAL STATEMENTS
Directors’ report for the year ended 31 December 2019
Nature of business Analysis of shareholders Standard Bank Group Limited is the holding company for the Shareholders at the close of the financial year, holding beneficial interests of the group, an African financial services organisation interests in excess or equal to 5% of the company’s issued share with South African roots. It is South Africa’s largest banking capital, determined from the share register and investigations group by assets and currently operates in 20 countries in conducted on the group's behalf, were as follows: sub-Saharan Africa. Our strategic position enables us to connect Africa to other selected emerging markets and pools of capital in % held developed markets. 2019 2018 Headquartered in Johannesburg, South Africa, the group’s primary listing is on the JSE and its secondary listings on A2X Ordinary shares Markets and the Namibian Stock Exchange (NSX). Subsidiary Industrial and Commercial entities are listed on exchanges in Kenya, Malawi, Namibia, Bank of China Limited Nigeria and Uganda. (ICBC) 20.1 20.1 Government Employees A simplified group organogram with principal subsidiaries is Pension Fund (PIC) 13.3 12.4 shown in annexure A. 6.5% preference shares L Lombard 12.0 12.0 Old Sillery Proprietary Group results Limited 9.1 9.1 Group headline earnings and headline earnings per share DJ Saks 7.5 7.5 increased by 1% to R28 207 million (2018: R27 865) and 1% to MT Goulding 12.9 8.6 1 766.7 cents (2018: 1 748.4 cents) respectively. Net asset value AP Macdonald 5.4 1.1 per share increased to 10 742 cents (2018: 10 380 cents) and group return on equity decreased to 16.8% (2018: 18.0%). A final JIR Campbell 5.3 dividend of 540 cents per share has been declared bringing the The Spiz Family Trust 8.0 total dividend declared for the year to 994 cents per share Non-cumulative preference (2018: 970 cents per share). shares Prescient Inc. Provider Fund 8.2 7.4 Share capital Ordinary shares Events during 2019 During the year, 1 195 330 (2018: 1 729 572) ordinary shares Other banking interest were issued in terms of the group’s equity compensation plans, Industrial and Commercial Bank of China (Argentina) notably the Equity Growth Scheme (EGS) and Group Share Incentive Scheme (GSIS). No surplus capital was used to S.A. (ICBCA) purchase ordinary shares in 2019 (2018: 2 483 523) In November 2012, the group completed the disposal of a to counteract the dilutive impact of the shares issued under controlling interest in each of Industrial and Commercial Bank the equity compensation plans. Effective from 2017, the group of China (Argentina) S.A. (previously Standard Bank Argentina no longer issues EGS and GSIS awards. Awards are now S.A.), ICBC Investments Argentina S.A. Sociedad Gerente de provided in terms of the group's other share schemes, notably Fondos Comunes de Inversión (previously Standard Investments the Deferred Bonus Scheme and the Share Appreciation Rights S.A. Sociedad Gerente de Fondos Comunes de Inversión) and Plan, both of which are settled by the group to employees with Inversora Diagonal S.A. (collectively ICBCA) to ICBC. shares that the group purchases from the open market participants, and the Cash Settled Deferred Bonus Scheme, The group retained a 20% shareholding in ICBCA, held by which is settled in cash (refer to Annexure D: Group share Standard Bank Group’s wholly owned subsidiary, Standard Bank incentive schemes for further information). At the end of the London Holdings Limited. This residual investment was classified year, the group would need to issue 1 485 507 (2018: 2 847 244), as an investment in associate and accounted for using the equity SBG ordinary shares to settle the outstanding GSIS options and accounting method in terms of IAS 28 Investments in Associates EGS rights that were awarded to participants in previous years. and Joint Ventures (IAS 28). The shares issued since inception for the EGS and GSIS together In the ICBCA shareholders’ agreement, Industrial and with the expected number of shares to settle the outstanding Commercial Bank of China (ICBC) granted a put option to options and rights as a percentage of the total number the group under which the group was given the right to sell its of shares in issue is 2.1% (2018: 2.1%). remaining shareholding in ICBCA to ICBC, by giving notice at any time between 1 December 2014 and 30 November 2019. The Registered office strike price of the put option is fixed at USD181 million. Having The address of the registered office is, 9th Floor, Standard Bank taken the independent advice required under the JSE Listings Centre, 5 Simmonds Street, Johannesburg 2001. Requirements, on 8 August 2019, the group exercised the put option and gave the required notice to ICBC. The transaction Insurance is subject to conditions precedent customary to transactions The group protects itself against financial loss by maintaining of this nature, including regulatory approvals in China. The bankers’ comprehensive crime and professional indemnity cover. completion date in respect of the transaction is anticipated to The insurance terms and conditions are reviewed by the group be in the first half of 2020. The group would seek to reinvest insurance committee annually to ensure they are ‘fit-for-purpose’ net proceeds received at completion of the transaction to against the group’s risk exposures. support its African strategy. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 9
Based on the above, the requirements of IFRS 5 Non-current latest available information at year end. Cash flow projections Assets Held for Sale and Discontinued Operations (IFRS 5), were were based on future cash flows the group could derive from the met and equity accounting of this investment was ceased at the investment, taking into consideration various scenarios. In end of August 2019. Therefore, as at 31 December 2019, the addition, an appropriate discount rate of 9.8%, which reflects investment in ICBCA has been disclosed as non-current assets current market assessments of the time value of money and risks held for sale and presented separately on the statement of specific to ICBCS, was applied. Key inputs to the VIU include financial position. The investment in ICBCA is measured at the ICBCS management’s most recent business plan projections. lower of the carrying amount and fair value less costs to sell, The VIU reflects the present value of the expected future being R1 196 million at 31 December 2019. The investment in cash flows and is based on the weighted average of potential ICBCA was not impaired at date of classification as held for sale, business outcomes. nor at year end. Based on the outcome of this analysis and the value derived, we ICBC Standard Bank Plc (ICBCS) conclude that the recoverable amount approximates carrying ICBCS, in which the group is a 40% shareholder, incurred a loss value and therefore no further impairment was recognised by the of USD248 million for the 2019 financial year, which includes group at 31 December 2019. The group will continue to engage losses and provisions relating to a single client loss, refer below and work with ICBC and ICBCS to enable the business to for detail, of USD198 million and restructuring costs of generate acceptable returns. USD30 million following the closure of certain regional offices and management actions to reduce operational costs. Stanbic Bank Zimbabwe functional currency The only legal exchange mechanism that Stanbic Bank Zimbabwe The single client loss arose as a result of an explosion at the (SBZ) had access to in the financial period since the change in client’s oil refinery and its subsequent bankruptcy in July 2019. functional currency from United States dollar (USD) to This single client loss includes estimates of the prices that will be Zimbabwean dollar (ZWL), on 1 October 2018, was ZWL as the achieved on disposal of remaining inventory owned by ICBCS and official exchange mechanism. This led to SBZ concluding that the any other costs that ICBCS will incur in extracting its remaining appropriate exchange rate to use at the date of the change in inventory from the oil refinery site and in terminating the functional currency and subsequent to the change in functional transaction. Given the nature of these estimates, there is currency up until the end of the 2018 reporting period was the potential variability in the actual sale prices that will be achieved official rate of 1:1. and additional costs that will be incurred. ICBCS is pursuing recovery of its losses by exercise of security rights and claims The Reserve Bank of Zimbabwe (RBZ) implemented certain key against the client’s bankruptcy estate, including any recoveries monetary policy measures during February 2019. The most under insurance policies maintained by the client in respect of its significant change was the establishment of a new foreign business and operations. Various other parties, including the exchange interbank market and this interbank market will client’s term lenders, are seeking to recover losses they have complement the existing official foreign exchange mechanism incurred as a result of this incident from the client’s bankruptcy with the RBZ. The establishment of this interbank market has estate. As a result, the timing and extent of any recovery of losses created an additional legal exchange mechanism whereby the incurred by ICBCS on its inventory intermediation activities in bank is able to trade real-time gross settlement (RTGS) dollars 2019 remain uncertain and consequently no significant amount (official currency). The starting rate of trade in this interbank has been recognised at 31 December 2019. market was 2.5 RTGS:USD. As at 31 December 2019, the rate deteriorated to 16.54 RTGS:USD from 1 RTGS:USD as at Following a review of ICBCS’s business model, the ICBCS board 31 December 2018, which resulted in a foreign currency has taken actions to reduce costs and simplify ICBCS’s business translation reserve (FCTR) loss of R2.5 billion for the group, after model and will focus on driving efficiencies through working more the hyperinflation adjustment translation adjustment per IAS 21 closely with ICBC. As at 31 December 2019, having issued The Effects of Changes in Foreign Exchange Rates (IAS 21) . additional tier 1 (AT1) capital to ICBC, ICBCS was sufficiently capitalised to meet its regulatory requirements and to support During 2019, the Zimbabwe year-on-year monthly inflation rate the business levels indicated in its business plan. increased from 42% at the end of December 2018 to 521% at the end of December 2019. Therefore, SBZ is considered to be Given the significant losses suffered by ICBCS and the hyperinflationary as at 31 December 2019 and the results for SBZ deterioration of market conditions, the group reviewed were adjusted in accordance with IAS 29 Financial Reporting in the recoverable amount of the associate investment at Hyperinflationary Economies. This resulted in the group’s profit 30 September 2019. At that time, the group took into attributable to ordinary shareholders for the period ended consideration available information, applying a value in use 31 December 2019 decreasing by R82 million and an increase (VIU) approach in determining carrying value. Following this in retained earnings of R730 million. review, the group’s carrying value in ICBCS was impaired from USD383 million to USD220 million with an impairment Listing of Standard Bank Namibia Holdings Limited of R2.4 billion recognised in earnings attributable to (SBNH) ordinary shareholders. In Namibia, the group successfully completed the listing of its Namibian bank holding company, SBN Holdings Limited (SBNH) At 31 December 2019, after further losses recorded by ICBCS in on the Namibian Stock Exchange (NSX) on 15 November 2019. the fourth quarter of 2019, including restructuring provisions, the As part of the public offer, SBNH raised equity of R200 million group’s 40% associate investment in ICBCS was carried at through an issue of ordinary shares, while Standard Bank Group USD189 million (R2.6 billion). Limited (SBGL) sold a portion of its stake in SBNH for a sale consideration of R522 million. The group has assessed the recoverable amount of its investment in ICBCS at 31 December 2019, consistent with the SBGL’s legal shareholding in SBNH prior to the listing was 90%, approach used at 30 September 2019, and the group adopted a but due to the degree of control SBGL retained over the shares of VIU approach to determine the recoverable amount utilising the WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 10 ANNUAL FINANCIAL STATEMENTS REPORT OF THE GROUP AUDIT COMMITTEE CONTINUED
the empowerment structure, SBNH was consolidated at 100%, Post balance sheet event with the group accounting for the total SBNH earnings up until the With effect from 1 January 2020, the restrictions on the allocated listing. Post the listing, SBGL’s legal shareholding in SBNH reduced shares held within the empowerment structure expired and SBGL from 90% to 74.9% and the empowerment structure’s legal no longer retains control over those shares. Accordingly, while shareholding was diluted from 10% to 9.6% by the issue of SBGL continues to consolidate SBNH from 1 January 2020, ordinary shares. From the date of listing to 31 December 2019, 74.9% of SBNH earnings are attributable to SBGL as controlling SBNH remains consolidated, but with 84.5% of SBNH earnings shareholder and the remaining 25.1% of SBNH earnings are attributable to ordinary shareholders and the remaining 15.5% attributable to non-controlling shareholders. of SBNH earnings attributable to non-controlling shareholders. The group recognised an increase in NCI of R617 million and a decrease in retained earnings and equity attributable to ordinary shareholders of R105 million due to the changes in the group’s ownership interest in SBNH.
DIVIDENDS AT 31 DECEMBER 2019 Non-redeemable, non-cumulative, non-participating 6.5% cumulative preference shares preference shares (second preference Ordinary shares (first preference shares) shares)
Interim 2018 Dividend per share (cents) 430 3.25 386.43 2019 Dividend number 100 100 30 Dividend per share (cents) 454 3.25 391.38 Friday, Friday, Friday, Record date in respect of the cash dividend 13 September 2019 6 September 2019 6 September 2019 Dividend cheques posted and CSDP1/broker Monday, Monday, Monday, accounts credited/updated (payment date) 16 September 2019 9 September 2019 9 September 2019 Final 2018 Dividend per share (cents) 540 3.25 390.22 2019 Dividend number 101 101 31 Dividend per share (cents) 540 3.25 389.12 Record date in respect of the cash dividend Friday, 24 April 2020 Friday, 17 April 2020 Friday, 17 April 2020 Dividend cheques posted and CSDP1/broker accounts credited/updated (payment date) Tuesday, 28 April 2020 Monday, 20 April 2020 Monday, 20 April 2020
1 Central Securities Depository Participant.
Change in group directorate The following changes in directorate took place from 1 January 2019 up to 5 March 2020:
Appointments
MA Erasmus As non-executive director 12 July 2019
BP Mabelane As non-executive director 1 January 2020
NMC Nyembezi As non-executive director 1 January 2020
Resignations
Dr H Hu As joint deputy chairman 25 February 2020 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 11
Independent auditors’ report for the year ended 31 December 2019
To the shareholders of Standard Bank Basis for opinion Group Limited We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those Report on the audit of the consolidated standards are further described in the Auditors’ responsibilities and separate financial statements for the audit of the consolidated and separate financial Opinion statements section of our report. We are independent of the Group and Company in accordance with the sections 290 and We have audited the consolidated (the “Group”) and separate 291 of the Independent Regulatory Board for Auditors’ Code of (“the Company”) financial statements of Standard Bank Group Professional Conduct for Registered Auditors (Revised January Limited, set out on pages 20 to 223 which comprise: 2018), parts 1 and 3 of the Independent Regulatory Board for •• the Statements of financial position as at 31 December 2019; Auditors’ Code of Professional Conduct for Registered Auditors •• the Income statement for the year then ended; (Revised November 2018) (together the IRBA Codes) and other •• the Statement of other comprehensive income for the year independence requirements applicable to performing audits of then ended; financial statements in South Africa. We have fulfilled our other •• the Statement of comprehensive income for the year then ethical responsibilities, as applicable, in accordance with the ended; IRBA Codes and in accordance with other ethical requirements •• the Statements of cash flows for the year then ended; applicable to performing audits in South Africa. The IRBA Codes are consistent with the corresponding sections of the •• the Statements of changes in equity for the year then ended; International Ethics Standards Board for Accountants’ Code of •• Accounting policy elections and IFRS 16 transition and Ethics for Professional Accountants and the International Ethics restatements; Standards Board for Accountants’ International Code of Ethics •• Key management assumptions; for Professional Accountants (including International •• the Notes to the annual financial statements; and Independence Standards) respectively. We believe that the audit •• Annexures A to F, excluding the section marked as “not evidence we have obtained is sufficient and appropriate to audited” in Annexure C. provide a basis for our opinion.
In our opinion, the consolidated and separate financial Key audit matters statements present fairly, in all material respects, the Key audit matters are those matters that, in our professional consolidated and separate financial position of Standard Bank judgement, were of most significance in our audit of the Group Limited as at 31 December 2019, and its consolidated and consolidated and separate financial statements of the current separate financial performance and consolidated and separate period. These matters were addressed in the context of our audit cash flows for the year then ended in accordance with IFRS and of the consolidated and separate financial statements as a whole, the requirements of the Companies Act of South Africa. and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Level Key audit matter How our audit addressed the key audit matter
Group – Expected credit losses on Corporate & Investment Banking (CIB) loans and advances consolidated Refer to the key management assumptions note, note 7 – Loans and advances, note 34 – Credit impairment financial charges and the credit risk section of Annexure C: Risk and capital management – IFRS disclosures in the statements annual financial statements.
The expected credit losses (“ECL”) for CIB loans Our audit effort focussed on the ECL of CIB exposures as and advances (“exposures”) are material to the follows: consolidated financial statements in terms of their Evaluation of SICR magnitude, the level of subjective judgement We selected a sample of counterparties and assessed their applied by management and the effect that the assigned credit rating by: ECL has on the Group’s credit risk management • Testing the inputs into the credit rating systems against the processes and operations. • financial information obtained from the counterparty and This has resulted in this matter being considered the Group’s 25-point master rating scale; and to be a matter of most significance in the audit of •• Assessing assumptions made by management during the the consolidated financial statements. credit risk rating process for reasonability, by obtaining an understanding of the counterparty and industry factors, The ECL of CIB exposures are estimated on a performing an independent assessment of the counterparty basis. For CIB exposures, the key counterparty and comparing the results to those used by areas of significant management judgement management. within the ECL calculations include: We selected a sample of Stage 1 and Stage 2 exposures and •• Evaluation of significant increase in credit risk assessed whether the stage classification of these exposures (“SICR”); was appropriate in terms of the Group’s accounting policy for •• Incorporation of macro-economic inputs and SICR at reporting date since the origination date of these forward-looking information into the SICR exposures. These procedures included the inspection of credit assessment and ECL measurement; risk ratings at reporting date relative to origination date. •• Assessment of ECL raised for Stage 3 exposures; and We evaluated management’s processes for identifying Stage 3 •• Input assumptions applied to estimate the exposures by selecting a sample of exposures not classified at probability of default (“PD”), exposure at Stage 3 to assess whether the stage classification was in line default (“EAD”) and loss given default (“LGD”) with the Group’s accounting policy for the definition of default within the ECL measurement. for Stage 3 exposures. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 12 ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
Level Key audit matter How our audit addressed the key audit matter
Group – Expected credit losses on Corporate & Investment Banking (CIB) loans and advances consolidated Refer to the key management assumptions note, note 7 – Loans and advances, note 34 – Credit impairment financial charges and the credit risk section of Annexure C: Risk and capital management – IFRS disclosures in the statements annual financial statements.
Evaluation of SICR We selected a sample of Stage 1 and Stage 2 counterparties For CIB exposures, SICR is largely driven through and performed the following procedures to determine if the the movement in credit ratings assigned to counterparties credit risk increased since origination date: counterparties on origination and reporting date, •• Compared the credit rating on inception of the facility to based on the Group’s 25-point master rating scale the credit rating as at the reporting date; to quantify credit risk for each exposure. •• For any significant downgrades in credit rating as per the policy assessed whether the counterparty is correctly Incorporation of macro-economic inputs and classified as Stage 2 for impairment purposes; and forward-looking information into the SICR •• For any deviations from the Group’s credit policy, assessed assessment and ECL measurement the reasonability for these deviations. Macro-economic expectations are incorporated in CIB’s counterparty ratings to reflect the Group Incorporation of macro-economic inputs and forward- expectation of future economic and business looking information into the SICR assessment conditions. and ECL measurement We selected a sample of exposures and assessed the Assessment of ECL raised for Stage 3 incorporation of forward-looking information into their exposures assigned credit risk rating. We have done this by obtaining an Management applies its internal credit risk understanding of the forward-looking information which was management approach and definitions to taken into account for the exposure and evaluated this for determine the recoverable amounts (including reasonability against management’s expectation and other collateral) and timing of the future cash flows for industry factors for the SICR assessment and ECL Stage 3 exposures at an individual counterparty measurement. level. Assessment of ECL raised for Stage 3 exposures Where an ECL has been raised for Stage 3 exposures, we Input assumptions applied to estimate the PD, considered the impairment indicators, uncertainties and EAD and LGD within the ECL measurement. assumptions applied by management in their assessment of Input assumptions applied to estimate the PD, the recoverability of the exposure. For a sample of Stage 3 EAD and LGD as inputs into the ECL measurement exposures, we independently recalculated the ECL based on are subject to management judgement and is our assessment of the expected cash flows and recoverability determined at an exposure level. of collateral at an individual exposure level.
For collateral held, we inspected legal agreements and other relevant documentation to confirm the existence and legal right to the collateral.
The collateral valuation techniques applied by management were assessed against the Group’s valuation guidelines.
Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement Making use of our internal valuation experts, we assessed the input assumptions applied within the PD, EAD and LGD models (including forward looking information) against the requirements of IFRS 9 Financial Instruments (IFRS 9). In addition, our procedures included assessing the appropriateness of the models through reperformance and validation procedures.
We obtained an understanding and tested the relevant controls relating to the approval of credit facilities, subsequent monitoring and remediation of exposures, key system reconciliations and collateral management.
As a result of the deterioration of the South African sovereign outlook, we assessed, for a sample of exposures relating to public sector entities whether the ECL raised on these exposures are appropriate through the inspection of legal agreements, including any related government guarantees to confirm the existence and legal right to collateral.
We assessed the adequacy of the disclosures in the financial statements in accordance with IFRS 9. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 13
Level Key audit matter How our audit addressed the key audit matter
Group – ECL on Personal & Business Banking (PBB) loans and advances consolidated Refer to the Key management assumptions note, note 7 – Loans and advances, note 34 – Credit impairment financial charges and the credit risk section of Annexure C, Risk and capital management – IFRS disclosures in the annual statements financial statements.
The ECL for PBB loans and advances (exposures) Our audit effort focussed on the ECL for PBB exposures as is material to the consolidated financial follows: statements in terms of their magnitude, the level Evaluation of SICR of subjective judgement applied by management Management provided us with a quantitative assessment of and the effect that the ECL has on the impairment the Group’s calculation of the impact of SICR against the of loans and advances and on the Group’s credit requirements of IFRS 9. We performed an independent risk management processes and operations. This recalculation of the resultant ECL for a sample of portfolios. has resulted in this matter being considered to be a matter of most significance in the audit of the We evaluated behavioural scores which are used to assess the consolidated financial statements. significant increase in credit risk against the Group’s accounting policies. A significant portion of the PBB ECL is calculated on a portfolio basis. For exposures quantitatively We evaluated the reasonability of changes in credit risk of the above a pre-defined threshold in secured portfolio against key performance indicators. portfolios, management assesses the recoverability of those exposures individually. We performed sensitivity analyses to determine the impact of The ECL on exposures also includes out-of-model change in credit risk on the ECL recognised. adjustments where certain aspects of the ECL are not fully reflected in the model. Out-of-model We tested the design and operating effectiveness of relevant adjustments are calculated and assessed based controls that identify renegotiated and cured loans to assess on management’s judgement. whether the curing policies were appropriately applied.
For PBB, the key areas of significant management Incorporation of macro-economic inputs and forward- judgement within the ECL calculation include: looking information into the SICR assessment and •• Evaluation of SICR; ECL measurement We evaluated the appropriateness of forward-looking •• Incorporation of macro-economic inputs and economic expectations included in the ECL by comparing forward-looking information into the SICR to independent industry data. assessment and ECL measurement; •• Application of out-of-model adjustments into We evaluated management’s forward-looking information the ECL measurement; models to assess whether the macro-economic inputs are •• Assessment of the ECL raised for individual appropriately incorporated into the ECL models. exposures; and •• Input assumptions applied to estimate the PD, Where management applied out-of-model adjustments to EAD and LGD within the ECL measurement. the forward-looking information, we evaluated these for reasonableness and evaluated the methodology applied Evaluation of SICR to incorporate these into the forecasts. The Group determines the SICR threshold by utilising an appropriate transfer rate of exposures Application of out-of-model adjustments into that are less than 30 days past due (DPD) to the ECL measurement Stage 2. This transfer rate is such that the We evaluated the reasonableness of a selection of out-of- proportion of the 0 – 29 DPD book transferred model adjustments by assessing key assumptions, inspecting into Stage 2 is no less than the observed the calculation methodology and tracing a sample of 12-month roll rate of 0 – 29 day accounts into out-of-model adjustments back to source data. 30 or more days in arrears. The SICR thresholds are reviewed regularly to ensure that they are appropriately calibrated to identify SICR by portfolio vintage and to consequently facilitate appropriate impairment coverage.
Incorporation of macro-economic inputs and forward-looking information into the SICR assessment and ECL measurement. Forward-looking economic expectations are included in the ECL based on the Group’s macro-economic outlook, using models that correlate these parameters with macro-economic variables. Where modelled correlations are not viable or predictive, adjustments are based on judgement to predict the outcomes based on the Group’s macro-economic outlook expectations. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 14 ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
Level Key audit matter How our audit addressed the key audit matter
Group – ECL on Personal & Business Banking (PBB) loans and advances consolidated Refer to the Key management assumptions note, note 7 – Loans and advances, note 34 – Credit impairment financial charges and the credit risk section of Annexure C, Risk and capital management – IFRS disclosures in the annual statements financial statements. continued Application of out-of-model adjustments into Assessment of ECL raised for individual exposures the ECL measurement Where ECL has been raised for individual exposures, we Management identified that due to modelling considered the impairment indicators, uncertainties and complexity, certain aspects of the ECL may not be assumptions made by management in their assessment of fully reflected by the underlying model and an the recoverability of the exposure. For a sample of Stage 3 out-of-model adjustment is required for the exposures, we independently recalculated the impairment forward-looking information impact for specific losses based on our assessment of the expected cash flows events and trends not captured in the model. and recoverability of collateral at an individual exposure level.
Assessment of ECL raised for individual For collateral held, we inspected legal agreements and other exposures relevant documentation to confirm the existence and legal Impairment is assessed on individual exposures right to the collateral. above a quantitative threshold in Stage 3, and for accounts placed on the watchlist due to evidence The collateral valuation techniques applied by management of increased credit risk e.g. potential security were assessed against the Group’s valuation guidelines. shortfalls, deteriorating financial performance, etc. This assessment relates primarily to business Input assumptions applied to estimate the PD, EAD and lending accounts and incorporates judgement in LGD within the ECL measurement determining the foreclosure value of the Making use of our internal valuation experts, we assessed the underlying collateral. assumptions relating to historical default experience, estimated timing and amount of forecasted cash flows and Input assumptions applied to estimate the PD, the value of collateral applied within the PD, EAD and LGD EAD and LGD within the ECL measurement models for compliance with the requirements of IFRS 9. The ECL is calculated using statistical models In addition, our procedures included assessing the which incorporate observable data, assumptions appropriateness of the statistical models by reperformance and estimates relating to historical default and validation procedures. experience and the loss experience given default; and timing and amount of forecasted cash flows We assessed the adequacy of the disclosures in the financial related to the exposures. statements in accordance with IFRS 9.
Group – Valuation of level 3 financial instruments consolidated Refer to the Key management assumptions note, note 2 – Derivative instruments, note 3 – Trading assets, financial note 5 – Financial investments, note 17 – Trading liabilities, and the market risk section of Annexure C: Risk statements and capital management – IFRS disclosures in the consolidated financial statements
The fair value of financial instruments significantly Our audit effort focussed on the valuation of level 3 financial affects the measurement of profit or loss and instruments as follows: disclosures of financial risks in the consolidated financial statements. Fair value calculations are We tested the design and operating effectiveness of the dependent on various sources of external and relevant controls relating to the valuation of level 3 financial internal data and on sophisticated modelling instruments to assess whether there is appropriate techniques used to value financial instruments. governance over the development of the valuation models These models and techniques are constantly and change control as well as the monthly independent price changing in line with developing market practices verification process. and trends. Level 3 financial instruments inherently contain elements of estimation For a sample of financial instruments, using an independent uncertainty due to their illiquid and unobservable model, we compared the fair value results to management’s nature. These financial instruments include valuation to assess the reasonableness of management’s unlisted equity investments, loans and advances model methodology and the output of model calculations. We and various derivative financial instruments. assessed the appropriateness and sensitivity of unobservable market rates, projected cash flows and valuation adjustments Significant judgement is required to be exercised with reference to the best available independent market by management due to the absence of verifiable information. third-party information to determine key inputs in the valuation models. Some of these unobservable We assessed the appropriateness and sensitivity of the credit key inputs include: spreads by evaluating the unobservable market rates, projected cash flows and valuation adjustments with •• credit spreads; and reference to the best available independent market •• discount rates denominated in illiquid foreign information. currencies. Where independent market information was not available, we Given the combination of inherent subjectivity and generated theoretical inputs based on other sources, judgement involved in estimating these fair values incorporating assumptions that include proxy pricing and the material nature of the balance, the transactions in the market as well as historic data, macro- valuation of level 3 financial instruments has been economic information and correlations. considered to be a matter of most significance to the current year audit of the consolidated financial statements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 15
Level Key audit matter How our audit addressed the key audit matter
Group – Valuation of long-term policyholders’ assets and liabilities under insurance contracts consolidated Refer to the Key management assumptions note and note 8 – Policyholders’ contracts in the notes to the annual financial financial statements. statements As at 31 December 2019, the carrying amounts Our audit effort focussed on the valuation of the of the policyholders’ assets and liabilities policyholders’ assets and liabilities, which included making under insurance contracts were R7 billion and use of our actuarial expertise as follows: R206 billion respectively, which is measured •• Updated our understanding of the actuarial control in accordance with the Standard of Actuarial environment and governance, including the functioning Practice 104 (SAP 104). of the Actuarial Committee, which approves the methodology and assumption changes against industry Policyholders’ assets and liabilities under practice and regulatory requirements; insurance contracts include provisions for the net •• We attended management meetings where valuation present value of expected future benefits and principles were discussed and approved. We performed expected future costs, less expected future tests and reasonability checks to corroborate that these premiums and for claims incurred but not principles as approved were applied in the valuation model; reported (IBNR). •• Compared the changes in valuation methodology against Complex and subjective judgements are required the requirements of SAP 104 and industry practice; over a variety of uncertain future operating •• Compared the assumptions applied by management assumptions within the life insurance business. against the latest experience, industry trends and economic These assumptions include, amongst others, market trends; and mortality and morbidity rates, withdrawals, •• Examined and corroborated management’s Analysis of investment return and discount rates, recurring Surplus by analysing the sources of profit and how it relates expenses, taxation, and expense inflation. to the change in the policyholders’ assets and liabilities and The assumptions applied by management, as the impact on the statement of comprehensive income. disclosed in Note 8 to the consolidated financial statements, in determining the value of the To test the inputs used in the valuation models we performed, policyholders’ assets and liabilities and any on a sample basis, the following: changes to these assumptions, may result in a •• Assessed the reasonability of the classification of expenses material adjustment to the value of policyholders’ between maintenance and acquisition and how they are assets and liabilities and ultimately the results capitalised in the valuation by considering the nature of the of the Group. expenses and inspecting the source document relating to the expense; and We considered the valuation of the policyholders’ •• Traced the policyholders’ valuation input data, such as assets and liabilities a matter of most significance premiums, claims and expense data used in the valuation to our current year audit due to: model back to information contained in the administration •• the significant management judgement and accounting systems. required in determining the value of the policyholders’ assets and liabilities; and •• the magnitude of the policyholders’ assets and liabilities in relation to the total assets and liabilities of the Group. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 16 ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
Level Key audit matter How our audit addressed the key audit matter
Group – Valuation of investment property at year-end consolidated Refer to the Key management assumptions note and note 11 – Investment property in the notes to the annual financial financial statements statements The majority of the Group’s investment property We obtained the latest independent property market reports comprises retail investment properties. As at to understand the prevailing market conditions in which the 31 December 2019, the carrying value of the Group invests, and our audit effort focused on the following: Group’s total investment property portfolio was •• We updated our understanding of and tested the relevant R34 billion, representing a R0.9 billion increase controls related to: compared to the prior year. –– Entering and amending of leases in support of contractual rental income; The Group’s accounting policy is to measure investment property at fair value using the –– Setting and approval of budgets by the Group; discounted cash flow model. The fair value is –– Detailed analysis of forecasts and trends against actual dependent on the inputs and assumptions into results that inform management of the business; valuation techniques applied and the inputs into –– Consideration of external valuation reports by an the valuation model. internally appointed appraiser; and –– Board approval of the valuations obtained. The inputs made by management in determining the fair value of the investment property are set In respect of the external valuers we: out in the key management assumptions section •• Considered their objectivity, independence and expertise of the consolidated financial statements and by inspecting the external valuers’ valuation reports for a include amongst others the key assumptions statement of independence and compliance with generally relating to exit capitalisation rates and discount accepted valuation standards; and rates. •• Confirmed the external valuers’ affiliation with the relevant The accounting policy requires all properties to be professional body; valued annually. Management engage external On a risk-based sample basis, we assessed the calculation of independent valuers (the external valuers) to the fair values in the external valuers’ valuation reports by carry out a valuation of all investment properties. performing the following procedures: We considered the year-end valuation of •• Utilised our internal valuation expertise to assess the investment properties as a matter of most appropriateness of the valuation methodology; significance to our current year audit due to: •• Considered the applicability of minority discounts to •• the significant judgements required in fractional ownership; determining the exit capitalisation rates and •• Assessed the reasonableness of the cash flows, growth, exit discount rates; and capitalisation and discount rates against market related •• the magnitude of the investment properties at data for similar investment properties; year-end. •• Recalculated acceptable ranges for the valuations of a sample of properties based on industry benchmarks; and •• Inspected the final valuation reports and agreed the fair value to the Group’s accounting records. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 17
Level Key audit matter How our audit addressed the key audit matter
Group – Impairment of the Investment in ICBC Standard Bank Plc (ICBCS) consolidated Refer to Annexure B – Associates and joint ventures, Annexure F – Detailed accounting policies and Key financial management assumptions statements Standard Bank Group (SBG) holds a 40% Our audit effort focussed on management’s impairment investment in ICBCS through Standard Bank assessment and value-in-use calculation in respect of the London Holdings (SBLH). investment in ICBCS and included: •• An evaluation of management’s assessment in considering ICBCS has incurred significant losses over the the circumstances giving rise to the indicator of an past year, comprising mainly of impairment impairment. We assessed this information against our losses, operational losses and restructuring costs knowledge of the underlying business; arising from losses and provisions relating to a •• Assessed the methodology applied by management to single client loss, as well as a revised business estimate the value-in-use. We assessed the key strategy. The Group considered this to be an assumptions supporting the value-in-use calculation, indicator of impairment resulting in an impairment evaluating the accuracy and relevance of the input data to loss of R2.4bn (US$163m) recognised during support the calculation, including approved budgets and the year. As a result, the carrying value of the considering the reasonableness of the budgets by investment at year end has been reduced comparing the budgets to historical results and market to R2.6bn (US$189m). data as well as our knowledge of the business; The impairment loss recognised in respect of the •• Engaged our internal valuation experts to assist in associate interest in ICBCS was considered to be reviewing the methodology of the value-in-use calculations a matter of most significance in the current year and discount rate applied; audit due to the inherent high degree of •• Independently recalculated the value-in-use of the judgement and uncertainty involved in investment in ICBCS and performed appropriate sensitivity determining the recoverable amount of the analyses in consideration of the potential impact of investment in ICBCS for the purposes of preparing reasonably possible downside changes in key assumptions, the consolidated financial statements of SBG. such as the cost of equity and the future business plans surrounding the ongoing operations of ICBCS; and Management applied the assumptions as set out •• We assessed the appropriateness of the disclosures made in the key management assumptions section of in accordance with the requirements of International the consolidated financial statements to Accounting Standards (IAS) 28 Investments in associates determine if there was an indicator of impairment and joint ventures and IAS 36 Impairment of assets. and to calculate the recoverable amount of the investment at 30 September and 31 December 2019. These are as follows: •• The Group applied a value-in-use approach to determine the recoverable amount of ICBCS utilising the latest available information at year end. •• Cash flow projections were based on future cash flows the Group expects to derive from the investment taking into consideration the weighted average of various scenarios. These include key inputs based on ICBCS’ most recent business plan. •• A discount rate of 9.8% reflecting current market assessment of the time value of money and related risks.
For purposes of preparing the consolidated financial statements, the impairment loss was determined in accordance with the detailed accounting policies as set out in Annexure F, note 2. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 18 ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
Level Key audit matter How our audit addressed the key audit matter
Group – Hyperinflationary considerations relating to Stanbic Bank Zimbabwe Limited consolidated Refer to Annexure A – Subsidiaries, consolidated and unconsolidated structured entities and Annexure F – financial Detailed accounting policies statements Zimbabwe has experienced cumulative price Our audit effort in respect of the hyperinflationary increases which have accelerated to 521% as at considerations relating to Stanbic Bank Zimbabwe 31 December 2019. As a result, management focussed on: evaluated and determined the economy of •• We obtained an understanding of the Group’s process for Zimbabwe to be hyperinflationary. identifying hyperinflationary economies and evaluated the Group’s accounting policy in relation to hyperinflation; Stanbic Bank Zimbabwe applied the requirements •• We assessed whether the indicators of hyperinflation of IAS 29 Financial reporting in Hyperinflationary on the Zimbabwean economy have been met through Economies (IAS 29). consideration of industry reports and pronouncements These hyperinflationary adjustments were issued by the Public Accountants and Auditors Board determined to be a matter of most significance in (PAAB) in Zimbabwe; the current year audit due to the magnitude of the •• We tested the accuracy of the hyperinflation computations balances, transactions, and the complexity and prepared by management with reference to the economic subjectivity relating to the application of IAS 29. indicators included (such as the inflation rate, cumulative inflation rate and consumer price indices from This resulted in the Group’s profit attributable to various sources); ordinary shareholders for the year ended •• We assessed the reasonability of the assumptions used 31 December 2019 decreasing by R82 million and by comparing these to externally available industry, an increase in retained earnings of R730 million. financial and economic data; and •• We assessed whether disclosures in the financial statements appropriately reflected the effects of the application of IAS 29.
Company – Impairment of interest in subsidiaries separate Refer to Annexure A – Subsidiaries, consolidated and unconsolidated structured entities, Annexure F – Detailed financial accounting policies, Key management assumptions and note 46 – interest in subsidiaries in the notes to the statements annual financial statements.
The Company has material interests in Our audit effort in respect of impairment of interest subsidiaries. Interest in subsidiaries represents in subsidiaries focussed on: 83% of the total assets of the Company. •• Evaluated management’s policies for identifying impairment indicators relating to the Company’s interest Interests in subsidiaries are measured at cost and in subsidiaries against the requirements of IAS 36, are reviewed annually for impairment with Impairment of Assets; and reference to impairment indicators described in •• Performed an independent impairment assessment by Note 46 to the separate financial statements. comparing the recoverable amount of the investment in The impairment of interest in subsidiaries was subsidiary to the carrying value to determine if there is an considered to be a matter of most significance to impairment loss that needs to be recognised. the current year audit due to the judgement applied in assessing the impairment indicators and the magnitude of the Company’s interest in subsidiaries.
Other information Our opinion on the consolidated and separate financial The directors are responsible for the other information. The other statements does not cover the other information and we do not information comprises the information included in the document and will not express an audit opinion or any form of assurance titled “Standard Bank Group Annual financial statements 2019” conclusion thereon. which includes the Group secretary’s certification, the Report of In connection with our audit of the consolidated and separate the group audit committee and the Directors’ report as required financial statements, our responsibility is to read the other by the Companies Act of South Africa, which we obtained prior to information identified above and, in doing so, consider whether the date of this report, and the document titled, “Standard Bank the other information is materially inconsistent with Group Annual integrated report 2019” which is expected to be the consolidated and separate financial statements or our made available to us after that date. The other information does knowledge obtained in the audit, or otherwise appears to not include the consolidated or the separate financial statements be materially misstated. and our auditors’ report thereon. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 19
If, based on the work we have performed on the other exists, we are required to draw attention in our auditors’ report information that we obtained prior to the date of this auditors’ to the related disclosures in the consolidated and separate report, we conclude that there is a material misstatement of this financial statements or, if such disclosures are inadequate, to other information, we are required to report that fact. We have modify our opinion. Our conclusions are based on the audit nothing to report in this regard. evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group Responsibilities of the directors for the and/or Company to cease to continue as a going concern. consolidated and separate financial statements •• Evaluate the overall presentation, structure and content of the The directors are responsible for the preparation and fair consolidated and separate financial statements, including the presentation of the consolidated and separate financial disclosures, and whether the consolidated and separate statements in accordance with International Financial Reporting financial statements represent the underlying transactions and Standards and the requirements of the Companies Act of South events in a manner that achieves fair presentation. Africa, and for such internal control as the directors determine is •• Obtain sufficient appropriate audit evidence regarding the necessary to enable the preparation of consolidated and financial information of the entities or business activities separate financial statements that are free from material within the Group and/or Company to express an opinion on misstatement, whether due to fraud or error. the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. In preparing the consolidated and separate financial statements, We remain solely responsible for our audit opinion. the directors are responsible for assessing the Group and the Company’s ability to continue as a going concern, disclosing, as We communicate with the directors regarding, among other applicable, matters related to going concern and using the going matters, the planned scope and timing of the audit and concern basis of accounting unless the directors either intend to significant audit findings, including any significant deficiencies in liquidate the Group and/or the Company or to cease operations, internal control that we identify during our audit. or have no realistic alternative but to do so. We also provide the directors with a statement that we have Auditors’ responsibilities for the audit of the complied with relevant ethical requirements regarding independence, and to communicate with them all relationships consolidated and separate financial statements and other matters that may reasonably be thought to bear on our Our objectives are to obtain reasonable assurance about whether independence, and where applicable, related safeguards. the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or From the matters communicated with the directors, we error, and to issue an auditors’ report that includes our opinion. determine those matters that were of most significance in the Reasonable assurance is a high level of assurance, but is not a audit of the consolidated and separate financial statements of guarantee that an audit conducted in accordance with ISAs the current period and are therefore the key audit matters. We will always detect a material misstatement when it exists. describe these matters in our auditors’ report unless law or Misstatements can arise from fraud or error and are considered regulation precludes public disclosure about the matter or when, material if, individually or in the aggregate, they could reasonably in extremely rare circumstances, we determine that a matter be expected to influence the economic decisions of users taken should not be communicated in our report because the adverse on the basis of these consolidated and separate financial consequences of doing so would reasonably be expected to statements. outweigh the public interest benefits of such communication.
As part of an audit in accordance with ISAs, we exercise Report on other legal and regulatory professional judgement and maintain professional scepticism requirements throughout the audit. We also: In terms of the IRBA Rule published in Government Gazette •• Identify and assess the risks of material misstatement of the Number 39475 dated 4 December 2015, we report that KPMG consolidated and separate financial statements, whether due Inc. and PricewaterhouseCoopers Inc. have been the joint to fraud or error, design and perform audit procedures auditors of Standard Bank Group Limited for 57 years. responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, PricewaterhouseCoopers Inc. KPMG Inc. misrepresentations, or the override of internal control. Director: John Bennett Director: Heather Berrange •• Obtain an understanding of internal control relevant to the Registered Auditor Registered Auditor audit in order to design audit procedures that are appropriate Johannesburg Johannesburg in the circumstances, but not for the purpose of expressing an 4 March 2020 4 March 2020 opinion on the effectiveness of the Group’s and the Company’s internal control. •• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. •• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 20 ANNUAL FINANCIAL STATEMENTS
Statement of financial position as at 31 December 2019
GROUP 1 January 2018 2018 2019 Restated Restated Note Rm Rm Rm
Assets Cash and balances with central banks 1 75 288 85 145 75 310 Derivative assets 2 71 407 51 678 75 610 Trading assets 3 222 802 181 112 160 894 Pledged assets 4 29 377 19 879 20 785 Financial investments1 5 567 319 548 526 534 624 Current tax assets 567 601 612 Disposal group assets held for sale 6 2 599 762 Loans and advances1 7 1 181 067 1 119 547 1 038 555 Policyholders’ assets 8 7 017 6 708 7 484 Other assets 9 29 901 22 514 22 923 Investment in associates and joint ventures 10 5 423 10 376 9 609 Investment property 11 34 180 33 326 32 226 Property, equipment and right of use assets2 12 22 018 19 194 16 179 Goodwill and other intangible assets 13 22 323 23 676 23 329 Deferred tax assets 14 4 301 3 918 3 898 Total assets 2 275 589 2 126 962 2 022 038 Equity and liabilities Equity 209 484 199 063 183 380 Equity attributable to ordinary shareholders 171 229 165 061 150 759 Ordinary share capital 15 162 162 162 Ordinary share premium 15 17 822 17 698 17 901 Reserves 153 245 147 201 132 696 Equity attributable to other equity instrument holders 15 10 989 9 047 9 047 Preference share capital and premium 15 5 503 5 503 5 503 Additional tier 1 capital 15 5 486 3 544 3 544 Equity attributable to non-controlling interests 27 266 24 955 23 574 Liabilities 2 066 105 1 927 899 1 838 658 Derivative liabilities 2 69 498 55 057 76 896 Trading liabilities 17 83 847 59 947 62 855 Current tax liabilities 5 407 5 188 5 107 Disposal group liabilities held for sale 6 246 237 Deposits and debt funding 18 1 426 193 1 357 537 1 243 911 Policyholders’ liabilities 8 324 246 310 994 322 918 Subordinated debt 19 28 901 26 359 24 289 Provisions and other liabilities2 20 124 101 109 753 99 175 Deferred tax liabilities 14 3 666 2 827 3 507
Total equity and liabilities 2 275 589 2 126 962 2 022 038
1 Refer to page 31 for details on the restatement to financial investments and loans and advances. 2 The group has, as permitted by IFRSLeases 16 (IFRS 16), elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 Leases (IAS 17) basis. Refer to page 29 for more detail on the adoption of IFRS 16.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 21
Income statement for the year ended 31 December 2019
GROUP 2018 2019 Restated Note Rm Rm
Income from banking activities 110 461 105 331 Net interest income 62 919 59 505 Interest income1 26 129 500 128 066 Interest expense1, 2 26 (66 581) (68 561) Non-interest revenue 47 542 45 826 Net fee and commission revenue 30 622 30 375 Fee and commission revenue 27 37 354 36 592 Fee and commission expense 27 (6 732) (6 217) Trading revenue1 28 12 075 10 799 Other revenue1 29 4 089 3 863 Other gains and losses on financial instruments1 30 756 789
Income from investment management and life insurance activities 23 573 21 722 Insurance premiums received 31 39 801 38 521 Revenue from contracts with customers 32 4 076 4 073 Interest income 32 1 920 1 516 Insurance benefits and claims paid 31 (44 241) (26 484) Investment management and service fee income and gains 32 3 245 3 533 Fair value adjustments to investment management liabilities and third-party fund interests 33 18 772 563
Total income 134 034 127 053 Credit impairment charges 34 (7 964) (6 489) Net income before operating expenses 126 070 120 564 Operating expenses in banking activities2 35 (62 335) (60 084) Operating expenses in investment management and life insurance activities2 35 (16 486) (16 404) Net income before capital items and equity accounted earnings 47 249 44 076 Non-trading and capital related items 36 (2 890) (641) Share of post tax (loss)/profit from associates 10 (512) 912 Net income before indirect taxation 43 847 44 347 Indirect taxation 37 (2 592) (2 609) Profit before direct taxation 41 255 41 738 Direct taxation 37 (10 559) (9 095) Profit for the year 30 696 32 643 Attributable to ordinary shareholders 25 443 27 453 Attributable to other equity instrument holders 873 738 Attributable to non-controlling interests 4 380 4 452
Earnings per share Basic earnings per ordinary share (cents) 38 1 593.5 1 722.6 Diluted earnings per ordinary share (cents) 38 1 584.7 1 705.3
1 Restated. Refer to page 31 for further details on the restatements. 2 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 22 ANNUAL FINANCIAL STATEMENTS
Statement of other comprehensive income for the year ended 31 December 2019
GROUP 2019 2018 Note Rm Rm
Profit for the year 30 696 32 643 Other comprehensive (loss)/income after taxation for the period1 (6 208) 5 056 Items that may be subsequently reclassified to profit or loss (6 355) 5 104 Exchange differences on translating foreign operations2 (6 661) 5 217 Movement in the cash flow hedging reserve 2 205 (108) Net change in fair value of cash flow hedges 415 (373) Realised fair value adjustments transferred to profit or loss (210) 265 Net change in debt financial assets measured at fair value through other comprehensive income (FVOCI) 22 101 (5) Net change in expected credit loss 41 19 Net change in fair value 74 22 Realised fair value adjustments transferred to profit or loss (14) (46)
Items that may not be subsequently reclassified to profit or loss 147 (48) Defined benefit fund remeasurement 101 12 Change in own credit risk recognised on financial liabilities designated at fair value through profit or loss (FVTPL) (8) 55 Net change in fair value of equity financial assets measured at FVOCI 22 45 (130) Other gains 9 15
Total comprehensive income for the period 24 488 37 699 Attributable to ordinary shareholders 20 000 31 877 Attributable to other equity instrument holders 873 738 Attributable to non-controlling interests 3 615 5 084
1 Income tax relating to each component of other comprehensive income is disclosed in note 37. 2 For the year ended 31 December 2019, the most significant contributor of this change relates to the deterioration of the Zimbabwean functional currency, refer to annexure A for more detail. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 23
Statement of cash flows for the year ended 31 December 2019
GROUP 2018 2019 Restated Note Rm Rm
Net cash flows from operating activities 23 346 34 647 Net income before capital items and equity accounted earnings 47 249 44 076 Adjusted for non-cash items and other adjustments included in the income statement1 41 (63 506) (70 492) Increase in income-earning assets 41 (169 094) (85 337) Increase in deposits, trading and other liabilities 41 140 660 78 802 Dividends received 3 830 3 866 Interest paid (67 153) (69 021) Interest received1 130 275 128 403 Direct taxation paid (9 907) (10 256) Purchase of properties (175) (742) Proceeds on sales of properties 0 45 Proceeds on financial instruments 10 612 13 293 Proceeds on realisation of fair value gain 468 912 Proceeds on collateral deposits payable 88 1 098 Net cash flows used in investing activities (5 105) (8 728) Capital expenditure on property and equipment (7 424) (6 159) Proceeds from sale of property and equipment 3 378 777 Capital expenditure on intangible assets (1 489) (3 267) Disposal of interest to non-controlling interests in Liberty Life Swaziland 15 Acquisition of non-controlling interests in Liberty Holdings Namibia (8) Sale/(acquisitions) of associates and joint ventures2 486 (79) Net cash flows used in investing activities in disposal group (63) Net cash flows used in financing activities (15 639) (18 335) Issuance/(buy-back) of ordinary share capital 124 (203) Issuance of other equity instruments 1 942 Equity transactions with non-controlling interests3 391 (1 843) Cash flows from black economic empowerment transactions (132) (138) Issuance of subordinated debt 41 7 269 6 100 Redemption of subordinated debt 41 (4 850) (4 550) Principal lease repayments4 20 (1 734) Dividends paid5 (18 649) (17 701) Effect of exchange rate changes on cash and cash equivalents (12 459) 2 251 Net (decrease)/increase in cash and cash equivalents (9 857) 9 835 Cash and cash equivalents at the beginning of the year 85 145 75 310 Cash and cash equivalents at the end of the year 75 288 85 145
1 Restated. Refer to page 31 for further details on the restatement. 2 The cash outflows from associates and joint ventures amounted to R255 million and cash inflows amounted to R741 million. 3 Refer to annexure A for more detail on material transactions with non-controlling interests. 4 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. 5 During 2019, coupons to the value of R636 million (2018: R447 million) was paid to additional tier 1 (AT1) capital bond holders. Current tax of R178 million (2018: R125 million) relating to the AT1 capital bonds was recognised directly in equity resulting in an aggregate net equity impact of R458 million (2018: R322 million). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 24 ANNUAL FINANCIAL STATEMENTS
Statement of changes in equity for the year ended 31 December 2019
Foreign Ordinary currency Other share Foreign hedge Regulatory Fair value Share- Ordinary equity Non- capital Empower- currency of net Cash flow Statutory through Own based share- instru- con- and ment Treasury translation investment hedging credit risk OCI credit risk payment Other Retained holders’ ment trolling Total premium reserve shares reserve reserve reserve reserve reserve1 reserve reserve reserves earnings equity holders2 interests equity GROUP Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2019 – IAS 17 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 118 165 061 9 047 24 955 199 063 IFRS 16 transition adjustment3 190 190 190 Balance at 1 January 2019 (restated) – IFRS 16 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 308 165 251 9 047 24 955 199 253 Total comprehensive (loss)/income for the year (5 788) 190 74 (8) (1) 25 533 20 000 873 3 615 24 488 Profit for the year 25 443 25 443 873 4 380 30 696 Other comprehensive (loss)/income for the year (5 788) 190 74 (8) (1) 90 (5 443) (765) (6 208) Increase in statutory credit risk reserve 696 (696) Unincorporated property partnerships capital reductions and distributions4 (293) (293) Transactions with shareholders and non-controlling interests recorded directly in equity 124 132 (502) 5 (7) 1 309 (1) (15 082) (14 022) 1 069 (1 011) (13 964) Equity-settled share-based payment transactions5 981 159 1 140 50 1 190 Transfer of vested equity options 328 (328) Issue of share capital and share premium and capitalisation of reserves 124 124 1 942 200 2 266 Deferred tax on share-based payment transactions (30) (30) (30) Transactions with non- controlling interests6 (16) 5 (7) (1) 89 70 221 291 Net (increase)/decrease in treasury shares (486) 251 (235) 130 (105) Redemption of preference shares 132 132 132 Hyperinflation adjustments7 747 747 7 754 Disposal of a common control entity 9 9 9 Net dividends paid (15 979) (15 979) (873) (1 619) (18 471) Dividends paid to equity holders (16 092) (16 092) (873) (1 715) (18 680) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 113 113 96 209
Balance at 31 December 2019 17 984 (69) (2 659) (7 583) (983) (4) 4 353 597 26 284 220 159 063 171 229 10 989 27 266 209 484
1 The FVOCI reserve comprises of the FVOCI reserve for debt and equity financial investment. Refer to note 22 for more detail. 2 Other equity instrument holders are holders of preference share capital and AT1 capital. The dividend paid comprises of net equity impact of R458 million (2018: R322 million) on AT1 and preference dividend of R636 million (2018: R416 million). Refer to note 15 for more detail. 3 Refer to the accounting policy elections, transition and restatements on page 29 for more detail on the IFRS 16 transition. 4 Where the group owns a majority stake in certain property partnerships and controls the management of those properties, including the power over all significant decisions around the use and maintenance of those properties, they are classified as businesses and the group consolidates its interest in those property partnerships. 5 Includes hedges of the group’s equity-settled share incentive schemes. 6 Refer to annexure A for more detail on material transactions with non-controlling interests. 7 Comprises of the hyperinflation adjustments from Zimbabwe (R730 million) and South Sudan (R17 million).
All balances are stated net of tax, where applicable.
AFS Refer to annexure F for the accounting policies relating to the reserves information. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 25
Foreign Ordinary currency Other share Foreign hedge Regulatory Fair value Share- Ordinary equity Non- capital Empower- currency of net Cash flow Statutory through Own based share- instru- con- and ment Treasury translation investment hedging credit risk OCI credit risk payment Other Retained holders’ ment trolling Total premium reserve shares reserve reserve reserve reserve reserve1 reserve reserve reserves earnings equity holders2 interests equity GROUP Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2019 – IAS 17 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 118 165 061 9 047 24 955 199 063 IFRS 16 transition adjustment3 190 190 190 Balance at 1 January 2019 (restated) – IFRS 16 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 308 165 251 9 047 24 955 199 253 Total comprehensive (loss)/income for the year (5 788) 190 74 (8) (1) 25 533 20 000 873 3 615 24 488 Profit for the year 25 443 25 443 873 4 380 30 696 Other comprehensive (loss)/income for the year (5 788) 190 74 (8) (1) 90 (5 443) (765) (6 208) Increase in statutory credit risk reserve 696 (696) Unincorporated property partnerships capital reductions and distributions4 (293) (293) Transactions with shareholders and non-controlling interests recorded directly in equity 124 132 (502) 5 (7) 1 309 (1) (15 082) (14 022) 1 069 (1 011) (13 964) Equity-settled share-based payment transactions5 981 159 1 140 50 1 190 Transfer of vested equity options 328 (328) Issue of share capital and share premium and capitalisation of reserves 124 124 1 942 200 2 266 Deferred tax on share-based payment transactions (30) (30) (30) Transactions with non- controlling interests6 (16) 5 (7) (1) 89 70 221 291 Net (increase)/decrease in treasury shares (486) 251 (235) 130 (105) Redemption of preference shares 132 132 132 Hyperinflation adjustments7 747 747 7 754 Disposal of a common control entity 9 9 9 Net dividends paid (15 979) (15 979) (873) (1 619) (18 471) Dividends paid to equity holders (16 092) (16 092) (873) (1 715) (18 680) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 113 113 96 209
Balance at 31 December 2019 17 984 (69) (2 659) (7 583) (983) (4) 4 353 597 26 284 220 159 063 171 229 10 989 27 266 209 484
1 The FVOCI reserve comprises of the FVOCI reserve for debt and equity financial investment. Refer to note 22 for more detail. 2 Other equity instrument holders are holders of preference share capital and AT1 capital. The dividend paid comprises of net equity impact of R458 million (2018: R322 million) on AT1 and preference dividend of R636 million (2018: R416 million). Refer to note 15 for more detail. 3 Refer to the accounting policy elections, transition and restatements on page 29 for more detail on the IFRS 16 transition. 4 Where the group owns a majority stake in certain property partnerships and controls the management of those properties, including the power over all significant decisions around the use and maintenance of those properties, they are classified as businesses and the group consolidates its interest in those property partnerships. 5 Includes hedges of the group’s equity-settled share incentive schemes. 6 Refer to annexure A for more detail on material transactions with non-controlling interests. 7 Comprises of the hyperinflation adjustments from Zimbabwe (R730 million) and South Sudan (R17 million).
All balances are stated net of tax, where applicable.
AFS Refer to annexure F for the accounting policies relating to the reserves information. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 26 ANNUAL FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY CONTINUED
Statement of changes in equity continued for the year ended 31 December 2018
Foreign currency Ordinary Foreign hedge Regulatory Fair value Share- Ordinary Other share Empower- currency of net Cash flow statutory through based share- equity Non- capital ment Treasury translation investment hedging credit risk OCI Own credit payment Other Retained holders’ instrument controlling Total and premium reserve shares reserve reserve reserve reserve reserve1 risk reserve reserve reserves earnings equity holders2 interests equity GROUP Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2018 18 063 (339) (1 034) (6 116) (983) (94) 2 141 582 (906) 208 139 237 150 759 9 047 23 574 183 380 Total comprehensive income/(loss) for the year 4 557 (100) (71) 34 14 27 443 31 877 738 5 084 37 699 Profit for the year 27 453 27 453 738 4 452 32 643 Other comprehensive income/(loss) for the year 4 557 (100) (71) 34 14 (10) 4 424 632 5 056 Increase in statutory credit risk reserve 1 296 (1 296) Unincorporated property partnerships capital reductions and distributions3 (222) (222) Transactions with shareholders and non-controlling interests recorded directly in equity (203) 138 (1 123) (241) 227 12 (119) (16 266) (17 575) (738) (3 481) (21 794) Equity-settled share-based payment transactions4 (1 078) 1 678 600 26 626 Transfer of vested equity options 959 (959) Issue of share capital and share premium and capitalisation of reserves 320 320 320 Share buy-back (523) (523) (523) Deferred tax on share-based payment transactions (128) (128) (128) Transactions with non-controlling interests5 (13) (241) 227 12 (1 594) (1 609) (1 386) (2 995) Net increase in treasury shares (1 110) (185) (1 295) (412) (1 707) Redemption of preference shares 138 138 138 Hyperinflation adjustment 35 35 16 51 Net dividends paid (15 113) (15 113) (738) (1 725) (17 576) Dividends paid to equity holders (15 221) (15 221) (738) (1 822) (17 781) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 108 108 97 205
Balance at 31 December 2018 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 118 165 061 9 047 24 955 199 063
1 The FVOCI reserve comprises of the FVOCI reserve for debt and equity financial investment. Refer to note 22 for more detail. 2 Other equity holders are holders of preference share capital and AT1 capital. The dividend paid comprises of net equity impact of R322 million on AT1 and preference dividend of R416 million. Refer to note 15 for more detail. 3 Where the group owns a majority stake in certain property partnerships and controls the management of those properties, including the power over all significant decisions around the use and maintenance of those properties, they are classified as businesses and the group consolidates its interest in those property partnerships. 4 Includes hedges of the group’s equity-settled share incentive schemes. 5 Refer to annexure A for more detail on material transactions with non-controlling interests.
All balances are stated net of tax, where applicable.
AFS Refer to annexure F for the accounting policies relating to the reserves. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 27
Foreign currency Ordinary Foreign hedge Regulatory Fair value Share- Ordinary Other share Empower- currency of net Cash flow statutory through based share- equity Non- capital ment Treasury translation investment hedging credit risk OCI Own credit payment Other Retained holders’ instrument controlling Total and premium reserve shares reserve reserve reserve reserve reserve1 risk reserve reserve reserves earnings equity holders2 interests equity GROUP Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2018 18 063 (339) (1 034) (6 116) (983) (94) 2 141 582 (906) 208 139 237 150 759 9 047 23 574 183 380 Total comprehensive income/(loss) for the year 4 557 (100) (71) 34 14 27 443 31 877 738 5 084 37 699 Profit for the year 27 453 27 453 738 4 452 32 643 Other comprehensive income/(loss) for the year 4 557 (100) (71) 34 14 (10) 4 424 632 5 056 Increase in statutory credit risk reserve 1 296 (1 296) Unincorporated property partnerships capital reductions and distributions3 (222) (222) Transactions with shareholders and non-controlling interests recorded directly in equity (203) 138 (1 123) (241) 227 12 (119) (16 266) (17 575) (738) (3 481) (21 794) Equity-settled share-based payment transactions4 (1 078) 1 678 600 26 626 Transfer of vested equity options 959 (959) Issue of share capital and share premium and capitalisation of reserves 320 320 320 Share buy-back (523) (523) (523) Deferred tax on share-based payment transactions (128) (128) (128) Transactions with non-controlling interests5 (13) (241) 227 12 (1 594) (1 609) (1 386) (2 995) Net increase in treasury shares (1 110) (185) (1 295) (412) (1 707) Redemption of preference shares 138 138 138 Hyperinflation adjustment 35 35 16 51 Net dividends paid (15 113) (15 113) (738) (1 725) (17 576) Dividends paid to equity holders (15 221) (15 221) (738) (1 822) (17 781) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 108 108 97 205
Balance at 31 December 2018 17 860 (201) (2 157) (1 800) (983) (194) 3 664 523 34 (1 025) 222 149 118 165 061 9 047 24 955 199 063
1 The FVOCI reserve comprises of the FVOCI reserve for debt and equity financial investment. Refer to note 22 for more detail. 2 Other equity holders are holders of preference share capital and AT1 capital. The dividend paid comprises of net equity impact of R322 million on AT1 and preference dividend of R416 million. Refer to note 15 for more detail. 3 Where the group owns a majority stake in certain property partnerships and controls the management of those properties, including the power over all significant decisions around the use and maintenance of those properties, they are classified as businesses and the group consolidates its interest in those property partnerships. 4 Includes hedges of the group’s equity-settled share incentive schemes. 5 Refer to annexure A for more detail on material transactions with non-controlling interests.
All balances are stated net of tax, where applicable.
AFS Refer to annexure F for the accounting policies relating to the reserves. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 28 ANNUAL FINANCIAL STATEMENTS
Accounting policy elections and IFRS 16 transition and restatements
The principal accounting policies applied in the presentation Functional and presentation currency of the group and company’s annual financial statements are The annual financial statements are presented in South set out below. African rand, which is the presentation currency of the group and the functional and presentation currency of the company. Basis of preparation All amounts are stated in millions of rand (Rm), unless indicated The group’s consolidated and company’s separate annual otherwise. financial statements (annual financial statements) are prepared in accordance with IFRS as issued by the IASB, its interpretations Changes in accounting policies adopted by the IASB, the SAICA Financial Reporting Guides as The accounting policies are consistent with those reported issued by the Accounting Practices Committee, Financial in the previous year except as required in terms of the adoption Pronouncements as issued by the Financial Reporting Standards of the following: Council, the JSE Listings Requirements, and the South African Companies Act. The annual financial statements have been prepared on the historical cost basis except for Adoption of new and amended standards the following material items in the statement of financial position: effective for the current financial period •• Financial assets classified at FVOCI, financial assets •• IFRS 9 Financial Instruments (amendment) (IFRS 9), and liabilities classified at FVTPL and liabilities for cash-settled the amendment allows financial assets with prepayment share-based payment arrangements. features that permit or require a party to a contract either to pay or receive reasonable compensation for the early •• Post-employment benefit obligations that are measured termination of the contract (so that, from the perspective of in terms of the projected unit credit method. the holder of the asset there may be ’negative compensation’), •• Investment property is measured at FVTPL. to be measured at amortised cost or at fair value through •• Policyholder insurance contract liabilities and related other comprehensive income. The amendment is required to reinsurance assets are measured in terms of the Financial be applied retrospectively. The impact on the annual financial Soundness Valuations (FSV) basis as set out in accounting statements is not significant. policy 12 – Policyholder insurance and investment contracts. •• IAS 19 Employee Benefits (amendments) (IAS 19), the amendments require a company to use the updated The following principal accounting policy elections in terms of assumptions when a change to a plan, either an amendment, IFRS have been made, with reference to the detailed accounting curtailment or settlement, takes place to determine current policies shown in brackets: service cost and net interest for the remainder of the reporting •• Purchases and sales of financial assets under a contract period after the change to the plan. Until now, IAS 19 did not whose terms require delivery of the asset within the time specify how to determine these expenses for the period after frame established generally by regulation or convention the change to the plan. By requiring the use of updated in the marketplace concerned are recognised assumptions, the amendments are expected to provide useful and derecognised using trade date accounting (accounting information to users of financial statements. The amendment policy 3). will be applied prospectively. The impact on the annual •• Cumulative gains and losses recognised in OCI in terms of a financial statements is not significant. cash flow hedge relationship are transferred from OCI •• IAS 28 Interest in Associates and Joint Ventures (amendment) and included in the initial measurement of the non-financial (IAS 28), this amendment clarifies that an entity should apply asset or liability (accounting policy 3). IFRS 9 including its impairment requirements, to long-term •• Commodities acquired principally for the purpose of selling interests in an associate or joint venture that form part of in the near future or generating a profit from fluctuation the net investment in the associate or joint venture only when in price or broker-traders’ margin are measured at fair value the equity method is not applied. The amendments will be less cost to sell (accounting policy 3). applied retrospectively. The impact on the annual financial •• Intangible assets and property, equipment and right of use statements is not significant. assets are accounted for at cost less accumulated •• IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23), amortisation/depreciation and impairment (accounting this interpretation clarifies how to apply the recognition policy 6). and measurement requirements in IAS 12 when there •• The portfolio exception to measure the fair value of is uncertainty over income tax treatments. In such a certain groups of financial assets and financial liabilities on a circumstance, an entity shall recognise and measure its net basis (accounting policy 4). current or deferred tax asset or liability applying •• Investments in associates and joint ventures are initially the requirements in IAS 12 based on taxable profit (tax loss), measured at cost and subsequently accounted for using tax bases, unused tax losses, unused tax credits and tax rates the equity method in the separate financial statements determined by applying this interpretation. This interpretation (accounting policy 2). addresses: whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about •• Investment property is accounted for using the fair value the examination of tax treatments by taxation authorities; how model (accounting policy 6). an entity determines taxable profit (tax loss), tax bases, •• Mutual fund investments held by investment-linked insurance unused tax losses, unused tax credits and tax rates; and how funds, that do not meet the definition of a subsidiary, are an entity considers changes in facts and circumstances. designated on initial recognition as at fair value through profit The IFRIC will be applied retrospectively only if possible or loss (accounting policy 2). without the use of hindsight. The impact on the annual financial statements is not significant. •• Annual improvements 2015 – 2017 cycle, the IASB has issued various amendments and clarifications to existing IFRS. •• SAICA Headline Earnings Circular (Circular 1/2019), the changes relate to amendments to IFRS, specifically IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 29
Early adoption of revised standards Right of use assets were measured at the amount equal to •• IAS 1 Presentation of Financial Statements (IAS 1) and IAS 8 the lease liability, adjusted by the amount of any prepaid or Accounting Policies, Changes in Accounting Estimates accrued lease payments relating to that lease recognised and Errors (IAS 8), the amendments clarify the definition of in the statement of financial position as at 31 December 2018. material and how it should be applied by including in the definition guidance that until now has featured Practical expedients applied: elsewhere in IFRS Standards. In addition, the explanations In applying IFRS 16 for the first time, the group used the following accompanying the definition have been improved. practical expedients permitted by IFRS 16: The amendments ensure that the definition of material •• the use of a single discount rate to a portfolio of leases with is consistent across all IFRS Standards. The amendments will reasonably similar characteristics be applied prospectively. •• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short- The adoption of the above mentioned new and amended term leases provided there was no option to extend the term standards on 1 January 2019 did not affect the group’s previously reported financial results or disclosures and did not impact •• the exclusion of initial direct costs for the measurement of the group’s results upon transition. Accounting policies have the right of use asset at the date of initial application; and been amended as relevant. Refer to annexure F detailed •• the use of hindsight in determining the lease term where accounting policies. the contract contains options to extend or terminate the lease.
IFRS 16 with effect from 1 January 2019, replaced IAS 17 as well The group has also elected not to reassess whether a contract is, as the related interpretations. IFRS 16 introduces a single lease or contains, a lease at the date of initial application. Instead, for accounting model for lessees which impacted the group’s results contracts entered into before the transition date the group upon transition and materially impacted the group’s accounting and company relied on its assessment made applying policies for lessees, refer to the IFRS 16 section below for more IAS 17 and IFRIC 4 Determining whether an arrangement detail on the transition. contains a Lease.
The group’s leasing activities and how these are IFRS 16 – transition accounted for: Background The group leases various offices, branch space and ATM space. With effect from 1 January 2019, IFRS 16 replaced IAS 17 as well Rental contracts are typically made for fixed average periods of as the related interpretations. The core principle of this standard between three to ten years but may have extension options as is that the lessee and lessor should recognise all rights described below. Lease terms are negotiated on an individual and obligations arising from leasing arrangements on balance basis and contain a wide range of different terms and conditions. sheet. The most significant change pertaining to the accounting treatment for operating leases is from the lessees’ perspective. Until the 2018 financial year, leases of property, plant IFRS 16 eliminates the classification of leases for lessees as and equipment were classified as either finance or operating either operating or finance leases, as was required by IAS 17, leases. Payments made under operating leases (net of any and introduces a single lessee accounting model, where a right of incentives received from the lessor) were charged to profit or loss use (ROU) asset together with a lease liability for the future on a straight-line basis over the period of the lease. payments is recognised for all leases with a term of more than 12 months, unless the underlying asset is of low value. From 1 January 2019, all existing operating leases, which were IFRS 16 did not introduce significant changes for lessors, as a either not less than 12 months or not deemed a low value asset, result the accounting policies applicable to the group as a lessor were recognised as a right of use asset and a corresponding are not different from those under IAS 1, except for modification lease liability. of lease contracts. Extension and termination options: Adoption and transition Extension and termination options are included in a number of building and branch space leases across the group. These terms The group retrospectively adopted IFRS 16 on 1 January 2019 are used to maximise operational flexibility in terms of managing with an adjustment to the group’s opening 1 January 2019 contracts. In determining the lease term, management considers reserves and, as permitted by IFRS 16, did not restate its all facts and circumstances that create an economic incentive to comparative financial results. Accordingly, the group exercise an extension option, or not exercise a termination and company’s previously reported financial results up to option. Extension options (or periods after termination options) 31 December 2018 are presented in accordance with are considered in the lease term when there is reasonable the requirements of IAS 17 and for 2019, and future reporting certainty that those options will be exercised. The assessment of periods, are presented in terms of IFRS 16. reasonable certainty is reviewed if a significant event or a On adoption of IFRS 16, the group recognised lease liabilities significant change in circumstances occurs which affects in relation to leases which had previously been classified as this assessment and that is within the control of the lessee. ’operating leases’ under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as at 1 January 2019. This incremental borrowing rate was calculated for each legal entity in the group utilising the internal funding rate of each entity. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 30 ANNUAL FINANCIAL STATEMENTS ACCOUNTING POLICY ELECTIONS AND IFRS 16 TRANSITION AND RESTATEMENTS CONTINUED
IFRS 16 key financial impacts The single lessee accounting model which comprises IFRS 16’s most material impact for the group results in an increase of R4 886 million in total assets, R4 696 million increase in total liabilities and an increase in reserves of R190 million due to the release of the IAS 17 straight-lined lease provision. The total undiscounted operating lease commitments as at 31 December 2018 amount to R7 271 million, the lease liability as at 1 January 2019 amounted to R4 954 million, this difference primarily relates to discounting the operating lease commitments balance at the group’s weighted average incremental borrowing rate which ranges from 2% – 15%, due to the multiple jurisdictions the group operates within.
TABLE 1: IMPACT ON THE GROUP’S SUMMARISED STATEMENT OF FINANCIAL POSITION ON 1 JANUARY 2019 IFRS 16 transition adjustment 31 December at 1 January 1 January 2018 2019 2019 Rm Rm Rm
Assets Property, equipment and right of use asset 19 194 5 394 24 588 Other financial and non-financial assets1 2 107 768 (508) 2 107 260 Total assets 2 126 962 4 886 2 131 848 Equity and liabilities Equity 199 063 190 199 253 Equity attributable to the ordinary shareholder 165 061 190 165 251 Equity attributable to other equity holders 9 047 9 047 Equity attributable to non-controlling interests 24 955 24 955 Liabilities2 1 927 899 4 696 1 932 595 Total equity and liabilities 2 126 962 4 886 2 131 848
1 Materially relates to the derecognition of the IAS 17 prepaid lease asset. 2 Materially relates to the recognition of lease liabilities of R4 954 million and the release of the IAS 17 straight-lined lease provision.
TABLE 2: IMPACT ON THE GROUP’S SUMMARISED STATEMENT OF CHANGES IN EQUITY ON 1 JANUARY 2019 IFRS 16 transition adjustment 31 December at 1 January 1 January 2018 2018 2019 Rm Rm Rm
Ordinary share capital and share premium 17 860 17 860 Retained earnings 149 118 190 149 308 Other (1 917) (1 917) Total ordinary shareholders’ equity 165 061 190 165 251 Other equity instruments 9 047 9 047 Non-controlling interests 24 955 24 955 Total equity 199 063 190 199 253 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 31
Restatements Correction of prior period income statement presentation error In terms of the group’s accounting policy, trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends. The group determined that certain other gains/losses were erroneously presented within trading revenue. Therefore, during 2019, the group restated trading revenue to exclude these gains and losses as it does not comprise gains and losses (including related interest income, expense and dividends) from changes in the fair value of trading assets and liabilities. These gains and losses have been presented within Other revenue as it is more representative of the nature of the gains and losses and better aligns to the group’s gains and losses presentation policy. This correction has no impact on the group’s consolidated income statement, total income, profit for the year and earnings per share. The impact on the non-interest revenue disclosure is as follows:
2018 As previously presented Restated income/ income/ (expense) Restatement (expense) Rm Rm Rm
Trading revenue 11 129 (330) 10 799 Other revenue 3 533 330 3 863
Correction of the classification of investment in unit trust and portfolio managed funds During 2019, it was identified that upon transition to IFRS 9 certain investments in unit trusts and portfolio managed funds were incorrectly classified as loans and advances, instead of financial investments per the group IFRS 9 presentation guidance. As a result, these assets were incorrectly classified as amortised cost instruments, rather than fair value through profit or loss due to the IFRS 9 contractual cash flow test not being met. However, the carrying amount of these assets approximate their fair values and accordingly did not impact the group’s total assets, profit for the year, credit impairment charges and earnings per share.
The correction of this error amount to a reclassification between statement of financial position, income statement and statement of cash flows line items as indicated below:
2018 1 January 20181 As As previously previously reported Restated reported Restated debit/(credit) Restatement debit/(credit) debit/(credit) Restatement debit/(credit) Rm Rm Rm Rm Rm Rm
Statement of financial position Financial investments 547 405 1 121 548 526 533 074 1 550 534 624 Loans and advances 1 120 668 (1 121) 1 119 547 1 040 105 (1 550) 1 038 555 Income statement Interest income (128 183) 117 (128 066) Other gains and losses on financial instruments2 (672) (117) (789) Statement of cash flows Adjusted for non-cash items and other adjustments included in the income statement (70 609) 117 (70 492) Interest received 128 520 (117) 128 403
1 Amounts consist of 2017 balances, as reported, after transition to IFRS 9. Refer to the group’s transition report for further information relating to the transition to IFRS 9. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 32 ANNUAL FINANCIAL STATEMENTS
Key management assumptions
In preparing the financial statements, estimates and assumptions corresponding to low-risk customers, and conversely, low scores are made that could materially affect the reported amounts of corresponding to high-risk customers. These scores are often assets and liabilities within the next financial year. Estimates taken into account in determining the probability of default (PD) and judgements are continually evaluated and are based on including relative changes in PD and absolute PD backstop. factors such as historical experience and current best estimates Credit risk has increased significantly since initial recognition of future events. Post the implementation of IFRS 9 on when these criterion are met. 1 January 2018, no material changes to assumptions have occurred during the current year. The following represents The group determines the SICR threshold by utilising the most material key management assumptions applied an appropriate transfer rate of exposures that are less in preparing these financial statements. than 30 days past due (DPD) to stage 2. This transfer rate is such that the proportion of the 0 – 29 DPD book transferred into stage 2 is no less than the observed 12-month roll rate of 0 – 29 day Expected credit loss (ECL) on financial accounts into 30 or more days in arrears. The SICR thresholds assets – drivers are reviewed regularly to ensure that they are appropriately For the purpose of determining the ECL: calibrated to identify SICR by portfolio vintage and to consequently facilitate appropriate impairment coverage. •• The PBB portfolios are based on the product categories or subsets of the product categories, with tailored ECL models Where behaviour scores are not available, historical levels of per portfolio. The impairment provision calculation excludes delinquency are applied in determining whether there has been post write-off recoveries (PWOR) from the loss given default SICR. For all exposures, the rebuttable presumption of 30 days (LGD) in calculating the expected credit loss. This LGD past due as well as exposures classified as either debt review or parameters is aligned to market practice. as ’watch-list’ are used to classify exposures within stage 2. •• CIB exposures are calculated separately based on rating models for each of the asset classes. CIB (including certain PBB business banking exposures) ECL measurement period The group uses a 25-point master rating scale to quantify The ECL measurement period for stage 1 exposures is 12 months the credit risk for each exposure. On origination, each client (or the remaining tenor of the financial asset for CIB, including is assigned a credit risk grade within the group’s 25-point master certain PBB business banking exposures, if the remaining lifetime rating scale. Ratings are mapped to PDs by means of calibration is less than 12 months). formulae that use historical default rates and other data for •• A loss allowance over the full lifetime of the financial asset the applicable portfolio. These credit ratings are evaluated is required if the credit risk of that financial instrument has at least annually or more frequently as appropriate. increased significantly since initial recognition (stage 2). •• A lifetime measurement period is applied to all credit impaired CIB exposures are evaluated for SICR by comparing the credit (stage 3) exposures. risk grade at the reporting date to the origination credit risk grade. Where the relative change in the credit risk grade exceeds •• Lifetime includes consideration for multiple default events, i.e. certain pre-defined ratings’ migration thresholds or, when a where defaulted exposures cure and then subsequently contractual payment becomes more than 30 days overdue re-default. This consideration increases the lifetime (IFRS 9’s rebuttable presumption), the exposure is classified and the potential ECL. within stage 2. These pre-defined ratings’ migration thresholds •• The measurement period for unutilised loan commitments have been determined based on historic default experience utilise the same approach as on-balance sheet exposures. which indicate that higher rated risk exposures are more sensitive to SICR than lower risk exposures. Based on Significant increase in credit risk (SICR) an analysis of historic default experience, exposures that are and low credit risk classified by the group’s master rating scale as investment grade PBB (within credit risk grade 1 – 12 of the group’s 25-point master rating scale) are assessed for SICR at each reporting date but are All exposures are assessed to determine whether there has been considered to be of a low credit risk. To determine whether a SICR at the reporting date, in which case an impairment client’s credit risk has increased significantly since origination, provision equivalent to the lifetime expected loss is recognised. the group would need to determine the extent of the change SICR thresholds, which are behaviour score based, are derived in credit risk using the table below: for each portfolio vintage of exposures with similar credit risk and are calibrated over time to determine which exposures reflect deterioration relative to the originated population Group Master rating SICR trigger and consequently reflect an increase in credit risk. Behaviour scale band (from origination) scorecards are based on a combination of factors which include the information relating to customers, transactions SB 1 – 12 Low credit risk and delinquency behaviour (including the backstop when contractual payments are more than 30 days past due) to SB 13 – 20 3 rating or more provide a quantitative assessment (score), and more specifically, a ranking of customer creditworthiness. The creditworthiness of SB 21 – 25 1 rating or more a customer is summarised by a score, with high scores WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 33
Incorporation of forward-looking information (FLI) Curing in ECL measurement Continuous assessment is required to determine whether The group determines the macroeconomic outlook, over a the conditions that led to a financial asset being considered to be planning horizon of at least three years, for each country based credit impaired (i.e. stage 3) still exist. Distressed restructured on the group’s global outlook and its global view of commodities. financial assets that no longer qualify as credit impaired remain within stage 3 for a minimum period of six months For PBB these forward-looking economic expectations are (i.e. six full consecutive monthly payments per the terms included in the ECL where adjustments are made based on and conditions). In the case of financial assets with quarterly or the group’s macro-economic outlook, using models that correlate longer dated repayment terms, the classification of a financial these parameters with macro-economic variables. Where asset out of stage 3 may be made subsequent to an evaluation modelled correlations are not viable or predictive, adjustments by the group’s CIB or PBB credit governance committee (as are based on expert judgement to predict the outcomes based on appropriate), such evaluation will take into account qualitative the group’s macro-economic outlook expectations. In addition to factors in addition to compliance with payment terms forward-looking macroeconomic information, other types of FLI, and conditions of the agreement. Qualitative factors include such as specific event risk, have been taken into account in ECL compliance with covenants and with existing financial asset estimates when required, through the application of out-of-model terms and conditions. adjustments. These out-of-model adjustments are subject to group credit governance committee oversight. Where it has been determined that a financial asset no longer meets the criteria for significant increase in credit risk, The group’s macroeconomic outlooks are incorporated in CIB’s the financial asset will be moved from stage 2 (lifetime expected client rating and include specific forward-looking economic credit loss model) back to stage 1 (12-month expected credit loss considerations for the individual client. The client rating thus model) prospectively. reflects the expected client risk for the group’s expectation of future economic and business conditions. Further adjustments, The group’s forward-looking economic based on point-in-time market data, are made to the PDs expectations were applied in the determination assigned to each risk grade to produce PDs and ECL representative of existing market conditions. of the ECL at the reporting date A range of base, bullish and bearish forward-looking economic Default expectations were determined, as at 31 December 2019, for inclusion in the group’s forward-looking process and ECL The definition of default, which triggers the credit impaired calculation: classification (stage 3), is based on the group’s internal credit risk management approach and definitions. Whilst the specific South African economic expectation determination of default varies according to the nature of the product, it is compliant to the Basel definition of default, •• Our base case for South Africa is premised on a recovery and generally determined as occurring at the earlier of: in both business and consumer confidence, which would require real, though incremental, progress with economic • where, in the group’s view, the counterparty is considered to • reforms. If so, we should see a modest recovery in both real be unlikely to pay amounts due on the due date or shortly private sector fixed investment and employment. We expect thereafter without recourse to actions such as the realisation the current government leadership to implement the Eskom of security; or turnaround plan. However, further power cuts would pose a •• when the counterparty is past due for more than 90 days (or, significant risk to our growth forecast. From a global in the case of overdraft facilities, in excess of the current limit). perspective, the US-China trade (partial phase one trade deal) signed recently may be derailed, given that some of the key The group has not rebutted the 90 days past due rebuttable underlying points of contention have not been resolved; presumption. however, for now, the rand is reaping the benefits in the wake of the deal. Write off policy •• A more bearish outcome could materialise should concrete An impaired loan is written off once all reasonable attempts economic reform remain out of reach, despite the initial at collection have been made and there is no material economic institutional improvements and some administrative policy benefit expected from attempting to recover the balance reforms. SA’s economic growth remains inactive, inhibiting outstanding. The following criteria must be met before a financial both employment growth and fiscal improvement. Government asset can be written off: has thus far failed to ensure debt stabilisation and fiscal •• the financial asset has been in default for the period defined sustainability. In addition, SA is likely to in March lose its only for the specific product (i.e. vehicle and asset finance, remaining investment-grade by Moody’s because of potentially mortgage loans, etc.) which is deemed sufficient to determine no compelling spending cuts in the February 2020 National whether the entity is able to receive any further economic Budget. The global trade war may well intensify, resulting benefit from the impaired loan; and in further demand weakness from SA’s major trading partners. •• at the point of write-off, the financial asset is fully impaired (i.e. •• There’s a moderate probability of a bullish case emerging, 100% ECL allowance) with no reasonable expectation of from better-than-expected policy reform implementation recovery of the asset, or a portion thereof. improving both business and consumer confidence and, ultimately, private sector fixed investment and employment. As an exception to the above requirements, where the exposure Consumer spending, still quite resilient, would also further is secured (or for collateralised structures), the impaired benefit from improved confidence and employment growth. loan can only be written off once the collateral has been realised. Post-realisation of the collateral, the shortfall amount can be written off if it meets the second requirement listed above. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 34 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED
Africa Regions economic expectation Global economic expectation The Africa Regions base case comprises of the following outlook The global base case comprises of the following outlook and conditions: and conditions: •• The slowdown among developed countries was a significant •• Despite expectations that the world economy may recover contributing factor towards restraining growth from the likes of the IMF, we look for growth to remain subdued in African countries, specifically among commodity exporters. at least through 2020. Trade-related tensions, the new Nonetheless, other factors also contributed to the limited coronavirus and the limited room for monetary policy easing growth. There was drought that affected agricultural are all seen as contributory factors. production in some countries in Southern Africa. In Zambia •• Financial asset prices have been quite robust for some time, and Zimbabwe, the severity of the drought also constrained provided by central bank implication. But further strong gains hydro-electricity generation. are likely to be harder to achieve. Bond yields are also set to •• Significant policy missteps in some countries may explain their stay low. persistent economic underperformance. Policymakers in these •• The Federal Reserve envisages stable rates for some time, countries probably need to intensify their efforts to improve before modest increases in the long-haul. We think it more investment spending and address infrastructural bottlenecks. likely that rates will have to be cut again. This is particularly so for Angola (which has been undertaking •• Inflationary pressures are expected to stay relatively muted, reforms under the auspices of an IMF-funded economic notwithstanding some risks of higher prices from program), and Nigeria. To attract capital for such investment the disturbances to global supply chains created first by trade spending, these governments would find the going easier if tensions and latterly by the coronavirus. global financial market sentiment remained ebullient. •• The dollar stands at quite elevated levels and the US •• There are some countries that are likely to continue growing administration is pressurising other countries to avoid strongly, continuing to attract significant foreign capital inflows devaluing their currencies. We think these two factors to help finance investment spending. The countries in East combined will help produce a moderately weaker dollar over Africa characterise this, as does Côte d’Ivoire and Senegal the long haul. in West Africa. Elections in Côte d’Ivoire, Ethiopia and Ghana later this year are, nominally, risk factors. But it seems unlikely that these elections will derail the strong growth that these countries have experienced.
Main macroeconomic factors The following table shows the main macroeconomic factors used to estimate the forward-looking impact on the ECL provision on financial assets. For each scenario, namely the base case (55%), bullish (25%) and bearish (20%) scenario, the average values of the factors over the next 12 months, and over the remaining forecast period, are presented.
Base scenario Bearish scenario Bullish scenario Remaining Remaining Remaining Next forecast Next forecast Next forecast Macroeconomic factors – 2019 12 months period1 12 months period1 12 months period1
South Africa Inflation (%) 4.60 4.86 6.03 5.58 4.38 4.24 Real GDP (%) 1.33 2.17 0.18 0.38 1.96 3.19 Employment rate growth (%) 0.51 0.94 (0.13) 0.17 0.89 1.78 Household credit (%) 6.53 6.82 5.52 6.50 6.96 7.50 Exchange rate USD/ZAR 14.83 14.43 16.44 15.32 13.70 13.58 Prime (%) 9.75 10.03 10.69 10.63 9.50 9.66 Africa Regions2 Inflation (%) 7.60 7.10 9.20 8.40 6.50 6.30 Policy rate (%) 9.40 8.80 10.10 10.10 9.00 8.10 3m Tbill rate (%) 8.70 8.30 9.90 9.30 8.10 7.70 6m Tbill rate (%) 9.40 8.90 10.30 9.50 9.10 8.40 Real GDP (%) 3.70 4.60 2.60 3.60 4.50 5.40 Global2 Inflation (%) 1.70 2.30 2.80 1.70 1.70 1.90 Policy rate (%) 0.30 1.00 0.10 0.80 1.30 1.90 Exchange rate GBP/USD 1.28 1.50 1.18 1.40 1.41 1.40 Real GDP (%) 0.90 1.90 (0.50) 1.40 2.00 1.90 Unemployment rate (%) 4.50 4.50 5.50 5.00 3.80 4.40
1 The remaining forecast period is 2021 to 2024. 2 Where multiple jurisdictions are considered, weighted averages are used. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 35
Base scenario Bearish scenario Bullish scenario Remaining Remaining Remaining Next forecast Next forecast Next forecast Macroeconomic factors – 2018 12 months period2 12 months period1 12 months period2
South Africa Inflation (%) 5.5 5.3 6.5 5.8 4.8 5.1 Real GDP (%) 1.8 2.5 0.8 1.0 2.4 2.9 Employment rate growth (%) 1.2 1.3 0.1 0.6 1.4 1.6 Household credit (%) 6.1 7.2 1.8 6.0 6.8 7.7 Exchange rate USD/ZAR 13.4 13.8 14.9 14.5 12.1 12.7 Prime (%) 10.3 10.5 10.5 10.8 10.0 10.0 Africa Regions2 Inflation (%) 8.8 7.5 10.3 9.9 7.7 6.3 Policy rate (%) 10.5 10.2 11.9 11.7 10.0 8.9 3m Tbill rate (%) 9.4 9.7 11.1 10.9 8.5 8.1 6m Tbill rate (%) 9.9 9.7 11.3 10.8 9.2 8.7 Real GDP (%) 4.6 5.4 3.6 4.4 5.3 6.3 Global1 Inflation (%) 1.8 2.1 2.7 1.6 1.6 2.0 Policy rate (%) 0.8 1.4 0.2 0.5 1.0 1.8 Exchange rate GBP/USD 1.5 1.5 1.0 1.3 1.5 1.5 Real GDP (%) 1.0 1.7 (1.4) 0.9 1.7 2.0 Unemployment rate (%) 4.4 4.7 5.3 5.3 4.1 4.2
1 The remaining forecast period is 2020 to 2023. 2 Where multiple jurisdictions are considered, weighted averages are used.
Sensitivity analysis of CIB forward-looking impact on ECL provision Management assessed and considered the sensitivity of the provision against the forward-looking economic conditions at a client level. The reviews and ratings of each client are performed at least annually. This process entails credit analysts completing a credit scorecard and incorporating forward-looking information. The weighting is reflected in both the determination of significant increase in credit risk as well as the measurement of the resulting provision for the individual client. Therefore the impact of forward-looking economic conditions is embedded into the total provision for each CIB client and cannot be stressed or separated out of the overall CIB provision.
Sensitivity analysis of PBB forward-looking impact on ECL provision The following table shows a comparison of the forward-looking impact on the provision as at 31 December 2019 based on the probability weightings of the above three scenarios resulting from recalculating each of the scenarios using a 100% weighting of the above factors.
2019 2018 % change % change of total of total PBB PBB Rm provision Rm provision
Forward-looking impact on IFRS 9 provision 1 681 1 741 Scenarios Base 1 466 (1) 1 488 (1) Bearish 2 970 4 2 719 3 Bullish 983 (2) 1 154 (2)
AFS Refer to note 7 loans and advances, for the carrying amounts of loans and advances and to the credit risk section of the risk and capital management report in annexure C for the group’s assessment of the risk of loss arising out of the failure of counterparties to meet their financial or contractual obligations when due. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 36 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED
Derivatives held-for-hedging The group’s valuation control framework governs internal control standards, methodologies, and procedures over its valuation Interest rate benchmarks and reference interest processes, which include: rate reform The Financial Stability Board has initiated a fundamental review Prices quoted in an active market: The existence of quoted and reform of the major interest rate benchmarks used globally prices in an active market represents the best evidence of fair by financial market participants. This review seeks to replace value. Where such prices exist, they are used in determining existing interbank offered rates (IBORs) with alternative risk-free the fair value of financial assets and financial liabilities. rates (ARRs) to improve market efficiency and mitigate systemic risk across financial markets. This reform is at various stages Valuation techniques: Where quoted market prices are globally. Accordingly, there is uncertainty surrounding the timing unavailable, the group establishes fair value using valuation and manner in which the transition would occur and how techniques that incorporate observable inputs, either directly, this would affect various financial instruments held by the group. such as quoted prices, or indirectly, such as those derived from The group’s derivative instruments are governed by ISDA’s 2006 quoted prices, for such assets and liabilities. Parameter inputs definitions. ISDA is currently reviewing its definitions in light of are obtained directly from the market, consensus pricing services IBOR reform and the group expects it to issue standardised or recent transactions in active markets, whenever possible. amendments to all impacted derivative contracts at a future date. Where such inputs are not available, the group makes use of No derivative instruments have been modified as at the reporting theoretical inputs in establishing fair value (unobservable inputs). date. Consequently, significant judgement is applied Such inputs are based on other relevant input sources of in determining whether certain interest rate risk hedge information and incorporate assumptions that include prices for relationships will continue to qualify for hedge accounting. similar transactions, historic data, economic fundamentals, As at 31 December 2019, management’s view is that existing and research information, with appropriate adjustment to reflect hedge relationships referencing IBORs continue to qualify for the terms of the actual instrument being valued and current hedge accounting given market reliance on existing IBORs market conditions. Changes in these assumptions would affect and the current absence of term structures in ARRs for products the reported fair values of these financial instruments. Valuation that span longer time periods. Management is monitoring market techniques used for financial instruments include the use of and accounting developments in this regard. financial models that are populated using market parameters that are corroborated by reference to independent market data, The group is in the earlier stages of establishing a committee where possible, or alternative sources, such as, third-party within Treasury and Capital Management to manage quotes, recent transaction prices or suitable proxies. The fair the transition to alternative rates. The objectives of value of certain financial instruments is determined using the committee would include evaluating the extent to which loans industry standard models such as, discounted cash flow advanced and liabilities that reference IBOR cash flows, require analysis and standard option pricing models. These models are amendments as a result of IBOR reform and how to manage generally used to estimate future cash flows and discount these communication about IBOR reform with counterparties. back to the valuation date. For complex or unique instruments, The committee will work closely with business teams across more sophisticated modelling techniques may be required, which the group to establish pricing for new lending products indexed require assumptions or more complex parameters such as to the ARR in impacted jurisdictions. correlations, prepayment spreads, default rates and loss severity.
AFS Refer to note 2 for derivative instruments disclosures. Valuation adjustments: Valuation adjustments are an integral part of the valuation process. Adjustments include, but are not Fair value limited to: •• credit spreads on illiquid issuers Financial instruments •• implied volatilities on thinly traded instruments In terms of IFRS, the group is either required to or elects to •• correlation between risk factors measure a number of its financial assets and financial liabilities •• prepayment rates at fair value, being the price that would, respectively, be received to sell an asset or paid to transfer a liability in an orderly •• other illiquid risk drivers. transaction in the principal (or most advantageous) market between market participants at the measurement date. In making appropriate valuation adjustments, the group applies Regardless of the measurement basis, the fair value is required to methodologies that consider factors such as bid-offer spreads, be disclosed, with some exceptions, for all financial assets liquidity, counterparty and own credit risk. Exposure to such and financial liabilities. illiquid risk drivers is typically managed by: •• using bid-offer spreads that are reflective of the relatively low Fair value is a market-based measurement and uses liquidity of the underlying risk driver the assumptions that market participants would use when •• raising day one profit provisions in accordance with IFRS pricing an asset or liability under current market conditions. •• quantifying and reporting the sensitivity to each risk driver •• limiting exposure to such risk drivers and analysing When determining fair value it is presumed that the entity is a the exposure on a regular basis. going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. Validation and control: All financial instruments carried at fair Information obtained from the valuation of financial instruments value, regardless of classification, and for which there are no is used to assess the performance of the group and, in particular, quoted market prices for that instrument, are fair valued using provides assurance that the risk and return measures models that conform to international best practice that the group has taken are accurate and complete. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 37
and established financial theory. These models are validated On the basis that turnover or profit rental income has a greater independently by the group’s model validation unit and formally degree of uncertainty and risk than the contractual base rental, a reviewed and approved by the market risk methodologies risk premium of between 1% and 6% has been added to committee. This control applies to both off-the-shelf models, as the discount rate and to the exit capitalisation rate, to reflect well as those developed internally by the group. Further, all inputs the greater investment risk associated with the variable rental into the valuation models are subject to independent price element on a property by property basis. validation procedures carried out by the group’s market risk unit. Such price validation is performed on at least a monthly basis, Valuers may use any reasonable method for developing but daily where possible given the availability of the underlying an appropriate discount rate with consideration being given to: price inputs. Independent valuation comparisons are also •• the type of asset being valued performed and any significant variances noted are appropriately •• the rates implicit in comparable transactions in the market investigated. Less liquid risk drivers, which are typically used to •• the geographic location of the asset and/or the location of mark level 3 assets and liabilities to model, are carefully validated the markets in which the asset would trade and tabled at the monthly price validation forum to ensure that these are reasonable and used consistently across all •• the life/term and/or maturity of the asset and the consistency entities in the group. Sensitivities arising from exposures to such of inputs drivers are similarly scrutinised, together with movements in level •• the bases of value being applied. 3 fair values. They are also disclosed on a monthly basis at the market risk and asset and liability committees. The discount rate and exit capitalisation rate are then tested for reasonableness and benchmarked against recent comparable Portfolio exception: The group has, on meeting sales and surveys prepared by the MSCI and South certain qualifying criteria, elected the portfolio exception to African Property Owners Association (SAPOA). measure the fair value of certain groups of financial assets and financial liabilities on a net basis. AFS Refer to note 11 for investment property disclosures.
The total amount of the change in fair value estimated using Consolidation of entities valuation techniques not based on observable market data The group controls and consolidates an entity where the group that was recognised in profit or loss for the year ended has power over the entity’s relevant activities; is exposed to 31 December 2019 was a net gain of R677 million variable returns from its involvement with the investee; and has (2018: R1 896 million net gain). Other financial instruments, the ability to affect the returns through its power over the entity, not at level 3, are utilised to mitigate the risk of these changes including Structured Entities (SEs). Determining whether in fair value. the group controls another entity requires judgement by identifying an entity’s relevant activities, being those activities AFS Refer to note 22 for the fair value disclosures. that significantly affect the investee’s returns, and whether the group controls those relevant activities by considering Investment property the rights attached to both current and potential voting rights, de The full portfolio of the South African located properties were facto control and other contractual rights including whether such independently valued as at 31 December 2019 by registered rights are substantive. professional valuers, namely Broll Valuation Advisory Services and Jones Lang LaSalle Proprietary Limited, both of which are Interests in unconsolidated SEs that are not considered to be a registered valuers in terms of the Property Valuers Professional typical customer-supplier relationship are required to be Act, No 47 of 2000 and are registered with the Royal Institution identified and disclosed. The group regards interest to be a of Chartered Surveyors. The Kenyan and Nigerian located typical customer-supplier relationship where the level of risk properties were independently valued as at 31 December 2019 inherent in that interest in the SE exposes the group to a similar by various registered professional valuers in each territory. risk profile to that found in standard market-related transactions. The group sponsors an SE where it provides financial support to The valuation of the South African properties is prepared the SE when not contractually required to do so. Financial in accordance with the guidelines of and in accordance with support may be provided by the group to an SE for events such the appraisal and valuation manual of the Royal Institution of as litigation, tax and operational difficulties. Chartered Surveyors, adapted for South African law and conditions. AFS Refer to annexure A for detail on subsidiaries, consolidated and unconsolidated structured entities within the group. In the majority of cases, the properties have been valued using the discounted cash flow methodology whereby the forecasted Significant influence – investment funds net cash flow and residual value of the asset at the end of The group accounts for its interests in investment funds as the forecasted cash flow period is discounted back to associates where the group is the fund manager, for which there the valuation date, resulting in a present value of the asset. is an irrevocable fund management agreement, and the group has a monetary interest in the particular fund. Such associates The residual value is calculated by capitalising the net income are equity accounted unless designated to be measured at fair forecasted for the 12-month period immediately following value through profit or loss. the final year of the cash flow at the exit capitalisation rate. AFS Refer to annexure B for detail on associates and joint ventures. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 38 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED
Computer software intangible assets Goodwill impairment The group reviews its assets under construction and assets In terms of IFRS, the group is required on an annual basis to test brought into use for impairment at each reporting date and tests its recognised goodwill for impairment. The impairment tests are the carrying value for impairment whenever events or changes performed by comparing the cash-generating units’ (CGUs’) in circumstances indicate that the carrying amount (or recoverable amounts to the carrying amounts in the functional components of the carrying amount) may not be recoverable. currency of the CGU being assessed for impairment. These circumstances include, but are not limited to, new The recoverable amount is defined as the higher of the entity’s technological developments, obsolescence, changes fair value less costs of disposal and its value in use. The review in the manner in which the software is used or is expected to be and testing of goodwill for impairment inherently requires used, changes in discount rates or changes in estimates of significant management judgement as management needs to related future cash benefits. The impairment tests are performed estimate the identified CGU’s future cash flows. The principal by comparing an asset’s recoverable amount to its carrying assumptions considered in determining an entity’s value amount. The review and testing of assets for impairment in use include: inherently requires significant management judgement as it •• Future cash flows – the forecast periods adopted reflect a set requires management to derive the estimates of the identified of cash flows which, based on management’s judgement assets’ future cash flows in order to derive the asset’s and expected market conditions, could be sustainably recoverable amount. generated over such a period. A forecast period of greater than five years has been used in order to take into account The recoverable amount is determined as the higher of an asset’s the level of development in these markets. The cash flows from fair value less cost of disposal and its value in use. The value the final discrete cash flow period are extrapolated into in use is calculated by estimating future cash benefits that will perpetuity to reflect the long-term plans for the entity. It result from each asset and discounting those cash benefits is common valuation methodology to avoid placing too high a at an appropriate discount rate. proportion of the total value on the perpetuity value. During the 2019 financial year, certain of the group’s computer •• Discount rates – the cost of equity (COE) discount rates software assets’ recoverable values were determined to be lower utilised in the equity pricing models are deemed appropriate than their carrying values and were impaired by an amount of based on the entities under review. The risk-free rate used to R234 million (2018: R449 million). These impairments are determine the COE has been derived from the respective local excluded from the group’s headline earnings. ten-year government bonds adjusted for inflation differential and country risk yield. The future cash flows are discounted using the COE assigned to the appropriate CGUs and by nature AFS Refer to note 13 for intangible asset disclosure, as well as annexure F for more detail on the accounting policy relating to can have a significant impact on their valuations. computer software, the capitalisation thereof, as well as amortisation and impairment policies.
The following table summarises the impairment test methodology applied and the key inputs used in testing the group’s goodwill relating to Stanbic IBTC Holdings PLC and Stanbic Holdings Plc (previously CFC Stanbic Holdings).
Stanbic IBTC Holdings PLC Stanbic Holdings PLC (Kenya) Value in use Value in use 2019 2018 2019 2018
Discounted cash flow Discount rate (nominal)(%) 17.6 21.7 16.9 17.6 Terminal growth rate (nominal)(%) 7.0 10.0 9.1 7.3 Forecast period (years)1 10 10 8 8
1 In the instance where the group values subsidiaries where the long-term strategy is to hold and grow the investment, the preferred approach is to value future cash flows over a longer period in order to avoid placing too much value on the terminal cash flow period.
AFS Note 13 summarises the group’s impairment test results and the main components of goodwill. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 39
Current and deferred taxation The most significant management assumption is the forecasts that are used to support the probability assessment The group is subject to direct and indirect taxation in a number of that sufficient taxable profits will be generated by the entities jurisdictions. There may be transactions and calculations for in the group in order to utilise the deferred tax assets. which the ultimate tax determination has an element of uncertainty in the ordinary course of business. Where the final tax determination is different from the amounts that were initially AFS Refer to note 14 and note 37. recorded, such differences will impact the income tax and deferred tax provisions, disclosed in note 14 and note 38, respectively, in the period in which such determination is made. Post-employment benefits The group’s post-employment benefits consist of both post- Uncertain tax positions are provided for in accordance with employment retirement funds and healthcare benefits for South the criteria defined within IAS 12 Income Taxes and IFRIC 23. African operations which have been deemed to be most material. Deferred tax assets are reviewed at each reporting date and are The measurement of the group’s obligations to fund these reduced to the extent that it is no longer probable that the related benefits are derived from actuarial valuations performed tax benefit will be realised. by the appointed actuaries taking into account various assumptions. The funds are subject to a statutory financial review by the group’s independent actuaries at intervals of not more than three years.
The principal assumptions used in the determination of the group’s obligations include the following:
Retirement fund Post-employment medical aid fund 2019 2018 2019 2018
Discount rate Nominal Nominal Nominal Nominal government bond government bond government bond government bond yield curve yield curve yield curve yield curve Return on investments (discount 9.28% to 11.37% 9.64% to 10.88% Unfunded liability Unfunded liability rate of term equal to discounted and therefore and therefore mean term of liabilities)1 there is no asset- there is no asset- backing portfolio backing portfolio Salary/benefit inflation Future salary Future salary Not applicable Not applicable increases based increases based to fund to fund on inflation curve on inflation curve plus 1% – 2% pa plus 1% – 2% pa to each point to each point on the curve on the curve Medical cost inflation Not applicable Not applicable Inflation curve Inflation curve (applicable to members to fund to fund adjusted by 1% adjusted by 1% who retired before 1 January 2013)2 Medical cost inflation Not applicable Not applicable Curve implied Curve implied (applicable to all other members) to fund to fund by the difference by the difference between a nominal between a nominal government bond government bond curve and an curve and an index-linked bond index-linked bond CPI inflation Difference Difference Difference Difference between nominal between nominal between nominal between nominal and index-linked and index-linked and index-linked and index-linked bond yield curves bond yield curves bond yield curves bond yield curves Pension increase in allowance Inflation rate Inflation rate Not applicable Not applicable to fund to fund Remaining service life 8.37 9.33 4 years 5 years of employees (years) 11 months and 6 months, and 11 years 12 years 10 months 4 months
1 This relates to members of material retirement funds within the group. 2 This relates to members within the employment of Liberty.
AFS Refer to note 43 for further details regarding the group’s post-employment benefits. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 40 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED
Long-term insurance contracts The overall investment return for a block of business is based on the investment return assumptions allowing for the current mix Policyholder liabilities under insurance contracts issued of assets supporting the liabilities. The pre-taxation discount rate and reinsurance assets held are derived from actual claims is set at the same rate. The rate averaged across these blocks of submitted which are not settled at the reporting date, business is 10.4% per annum in 2019 (2018: 10.6% per annum). and estimates of the net present value of future claims Where appropriate the investment return assumption is adjusted and benefits under existing contracts, offset by probable future to make allowance for investment expenses and taxation. premiums to be received or paid (net of expected service costs). The key assumptions applied and analysis of their sensitivity have been detailed in the insurance risk and sensitivity Expenses analysis components of the risk and capital management report An expense analysis is performed on the actual expenses in annexure C. incurred, split between acquisition and maintenance expenses, in the calendar year preceding the reporting date. This analysis is used to calculate the acquisition costs incurred. AFS Refer to annexure C. The budget in respect of the following year approved by the board is used to set the maintenance expense assumption. Process used to decide on assumptions and changes in assumptions Expense inflation Mortality and morbidity The expense inflation assumption is set taking into consideration, An appropriate base table of standard mortality or morbidity market implied inflation, the expected future development of is chosen depending on the type of contract and class of the number of in-force policies, as well as the expected future business. Industry standard tables are used for smaller classes of profile of maintenance expenses. The expense inflation business. Company-specific tables, based on graduated industry assumption for pure risk, life annuity, disability in payment standard tables modified to reflect the company-specific and guaranteed endowments business is consistent with market experience, are used for larger classes. Investigations into implied inflation rates. For other classes of business the inflation mortality and morbidity experience are performed at least once a rate is set at the effective ten-year gilt yield curve rate (gilt rate) year for all classes of business. The period of investigation less 1.75% when the gilt rate is above 7.25%. The expense extends over at least the latest three full years. Assumptions are inflation rate is set at 72% of the gilt rate when this is below set as the best estimate taking into account all relevant 5.25%. At gilt rates between 5.25% and 7.25% the inflation rate information. The results of the investigation are an input used to is interpolated to ensure a smooth transition between the two set the valuation assumptions, which are applied as methodologies. This results in a best estimate inflation an adjustment to the respective base table. In setting assumption of 7.42% at 31 December 2019 (2018: 7.67%). the assumptions, provision is made for expected Acquired Immune Deficiency Syndrome (Aids)-related claims. For Taxation contracts insuring survivorship, an allowance is made for future Assumptions as to the amount and timing of future income tax mortality improvements based on expected future trends. and capital gains tax (CGT) payments are based upon the applicable tax law and rates effective as at the reporting date Withdrawal and as set out in the Income Tax Act. Allowance is also made for The withdrawal assumptions are based on the most recent dividends withholding tax at the rate applicable at the reporting withdrawal investigations taking into account past, as well as date. Deferred taxation liabilities, in particular a provision for expected future trends. The withdrawal investigations are future CGT in respect of unrealised capital gains/(losses), have performed at least once a year for all classes of business. been taken into account using the full face value. The period of investigation extends over at least the latest two full years. Assumptions are set as the best estimate taking into Correlations account all relevant information. The withdrawal rates are No correlations between assumptions are allowed for. analysed by product type and policy duration as rates vary considerably by these two factors. Typically the assumptions are Contribution increases higher for risk type products than for investment type products In the valuation of the policyholder and reinsurance contracts, and are higher at early durations. The surrender values assumed voluntary premium increases that give rise to expected profits are as per the terms and conditions and any other regulatory within broad product groups are not allowed for. However, restrictions in place at the financial position date. compulsory increases and increases that give rise to expected losses within broad product groups are allowed for. Investment return This is consistent with the requirements of the Standard Future investment returns are set for the main asset classes as Actuarial Practice (SAP) 104. follows: •• Bond rate – the derived yield from the bond yield curve, at a duration of ten years at the reporting date, 9.17% (2018: 9.42%) •• Equity rate – bond rate plus 3.5% as an adjustment for risk, 12.67% (2018: 12.92%) •• Property rate – bond rate plus 1% as an adjustment for risk, 10.17% (2018: 10.42%) •• Cash – bond rate less 1.5%, 7.67% (2018: 7.92%). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 41
Embedded investment derivative assumptions Process used to decide on assumptions and changes The assumptions used to value embedded derivatives in respect in assumptions for Non-South African life companies’ of policyholder contracts are set in accordance with Advisory change in assumptions Practice Notes (APN) 110. Account is taken of the yield curve Assumptions used in the valuation of policyholder at the valuation date. Both implied market volatility and historical and reinsurance contracts are set by references to local volatility are taken into account when setting volatility guidance, taxation legislation and where applicable to assumptions. Correlations between asset classes are set based the Actuarial Society of South Africa guidance. Economic on historical data. Over sixteen thousand simulations assumptions are set by reference to local economic conditions are performed in calculating the liability. at the valuation date. Margins are allowed for as prescribed by local guidance and regulations.
Using the simulated investment returns the prices and implied volatilities of the following instruments are:
Price Volatility 2019 2018 2019 2018 Instrument % % % %
A one-year at-the-money (spot) put on the FTSE1/JSE Top 40 index 4.89 5.98 17.09 20.76 A one-year put on the FTSE/JSE Top 40 index, with a strike price equal to 80% of spot 1.02 1.53 21.57 24.88 A one-year at-the-money (forward) put on the FTSE/JSE Top 40 index 6.34 7.73 16.37 19.98 A five-year at-the-money (spot) put on the FTSE/JSE Top 40 index 7.81 7.68 20.9 22.30 A five-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,045# of spot 14.89 14.29 20.04 21.47 A five-year (forward) put on the FTSE/JSE Top 40 index 15.37 16.34 20.00 21.29 A five-year put with a strike price equal to 1,045# of spot on an underlying index constructed as 60% FTSE/JSE Top 40 and 40% All Bond Index (ALBI), with rebalancing of the underlying index back to these weights taking place annually 6.86 6.14 A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 3.37 3.04 26.97 27.22 A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,0420# of spot 15.67 14.34 28.15 28.44 A 20-year at-the-money (forward) put on the FTSE/JSE Top 40 index 27.36 27.71 28.74 29.16 A 20-year put option based on an interest rate with a strike equal to the present 5-year forward rate as at maturity of the put option, which pays out if the 5-year interest rate at the time of maturity (in 20 years) is lower than the strike price 0.57 0.52
1 Financial Times Stock Exchange. # Exponent.
AFS Refer to note 8 for disclosures on policyholders’ contracts. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 42 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED
Provisions Given the significant losses suffered by ICBCS and the deterioration of market conditions, the group reviewed The principal assumptions taken into account in determining the recoverable amount of the associate investment the value at which provisions are recorded at, include at 30 September 2019. At that time, the group took into determining whether there is an obligation, as well as consideration available information, applying a value in use (VIU) assumptions about the probability of the outflow of resources approach in determining the carrying value. Following this review, and the estimate of the amount and timing for the settlement of the value of the group’s carrying value in ICBCS was impaired the obligation. For legal provisions, management assesses from USD383 million to USD220 million with an impairment of the probability of the outflow of resources by taking into account R2.4 billion recognised in earnings attributable to ordinary historical data and the status of the claim in consultation with shareholders. the group’s legal counsel. In determining the amount and timing of the obligation once it has been assessed to exist, management At 31 December 2019, after further losses recorded by ICBCS exercises its judgement by taking into account all available in the fourth quarter of 2019, including restructuring provisions, information, including that arising after the balance sheet date the group’s 40% associate investment in ICBCS was carried up to the date of the approval of the financial statements. at USD189 million (R2.6 billion).
AFS Refer to note 24 for details regarding the group’s legal The group has assessed the recoverable amount of its proceedings defended. investment in ICBCS at 31 December 2019; consistent with the approach used at 30 September 2019, the group adopted a Impairment of ICBCS VIU approach to determine the recoverable amount utilising the latest available information at year end. Cash flow projections ICBCS, in which the group is a 40% shareholder, incurred a loss were based on future cash flows the group could derive from of USD248 million for the 2019 financial year, which includes the investment, taking into consideration various scenarios. losses and provisions relating to a single client loss, refer below In addition, an appropriate discount rate of 9.8%, which reflects for detail, of USD198 million and restructuring costs of current market assessments of the time value of money and risks USD30 million following the closure of certain regional offices specific to ICBCS, was applied. Key inputs to the VIU include and management actions to reduce operational costs. ICBCS management’s most recent business plan projections. The VIU reflects the present value of the expected future cash The single client loss arose as a result of an explosion flows and is based on the weighted average of potential business at the Philadelphia Energy Solutions (PES) oil refinery complex outcomes. on the East Coast of the United States. PES filed for bankruptcy protection in July 2019 and various associated actions are Based on the outcome of this analysis and the value derived, we currently before the courts. ICBCS is a named beneficiary of conclude that the recoverable amount approximates carrying certain policies covering Business Interruption in relation to value and therefore no further impairment was recognised the PES event. ICBCS has lodged a claim with the insurance by the group at 31 December 2019. The group will continue to company and is asserting the priority of its claim. As engage and work with ICBC and ICBCS to enable the business to at 31 December 2019, in accordance with IAS 37 Provisions, generate acceptable returns. Contingent Liabilities and Contingent Assets, ICBCS has not recognised any insurance recoveries as the significant uncertainty regarding the amount and timing of the insurance recoveries means that the recognition criteria for insurance recoveries are not yet satisfied. The bankruptcy process of PES and insurance claims process are ongoing.
Following a review of ICBCS’s business model, the ICBCS board has taken actions to reduce costs and simplify ICBCS’s business model and will focus on driving efficiencies through working more closely with the ICBC. As at 31 December 2019, having issued additional tier 1 (AT1) capital to ICBC, ICBCS was sufficiently capitalised to meet its regulatory requirements and to support the business levels indicated in its business plan. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 43
Notes to the annual financial statements
1. Cash and balances with central banks
2019 2018 Rm Rm
Coins and bank notes 16 700 20 681 Balances with central banks1 58 588 64 464 Total 75 288 85 145
1 Included in this balance is R48 950 million (2018: R55 414 million) that primarily comprises of reserving requirements held with central banks within the countries of operation and are available for use by the group subject to certain restrictions and limitations levied by central banks within the respective countries. These balances are held at fair value through profit or loss.
2. Derivative instruments All derivatives are classified either as held-for-trading or held-for-hedging. A summary of the total derivative assets and liabilities is shown in the table below.
Fair value of assets Fair value of liabilities 2019 2018 2019 2018 Rm Rm Rm Rm
Total derivative assets/(liabilities) held-for-trading 67 777 49 009 (65 677) (53 194) Total derivative assets/(liabilities) held-for-hedging 3 630 2 669 (3 821) (1 863) Total 71 407 51 678 (69 498) (55 057)
2.1 Use and measurement of derivative instruments The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks are also measured across the product range in order to take into account possible correlations. All derivatives are classified either as held-for-trading or held-for-hedging.
In the normal course of business, the group enters into a variety of foreign exchange, interest rate, commodity, credit and equity derivative transactions in accordance with the group’s risk management policies and practices. Derivative instruments used by the group are held for both trading and hedging purposes and include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, interest rates, credit risk and the prices of commodities and equities.
A summary of the total derivative assets and liabilities are shown in the table below.
2.2 Derivatives held-for-trading The group enters into derivative contracts to address client demand, both as a market maker in the wholesale markets and in structuring tailored derivatives for clients. The group also takes proprietary positions for its own account. Trading derivative products include the following:
Fair value of assets Fair value of liabilities Contract/notional amount1 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm
Foreign exchange derivatives 31 397 22 255 (25 759) (20 503) 1 556 250 1 367 876 Interest rate derivatives 29 496 22 678 (31 678) (26 886) 5 359 314 5 128 918 Commodity derivatives 170 204 (119) (194) 7 507 15 585 Credit derivatives 1 277 1 013 (4 356) (2 814) 91 603 77 455 Equity derivatives 5 437 2 859 (3 765) (2 797) 2 766 430 2 444 740 Total 67 777 49 009 (65 677) (53 194) 9 781 104 9 034 574
1 The notional amount is the sum of the absolute value of all contracts for both derivative assets and liabilities. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 44 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
2. Derivative instruments continued 2.3 Derivatives and other financial instruments held-for-hedging Where all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to remove the accounting mismatch between the derivative (hedging instrument) and the underlying instruments (hedged item). All qualifying hedging relationships are designated as either fair value or cash flow for recognised assets or liabilities and highly probable forecast transactions. The group applies hedge accounting in respect of foreign currency risk, equity risk and interest rate risk. Refer to annexure F on page 195 for more information of these hedging strategies.
2.3.1 Derivatives designated as hedging instruments in fair value hedging relationships
Fair value Maturity Less Between Contract/ Net than one to Over notional Fair value Assets Liabilities fair value one year five years five years amount1 gain/(loss) Rm Rm Rm Rm Rm Rm Rm Rm
2019 Interest rate risk fair value hedging relationships 3 171 (1 725) 1 446 852 1 024 (430) 194 840 650 Interest rate swaps 3 171 (1 709) 1 462 852 1 040 (430) 194 188 610 Cross-currency interest rate swaps (16) (16) (16) 652 40
Total 3 171 (1 725) 1 446 852 1 024 (430) 194 840 650 2018 Interest rate risk fair value hedging relationships 523 (1 190) (667) (20) (158) (489) 105 003 (26) Interest rate swaps 523 (1 190) (667) (20) (158) (489) 105 003 (26)
Total 523 (1 190) (667) (20) (158) (489) 105 003 (26)
1 The notional amount is the sum of the absolute value of all contracts for both derivative assets and liabilities. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts.
2.3.2 Hedged items classified as fair value hedges Fair value Fair value Accumulated (loss)/gain Fair fair value used to value hedge gain/(loss) test hedge adjustments at 31 ineffective- for the Assets Liabilities December ness period Rm Rm Rm Rm Rm
2019 Interest rate risk fair value hedging relationships Financial investments 1 908 390 (90) (90) Subordinated debt (7 816) 107 (176) (176) Loans and advances to customers 39 492 (869) 606 606 Deposits and debt funding (65 273) 550 (852) (852) Total 41 400 (73 089) 178 (512) (512) 2018 Interest rate risk fair value hedging relationships Financial investments 328 34 34 Subordinated debt (2 033) 19 15 15 Loans and advances to customers 28 276 656 (206) (206) Deposits and debt funding (60 460) 114 192 192 Total 28 604 (62 493) 789 35 35 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 45
2. Derivative instruments continued 2.3 Derivatives and other financial instruments held-for-hedging continued 2.3.3 Derivatives designated as hedging instruments in cash flow hedging relationships1 Fair value Maturity Less Between Contract/ Net than one to Over notional Fair value Assets Liabilities fair value one year five years five years amount gain/(loss) Rm Rm Rm Rm Rm Rm Rm Rm
2019 Foreign currency risk cash flow hedging relationships 262 (413) (151) 83 (234) 80 905 662 Currency forwards 259 (114) 145 150 (5) 76 120 339 Currency swaps 3 (299) (296) (67) (229) 4 785 323 Equity price risk cash flow hedging relationships 197 (286) (89) (36) (53) 661 (90) Equity forwards 197 (286) (89) (36) (53) 661 (90) Interest rate risk cash flow relationships (1 397) (1 397) (480) (671) (246) 2 950 (6) Cross-currency interest rate swaps (11) (11) (11) 653 11 Currency swaps (1 386) (1 386) (480) (660) (246) 2 297 (17)
Total 459 (2 096) (1 637) (433) (958) (246) 84 516 566 2018 Foreign currency risk cash flow hedging relationships 160 (240) (80) (74) (6) 8 913 (241) Currency forwards 59 (96) (37) (31) (6) 4 932 (42) Currency swaps 101 (144) (43) (43) 3 981 (199) Equity price risk cash flow hedging relationships 383 (433) (50) (17) (33) 550 (128) Equity forwards 383 (433) (50) (17) (33) 550 (128) Interest rate risk cash flow relationships 1 603 1 603 132 1 248 223 2 501 (133) Currency swaps 1 603 1 603 132 1 248 223 2 501 (133)
Total 2 146 (673) 1 473 41 1 209 223 11 964 (502)
1 The note disclosure has been disaggregated to provide a better analysis of cash flow hedging relationships. This change had no impact on the SOFP. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 46 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
2. Derivative instruments continued 2.3 Derivatives and other financial instruments held-for-hedging continued 2.3.4 Hedge items classified as cash flow hedges 2019 2018 Rm Rm
Fair value gain/(loss) used to test hedge ineffectiveness Financial investments 53 125 Interest rate risk cash flow hedging relationships 53 125 Loans and advances (294) 168 Foreign currency risk cash flow hedging relationships (294) 168 Share scheme liabilities (excludes equity DBS) 53 109 Equity price risk cash flow hedging relationships 53 109 Other operating expenses (297) 82 Foreign currency risk cash flow hedging relationships (297) 82
Total (485) 484
2.3.5 Hedge ineffectiveness recognised in profit or loss1 Hedge ineffectiveness in qualifying hedge relationships arises predominantly due to the presence of costs contained within hedging instruments. This ineffectiveness was recognised in profit or loss together with the gains and losses on the underlying hedged item according to the nature of the risk being hedged as follows:
Other operating Trading Net interest expenses revenue income loss gain/(loss) loss Total Rm Rm Rm Rm
2019 Fair value hedges 138 138 Interest rate risk fair value hedging relationships 138 138 Cash flow hedges (37) 118 81 Foreign currency risk cash flow hedging relationships 71 71 Equity price risk cash flow hedging relationships (37) (37) Interest rate risk cash flow hedging relationships 47 47
Total (37) 118 138 219 2018 Fair value hedges 9 9 Interest rate risk fair value hedging relationships 9 9 Cash flow hedges (19) 1 (18) Foreign currency risk cash flow hedging relationships 10 10 Equity price risk cash flow hedging relationships (19) (19) Interest rate risk cash flow hedging relationships (9) (9)
Total (19) 1 9 (9)
1 The note disclosure has been disaggregated to provide a better analysis of cash flow hedging relationships. This change had no impact on the statement of financial position (SOFP). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 47
2. Derivative instruments continued 2.3 Derivatives and other financial instruments held-for-hedging continued 2.3.6 Reconciliation of movements in the cash flow hedging reserve Foreign Equity currency risk price risk Total Rm Rm Rm
Balance at 1 January 2018 (128) 34 (94) Amounts recognised directly in OCI before tax1 (374) (128) (502) Add amounts released to profit or loss before tax: 338 46 384 Interest income 49 49 Trading revenue 301 301 Other operating expenses (12) 46 34 Deferred tax 6 4 10 Non-controlling Interest 8 8 Balance at 31 December 2018 (150) (44) (194) Amounts recognised directly in OCI before tax1 644 (78) 566 Add amounts released to profit or loss before tax: (373) 81 (292) Interest income 176 176 Trading revenue (386) (386) Other operating expenses (163) 81 (82) Deferred tax (69) (69) Non-controlling Interest (15) (15) Balance at 31 December 2019 37 (41) (4)
1 Includes dividends received on equity forwards during the period.
2.3.7 Hedges classified as cash flow hedges The forecasted timing of the release of net cash flows from the cash flow hedging reserve into profit or loss at 31 December is as follows:
After three After one Three months year but More months but within within five than or less one year years five years Total Rm Rm Rm Rm Rm
2019 Net cash (outflow)/inflow 16 51 (28) (43) (4) 2018 Net cash outflows (13) (37) (88) (56) (194)
2.4 Day one profit or loss The table below sets out the aggregate net day one profit or loss yet to be recognised in profit or loss at the beginning and end of the period with a reconciliation of changes in the balances during the period.
2019 2018 Rm Rm
Unrecognised net profit at the beginning of the year 176 160 Additional net profit on new transactions 387 299 Recognised in trading revenue during the year (315) (307) Exchange differences (7) 24 Unrecognised net profit at the end of the year 241 176 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 48 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
3. Trading assets 3.1 Classification 2019 2018 Rm Rm
Collateral and other1 6 386 6 753 Corporate bonds and floating rate notes 40 581 27 180 Government, municipality and utility bonds 80 377 51 151 Listed equities 51 547 40 549 Reverse repurchase and other collateralised agreements 27 992 41 334 Unlisted debt securities 15 919 14 145 Total 222 802 181 112
1 The disclosure has been aggregated as part of the adoption of the amendments to IAS 1 and IAS 8, the aggregation did not impact the statement of financial position (SOFP). The comparative amount of R552 million other instruments is now disclosed with collateral of R6 201 million.
3.2 Day one profit or loss The table below sets out the aggregate net day one profit or loss yet to be recognised in profit or loss at the beginning and end of the period with a reconciliation of changes in the balances during the period.
2019 2018 Rm Rm
Unrecognised net profit at the beginning of the year 845 642 Additional net profit on new transactions 233 339 Recognised in trading revenue during the year (178) (136) Unrecognised net profit at the end of the year 900 845
4. Pledged assets The following table presents details of financial assets which have been sold or otherwise transferred, but which have not been derecognised in their entirety, and their associated, liabilities including any contingent liabilities where applicable. This table does not disclose the total risk exposure in terms of these transactions, instead it provides disclosures as required by IFRS.
Carrying Carrying Fair Fair amount of amount of value of value of transferred associated transferred associated Net assets liabilities assets1 liabilities1 fair value1 Rm Rm Rm Rm Rm
2019 Bonds 23 624 (17 796) 23 625 (17 796) 5 829 Listed equities 5 753 5 753 5 753 Pledged assets (as recognised in the statement of financial position) 29 377 (17 796) 29 378 (17 796) 11 582 Financial investments2 12 805 (12 738) 12 805 (12 735) 70 Total 42 182 (30 534) 42 183 (30 531) 11 652 2018 Bonds 12 964 (6 412) 12 948 (6 412) 6 536 Listed equities 6 915 (288) 6 915 (288) 6 627 Pledged assets (as recognised in the statement of financial position) 19 879 (6 700) 19 863 (6 700) 13 163 Financial investments2 9 262 (9 261) 9 265 (9 259) 6 Total 29 141 (15 961) 29 128 (15 959) 13 169
1 Where the counterparty has recourse to the transferred asset. 2 For these financial investments the counterparty is not permitted to sell or repledge the assets in the absence of default; hence, they are not classified as pledged assets. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 49
4. Pledged assets continued The assets pledged by the group are strictly for the purpose of providing collateral to the counterparty. To the extent that the counterparty is permitted to sell or repledge the assets in the absence of default, they are classified in the statement of financial position as pledged assets.
The majority of other financial investments that do not qualify for derecognition include debt securities held by counterparties as collateral under repurchase agreements, listed equities held as collateral under scrip lending transactions and financial assets leased out to third-parties. Risks to which the group remain exposed include credit and interest rate risk.
During the current year, there were no instances of financial assets that were sold or otherwise transferred, but which were partially derecognised. Further, there were no instances of financial assets transferred and derecognised for which the group had continuing involvement.
4.1 Collateral accepted as security for assets As part of the reverse repurchase and securities borrowing agreements, the group has received securities which are not recorded in the statement of financial position that it is allowed to sell or repledge. The fair value of the financial assets accepted as collateral that the group is permitted to sell or repledge in the absence of default is R94 429 million (2018: R100 791 million).
The fair value of financial assets accepted as collateral and commodities received through commodity leases that have been sold, repledged or leased in terms of repurchase agreements or leasing transactions is R14 215 million (2018: R11 709 million).
These transactions are conducted under terms that are usual and customary to reverse repurchase and securities borrowing activities.
4.2 Assets transferred not derecognised Securitisations The group enters into transactions in the normal course of business by which it transfers recognised financial assets directly to third-parties or structured entities. These transfers may give rise to full derecognition of the financial assets concerned.
Full derecognition occurs when the group transfers substantially all the risks and rewards of ownership and its contractual right to receive cash flows from the financial assets or retains the contractual rights to receive the cash flows of the financial assets but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets IFRS derecognition requirements. The risks include interest rate, currency, prepayment and other price risks. However, where the group has retained substantially all of the credit risk associated with the transferred assets, it continues to recognise these assets.
The following table analyses the cumulative carrying amount of securitised financial assets that did not qualify for derecognition and the associated liabilities.
Carrying Fair amount of value of transferred transferred Net assets1 assets fair value Rm Rm Rm
2019 Mortgage loans2 45 751 45 730 45 730 2018 Mortgage loans2 45 954 44 747 44 747
1 The associated liabilities relating to the transferred assets only include external funding for the assets. The transferred assets are also funded by intercompany funding, which has been eliminated at a group level. 2 The group invests in vehicles specifically introduced to provide mortgage lending collateral against the Committed Liquidity Facility (CLF). To access the CLF, the South African Reserve Bank (SARB) requires a portfolio of collateral, which is identified as a portfolio of mortgage loans. The SARB requires that these assets are ring-fenced in a separate legal entity, supported by a clearly defined note structure. At 31 December 2019, the mortgages within these vehicles, Blue Shield Investments 01 (RF) Limited and Blue Shield Investments 02 (RF) Limited, amounted to R46 billion (2018: R46 billion). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 50 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
5. Financial investments Investment management Total Banking activities and life insurance activities 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm
Corporate 73 381 64 011 27 494 23 297 45 887 40 714 Sovereign 205 927 197 473 167 341 161 552 38 586 35 921 Banking 53 364 71 210 1 766 13 978 51 598 57 232 Mutual funds and unit-linked investments1 99 499 86 155 1 315 1 316 98 184 84 839 Listed equities 100 367 96 395 145 103 100 222 96 292 Unlisted equities 8 179 6 506 4 195 3 521 3 984 2 985 Interest in associates and joint ventures held at fair value (annexure B) 16 168 13 848 16 168 13 848 Other instruments 10 434 12 928 2 447 2 734 7 987 10 194 Total financial investments 567 319 548 526 204 703 206 501 362 616 342 025 Accounting classification Net financial investments measured at amortised cost 153 760 144 145 Gross financial investments measured at amortised cost 153 828 144 339 Less: expected credit loss for financial investments measured at amortised cost2 (68) (194) Financial investments measured at fair value 413 559 404 381 Financial investments measured at FVTPL 368 512 350 044 Debt financial investments measured at FVOCI3, 4 43 763 53 083 Equity financial investments measured at FVOCI4 1 284 1 254
1 Refer to page 31 for more details on the restatement to banking activities’ mutual funds and unit-linked investments. 2 Refer to note 34 for the credit impairment charges for the current year credit impairment charge of R45 million (2018: R82 million) on financial investments measured at amortised cost. 3 Refer to note 34 for the credit impairment charges for the current year credit impairment charge of R41 million (2018: R19 million) debt financial investments measured at fair value through OCI. 4 Refer to note 22.5.1 for the reconciliation of FVOCI reserve for equity financial investments and note 22.5.2 for the reconciliation of FVOCI reserve for debt financial investments. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 51
6. Disposal group held for sale The disposal group held for sale includes non-current assets held for sale relating to the Samrand Data Centre.
2019 2018 Net Net disposal disposal Gross Impairment1 group Gross Impairment group Rm Rm Rm Rm Rm Rm
Samrand Data Centre 819 819 ICBCA 1 196 1 196 Liberty 891 (307) 584 1 011 (249) 762 Total assets classified as held for sale 2 906 (307) 2 599 1 011 (249) 762 Financial investments 261 261 265 265 Other assets 443 (136) 307 504 (28) 476 Property, equipment and right of use assets 857 (22) 835 Goodwill and Intangibles 126 (126) 39 (18) 21 Interest in associate and joint ventures (note 10) 1 196 1 196 85 (85) Deferred tax assets 23 (23) 118 (118) Total liabilities classified as held for sale – Liberty (246) (246) (237) (237) Provisions and other liabilities 17 17 (232) (232) Current tax liabilities (263) (263) (5) (5)
Total 2 660 (307) 2 353 774 (249) 525
1 The impairment in the disposal group relates to the provision in the SOFP at 31 December 2019, the impairment of the disposal group included in the headline earnings reconciliation includes a R14 million that was written off during the year.
Samrand Data Centre During December 2019, the group’s board approved the disposal of the group’s data warehouse. The sale agreement which is expected to conclude in 2020 includes the freehold property, as well as the electromechanical equipment. The requirements of IFRS 5 were met during December 2019 and based on these, the assets subject to the sale agreement have been separately disclosed as non-current assets held for sale on the statement of financial position. The assets are measured at the lower of the carrying amount and fair value less costs to sell. The fair value less costs to sell is based on an assessment of what management believes a purchaser would value the assets, considering the current business viability and operations. The property and equipment was not impaired at 31 December 2019 the net carrying value amounted to R819 million. This is included in the central and other segments.
The group’s residual 20% shareholding in ICBCA In November 2012, the group completed the disposal of a controlling interest in ICBCA.
The group retained a 20% shareholding in ICBCA, held by Standard Bank Group’s wholly owned subsidiary, Standard Bank London Holdings Limited. This residual investment was classified as an investment in associates and accounted for using the equity accounting method in terms of IAS 28.
In the ICBCA shareholders’ agreement, ICBC granted a put option to the group under which the group was given the right to sell its remaining shareholding in ICBCA to ICBC, by giving notice at any time between 1 December 2014 and 30 November 2019. The strike price of the put option was fixed at USD180.751 million. Having taken the independent advice required under the JSE Listings Requirements, on 8 August 2019, the group exercised the put option and gave the required notice to ICBC.
The transaction is subject to conditions precedent customary to transactions of this nature, including regulatory approvals in China. The completion date in respect of the transaction is anticipated to be in the first half of 2020. The group would seek to reinvest net proceeds received at completion of the transaction to support its African strategy.
Based on the above, the requirements of IFRS 5 were met on 8 August 2019 and equity accounting of this investment was ceased. Therefore, as at 31 December 2019, the investment in ICBCA has been disclosed as non-current assets held for sale and presented separately on the statement of financial position. The investment in ICBCA is measured at the lower of the carrying amount and fair value less costs to sell, being R1 196 million at 31 December 2019. The investment in ICBCA was not impaired at date of classification as held for sale, nor at year end. This is included in the other banking interests segment. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 52 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
6. Disposal group held for sale continued Disposal group from investment management and life insurance activities As part of the strategy refresh exercise conducted during 2018, various cash-generating units were identified as either sub scale or no longer applicable to Liberty’s revised strategy. Consequently, the board approved a process of disposals and strategic partnership negotiations which is highly probable to lead to loss of control of these cash-generating units during 2019.
The disposal of three operations, being the short-term insurance technology start-up, and the asset management operations in Ghana and Botswana were concluded in the period under review.
The cash-generating units remaining as held for sale are asset management operations in Uganda and Kenya, health risk solutions and short-term insurance in Malawi.
Based on the requirements of IFRS 5, the assets and liabilities have been disclosed as disposal groups, and are separately disclosed on the statement of financial position. The disposal groups are measured at the lower of carrying amount and fair value less costs to sell, which lead to various impairments, as set out in the table above.
The potential sales are not discontinued operations as defined under IFRS 5 as they are not disposals of separate major lines of business or geographical areas of operation. Profit or loss from cash-generating units within disposal groups have therefore not been separately identified in the income statement. This is included in the Liberty segment.
7. Loans and advances 7.1 Classification 2019 2018 Rm Rm
Loans and advances measured at fair value through profit or loss 161 1 204 Net loans and advances measured at amortised cost 1 180 906 1 118 343 Gross loans and advances measured at amortised cost 1 216 185 1 155 028 Mortgage loans 378 003 361 830 Vehicle and asset finance (note 7.2) 94 833 89 651 Card debtors 34 612 32 395 Corporate and sovereign 425 427 397 261 Banking 104 904 110 852 Other loans and advances1 178 406 163 039 Expected credit losses on loans and advances (note 7.3) (35 279) (36 685)
Total loans and advances 1 181 067 1 119 547
1 Restated. Refer to page 31 for further information on the restatement. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 53
7. Loans and advances continued 7.2 Vehicle and asset finance The maturity analysis is based on the remaining periods to contractual maturity from year end.
2019 2018 Unearned Unearned Gross finance Net Gross finance Net advances charges advances advances charges advances Rm Rm Rm Rm Rm Rm
Receivable within one year 33 525 (6 968) 26 557 32 500 (7 751) 24 749 Receivable between one and five years 80 595 (13 027) 67 568 77 584 (13 181) 64 403 Receivable after five years 775 (67) 708 545 (46) 499 Total 114 895 (20 062) 94 833 110 629 (20 978) 89 651
Leases entered into are at market-related terms. Under the terms of the lease agreements, no contingent rentals are payable. Moveable assets are leased or sold to customers under finance leases and instalment sale agreements for periods varying between 12 and 84 months. Depending on the terms of the agreement, the lessee may have the option to purchase the asset at the end of the lease term.
7.3 Expected credit loss reconciliation of loans and advances at amortised cost 2019 2018 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Rm Rm Rm Rm Rm Rm Rm Rm
Opening ECL 5 740 7 144 23 801 36 685 5 789 8 275 20 975 35 039 Transfers between stages1 986 (1 032) 46 984 (2 088) 1 104 Net impairments (released)/raised (1 357) 1 779 8 897 9 319 (1 232) 1 066 7 403 7 237 ECL on new exposure raised 1 707 1 009 936 3 652 1 727 1 717 355 3 799 Subsequent changes in ECL (2 793) 922 8 108 6 237 (2 718) (329) 7 441 4 394 Change in ECL due to derecognition (271) (152) (147) (570) (241) (322) (393) (956) Impaired accounts written off2, 3 (12 990) (12 990) (9 313) (9 313) Exchange and other movements3, 4 (231) (364) 2 860 2 265 199 (109) 3 632 3 722 Closing ECL 5 138 7 527 22 614 35 279 5 740 7 144 23 801 36 685
1 The group’s policy is to transfer opening balances based on the ECL stage at the end of the reporting period. Therefore, exposures can be transferred directly from stage 3 to stage 1 as the curing requirements would have been satisfied during the reporting period. Furthermore, the expected credit loss recognised on new exposures originated during the reporting period (which are not included in opening balances) are included within the column ‘ECL on new exposure raised’ based on the exposure’s ECL stage as at the end of the reporting period. It is therefore possible to disclose new/ originated exposures in stage 2 and 3. 2 The contractual amount outstanding on loans and advances that were written off during the period that are still subject to enforcement activities is R4.8 billion (2018: R5.9 billion). 3 At 31 December 2018, interest in suspense (IIS) on accounts written off of R1 134 million was previously classified as part of exchange and other movements when it should have been included in the impaired accounts written off line within the note. The comparative has been restated to reflect this change. 4 Exchange and other movements include the net IIS, the time value of money (TVM) unwind raised and released during the period. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 54 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
7. Loans and advances continued 7.3 Expected credit loss reconciliation of loans and advances at amortised cost continued 7.3.1 Expected credit loss reconciliation of loans and advances – per product Transfers between stages Net impairments Impaired TVM unwind Exchange Total raised/ accounts and IIS and other Closing Stage 1 Stage 2 Stage 3 transfers (released) written off movements movements ECL Rm Rm Rm Rm Rm Rm Rm Rm Rm
2019 Mortgage loans 10 130 (500) 306 194 922 (1 069) 1 046 (119) 10 910 Stage 1 1 037 367 133 500 (858) (12) 667 Stage 2 2 018 (367) 61 (306) 222 (24) 1 910 Stage 3 7 075 (133) (61) (194) 1 558 (1 069) 1 046 (83) 8 333 VAF 3 402 (92) 193 (101) 1 253 (1 017) 210 (128) 3 720 Stage 1 770 74 18 92 (199) 663 Stage 2 948 (74) (119) (193) 293 (57) 991 Stage 3 1 684 (18) 119 101 1 159 (1 017) 210 (71) 2 066 Card debtors 3 067 (216) 242 (26) 1 675 (2 213) 129 (2) 2 656 Stage 1 643 0 192 24 216 (268) 1 592 Stage 2 980 (192) 0 (50) (242) 240 (3) 975 Stage 3 1 444 (24) 50 26 1 703 (2 213) 129 1 089 Corporate 8 495 (8) (107) 115 1 718 (4 974) 628 (268) 5 599 Stage 1 950 9 (1) 8 246 (53) 1 151 Stage 2 1 041 (9) 116 107 132 (143) 1 137 Stage 3 6 504 1 (116) (115) 1 340 (4 974) 628 (72) 3 311 Sovereign 80 2 (2) 13 93 Stage 1 73 (2) (2) 71 Stage 2 2 2 2 13 17 Stage 3 5 5 Bank 63 61 (79) 45 Stage 1 60 61 (76) 45 Stage 2 3 (3) Other loans and advances 11 448 (172) 400 (228) 3 677 (3 717) 1 181 (333) 12 256 Stage 1 2 207 207 (35) 172 (339) (91) 1 949 Stage 2 2 152 (207) (193) (400) 879 (134) 2 497 Stage 3 7 089 35 193 228 3 137 (3 717) 1 181 (108) 7 810
Total 36 685 (986) 1 032 (46) 9 319 (12 990) 3 194 (929) 35 279 Stage 1 5 740 847 139 986 (1 357) (231) 5 138 Stage 2 7 144 (847) (185) (1 032) 1 779 (364) 7 527 Stage 3 23 801 (139) 185 46 8 897 (12 990) 3 194 (334) 22 614 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 55
7. Loans and advances continued 7.3 Expected credit loss reconciliation of loans and advances at amortised cost continued 7.3.1 Expected credit loss reconciliation of loans and advances – per product Transfers between stages Net impairments Impaired TVM unwind Exchange Total raised/ accounts and IIS and other Closing Stage 1 Stage 2 Stage 3 transfers (released) written off movements movements ECL Rm Rm Rm Rm Rm Rm Rm Rm Rm
2019 Mortgage loans 10 130 (500) 306 194 922 (1 069) 1 046 (119) 10 910 Stage 1 1 037 367 133 500 (858) (12) 667 Stage 2 2 018 (367) 61 (306) 222 (24) 1 910 Stage 3 7 075 (133) (61) (194) 1 558 (1 069) 1 046 (83) 8 333 VAF 3 402 (92) 193 (101) 1 253 (1 017) 210 (128) 3 720 Stage 1 770 74 18 92 (199) 663 Stage 2 948 (74) (119) (193) 293 (57) 991 Stage 3 1 684 (18) 119 101 1 159 (1 017) 210 (71) 2 066 Card debtors 3 067 (216) 242 (26) 1 675 (2 213) 129 (2) 2 656 Stage 1 643 0 192 24 216 (268) 1 592 Stage 2 980 (192) 0 (50) (242) 240 (3) 975 Stage 3 1 444 (24) 50 26 1 703 (2 213) 129 1 089 Corporate 8 495 (8) (107) 115 1 718 (4 974) 628 (268) 5 599 Stage 1 950 9 (1) 8 246 (53) 1 151 Stage 2 1 041 (9) 116 107 132 (143) 1 137 Stage 3 6 504 1 (116) (115) 1 340 (4 974) 628 (72) 3 311 Sovereign 80 2 (2) 13 93 Stage 1 73 (2) (2) 71 Stage 2 2 2 2 13 17 Stage 3 5 5 Bank 63 61 (79) 45 Stage 1 60 61 (76) 45 Stage 2 3 (3) Other loans and advances 11 448 (172) 400 (228) 3 677 (3 717) 1 181 (333) 12 256 Stage 1 2 207 207 (35) 172 (339) (91) 1 949 Stage 2 2 152 (207) (193) (400) 879 (134) 2 497 Stage 3 7 089 35 193 228 3 137 (3 717) 1 181 (108) 7 810
Total 36 685 (986) 1 032 (46) 9 319 (12 990) 3 194 (929) 35 279 Stage 1 5 740 847 139 986 (1 357) (231) 5 138 Stage 2 7 144 (847) (185) (1 032) 1 779 (364) 7 527 Stage 3 23 801 (139) 185 46 8 897 (12 990) 3 194 (334) 22 614 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 56 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
7. Loans and advances continued 7.3 Expected credit loss reconciliation of loans and advances at amortised cost continued 7.3.1 Expected credit loss reconciliation of loans and advances – per product continued Transfers between stages Net impairments Impaired Exchange Opening Total raised/ accounts TVM unwind and other Closing ECL Stage 1 Stage 2 Stage 3 transfers (released) written off1 and IIS2 movement1, 2 ECL Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2018 Mortgage loans 9 396 (382) 144 238 1 067 (1 351) 991 27 10 130 Stage 1 1 126 267 115 382 (470) (1) 1 037 Stage 2 2 014 (267) 123 (144) 131 17 2 018 Stage 3 6 256 (115) (123) (238) 1 406 (1 351) 991 11 7 075 VAF 3 236 (226) 324 (98) 1 074 (1 100) 142 50 3 402 Stage 1 766 238 (12) 226 (227) 5 770 Stage 2 994 (238) (86) (324) 240 38 948 Stage 3 1 476 12 86 98 1 061 (1 100) 142 7 1 684 Card debtors 3 179 (176) 109 67 1 187 (1 487) 194 (6) 3 067 Stage 1 698 126 50 176 (231) 643 Stage 2 821 (126) 17 (109) 266 2 980 Stage 3 1 660 (50) (17) (67) 1 152 (1 487) 194 (8) 1 444 Corporate 7 667 (150) 1 241 (1 091) 889 (1 275) 456 758 8 495 Stage 1 781 163 (13) 150 (88) 107 950 Stage 2 1 956 (162) (1 078) (1 240) (124) 449 1 041 Stage 3 4 930 12 1 078 1 090 1 101 (1 275) 456 202 6 504 Sovereign 125 (47) 2 80 Stage 1 84 (13) 2 73 Stage 2 36 (34) 2 Stage 3 5 5 Bank 45 (18) 36 63 Stage 1 45 (14) 29 60 Stage 2 (4) 7 3 Other loans and advances 11 391 (50) 271 (221) 3 085 (4 100) 836 236 11 448 Stage 1 2 289 162 (112) 50 (189) 57 2 207 Stage 2 2 454 (162) (109) (271) (85) 54 2 152 Stage 3 6 648 112 109 221 3 359 (4 100) 836 125 7 089
Total 35 039 (984) 2 089 (1 105) 7 237 (9 313) 2 619 1 103 36 685 Stage 1 5 789 956 28 984 (1 232) 199 5 740 Stage 2 8 275 (955) (1 133) (2 088) 390 567 7 144 Stage 3 20 975 (29) 1 133 1 104 8 079 (9 313) 2 619 337 23 801
1 At 31 December 2018 IIS on accounts written off of R1 134 million was previously classified as part of exchange and other movements when it should have been included in the impaired accounts written off line within the note. The comparative has been restated to reflect this change. 2 The disclosure has been disaggregated as part of the amendments to IAS 1 and IAS 8, the disaggregation did not impact the SOFP. The comparative amount of R2 619 million TVM unwind and IIS is now shown separately.
Changes in gross exposures relating to changes in ECL The below is an explanation of significant changes in the gross carrying amount on financial instruments used to determine the above changes in ECL: •• The ECL on new exposures raised of R3.7 billion (2018: R3.8 billion) primarily relates to the net growth in the gross carrying amount of: –– Mortgage loans of R45 billion (2018: R44 billion) –– VAF of R37 billion (2018: R38 billion) –– Corporate of R171 billion (2018: R12 billion). •• The decrease in ECL due to impaired accounts written off of R13 billion (2018: R9 billion) resulted in an equal decrease to the gross carrying amount of loans and advances as exposures are 100% provided for before being written off. •• The group policy is to transfer using opening ECL balances based on the exposures’ ECL stage at the end of the reporting period. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 57
7. Loans and advances continued 7.3 Expected credit loss reconciliation of loans and advances at amortised cost continued 7.3.1 Expected credit loss reconciliation of loans and advances – per product continued Transfers between stages Net impairments Impaired Exchange Opening Total raised/ accounts TVM unwind and other Closing ECL Stage 1 Stage 2 Stage 3 transfers (released) written off1 and IIS2 movement1, 2 ECL Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2018 Mortgage loans 9 396 (382) 144 238 1 067 (1 351) 991 27 10 130 Stage 1 1 126 267 115 382 (470) (1) 1 037 Stage 2 2 014 (267) 123 (144) 131 17 2 018 Stage 3 6 256 (115) (123) (238) 1 406 (1 351) 991 11 7 075 VAF 3 236 (226) 324 (98) 1 074 (1 100) 142 50 3 402 Stage 1 766 238 (12) 226 (227) 5 770 Stage 2 994 (238) (86) (324) 240 38 948 Stage 3 1 476 12 86 98 1 061 (1 100) 142 7 1 684 Card debtors 3 179 (176) 109 67 1 187 (1 487) 194 (6) 3 067 Stage 1 698 126 50 176 (231) 643 Stage 2 821 (126) 17 (109) 266 2 980 Stage 3 1 660 (50) (17) (67) 1 152 (1 487) 194 (8) 1 444 Corporate 7 667 (150) 1 241 (1 091) 889 (1 275) 456 758 8 495 Stage 1 781 163 (13) 150 (88) 107 950 Stage 2 1 956 (162) (1 078) (1 240) (124) 449 1 041 Stage 3 4 930 12 1 078 1 090 1 101 (1 275) 456 202 6 504 Sovereign 125 (47) 2 80 Stage 1 84 (13) 2 73 Stage 2 36 (34) 2 Stage 3 5 5 Bank 45 (18) 36 63 Stage 1 45 (14) 29 60 Stage 2 (4) 7 3 Other loans and advances 11 391 (50) 271 (221) 3 085 (4 100) 836 236 11 448 Stage 1 2 289 162 (112) 50 (189) 57 2 207 Stage 2 2 454 (162) (109) (271) (85) 54 2 152 Stage 3 6 648 112 109 221 3 359 (4 100) 836 125 7 089
Total 35 039 (984) 2 089 (1 105) 7 237 (9 313) 2 619 1 103 36 685 Stage 1 5 789 956 28 984 (1 232) 199 5 740 Stage 2 8 275 (955) (1 133) (2 088) 390 567 7 144 Stage 3 20 975 (29) 1 133 1 104 8 079 (9 313) 2 619 337 23 801
1 At 31 December 2018 IIS on accounts written off of R1 134 million was previously classified as part of exchange and other movements when it should have been included in the impaired accounts written off line within the note. The comparative has been restated to reflect this change. 2 The disclosure has been disaggregated as part of the amendments to IAS 1 and IAS 8, the disaggregation did not impact the SOFP. The comparative amount of R2 619 million TVM unwind and IIS is now shown separately.
Changes in gross exposures relating to changes in ECL The below is an explanation of significant changes in the gross carrying amount on financial instruments used to determine the above changes in ECL: •• The ECL on new exposures raised of R3.7 billion (2018: R3.8 billion) primarily relates to the net growth in the gross carrying •• The significant gross carrying amounts transferred between the stages are as follows for 2019: amount of: –– Mortgage loans of R5.8 billion that was in stage 2 and stage 3 was transferred to stage 1 –– Mortgage loans of R45 billion (2018: R44 billion) –– VAF of R1.4 billion that was in stage 2 was transferred to stage 1, R1.1 billion was transferred from stage 2 to stage 3 –– VAF of R37 billion (2018: R38 billion) –– Other loans and advances of R5.1 billion that was in stage 2 and was transferred to stage 1, R1.4 billion was transferred –– Corporate of R171 billion (2018: R12 billion). from stage 2 to stage 3 –– Corporate of R8.2 billion that was in stage 2 was transferred to stage 1. •• The decrease in ECL due to impaired accounts written off of R13 billion (2018: R9 billion) resulted in an equal decrease to the gross carrying amount of loans and advances as exposures are 100% provided for before being written off. •• The significant gross carrying amounts transferred between the stages are as follows for 2018: •• The group policy is to transfer using opening ECL balances based on the exposures’ ECL stage at the end of the reporting –– Mortgage loans of R6 billion that were in stage 2 and stage 3 were transferred to stage 1 period. –– VAF of R3 billion that was in stage 2 was transferred to stage 1, –– Corporate of R4 billion that was in stage 2 was transferred to stage 3. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 58 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
7. Loans and advances continued 7.4 Modifications on loans and advances measured at amortised cost Stage 2 Stage 3 Gross Gross amortised Net amortised Net cost before modification cost before modification modification loss modification loss Rm Rm Rm Rm
2019 Mortgage loans 1 318 78 Vehicle and asset finance 81 7 Card debtors 247 64 Other loans and advances 766 122 Total 2 331 264 81 7 2018 Mortgage loans 928 58 92 2 Vehicle and asset finance 27 4 Card debtors 141 40 11 2 Corporate 107 6 504 3 Other loans and advances 482 25 22 5 Total 1 658 129 656 16
R16.2 billion (2018: R15.8 billion) is the gross carrying amount for modifications during the reporting period that resulted in no economic loss (i.e. no net modification gain or loss).
8. Policyholders’ contracts 2019 2018 Policyholders’ Policyholders’ Policyholders’ Policyholders’ assets liabilities assets liabilities Rm Rm Rm Rm
Policyholders’ liabilities under insurance contracts 7 017 (216 355) 6 708 (211 181) Insurance contracts (note 8.1) 7 017 (206 103) 6 708 (200 744) Investment contracts with DPF1 (note 8.1) (10 252) (10 437) Policyholders’ liabilities under investment contracts (note 8.2) (107 891) (99 813) Total 7 017 (324 246) 6 708 (310 994)
1 Discretionary participation feature. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 59
8. Policyholders’ contracts continued 8.1 Policyholders’ and reinsurance assets and liabilities Insurance contracts Reinsurance Investment Policyholders’ Policyholders’ assets and contracts assets liabilities liabilities with DPF1 Rm Rm Rm Rm
2019 Balance at the beginning of the year 6 708 (200 744) 1 416 (10 437) Reinsurance assets 1 699 Reinsurance liabilities (283) Inflows (8 771) (49 907) 1 798 (2 794) Insurance premiums (8 771) (29 518) 1 795 (1 756) Investment returns (20 370) 3 (1 038) Fee revenue (19) Outflows 8 590 43 354 (1 760) 2 979 Claims and policyholders’ benefits 4 969 32 778 (1 824) 2 757 Acquisition costs associated with insurance contracts 1 315 1 723 (3) 85 General marketing and administration expenses 1 846 4 376 (47) 142 Profit share allocations 104 1 313 (5) Finance costs and fair value adjustments on financial liabilities 411 860 Taxation (55) 2 304 119 (5) Net income from insurance operations 490 1 169 292 (14) Changes in assumptions (52) 99 68 Discretionary and compulsory margins and other variances 891 2 421 326 (21) New business (117) (296) 20 Shareholder taxation on transfer of net income (232) (1 055) (122) 7 Exchange differences 25 (1) 14 Balance at the end of the year 7 017 (206 103) 1 745 (10 252) Reinsurance assets (note 9) 1 991 Reinsurance liabilities (note 20) (246)
Liquidity profile Current 2 357 (21 383) 419 (515) Non-current 4 660 (184 720) 1 326 (9 737) Balance at the end of the year 7 017 (206 103) 1 745 (10 252)
Refer to footnotes on page 60. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 60 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
8. Policyholders’ contracts continued 8.1 Policyholders’ and reinsurance assets and liabilities continued Insurance contracts Reinsurance Investment Policyholders’ Policyholders’ assets and contracts assets liabilities liabilities with DPF1 Rm Rm Rm Rm
2018 Balance at the beginning of the year 7 484 (210 554) 818 (11 845) Reinsurance assets 1 481 Reinsurance liabilities (663) Inflows (8 307) (30 758) 1 576 (2 066) Insurance premiums (8 307) (28 477) 1 576 (1 966) Investment returns (2 258) (100) Fee revenue (23) Outflows 7 170 40 366 (1 244) 3 731 Claims and policyholders’ benefits 3 792 30 995 (1 308) 3 511 Acquisition costs associated with insurance contracts 1 311 1 891 (1) 87 General marketing and administration expenses 1 763 4 434 (43) 144 Profit share allocations 20 1 185 Finance costs and fair value adjustments on financial 407 973 liabilities Taxation (123) 888 108 (11) Net income from insurance operations 361 418 262 (58) Changes in assumptions (605) (165) 383 Discretionary and compulsory margins and other 1 085 1 804 (44) (82) variances New business 29 (491) 25 Shareholder taxation on transfer of net income (148) (730) (102) 24 Exchange differences (216) 4 (199) Balance at the end of the year 6 708 (200 744) 1 416 (10 437) Reinsurance assets (note 9) 1 699 Reinsurance liabilities (note 20) (283)
Liquidity profile Current 2 332 (20 762) 353 (226) Non-current 4 376 (179 982) 1 063 (10 211) Balance at the end of the year 6 708 (200 744) 1 416 (10 437)
1 The group cannot reliably measure the fair value of the investment contracts with DPF. The DPF is a contractual right that gives investors in these contracts the right to receive supplementary discretionary returns through participation in the surplus arising from the assets held in the investment DPF fund. These supplementary returns are subject to the discretion of the group. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 61
8. Policyholders’ contracts continued 8.2 Policyholders’ liabilities under investment contracts 2019 2018 Rm Rm
Balance at the beginning of the year (99 813) (100 519) Fund inflows from investment contracts (excluding switches) (17 969) (17 901) Net fair value adjustment (9 146) 1 273 Fund outflows from investment contracts (excluding switches) 17 681 16 083 Service fee income 1 330 1 251 Exchange differences 26 Balance at the end of the year (107 891) (99 813) Liquidity profile Current (7 318) (5 262) Non-current (100 573) (94 551) Balance at the end of the year (107 891) (99 813) Net income from investment contracts1 (26) (38) Service fee income (1 330) (1 251) Expenses 1 304 1 213 Property expenses applied to investment returns (313) (377) Shareholder taxation on transfer of net income 9 14 Acquisition costs 547 543 General marketing and administration expenses 1 041 1 014 Finance costs 20 19
1 Prior to deferred acquisition costs (DAC) and deferred revenue liability (DRL) adjustments.
9. Other assets
2019 2018 Rm Rm
Financial assets1 19 198 12 034 Operating leases – accrued income (note 11) 875 990 Other debtors2 768 606 Trading settlement assets 12 339 5 432 Accounts receivable2 1 559 1 085 Investment debtors2 158 804 Reinsurance assets3 2 409 2 119 Retirement funds (note 43) 1 090 998 Non-financial assets1 10 703 10 480 Items in the course of collection 1 771 1 257 Prepayments 2 985 3 434 Properties in possession 110 50 Fleet rental stock 541 9 Deferred acquisition costs 790 777 Insurance prepayments 4 506 4 953
Total 29 901 22 514
1 The note disclosure has been disaggregated to provide a better analysis of financial and non-financial other assets as part of the adoption of the amendments to IAS 1 and IAS 8, this change had no impact on the SOFP. 2 Due to the short-term nature of these assets and historical experience, debtors are regarded as having a low probability of default; therefore ECL is insignificant on these debtors. 3 Reinsurance assets include short-term reinsurance assets of R418 million (2018: R420 million). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 62 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
10. Interest in associates and joint ventures 2019 2018 Rm Rm
Equity accounted associates and joint ventures Carrying value at the beginning of the year 10 376 9 609 Share of profits (512) 912 Impairments of associates and joint ventures (2 418) (5) Acquisitions 255 79 Disposals (1 271) Disposal group held for sale (note 6) (1 196) Share of other comprehensive income movements 400 (54) Foreign currency translation reserve (63) 94 Other 463 (148) Distribution of profit (211) (165) Carrying value at the end of the year 5 423 10 376 Cost of investments 5 937 8 149 Share of reserves 2 692 3 015 Cumulative impairment (3 206) (788)
There are no significant restrictions on the ability of associates and joint ventures to transfer funds to the group in the form of cash dividends or in the repayment of loans or advances.
AFS Refer to annexure B for further information.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 63
11. Investment property 2019 2018 Rm Rm
Fair value at the beginning of the year 33 326 32 226 Revaluations net of lease straight-lining 287 493 Additions – capitalised subsequent expenditure and acquisitions 187 719 Disposals (45) Transfers from/(to) owner-occupied properties (note 12) 383 (70) Exchange movements (3) 20 Disposal group assets classified as held for sale (17) Fair value at the end of the year 34 180 33 326 Investment property and related operating lease balances comprise the following: Investment properties at fair value 34 180 33 326 Operating leases – accrued income (note 9) 875 990 Total investment property 35 055 34 316 Amount recognised in profit or loss Rental income earned, excluding straight-lining operating leases 3 128 3 160 Direct operating expenses 954 1 060
Most of the investment property comprises shopping malls located in South Africa.
The South African located investment properties were independently valued as at 31 December 2019 by registered professional valuers with the South African Council for the Property Valuers Profession, as well as members of the Institute of Valuers of South Africa. The method of valuation is consistent with that described in the key management assumptions section. The Kenyan and Nigerian located properties were independently valued as at 31 December 2019 by various registered professional valuers in each territory.
AFS Refer to the key management assumptions for details regarding the valuation of investment property. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 64 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
12. Property, equipment and right of use assets Property Equipment Right of use assets Computer Furniture Office Motor ATM spacing Freehold Leasehold1 equipment and fittings equipment1 vehicles2 Buildings Branches and other Total Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Net book value at 1 January 20181 6 956 825 3 896 3 273 982 247 16 179 Cost 8 096 2 981 10 919 7 013 2 050 568 31 627 Accumulated depreciation (1 140) (2 156) (7 023) (3 740) (1 068) (321) (15 448) Movement 904 525 122 (45) 2 1 507 3 015 Additions 1 193 545 1 876 790 157 1 639 6 200 Disposals (88) (212) (376) (49) (11) (26) (762) Depreciation (159) (308) (1 469) (639) (176) (107) (2 858) Disposal group held for sale (12) (7) (2) (3) (24) Exchange movements (112) 500 103 (140) 34 4 389 Transfer from investment property (note 11) 70 70
Net book value at 31 December 2018 7 860 1 350 4 018 3 228 984 1 754 19 194 Cost 9 192 3 827 11 673 7 473 2 196 2 129 36 490 Accumulated depreciation and impairment (1 332) (2 477) (7 655) (4 245) (1 212) (375) (17 296) IFRS 16 transition adjustment3 2 001 3 064 329 5 394 Net book value at 1 January 2019 (restated) 7 860 1 350 4 018 3 228 984 1 754 2 001 3 064 329 24 588 Movement (650) (678) (422) (157) 377 155 (423) (730) (42) (2 570) Additions and modifications4 2 819 158 1 222 615 106 2 191 575 487 138 8 311 Disposals and terminations (1 448) (30) (61) (97) (65) (1 689) (126) (148) (22) (3 686) Depreciation (167) (276) (1 506) (673) (135) (310) (727) (919) (151) (4 864) Disposal group held for sale (note 6) (472) (347) (819) Exchange and other movements (999) (530) (77) (2) 818 (37) (145) (150) (7) (1 130) Transfer to investment property (note 11) (383) (383)
Net book value 31 December 2019 7 210 672 3 596 3 071 1 361 1 909 1 578 2 334 287 22 018 Cost 8 646 3 725 11 888 7 584 2 027 2 336 2 261 3 199 434 42 100 Accumulated depreciation and impairment (1 436) (3 053) (8 292) (4 513) (666) (427) (683) (865) (147) (20 082)
1 During the year, the group identified that certain items of office equipment were incorrectly allocated to leasehold improvements. Therefore, the comparative disclosures have been restated to correct the allocation between these classes of property and equipment. This correction has not changed the overall property and equipment balance as disclosed on the face of the statement of financial position. The net book value of leasehold property has been restated from R1 726 million at 31 December 2018 to R1 350 million (2017: from R1 232 million to R825 million), the net book value of office equipment has been restated from R608 million at 31 December 2018 to R984 million (2017: from R575 million to R982 million). and a depreciation charge of R31 million has been reallocated from leasehold property to office equipment for the year ended 31 December 2018. 2 This balance primarily relates to motor vehicles that are leased to third-parties under operating leases. The group is the lessor. 3 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. 4 Modifications relate to IFRS 16 ROU assets only.
Property and equipment include work in progress of R1 665 million (2018: R1 897 million) for which depreciation has not yet commenced (refer to note 24.2 for details regarding capital commitments).
12.1 Valuation The fair value of completed freehold property, based on valuations undertaken for the period 2017 to 2019 was estimated at R9 122 million (2018: R10 786 million). Registers of freehold property are available for inspection by members, or their authorised agents, at the registered office of the company and its subsidiaries. Valuations were generally in terms of the investment method whereby net income is capitalised having regard to tenancy, location and the physical nature of the property. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 65
12. Property, equipment and right of use assets Property Equipment Right of use assets Computer Furniture Office Motor ATM spacing Freehold Leasehold1 equipment and fittings equipment1 vehicles2 Buildings Branches and other Total Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Net book value at 1 January 20181 6 956 825 3 896 3 273 982 247 16 179 Cost 8 096 2 981 10 919 7 013 2 050 568 31 627 Accumulated depreciation (1 140) (2 156) (7 023) (3 740) (1 068) (321) (15 448) Movement 904 525 122 (45) 2 1 507 3 015 Additions 1 193 545 1 876 790 157 1 639 6 200 Disposals (88) (212) (376) (49) (11) (26) (762) Depreciation (159) (308) (1 469) (639) (176) (107) (2 858) Disposal group held for sale (12) (7) (2) (3) (24) Exchange movements (112) 500 103 (140) 34 4 389 Transfer from investment property (note 11) 70 70
Net book value at 31 December 2018 7 860 1 350 4 018 3 228 984 1 754 19 194 Cost 9 192 3 827 11 673 7 473 2 196 2 129 36 490 Accumulated depreciation and impairment (1 332) (2 477) (7 655) (4 245) (1 212) (375) (17 296) IFRS 16 transition adjustment3 2 001 3 064 329 5 394 Net book value at 1 January 2019 (restated) 7 860 1 350 4 018 3 228 984 1 754 2 001 3 064 329 24 588 Movement (650) (678) (422) (157) 377 155 (423) (730) (42) (2 570) Additions and modifications4 2 819 158 1 222 615 106 2 191 575 487 138 8 311 Disposals and terminations (1 448) (30) (61) (97) (65) (1 689) (126) (148) (22) (3 686) Depreciation (167) (276) (1 506) (673) (135) (310) (727) (919) (151) (4 864) Disposal group held for sale (note 6) (472) (347) (819) Exchange and other movements (999) (530) (77) (2) 818 (37) (145) (150) (7) (1 130) Transfer to investment property (note 11) (383) (383)
Net book value 31 December 2019 7 210 672 3 596 3 071 1 361 1 909 1 578 2 334 287 22 018 Cost 8 646 3 725 11 888 7 584 2 027 2 336 2 261 3 199 434 42 100 Accumulated depreciation and impairment (1 436) (3 053) (8 292) (4 513) (666) (427) (683) (865) (147) (20 082)
1 During the year, the group identified that certain items of office equipment were incorrectly allocated to leasehold improvements. Therefore, the comparative disclosures have been restated to correct the allocation between these classes of property and equipment. This correction has not changed the overall property and equipment balance as disclosed on the face of the statement of financial position. The net book value of leasehold property has been restated from R1 726 million at 31 December 2018 to R1 350 million (2017: from R1 232 million to R825 million), the net book value of office equipment has been restated from R608 million at 31 December 2018 to R984 million (2017: from R575 million to R982 million). and a depreciation charge of R31 million has been reallocated from leasehold property to office equipment for the year ended 31 December 2018. 2 This balance primarily relates to motor vehicles that are leased to third-parties under operating leases. The group is the lessor. 3 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. 4 Modifications relate to IFRS 16 ROU assets only.
Property and equipment include work in progress of R1 665 million (2018: R1 897 million) for which depreciation has not yet commenced (refer to note 24.2 for details regarding capital commitments).
12.1 Valuation The fair value of completed freehold property, based on valuations undertaken for the period 2017 to 2019 was estimated at R9 122 million (2018: R10 786 million). Registers of freehold property are available for inspection by members, or their authorised agents, at the registered office of the company and its subsidiaries. Valuations were generally in terms of the investment method whereby net income is capitalised having regard to tenancy, location and the physical nature of the property. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 66 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
13. Goodwill and other intangible assets Present value of in-force life Other Computer insurance intangible Goodwill software (PVIF) assets Total Rm Rm Rm Rm Rm
Net book value at 1 January 2018 1 999 21 244 31 55 23 329 Cost 3 819 33 303 1 453 877 39 452 Accumulated amortisation and impairment (1 820) (12 059) (1 422) (822) (16 123) Movements: 311 77 (7) (34) 347 Additions 2 848 2 848 Disposals (16) (80) (96) Amortisation (2 486) (10) (8) (2 504) Disposal group held for sale (85) (85) Exchange movements 327 329 3 (26) 633 Impairments (449) (449)
Net book value at 31 December 2018 2 310 21 321 24 21 23 676 Cost 4 285 36 543 1 465 720 43 013 Accumulated amortisation and impairment (1 975) (15 222) (1 441) (699) (19 337) Movements (27) (1 309) (12) (5) (1 353) Additions 43 2 394 2 437 Disposals (181) (181) Amortisation (2 579) (12) (5) (2 596) Disposal group held for sale (6) (6) Exchange movements (53) (709) (762) Impairments (11) (234) (245)
Net book value at 31 December 2019 2 283 20 012 12 16 22 323 Cost 4 256 37 607 1 465 720 44 048 Accumulated amortisation and impairment (1 973) (17 595) (1 453) (704) (21 725)
R124 million (2018: R206 million) of borrowing costs was capitalised to computer software. Borrowing costs are capitalised using an average rate of 7.40% (2018: 7.72%).
Intangible assets include work in progress of R3 389 million (2018: R3 123 million) for which amortisation has not yet commenced. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 67
13. Goodwill and other intangible assets continued 13.1 Goodwill 2019 2018 Gross Accumulated Net Gross Accumulated Net goodwill impairment goodwill goodwill impairment goodwill Rm Rm Rm Rm Rm Rm
Stanbic IBTC Holdings PLC 2 070 (1 092) 978 2 126 (1 121) 1 005 Stanbic Holdings PLC (Kenya) 1 025 1 025 1 047 1 047 Other 1 161 (881) 280 1 112 (854) 258 Total 4 256 (1 973) 2 283 4 285 (1 975) 2 310
Stanbic IBTC Holdings PLC Based on the impairment test performed, no impairment was recognised for 2019 or 2018.
Stanbic Holdings PLC (Kenya) Based on the impairment test performed, no impairment was recognised for 2019 or 2018.
Goodwill relating to other entities The remaining aggregated carrying amount of the goodwill of R280 million (2018: R258 million) has been allocated to CGUs that are not considered to be individually significant. Based on the impairment testing performed, R11 million (2018: Rnil) impairment was recognised for 2019 on these CGUs.
14. Deferred taxation 14.1 Deferred tax analysis 2019 2018 Rm Rm
Accrued interest receivable 54 37 Assessed losses1 (413) (243) Leased assets included in loans and advances 84 121 Capital gains tax 990 352 Credit impairment charges (3 820) (3 990) Deferred acquisition costs 1 Deferred revenue liability (3) Property, equipment and right of use assets2 2 842 3 096 Derivatives and financial instruments (1) 57 Fair value adjustments on financial instruments 372 196 Intangible asset – PVIF (6) (4) Policyholder change in valuation basis 1 897 2 355 Post-employment benefits 105 55 Share-based payments (955) (1 169) Special transfer to life fund (842) (1 020) Provisions and other items (942) (932) Deferred tax closing balance (635) (1 091) Deferred tax liabilities 3 666 2 827 Deferred tax assets (4 301) (3 918)
1 The group has estimated tax losses of R1 381 million (2018: R799 million) which are available for set-off against future taxable income. These tax losses have arisen from the group entities incurring operational tax losses. This asset is anticipated to be recovered as financial projections indicate these entities are likely to produce sufficient taxable income in the near future. These deferred tax asset balances were offset against deferred tax liabilities, refer to annexure F detailed accounting policies. 2 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 68 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
14. Deferred taxation continued 14.2 Deferred tax reconciliation 2019 2018 Rm Rm
Deferred tax at the beginning of the year (1 091) 2 010 IFRS 9 transition adjustment (2 401) IFRS 16 transition adjustment1 72 Total temporary differences for the year 384 (700) Accrued interest receivable 17 1 Assessed losses (170) (165) Leased assets included in loans and advances (37) (59) Capital gains tax 638 (782) Credit impairment charges 170 (183) Deferred acquisition costs (1) (204) Deferred revenue liability 3 77 Property, equipment and right of use assets1 (254) 350 Derivatives and financial instruments (58) (221) Fair value adjustments on financial instruments 176 328 Intangible asset – PVIF (2) (14) Policyholder change in valuation basis (458) (178) Post-employment benefits 50 (13) Share-based payments 214 142 Special transfer to life fund 178 (38) Provisions and other items (82) 259
Deferred tax at the end of the year (635) (1 091) Recognised in OCI 114 (97) Fair value adjustments on financial instruments 68 (69) Defined benefit fund remeasurements 52 (30) Other (6) 2 Recognised in equity-deferred tax on share-based payments 30 128 Recognised in retained earnings – IFRS 9 transition adjustment (2 401) Recognised in retained earnings – IFRS 16 transition adjustment 72 Recognised in the income statement 119 (618) Exchange differences 121 (113) Recognised in OCI (4) 10 Recognised in the income statement 125 (123)
Total temporary differences 456 (3 101)
1 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. 15. Share capital 15.1 Authorised 2019 2018 Rm Rm
2 billion ordinary shares (2018: 2 billion)1 200 200 8 million first preference shares (2018: 8 million)2 8 8 1 billion second preference shares(2018: 1 billion)3 10 10 Total 218 218
1 Ordinary shares comprise shares of 10 cents each traded on the JSE under the symbol SBK. 2 First preference shares comprise 6.5% first cumulative preference shares of R1 each traded on the JSE under the symbol SBKP. 3 Second preference shares comprise non-redeemable, non-cumulative, non-participating preference shares of 1 cent each traded on the JSE under the symbol SBPP. The non-redeemable, non-cumulative, non-participating preference shares are entitled to an annual dividend, if declared, payable in two semi-annual instalments of not less than 77% of the prime interest rate multiplied by the subscription price of R100 per share. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 69
15. Share capital continued 15.2 Issued 2019 2018 Rm Rm
Ordinary shares 17 984 17 860 Ordinary share capital 162 162 Ordinary share premium 17 822 17 698 Other equity instruments attributable to owners of parent 10 989 9 047 First preference share capital 8 8 Second preference share capital 1 1 Second preference share premium 5 494 5 494 Additional tier 1 capital (note 15.8) 5 486 3 544
Total 28 973 26 907
Holders of ordinary share capital hold one vote per ordinary share at the group’s annual general meeting (AGM).
First preference shareholders and second preference shareholders are not entitled to voting rights unless:
•• the fixed preference dividend payable is in arrears for more than six months, or •• a resolution to be tabled at the shareholders’ meeting varies or cancels any of the special rights attached to that preference share or for the reduction of its capital.
In the event that a resolution is tabled at the AGM to authorise, if circumstances are correct, the repurchase of second preference shares, the shareholders will be permitted to vote on the resolution at the AGM. In terms of paragraph 8.3.9 of the memorandum of incorporation, at this meeting the preference shareholders will be entitled to the portion of the total votes which the aggregate amount of the nominal value of the shares held bears to the aggregate amount of the nominal value of all the shares held.
Additional tier 1 capital holders have no voting rights.
Number of ordinary shares
Reconciliation of shares issued Shares in issue at 1 January 2018 1 619 268 169 Shares issued during 2018 in terms of the group’s equity compensation plans 1 729 572 Share buy-back (2 483 523) Shares in issue at 31 December 2018 1 618 514 218 Net shares held in terms of the group’s Tutuwa initiative 2 985 513 Treasury shares held by entities within the group 25 310 447 Shares held by other shareholders 1 590 218 258 Shares issued during 2019 in terms of the group’s equity compensation plans 1 195 330 Shares in issue at 31 December 2019 1 619 709 548 Treasury shares held by entities within the group 25 637 095 Shares held by other shareholders 1 594 072 453
All issued shares are fully paid up. There has been no movement in the first and second preference shares during the year. The number of shares in issue for first and second preference shares are 8 000 000 and 52 982 248 respectively. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 70 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
15. Share capital continued 15.3 Unissued shares 2019 2018 Number of Number of shares shares
Ordinary unissued shares 257 354 962 257 354 962 Ordinary shares reserved to meet the requirements of EGS and GSIS1 122 935 490 124 130 820 Ordinary shares reserved in terms of the rules of EGS and GSIS as approved by members’ resolution dated 27 May 2010 155 825 715 155 825 715 Less: issued to date of the above resolution for the EGS and GSIS (32 890 225) (31 694 895)
Unissued ordinary shares 380 290 452 381 485 782 Unissued second preference shares 947 017 752 947 017 752
1 During the year, 1 195 330 (2018: 1 729 572) ordinary shares were issued in terms of the group’s equity compensation plans, notably the Equity Growth Scheme (EGS) and Group Share Incentive Scheme (GSIS). No surplus capital was used to purchase ordinary shares in 2019 (2018: 2 483 523) ordinary shares to counteract the dilutive impact of the shares issues under the equity compensation plans. Effective from 2017, the group no longer issues EGS and GSIS awards. The last awards in GSIS were issued in 2011 and for the EGS, the last award was made in 2016. Awards are now provided in terms of the group’s other share schemes, notably the Deferred Bonus Scheme and the Share Appreciation Rights Plan, both of which are settled by the group to employees with shares that the group purchases from external market participants, and the Cash-Settled Deferred Bonus Scheme, which is settled in cash (refer to annexure D – Group share incentive schemes for further information). At the end of the year, the group would need to issue 1 485 507 (2018: 2 847 244), SBG ordinary shares to settle the outstanding GSIS options and EGS rights that were awarded to participants in previous years. The shares issued to date for the EGS and GSIS together with the expected number of shares to settle the outstanding options and rights as a percentage of the total number of shares in issue is 2.1% (2018: 2.1%).
15.4 Interest of directors in the capital of the company Direct beneficial1 Indirect beneficial1 2019 2018 2019 2018 Number Number Number Number of shares of shares of shares of shares
Ordinary shares 927 630 791 882 219 358 708 532 A Daehnke 133 291 83 098 104 683 58 407 GJ Fraser-Moleketi 1 890 1 890 14 675 14 675 TS Gcabashe2 40 000 50 000 BJ Kruger3 312 040 JH Maree 163 109 97 847 KD Moroka2 67 151 515 66 636 ANA Peterside CON 100 000 100 000 MJD Ruck 25 000 50 000 SK Tshabalala 497 189 246 492 418 814 Second preference shares 10 331 37 122 3 034 3 034 BJ Kruger3 26 791 JH Maree4 10 331 10 331 3 034 3 034
1 As per JSE Listings Requirements. 2 Includes an allocation of 125 000 shares in terms of the Tutuwa management trust. 3 Retired as director on 31 December 2018, 2018 balances reflected are as at this date. 4 Shares held by directors under share incentive schemes 929 873 (2018: 1 838 963).
There have been no changes to directors’ interests in the group’s share capital between 1 January 2020 and 5 March 2020.
15.5 General authority of directors to issue shares1 2019 2018 Number Number of shares of shares
Ordinary shares 40 462 856 40 481 704 Second preference shares 947 017 752 947 017 752
1 The general authority expires at the annual general meeting on 28 May 2020. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 71
15. Share capital continued 15.6 Treasury shares
2019 2018 Number Number of shares of shares
Purchased during the year1 35 372 939 51 954 293 Total treasury shares held at the end of year2 25 637 095 25 310 447 Ordinary shares delisted and reinstated to authorised3 2 483 523
1 Total number of ordinary shares purchased during the year by the group’s banking activities to facilitate client trading activities and by the group’s insurance activities for the benefit of policyholders, as well as share buy-backs to mitigate the dilutive impact as a result of the group’s share incentive schemes. 2 Total number of ordinary shares held at the end of the period by the group’s banking and insurance activities in terms of the transactions mentioned above. 3 Total number of ordinary shares purchased to mitigate the dilutive impact as a result of the group’s share incentive schemes and reinstated to authorised share capital.
15.7 Shareholder analysis 15.7.1 Spread of ordinary shareholders (million)
2019 2018 Number Number of shares % of shares % (million) holding (million) holding
Public1, 4 1 061.9 65.6 1 072.9 66.3 Non-public1 557.8 34.4 545.6 33.7 Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 1.2 0.1 1.2 0.1 ICBC 325.0 20.0 325.0 20.1 Government Employees Pension Fund (investment managed by PIC) 215.0 13.3 199.7 12.4 Standard Bank Group retirement funds 2.3 0.1 2.1 0.1 Tutuwa participants3, 4 14.1 0.9 16.9 1.0 Associates of directors 0.2 0.70
Total 1 619.7 100.0 1 618.5 100.0
15.7.2 Spread of first preference shareholders
2019 2018 Number Number of shares % of shares % (million) holding (million) holding
Public1 8 000 000 100.0 8 000 000 100.0 Spread of second preference shareholders 52 982 248 52 982 248 Public1 52 968 883 100.0 52 905 909 99.9 Non-public1 13 365 76 339 0.1 Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 13 365 76 339 0.1
Total 52 982 248 100.0 52 982 248 100.0
1 As per the JSE Listings Requirements. 2 Excludes indirect holdings of strategic partners, which are included in Tutuwa participants. 3 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust. 4 During 2018, there were 4.1 million shares related to Tutuwa participants included in public shareholders. The comparative has been restated for this change. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 72 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
15. Share capital continued 15.8 Additional tier 1 capital Notional Carrying Carrying value value value 2019 2019 2018 Bond Date issued First callable date Rm Rm Rm
SBT101 30 March 2017 31 March 2022 1 744 1 744 1 744 SBT102 21 September 2017 30 September 2022 1 800 1 800 1 800 SBT103 20 February 2019 31 March 2024 1 942 1 942 Total 5 486 5 486 3 544
During 2019, the group issued an additional Basel III compliant AT1 capital bond amounting to R1.9 billion (2018: Rnil). The capital notes are perpetual, non-cumulative with an issuer call option after a minimum period of five years and one day and on every coupon payment date thereafter.
Coupons to the value of R636 million (2018: R447 million) were paid to AT1 capital bond holders. Current tax of R178 million (2018: R125 million) relating to the AT1 capital bonds was recognised directly in equity resulting in an aggregate net equity impact of R458 million (2018: R322 million).
The terms of the Basel III compliant AT1 capital bonds include a regulatory requirement which provides for the write-off, in whole or in part, on the earlier of a decision by the SARB that a write-off without which the issuer would have become non-viable is necessary, or a decision to make a public sector injection of capital or equivalent support, without which the issuer would have become non-viable.
The AT1 capital bonds do not have a contractual obligation to pay cash; hence, they have been recognised within equity attributable to other equity instrument holders on the statement of financial position.
Holders of AT1 capital do not have voting rights at the group’s annual general meeting.
16. Empowerment reserve SBG and Liberty entered into a series of transactions in 2004 whereby investments were made in cumulative redeemable preference shares issued by Black Economic Empowerment (BEE) entities which are Structured Entities (SEs). The initial investments made by SBG and Liberty totalled R4 017 million and R1 251 million respectively. The proceeds received were used by the BEE entities to purchase 99 190 197 ordinary shares of SBG. All participants were subject to a ten-year lock-in period which expired on 31 December 2014.
Since the end of the lock-in period, Tutuwa beneficiaries have been able to exit the scheme and this has seen a progressive reduction in the value of the group’s investment in these preference shares. All remaining preference shares in the Tutuwa entities were redeemed prior to the final redemption date of 4 October 2019, thus leaving the only shares in the BEE entities within the Liberty group.
The preference shares owned by the group do not meet the definition of a financial asset in terms of IFRS and are therefore treated as a negative empowerment reserve within the statement of changes in equity. The empowerment reserve represents SBG and Liberty shares held by the SEs that are deemed to be treasury shares in terms of IFRS.
The investment in the cumulative redeemable preference shares of the BEE entities, accounted for by the group as a negative empowerment reserve, is set out below:
2019 2018 Rm Rm
Standard Bank Group1 148 Liberty (after non-controlling interest) 69 53 Outstanding shares issued 69 201 Number of SBG shares 2 985 513
1 2018 comprises the Black Managers’ Trust – Tutuwa Staff Holdings 1 – 3 Proprietary Limited and the Community Trust – Tutuwa Community Holdings Proprietary Limited.
For the purposes of the earnings per share calculation, the weighted average number of the company’s shares in issue is reduced by the number of shares held by the BEE entities bought with the proceeds received from the preference shares (note 39).
AFS Refer to annexure F for further details relating to the accounting policies applied.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 73
17. Trading liabilities 2019 2018 Rm Rm
Collateral 2 472 730 Credit-linked notes 13 073 10 090 Government, municipality and utility bonds 10 775 19 520 Listed equities 33 215 23 334 Repurchase and other collateralised agreements 11 735 1 190 Other instruments 12 577 5 083 Total 83 847 59 947
18. Deposits and debt funding 2019 2018 Rm Rm
Deposits and debt funding from banks 121 119 116 727 Deposits and debt funding from customers 1 305 074 1 240 810 Current accounts 240 246 248 841 Cash management deposits 175 847 171 408 Call deposits 355 172 359 305 Savings accounts 29 913 28 750 Term deposits 287 536 251 709 Negotiable certificates of deposit 148 997 125 428 Foreign currency funding 57 279 47 165 Other funding 10 084 8 204
Total 1 426 193 1 357 537 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 74 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
19. Subordinated debt Notional Carrying Carrying value1 value1 value Redeemable/ 2019 2018 repayable date First callable date Million Rm Rm
Subordinated bonds Standard Bank Group Limited 11 843 5 057 SBT201 13 February 2028 13 February 2023 ZAR3 000 3 040 3 041 SBT202 3 December 2028 3 December 2023 ZAR1 516 1 527 1 528 SBT203 3 December 2028 3 December 2023 ZAR484 506 488 SBT204 16 April 2029 16 April 2024 ZAR1 000 1 019 SBT205 31 May 2029 31 May 2024 USD400 5 751
The Standard Bank of South Africa 8 975 13 793
SBK17 30 July 2024 30 July 2019 ZAR2 000 2 032 SBK19 24 October 2024 24 October 2019 ZAR500 509 SBK202 2 December 2024 2 December 2019 ZAR2 250 2 269 SBK212 28 January 2025 28 January 2020 ZAR750 763 764 SBK222 28 May 2025 28 May 2020 ZAR1 000 1 010 1 010 SBK242 19 October 2025 19 October 2020 ZAR880 886 899 SBK18 24 October 2025 24 October 2020 ZAR3 500 3 560 3 563 SBK262 25 April 2026 25 April 2021 ZAR500 521 511 SBK252 25 April 2026 25 April 2021 ZAR1 200 1 218 1 225 SBK232 28 May 2027 28 May 2022 ZAR1 000 1 017 1 011 Subordinated bonds issued to group companies (86) (122) Total bonds qualifying as SARB regulatory banking capital 20 732 18 728 Africa Regions’ bonds not qualifying as SARB regulatory banking capital 2 501 1 969 Stanbic Bank Kenya 8 December 2021 1 June 2020 KES4 000 557 564 Stanbic Bank Kenya 1 January 2029 1 January 2024 USD20 282 Stanbic IBTC Bank (Nigeria) 30 September 2024 30 March 2020 NGN15 440 618 633 Standard Bank September 2025 – August 2020 – Mozambique October 2025 October 2020 MZN1 001 237 250 Other Africa Regions’ October 2024 – April 2020 – bonds October 2027 October 2024 Various 807 522
Total subordinated bonds – banking activities 23 233 20 697 Liberty Qualifying as regulatory insurance capital 5 668 5 662 LGL 04 14 August 2020 ZAR1 000 1 046 1 063 LGL 05 12 December 2021 ZAR500 513 508 LGL 06 4 October 2022 ZAR400 423 414 LGL 07 4 October 2022 ZAR600 612 605 LGL 08 28 February 2023 ZAR900 931 929 LGL 09 28 February 2024 ZAR1 100 1 143 1 143 LGL 10 8 October 2025 ZAR1 000 1 000 1 000
Total 28 901 26 359
1 The difference between the carrying and notional value represents foreign exchange movements, transaction costs included in the initial carrying amounts, accrued interest and the unamortised fair value adjustments relating to bonds, where applicable, hedged for interest rate risk. 2 The terms of the issued bonds include a regulatory requirement which provides for the write-off in whole or in part on the earlier of a decision by the relevant regulator (SARB) that a write-off, or a public sector injection of capital or equivalent support is necessary, without which the issuer would have become non-viable. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 75
20. Provisions and other liabilities 20.1 Classification 2019 2018 Rm Rm
Financial liabilities1 94 477 79 724 Cash-settled share-based payment liability (annexure D) 452 748 Expected credit loss for off-balance sheet exposure (note 20.4) 360 588 Collateral and other insurance risk management liabilities 12 474 11 747 Deferred revenue liability 330 314 Third-party liabilities arising on consolidation of mutual funds (note 20.2) 56 758 48 186 Reinsurance liabilities (note 8.1) 246 283 Insurance payables 10 591 9 407 Lease liability2 (note 20.3) 4 055 Short-term insurance liability 991 984 Trading settlement liabilities 8 220 7 467 Non-financial liabilities1 29 624 30 029 Items in the course of transmission 4 784 4 385 Post-employment benefits (note 43) 1 113 1 228 Staff-related accruals 11 963 11 135 Other non-financial liabilities 11 764 13 281
Total 124 101 109 753
1 The note disclosure has been disaggregated to show a better analysis of financial and non-financial provisions and other liabilities as part of the adoption of the amendments to IAS 1 and IAS 8, this change had no impact on the SOFP. 2 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16.
20.2 Third-party liabilities arising on consolidation of mutual funds 2019 2018 Rm Rm
Balance at the beginning of the year 48 186 49 713 Additional mutual funds classified as subsidiaries 5 741 5 853 Distributions (1 712) (1 189) Fair value adjustments 6 327 2 407 Mutual funds no longer classified as subsidiaries (513) (4 236) Net capital repayment or change in effective ownership (1 271) (4 362) Balance at the end of the year 56 758 48 186
The group has classified certain mutual funds as investments in subsidiaries. Consequently, fund interest not held by the group are classified by the group as third-party liabilities as they represent demand deposit liabilities measured at fair value.
20.3 Reconciliation of lease liabilities Term- Balance at inations Exchange Balance at 1 January Additions/ and/or Interest and other 31 December 2019 modification cancellations expense1 Payments2 movements 2019 Rm Rm Rm Rm Rm Rm Rm
Buildings 1 887 437 (44) 130 (667) (101) 1 642 Branches 2 745 412 (152) 207 (1 288) 207 2 131 ATM spacing and other 322 107 (21) 24 (140) (10) 282 Total 4 954 956 (217) 361 (2 095) 96 4 055
1 As at 31 December 2019, R339 million of this interest expense was included in income from banking activities and R22 million was included in operating expenses in investment management and life insurance activities. 2 These amounts include the principal lease payments as disclosed in the statements of cash flows of R1734 million. The remainder represents interest expense paid during the year. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 76 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
20. Provisions and other liabilities continued 20.4 Reconciliation of expected credit losses for off-balance sheet exposures Net ECL Exchange Opening raised/ and other Closing balance (released) movements balance Rm Rm Rm Rm
Letters of credit, bank acceptances and guarantees 2019 Stage 1 158 25 (14) 169 Stage 2 58 11 0 69 Stage 3 372 (234) (16) 122 Total 588 (198) (30) 360 2018 Stage 1 154 15 (11) 158 Stage 2 71 (11) (2) 58 Stage 3 198 173 1 372 Total 423 177 (12) 588
21. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.
Fair value through other Other Fair value through profit or loss comprehensive income non- financial Total Held-for- Debt Equity Total Amortised assets/ carrying Fair trading Designated Default instruments instruments fair value cost1 liabilities amount value2 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2019 Assets Cash and balances with central banks 65 650 65 650 9 638 75 288 75 289 Derivative assets 71 407 71 407 71 407 71 407 Trading assets 222 802 222 802 222 802 222 802 Pledged assets 11 629 11 577 5 509 28 715 662 29 377 29 378 Financial investments 24 028 344 484 43 763 1 284 413 559 153 760 567 319 567 355 Loans and advances 161 161 1 180 906 1 181 067 1 182 663 Policyholders’ assets 7 017 7 017 Interest in associates and joint ventures 5 423 5 423 Investment property 34 180 34 180 34 180 Disposal group assets held for sale 261 261 2 338 2 599 261 Other financial assets3 19 198 19 198 Other non-financial assets 59 912 59 912 Total assets 305 838 24 028 422 133 49 272 1 284 802 555 1 364 164 108 870 2 275 589 Liabilities Derivative liabilities 69 498 69 498 69 498 69 498 Trading liabilities 83 847 83 847 83 847 83 847 Deposits and debt funding 5 646 5 646 1 420 547 1 426 193 1 426 651 Policyholders’ liabilities4 107 891 107 891 216 355 324 246 107 891 Subordinated debt 5 668 5 668 23 233 28 901 29 263 Disposal group liabilities held for sale 246 246 Other financial liabilities3 74 985 74 985 19 492 94 477 Other non-financial liabilities 38 697 38 697 Total liabilities 153 345 194 190 347 535 1 463 272 255 298 2 066 105
1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. 3 The fair value of other financial assets and liabilities measured at amortised cost approximates the carrying value due to their short-term nature. 4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not financial instruments as defined. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 77
20. Provisions and other liabilities continued 20.4 Reconciliation of expected credit losses for off-balance sheet exposures Net ECL Exchange Opening raised/ and other Closing balance (released) movements balance Rm Rm Rm Rm
Letters of credit, bank acceptances and guarantees 2019 Stage 1 158 25 (14) 169 Stage 2 58 11 0 69 Stage 3 372 (234) (16) 122 Total 588 (198) (30) 360 2018 Stage 1 154 15 (11) 158 Stage 2 71 (11) (2) 58 Stage 3 198 173 1 372 Total 423 177 (12) 588
21. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.
Fair value through other Other Fair value through profit or loss comprehensive income non- financial Total Held-for- Debt Equity Total Amortised assets/ carrying Fair trading Designated Default instruments instruments fair value cost1 liabilities amount value2 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2019 Assets Cash and balances with central banks 65 650 65 650 9 638 75 288 75 289 Derivative assets 71 407 71 407 71 407 71 407 Trading assets 222 802 222 802 222 802 222 802 Pledged assets 11 629 11 577 5 509 28 715 662 29 377 29 378 Financial investments 24 028 344 484 43 763 1 284 413 559 153 760 567 319 567 355 Loans and advances 161 161 1 180 906 1 181 067 1 182 663 Policyholders’ assets 7 017 7 017 Interest in associates and joint ventures 5 423 5 423 Investment property 34 180 34 180 34 180 Disposal group assets held for sale 261 261 2 338 2 599 261 Other financial assets3 19 198 19 198 Other non-financial assets 59 912 59 912 Total assets 305 838 24 028 422 133 49 272 1 284 802 555 1 364 164 108 870 2 275 589 Liabilities Derivative liabilities 69 498 69 498 69 498 69 498 Trading liabilities 83 847 83 847 83 847 83 847 Deposits and debt funding 5 646 5 646 1 420 547 1 426 193 1 426 651 Policyholders’ liabilities4 107 891 107 891 216 355 324 246 107 891 Subordinated debt 5 668 5 668 23 233 28 901 29 263 Disposal group liabilities held for sale 246 246 Other financial liabilities3 74 985 74 985 19 492 94 477 Other non-financial liabilities 38 697 38 697 Total liabilities 153 345 194 190 347 535 1 463 272 255 298 2 066 105
1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. 3 The fair value of other financial assets and liabilities measured at amortised cost approximates the carrying value due to their short-term nature. 4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not financial instruments as defined. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 78 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
21. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.
Fair value through other Fair value through profit or loss comprehensive income Other Fair value non- through financial Total Held- profit or Debt Equity Total Amortised assets/ carrying Fair for-trading Designated loss – default instruments instruments fair value cost1 liabilities amount value2 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2018 Assets Cash and balances with central banks 76 095 76 095 9 050 85 145 85 145 Derivative assets 51 678 51 678 51 678 51 678 Trading assets 181 112 181 112 181 112 181 112 Pledged assets 6 266 12 661 263 19 190 689 19 879 19 863 Financial investments5 19 740 330 304 53 083 1 254 404 381 144 145 548 526 548 578 Loans and advances5 1 204 1 204 1 118 343 1 119 547 1 123 115 Policyholders’ assets 6 708 6 708 Interest in associates and joint ventures 10 376 10 376 Investment property 33 326 33 326 33 326 Disposal group assets held for sale 265 265 497 762 265 Other financial assets3 12 034 12 034 Other non-financial assets 57 869 57 869 Total assets 239 056 19 740 420 529 53 346 1 254 733 925 1 284 261 108 776 2 126 962 Liabilities Derivative liabilities 55 057 55 057 55 057 55 057 Trading liabilities 59 947 59 947 59 947 59 947 Deposits and debt funding 6 439 6 439 1 351 098 1 357 537 1 358 058 Policyholders’ liabilities4 99 813 99 813 211 181 310 994 99 813 Subordinated debt 5 540 5 540 20 819 26 359 25 431 Disposal group liabilities held for sale 237 237 Other financial liabilities3 67 822 67 822 11 902 79 724 Other non-financial liabilities 38 044 38 044 Total liabilities 115 004 179 614 294 618 1 383 819 249 462 1 927 899
1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. 3 The fair value of the other financial assets and liabilities approximates the carrying value due to their short-term nature. Other financial liabilities of R8 628 million and other financial assets of R1 590 million were erroneously classified as other liabilities and other assets respectively, rather than at designated at fair value and prior year disclosure has been updated. This has no impact on the group’s statement of financial position. 4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not financial instruments as defined. 5 Restated. Refer to page 31 for further details on the restatements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 79
21. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.
Fair value through other Fair value through profit or loss comprehensive income Other Fair value non- through financial Total Held- profit or Debt Equity Total Amortised assets/ carrying Fair for-trading Designated loss – default instruments instruments fair value cost1 liabilities amount value2 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2018 Assets Cash and balances with central banks 76 095 76 095 9 050 85 145 85 145 Derivative assets 51 678 51 678 51 678 51 678 Trading assets 181 112 181 112 181 112 181 112 Pledged assets 6 266 12 661 263 19 190 689 19 879 19 863 Financial investments5 19 740 330 304 53 083 1 254 404 381 144 145 548 526 548 578 Loans and advances5 1 204 1 204 1 118 343 1 119 547 1 123 115 Policyholders’ assets 6 708 6 708 Interest in associates and joint ventures 10 376 10 376 Investment property 33 326 33 326 33 326 Disposal group assets held for sale 265 265 497 762 265 Other financial assets3 12 034 12 034 Other non-financial assets 57 869 57 869 Total assets 239 056 19 740 420 529 53 346 1 254 733 925 1 284 261 108 776 2 126 962 Liabilities Derivative liabilities 55 057 55 057 55 057 55 057 Trading liabilities 59 947 59 947 59 947 59 947 Deposits and debt funding 6 439 6 439 1 351 098 1 357 537 1 358 058 Policyholders’ liabilities4 99 813 99 813 211 181 310 994 99 813 Subordinated debt 5 540 5 540 20 819 26 359 25 431 Disposal group liabilities held for sale 237 237 Other financial liabilities3 67 822 67 822 11 902 79 724 Other non-financial liabilities 38 044 38 044 Total liabilities 115 004 179 614 294 618 1 383 819 249 462 1 927 899
1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities. 3 The fair value of the other financial assets and liabilities approximates the carrying value due to their short-term nature. Other financial liabilities of R8 628 million and other financial assets of R1 590 million were erroneously classified as other liabilities and other assets respectively, rather than at designated at fair value and prior year disclosure has been updated. This has no impact on the group’s statement of financial position. 4 The fair value has been provided for financial liabilities under investment contracts which have been designated at fair value. The remaining liabilities for which fair value disclosure has not been provided relate to insurance contracts and investment contracts with discretionary participation features that are not financial instruments as defined. 5 Restated. Refer to page 31 for further details on the restatements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 80 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
22. Fair value disclosures 22.1 Assets and liabilities measured at fair value (measured on a recurring basis1) 2019 2018 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Rm Rm Rm Rm Rm Rm Rm Rm
Assets Cash and balances with central bank 60 079 5 571 65 650 64 680 11 415 76 095 Derivative assets 143 68 653 2 611 71 407 42 48 227 3 409 51 678 Trading assets 134 506 85 674 2 622 222 802 97 350 81 395 2 367 181 112 Pledged assets 28 612 103 28 715 18 272 918 19 190 Financial investments3 216 360 186 535 10 664 413 559 203 695 189 780 10 906 404 381 Loans and advances2 161 161 1 204 1 204 Investment property 34 180 34 180 33 326 33 326 Disposal group assets classified as held for sale2 261 261 265 265 Total assets at fair value 439 961 346 536 50 238 836 735 384 304 332 939 50 008 767 251 Liabilities Derivative liabilities 42 63 854 5 602 69 498 52 48 854 6 151 55 057 Trading liabilities 45 016 35 632 3 199 83 847 41 753 15 437 2 757 59 947 Deposits and debt funding 5 646 5 646 6 439 6 439 Policyholders’ liabilities 107 891 107 891 99 813 99 813 Other financial liabilities 67 692 7 293 74 985 61 636 6 186 67 822 Subordinated debt 5 668 5 668 5 540 5 540 Total liabilities at fair value 45 058 286 383 16 094 347 535 41 805 237 719 15 094 294 618
1 Recurring fair value measurements of assets or liabilities are those assets and liabilities that IFRS require or permit to be carried at fair value in the statement of financial position at the end of each reporting period. 2 The disposal group is measured on a non-recurring basis. 3 Restated. Refer to page 31 for further details on the restatement.
Assets and liabilities transferred between level 1 and level 2 During the year, no significant assets or liabilities were transferred between level 1 and level 2 (2018: Rnil). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 81
22. Fair value disclosures continued 22.1 Assets and liabilities measured at fair value continued Level 3 financial assets and financial liabilities Reconciliation of level 3 assets The following table provides a reconciliation of the opening to closing balance for all assets that are measured at fair value and incorporates inputs that are not based on observable market data (level 3).
Derivative Trading Financial Investment Loans and assets assets investments property advances Total Rm Rm Rm Rm Rm Rm
Balance at 1 January 2018 4 049 5 084 8 770 32 226 50 129 Total (losses)/gains included in profit or loss (453) 154 1 329 493 1 523 Trading revenue (453) 154 (299) Other revenue 506 506 Investment gains 823 493 1 316 Total gains included in OCI (19) (19) Issuances and purchases 800 504 448 719 2 471 Sales and settlements (1 465) (3 375) (276) (62) (5 178) Transfers into level 31 418 5 423 Transfers out of level 32 (83) (312) (70) (465) Reclassifications 831 831 Exchange movement losses 143 130 20 293 Balance at 31 December 2018 3 409 2 367 10 906 33 326 50 008 Total gains/(losses) included in profit or loss 261 401 (643) 650 (19) 650 Trading revenue 261 401 662 Other revenue (97) (19) (116) Investment (losses)/gains (546) 650 104 Total losses included in OCI 86 86 Issuances and purchases 1 921 969 2 182 197 330 5 599 Sales and settlements (2 705) (1 115) (2 089) (150) (6 059) Transfers into level 31 56 10 66 Transfers out of level 32 (304) (304) Exchange movement gains (27) 222 (3) 192 Balance at 31 December 2019 2 611 2 622 10 664 34 180 161 50 238
1 Transfers of financial assets between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. During the year, the valuation inputs of certain financial assets became unobservable. The fair value of these assets was transferred into level 3. 2 During the year, the valuation inputs of certain level 3 financial assets became observable. The fair value of these financial assets was transferred into level 2. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 82 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
22. Fair value disclosures continued 22.1 Assets and liabilities measured at fair value continued Unrealised gains/(losses) for the period included in profit or loss for level 3 assets held at the end of the reporting period Derivative Trading Financial Investment Loans and assets assets investments property advances Total Rm Rm Rm Rm Rm Rm
2019 Trading revenue 802 364 1 166 Other revenue (15) (19) (34) Investment management and service fee income and gains (504) 503 (1) Total 802 364 (519) 503 (19) 1 131 2018 Trading revenue (456) 159 (297) Other revenue1 34 34 Investment management and service fee income and gains1 370 717 1 087 Total (456) 159 404 717 824
1 Amount for investment management and service fee income and gains was erroneously included in other revenue, this change did not have an impact on the income statement.
Reconciliation of level 3 liabilities The following table provides a reconciliation of the opening to closing balance for all liabilities that are measured at fair value and incorporates inputs that are not based on observable market data (level 3).
Other Derivative Trading financial liabilities liabilities liabilities Total Rm Rm Rm Rm
Balance at 1 January 2018 5 406 3 039 1 229 9 674 Total losses included in profit or loss 1 465 102 329 1 896 Issuances and purchases 738 4 628 5 366 Sales and settlements (789) (195) (984) Transfers out of level 31 (34) (1 112) (1 146) Transfers into level 32 103 185 288 Balance at 31 December 2018 6 151 2 757 6 186 15 094 Total losses/(gains) included in profit or loss 256 (265) (18) (27) Issuances and purchases 347 1 050 1 125 2 522 Sales and settlements (959) (458) (1 417) Transfers out of level 31 (212) (212) Transfers into level 32 19 115 134 Balance at 31 December 2019 5 602 3 199 7 293 16 094
1 Transfers of financial liabilities between the levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. During 2018, the valuation inputs of certain financial liabilities became observable, the fair value of these liabilities were transferred out of level 3. 2 During the year, the valuation inputs of certain financial assets became unobservable. The fair value of these financial assets was transferred into level 3. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 83
22. Fair value disclosures continued 22.1 Assets and liabilities measured at fair value continued Unrealised losses/(gains) for the period included in profit or loss for level 3 liabilities held at the end of the reporting period Other Derivative Trading financial liabilities liabilities liabilities Total Rm Rm Rm Rm
2019 Trading revenue 253 (264) (18) (29) 2018 Trading revenue 1 568 101 329 1 998
Sensitivity and interrelationships of inputs The behaviour of the unobservable parameters used to determine fair value level 3 assets and liabilities is not necessarily independent, and may often hold a relationship with other observable and unobservable market parameters. Where material and possible, such relationships are captured in the valuation by way of correlation factors, though these factors are, themselves, frequently unobservable. In such instances, the range of possible and reasonable fair value estimates are taken into account when determining appropriate model adjustments.
The table that follows indicates the sensitivity of valuation techniques used in the determination of the fair value of level 3 assets and liabilities measured and disclosed at fair value. The table further indicates the effect that a significant change in one or more of the inputs to a reasonably possible alternative assumption, would have on profit or loss at the reporting date (where the change in the unobservable input would change the fair value of the asset or liability significantly). The interrelationship between these significant unobservable inputs (which mainly include discount rates, spot prices of the underlying, correlation factors, volatilities, dividend yields, earning yields and valuation multiplies) and the fair value measurement could be favourable/(unfavourable), if these inputs were higher (lower). The changes in the inputs that have been used in the analysis have been determined taking into account several considerations such as the nature of the asset or liability and the market within which the asset or liability is transacted.
Change in Effect on profit or loss significant unobservable Favourable Unfavourable input Rm Rm
2019 Derivative instruments From (1%) to 1% 295 (295) Financial investments From (1%) to 1% 445 (378) Trading assets From (1%) to 1% 65 (65) Trading liabilities From (1%) to 1% 29 (29) Investment property From (1%) to 1% 3 979 (3 251) Total 4 813 (4 018) 2018 Derivative instruments From (1%) to 1% 309 (315) Financial investments From (1%) to 1% 59 (58) Trading assets From (1%) to 1% 94 (94) Trading liabilities From (1%) to 1% 68 (68) Investment property From (1%) to 1% 5 628 (4 611) Total 6 158 (5 146)
In 2019, a 1% change (both favourable and unfavourable) of the significant unobservable inputs relating to the measurement of a financial investment classified as fair value through OCI resulted in a R129 million favourable and R127 million unfavourable, respectively, effect recognised in OCI (2018: R145 million favourable and unfavourable).
The other financial liabilities categorised as level 3 relate to third-party financial liabilities arising from the consolidation of mutual funds. A sensitivity analysis is therefore not provided since a similar sensitivity would arise on the assets that relate to these liabilities.
AFS Refer to key management assumptions and detailed accounting policies in annexure F for more information about valuation techniques used.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 84 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
22. Fair value disclosures continued 22.2 Assets and liabilities not measured at fair value for which fair value is disclosed 2019 2018 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Rm Rm Rm Rm Rm Rm Rm Rm
Assets Cash and balances with central banks 9 639 9 639 7 374 1 676 9 050 Pledged assets1 605 58 663 673 673 Financial investments1 122 895 30 038 863 153 796 114 072 25 332 5 914 145 318 Loans and advances 11 056 193 644 977 802 1 182 502 12 560 161 474 947 877 1 121 911 Total assets 143 590 224 287 978 723 1 346 600 134 006 189 155 953 791 1 276 952 Liabilities Deposits and debt funding 734 447 656 213 30 345 1 421 005 616 809 701 181 33 628 1 351 618 Subordinated debt 11 891 11 704 23 595 19 891 19 891 Total liabilities 734 447 668 104 42 049 1 444 600 616 809 721 072 33 628 1 371 509
1 The pledged assets and financial investments include a bond position which was disclosed as level 2 as at 31 December 2018; however due to deterioration of trading liquidity the bond position has been disclosed as level 3 as at 31 December 2019.
22.3 Third-party credit enhancements There were no significant liabilities measured at fair value that existed during the year which had been issued with inseparable third-party credit enhancements.
22.4 Financial assets and financial liabilities designated at FVTPL
Current year (loss)/ Cumulative Current year Cumulative gain on (loss)/gain changes in changes in changes on changes fair value fair value in fair value in fair value attributable attributable Maximum attributable attributable to related to changes exposure to Exposure to changes to changes credit in credit credit risk mitigated in credit risk in credit risk derivatives derivatives Financial assets Rm Rm Rm Rm Rm Rm
2019 Financial investments 4 359 (27) (4) 2018 Financial investments 16 646 37 23
1 The maximum exposure to credit risk for sovereign exposures is deemed to be insignificant, thus this balance primarily relates to corporate and bank exposures. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 85
22. Fair value disclosures continued 22.4 Financial assets and financial liabilities designated at FVTPL continued Current Cumulative year loss loss on Difference on changes changes between in fair value in fair value Contractual carrying attributable attributable payment amount and to changes to changes required Carrying contractual in credit risk in credit risk1 at maturity amount payment Financial liabilities Rm Rm Rm Rm Rm
With credit risk recognised in OCI 2019 Deposit and debt funding 4 13 5 274 5 646 372 Policyholders’ liabilities 107 891 107 891 Subordinated debt (16) 24 5 500 5 668 168 Other financial liabilities 74 985 74 985 Total (12) 37 193 650 194 190 540 2018 Deposit and debt funding 9 9 6 234 6 439 205 Policyholders’ liabilities 99 813 99 813 Subordinated debt 67 40 5 380 5 540 160 Other financial liabilities 67 822 67 822 Total 76 49 179 249 179 614 365
The changes in the fair value of the designated financial liabilities attributable to changes in credit risk are calculated by reference to the change in credit risk implicit in the market value of the group’s senior notes.
22.5 Reconciliation of FVOCI reserve movements 22.5.1 Equity financial instruments
Revaluation
Balance Balance at beginning Gains/ at end of the year (losses) of year Rm Rm Rm
2019 Visa shares 64 77 141 STRATE Limited 118 31 149 Other 95 (63) 32 Total 277 45 322 2018 Visa shares 73 (9) 64 STRATE Limited 205 (87) 118 Other 129 (34) 95 Total 407 (130) 277
Strategic equity investments are designated at fair value through OCI on initial recognition. No gains and losses were transferred to retained earnings during the year. No dividends were received during the year. Amounts are net of taxation. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 86 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
22. Fair value disclosures continued 22.5 Reconciliation of FVOCI reserve movements continued 22.5.2 Debt financial investments Net Realised expected fair value credit loss adjustments raised/ Balance Net and reversal (released) NCI and Balance at beginning change in to profit during other at end of of the year fair value or loss the period movements the year Rm Rm Rm Rm Rm Rm
2019 Sovereign 246 74 (14) 41 (72) 275 Total 246 74 (14) 41 (72) 275 2018 Sovereign 175 22 (46) 19 76 246 Total 175 22 (46) 19 76 246
22.5.3 Total reconciliation of the FVOCI reserve Balance at the Balance beginning Net change at the end of the year in fair value of the year Rm Rm Rm
2019 Total 523 74 597 2018 Total 582 (59) 523
23. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements IFRS requires a financial asset and a financial liability to be offset and the net amount presented in the statement of financial position when, and only when, the group has a current legally enforceable right to set off recognised amounts, as well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. There are no other instances apart from the cash management accounts, where the group has a current legally enforceable right to offset, as well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
The following table sets out the impact of offset, as well as the required disclosures for financial assets and financial liabilities that are subject to enforceable master netting arrangements or similar agreements, irrespective of whether they have been offset in accordance with IFRS. It should be noted that the information below is not intended to represent the group and company’s actual credit exposure, nor will it agree to that presented in the statement of financial position.
Financial liabilities Net amount Gross amount set off in the of financial of recognised statement assets subject financial of financial to netting Collateral Net assets1 position2 agreements3 received4 amount Rm Rm Rm Rm Rm
Assets 2019 Derivative assets 64 347 64 347 (57 027) 7 320 Trading assets 25 278 25 278 (18 327) 6 951 Loans and advances5 100 096 (35 348) 64 748 (62 426) 2 322 Total 189 721 (35 348) 154 373 (137 780) 16 593 2018 Derivative assets 45 401 45 401 (41 628) 3 773 Trading assets 35 998 35 998 (33 806) 2 192 Loans and advances5 66 943 (32 722) 34 221 (31 417) 2 804 Total 148 342 (32 722) 115 620 (106 851) 8 769 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 87
23. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements continued
Financial Net amount assets of financial Gross amount set off in the liabilities of recognised statement subject financial of financial to netting Collateral Net liabilities1 position2 agreements3 pledged6 amount Rm Rm Rm Rm Rm
Liabilities 2019 Derivative liabilities 64 742 64 742 (56 717) 8 025 Trading liabilities 23 291 23 291 (23 291) Deposits and debt funding5 40 475 (35 348) 5 127 5 127 Total 128 508 (35 348) 93 160 (80 008) 13 152 2018 Derivative liabilities 47 365 47 365 (40 821) 6 544 Trading liabilities 876 876 (876) Deposits and debt funding5 38 848 (32 722) 6 126 (12) 6 114 Total 87 089 (32 722) 54 367 (41 709) 12 658
1 Gross amounts are disclosed for recognised financial assets and financial liabilities that are either offset in the statement of financial position or are subject to a master netting arrangement or a similar agreement, irrespective of whether the offsetting criteria is met. 2 Gross amounts of recognised financial assets or financial liabilities that qualify for offset in accordance with the criteria per IFRS. 3 Related amounts not offset in the statement of financial position that are subject to a master netting arrangement or similar agreement. 4 This could include financial collateral (whether recognised or unrecognised), cash collateral, as well as exposures that are available to the group and company to be offset in the event of default. In most cases the group and company is allowed to sell or repledge collateral received. 5 The most material amounts offset in the statement of financial position pertain to cash management accounts. The cash management accounts allow holding companies (or central treasury functions) to manage the cash flows of a group by linking the current accounts of multiple legal entities within a group. It allows for cash balances of the different legal entities to be offset against each other to arrive at a net balance for the whole group. In addition, all repurchase agreements (for financial liabilities) and reverse repurchase agreements (for financial assets), subject to master netting arrangement (or similar agreement), have been included. 6 In most instances, the counterparty may not sell or repledge collateral pledged by the group.
The table below sets out the nature of agreements and the types of rights relating to items which do not qualify for offset but that are subject to a master netting arrangement or similar agreement.
Nature of agreement Related rights
Derivative assets and liabilities International swaps and derivatives The agreement allows for offset association agreements in the event of default
Trading assets and liabilities Global master repurchase agreements The agreement allows for offset in the event of default
Loans and advances Customer agreement and Banks Act In the event of liquidation or bankruptcy, offset shall be enforceable subject to all applicable laws and regulations
Deposits and debt funding Customer agreement and Banks Act In the event of liquidation or bankruptcy, offset shall be enforceable subject to all applicable laws and regulations WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 88 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
24. Contingent liabilities and commitments 24.1 Contingent liabilities 2019 2018 Rm Rm
Letters of credit and bankers’ acceptances 15 104 17 802 Guarantees 79 202 85 576 Total 94 306 103 378
Loan commitments of R73 940 million (2018: R77 253 million) that are irrevocable over the life of the facility or revocable only in response to material adverse changes are included in annexure C.
24.2 Commitments 2019 2018 Rm Rm
Investment property 601 748 Property and equipment 284 620 Other intangible assets 191 270 Total 1 076 1 638
The expenditure will be funded from the group’s internal resources.
24.3 Lease commitments 24.3.1 The future minimum payments under non-cancellable operating leases are as follows: 2018 Rm
Property and equipment Within one year 1 756 After one year but within five years 4 691 After five years 823 Total 7 270
The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. Low-value assets comprise IT equipment and small items of office furniture.
The future minimum lease payments under non-cancellable operating leases for 2019 comprise of low-value assets and short- term leases of R25 million within one year and for low-value assets R3 million are due within one and five years. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 89
24. Contingent liabilities and commitments continued 24.4 Legal proceedings defended In the ordinary course of business, the group is involved as a defendant in litigation, lawsuits and other proceedings. Management recognises the inherent difficulty of predicting the outcome of defended legal proceedings. Nevertheless, based on management’s knowledge from investigation, analysis and after consulting with legal counsel, management believes that there are no individual legal proceedings that are currently assessed as being ’likely to succeed and material’ or ’unlikely to succeed but material should they succeed’. The group is also the defendant in some legal cases for which the group is fully indemnified by external third-parties, none of which are individually material. Management is accordingly satisfied that the legal proceedings currently pending against the group should not have a material adverse effect on the group’s consolidated financial position and the directors are satisfied that the group has adequate insurance programmes and, where required in terms of IFRS for claims that are probable, provisions in place to meet claims that may succeed.
Competition Commission – trading of foreign currency On 15 February 2017, South Africa’s Competition Commission lodged five complaints with the Competition Tribunal against 18 institutions, including one against The Standard Bank of South Africa Limited (SBSA) and two against a former subsidiary of the group, Standard New York Securities Inc (SNYS), in which it alleges unlawful collusion between those institutions in the trading of USD/ZAR. The group has, with the help of external counsel, conducted its own internal investigations and found no evidence that supports the complaints. Both SBSA and SNYS, together with 12 of the other respondents, applied for dismissal of the complaint referral on various legal grounds. These applications were heard in July 2018. The complaint against SNYS was dismissed on the grounds that South Africa’s competition regulators lack jurisdiction over it. In the case of SBSA the Competition Commission was directed to file an amended complaint containing sufficient facts to evidence the collusion alleged within 40 business days of the ruling or risk dismissal of the complaint. The allegations against SBSA are confined to USD/ZAR trading activities within SBSA and do not relate to the conduct of the group more broadly. A number of respondents have filed an appeal to the ruling raising various grounds, which will impact on the 40 business day deadline imposed on the Competition Commission for the filing of the amended complaint against SBSA. The Competition Tribunal (CT) issued a directive on 24 July 2019 to all parties. Pursuant to two appeals filed by the Competition Commission against judgements handed down by the Competition Appeal Court in favour of The Standard Bank of South Africa Limited (SBSA), on 20 February 2020, the Constitutional Court, by a majority of five to four judges, ordered that (a) the Competition Commission need not disclose its record of investigation into alleged collusion in foreign exchange markets until after both SBSA has filed its written defence to the complaint against it and the Competition Tribunal has directed that all parties make discovery of relevant documents, and (b) the Competition Appeal Court erred in not deciding if it had the requisite jurisdiction before ordering the Competition Commission to lodge its record of decision in SBSA’s application to have the Competition Commission’s decision to initiate a complaint of collusion against SBSA reviewed and set aside, and remitted that issue of jurisdiction back to the Competition Appeal Court for determination.
Indemnities granted following disposal of Standard Bank Plc Under the terms of the disposal of Standard Bank Plc on 1 February 2015, the group provided ICBC with certain indemnities to be paid in cash to ICBC or, at ICBC’s direction, to any Standard Bank Plc (now ICBCS) group company, a sum equal to the amount of losses suffered or incurred by ICBC arising from certain circumstances. Where an indemnity payment is required to be made by the group to the ICBCS group, such payment would be grossed up from ICBC’s shareholding at the time in ICBCS to 100%. These payments may, inter alia, arise as a result of an enforcement action, the cause of which occurred prior to the date of disposal. Enforcement actions include actions taken by regulatory or governmental authorities to enforce the relevant laws in any jurisdiction. While there have been no material claims relating to these indemnification provisions during 2019, the indemnities provided are uncapped and of unlimited duration as they reflect that the pre- completion regulatory risks attaching to the disposed-of business remain with the group post completion. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 90 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
25. Maturity analysis The group assesses the maturity of its assets and liabilities at 31 December each year. This gives an indication of the remaining life of these assets at that point in time. The following table illustrates the maturities based on a contractual discounted basis. For the maturity analysis of financial liabilities on a contractual undiscounted basis, refer to the funding and liquidity risk section within annexure C.
25.1 Financial assets and liabilities Redeem- Within able on Within one to After demand one year five years five years Undated1 Total Note Rm Rm Rm Rm Rm Rm
2019 Cash and balances with central banks2 1 16 700 58 588 75 288 Trading assets 3 4 084 93 827 33 355 74 587 16 949 222 802 Pledged assets 4 21 220 1 239 6 900 18 29 377 Financial investments 5 4 859 147 123 38 679 7 687 368 971 567 319 Gross loans and advances3 7 125 454 249 510 443 128 360 833 37 421 1 216 346 Other financial assets 9 17 767 420 1 011 19 198 Net derivative asset 2 597 4 550 (1 175) (2 063) 1 909 Trading liabilities 17 (3 345) (25 396) (10 632) (11 825) (32 649) (83 847) Deposits and debt funding 18 (856 174) (360 600) (143 127) (46 437) (19 855) (1 426 193) Subordinated debt4 19 (8 629) (20 272) (28 901) Provisions and liabilities5 20 (65) (22 905) (2 029) (69 478) (94 477) 2018 Cash and balances with central banks2 1 20 681 64 464 85 145 Trading assets 3 6 631 44 563 28 032 58 810 43 076 181 112 Pledged assets 4 18 058 800 671 350 19 879 Financial investments6 5 15 066 191 031 71 185 59 889 211 549 548 720 Gross loans and advances3, 6 7 123 469 256 087 408 594 338 461 29 621 1 156 232 Other financial assets7 9 2 565 8 778 299 392 12 034 Net derivative liability 2 2 109 (2 949) (2 539) (3 379) Trading liabilities 17 (1 430) (12 695) (13 463) (11 031) (21 328) (59 947) Deposits and debt funding 18 (906 421) (286 877) (125 040) (39 199) (1 357 537) Subordinated debt4 19 (5 965) (17 072) (3 322) (26 359) Provisions and liabilities7 20 (44) (17 919) (1 545) (60 216) (79 724)
1 Undated maturity category comprises of non-contractual or indeterminate maturity, including any item or position in respect of which no right or obligation in respect of maturity exists. The will include deferred tax and provisions for non-performing assets. 2 On demand cash and balances with central banks include notes and coins. 3 Includes loans and advances measured at fair value through profit or loss. 4 The maturity analysis for subordinated debt has been determined as the earlier of the contractual repayment date or the option by the issuer to redeem the debt. 5 The group and company have, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. As a result, included in other financial liabilities are the lease liabilities. 6 Restated. Refer to page 31 on further details on the restatements. 7 The note disclosure has been disaggregated to show a better analysis of financial and non-financial assets and provisions and other liabilities as part of the adoption of the amendments to IAS 1 and IAS 8, this change had no impact on the SOFP. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 91
25. Maturity analysis continued 25.2 Non-financial assets and liabilities Less than More than 12 months 12 months after after reporting reporting period period Total Note Rm Rm Rm
2019 Non-current assets held for sale 6 2 599 2 599 Other assets 9 10 593 110 10 703 Interest in associates and joint ventures 10 5 423 5 423 Investment property 11 34 180 34 180 Property and equipment 12 898 21 120 22 018 Goodwill and other intangible assets 13 797 21 526 22 323 Provisions and other liabilities 20 (18 257) (11 367) (29 624) Current and deferred tax asset 14 * * 4 868 Current and deferred tax liability 14 * * (9 073) 2018 Non-current assets held for sale 762 762 Other assets1 9 9 655 825 10 480 Interest in associates and joint ventures 10 10 376 10 376 Investment property 11 33 326 33 326 Property and equipment 12 894 18 300 19 194 Goodwill and other intangible assets 13 293 23 383 23 676 Provisions and other liabilities1 20 (19 169) (10 860) (30 029) Current and deferred tax asset 14 * * 4 519 Current and deferred tax liability 14 * * (8 015)
1 The note disclosure has been disaggregated to show a better analysis of financial and non-financial assets and provisions and other liabilities as part of the adoption of the amendments to IAS 1 and IAS 8, this change had no impact on the SOFP. * Undated.
26. Interest 26.1 Interest income 2019 2018 Rm Rm
Effective interest rate interest income on: Loans and advances 113 724 106 583 Financial investments1 14 694 20 561 Interest income on credit-impaired financial assets 1 082 922 Total 129 500 128 066 Interest income on items measured at amortised cost 126 861 122 444 Interest income on debt instruments measured at FVOCI 2 639 5 622
1 Restated. Refer to page 31 for more details on the restatement.
26.2 Interest expense 2019 2018 Rm Rm
Interest on deposits and debt funding 63 149 65 862 Interest on lease liabilities1 (note 20.4) 339 Interest on subordinated debt 3 093 2 699 Total 66 581 68 561 Interest expense on items measured at amortised cost 66 242 68 561 Interest expense on lease liabilities1 339
1 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 92 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
27. Fee and commission 27.1 Fee and commission revenue 2019 2018 Rm Rm
Account transaction fees 11 272 11 669 Card-based commission 7 041 6 760 Documentation and administration fees 2 281 2 273 Electronic banking fees 4 546 3 829 Foreign currency service fees 2 253 2 244 Insurance – fees and commission 1 857 1 904 Knowledge-based fees and commission 2 304 2 350 Other 5 800 5 563 Total 37 354 36 592
All fee and commission revenue reported above relates to financial assets or liabilities not carried at fair value through profit or loss.
27.2 Fee and commission expense 2019 2018 Rm Rm
Account transaction fees 1 460 1 368 Card-based commission 2 563 2 378 Documentation and administration fees 296 222 Electronic banking fees 736 687 Insurance fees and commission 497 546 Customer loyalty expense 664 624 Other 516 392 Total 6 732 6 217
All fee and commission expense reported above relates to financial assets or liabilities not carried at fair value through profit and loss.
28. Trading revenue 2019 20181 Rm Rm
Commodities 32 47 Equities 2 591 2 171 Fixed income and currencies 9 452 8 581 Total 12 075 10 799
1 Restated. Refer to page 31 for more detail.
29. Other revenue 2019 20181 Rm Rm
Banking and other revenue 1 300 1 360 Insurance – bancassurance profit 2 493 2 096 Property-related revenue 296 407 Total 4 089 3 863
1 Restated. Refer to page 31 for more detail. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 93
30. Other gains and losses on financial instruments 2019 2018 Rm Rm
Derecognition gains/(losses) on financial assets measured at amortised cost 10 (8) Fair value gains on debt financial assets measured at fair value through profit or loss – default 82 256 Gains on debt realisation of financial assets measured at fair value through OCI1 149 174 Fair value gains on financial instruments designated at fair value through profit or loss 515 367 Total 756 789
1 Restated. Refer to page 31 for further details on the restatement.
31. Insurance 31.1 Insurance premiums received 2019 2018 Rm Rm
Insurance premiums 42 182 40 611 Reinsurance premiums (2 381) (2 090) Total 39 801 38 521
31.2 Insurance benefits and claims paid 2019 2018 Rm Rm
Claims and policyholders’ benefits under insurance contracts 41 730 39 504 Insurance claims recovered from reinsurers (2 079) (1 571) Net insurance claims and policyholders’ benefits 39 651 37 933 Change in policyholder liabilities under insurance contracts 4 590 (11 449) Insurance contracts 5 400 (10 024) Policyholder assets related to insurance contracts (309) 776 Investment contracts with DPF (171) (1 607) Reinsurance assets (330) (594)
Total 44 241 26 484
32. Investment management and service fee income and gains 2019 2018 Rm Rm Investment income 3 245 3 533 Scrip lending fees 87 103 Rental income from investment property 3 059 2 905 Sundry income 85 74 Adjustment to surplus recognised on defined benefit pension fund 14 18 Other 433
Total 3 245 3 533 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 94 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
32. Investment management and service fee income and gains continued 32.1 Revenue from contracts with customers 2019 2018 Rm Rm
Fee income and reinsurance commission Service fee income from long-term policyholder investment contracts 1 312 1 232 Service fee income from investment contracts 1 330 1 251 Deferred revenue released to profit or loss 38 35 Deferred income relating to new business (56) (54) Fee revenue 2 182 2 177 Management fees on assets under management 1 971 1 973 Performance fees 56 21 Health administration fees 98 53 Other fee revenue 57 130 Reinsurance commission earned on short-term insurance business 116 99 Total fee income and reinsurance commission 3 610 3 508 Hotel sales operations Hotel sales operations 466 565 Total 4 076 4 073
32.2 Interest income 2019 2018 Rm Rm
Financial assets classified at FVOCI Service fee income from long-term policyholder investment contracts Term deposits 1 462 1 230 At amortised cost Policy loans receivable – interest income 19 18 Interest income on cash and cash equivalents 439 268 Total interest income on financial assets using the effective interest rate method 1 920 1 516
33. Fair value adjustments to investment management liabilities and third-party fund interests 2019 2018 Rm Rm
Fair value adjustments to long-term policyholder liabilities under investment contracts (9 146) 1 273 Fair value adjustments to third-party mutual fund interests (6 523) (2 407) Investment properties 287 493 Financial assets at fair value through profit or loss (default) 35 375 (209) Financial instruments at fair value through profit or loss 34 741 2 725 Financial instruments held for hedging and for trading 634 (2 934) Financial assets designated at fair value through profit or loss 5 2 738 Fair value of financial liabilities (1 206) (1 381) Other (20) 56 Total 18 772 563 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 95
34. Credit impairment charges 2019 2018 Rm Rm
Net expected credit loss raised/(released) 9 207 7 515 Financial investments (note 5) 86 101 Loans and advances (note 7) 9 319 7 237 Letters of credit and guarantees (note 20) (198) 177 Recoveries on loans and advances previously written off (1 514) (1 171) Modification loss on distressed financial asset 271 145 Total 7 964 6 489
35. Operating expenses 2019 2018 Rm Rm
Banking activities 62 335 60 084 Communication 1 114 1 117 Information technology 7 487 6 379 Marketing and advertising 1 889 1 954 Premises1 2 263 4 052 Staff costs 34 554 33 776 Other 15 028 12 806 Investment management and life insurance activities1 16 486 16 404 Acquisition costs 4 241 4 413 Office costs 3 531 3 729 Staff costs 4 302 4 133 Other 4 412 4 129
Total 78 821 76 488 The following disclosable items are included in other operating expenses: Auditors’ remuneration 423 383 Audit fees – current year 410 360 Fees for other services2 13 23 Amortisation – intangible assets (note 13) 2 596 2 504 Depreciation (note 12) 4 864 2 858 Operating lease charges1 505 2 286 Premises – other expenses 2 263 1 772 Professional fees 1 828 1 712
1 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. 2 All fees for services paid to the group’s auditors were considered and approved by the group’s audit committee in terms of its non-audit services policy. Refer to the report of the group audit committee chairman for further information.
36. Non-trading and capital related items 2019 2018 Rm Rm
Profit on disposal of business 47 Impairment of associates (2 418) (5) Impairment of intangible assets (234) (449) Impairment of non-current assets held for sale (321) (249) Impairment of goodwill (11) (Loss)/profit on sale of property and equipment (94) 15 Fair value gain on investment property 188 Total (2 890) (641) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 96 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
37. Direct and indirect taxation 37.1 Indirect taxation 2019 2018 Rm Rm
Value added tax (VAT)1 1 669 1 722 Other indirect taxes and levies 923 887 Total 2 592 2 609
1 The group earns certain amounts of VAT exempt income which result in these amounts of VAT input that the group is unable to claim from the revenue authorities.
37.2 Direct taxation 2019 2018 Rm Rm
South African normal taxation 9 149 9 672 Current 9 387 9 911 Prior year (238) (239) Deferred taxation 456 (3 101) Current 397 (3 113) Prior year 59 12 CGT, foreign normal and withholding tax – current year 1 162 164 Direct taxation before tax recognised in OCI and equity 10 767 6 735 Income tax recognised in OCI (106) 87 Deferred tax recognised directly in equity (30) (128) Deferred tax recognised directly in retained earnings – IFRS 9 2 401 Deferred tax recognised directly in retained earnings – IFRS 16 (72) Direct taxation per the income statement 10 559 9 095
Income tax recognised in OCI The table below sets out the amount of income tax relating to each component within OCI:
2019 2018 Rm Rm
Items that may be subsequently reclassified to profit or loss Movements in the cash flow hedging reserve (69) 10 Net change in fair value of cash flow hedges (151) 129 Realised fair value adjustments of cash flow hedges transferred to profit or loss 82 (119) Net change in investments measured at fair value through other comprehensive income (OCI) 5 (5) Net change in expected credit loss 1 Net change in fair value 4 6 Realised fair value adjustments transferred to profit or loss (11) Items that may not be subsequently reclassified to profit or loss Defined benefit fund adjustments (52) 30 Change in own credit risk recognised on financial liabilities designated at fair value through profit or loss 4 21 Net change in fair value of equity financial investments measured at fair value through OCI 32 Other 6 (1) Total (106) 87 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 97
37. Direct and indirect taxation continued 37.2 Direct taxation continued Tax rate reconciliation 2019 2018 % %
Direct taxation – statutory rate 28.0 28.0 Prior period tax (0.4) (0.5) Direct taxation – current year 27.6 27.5 Capital gains tax 1.5 (1.0) Foreign tax and withholding tax 3.4 2.7 Direct taxation – current year – normal 32.5 29.2 Permanent differences (6.9) (7.4) Dividends received (4.8) (3.6) Other non-taxable income – interest1 (5.5) (6.6) Assessed loss not subject to deferred tax2 0.7 0.6 Non-deductible expenses 3.6 2.9 Effects of profits taxed in different jurisdictions (0.9) (0.7)
Direct effective tax rate3 25.6 21.8
1 Relates to interest income earned from certain governments in Africa Regions which is exempt from tax. 2 The group’s assessed losses result in an unrecognised deferred tax asset of R269 million (2018: R224 million). 3 Expressed as a percentage of profit before direct taxation.
38. Earnings per ordinary share The calculations of basic earnings per ordinary share and diluted earnings per ordinary share are as follows:
2019 2018 Number of units Number of units (’000) (’000)
Earnings attributable to ordinary shareholders (Rm) 25 443 27 453 Weighted average number of ordinary shares in issue (number of shares) Weighted average number of ordinary shares in issue before adjustments 1 619 124 1 618 700 Adjusted for shares held pursuant to Tutuwa initiative1 (2 050) (4 178) Adjusted for deemed treasury shares held by entities within the group2 (20 450) (20 803) Weighted average number of ordinary shares in issue 1 596 624 1 593 719 Basic earnings per ordinary share (cents) 1 593.5 1 722.6 Diluted earnings per ordinary share Weighted average number of ordinary shares in issue 1 596 624 1 593 719 Adjusted for the following potential dilution: Share incentive schemes 8 887 16 126 Standard Bank GSIS3 188 318 Standard Bank EGS4 1 322 2 302 Deferred Bonus Scheme 5 426 6 716 Performance Reward Plan 1 927 3 680 Share Appreciation Rights Scheme 24 34 Tutuwa initiative5 3 076
Diluted weighted average number of ordinary shares in issue 1 605 511 1 609 845 Diluted earnings per ordinary share (cents) 1 584.7 1 705.3
1 The number of shares held by the Tutuwa participants are deducted as they are deemed not to be issued in terms of IFRS. 2 The number of shares held by entities within the group are deemed to be treasury shares for IFRS purposes. 3 275 121 (2018: 696 115) share options were outstanding at the end of the year in terms of the GSIS. 4 4 941 267 (2018: 7 364 238) rights were outstanding at the end of the year in terms of the Standard Bank EGS. These units are convertible into 1 379 838 (2018: 2 557 500) ordinary shares at year end. 5 Dilutive effect of shares held pursuant to Tutuwa initiative. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 98 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
38. Earnings per ordinary share continued Dilutive impact of shares issued during the year Deferred Bonus Scheme 6 979 195 (2018: 5 834 741) units were issued during the year to employees domiciled in South Africa. The dilutive impact of these units are included in the calculation of diluted earnings per ordinary share.
At the end of the reporting period, the group had 9 741 287 (2018: 10 640 573) units hedged, which results in 127 410 (2018: 224 887) dilutive shares being issued by the group and is included in the above dilutive earnings per ordinary share.
Performance Reward Plan 2 626 716 (2018: 1 947 028) units were issued during the year to employees domiciled in South Africa. The dilutive impact of these units are included in the calculation of diluted earnings per ordinary share.
At the end of the reporting period, 2 501 149 (2018: 5 151 149) units were hedged. which results in 257 464 (2018: 253 762) dilutive shares being issued by the group and is included in the above dilutive earnings per ordinary share.
Share Appreciation Rights Scheme 1 215 820 (2018: 675 339) rights were issued during the year in terms of the Standard Bank SARP to employees domiciled in South Africa. The outstanding SARP units are convertible into 42 131 (2018: 80 197) ordinary shares. The dilutive impact of these units are included in the calculation of diluted earnings per ordinary share.
AFS Refer to annexure D for further details on the group’s share incentive schemes.
39. Headline earnings Profit Non- attributable controlling to ordinary Gross Direct tax interests shareholders Rm Rm Rm Rm
2019 Profit for the year 41 255 (10 559) (5 253) 25 443 Headline adjustable items added 2 890 15 (141) 2 764 IAS 16 – Profit on sale of property and equipment 94 (29) 1 66 IAS 28/IAS 36 – Impairment of associate 2 418 2 418 IAS 36 – Impairment of intangible assets 234 (65) 169 IFRS 5 – Impairment of non-current assets held for sale 321 (142) 179 IAS 40 – Fair value gain on investment property (188) 109 (79) IAS 36 – Goodwill impairment 11 11
Standard Bank Group headline earnings 44 145 (10 544) (5 394) 28 207 2018 Profit for the year 41 738 (9 095) (5 190) 27 453 Headline adjustable items added 641 (122) (107) 412 IAS 16 – Profit on sale of property and equipment (15) 2 3 (10) IAS 27/IAS 28 – Gain on disposal of business (47) (47) IAS 28/IAS 36 – Impairment of associate 5 (1) 4 IAS 36 – Impairment of intangible assets 449 (123) 326 IFRS 5 – Impairment of non-current assets held for sale 249 (110) 139
Standard Bank Group headline earnings 42 379 (9 217) (5 297) 27 865
2019 2018 Rm Rm
Headline earnings per ordinary share (cents) 1 766.7 1 748.4 Diluted headline earnings per ordinary share (cents) 1 756.9 1 730.9
Headline earnings is calculated in accordance with the circular titled Headline Earnings issued by SAICA, as amended from time-to-time. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 99
40. Dividends 2019 2018 Rm Rm
Ordinary shares 16 092 15 221 Final 8 740 8 263 540 cents per share declared on 6 March 2019 (2018: 510 cents per share declared on 8 March 2018) Interim 7 352 6 958 454 cents per share declared on 7 August 2019 (2018: 430 cents per share declared on 17 August 2018) Second preference shares 415 416 Final 207 211 390.22 cents per share declared on 6 March 2019 (2018: 398.92 cents per share declared on 8 March 2018) Interim 208 205 391.38 cents per share declared on 7 August 2019 (2018: 386.43 cents per share declared on 17 August 2018) AT1 capital 458 322 31 December SBT 101 40 41 SBT 102 40 42 SBT 103 40 30 September SBT 101 40 40 SBT 102 40 40 SBT 103 40 30 June SBT 101 40 39 SBT 102 40 40 SBT 103 40 30 March SBT 101 40 40 SBT 102 40 40 SBT 103 18
Total dividends 16 965 15 959
A final dividend No. 101 of 540 cents per ordinary share was declared on 4 March 2020, payable on 28 April 2020 to all shareholders registered on 24 April 2020, bringing the total dividends declared in respect of 2019 to 994 cents per share (2018: 970 cents per share).
6.5% first cumulative preference shares dividend No. 101 of 3.25 cents per share (2018: 3.25 cents) was declared on 4 March 2020, payable on 20 April 2020 to all shareholders registered on 17 April 2020.
Non-redeemable, non-cumulative, non-participating preference shares dividend No. 31 of 389.12 cents per share (2018: 390.22 cents), was declared on 4 March 2020, payable on 20 April 2020 to all shareholders registered on 17 April 2020.
The AT1 capital bonds have coupon rates of three month plus 565 basis points (SBT 101), JIBAR plus 545 basis points (SBT 102) and JIBAR plus 440 basis points (SBT 103) interest is payable quarterly. For more information on AT1 capital, refer to note 15.8. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 100 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
41. Statement of cash flows notes 41.1 Adjustments for non-cash items and other adjustments included in the income statement 2019 2018 Rm Rm
Depreciation and amortisation (note 35) 7 460 5 362 Credit impairment losses (note 34) 7 964 6 489 Investment gains and policyholders’ transfers 13 966 (12 306) Net inflows/(outflows) from third-party financial liabilities arising on consolidation of mutual funds 2 245 (3 934) Interest expense1 66 824 68 365 Interest income1, 2 (165 660) (131 314) Other 3 695 (3 154) Total (63 506) (70 492)
1 Included are non-cash flow items disclosed in income/expenses from investment management and life insurance activities. 2 Restated. Refer to page 31 for further details on the restatement.
41.2 Increase in income-earning assets 2019 2018 Rm Rm
Net derivative assets (3 121) 85 Trading assets (43 306) (17 062) Pledged assets (10 747) 2 023 Financial investments (13 772) (26 799) Loans and advances (89 119) (47 224) Other assets (9 029) 3 640 Total (169 094) (85 337)
41.3 Increase in deposits, trading and other liabilities 2019 2018 Rm Rm
Deposit and debt funding 116 387 72 445 Trading liabilities 23 027 (2 704) Provisions and other liabilities 1 246 9 061 Total 140 660 78 802
41.4 Reconciliation of subordinated debt 2019 2018 Rm Rm
Balance at the beginning of the year 26 359 24 397 Subordinated debt issued 7 269 6 100 Subordinated debt redeemed (4 850) (4 550) Exchange movements (36) 232 Decrease in subordinated bonds issued to group companies 131 Other movements 159 49 Balance at the end of the year 28 901 26 359
AFS Refer to note 19 for details on subordinated debt.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 101
42. Related party transactions 42.1 Key management personnel Key management personnel include: the members of the SBG board of directors and prescribed officers active for 2019 and 2018. Non-executive directors are included in the definition of key management personnel as required by IFRS. Prescribed officers are defined by the Companies Act. The definition of key management includes the close family members of key management personnel and any entity over which key management exercises control or joint control. Close family members are those family members who may be expected to influence, or be influenced by, that person in their dealings with SBG. They may include the person’s domestic partner and children, the children of the person’s domestic partner, and dependants of the person or the person’s domestic partner.
2019 2018 Rm Rm
Key management compensation Salaries and other short-term benefits paid 80 101 Post-employment benefits 4 5 Value of share options, rights and units expensed 93 134 Total key management compensation 177 240 Loans and advances1 Loans outstanding at the beginning of the year 22 12 Change in key management structures (2) 2 Net change in loans during the year 8 Loans outstanding at the end of the year 20 22 Interest income 1 1 Deposit and debt funding2 Deposits outstanding at the beginning of the year 141 80 Change in key management structures (4) 57 Net change in deposits during the year 10 4 Deposits outstanding at the end of the year 147 141 Net interest expense (6) (5) Investment products Balance at the beginning of the year 435 431 Change in key management structures 2 Net change in investments during the year 105 2 Balance at the end of the year 540 435 Third-party funds under management Fund value at the beginning of the year 222 224 Change in key management structures (130) Net change in deposits during the year 10 (2) Fund value at the end of the year 102 222 Net investment return 5 (16) Shares and share options held3 Shares beneficially owned (number) 1 667 867 1 738 101 Share options held (number) 2 315 897 3 569 592
1 Loans include mortgage loans, vehicle and asset finance and credit cards. No specific credit impairments have been recognised in respect of loans granted to key management in the current or prior year. The mortgage loans and vehicle and asset finance are secured by the underlying assets. All other loans are unsecured. 2 Deposits and debt funding include cheque, current and savings accounts. 3 Aggregate details of SBG shares and share options held by key management personnel. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 102 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
42. Related party transactions continued 42.2 Balances and transactions with ICBCS Transactions with ICBCS are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other third-parties. These transactions also did not involve more than the normal risk of collectability or present other unfavourable features. There were no significant credit impairments related to balances and transactions with ICBCS. The following significant balances and transactions were entered into between the group and ICBCS, an associate of the group:
2019 2018 Amounts included in the group’s statement of financial position Rm Rm
Derivative assets 4 227 905 Trading assets 10 9 Loans and advances 11 394 28 726 Other assets 392 245 Derivative liabilities (2 573) (3 260) Trading liabilities (2 933) Deposits and debt funding (2 184) (282) Other liabilities (1 595) (437)
Services The group entered into certain transitional services level arrangements with ICBCS in order to manage the orderly separation of ICBCS from the group post the sale of 60% of SB Plc. In terms of these arrangements, services are delivered and received from ICBCS for the account of each respective party. As at 31 December 2019, the expense recognised in respect of these arrangements amounted to R496 million (2018: R229 million).
42.3 Balances and transactions with ICBC The group has several business relationships with ICBC, a 20.1% shareholder of the group. Transactions with ICBC are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other third-parties. These transactions also did not involve more than the normal risk of collectability or present other unfavourable features. There were no significant credit impairments that related to balances and transactions with ICBC. The following significant balances and transactions were entered into between the group and ICBC, excluding those with ICBCS.
2019 2018 Amounts included in the group’s statement of financial position Rm Rm
Loans and advances 14 569 15 539 Other assets1 433 345 Deposits and debt funding (789) (3 724)
1 The group recognised losses in respect of certain commodity reverse repurchase agreements with third-parties prior to the date of conclusion of the sale and purchase agreement, relating to SB Plc (now ICBCS) with ICBC. As a consequence of the sale and purchase agreement, the group holds the right to 60% of insurance and other recoveries, net of costs, relating to claims for those recognised losses prior to the date of conclusion of the transaction. Settlement of these amounts will occur based on audited information on pre-agreed anniversaries of the completion of the transaction and the full and final settlement of all claims in respect of losses incurred. As at 31 December 2019, a balance of USD26.7 million (R374 million) is receivable from ICBC in respect of this arrangement (2018: USD24.0 million; R345 million).
Letters of credit The group has off-balance sheet letters of credit exposure issued to ICBC as at 31 December 2019 of R3 573 million (2018: R1 952 million). The group received R91 million in fee and commission income relating to these transactions (2018: R63 million). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 103
42. Related party transactions continued 42.4 Mutual funds The group invests in various mutual funds that are managed by Liberty. Where the group has assessed that it has control (as defined by IFRS) over these mutual funds, it accounts for these mutual funds as subsidiaries. Where the group has assessed that it does not have control over these mutual funds, but has significant influence, it accounts for them as associates. The following significant balances and transactions were entered into between the group and the mutual funds which the group does not control:
2019 2018 Rm Rm
Trading liabilities (86) (592) Deposits and debt funding (22 519) (24 896) Trading (losses)/gains (17) (26) Interest expense (1 270) (2 689)
42.5 Post-employment benefit plans Details of balances with SBG and transactions between SBG and the group’s post-employment benefit plans are listed below:
2019 2018 Amounts included in the group’s statement of financial position and income statement Rm Rm
Fee and commission revenue 11 22 Deposits and debt funding (361) (981) Interest expense (36) (50) Financial investments held in bonds and money market 833 778
In addition to the above: •• The group manages R7 774 million (2018: R8 754 million) of the post-employment benefit plans’ assets. •• The post-employment benefit plans hold SBG ordinary shares to the value of R2 708 million (2018: R2 969 million).
AFS Refer to annexure A for more details on subsidiaries and annexure B for more details on associates.
43. Pensions and other post-employment benefits 2019 2018 Rm Rm
Amount recognised as assets in the statement of financial position (note 9) Standard Bank banking activities Retirement funds (note 43.1) 945 765 Other retirement funds (note 43.1) 28 30 Liberty Retirement funds (note 43.1) 117 203 Total 1 090 998 Amounts recognised as liabilities in the statement of financial position (note 20) Standard Bank banking activities Post-employment healthcare benefits – other funds (note 43.2) 745 766 Liberty Post-employment healthcare benefits (note 43.2) 459 471 Total 1 204 1 237
The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R597 million (2018: R593 million). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 104 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
43. Pensions and other post-employment benefits continued 43.1 Retirement funds Standard Bank retirement funds Membership of the principal fund, the Standard Bank Group Retirement Fund (SBGRF), comprises in excess of 95% of SBSA’s permanent staff. The fund, one of the ten largest in South Africa, is governed by the Pension Funds Act 24 of 1956 (Pension Funds Act). Member-elected trustees represent 50% of the trustee board. The assets of the fund are held independently.
SBGRF is regulated by the Pension Funds Act, as well as the Financial Services Board.
The fund is subject to a statutory financial review by actuaries at an interval of not more than three years. A full actuarial valuation was performed during the 2018 financial year and, in the opinion of the actuary, the fund was considered to be financially sound. The next actuarial valuation is to be performed on 31 December 2020.
From 1 January 1995, new employees became entitled to defined contribution benefits only. Employees who were members of the fund on 31 December 1994, were entitled to guaranteed benefits under the old rules of the defined benefit fund. Given the defined benefit nature of the guaranteed benefits, the entire plan is classified as a defined benefit plan and accounted for as such. A specific liability was recognised within the fund to provide for the guaranteed defined benefits.
On 1 November 2009, the fund introduced individual member investment choice for defined contribution members and the pre-1995 members could choose to give up their guaranteed defined benefits and instead accept an offer of a 10% enhancement to their actuarial reserve values. Over 90% of the pre-1995 defined benefit members accepted the offer and converted to defined contribution plans. The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Funds Act, 1956 as amended into the SBGRF.
The majority of employees in South Africa who are not members of the SBGRF are members of two other funds designed for their occupational groups. Employees in territories beyond South African jurisdiction are members of either defined contribution or defined benefit plans governed by legislation in their respective countries.
Liberty retirement funds The Liberty defined benefit pension scheme closed to new employees from 1 March 2001 and with effect from this date, the majority of employees accepted an offer to convert their retirement plans from defined benefit to defined contribution plans. Employees joining after 1 March 2001 automatically become members of the defined contribution schemes. The Automatic Contribution Arrangement (ACA) and Rentmeester defined benefit pension funds are all fully funded. All funds are governed by the Pension Funds Act.
Description of risks Post-retirement obligation risk is the risk to the group’s comprehensive income that arises from the requirement to contribute as an employer to an under-funded defined benefit plan. The group operates both defined contribution plans and defined benefit plans, with the majority of its employees participating in defined contribution plans. The defined benefit pension and healthcare schemes for past and certain current employees, create post-retirement obligations. The group mitigates these risks through independent asset managers and independent asset and liability management advisors for material funds. Potential residual risks which may impact the group are managed within the group asset and liability management process. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 105
43. Pensions and other post-employment benefits continued 43.1 Retirement funds continued
2019 2018 Rm Rm
The amounts recognised in the statement of financial position in respect of the retirement funds are determined as follows: Present value of funded obligations (36 716) (34 206) Fair value of plan assets 37 944 35 235 Surplus 1 228 1 029 Asset ceiling (138) (31) Included in the statement of financial position 1 090 998 SBGRF 945 765 Liberty retirement funds 117 203 Other retirement funds 28 30
Included in the following notes to the annual financial statements 1 090 998 Other assets (note 9) 1 090 998 Other liabilities (note 20)
Movement in the present value of funded obligations Balance at the beginning of the year 34 206 35 438 Current service cost 1 287 1 060 Interest cost 3 267 3 174 Employee contributions 918 841 Actuarial loss/(gain) (124) (3 765) Exchange (gain)/loss (3) 69 Benefits paid (2 835) (2 611) Balance at the end of the year 36 716 34 206 Movement in the fair value of plan assets Balance at the beginning of the year 35 235 36 553 Interest income 3 367 3 259 Contributions received 2 194 1 733 Net return on assets (7) (3 763) Exchange (loss)/gain (10) 64 Benefits paid (2 835) (2 611) Reduction in employer surplus account Balance at the end of the year 37 944 35 235 Cash 1 220 711 Equities 14 923 14 796 Bonds 10 669 10 407 Property and other 11 132 9 321
Plan assets do not include property occupied by the group.
The group expects to pay R1 250 million in contributions to the Standard Bank retirement funds in 2020 (2019: R1 294 million). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 106 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
43. Pensions and other post-employment benefits continued 43.1 Retirement funds continued Description of risks 2019 2018 Rm Rm
The amounts recognised in profit or loss are determined as follows: Current service cost 1 276 1 060 Net interest costs (85) Included in staff costs 1 276 975 The expected long-term rate of return is based on the expected long-term returns on equities, cash and bonds. The split between the individual asset categories is considered in setting these assumptions. Adjustments were made to reflect the effect of expenses. Components of statement of other OCI Actuarial (loss) under asset management (7) (3 763) Actuarial gain 124 3 765 Gain from changes in demographic assumptions 6 (Loss)/gain from changes in financial assumptions (55) 2 805 Gain from changes in experience adjustments 173 960 Asset ceiling (107) 33 Remeasurements recognised in OCI 10 35 Reconciliation of net defined benefit asset Net defined benefit asset at the beginning of the year 998 1 051 Net expense recognised (1 188) (975) Amounts recognised in OCI 10 35 Company contributions 1 276 892 Exchange loss (6) (5) Net defined benefit asset at the end of the year 1 090 998
43.2 Post-employment healthcare benefits The group provides the following post-employment healthcare benefits to its employees: Standard Bank The largest portion of this liability represents a South African post-employment healthcare benefit scheme that covers all employees who went on retirement before 1 March 2000. The liability is unfunded and is valued every year using the projected unit credit method. The latest full actuarial valuation was performed at 31 December 2019. The next actuarial valuation is to be performed on 31 December 2020. Liberty Liberty operates an unfunded post-employment medical aid benefit for employees who joined before 1 July 1998. For past service of employees, Liberty recognises and provides for the actuarially determined present value of post-employment medical aid employer contributions on an accrual basis using the projected unit credit method. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 107
43. Pensions and other post-employment benefits continued 43.2 Post-employment healthcare benefits continued 2019 2018 Rm Rm
The amounts recognised in the statement of financial position in respect of post- employment healthcare benefits are determined as follows: Present value of unfunded defined benefit obligations 1 204 1 237 Included in the statement of financial position 1 204 1 237 Standard Bank 745 766 Liberty 459 471
Movement in the present value of defined benefit obligations Balance at beginning of the year 1 237 1 232 Net expense recognised 118 126 Benefits paid (89) (91) Amounts recognised in OCI (61) (33) Foreign exchange movements (1) 3 Balance at end of the year 1 204 1 237
2019 2018 Rm Rm
The amounts recognised in profit or loss are determined as follows: Current service cost 10 57 Net interest cost 108 69 Included in staff costs 118 126 Components of statement of other comprehensive income Actuarial losses arising from changes in financial assumptions (30) (78) Actuarial (losses)/gains arising from experience adjustments (31) 45 Remeasurements recognised in OCI (61) (33)
Assumed medical inflation rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in the medical inflation rate would have the following effects on the amounts recognised:
2019 2018 1% increase 1% decrease 1% increase 1% decrease Rm Rm Rm Rm
Effect on the aggregate of the current service cost and interest cost 6 (5) 7 (5) Effect on the defined benefit obligation 24 (17) 61 (53) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 108 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
44. Segment reporting
BUSINESS UNITS AND WHAT WE OFFER
Personal & Business Banking Corporate & Banking and other financial services to individual customers, small to Investment Banking medium-sized enterprises and commercial banking customers in South Services to customers, including Africa, Africa Regions and Wealth International. We enable customers to take governments, parastatals, larger control of all their financial aspects such as transacting, saving, borrowing or corporates, financial institutions and planning by making use of the following product sets either through multinational corporates face-to-face interaction or digitally according to their preference
What we offer Wealth What we offer Transactional products •• Short and long-term insurance Customer coverage Comprehensive suite of products comprising: Provide in-depth sector expertise to transactional, saving, investment, –– loan protection plans sold in develop relevant customer solutions and trade, foreign exchange, payment conjunction with related foster customer relationships and liquidity management solutions banking products, made accessible through a range of homeowners' insurance, Global markets physical and digital channels funeral cover, household Trading and risk management solutions contents and vehicle insurance across financial markets, including Mortgage lending –– life, disability and investment foreign exchange, money markets, Residential accommodation loans policies sold by qualified interest rates, equities, credit and mainly to personal market intermediaries. commodities customers •• financial planning and modelling Transactional products and services Card products •• integrated fiduciary services Comprehensive suite of cash •• Credit card facilities to individuals including fiduciary advice, will management, international trade and businesses (credit card drafting and custody services as finance, working capital and investor issuing) well as trust and estate service solutions •• merchant transaction acquiring administration Investment banking services (merchant solutions). •• tailored banking, wealth Full suite of advisory and financing management, investment and solutions, from term lending to Vehicle and asset finance advisory services solutions for structured and specialised products •• Finance of vehicles for retail high net worth individuals market customers across the equity and debt capital •• offshore financial services to high markets •• finance of vehicles and net worth, mass-affluent and equipment in the business and corporate clients of the group corporate assets market •• investment services including •• fleet solutions. global asset management Lending products •• pension fund administration •• Lending products offered to both services. personal and business markets •• business lending offerings constitute a comprehensive suite of lending product offerings, structured working capital finance solutions, commercial property finance solutions and trade finance. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 109
Central and other Other banking Liberty interests
•• Impact of group hedging •• Equity investments held in Life insurance and investment activities, group capital terms of strategic partnership management activities instruments, group surplus agreements with ICBC, What we offer capital and strategic including: South Africa Retail acquisitions. –– ICBC Standard Bank Plc Insurance and investment •• Costs of centralised corporate (40% associate) solutions to individual clients in functions, direct costs of –– ICBC Argentina (20% South Africa corporate functions are associate). In September recharged to the business 2019, ICBC Argentina was Business development segments. reclassified as a non-current Insurance and investment asset held for sale and is no solutions to corporate clients and longer equity accounted. retirement funds across sub- Saharan Africa
Asset management Asset management capabilities to manage investment assets in South Africa and southern Africa Regions WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 110 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
44. Segment reporting continued 44.1 Segmental Income statement Personal & Business Corporate & Investment Banking Banking Central and other Banking activities Other banking interests Liberty Standard Bank Group 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Income from banking activities 73 100 69 427 39 065 37 353 (1 704) (1 449) 110 461 105 331 110 461 105 331 Net interest income 44 116 41 650 20 329 19 191 (1 526) (1 336) 62 919 59 505 62 919 59 505 Interest income 82 372 77 588 69 424 69 374 (22 296) (18 896) 129 500 128 066 129 500 128 066 Interest expense (38 256) (35 938) (49 095) (50 183) 20 770 17 560 (66 581) (68 561) (66 581) (68 561) Net fee and commission revenue 24 985 24 739 6 002 5 950 (365) (314) 30 622 30 375 30 622 30 375 Fee and commission revenue 30 944 30 284 6 609 6 477 (199) (169) 37 354 36 592 37 354 36 592 Fee and commission expense (5 959) (5 545) (607) (527) (166) (145) (6 732) (6 217) (6 732) (6 217) Trading revenue 425 174 11 670 10 543 (20) 82 12 075 10 799 12 075 10 799 Other revenue 3 553 2 872 335 903 201 88 4 089 3 863 4 089 3 863 Other gains and losses on financial instruments 21 (8) 729 766 6 31 756 789 756 789
Income from investment management and life insurance activities 23 573 21 722 23 573 21 722 Insurance premiums received 39 801 38 521 39 801 38 521 Insurance benefits and claims paid (44 241) (26 484) (44 241) (26 484) Investment management and service fee income and gains 9 241 9 122 9 241 9 122 Fair value adjustments to investments management liabilities and third-party fund interests 18 772 563 18 772 563
Total income 73 100 69 427 39 065 37 353 (1 704) (1 449) 110 461 105 331 23 573 21 722 134 034 127 053 Credit impairment charges (6 360) (5 440) (1 590) (1 049) (14) (7 964) (6 489) (7 964) (6 489) Net income before operating expenses 66 740 63 987 37 475 36 304 (1 718) (1 449) 102 497 98 842 23 573 21 722 126 070 120 564 Operating expenses in banking operations2 (43 243) (41 906) (20 985) (20 315) 1 893 2 137 (62 335) (60 084) (62 335) (60 084) Operating expenses in life insurance operations (16 486) (16 404) (16 486) (16 404) Net income before capital items and equity accounted earnings 23 497 22 081 16 490 15 989 175 688 40 162 38 758 7 087 5 318 47 249 44 076 Non-trading and capital related items (69) (22) (189) (385) 107 15 (151) (392) (2 418) (321) (249) (2 890) (641) Share of post tax profit/(loss) from associates 325 325 2 102 6 4 333 431 (864) 418 19 63 (512) 912 Net income before indirect taxation 23 753 22 384 16 303 15 706 288 707 40 344 38 797 (3 282) 418 6 785 5 132 43 847 44 347 Indirect taxation (606) (641) (318) (284) (1 082) (1 098) (2 006) (2 023) (585) (586) (2 591) (2 609) Profit before direct taxation 23 147 21 743 15 985 15 422 (794) (391) 38 338 36 774 (3 282) 418 6 200 4 546 41 256 41 738 Direct taxation (5 802) (5 530) (2 285) (2 249) 199 (44) (7 888) (7 823) (2 672) (1 272) (10 560) (9 095) Profit for the year 17 345 16 213 13 700 13 173 (595) (435) 30 450 28 951 (3 282) 418 3 528 3 274 30 696 32 643 Attributable to non-controlling interests 610 542 1 858 2 104 60 (7) 2 528 2 639 1 852 1 813 4 380 4 452 Attributable to other equity instrument holders 160 141 229 144 484 453 873 738 873 738 Attributable to ordinary shareholders 16 575 15 530 11 613 10 925 (1 139) (881) 27 049 25 574 (3 282) 418 1 676 1 461 25 443 27 453
Headline earnings 16 510 15 539 11 795 11 202 (1 089) (894) 27 216 25 847 (864) 418 1 855 1 600 28 207 27 865 Return on equity (ROE) (%) 22.4 21.9 18.1 19.3 18.1 (13.1) 5.6 16.5 15.2 16.8 18.0 Net interest margin (bps) 601 598 263 272 431 438 Credit loss ratio (bps) 89 81 32 16 68 56 Cost-to-income ratio (%) 59.2 60.4 53.7 54.4 56.4 57.0 Number of employees 26 040 27 499 3 555 3 751 15 401 16 169 44 996 47 419 5 695 5 759 50 691 53 178
1 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly. Refer to page 31 for details on restatements, other than cost centre movements. 2 The group has, as permitted by IFRS 16, elected not to restate its comparative financial statements. Comparability will therefore not be achieved as the comparative financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 111
44. Segment reporting continued 44.1 Segmental Income statement Personal & Business Corporate & Investment Banking Banking Central and other Banking activities Other banking interests Liberty Standard Bank Group 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 2019 20181 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Income from banking activities 73 100 69 427 39 065 37 353 (1 704) (1 449) 110 461 105 331 110 461 105 331 Net interest income 44 116 41 650 20 329 19 191 (1 526) (1 336) 62 919 59 505 62 919 59 505 Interest income 82 372 77 588 69 424 69 374 (22 296) (18 896) 129 500 128 066 129 500 128 066 Interest expense (38 256) (35 938) (49 095) (50 183) 20 770 17 560 (66 581) (68 561) (66 581) (68 561) Net fee and commission revenue 24 985 24 739 6 002 5 950 (365) (314) 30 622 30 375 30 622 30 375 Fee and commission revenue 30 944 30 284 6 609 6 477 (199) (169) 37 354 36 592 37 354 36 592 Fee and commission expense (5 959) (5 545) (607) (527) (166) (145) (6 732) (6 217) (6 732) (6 217) Trading revenue 425 174 11 670 10 543 (20) 82 12 075 10 799 12 075 10 799 Other revenue 3 553 2 872 335 903 201 88 4 089 3 863 4 089 3 863 Other gains and losses on financial instruments 21 (8) 729 766 6 31 756 789 756 789
Income from investment management and life insurance activities 23 573 21 722 23 573 21 722 Insurance premiums received 39 801 38 521 39 801 38 521 Insurance benefits and claims paid (44 241) (26 484) (44 241) (26 484) Investment management and service fee income and gains 9 241 9 122 9 241 9 122 Fair value adjustments to investments management liabilities and third-party fund interests 18 772 563 18 772 563
Total income 73 100 69 427 39 065 37 353 (1 704) (1 449) 110 461 105 331 23 573 21 722 134 034 127 053 Credit impairment charges (6 360) (5 440) (1 590) (1 049) (14) (7 964) (6 489) (7 964) (6 489) Net income before operating expenses 66 740 63 987 37 475 36 304 (1 718) (1 449) 102 497 98 842 23 573 21 722 126 070 120 564 Operating expenses in banking operations2 (43 243) (41 906) (20 985) (20 315) 1 893 2 137 (62 335) (60 084) (62 335) (60 084) Operating expenses in life insurance operations (16 486) (16 404) (16 486) (16 404) Net income before capital items and equity accounted earnings 23 497 22 081 16 490 15 989 175 688 40 162 38 758 7 087 5 318 47 249 44 076 Non-trading and capital related items (69) (22) (189) (385) 107 15 (151) (392) (2 418) (321) (249) (2 890) (641) Share of post tax profit/(loss) from associates 325 325 2 102 6 4 333 431 (864) 418 19 63 (512) 912 Net income before indirect taxation 23 753 22 384 16 303 15 706 288 707 40 344 38 797 (3 282) 418 6 785 5 132 43 847 44 347 Indirect taxation (606) (641) (318) (284) (1 082) (1 098) (2 006) (2 023) (585) (586) (2 591) (2 609) Profit before direct taxation 23 147 21 743 15 985 15 422 (794) (391) 38 338 36 774 (3 282) 418 6 200 4 546 41 256 41 738 Direct taxation (5 802) (5 530) (2 285) (2 249) 199 (44) (7 888) (7 823) (2 672) (1 272) (10 560) (9 095) Profit for the year 17 345 16 213 13 700 13 173 (595) (435) 30 450 28 951 (3 282) 418 3 528 3 274 30 696 32 643 Attributable to non-controlling interests 610 542 1 858 2 104 60 (7) 2 528 2 639 1 852 1 813 4 380 4 452 Attributable to other equity instrument holders 160 141 229 144 484 453 873 738 873 738 Attributable to ordinary shareholders 16 575 15 530 11 613 10 925 (1 139) (881) 27 049 25 574 (3 282) 418 1 676 1 461 25 443 27 453
Headline earnings 16 510 15 539 11 795 11 202 (1 089) (894) 27 216 25 847 (864) 418 1 855 1 600 28 207 27 865 Return on equity (ROE) (%) 22.4 21.9 18.1 19.3 18.1 (13.1) 5.6 16.5 15.2 16.8 18.0 Net interest margin (bps) 601 598 263 272 431 438 Credit loss ratio (bps) 89 81 32 16 68 56 Cost-to-income ratio (%) 59.2 60.4 53.7 54.4 56.4 57.0 Number of employees 26 040 27 499 3 555 3 751 15 401 16 169 44 996 47 419 5 695 5 759 50 691 53 178
1 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly. Refer to page 31 for details on restatements, other than cost centre movements. 2 The group has, as permitted by IFRS 16, elected not to restate its comparative financial statements. Comparability will therefore not be achieved as the comparative financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 112 ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
44. Segment reporting continued 44.2 Geographic information South Africa Standard Africa Regions International Eliminations1 Bank Group Rm Rm Rm Rm Rm
2019 Total income2 89 776 41 551 3 694 (987) 134 034 Banking activities 70 052 37 702 3 694 (987) 110 461 Liberty 19 724 3 849 23 573 Total headline earnings 20 581 7 527 520 (421) 28 207 Banking activities 18 314 7 939 1 384 (421) 27 216 Other banking interests (864) (864) Liberty 2 267 (412) 1 855 Total assets 1 833 665 422 860 111 391 (92 327) 2 275 589 Banking activities 1 406 815 414 614 107 550 (92 327) 1 836 652 Other banking interests 3 841 3 841 Liberty 426 850 8 246 435 096 Non-current assets3 65 772 13 662 194 (77) 79 551 Banking activities 29 078 12 944 194 (77) 42 139 Liberty 36 694 718 37 412
20184 Total income2 87 099 37 599 3 578 (1 223) 127 053 Banking activities 68 737 34 239 3 578 (1 223) 105 331 Liberty 18 362 3 360 21 722 Total headline earnings 19 788 6 932 1 712 (567) 27 865 Banking activities 17 832 7 288 1 294 (567) 25 847 Other banking interests 418 418 Liberty 1 956 (356) 1 600 Total assets 1 702 184 414 046 112 545 (101 813) 2 126 962 Banking activities 1 295 036 406 419 104 693 (101 813) 1 704 335 Other banking interests 7 852 7 852 Liberty 407 148 7 627 414 775 Non-current assets3 62 920 13 276 78 (78) 76 196 Banking activities 26 997 12 518 78 (78) 39 515 Liberty 35 923 758 36 681
1 Eliminations include intersegmental transactions and balances as well as central funding and other. 2 Total income is attributable based on where the operations are located. 3 Non-current assets are assets that are expected to be recovered more than 12 months after the reporting period. 4 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis’ comparative figures are reclassified accordingly. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 113
Standard Bank Group Limited – Company annual financial statements
Statement of financial position as at 31 December 2019
COMPANY 2019 2018 Note Rm Rm
Assets Financial investments 45 81 84 Other assets 173 170 Interest in subsidiaries 46 90 190 80 941 Interest in associates 47 1 233 1 065 Current tax asset 8 12 Total assets 91 685 82 272 Equity and liabilities Equity 79 310 76 537 Ordinary share capital and premium 15 17 984 17 860 Equity attributable to other equity instrument holders 15 10 989 9 047 Reserves 50 337 49 630 Liabilities 12 375 5 735 Deferred tax liabilities 48 1 2 Subordinated debt 49 11 704 5 057 Indebtedness by the company to group subsidiaries 46 637 619 Other liabilities 33 57
Total equity and liabilities 91 685 82 272 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 114 ANNUAL FINANCIAL STATEMENTS STANDARD BANK GROUP LIMITED – COMPANY ANNUAL FINANCIAL STATEMENTS CONTINUED
Statement of comprehensive income for the year ended 31 December 2019
COMPANY 2019 2018 Note Rm Rm
Interest income 805 350 Interest expense (771) (286) Other income 50 475 20 Dividends from subsidiaries 16 999 17 751 Total income 17 508 17 835 Operating expenses (45) (33) Net income before impairments of investment 17 463 17 802 Impairment of investment in subsidiaries 46 (2) (24) Net income before equity accounted earnings 17 461 17 778 Share of profits from associates and joint ventures 288 289 Profit before direct taxation 17 749 18 067 Direct taxation 51 (236) (210) Profit for the year 17 513 17 857 Other comprehensive loss after tax for the year (6) (32) Net change in fair value of equity financial assets measured at fair value 45 (8) (41) Deferred tax on net fair value adjustment on equity financial assets measured at fair value through OCI 48 2 9
Total comprehensive income 17 507 17 825 Attributable to the ordinary shareholder 16 634 17 087 Attributable to other equity instrument holders 873 738 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 115
Statement of cash flows for the year ended 31 December 2019
COMPANY 2019 2018 Note Rm Rm
Net cash flows from operating activities 17 462 17 780 Profit before direct taxation 17 749 18 067 Adjusted for non -cash items and other adjustments included in the income statement 52 (17 794) (18 099) Decrease in income-earning assets 14 (Decrease)/increase in deposits, trading and other liabilities (22) 3 Interest received 805 350 Interest paid (771) (286) Dividends received 16 999 17 751 Proceeds on sale of shares in subsidiary 522 Taxation received/(paid) (26) (20) Net cash flows used in from investing activities (9 209) (6 675) Increase in investment in subsidiaries 52 (9 209) (6 675) Net cash flows used in financing activities (8 253) (11 105) Proceeds from issue of share capital 124 320 Share buy-backs (523) Issuance of other equity instruments 1 942 Issuance of subordinated debt 52 6 647 5 057 Net dividends paid (16 966) (15 959)
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 116 ANNUAL FINANCIAL STATEMENTS STANDARD BANK GROUP LIMITED – COMPANY ANNUAL FINANCIAL STATEMENTS CONTINUED
Statement of changes in equity for the year ended 31 December 2019
Ordinary Other Share Share-based Cash flow Empower- Fair value share- equity capital and payment Revaluation hedging ment through Retained holders’ instrument premium reserve reserve reserve reserve OCI earnings equity holders Total Note Rm Rm Rm Rm Rm reserve Rm Rm Rm Rm
Balance at 1 January 2018 18 063 4 3 100 969 (274) (9) 43 848 65 701 9 047 74 748 Issue of share capital and share premium 15 320 320 320 Repurchase of share capital and share premium 15 (523) (523) (523) Equity-settled share-based payment transactions Vested units transfer to retained earnings (4) 4 Total comprehensive income (32) 17 119 17 087 738 17 825 Other comprehensive income (32) (32) (32) Profit for the year 17 119 17 119 738 17 857 Dividends paid 8 (15 221) (15 213) (738) (15 951) Preference share redemption 118 118 118 Balance at 31 December 2018 17 860 3 100 969 (148) (41) 45 750 67 490 9 047 76 537 Balance at 1 January 20191 17 860 3 100 969 (148) (41) 45 750 67 490 9 047 76 537 Issue of share capital and share premium 15 124 124 124 Repurchase of share capital and share premium 15 1 942 1 942 Vested units transfer to retained earnings Direct equity movement 18 18 18 Total comprehensive income (6) 16 640 16 634 873 17 507 Total comprehensive income (6) (6) (6) Profit for the year 16 640 16 640 873 17 513 Dividends paid (16 093) (16 093) (873) (16 966) Preference share redemption 148 148 148 Balance at 31 December 2019 17 984 3 100 969 (47) 46 315 68 321 10 989 79 310
1 The transition to IFRS 16 had no impact on the SBGL equity balances as at 31 December 2018 or 1 January 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 117
Ordinary Other Share Share-based Cash flow Empower- Fair value share- equity capital and payment Revaluation hedging ment through Retained holders’ instrument premium reserve reserve reserve reserve OCI earnings equity holders Total Note Rm Rm Rm Rm Rm reserve Rm Rm Rm Rm
Balance at 1 January 2018 18 063 4 3 100 969 (274) (9) 43 848 65 701 9 047 74 748 Issue of share capital and share premium 15 320 320 320 Repurchase of share capital and share premium 15 (523) (523) (523) Equity-settled share-based payment transactions Vested units transfer to retained earnings (4) 4 Total comprehensive income (32) 17 119 17 087 738 17 825 Other comprehensive income (32) (32) (32) Profit for the year 17 119 17 119 738 17 857 Dividends paid 8 (15 221) (15 213) (738) (15 951) Preference share redemption 118 118 118 Balance at 31 December 2018 17 860 3 100 969 (148) (41) 45 750 67 490 9 047 76 537 Balance at 1 January 20191 17 860 3 100 969 (148) (41) 45 750 67 490 9 047 76 537 Issue of share capital and share premium 15 124 124 124 Repurchase of share capital and share premium 15 1 942 1 942 Vested units transfer to retained earnings Direct equity movement 18 18 18 Total comprehensive income (6) 16 640 16 634 873 17 507 Total comprehensive income (6) (6) (6) Profit for the year 16 640 16 640 873 17 513 Dividends paid (16 093) (16 093) (873) (16 966) Preference share redemption 148 148 148 Balance at 31 December 2019 17 984 3 100 969 (47) 46 315 68 321 10 989 79 310
1 The transition to IFRS 16 had no impact on the SBGL equity balances as at 31 December 2018 or 1 January 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 118 ANNUAL FINANCIAL STATEMENTS STANDARD BANK GROUP LIMITED CONTINUED
Notes to the company annual financial statements
45. Financial investments 2019 2018 Rm Rm
Financial investments held in banking activities – unlisted equities 81 84
45.1 Classification 2019 2018 Rm Rm
Financial investment measured at fair value through OCI Opening balance 57 98 Fair value adjustments (8) (41) Impairment Closing balance 49 57 Financial investment measured at fair value through profit or loss Opening balance 27 Fair value adjustments 5 27 Closing balance 32 27 Total 81 84
Financial investments comprise of unlisted equities in Unlu Yatarim A.S (4.41%) measured at FVOCI and Business Partners Limited (3.24%) measured at FVTPL. Both investments are classified as level 3 in the fair value hierarchy.
46. Interest in subsidiaries 2019 2018 Rm Rm
Shares at cost 76 380 73 150 Indebtedness to the company (annexure A) 12 894 6 875 Investment through equity-settled share incentives 916 916 Total before indebtedness by the company 90 190 80 941 Indebtedness by the company (annexure A) (637) (619) Total 89 553 80 322
AFS Principal subsidiaries and investments and related loans are listed in annexure A. For more detail regarding related party transactions, refer to note 42.
Indebtedness to the company are all current assets and have been classified as loans and advances which are measured on an amortised cost basis. These lending exposures are to entities that form part of the group’s risk management framework. This is on the basis that the group has governance and oversight of the risk inherent in these entities and ensures that entities operate within the group’s risk appetite as approved by the group risk and capital management committee (GRCMC). The ECL has been assessed to be insignificant.
The carrying value approximates fair value and is classified as level 3 in the fair value hierarchy. Changes in the indebtedness during the year include repayments, new loans, interest accruals and exchange rate differences.
Indebtedness by the company are all liabilities repayable on demand and are measured at amortised cost. The carrying value approximates fair value and is classified as level 3 in the fair value hierarchy. Changes in the indebtedness during the year include repayments, new loans, interest accruals and exchange rate differences.
The company’s investments in subsidiaries (measured at cost) are reviewed annually for impairment with reference to impairment indicators that include the following: •• dividends declared by subsidiaries in excess of the subsidiaries’ total comprehensive income earned in the reporting period. •• the carrying value of the investment exceeds the net asset value of the subsidiary, including any associated goodwill.
When impairment indicators exist the recoverable amount of the company’s investment in the subsidiary is determined (as the higher of the value in use and fair value less cost to sell). An impairment loss is recognised in profit or loss if the carrying value exceeds the recoverable amount.
During 2019, R2 million (2018: R24 million) impairment losses were recognised on the company’s investment in SML Limited. The events and circumstances that led to the recognition of the impairment was that the recoverable amount (being the value in use) of the entity was less than the carrying value. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 119
47. Interest in associates 2019 2018 Rm Rm
Carrying value at beginning of the year 1 065 913 Direct equity movement 18 Share of profit 288 289 Dividend received (138) (113) IFRS 9 transition adjustment (24) Carrying value at end of the year 1 233 1 065
The company’s investments in associates include South African Home Loans Proprietary Limited.
Refer to annexure B for details on associates.
48. Deferred tax liabilities 2019 2018 Rm Rm
Deferred tax reconciliation Deferred tax liability at the beginning of the year (2) (5) Adding/(reversing) temporary difference for the year 1 3 Deferred tax on equity financial asset reserve recognised in OCI 2 9 Fair value adjustment – recognised in profit or loss (1) (6)
Deferred tax liability at end of the year (1) (2)
49. Subordinated debt Carrying Carrying value1 value Nominal value1 2019 2018 Redeemable/payable date First callable date Million Rm Rm
SBT201 13 February 2028 13 February 2023 ZAR3 000 3 040 3 041 SBT202 3 December 2028 3 December 2023 ZAR1 516 1 527 1 528 SBT203 3 December 2028 3 December 2023 ZAR484 488 488 SBT204 16 April 2029 16 April 2024 ZAR1 000 1 020 SBT205 31 May 2029 31 May 2024 USD400 5 629 Total 11 704 5 057
1 The difference between the carrying amount and nominal value represents accrued interest.
For SBG group, these subordinated bonds are hedged items classified as fair value hedges, interest rate swaps are the derivatives designated as the hedging instruments for these hedge relationships. However, for SBG company (the company), these bonds do not qualify for hedge accounting as the company does not hold derivative instruments.
Subordinated debt is measured on an amortised cost basis and is classified as level 2 in the fair value hierarchy, with a fair value of R11.8 billion (2018: R5.5 billion).
49.1 Maturity analysis Within one to five years2 2019 2018 Rm Rm
Subordinated debt – discounted 11 704 5 057 Subordinated debt – undiscounted 14 468 5 965
2 The maturity analysis for subordinated debt has been determined as the earlier of the contractual repayment date or the option by the issuer to redeem the debt. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 120 ANNUAL FINANCIAL STATEMENTS NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS CONTINUED
50. Other income 2019 2018 Rm Rm
Foreign exchange gains and other (7) Unrealised gains on financial instruments 5 27 Profit on the sale of shares 470 Total 475 20
51. Direct taxation 2019 2018 Rm Rm
Current year South African normal tax 209 147 Deferred tax charge (1) 6 Foreign and withholding taxes 28 55 Prior years South African normal tax prior year under provision 2 Total direct taxation recognised in statement of comprehensive income 236 210 South African tax rate reconciliation (%) Direct tax – statutory rate 28.0 28.0 Direct tax – current year 28 28.0 Withholding tax 0.2 0.3 Direct tax – current year – normal 28.2 28.3 Permanent differences (27.1) (27.1) Dividends received (26.0) (26.8) Other non-taxable income (0.6) 0.1 Equity accounted earnings (0.5) (0.4)
Direct effective tax rate1 1.1 1.2
1 Expressed as a percentage of profit before direct tax. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 121
52. Statement of cash flows notes 52.1 Adjustment for non-cash items and other adjustments included in the income statement 2019 2018 Rm Rm
Dividends received (16 999) (17 751) Interest income (805) (350) Interest expense 771 286 Share of profits from associates and joint ventures (288) (289) Profit on sale of shares in subsidiary (470) Impairment of investment in subsidiary 2 24 Unrealised gains on financial instruments (5) (27) Foreign exchange gains and losses 8 Total (17 794) (18 099)
52.2 Increase in investment in subsidiaries 2019 2018 Rm Rm
Increase in investment in subsidiaries (3 208) (1 712) Movement in indebtness (6 001) (4 963) Total (9 209) (6 675)
52.3 Reconciliation of subordinated debt 2019 2018 Rm Rm
Balance at the beginning of the year 5 057 Subordinated debt issue 6 647 5 057 Balance at the end of the year 11 704 5 057
53. Liquidity, credit and market risk information Other assets and liabilities consist mainly of non-financial assets and liabilities which are not subject to liquidity, credit and market risk. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 122 ANNUAL FINANCIAL STATEMENTS
Annexure A – subsidiaries, consolidated and unconsolidated structured entities
The diagram depicts principal subsidiaries only. A full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office. The holding in subsidiaries is 100% unless otherwise indicated.
STANDARD BANK GROUP1
The Standard Bank of Melville Douglas Stanbic Africa Holdings, South Africa1 Investment Management1 UK
Blue Managers1 Standard Insurance1 Stanbic Bank (Botswana)
Diners Club (S.A.)1 Stanbic Bank Ghana (99.54%) Standard Trust1
Standard Bank Insurance Brokers1 Standard Holdings Côte d’Ivoire (99%) Stanvest1 Stanbic Bank, Côte d’Ivoire (99%) SBG Securities1 Stanbic Uganda Holdings (80%)
Stanbic Bank, Standard Bank Uganda (99%) Properties1 Stanbic Bank Tanzania (99.99%) Standard Lesotho Bank (80%) Stanbic Bank Zambia (99.99%)
Stanbic Holdings, Kenya (69.05%)3 SBN Holdings Limited (74.9)2 ••Stanbic Bank Kenya ••Stanbic Insurance Agency
Standard Bank Namibia2 Stanbic IBTC Holdings, Nigeria (65.35%)4
Stanbic IBTC Bank (99.99%) Standard Bank eSwatini (72.22%) Stanbic Bank Zimbabwe
Standard Bank de Angola Standard Bank RDC, DRC (99.99%) (51%) Standard Bank, Malawi (60.18%)
Standard Advisory London, UK Standard Bank (Mauritius)
Standard Bank Mozambique (98.15%)5 1 Refer to footnotes on the following page. Standard New York, USA WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 123
STANDARD BANK GROUP1
Standard Bank London Standard Bank Offshore Liberty Holdings1 Holdings, UK Group, Jersey (53.62%)
Standard Bank Offshore Trust Liberty Group1 Standard Advisory Asia, Hong Kong Company Jersey
••Frank Life1 Standard Bank Isle of Man ••Liberty two degrees1 (58.46%)
Standard Bank Trust Company (Mauritius) Liberty Group Properties1
Standard Bank Jersey Liberty Holdings Namibia (100%)
Liberty Kenya Holdings (57.74%)
STANLIB1
1 Standard Bank ••STANLIB Asset Management ••STANLIB Collective Group International, Investments1 Isle of Man ••STANLIB Fund Managers Jersey ••STANLIB Multi-Manager1 SBIC Finance, Isle of Man ••STANLIB Wealth Management1
Stanbic International Insurance, Isle of Man
Standard Finance, Isle of Man
1 Incorporated in South Africa. 2 Following the listing of SBN Holdings Limited on the Namibian Stock Exchange in November 2019, SBG holds a legal shareholding of 74.9% but accounts for 84.47% of SBN Holdings Limited’s attributable earnings as it retains control over the empowerment structure until 31 December 2019. 3 Stanbic Holdings Ghana was incorporated to take transfer of certain financial services operations in Ghana, including Stanlib Ghana, and it is the group’s intention, subject to necessary regulatory approvals, for Stanbic Holdings The diagram above depicts principal subsidiaries only. A full list of Ghana to hold Stanbic Bank Ghana in due course. Standard Holdings Ghana the group’s subsidiaries and consolidated structured entities completed the 100% acquisition of Stanlib Ghana from Liberty Holdings is available at the company’s registered office. The holding Limited in 2019. 4 Change in holding from 69.05% to 69.15%. in subsidiaries is 100% unless otherwise indicated. The holding 5 Change in holding from 65.35% to 65.70%. in subsidiaries is 100% unless otherwise indicated. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 124 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Non-controlling Effective holding2 interest Book value of shares Net indebtedness Nominal share capital issued 2019 2018 2019 2018 2019 2018 2019 2018 Nature of operation Rm % % % % Rm Rm Rm Rm
Standard Bank Group Limited will ensure that the capital adequacy of its subsidiaries denoted by # will meet the requirements of home and host regulators, as required by section 70(A) of the South African Banks Act. Banking subsidiaries Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 423 100 100 Stanbic Bank Ghana Limited (Ghana)1# Commercial bank 630 99 99 1 1 Stanbic Bank Kenya Limited (Kenya)1# Commercial bank 423 69 69 31 31 Stanbic Bank S.A. (Côte d’Ivoire)1# Commercial bank 974 100 100 Stanbic Bank Tanzania Limited (Tanzania)1, 3# Commercial bank 50 100 100 Stanbic Bank Zambia Limited (Zambia)1, 3# Commercial bank 660 100 100 Stanbic Bank Zimbabwe Limited (Zimbabwe)#* Commercial bank 2 100 100 136 136 Stanbic Bank Uganda Limited (Uganda)1# Commercial bank 227 80 80 20 20 Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 111 66 65 34 35 Standard Bank de Angola S.A. (Angola)# Commercial bank 768 51 51 49 49 359 359 139 130 Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100 Standard Bank Jersey Limited (Jersey)1# Merchant bank 454 100 100 Standard Bank PLC (Malawi)1, 4# Commercial bank 23 60 60 40 40 Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100 Standard Bank Namibia Limited (Namibia)1, 5# Commercial bank 2 84 100 16 Standard Bank RDC (S.A.) (DRC)1, 3# Commercial bank 944 100 100 Standard Bank S.A. (Mozambique)1# Commercial bank 309 98 98 2 2 Standard Bank Eswatini Limited (Eswatini)# Commercial bank 15 72 72 28 28 94 94 Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 20 20 13 13 The Standard Bank of South Africa Limited# Commercial bank 60 100 100 50 541 47 799 12 070 6 158 Total banking subsidiaries 51 143 48 401 12 209 6 288
Refer to footnotes on the following page.
* Stanbic Bank Zimbabwe functional currency The only legal exchange mechanism that SBZ had access to in the financial period since the change in functional currency from USD to ZWL, on 1 October 2018, ZWL was the official exchange mechanism. This led to SBZ concluding that the appropriate exchange rate to use at the date of the change in functional currency and subsequent to the change in functional currency up until the end of the 2018 reporting period was the official rate of 1:1.
RBZ implemented certain key monetary policy measures during February 2019. The most significant change was the establishment of a new foreign exchange interbank market and this interbank market will complement the existing official foreign exchange mechanism with the RBZ. The establishment of this interbank market has created an additional legal exchange mechanism whereby the bank is able to trade RTGS dollars (official currency). The starting rate of trade in this interbank market was 2.5 RTGS:USD. As at 31 December 2019, the rate deteriorated to 16.54 RTGS:USD from 1 RTGS:USD as at 31 December 2018, which resulted in a FCTR loss of R2.5 billion for the group, after the hyperinflation adjustment translation adjustment per IAS 21 .
During 2019, the Zimbabwe year-on-year monthly inflation rate increased from 42% at the end of December 2018 to 521% at the end of December 2019. Therefore, SBZ is considered to be hyperinflationary and the results for SBZ were adjusted in accordance with IAS 29. This resulted in the group’s profit attributable to ordinary shareholders for the period ended 31 December 2019 decreasing by R82 million and an increase in retained earnings of R730 million. The consumer price index at the beginning of the reporting period was 98%, and closed at 552%. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 125
Non-controlling Effective holding2 interest Book value of shares Net indebtedness Nominal share capital issued 2019 2018 2019 2018 2019 2018 2019 2018 Nature of operation Rm % % % % Rm Rm Rm Rm
Standard Bank Group Limited will ensure that the capital adequacy of its subsidiaries denoted by # will meet the requirements of home and host regulators, as required by section 70(A) of the South African Banks Act. Banking subsidiaries Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 423 100 100 Stanbic Bank Ghana Limited (Ghana)1# Commercial bank 630 99 99 1 1 Stanbic Bank Kenya Limited (Kenya)1# Commercial bank 423 69 69 31 31 Stanbic Bank S.A. (Côte d’Ivoire)1# Commercial bank 974 100 100 Stanbic Bank Tanzania Limited (Tanzania)1, 3# Commercial bank 50 100 100 Stanbic Bank Zambia Limited (Zambia)1, 3# Commercial bank 660 100 100 Stanbic Bank Zimbabwe Limited (Zimbabwe)#* Commercial bank 2 100 100 136 136 Stanbic Bank Uganda Limited (Uganda)1# Commercial bank 227 80 80 20 20 Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 111 66 65 34 35 Standard Bank de Angola S.A. (Angola)# Commercial bank 768 51 51 49 49 359 359 139 130 Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100 Standard Bank Jersey Limited (Jersey)1# Merchant bank 454 100 100 Standard Bank PLC (Malawi)1, 4# Commercial bank 23 60 60 40 40 Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100 Standard Bank Namibia Limited (Namibia)1, 5# Commercial bank 2 84 100 16 Standard Bank RDC (S.A.) (DRC)1, 3# Commercial bank 944 100 100 Standard Bank S.A. (Mozambique)1# Commercial bank 309 98 98 2 2 Standard Bank Eswatini Limited (Eswatini)# Commercial bank 15 72 72 28 28 94 94 Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 20 20 13 13 The Standard Bank of South Africa Limited# Commercial bank 60 100 100 50 541 47 799 12 070 6 158 Total banking subsidiaries 51 143 48 401 12 209 6 288
Refer to footnotes on the following page.
* Stanbic Bank Zimbabwe functional currency The only legal exchange mechanism that SBZ had access to in the financial period since the change in functional currency from USD to ZWL, on 1 October 2018, ZWL was the official exchange mechanism. This led to SBZ concluding that the appropriate exchange rate to use at the date of the change in functional currency and subsequent to the change in functional currency up until the end of the 2018 reporting period was the official rate of 1:1.
RBZ implemented certain key monetary policy measures during February 2019. The most significant change was the establishment of a new foreign exchange interbank market and this interbank market will complement the existing official foreign exchange mechanism with the RBZ. The establishment of this interbank market has created an additional legal exchange mechanism whereby the bank is able to trade RTGS dollars (official currency). The starting rate of trade in this interbank market was 2.5 RTGS:USD. As at 31 December 2019, the rate deteriorated to 16.54 RTGS:USD from 1 RTGS:USD as at 31 December 2018, which resulted in a FCTR loss of R2.5 billion for the group, after the hyperinflation adjustment translation adjustment per IAS 21 .
During 2019, the Zimbabwe year-on-year monthly inflation rate increased from 42% at the end of December 2018 to 521% at the end of December 2019. Therefore, SBZ is considered to be hyperinflationary and the results for SBZ were adjusted in accordance with IAS 29. This resulted in the group’s profit attributable to ordinary shareholders for the period ended 31 December 2019 decreasing by R82 million and an increase in retained earnings of R730 million. The consumer price index at the beginning of the reporting period was 98%, and closed at 552%. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 126 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Non-controlling Effective holding interest Book value of shares Net indebtedness Nominal share 2019 2018 2019 2018 2019 2018 2019 2018 Nature of operation capital issued Rm Rm Rm Rm Rm Rm Rm Rm
Non-banking subsidiaries Development and marketing transactions – switching software Ecentric Payment Systems Proprietary Limited1 and services 54 100 46 Liberty Group Limited1 Insurance company 29 54 54 46 46 Liberty Holdings Limited4 Insurance holding company 26 54 54 46 46 7 668 7 668 Liberty Two Degrees Limited1, 6 Real Estate Investment trust 58 59 41 Melville Douglas Investment Management Proprietary Limited# Asset and portfolio management 100 100 53 53 SBG Securities Proprietary Limited# Stockbrokers 100 100 320 320 SBN Holdings Limited (Namibia)4, 5 Bank holding company 1 84 100 16 348 400 Stanbic Africa Holdings Limited (UK) Investment holding company 1 494 100 100 8 064 7 416 119 84 Stanbic Holdings Ghana Limited7 Holding company 30 100 Stanbic Holdings PLC (Kenya)1, 4 Bank holding company 232 69 69 31 31 Stanbic IBTC Holdings PLC (Nigeria)1, 4 Bank holding company 284 66 65 35 Stanbic Uganda Holdings Limited (Uganda)4 Bank holding company 227 80 20 Standard Advisory (China) Limited (China) Trading company 8 100 100 10 10 Standard Advisory London Limited (UK) Arranging and advisory company 1 100 100 557 557 Standard Bank Group International Limited (Isle of Man) Investment holding company 100 100 308 425 Standard Bank International Investments Limited (Jersey)1# Investment service provider 100 100 Standard Bank London Holdings Limited (UK) Investment holding company 6 337 100 100 7 658 7 658 Standard Bank Offshore Group Limited (Jersey) Investment holding company 17 100 100 49 49 Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 6 100 100 Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company 100 100 Standard Finance Limited (Isle of Man)1# Finance company 100 100 Standard Insurance Limited Short-term insurance 15 100 100 30 30 Standard New York, Inc (US) Securities broker/dealer 55 100 100 55 55 Standard Trust Limited2# Trust company 100 100 STANLIB Limited1 Wealth and asset management 54 54 46 46 Miscellaneous Finance companies 135 108 (71) (116) Total non-banking subsidiaries 25 255 24 749 48 (32) Total subsidiaries 76 398 73 150 12 257 6 256
1 Held indirectly, no book value in Standard Bank Group Limited. 2 Effective holding company comprises direct and indirect holdings. 3 Minorities or nominee shareholders hold 0.5% or less. 4 Listed on a stock exchange. 5 Following the listing of SBN Holdings Limited on the Namibian Stock Exchange in November 2019, Standard Bank Group Limited legally owns 74.9% (2018: 90%) but consolidates 84.47% (2018: 100%) of SBN Holdings Limited’s attributable earnings due to the degree of control over the empowerment structure. Refer to page 135 for further detail on the change in holding post 31 December 2019. 6 Effective shareholding represents Liberty Group’s direct shareholding. 7 Established in 2019.
The nominal share capital issued of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of the provision of capital. The country of incorporation is South Africa unless otherwise indicated.
While a full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office, the above disclosures include subsidiaries for which either of the following is present: •• Standard Bank Group Limited has provided a capital adequacy statement (denoted by #) •• there is a non-controlling interest •• there is a net book value as recorded in Standard Bank Group Limited’s financial statements •• there is net indebtedness to/from Standard Bank Group Limited.
No significant restrictions exist on the transfer of funds and capital within the group, subject to compliance with the corporate laws of relevant jurisdictions and appropriate motivation to, and approval by, exchange control authorities. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 127
Non-controlling Effective holding interest Book value of shares Net indebtedness Nominal share 2019 2018 2019 2018 2019 2018 2019 2018 Nature of operation capital issued Rm Rm Rm Rm Rm Rm Rm Rm
Non-banking subsidiaries Development and marketing transactions – switching software Ecentric Payment Systems Proprietary Limited1 and services 54 100 46 Liberty Group Limited1 Insurance company 29 54 54 46 46 Liberty Holdings Limited4 Insurance holding company 26 54 54 46 46 7 668 7 668 Liberty Two Degrees Limited1, 6 Real Estate Investment trust 58 59 41 Melville Douglas Investment Management Proprietary Limited# Asset and portfolio management 100 100 53 53 SBG Securities Proprietary Limited# Stockbrokers 100 100 320 320 SBN Holdings Limited (Namibia)4, 5 Bank holding company 1 84 100 16 348 400 Stanbic Africa Holdings Limited (UK) Investment holding company 1 494 100 100 8 064 7 416 119 84 Stanbic Holdings Ghana Limited7 Holding company 30 100 Stanbic Holdings PLC (Kenya)1, 4 Bank holding company 232 69 69 31 31 Stanbic IBTC Holdings PLC (Nigeria)1, 4 Bank holding company 284 66 65 35 Stanbic Uganda Holdings Limited (Uganda)4 Bank holding company 227 80 20 Standard Advisory (China) Limited (China) Trading company 8 100 100 10 10 Standard Advisory London Limited (UK) Arranging and advisory company 1 100 100 557 557 Standard Bank Group International Limited (Isle of Man) Investment holding company 100 100 308 425 Standard Bank International Investments Limited (Jersey)1# Investment service provider 100 100 Standard Bank London Holdings Limited (UK) Investment holding company 6 337 100 100 7 658 7 658 Standard Bank Offshore Group Limited (Jersey) Investment holding company 17 100 100 49 49 Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 6 100 100 Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company 100 100 Standard Finance Limited (Isle of Man)1# Finance company 100 100 Standard Insurance Limited Short-term insurance 15 100 100 30 30 Standard New York, Inc (US) Securities broker/dealer 55 100 100 55 55 Standard Trust Limited2# Trust company 100 100 STANLIB Limited1 Wealth and asset management 54 54 46 46 Miscellaneous Finance companies 135 108 (71) (116) Total non-banking subsidiaries 25 255 24 749 48 (32) Total subsidiaries 76 398 73 150 12 257 6 256
1 Held indirectly, no book value in Standard Bank Group Limited. 2 Effective holding company comprises direct and indirect holdings. 3 Minorities or nominee shareholders hold 0.5% or less. 4 Listed on a stock exchange. 5 Following the listing of SBN Holdings Limited on the Namibian Stock Exchange in November 2019, Standard Bank Group Limited legally owns 74.9% (2018: 90%) but consolidates 84.47% (2018: 100%) of SBN Holdings Limited’s attributable earnings due to the degree of control over the empowerment structure. Refer to page 135 for further detail on the change in holding post 31 December 2019. 6 Effective shareholding represents Liberty Group’s direct shareholding. 7 Established in 2019.
The nominal share capital issued of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of the provision of capital. The country of incorporation is South Africa unless otherwise indicated.
While a full list of the group’s subsidiaries and consolidated structured entities is available at the company’s registered office, the above disclosures include subsidiaries for which either of the following is present: •• Standard Bank Group Limited has provided a capital adequacy statement (denoted by #) •• there is a non-controlling interest •• there is a net book value as recorded in Standard Bank Group Limited’s financial statements •• there is net indebtedness to/from Standard Bank Group Limited.
No significant restrictions exist on the transfer of funds and capital within the group, subject to compliance with the corporate laws of relevant jurisdictions and appropriate motivation to, and approval by, exchange control authorities. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 128 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Consolidated structured entities Amount of support provided as at1, 2, 3 Type of support4 Name of 2019 2018 2019 2018 Terms of contractual arrangements that require Events/circumstances that could expose the group to the entity Nature of the operations Rm Rm Rm Rm the group to provide financial support to the SE a loss as a result of the contractual arrangement
Blue Granite Facilitates mortgage-backed 26 28 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 2’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 2 (RF) liquidity facility provider to BG2. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG2) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Blue Granite Facilitates mortgage-backed 59 59 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 3’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 3 (RF) liquidity facility provider to BG3. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG3) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Blue Granite Facilitates mortgage-backed 18 18 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 4’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 4 (RF) liquidity facility provider to BG4. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG4) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Siyakha Fund Facilitates mortgage-backed 501 501 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should Siyakha’s customers be unable to meet their (RF) Limited securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment contractual obligations under the mortgage loan agreement (Siyakha) liquidity facility provider to Siyakha. date at the lower of cash available or an amount calculated and the loans be classified as non-performing. such that the rate will be equal to prime plus 5% or an amount equal to the notional net income reflected in the management accounts, after taking into account all income and expenses. Blue Shield Facilitates mortgage-backed 504 504 Subordinated Subordinated The subordinated loan is provided by the group. Interest Should Blue Shield 01’s customers be unable to meet their Investments 01 securitisations. The group is the primary loan loan is charged at the lower of prime plus 10% or net profit after contractual obligations under the mortgage loan agreement (RF) Limited liquidity facility provider to Blue Shield 01. tax or cash balance available in Blue Shield 01. and the loans be classified as non-performing. (Blue Shield 01) 16 158 16 162 Mortgage- Mortgage- The group holds class A1, A2, A3 and C notes. Interest for backed notes backed notes the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.55% and 4.00%. Interest is payable quarterly. The notes’ maturity date is 21 November 2024.
Refer to footnotes on the following page. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 129
Consolidated structured entities Amount of support provided as at1, 2, 3 Type of support4 Name of 2019 2018 2019 2018 Terms of contractual arrangements that require Events/circumstances that could expose the group to the entity Nature of the operations Rm Rm Rm Rm the group to provide financial support to the SE a loss as a result of the contractual arrangement
Blue Granite Facilitates mortgage-backed 26 28 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 2’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 2 (RF) liquidity facility provider to BG2. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG2) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Blue Granite Facilitates mortgage-backed 59 59 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 3’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 3 (RF) liquidity facility provider to BG3. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG3) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Blue Granite Facilitates mortgage-backed 18 18 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should BG 4’s customers be unable to meet their contractual Investments securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment obligations under the mortgage loan agreement and the loans No. 4 (RF) liquidity facility provider to BG4. date at the lower of cash available or an amount calculated be classified as non-performing. Proprietary such that the rate will be equal to prime plus 5% or an Limited (BG4) amount equal to the notional net income as reflected in the management accounts, after taking into account all income and expenses. Siyakha Fund Facilitates mortgage-backed 501 501 Subordinated Subordinated The loan does not have a fixed term or repayment date. Should Siyakha’s customers be unable to meet their (RF) Limited securitisations. The group is the primary loan loan Payment of interest will be determined on interest payment contractual obligations under the mortgage loan agreement (Siyakha) liquidity facility provider to Siyakha. date at the lower of cash available or an amount calculated and the loans be classified as non-performing. such that the rate will be equal to prime plus 5% or an amount equal to the notional net income reflected in the management accounts, after taking into account all income and expenses. Blue Shield Facilitates mortgage-backed 504 504 Subordinated Subordinated The subordinated loan is provided by the group. Interest Should Blue Shield 01’s customers be unable to meet their Investments 01 securitisations. The group is the primary loan loan is charged at the lower of prime plus 10% or net profit after contractual obligations under the mortgage loan agreement (RF) Limited liquidity facility provider to Blue Shield 01. tax or cash balance available in Blue Shield 01. and the loans be classified as non-performing. (Blue Shield 01) 16 158 16 162 Mortgage- Mortgage- The group holds class A1, A2, A3 and C notes. Interest for backed notes backed notes the different classes of notes accrues at the three-month JIBAR rate plus a margin ranging between 1.55% and 4.00%. Interest is payable quarterly. The notes’ maturity date is 21 November 2024.
Refer to footnotes on the following page. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 130 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Consolidated structured entities continued Amount of support provided as at1, 2, 3 Type of support4 Name of 2019 2018 2019 2018 Terms of contractual arrangements that require Events/circumstances that could expose the group to the entity Nature of the operations Rm Rm Rm Rm the group to provide financial support to the SE a loss as a result of the contractual arrangement
Blue Shield Facilitates mortgage-backed 1 816 1 350 Subordinated Subordinated The subordinated loan is provided by the group. Interest Should Blue Shield 02’s customers be unable to meet their Investments 02 securitisations. The group is the primary loan loan is charged at 11%. contractual obligations under the mortgage loan agreement (RF) Limited liquidity facility provider to Blue Shield and the loans be classified as non-performing. (Blue Shield 02) 02. 30 709 30 708 Mortgage- Mortgage- The group holds class A1, A2, B and C notes. Interest for backed notes backed notes the different classes of notes accrues at prime rate less a margin ranging between 1% and 1.9%. Interest is payable quarterly. The notes’ maturity date is 1 December 2055.
Blue Banner Originates mortgage loans on behalf of 7 88 Bridging Bridging The loan does not have a fixed term or repayment date. Any Should Blue Banner’s customers be unable to meet their Securitisation group. The group is required to provide finance finance profits in Blue Banner are paid out as interest to the group. contractual obligations under the mortgage loan agreement Vehicle RC1 the funding for these mortgage loans. and the loans are classified as non-performing. Proprietary Limited (Blue Banner)
Rapvest Facilitates finance deals for other group 6 902 9 790 Loan Loan The loan is payable on demand. No interest is charged on In the event that the underlying assets are classified as Investment companies and third-parties through the loan. non-performing loans. Proprietary preference share investments and loans Limited to clients.
DAF Financial The structure is an asset-backed funding 234 301 Loan Loan The loan bears interest at a rate of prime plus 1%. SBSA is exposed to the first-loss risk in the structure, as well as Services (RF) solution. The financial assets, the truck The maturity date of the loan is 30 September 2023. potential losses that may be incurred on the receivables as a Proprietary finance receivables, are transferred to result of residual asset value risk. The residual asset value risk Limited DFS and funding is provided by Standard is, however, limited due to a put option that is in place. Bank on a limited-recourse basis secured by the receivables. Main Street 367 Facilitates funding to BG1, BG2, BG3, BG4 222 210 Subordinated Subordinated The loan is only repayable to the extent that Mainstreet In the event that customers of BG1, BG2, BG3, BG4 and Siyakha (RF) Proprietary and Siyakha. SB Debtors (a subsidiary of loan loan receives payment from BG1, BG2, BG3, BG4 and Siyakha. are unable to meet their contractual obligations under Limited Standard Bank Group) provides The interest is charged at the higher of JIBAR plus 10% the mortgage loan agreement and their loans are classified as the funding to Mainstreet to originate and the cash available in terms of Mainstreet’s priority of non-performing. the loans. payments less R15 000. Blue Diamond The group issues notes to Blue Diamond 203 206 Credit-linked Credit-linked The group holds the notes issued by (BD)3. The group settles In the event of a credit event, the group will suffer a loss. Investments Investments No. 3 (BD), then BD obtains notes notes BD’s operating expenses as and when necessary, typically The group is also exposed to the risk of loss should it be unable No. 3 (RF) credit protection from third-party in the event that BD has liquidity constraints. Any payment to recover any unexpected operating expenses from (BD)3. Limited (BD)3 investors by issuing notes to third-party for such amounts is to be refunded by BD to the group. investors on single or multiple corporate names. The notes issued by BD are held by Liberty.
1 The amount of support provided includes loans and advances and drawn down credit facilities provided to SEs by the group. 2 During the reporting period, the group did not provide any financial or other support to any subsidiary without having a contractual obligation to do so. 3 This is the amount as reported on the balance sheet as at 31 December 2019 and 2018, respectively. 4 In addition to the financial support provided to the SEs, the group enters into other transactions with SEs in the ordinary course of business. These transactions include loans and advances, deposits and current accounts and derivatives.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 131
Amount of support provided as at1, 2, 3 Type of support4 Name of 2019 2018 2019 2018 Terms of contractual arrangements that require Events/circumstances that could expose the group to the entity Nature of the operations Rm Rm Rm Rm the group to provide financial support to the SE a loss as a result of the contractual arrangement
Blue Shield Facilitates mortgage-backed 1 816 1 350 Subordinated Subordinated The subordinated loan is provided by the group. Interest Should Blue Shield 02’s customers be unable to meet their Investments 02 securitisations. The group is the primary loan loan is charged at 11%. contractual obligations under the mortgage loan agreement (RF) Limited liquidity facility provider to Blue Shield and the loans be classified as non-performing. (Blue Shield 02) 02. 30 709 30 708 Mortgage- Mortgage- The group holds class A1, A2, B and C notes. Interest for backed notes backed notes the different classes of notes accrues at prime rate less a margin ranging between 1% and 1.9%. Interest is payable quarterly. The notes’ maturity date is 1 December 2055.
Blue Banner Originates mortgage loans on behalf of 7 88 Bridging Bridging The loan does not have a fixed term or repayment date. Any Should Blue Banner’s customers be unable to meet their Securitisation group. The group is required to provide finance finance profits in Blue Banner are paid out as interest to the group. contractual obligations under the mortgage loan agreement Vehicle RC1 the funding for these mortgage loans. and the loans are classified as non-performing. Proprietary Limited (Blue Banner)
Rapvest Facilitates finance deals for other group 6 902 9 790 Loan Loan The loan is payable on demand. No interest is charged on In the event that the underlying assets are classified as Investment companies and third-parties through the loan. non-performing loans. Proprietary preference share investments and loans Limited to clients.
DAF Financial The structure is an asset-backed funding 234 301 Loan Loan The loan bears interest at a rate of prime plus 1%. SBSA is exposed to the first-loss risk in the structure, as well as Services (RF) solution. The financial assets, the truck The maturity date of the loan is 30 September 2023. potential losses that may be incurred on the receivables as a Proprietary finance receivables, are transferred to result of residual asset value risk. The residual asset value risk Limited DFS and funding is provided by Standard is, however, limited due to a put option that is in place. Bank on a limited-recourse basis secured by the receivables. Main Street 367 Facilitates funding to BG1, BG2, BG3, BG4 222 210 Subordinated Subordinated The loan is only repayable to the extent that Mainstreet In the event that customers of BG1, BG2, BG3, BG4 and Siyakha (RF) Proprietary and Siyakha. SB Debtors (a subsidiary of loan loan receives payment from BG1, BG2, BG3, BG4 and Siyakha. are unable to meet their contractual obligations under Limited Standard Bank Group) provides The interest is charged at the higher of JIBAR plus 10% the mortgage loan agreement and their loans are classified as the funding to Mainstreet to originate and the cash available in terms of Mainstreet’s priority of non-performing. the loans. payments less R15 000. Blue Diamond The group issues notes to Blue Diamond 203 206 Credit-linked Credit-linked The group holds the notes issued by (BD)3. The group settles In the event of a credit event, the group will suffer a loss. Investments Investments No. 3 (BD), then BD obtains notes notes BD’s operating expenses as and when necessary, typically The group is also exposed to the risk of loss should it be unable No. 3 (RF) credit protection from third-party in the event that BD has liquidity constraints. Any payment to recover any unexpected operating expenses from (BD)3. Limited (BD)3 investors by issuing notes to third-party for such amounts is to be refunded by BD to the group. investors on single or multiple corporate names. The notes issued by BD are held by Liberty.
1 The amount of support provided includes loans and advances and drawn down credit facilities provided to SEs by the group. 2 During the reporting period, the group did not provide any financial or other support to any subsidiary without having a contractual obligation to do so. 3 This is the amount as reported on the balance sheet as at 31 December 2019 and 2018, respectively. 4 In addition to the financial support provided to the SEs, the group enters into other transactions with SEs in the ordinary course of business. These transactions include loans and advances, deposits and current accounts and derivatives.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 132 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Unconsolidated structured entities The group has an interest in the following unconsolidated structured entities:
Principal nature Principal nature Events/circumstances that could Name of the entity Nature and purpose of entity of funding of assets Terms of contractual arrangements expose the group to a loss
Blue Diamond Investments These structures have been designed to provide Credit-linked notes Credit-linked notes 12 years The group settles BD’s operating In the event of a credit event, the third- No. 1 (RF) Limited (BD)1 third-party investors indirect exposure to corporate issued to third-party issued by the group expenses as and when necessary, party investors will suffer a loss. Blue Diamond Investments names. The group obtains credit protection from investors typically in the event that BD has The group is only exposed to the risk of No. 2 (RF) Limited (BD)2 Blue Diamond Investments No. 1 and No. 2 (RF) liquidity constraints. Any payment for loss should it be unable to recover any Limited (BD) in the form of issuing credit-linked such amounts is to be refunded by BD unexpected operating expenses from BD. notes on single or multiple corporate names. BD to the group. then obtains credit protection from third-party investors by issuing notes to third-party investors on single or multiple corporate names. Blue Diamonds X (RF) Loans purchased from SBSA and the issuance of Commercial paper Loans and advances to 15 years SBSA acts as the administrator None Limited notes to third-party investors. issued to third-party various counterparties and identifies and invests in suitable investors financial assets and facilitates the execution and settlement of trades. Africa ETF Issuer Limited The palladium, platinum, gold and rhodium The unconsolidated Physical Undated The group established these structured The maximum exposure to loss is limited offering the following: exchange traded funds (ETFs) have been structured entity commodities entities to accommodate client to the on-balance sheet position held • AfricaPalladium ETF established for investors to participate in changes is funded by the issue (palladium, requirements to hold investments by the group through acting as a (JSE code: ETFPLD) in the spot price of underlying commodities. of non-interest- platinum, gold in specific commodity assets. The group committed market maker for the ETFs. • AfricaPlatinum ETF The ETFs issue debentures to investors with each bearing debentures and Rhodium) manages the ETFs and also provides This exposes the group to the commodity (JSE code: ETFPLT) debenture backed by the respective physical that are 100% backed liquidity to the ETFs by acting as a price risk associated with the underlying • AfricaGold ETF commodity. On issuance each debenture is based by the underlying committed market maker. commodity and is managed (JSE code: ETFGLD) on 1/100th of a troy ounce of the respective physical commodity in accordance with the group’s market • AfricaRhodium ETF commodity. The physical commodities are stored risk management policy. (JSE code: ETFRHO) at recognised custodian storage vaults in London. The ETFs are denominated in rands and are classified as domestic assets. The ETFs are regulated by the Financial Markets Act and the JSE’s Listings Requirements. Calibre Mortgage Fund Special Purpose Entity (SPV) set up by South Debt funders Senior secured loan The loan tenor is 20 years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd African Home Loans (Pty) Ltd (SAHL) into which it in the securitisation three month JIBAR + 2.30% in the vehicle deteriorates to a level where originates home loans. The SPV is funded by debt market losses exceed subordinated debt provided by Liberty and equity provided by SAHL. in the capital structure, the group may be exposed to a credit loss. Greenhouse Funding 3 A structured entity set up by Nedbank Limited. It Debt funders Residential mortgage- The loan tenor is five years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd is a securitisation vehicle into which it originates in the securitisation backed securitisation three month JIBAR + 1.69% in the vehicle deteriorates to a level home loans, and into which Liberty can lend on a market where losses exceed subordinated debt secured basis. Equity is provided by Nedbank in the capital structure, the group may Limited. be exposed to a credit loss. SA Taxi Finance Solutions SPV set up by SA Taxi to raise debt funding which it Debt funders Senior, unrated The loan tenor is five years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd in turn uses to originate taxi loans. in the securitisation debentures secured three month JIBAR + 3.43% in the vehicle deteriorates to a level market by underlying assets where losses exceed subordinated debt in the capital structure, the group may be exposed to a credit loss. Universal Credit S.A. Investment fund Debt funders Segregated investment The loan tenor is five years In the event of defaults in the underlying in the securitisation fund pool of credit assets, the group may be market exposed to a credit loss. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 133
Unconsolidated structured entities The group has an interest in the following unconsolidated structured entities:
Principal nature Principal nature Events/circumstances that could Name of the entity Nature and purpose of entity of funding of assets Terms of contractual arrangements expose the group to a loss
Blue Diamond Investments These structures have been designed to provide Credit-linked notes Credit-linked notes 12 years The group settles BD’s operating In the event of a credit event, the third- No. 1 (RF) Limited (BD)1 third-party investors indirect exposure to corporate issued to third-party issued by the group expenses as and when necessary, party investors will suffer a loss. Blue Diamond Investments names. The group obtains credit protection from investors typically in the event that BD has The group is only exposed to the risk of No. 2 (RF) Limited (BD)2 Blue Diamond Investments No. 1 and No. 2 (RF) liquidity constraints. Any payment for loss should it be unable to recover any Limited (BD) in the form of issuing credit-linked such amounts is to be refunded by BD unexpected operating expenses from BD. notes on single or multiple corporate names. BD to the group. then obtains credit protection from third-party investors by issuing notes to third-party investors on single or multiple corporate names. Blue Diamonds X (RF) Loans purchased from SBSA and the issuance of Commercial paper Loans and advances to 15 years SBSA acts as the administrator None Limited notes to third-party investors. issued to third-party various counterparties and identifies and invests in suitable investors financial assets and facilitates the execution and settlement of trades. Africa ETF Issuer Limited The palladium, platinum, gold and rhodium The unconsolidated Physical Undated The group established these structured The maximum exposure to loss is limited offering the following: exchange traded funds (ETFs) have been structured entity commodities entities to accommodate client to the on-balance sheet position held • AfricaPalladium ETF established for investors to participate in changes is funded by the issue (palladium, requirements to hold investments by the group through acting as a (JSE code: ETFPLD) in the spot price of underlying commodities. of non-interest- platinum, gold in specific commodity assets. The group committed market maker for the ETFs. • AfricaPlatinum ETF The ETFs issue debentures to investors with each bearing debentures and Rhodium) manages the ETFs and also provides This exposes the group to the commodity (JSE code: ETFPLT) debenture backed by the respective physical that are 100% backed liquidity to the ETFs by acting as a price risk associated with the underlying • AfricaGold ETF commodity. On issuance each debenture is based by the underlying committed market maker. commodity and is managed (JSE code: ETFGLD) on 1/100th of a troy ounce of the respective physical commodity in accordance with the group’s market • AfricaRhodium ETF commodity. The physical commodities are stored risk management policy. (JSE code: ETFRHO) at recognised custodian storage vaults in London. The ETFs are denominated in rands and are classified as domestic assets. The ETFs are regulated by the Financial Markets Act and the JSE’s Listings Requirements. Calibre Mortgage Fund Special Purpose Entity (SPV) set up by South Debt funders Senior secured loan The loan tenor is 20 years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd African Home Loans (Pty) Ltd (SAHL) into which it in the securitisation three month JIBAR + 2.30% in the vehicle deteriorates to a level where originates home loans. The SPV is funded by debt market losses exceed subordinated debt provided by Liberty and equity provided by SAHL. in the capital structure, the group may be exposed to a credit loss. Greenhouse Funding 3 A structured entity set up by Nedbank Limited. It Debt funders Residential mortgage- The loan tenor is five years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd is a securitisation vehicle into which it originates in the securitisation backed securitisation three month JIBAR + 1.69% in the vehicle deteriorates to a level home loans, and into which Liberty can lend on a market where losses exceed subordinated debt secured basis. Equity is provided by Nedbank in the capital structure, the group may Limited. be exposed to a credit loss. SA Taxi Finance Solutions SPV set up by SA Taxi to raise debt funding which it Debt funders Senior, unrated The loan tenor is five years and bears interest at an average rate of To the extent that asset quality (Pty) Ltd in turn uses to originate taxi loans. in the securitisation debentures secured three month JIBAR + 3.43% in the vehicle deteriorates to a level market by underlying assets where losses exceed subordinated debt in the capital structure, the group may be exposed to a credit loss. Universal Credit S.A. Investment fund Debt funders Segregated investment The loan tenor is five years In the event of defaults in the underlying in the securitisation fund pool of credit assets, the group may be market exposed to a credit loss. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 134 ANNUAL FINANCIAL STATEMENTS ANNEXURE A – SUBSIDIARIES, CONSOLIDATED AND UNCONSOLIDATED STRUCTURED ENTITIES CONTINUED
Unconsolidated structured entities continued The following represents the group’s interests in these entities:
2019 2018 Rm Rm
Balance sheet Unconsolidated structured entities: Financial investments 248 340 Deposits and debt funding accounts from customers (1 668) (2 118) Trading assets 42 31 Total (1 378) (1 747) For both 2018 and 2019, Blue Diamond No. 1 and No. 2 earned income via a once-off fee and commission income earned for structuring the SE.
Details of group companies with material non-controlling interests Liberty Group Limited Africa Regions1 2019 2018 2019 2018 Rm Rm Rm Rm
Non-controlling’s interests (%) 46 46 * * Summarised financial information on an IFRS basis before intercompany eliminations Total assets 461 674 437 274 233 813 214 883 Total liabilities 429 285 405 881 195 862 181 335 Total income 84 447 50 504 19 460 23 061 Profit for the year 3 635 3 042 9 043 8 511 Change in cash balances 403 1 805 33 911 8 087 Profit attributable to non-controlling interests after inter- company eliminations 1 416 1 169 2 515 2 640 Non-controlling interest within statement of financial position 17 398 16 933 9 502 8 333 Dividends paid to non-controlling interests 1 005 1 215 710 662
1 All balances except total assets and total liabilities (translated using the closing exchange rate) have been translated using cumulative exchange rates. * Please refer to pages 124 to 127. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 135
Transactions with non-controlling interests 2019 Listing of Standard Bank Namibia Holdings Limited In Namibia, the group successfully completed the listing of its Namibian bank holding company, SBN Holdings Limited (SBNH) on the Namibian Stock Exchange (NSX) on 15 November 2019. As part of the public offer, SBNH raised equity of R200 million through an issue of ordinary shares, while Standard Bank Group Limited (SBGL) sold a portion of its stake in SBNH for a sale consideration of R522 million.
SBGL’s legal shareholding in SBNH prior to the listing was 90%, but due to the degree of control SBGL retained over the shares of the empowerment structure, SBNH was consolidated at 100%, with the group accounting for the total SBNH earnings up until the listing. Post the listing, SBGL’s legal shareholding in SBNH reduced from 90% to 74.9% and the empowerment structure’s legal shareholding was diluted from 10% to 9.6% by the issue of ordinary shares. From the date of listing to 31 December 2019, SBNH remains consolidated, but with 84.5% of SBNH earnings attributable to ordinary shareholders and the remaining 15.5% of SBNH earnings attributable to non-controlling shareholders. The group recognised an increase in NCI of R617 million and a decrease in retained earnings and equity attributable to ordinary shareholders of R105 million due to the changes in the group’s ownership interest in SBNH.
Post balance sheet event With effect from 1 January 2020, the restrictions on the allocated shares held within the empowerment structure expired and SBGL no longer retains control over those shares. Accordingly, while SBGL continues to consolidate SBNH from 1 January 2020, 74.9% of SBNH earnings are attributable to SBGL as controlling shareholder and the remaining 25.1% of SBNH earnings are attributable to non-controlling shareholders.
2018 Stanbic Africa Holdings Limited During the period, Stanbic Africa Holdings Limited (SAHL), a wholly owned subsidiary of Standard Bank Group (SBG), increased its shareholdings in its listed Nigerian and Kenyan subsidiaries through acquisitions of additional shares from non-controlling interests (NCI). Increases in the group’s interest in a subsidiary, when the group already has control, are accounted for as transactions with equity holders of the group. The difference between the purchase consideration and the group’s proportionate share of the subsidiary’s additional net asset value acquired is accounted for directly in equity.
Nigeria In Nigeria, SAHL’s shareholding in Stanbic IBTC Holdings PLC (SIBTC) increased by 12% from 53% to 65% through an announced off-market trade on the Nigerian Stock Exchange and further on-market share purchases for a total cash consideration of R2 567 million.
The group recognised a net decrease in NCI of R950 million and a decrease in retained earnings and equity attributable to owners of the group of R1 617 million because of changes in the group’s ownership interest in SIBTC.
Kenya In Kenya, SAHL’s shareholding in Stanbic Holdings Plc (SH Plc) increased by 9% from 60% to 69% following a two-stage tender offer and further on-market share purchases for a total cash consideration of R485 million.
The group recognised a decrease in NCI of R514 million and an increase in retained earnings and equity attributable to owners of the group of R29 million because of changes in the group’s ownership interest in SH Plc.
Liberty Group Limited During the period, Liberty Group Limited’s (Liberty) shareholding in Liberty Two Degrees (L2D) decreased by 4% from 63% to 59% for a total consideration of R301 million. Liberty recognised an increase in NCI of R249 million and an increase in retained earnings and equity attributable to ordinary shareholders of R52 million because of changes in Liberty’s ownership interest in L2D. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 136 ANNUAL FINANCIAL STATEMENTS
Annexure B – associates and joint ventures
Industrial and Total associates Safika holdings Commercial Bank of China South African Home Loans ICBC Standard Bank Plc Other Other and joint ventures – Proprietary Limited1 (Argentina) S.A. # Proprietary Limited (SAHL)3 (ICBCS)* joint ventures associates equity accounted
Ownership structure Associate Associate Associate Associate Joint ventures Associates Associates and joint ventures Nature of business Investment holding company Banking Finance Banking Various Various Various Principal place of business and country of incorporation South Africa Argentina South Africa London, UK Various Various Various Year end February December February December Various Various Various Accounting treatment Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Date to which equity accounted 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Effective holding (%) 20.00 26.67 20 20 50 50 40 40 Various Various Various Income statement Total comprehensive income/(loss) 11 465 2 915 2 460 575 578 (3 502) (185) Total comprehensive income/(loss) attributed to equity holders of the associate and joint ventures2 2 124 583 492 288 289 (1 401) (74) Dividend received from associates/ joint ventures 70 27 33 138 113 3 25 Statement of financial position3 Non-current assets 2 881 3 005 1 360 32 596 32 965 186 868 291 Current assets 75 207 69 053 5 260 5 135 155 131 353 045 Non-current liabilities (117) (331) (34 496) (35 239) (325 567) (335 251) Current liabilities (200) (63 849) (771) (605) Net asset value attributed to equity holders of the associate and joint ventures 2 756 3 095 6 233 2 589 2 256 16 432 18 085 Proportion of net asset value based on effective holding 551 825 1 247 1 294 1 128 7 234 Goodwill 136 (769) Other 6 (61) (63) 2 677 Carrying amount 1 196 Disposal group (1 196) Carrying value 551 825 1 389 1 233 1 065 2 677 6 465 62 57 900 575 5 423 10 376 Share of profits/(losses) from associate and joint ventures 2 124 583 492 288 289 (1 447) (74) 5 46 57 35 (512) 912
1 The investment was made by the group’s private equity operations and have been ring-fenced for headline earnings purposes. On the disposal of these associates and joint ventures held by the group’s private equity division the gain or loss on the disposal will be included in headline earnings in terms of Headline Earnings Circular 1/2019 as issued by the South African Institute of Chartered Accountants, as amended from time-to-time. 2 Includes FCTR as reported by the associates and joint ventures. Excludes FCTR that originates at a group level as a result of inclusions of the associates and joint ventures in the group’s results. 3 Summarised financial information is provided based on the latest available management accounts received. * Refer to key management assumptions.
# Industrial and Commercial Bank of China (Argentina) S.A. (ICBCA) In November 2012, the group completed the disposal of a controlling interest in each of Industrial and Commercial Bank of China (Argentina) S.A. (previously Standard Bank Argentina S.A.), ICBC Investments Argentina S.A. Sociedad Gerente de Fondos Comunes de Inversión (previously Standard Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión) and Inversora Diagonal S.A. (collectively ICBCA) to ICBC.
The group retained a 20% shareholding in ICBCA, held by Standard Bank Group’s wholly owned subsidiary, Standard Bank London Holdings Limited. This residual investment was classified as an investment in associate and accounted for using the equity accounting method in terms of IAS 28. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 137
Industrial and Total associates Safika holdings Commercial Bank of China South African Home Loans ICBC Standard Bank Plc Other Other and joint ventures – Proprietary Limited1 (Argentina) S.A. # Proprietary Limited (SAHL)3 (ICBCS)* joint ventures associates equity accounted
Ownership structure Associate Associate Associate Associate Joint ventures Associates Associates and joint ventures Nature of business Investment holding company Banking Finance Banking Various Various Various Principal place of business and country of incorporation South Africa Argentina South Africa London, UK Various Various Various Year end February December February December Various Various Various Accounting treatment Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Date to which equity accounted 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019 31 December 2019
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Effective holding (%) 20.00 26.67 20 20 50 50 40 40 Various Various Various Income statement Total comprehensive income/(loss) 11 465 2 915 2 460 575 578 (3 502) (185) Total comprehensive income/(loss) attributed to equity holders of the associate and joint ventures2 2 124 583 492 288 289 (1 401) (74) Dividend received from associates/ joint ventures 70 27 33 138 113 3 25 Statement of financial position3 Non-current assets 2 881 3 005 1 360 32 596 32 965 186 868 291 Current assets 75 207 69 053 5 260 5 135 155 131 353 045 Non-current liabilities (117) (331) (34 496) (35 239) (325 567) (335 251) Current liabilities (200) (63 849) (771) (605) Net asset value attributed to equity holders of the associate and joint ventures 2 756 3 095 6 233 2 589 2 256 16 432 18 085 Proportion of net asset value based on effective holding 551 825 1 247 1 294 1 128 7 234 Goodwill 136 (769) Other 6 (61) (63) 2 677 Carrying amount 1 196 Disposal group (1 196) Carrying value 551 825 1 389 1 233 1 065 2 677 6 465 62 57 900 575 5 423 10 376 Share of profits/(losses) from associate and joint ventures 2 124 583 492 288 289 (1 447) (74) 5 46 57 35 (512) 912
1 The investment was made by the group’s private equity operations and have been ring-fenced for headline earnings purposes. On the disposal of these associates and joint ventures held by the group’s private equity division the gain or loss on the disposal will be included in headline earnings in terms of Headline Earnings In the ICBCA shareholders’ agreement, Industrial and Commercial Bank of China (ICBC) granted a put option to the group under which Circular 1/2019 as issued by the South African Institute of Chartered Accountants, as amended from time-to-time. the group was given the right to sell its remaining shareholding in ICBCA to ICBC, by giving notice at any time between 1 December 2014 2 Includes FCTR as reported by the associates and joint ventures. Excludes FCTR that originates at a group level as a result of inclusions of the associates and joint ventures in the group’s results. and 30 November 2019. The strike price of the put option is fixed at USD181 million. Having taken the independent advice required under 3 Summarised financial information is provided based on the latest available management accounts received. the JSE Listings Requirements, on 8 August 2019, the group exercised the put option and gave the required notice to ICBC. * Refer to key management assumptions. The transaction is subject to conditions precedent customary to transactions of this nature, including regulatory approvals in China. The completion date in respect of the transaction is anticipated to be in the first half of 2020. The group would seek to reinvest net # Industrial and Commercial Bank of China (Argentina) S.A. (ICBCA) proceeds received at completion of the transaction to support its African strategy. In November 2012, the group completed the disposal of a controlling interest in each of Industrial and Commercial Bank of China (Argentina) S.A. (previously Standard Bank Argentina S.A.), ICBC Investments Argentina S.A. Sociedad Gerente de Fondos Comunes de Based on the above, the requirements of IFRS 5 were met and equity accounting of this investment was ceased at the end Inversión (previously Standard Investments S.A. Sociedad Gerente de Fondos Comunes de Inversión) and Inversora Diagonal S.A. of August 2019. Therefore, as at 31 December 2019, the investment in ICBCA has been disclosed as non-current assets held for sale (collectively ICBCA) to ICBC. and presented separately on the statement of financial position. The investment in ICBCA is measured at the lower of the carrying amount and fair value less costs to sell, being R1 196 million at 31 December 2019. The investment in ICBCA was not impaired at date The group retained a 20% shareholding in ICBCA, held by Standard Bank Group’s wholly owned subsidiary, Standard Bank London of classification as held for sale, nor at year end. Holdings Limited. This residual investment was classified as an investment in associate and accounted for using the equity accounting method in terms of IAS 28. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 138 ANNUAL FINANCIAL STATEMENTS ANNEXURE B – ASSOCIATES AND JOINT VENTURES CONTINUED
Other associates Total associates STANLIB Balanced STANLIB Money Market STANLIB Corporate STANLIB Global Equity STANLIB Flexible and joint ventures – and joint ventures – STANLIB Income Fund Cautious Fund Fund2 Money Market Fund Feeder Fund2 STANLIB Equity Fund2 Income Fund2 fair value accounted fair value accounted
Associates and joint Ownership structure Associate Associate Associate Associate Associate Associate Associate Associate ventures Nature of business Fund Fund Fund Fund Fund Fund Fund Various Various Principal place of business South Africa South Africa South Africa South Africa South Africa South Africa South Africa Various Various Year end December December December December December December December Various Various Accounting treatment Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Effective holding (%) 14 9 24 23 4 3 5 5 31 27 15 16 25 17 Various Various Various Various Fair value 6 773 3 196 1 555 1 679 980 875 2 056 2 014 1 124 708 593 614 602 189 2 485 4 549 16 168 13 824 Income statement Revenue 3 522 2 832 390 450 1 983 1 930 3 737 3 207 6 5 89 93 170 209 Total profit for the year 3 280 2 661 286 322 1 837 1 787 3 643 3 120 (16) 9 40 (1) 147 132 Total comprehensive income 3 280 2 661 286 322 1 837 1 787 3 643 3 120 (16) 9 40 (1) 147 132 Dividend received from associates 340 249 58 67 54 134 139 16 3 Statement of financial position1 Non-current assets 46 058 34 823 6 480 7 128 24 630 23 406 36 527 37 194 3 583 2 598 3 948 3 800 2 368 4 355 Current assets 105 475 83 252 432 1 614 1 511 1 932 50 36 60 101 3 156 Current liabilities (32) (22) (8) (102) (13) (12) (8) (8) (3) (2) (4) (18) (2) (42) Net asset value 46 131 35 276 6 555 7 278 25 049 25 008 38 030 39 118 3 630 2 632 4 004 3 883 2 369 4 469 Total carrying value, including loans measured at fair value 6 773 3 196 1 555 1 679 980 875 2 056 2 014 1 124 708 593 614 602 189 2 485 4 549 16 168 13 824
1 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received. 2 These funds were not included in the SBG 2018 financial statements due to the materiality of the carrying values. As a result, the carrying value relating to other associates has been restated for 2018.
Private equity/venture capital associates and joint ventures1 2019 2018 Rm Rm
Cost 48 48 Carrying value 551 619 Statement of financial position2 Non-current assets 75 3 005 Current assets 207 Current liabilities (200) Income statement Attributable income before impairment 2 93 Fair value 551 619
1 Included in note 10 associates and joint ventures. 2 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 139
Other associates Total associates STANLIB Balanced STANLIB Money Market STANLIB Corporate STANLIB Global Equity STANLIB Flexible and joint ventures – and joint ventures – STANLIB Income Fund Cautious Fund Fund2 Money Market Fund Feeder Fund2 STANLIB Equity Fund2 Income Fund2 fair value accounted fair value accounted
Associates and joint Ownership structure Associate Associate Associate Associate Associate Associate Associate Associate ventures Nature of business Fund Fund Fund Fund Fund Fund Fund Various Various Principal place of business South Africa South Africa South Africa South Africa South Africa South Africa South Africa Various Various Year end December December December December December December December Various Various Accounting treatment Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted Fair value accounted
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Effective holding (%) 14 9 24 23 4 3 5 5 31 27 15 16 25 17 Various Various Various Various Fair value 6 773 3 196 1 555 1 679 980 875 2 056 2 014 1 124 708 593 614 602 189 2 485 4 549 16 168 13 824 Income statement Revenue 3 522 2 832 390 450 1 983 1 930 3 737 3 207 6 5 89 93 170 209 Total profit for the year 3 280 2 661 286 322 1 837 1 787 3 643 3 120 (16) 9 40 (1) 147 132 Total comprehensive income 3 280 2 661 286 322 1 837 1 787 3 643 3 120 (16) 9 40 (1) 147 132 Dividend received from associates 340 249 58 67 54 134 139 16 3 Statement of financial position1 Non-current assets 46 058 34 823 6 480 7 128 24 630 23 406 36 527 37 194 3 583 2 598 3 948 3 800 2 368 4 355 Current assets 105 475 83 252 432 1 614 1 511 1 932 50 36 60 101 3 156 Current liabilities (32) (22) (8) (102) (13) (12) (8) (8) (3) (2) (4) (18) (2) (42) Net asset value 46 131 35 276 6 555 7 278 25 049 25 008 38 030 39 118 3 630 2 632 4 004 3 883 2 369 4 469 Total carrying value, including loans measured at fair value 6 773 3 196 1 555 1 679 980 875 2 056 2 014 1 124 708 593 614 602 189 2 485 4 549 16 168 13 824
1 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received. 2 These funds were not included in the SBG 2018 financial statements due to the materiality of the carrying values. As a result, the carrying value relating to other associates has been restated for 2018.
Private equity/venture capital associates and joint ventures1 2019 2018 Rm Rm
Cost 48 48 Carrying value 551 619 Statement of financial position2 Non-current assets 75 3 005 Current assets 207 Current liabilities (200) Income statement Attributable income before impairment 2 93 Fair value 551 619
1 Included in note 10 associates and joint ventures. 2 Summarised financial information of the associates and joint ventures is provided based on the latest available management accounts received. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 140 ANNUAL FINANCIAL STATEMENTS
Annexure C – risk and capital management – IFRS disclosures
Overview Banking operations Capital management Capital management The group’s capital management function is designed to ensure The group manages its capital levels to support business growth, that regulatory requirements are met at all times maintain depositor and creditors’ confidence, create value for its and that the group and its principal subsidiaries are capitalised shareholders and ensure regulatory compliance. in line with the group’s risk appetite and target ranges, both of which are approved by the board. The main regulatory requirements to be complied with, are those specified in the Banks Act and related regulations, which are It facilitates the allocation and use of capital, to generate a return aligned with Basel III. that appropriately compensates shareholders for the risks incurred. Capital adequacy is actively managed and forms a key Regulatory capital adequacy is measured through the following component of the budget and forecasting process. The capital three risk-based ratios: plan is tested under a range of stress scenarios as part of •• Common equity tier 1 (CET 1): ordinary share capital, share the group’s annual ICAAP and recovery plan. premium, retained earnings, other reserves and qualifying non-controlling interest less impairments divided by total risk The capital management function is governed primarily weighted assets (RWA). by management level subcommittees that oversee the risks •• Tier 1: CET 1 and other qualifying non-controlling interest plus associated with capital management, namely the group asset perpetual, non-cumulative instruments with either contractual and liability committee (ALCO) and one of its subcommittees, or statutory principal loss absorption features that comply the group capital management committee. The principal with the Basel III rules divided by total RWA. Perpetual governance documents are the capital management governance non-cumulative preference shares that comply with Basel I framework and the model risk governance framework. and Basel II rules are included in tier I capital but are currently subject to regulatory phase-out requirements over a ten-year Risk management period, which commenced on 1 January 2013. The group’s activities give rise to various financial, non-financial •• Total capital adequacy: tier 1 plus other items such as general and strategic financial risks which are categorised into credit, credit impairments and subordinated debt with either funding and liquidity and market risk. contractual or statutory principal loss absorption features that comply with the Basel III rules divided by total RWA. The group’s approach to managing risk and capital is set out Subordinated debt that complies with Basel I and Basel II rules in the group’s enterprise risk governance framework approved is included in total capital but is currently subject to regulatory by the group risk and capital management committee (GRCMC). phase-out requirements, over a ten-year period, which commenced on 1 January 2013. The risk management disclosure that follows separately discloses the group’s banking operations, and investment management and life insurance activities. The group’s investment management and life insurance risk is primarily managed within the Liberty group of companies which houses the group’s material life insurance operations. The group has a 56.0% interest in Liberty and therefore shares 56.0% of the risk exposure. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 141
BASEL III QUALIFYING CAPITAL EXCLUDING UNAPPROPRIATED PROFITS
2019 2018 Rm Rm
IFRS ordinary shareholders’ equity# 171 229 165 061 Qualifying non-controlling interest# 5 611 5 451 Less: regulatory adjustments (22 459) (24 628) Goodwill (2 186) (2 208) Other intangible assets (16 518) (17 703) Investments in financial entities (5 833) (8 616) Other adjustments including IFRS 9 phase-in 2 078 3 899 Unappropriated profit (14 159) (11 643) CET I capital 140 222 134 241 Qualifying other equity instruments# 7 123 5 702 Qualifying non-controlling interests 636 385 Tier I capital 147 981 140 328 Qualifying tier II subordinated debt# 19 317 17 545 General allowance for credit impairments 2 685 2 776 Tier II capital 22 002 20 321 Total regulatory capital 169 983 160 649 Total capital requirement 126 807 120 395 Total RWA 1 099 528 1 079 546
The numbers above are not audited unless it is denoted with #.
Credit risk Credit risk is managed through: Definition •• maintaining a culture of responsible lending and a robust risk policy and control framework Credit risk is the risk of loss arising out of the failure of obligors •• identifying, assessing and measuring credit risk across to meet their financial or contractual obligations when due. It the group, from an individual facility level through to is composed of obligor risk, concentration risk and country risk, an aggregate portfolio level and represents the largest source of risk to which banking entities in the group are exposed. •• defining, implementing and continually re-evaluating risk appetite under actual and stressed conditions Approach to managing and measuring •• monitoring the group’s credit risk exposure relative to credit risk approved limits •• ensuring that there is expert scrutiny and approval of credit The group’s credit risk is a function of its business model risk and its mitigation independently of the business functions. and arises from wholesale and retail loans and advances, underwriting and guarantee commitments, as well as from A group credit limit and concentration guideline is embedded the counterparty credit risk (CCR) arising from derivative within the group’s enterprise-wide risk management process. and securities financing contracts entered into with our Within the group’s overall risk appetite disciplines, the credit customers and trading counterparties. To the extent equity risk metrics and concentrations framework includes key credit ratios is held on the banking book, it is also managed under the credit and counterparty, sector and country concentration guidelines. risk governance framework’s requirements and standards, except These in turn are cascaded to business unit and legal entity level in so far as approval authority rests with group equity risk where they are monitored against approved appetite thresholds. committee (ERC). A credit portfolio limit framework has been defined to monitor and control the credit risk profile within our approved risk appetite. All primary lending credit limits are set and exposures measured on the basis of risk weighting in order to best estimate exposure at default (EAD).
Pre-settlement CCR inherent in trading book exposures is measured on a potential future exposure (PFE) basis, modelled at a defined level of confidence using approved methodologies and models, and controlled within explicit approved limits for the counterparties concerned. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 142 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Credit risk mitigation Other credit protection terms may be stipulated, such as Wherever warranted, we attempt to mitigate credit risk, including limitations on the amount of unsecured credit exposure CCR, to any counterparty, transaction, sector, or geographic acceptable, collateralisation if the mark-to-market credit region, so as to achieve the optimal balance between risk, cost, exposure exceeds acceptable limits, and termination of capital utilisation and reward. Risk mitigation may include the use the contract if certain credit events occur, for example, of collateral, the imposition of financial or behavioural covenants, downgrade of the counterparty’s public credit rating. the acceptance of guarantees from parents or third-parties, Wrong-way risk arises in transactions where the likelihood of the recognition of parental support, and the distribution of risk. default (the PD) by a counterparty and the size of credit exposure Collateral, parental guarantees, credit derivatives and on- and off- (as measured by EAD) to that counterparty tend to increase balance sheet netting are widely used to mitigate credit risk. CRM at the same time. This risk is managed both at an individual policies and procedures ensure that risk mitigation techniques counterparty level and at an aggregate portfolio level by limiting are acceptable, used consistently, valued appropriately exposure to such transactions, taking adverse correlation into and regularly, and meet the risk requirements of operational account in the measurement and mitigation of credit exposure management for legal, practical and timely enforcement. Detailed and increasing oversight and approval levels. We have no appetite processes and procedures are in place to guide each type of for wrong-way risk arising where the correlation between EAD mitigation used. and PD is due to a legal, economic, strategic or similar relationship (specific wrong-way risk). General wrong-way risk, In the case of collateral where we have an unassailable legal title, which arises when the EAD and PD for the counterparty our policy requires collateral to meet certain criteria for is correlated due to macro factors, is closely managed recognition in LGD modelling, including: within existing risk frameworks. • being readily marketable and liquid • To manage actual or potential portfolio risk concentrations •• being legally perfected and enforceable in areas of higher credit risk and credit portfolio growth, we •• having a low valuation volatility implement hedging and other strategies from time-to-time. •• being readily realisable at minimum expense This is done at individual counterparty, sub-portfolio and portfolio •• having no material correlation to the obligor credit quality levels through the use of syndication, distribution and sale of •• having an active secondary market for resale. assets, asset and portfolio limit management, credit derivatives and credit protection. The main types of collateral obtained for our banking book exposures include: Use of internal estimates •• mortgage bonds over residential, commercial and industrial Our credit risk rating systems and processes differentiate properties and quantify credit risk across counterparties and asset classes. •• cession of book debts Internal risk parameters are used extensively in risk management and business processes, including: •• pledge and cession of financial assets •• bonds over plant and equipment •• setting risk appetite •• the underlying movable assets financed under leases •• setting concentration and counterparty limits and instalment sales. •• credit approval and monitoring.
Reverse repurchase agreements and commodity leases to Corporate, sovereign and banking portfolios customers are collateralised by the underlying assets. Corporate entities include large companies, as well as small and medium entities (SMEs) that are managed on a relationship Guarantees and related legal contracts are often required, basis or have a combined exposure to the group of more particularly in support of credit extension to groups of companies than R12 million. Corporate exposures also include specialised and weaker obligors. Guarantors include banks, parent lending (project, object and commodity finance, as well as companies, shareholders and associated obligors. income-producing real estate (IPRE) and public sector entities. Creditworthiness is established for the guarantor as for other obligor credit approvals. Sovereign and bank borrowers include sovereign government entities, central banks, local and provincial government entities, For trading and derivatives transactions where collateral support bank and non-bank financial institutions. is considered necessary, the group typically uses recognised and enforceable international swaps and derivatives association The creditworthiness of corporate (excluding specialised agreements (ISDA), with a credit support annexure. lending), sovereign and bank exposures is assessed based on a detailed individual assessment of the financial strength of Netting agreements, such as collateral under the credit support the borrower. This quantitative analysis, together with expert annexure of an ISDA agreement, are obtained only where the judgement and external rating agency ratings, leads to group firstly has a legally enforceable right to offset credit risk an assignment of an internal rating to the entity. by way of such an agreement, and secondly where the group has the intention of utilising such agreement to settle on a net basis. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 143
Specialised lending’s creditworthiness is assessed on a The group will not rebut IFRS 9’s 90 days past due rebuttable transactional level, rather than on the financial strength of presumption. the borrower, in so far as the group relies only on repayment from the cash flows generated by the underlying assets financed. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are Concentration risk management is performed to ensure used in determining whether there is objective evidence of that credit exposure concentrations in respect of obligors, impairment for financial assets or groups of financial assets: countries, sectors and other risk areas are effectively managed. •• significant financial difficulty of borrower and/or modification This includes concentrations arising from credit exposure to (i.e. known cash flow difficulties experienced by the borrower) different entities within an obligor economic group, such as •• a breach of contract, such as default or delinquency in interest exposure to public sector and other government entities that are and/or principal payments related to the same sovereign. •• disappearance of active market due to financial difficulties Credit portfolio characteristics and metrics •• it becomes probable that the borrower will enter bankruptcy or other financial reorganisation Maximum exposure to credit risk •• where the group, for economic or legal reasons relating to Debt financial assets at amortised cost and FVOCI, as well as the borrower’s financial difficulty, grants the borrower a off-balance sheet exposure subject to an ECL are analysed concession that the group would not otherwise consider. and categorised based on credit quality using the group’s master rating scale. Exposures within stage 1 and stage 2 are rated Exposures which are overdue for more than 90 days are also between 1 to 25 in terms of the group’s master rating scale. The considered to be in default. 25-point master rating scale quantifies using the credit risk for each borrower (corporate asset classes) or facility (specialised lending and retail asset classes), as illustrated in the following table. These ratings are mapped to PDs by means of calibration formulae that use historical default rates and other data from the applicable PBB portfolios. The group distinguishes between through-the-cycle PDs and point-in-time PDs, and utilises both measures in decision-making, managing credit risk exposures and measuring impairments against credit exposures. Exposures which are in default are not considered in the 1 to 25-point master rating scale.
Default The group’s definition of default has been aligned to its internal credit risk management definitions and approaches. While the specific determination of default varies according to the nature of the product, it is generally determined (aligned to the Basel definition) as occurring at the earlier of: •• where, in the group’s view, the counterparty is considered to be unlikely to pay amounts due on the due date or shortly thereafter without recourse to actions such as the realisation of security; or •• when the counterparty is past due for more than 90 days (or, in the case of overdraft facilities in excess of the current limit). WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 144 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY
SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Balance sheet Total gross Securities expected carrying and expected credit loss amount recoveries and interest Gross Non- of default on default in suspense default performing Exposure Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures on stage 3 coverage exposures 2019 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % %
Loans and advances at amortised cost Personal & Business Banking 737 494 264 388 475 355 060 16 932 16 076 45 900 38 663 38 663 19 365 19 298 50 5.2 Mortgage loans 378 003 168 629 17 146 081 10 231 7 046 24 329 21 670 21 670 13 337 8 333 38 0.1 Vehicle and asset finance 94 833 10 467 164 68 906 2 238 2 406 6 352 4 300 4 300 2 234 2 066 48 Card debtors 34 612 1 245 11 27 480 646 858 2 871 1 501 1 501 412 1 089 73 Other loans and advances 230 046 84 047 283 112 593 3 817 5 766 12 348 11 192 11 192 3 382 7 810 70 Personal unsecured lending 66 463 3 065 32 46 597 715 4 784 5 935 5 335 5 335 923 4 412 83 0.1 Business lending and other 163 583 80 982 251 65 996 3 102 982 6 413 5 857 5 857 2 459 3 398 58
Corporate & Investment Banking 533 348 314 850 2 731 176 738 20 537 7 523 2 704 8 265 8 265 4 949 3 316 40 Corporate 406 285 212 144 2 585 156 792 20 162 3 932 2 405 8 265 8 265 4 949 Sovereign 19 142 7 472 146 11 325 96 103 3 316 Banking 107 921 95 234 8 621 279 3 488 299 Other service (54 657) (54 657) Gross carrying amount of loans and advances at amortised cost 1 216 185 524 581 3 206 531 798 37 469 23 599 48 604 46 928 46 928 24 314 22 614 48 Less: total expected credit loss for loans and advances (35 279) Net carrying amount of loans and advances at amortised cost 1 180 906 Financial investments at amortised cost Corporate 21 323 20 999 324 Sovereign 124 469 120 592 3 598 174 105 Banking 991 872 47 72 Other instruments 841 841 Gross carrying amount of financial investments 147 624 Less: total expected credit loss for financial investments (68) Net carrying amount of financial investments 147 556 Financial investments at fair value through OCI Corporate 2 843 2 843 Sovereign 23 062 15 700 33 160 7 169 Gross carrying value of financial investments 25 905 Add: fair value reserve relating to fair value adjustments (before the ECL balance) 20 Total financial investment at fair value through OCI 25 925 Off-balance sheet exposure Letters of credit and bankers’ acceptances 15 104 12 443 15 2 307 285 19 11 24 Guarantees 79 202 62 594 13 12 108 3 593 5 207 682 Unutilised facilities3 163 437 142 823 1 218 16 298 2 851 4 114 129 Total exposure to off-balance sheet credit risk 257 743 217 860 1 246 30 713 6 729 28 332 835 Expected credit loss for off-balance sheet exposures (198) Net carrying amount of off-balance sheet 257 545 Total exposure to credit risk on financial assets subject to an expected credit loss 1 611 932 Exposures not subject to ECL 431 370 Other loans and advances at FVTPL 161 Cash and balances with central banks1 75 288 Derivative assets 66 825 Other financial investments 31 242 Trading assets 220 409 Pledged assets 17 800 Interest associates and joint ventures 5 147 Other financial assets2 14 498 Total exposure to credit risk 2 043 302
1 Balances with central banks comprise of FVTPL of R65 650 million that are not subject to ECL considerations and amortised cost of R9 368 million, which has a low probability of default, therefore ECL is insignificant. These balances are subject to the rigorous regulatory requirements of these transactions and its link to the underlying entities’ ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short term nature of these financial assets and historical experience, other financial assets are regarded as having a low probability of default. 3 The ECL on unutilised facilities is included in the total ECL for loans and advances. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 145
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY
SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Balance sheet Total gross Securities expected carrying and expected credit loss amount recoveries and interest Gross Non- of default on default in suspense default performing Exposure Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures on stage 3 coverage exposures 2019 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % %
Loans and advances at amortised cost Personal & Business Banking 737 494 264 388 475 355 060 16 932 16 076 45 900 38 663 38 663 19 365 19 298 50 5.2 Mortgage loans 378 003 168 629 17 146 081 10 231 7 046 24 329 21 670 21 670 13 337 8 333 38 0.1 Vehicle and asset finance 94 833 10 467 164 68 906 2 238 2 406 6 352 4 300 4 300 2 234 2 066 48 Card debtors 34 612 1 245 11 27 480 646 858 2 871 1 501 1 501 412 1 089 73 Other loans and advances 230 046 84 047 283 112 593 3 817 5 766 12 348 11 192 11 192 3 382 7 810 70 Personal unsecured lending 66 463 3 065 32 46 597 715 4 784 5 935 5 335 5 335 923 4 412 83 0.1 Business lending and other 163 583 80 982 251 65 996 3 102 982 6 413 5 857 5 857 2 459 3 398 58
Corporate & Investment Banking 533 348 314 850 2 731 176 738 20 537 7 523 2 704 8 265 8 265 4 949 3 316 40 Corporate 406 285 212 144 2 585 156 792 20 162 3 932 2 405 8 265 8 265 4 949 Sovereign 19 142 7 472 146 11 325 96 103 3 316 Banking 107 921 95 234 8 621 279 3 488 299 Other service (54 657) (54 657) Gross carrying amount of loans and advances at amortised cost 1 216 185 524 581 3 206 531 798 37 469 23 599 48 604 46 928 46 928 24 314 22 614 48 Less: total expected credit loss for loans and advances (35 279) Net carrying amount of loans and advances at amortised cost 1 180 906 Financial investments at amortised cost Corporate 21 323 20 999 324 Sovereign 124 469 120 592 3 598 174 105 Banking 991 872 47 72 Other instruments 841 841 Gross carrying amount of financial investments 147 624 Less: total expected credit loss for financial investments (68) Net carrying amount of financial investments 147 556 Financial investments at fair value through OCI Corporate 2 843 2 843 Sovereign 23 062 15 700 33 160 7 169 Gross carrying value of financial investments 25 905 Add: fair value reserve relating to fair value adjustments (before the ECL balance) 20 Total financial investment at fair value through OCI 25 925 Off-balance sheet exposure Letters of credit and bankers’ acceptances 15 104 12 443 15 2 307 285 19 11 24 Guarantees 79 202 62 594 13 12 108 3 593 5 207 682 Unutilised facilities3 163 437 142 823 1 218 16 298 2 851 4 114 129 Total exposure to off-balance sheet credit risk 257 743 217 860 1 246 30 713 6 729 28 332 835 Expected credit loss for off-balance sheet exposures (198) Net carrying amount of off-balance sheet 257 545 Total exposure to credit risk on financial assets subject to an expected credit loss 1 611 932 Exposures not subject to ECL 431 370 Other loans and advances at FVTPL 161 Cash and balances with central banks1 75 288 Derivative assets 66 825 Other financial investments 31 242 Trading assets 220 409 Pledged assets 17 800 Interest associates and joint ventures 5 147 Other financial assets2 14 498 Total exposure to credit risk 2 043 302
1 Balances with central banks comprise of FVTPL of R65 650 million that are not subject to ECL considerations and amortised cost of R9 368 million, which has a low probability of default, therefore ECL is insignificant. These balances are subject to the rigorous regulatory requirements of these transactions and its link to the underlying entities’ ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short term nature of these financial assets and historical experience, other financial assets are regarded as having a low probability of default. 3 The ECL on unutilised facilities is included in the total ECL for loans and advances. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 146 ANNUAL FINANCIAL STATEMENTS ANNEXURE C: RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUED
SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Balance sheet Total gross Securities expected carrying and expected credit loss amount recoveries and interest Gross Non- of default on default in suspense default performing Exposure Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures on stage 3 coverage exposures 20184 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % %
Loans and advances at amortised cost Personal & Business Banking 701 197 191 076 1 815 407 955 7 083 8 220 50 589 34 459 34 459 17 167 17 292 50 4.9 Mortgage loans 362 006 108 575 1 786 196 795 4 332 4 261 27 840 18 417 18 417 11 342 7 075 38 5.1 Vehicle and asset finance 89 410 1 250 11 75 939 1 214 347 7 138 3 511 3 511 1 827 1 684 48 3.9 Card debtors 33 216 1 604 8 25 382 174 317 3 882 1 849 1 849 405 1 444 78 5.6 Personal unsecured lending 59 459 961 46 457 8 1 556 5 625 4 852 4 852 900 3 952 81 8.2 Business lending and other 157 106 78 686 10 63 382 1 355 1 739 6 104 5 830 5 830 2 693 3 137 54 3.7
Corporate & Investment Banking 509 519 291 913 4 912 178 768 17 965 3 833 2 394 9 734 9 734 3 225 6 509 67 1.9 Corporate 390 403 184 008 4 801 170 726 17 598 1 142 2 394 9 734 9 734 3 225 6 509 67 2.5 Sovereign 8 288 4 533 109 3 319 129 198 Banking 110 828 103 372 2 4 723 238 2 493 Other service (55 688) (55 688) Gross carrying amount of loans and advances at amortised cost 1 155 028 427 301 6 727 586 723 25 048 12 053 52 983 44 193 44 193 20 392 23 801 54 3.8 Less: total expected credit loss for loans and advances (36 685) Net carrying amount of loans and advances at amortised cost 1 118 343 Financial investments at amortised cost Corporate 15 433 14 084 1 349 Sovereign 126 184 113 771 9 531 2 882 Banking 1 974 1 974 Other instruments 742 742 Gross carrying amount of financial investments 144 333 Less: total expected credit loss for financial investments (194) Net carrying amount of financial investments 144 139 Financial investments at fair value through OCI Corporate 1 756 1 325 409 22 Sovereign 34 488 10 181 16 997 7 310 Gross carrying value of financial investments 53 047 Add: fair value reserve relating to fair value adjustments (before the ECL balance) 36 Total financial investment at fair value through OCI 53 083 Off-balance sheet exposure Letters of credit and bankers’ acceptances 8 206 5 206 82 2 563 321 24 8 2 Guarantees 57 070 42 311 1 053 11 263 1 830 2 101 510 Unutilised facilities3 178 959 153 924 1 811 20 307 2 872 11 34 Total exposure to off-balance sheet credit risk 244 235 201 441 2 946 34 133 5 023 37 143 512 Expected credit loss for off-balance sheet exposures (588) Net carrying amount of off-balance sheet 243 647 Total exposure to credit risk on financial assets subject to an expected credit loss 1 561 537 Exposures not subject to ECL 329 906 Other loans and advances at fair value 1 204 Cash and balances with central banks1 85 145 Derivative assets 48 429 Other financial investments Trading assets 178 327 Pledged assets 7 218 Other financial assets2 9 583 Total exposure to credit risk 1 891 443
1 Balances with central banks comprise of FVTPL of R76 085 million that are not subject to ECL considerations and amortised cost of R9 050 million, which has a low probability of default therefore ECL is insignificant. These balances are subject to the rigorous regulatory requirements of these transactions and its link to the underlying entities’ ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short term nature of these financial assets and historical experience, other financial assets are regarded as having a low probability of default. 3 The ECL on unutilised facilities is included in the total ECL for loans and advances. 4 Restated. Refer to page 31 for further details on the restatement. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 147
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUED
SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Balance sheet Total gross Securities expected carrying and expected credit loss amount recoveries and interest Gross Non- of default on default in suspense default performing Exposure Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures on stage 3 coverage exposures 20184 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % %
Loans and advances at amortised cost Personal & Business Banking 701 197 191 076 1 815 407 955 7 083 8 220 50 589 34 459 34 459 17 167 17 292 50 4.9 Mortgage loans 362 006 108 575 1 786 196 795 4 332 4 261 27 840 18 417 18 417 11 342 7 075 38 5.1 Vehicle and asset finance 89 410 1 250 11 75 939 1 214 347 7 138 3 511 3 511 1 827 1 684 48 3.9 Card debtors 33 216 1 604 8 25 382 174 317 3 882 1 849 1 849 405 1 444 78 5.6 Personal unsecured lending 59 459 961 46 457 8 1 556 5 625 4 852 4 852 900 3 952 81 8.2 Business lending and other 157 106 78 686 10 63 382 1 355 1 739 6 104 5 830 5 830 2 693 3 137 54 3.7
Corporate & Investment Banking 509 519 291 913 4 912 178 768 17 965 3 833 2 394 9 734 9 734 3 225 6 509 67 1.9 Corporate 390 403 184 008 4 801 170 726 17 598 1 142 2 394 9 734 9 734 3 225 6 509 67 2.5 Sovereign 8 288 4 533 109 3 319 129 198 Banking 110 828 103 372 2 4 723 238 2 493 Other service (55 688) (55 688) Gross carrying amount of loans and advances at amortised cost 1 155 028 427 301 6 727 586 723 25 048 12 053 52 983 44 193 44 193 20 392 23 801 54 3.8 Less: total expected credit loss for loans and advances (36 685) Net carrying amount of loans and advances at amortised cost 1 118 343 Financial investments at amortised cost Corporate 15 433 14 084 1 349 Sovereign 126 184 113 771 9 531 2 882 Banking 1 974 1 974 Other instruments 742 742 Gross carrying amount of financial investments 144 333 Less: total expected credit loss for financial investments (194) Net carrying amount of financial investments 144 139 Financial investments at fair value through OCI Corporate 1 756 1 325 409 22 Sovereign 34 488 10 181 16 997 7 310 Gross carrying value of financial investments 53 047 Add: fair value reserve relating to fair value adjustments (before the ECL balance) 36 Total financial investment at fair value through OCI 53 083 Off-balance sheet exposure Letters of credit and bankers’ acceptances 8 206 5 206 82 2 563 321 24 8 2 Guarantees 57 070 42 311 1 053 11 263 1 830 2 101 510 Unutilised facilities3 178 959 153 924 1 811 20 307 2 872 11 34 Total exposure to off-balance sheet credit risk 244 235 201 441 2 946 34 133 5 023 37 143 512 Expected credit loss for off-balance sheet exposures (588) Net carrying amount of off-balance sheet 243 647 Total exposure to credit risk on financial assets subject to an expected credit loss 1 561 537 Exposures not subject to ECL 329 906 Other loans and advances at fair value 1 204 Cash and balances with central banks1 85 145 Derivative assets 48 429 Other financial investments Trading assets 178 327 Pledged assets 7 218 Other financial assets2 9 583 Total exposure to credit risk 1 891 443
1 Balances with central banks comprise of FVTPL of R76 085 million that are not subject to ECL considerations and amortised cost of R9 050 million, which has a low probability of default therefore ECL is insignificant. These balances are subject to the rigorous regulatory requirements of these transactions and its link to the underlying entities’ ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short term nature of these financial assets and historical experience, other financial assets are regarded as having a low probability of default. 3 The ECL on unutilised facilities is included in the total ECL for loans and advances. 4 Restated. Refer to page 31 for further details on the restatement. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 148 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Concentration risk Concentration risk is the risk of loss arising from an excessive concentration of exposure to a single counterparty, an industry, a product, a geography, maturity, or collateral. The group’s credit risk portfolio is well-diversified. The group’s management approach relies on the reporting of concentration risk along key dimensions, the setting of portfolio limits and stress testing.
IFRS: INDUSTRY SEGMENTAL ANALYSIS GROSS LOANS AND ADVANCES 2019 20181 Rm Rm
Agriculture 37 496 35 252 Construction 16 986 16 218 Electricity 25 794 18 781 Finance, real estate and other business services 329 628 348 904 Individuals 528 993 465 020 Manufacturing 74 503 78 820 Mining 40 319 33 423 Transport 44 439 37 016 Wholesale 71 000 60 078 Other services 47 188 62 720 Gross loans and advances 1 216 346 1 156 232
1 Restated. Refer to page 31 for further details on the restatement.
IFRS: GEOGRAPHIC SEGMENTAL ANALYSIS GROSS LOANS AND ADVANCES
2019 20181 % Rm % Rm
South Africa 72 879 654 70 808 658 Africa Regions 19 228 183 20 229 047 International 9 108 509 10 119 647 Gross loans and advances 100 1 216 346 100 1 157 332
1 Restated. Refer to page 31 for further details on the restatement.
IFRS: INDUSTRY SEGMENTAL ANALYSIS OF STAGE 3 CREDIT IMPAIRMENT OF LOANS AND ADVANCES 2019 2018 Rm Rm
Agriculture 1 840 1 776 Construction 1 076 842 Electricity 72 491 Finance, real estate and other business services 1 473 1 580 Individuals 14 302 13 743 Manufacturing 1 402 1 315 Mining 234 244 Transport 351 318 Wholesale 670 577 Other services 1 194 2 915 Credit impairment of non-performing loans 22 614 23 801
IFRS: GEOGRAPHIC SEGMENTAL ANALYSIS OF STAGE 3 CREDIT IMPAIRMENT OF LOANS AND ADVANCES
2019 2018 % Rm % Rm
South Africa 77 17 346 70 16 630 Africa Regions 22 5 053 20 4 710 International 1 215 10 2 461 Credit impairment of non-performing loans 100 22 614 100 23 801 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 149
Collateral The table below shows the financial effect that collateral has on the group’s maximum exposure to credit risk. The table is presented according to Basel asset categories and includes collateral that may not be eligible for recognition under Basel but that management takes into consideration in the management of the group’s exposures to credit risk. All on- and off-balance sheet exposures that are exposed to credit risk, including NPL, have been included.
Collateral includes: •• financial securities that have a tradable market, such as shares and other securities •• physical items, such as property, plant and equipment •• financial guarantees, suretyships and intangible assets.
Netting agreements, which do not qualify for offset under IFRS but which are nevertheless enforceable, are included as part of the group’s collateral for risk management purposes. All exposures are presented before the effect of any impairment provisions. In the retail portfolio, 55% (2018: 56%) is fully collateralised. The R5.3 billion (2018: R4.5 billion) of retail accounts that lie within the 0% to 50% range of collateral coverage mainly comprise accounts which are either in default or legal. The total average collateral coverage for all retail mortgage exposures in the 50% to 100% collateral coverage category is 77% (2018: 79%).
Of the group’s total exposure, 52% (2018: 57%) is unsecured and mainly reflects exposures to well-rated corporate counterparties, bank counterparties and sovereign entities.
The group does not currently trade commodities that could give rise to physical commodity inventory or collateral exposure with the exception of precious metals. In the normal course of its precious metal trading operations, the group does not hold allocated physical metal; however, this may occur from time-to-time. Where this does occur, appropriate risk and business approval is required to ensure that the minimum requirements are satisfied, including but not limited to approval of risk limits and insurance cover.
COLLATERAL Collateral coverage – Secured Total collateral Netting exposure Total agree- after Greater exposure Unsecured Secured ments netting 1 to 50 to than (a+b) (a) (b) (c) (b-c) 50% 100% 100% 2019 Rm Rm Rm Rm Rm Rm Rm Rm
Corporate 614 201 422 098 192 103 11 106 180 997 19 995 123 086 37 917 Sovereign 316 427 301 410 15 017 3 351 11 666 1 11 619 46 Bank 217 370 80 482 136 888 61 306 75 582 49 852 21 411 4 319 Retail 638 865 129 574 509 291 439 508 852 5 254 151 509 352 088 Retail mortgage 390 991 33 390 958 390 958 2 430 47 627 340 901 Other retail 247 874 129 541 118 333 439 117 894 2 824 103 882 11 187
Total 1 786 863 933 564 853 299 76 202 777 097 75 102 307 625 394 370 Add: financial assets not exposed to credit risk 197 252 Less: impairments for loans and advances (35 279) Less: unrecognised off- balance sheet items (168 246) Total exposure 1 780 590 Cash and balances with central banks 75 288 Derivative assets 66 825 Trading assets 220 409 Pledged assets 17 800 Financial investments 204 703 Loans and advances 1 181 067 Other financial assets 14 498 Total 1 780 590 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 150 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Secured Collateral coverage – exposure Total collateral Total Netting after exposure Unsecured agreements netting 1 to 50 to Greater (a+b) (a) Secured (c) (b-c) 50% 100% than 100% 2018 Rm Rm (b) Rm Rm Rm Rm Rm
Corporate 612 478 439 420 173 058 10 540 162 518 13 855 116 605 32 058 Sovereign 259 994 249 101 10 893 2 265 8 628 771 7 150 706 Bank1, 2 359 873 232 815 127 058 45 732 81 326 44 668 31 161 5 497 Retail 604 711 120 343 484 368 473 483 895 4 536 139 280 340 079 Retail mortgage 372 152 68 372 084 372 084 1 217 42 134 328 734 Other retail 232 559 120 275 112 284 473 111 811 3 319 97 146 11 345
Total 1 837 056 1 041 679 795 377 59 010 736 367 63 830 294 196 378 340 Add: financial assets not exposed to credit risk 33 888 Less: impairments for loans and advances (36 685) Less: unrecognised off- balance sheet items1 (180 630) Total exposure 1 653 629 Cash and balances with central banks 85 145 Derivative assets 48 429 Trading assets 178 327 Pledged assets 7 218 Financial investments 205 380 Loans and advances1 1 119 547 Other financial assets 9 583 Total 1 653 629
1 Restated. Refer to page 31 for further details on the restatement. 2 Security firms in the prior year have been treated as corporates whereas in the current year and in future year, they will be treated as banks.
Funding and liquidity risk Definition Liquidity risk is the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms.
Approach to managing liquidity risk The nature of the group’s banking and trading activities gives rise to continuous exposure to liquidity risk. Liquidity risk may arise where counterparties, who provide the group with short-term funding, withdraw or do not roll over that funding, or normally liquid assets become illiquid as a result of a generalised disruption in asset markets.
The group manages liquidity in accordance with applicable regulations and within the group’s risk appetite framework. The group’s liquidity risk management governance framework supports the measurement and management of liquidity across both the corporate and retail sectors to ensure that payment obligations can be met by the group’s legal entities, under both normal and stressed conditions. Liquidity risk management ensures that the group has the appropriate amount, diversification and tenor of funding and liquidity to support its asset base at all times. The group manages liquidity risk as three interrelated pillars, which are aligned to the Basel III liquidity requirements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 151
Maturity analysis of financial liabilities by contractual maturity The following table analyses cash flows on a contractual, undiscounted basis based on the earliest date on which the group can be required to pay (except for trading liabilities and derivative liabilities, which are presented as redeemable on demand) and will therefore not agree directly to the balances disclosed in the consolidated statement of financial position (SOFP).
Derivative liabilities are included in the maturity analysis on a contractual, undiscounted basis when contractual maturities are essential for an understanding of the derivatives’ future cash flows. Management considers only contractual maturities to be essential for understanding the future cash flows of derivative liabilities that are designated as hedging instruments in effective hedge accounting relationships. All other derivative liabilities, together with trading liabilities, are treated as trading and are included at fair value in the redeemable on demand bucket since these positions are typically held for short periods of time.
The table also includes contractual cash flows with respect to off-balance sheet items. Where cash flows are exchanged simultaneously, the net amounts have been reflected.
Maturing Maturing Maturing between Maturing Redeemable within between 6 – 12 after on demand 1 month 1 – 6 months months 12 months Total Rm Rm Rm Rm Rm Rm
2019 Financial liabilities Derivative financial instruments 64 724 6 612 254 2 500 68 096 Instruments settled on a net basis 40 298 6 500 197 2 454 43 455 Instruments settled on a gross basis 24 426 112 57 46 24 641 Trading liabilities 83 718 83 718 Deposits and debt funding 856 174 315 553 34 564 23 398 236 545 1 466 234 Subordinated debt 795 2 958 5 538 18 528 27 819 Other1 19 492 6 146 16 878 42 516 Total 1 004 616 335 846 38 134 35 336 274 451 1 688 383 Unrecognised financial liabilities Letters of credit and bankers’ acceptances 15 104 15 104 Guarantees 79 202 79 202 Irrevocable unutilised facilities 73 940 73 940 Total 168 246 168 246 2018 Financial liabilities Derivative financial instruments 49 586 1 198 152 232 50 169 Instruments settled on a net basis 31 016 1 111 53 146 31 327 Instruments settled on a gross basis 18 570 87 99 86 18 842 Trading liabilities 61 267 61 267 Deposits and debt funding 912 296 63 412 154 403 80 128 195 352 1 405 591 Subordinated debt 58 411 6 594 15 901 22 964 Other1 18 196 18 196 Total 1 023 149 81 667 155 012 86 874 211 485 1 558 187 Unrecognised financial liabilities Letters of credit and bankers’ acceptances 17 802 17 802 Guarantees 85 576 85 576 Irrevocable unutilised facilities 77 253 77 253 Total 180 631 180 631
1 The group has, as permitted by IFRS 16, elected not to restate its comparative annual financial statements. Comparability will therefore not be achieved as the comparative annual financial information has been prepared on an IAS 17 basis. Refer to page 29 for more detail on the adoption of IFRS 16. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 152 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Market risk Definition Market risk is the risk of a change in the market value, actual or effective earnings, or future cash flows of a portfolio of financial instruments, including commodities, caused by adverse movements in market variables such as equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of these variables.
The group’s key market risks are: •• trading book market risk •• Interest rate in the banking book (IRRBB) •• equity risk in the banking book •• foreign currency risk •• own equity-linked transactions •• post-employment obligation risk.
Trading book market risk Definition Trading book market risk is represented by financial instruments, including commodities, held in the trading book, arising out of normal global markets’ trading activity.
Approach to managing market risk in the trading book The group’s policy is that all trading activities are undertaken within the group’s global markets’ operations.
The market risk functions are independent of the group’s trading operations and are accountable to the relevant legal entity ALCOs. ALCOs have a reporting line into group ALCO, a subcommittee of GROC.
All VaR and SVaR limits require prior approval from the respective entity ALCOs. The market risk functions have the authority to set these limits at a lower level.
Market risk teams are responsible for identifying, measuring, managing, monitoring and reporting market risk as outlined in the market risk governance standard.
Exposures and excesses are monitored and reported daily. Where breaches in limits and triggers occur, actions are taken by market risk functions to bring exposures back in line with approved market risk appetite, with such breaches being reported to management and entity ALCOs.
VaR and SVaR The group uses the historical VaR and SVaR approach to quantify market risk under normal and stressed conditions.
For risk management purposes VaR is based on 251 days of unweighted recent historical data updated at least monthly, a holding period of one day and a confidence level of 95%. The historical VaR results are calculated in four steps: •• calculate 250 daily market price movements based on 251 days’ historical data. Absolute movements are used for interest rates and volatility movements; relative for spot, equities, credit spreads, and commodity prices •• calculate hypothetical daily profit or loss for each day using these daily market price movements •• aggregate all hypothetical profits or losses for day one across all positions, giving daily hypothetical profit or loss, and then repeat for all other days •• VaR is the 95th percentile selected from the 250 days of daily hypothetical total profit or loss.
Daily losses exceeding the VaR are likely to occur, on average, 13 times in every 250 days.
SVaR uses a similar methodology to VaR, but is based on a 251-day period of financial stress which is reviewed quarterly and assumes a ten-day holding period and a worst case loss.
The ten-day period is based on the average expected time to reduce positions. The period of stress for SBSA is currently the 2008/2009 financial crisis while, for other markets, more recent stress periods are used where the group has received internal model approval, the market risk regulatory capital requirements is based on VaR and SVaR, both of which use a confidence level of 99% and a ten-day holding period.
Limitations of historical VaR are acknowledged globally and include: •• the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature •• the use of a one-day holding period assumes that all positions can be liquidated or the risk offset in one day. This will usually not fully reflect the market risk arising at times of severe illiquidity, when a one-day holding period may be insufficient to liquidate or hedge all positions fully •• the use of a 95% confidence level, by definition, does not take into account losses that might occur beyond this level of confidence.
VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intra-day exposures. VaR is unlikely to reflect loss potential on exposures that only arise under significant market movements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 153
Trading book portfolio characteristics VaR for the year under review Trading book market risk exposures arise mainly from residual exposures from client transactions and limited trading for the group’s own account. In general, the group’s trading desks have run increased levels of market risk throughout the year for all asset classes when compared to 2018 aggregate normal VaR, and aggregate SVaR.
TRADING BOOK NORMAL VAR ANALYSIS BY MARKET VARIABLE Normal VaR Maximum1 Minimum1 Average Closing Rm Rm Rm Rm
2019 Commodities risk 3 1 1 Foreign exchange risk 26 9 14 15 Equity position risk 18 4 8 11 Debt securities 28 15 21 23 Diversification benefits2 (10) (21) Aggregate 53 22 34 29 2018 Commodities risk 3 1 2 Foreign exchange risk 20 8 12 12 Equity position risk 12 2 6 8 Debt securities 33 12 17 20 Diversification benefits2 (10) (16) Aggregate 37 17 25 25
1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different days. 2 Diversification benefit is the benefit of measuring the VaR of the trading portfolio as a whole, that is, the difference between the sum of the individual VaRs and the VaR of the whole trading portfolio.
TRADING BOOK SVAR ANALYSIS BY MARKET VARIABLE
SVaR
Maximum1 Minimum1 Average Closing Rm Rm Rm Rm
2019 Commodities risk 70 17 39 21 Foreign exchange risk 371 134 210 308 Equity position risk 272 48 135 254 Debt securities 367 202 280 303 Diversification benefits1 (262) (488) Aggregate 741 221 403 398 2018 Commodities risk 80 5 18 51 Foreign exchange risk 339 111 172 200 Equity position risk 310 39 108 121 Debt securities 398 170 274 247 Diversification benefits2 (268) (250) Aggregate 457 191 304 369
1 Diversification benefit is the benefit of measuring the SVaR of the trading portfolio as a whole, that is, the difference between the sum of the individual regions’ SVaRs and the SVaR of the whole trading portfolio. 2 Diversification benefit is the benefit of measuring the SVaR of the trading portfolio as a whole, that is, the difference between the sum of the individual SVaRs and the SVaR of the whole trading portfolio. 3 The 2018 table has been restated to include a breakdownasset class by andto align to normalthe VaR disclosure format.The aggregate figures remainunchanged however, the diversification benefit is restated to include asset class diversification as opposed to regional diversification. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 154 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Approach to managing IRRBB Banking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (net interest income and banking book mark-to-market profit or loss) and the economic value of equity.
The group’s approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group operates. The group’s treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of group ALCO.
Measurement The analytical techniques used to quantify IRRBB include both earnings and valuation-based measures. The analysis takes into account embedded optionality such as loan prepayments and accounts where the account behaviour differs from the contractual position.
The results obtained from forward-looking dynamic scenario analyses, as well as Monte Carlo simulations, assist in developing optimal hedging strategies on a risk-adjusted return basis.
INTEREST RATE SENSITIVITY ANALYSIS1
ZAR USD GBP Euro Other Total
2019 Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 471 444 246 39 674 3 874 Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 541) (563) (224) (672) (4 000) 20182 Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 227 623 189 52 529 3 620 Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 269) (752) (207) (499) (3 727)
1 Before tax. 2 The NII sensitivity was restated to include the impact of endowment funding in Wealth International, resulting in an increase of R541 million under the upward rate scenario and a further R589 million decrease under the downward rate scenario.
Equity risk in the banking book Definition Equity risk is the risk of loss arising from a decline in the value of an equity or equity-type instrument held on the banking book, whether caused by deterioration in the underlying operating asset performance, net asset value (NAV), enterprise value of the issuing entity, or by a decline in the market price of the equity or instrument itself.
Though issuer risk in respect of tradable equity instruments constitutes equity risk, such traded issuer risk is managed under the trading book market risk framework.
Approach to managing equity risk in the banking book Equity risk relates to all transactions and investments subject to approval by the group ERC, in terms of that committee’s mandate, and includes debt, quasi-debt and other instruments that are considered to be of an equity nature.
For the avoidance of doubt, equity risk in the banking book excludes strategic investments in the group’s subsidiaries, associates and joint ventures deployed in delivering the group’s business and service offerings unless the group financial director and group CRO deem such investments to be subject to the consideration and approval by the group ERC. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 155
MARKET RISK SENSITIVITY OF NON-TRADING EQUITY INVESTMENTS 10% 10% reduction in Fair increase in fair value value fair value Rm Rm Rm
2019 Equity securities listed and unlisted 3 906 4 340 4 774 Listed 145 Unlisted 4 195 Impact on profit and loss (429) 429 Impact on OCI (5) 5 2018 Equity securities listed and unlisted 3 262 3 624 3 986 Listed 103 Unlisted 3 521 Impact on profit and loss (356) 356 Impact on OCI (7) 7
Foreign currency risk Definition The group’s primary non-trading related exposures to foreign currency risk arise as a result of the translation effect of the group’s net assets in foreign operations and foreign-denominated financial assets and liabilities.
Approach to managing foreign currency risk The group foreign currency management committee, a subcommittee of the group capital management committee, manages the risk according to existing legislation, South African exchange control regulations and accounting parameters. It takes into account naturally offsetting risk positions and manages the group’s residual risk by means of forward exchange contracts, currency swaps and option contracts.
Hedging is undertaken in such a way that it does not constrain normal operating activities. In particular, for banking entities outside of the South African common monetary area, the need for capital to fluctuate with risk-weighted assets is taken into account.
The repositioning of the group’s NAV by currency, which is managed at a group level, is a controlled process based on underlying economic views and forecasts of the relative strength of currencies, other than foreign operations.
Gains or losses on derivatives that have been designated as either net investment or cash flow hedging relationships in terms of IFRS are reported directly in OCI, with all other gains and losses on derivatives being reported in profit or loss.
Foreign currency risk sensitivity analysis The table that follows reflects the expected financial impact, in rand equivalent, resulting from a 10% shock to foreign currency risk exposures, against ZAR. The sensitivity analysis is based on net open foreign currency exposures arising from foreign-denominated financial assets and liabilities inclusive of derivative financial instruments, cash balances, and accruals, but excluding net assets in foreign operations. The sensitivity analysis reflects the sensitivity of profit or loss on the group’s foreign-denominated exposures other than those trading positions for which sensitivity has been included in the trading book VaR analysis.
FOREIGN CURRENCY RISK SENSITIVITY IN ZAR EQUIVALENTS
USD Euro GBP Naira Other Total
2019 Total net long/(short) position Rm 298 90 25 1 49 463 Sensitivity (ZAR depreciation)2 % 10 10 10 10 10 Impact on profit or loss Rm 30 9 3 0 4 46 20181 Total net long/(short) position Rm 613 225 89 9 13 949 Sensitivity (ZAR depreciation)2 % 10 10 10 10 10 Impact on profit or loss1 Rm 61 22 9 1 1 94
1 SBG expanded the disclosure of its non-trading foreign currency sensitivity to include foreign operations. This resulted in a restatement of expected profit of R82 million and an increase in net long foreign exchange positions by R852 million in 2018. 2 A 10% appreciation in ZAR will have an equal and opposite impact on profit or loss to the amounts disclosed above. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 156 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Own equity-linked transactions Definition The group has exposure to changes in its share price arising from its equity-linked remuneration contractual commitments.
Depending on the nature of the group’s equity-linked share schemes, the group is exposed to either income statement risk or NAV risk through equity due to changes in its own share price as follows: •• Income statement risk arises as a result of losses being recognised in the group’s income statement as a result of increases in the group’s share price on cash-settled share schemes above the award grant price. •• NAV risk arises as a result of the group settling an equity-linked share incentive scheme at a higher price than the price at which the share incentive was granted to the group’s employees.
The following table summarises the group’s most material share schemes together with an explanation of which risk (where applicable) the share scheme exposes the group to, and why, and an indication as to whether the share schemes are hedged.
Hedged Share scheme Risk to the group Explanation Hedged1 risk
Equity Growth N/A The EGS is an equity-settled share scheme No. as there is no cash N/A Scheme (EGS) that is settled through the issuance of new flow risk. shares. Accordingly, the group does not incur any cash flow in settling the share schemes and, hence, is not exposed to any risk as a result of changes in its own share price.
Since the EGS results in the issuance of new shares and in order to mitigate the dilutionary impact on existing shareholders, the group re-purchases shares from the open market.
Quanto Stock Income statement The Quanto is a cash-settled share scheme. Ye s SBK Unit Scheme risk Increases in the group’s share price results share (Quanto) in losses being recognised in the income price risk statement.
Equity-settled NAV risk The DBS and PRP awards that are equity- Ye s SBK Deferred Bonus settled, are settled through the purchase of share scheme (DBS) shares from the open market. Accordingly, for price risk and Performance these equity-settled share schemes, increases Reward in the group’s share price above the grant Plan (PRP) price will result in losses being recognised in the group’s equity.
Cash-settled DBS Income statement The DBS and PRP awards that are cash- Ye s SBK and PRP risk settled result in losses being recognised share in the income statement as a result of price risk increases in the group’s share price.
Share NAV risk SARP awards that are issued to individuals No, given the current N/A Appreciation in the employment of a group entity domiciled number of awards Rights Scheme in South Africa are classified as equity-settled that have been issued to (SARP) – equity- and are settled through the purchase of date. The number of settled shares from the open market. Accordingly, awards, are however, changes in the group’s share price above monitored to evaluate the grant price will result in gains and/or for future hedging losses being recognised directly in the group’s considerations. equity.
SARP – cash- Income statement Awards made to individuals of a group entity No, given the current N/A settled risk outside of South Africa are settled in cash. number of awards Increases in the group’s share price will result that have been issued to in losses being recognised in the income date. The number of statement. awards, are however, monitored to evaluate for future hedging considerations.
1 The group partially hedges these exposures. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 157
Investment management and life insurance – Liberty Holdings Limited Credit risk The following table provides information regarding the aggregated credit risk exposure of Liberty to debt instruments categorised by credit ratings, if available, as at 31 December:
EXPOSURE TO CREDIT RISK1 A- and BB- and Not Pooled above BBB+ BBB BBB- BB+ BB below rated funds Total Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2019 Debt instruments 13 569 5 035 25 461 30 460 52 658 13 392 4 454 4 599 149 628 Investment policies 2 330 913 3 243 Prepayments, insurance and other receivables 816 3 863 4 679 Mutual funds – interest- bearing instruments 22 392 22 392 Reinsurance assets 1 953 456 2 409 Derivatives and collateral deposits 2 857 453 1 664 2 072 505 2 307 145 10 003 Cash and cash equivalents 5 066 84 1 030 8 198 306 1 901 792 17 377 Total assets bearing credit risk 24 261 5 572 28 155 43 060 53 469 17 600 4 454 10 768 22 392 209 731 2018 Debt instruments 15 514 4 248 31 637 29 429 36 088 11 121 5 523 4 944 138 504 Investment policies 8 208 1 254 9 462 Prepayments, insurance and other receivables 514 82 29 395 3 933 4 953 Mutual funds – interest- bearing instruments 17 338 17 338 Reinsurance assets 1 654 35 430 2 119 Derivatives and collateral deposits 2 508 284 2 551 1 398 3 572 27 10 340 Cash and cash equivalents 3 782 452 4 155 5 712 14 2 316 384 159 16 974 Total assets bearing credit risk 23 972 5 066 38 407 45 142 36 102 17 009 5 907 10 747 17 338 199 690
1 As reported by Liberty, Refer to Liberty’s annual financial statements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 158 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Funding and liquidity risk Long-term insurance The table below breaks down Liberty’s assets according to time to liquidate. It is worth noting that, in a stressed environment, the market value of these assets is likely to be negatively affected.
FINANCIAL PROPERTY AND INSURANCE ASSET LIQUIDITY1
2019 2018 % Rm % Rm
Liquid2 75 343 091 74 321 472 Medium3 15 69 302 16 67 279 Illiquid4 10 45 720 10 44 788 Total 100 458 113 100 433 539
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Liquid assets are those that are considered to be realisable within one month (for example, cash, listed equities and term deposits). 3 Medium assets are those that are considered to be realisable within six months (for example, unlisted equities and certain unlisted term deposits). 4 Illiquid assets are those that are considered to be realisable in excess of six months (for example, investment properties and policyholder assets).
Maturity profiles of financial instrument liabilities The table below summarises the maturity profile of Liberty’s financial instrument liabilities based on the remaining undiscounted contractual obligations. These figures will be higher than amounts disclosed in the statement of financial position (where the effect of discounting is taken into account) except for short duration liabilities. Policyholder liabilities under investment contracts, investment contracts with DPF and insurance contracts are shown in a separate table.
MATURITY PROFILE OF FINANCIAL INSTRUMENT LIABILITIES – CONTRACTUAL CASH FLOWS1 (EXCLUDING POLICYHOLDER LIABILITIES, DERIVATIVE LIABILITIES AND LEASE LIABILITIES) Zero to Three to One to three 12 five Five to ten months2 months years years Variable Total Rm Rm Rm Rm Rm Rm
2019 Subordinated notes 140 1 363 4 676 1 087 7 266 Redeemable preference shares3 5 5 Loan facilities 195 2 567 2 762 Third-party financial liabilities arising on consolidation of mutual funds 56 758 56 758 Repurchase agreements 5 002 927 5 929 Collateral deposits payable 6 545 6 545 Insurance and other payables 12 804 311 13 115 Total 81 249 2 796 7 243 1 087 5 92 380 2018 Subordinated notes 173 378 4 972 2 398 7 921 Commercial paper 811 811 Redeemable preference shares3 5 5 Loan facilities 745 1 573 2 318 Third-party financial liabilities arising on consolidation of mutual funds 48 186 48 186 Repurchase agreements 5 135 649 5 784 Collateral deposits payable 5 976 5 976 Insurance and other payables 11 568 347 54 2 11 971 Total 71 849 2 119 6 599 2 400 5 82 972
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Zero to three months are either due within the time-frame or are payable on demand. 3 No fixed maturity date; however, redeemable with a two-year notice period at the instance of Liberty or the holder. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 159
Liquidity risks arising from long-term insurance business The tables that follow provide an indication of liquidity needs in respect of cash flows required to meet obligations arising under long-term insurance business.
Undiscounted cash flows are shown and the effect of discounting is taken into account to reconcile to total policyholder contract values.
EXPECTED CASH FLOWS – LONG-TERM INSURANCE CONTRACTS1
Insurance contracts Reinsurance Investment Policyholder Policyholder assets and contracts Investment liabilities assets liabilities with DPF2 contracts Rm Rm Rm Rm Rm
2019 Investment-linked liabilities Within 1 year 16 755 515 6 759 1 – 5 years 58 865 (137) 12 168 5 – 10 years 16 766 980 11 936 10 – 20 years 33 439 2 781 25 117 Over 20 years 32 871 6 113 49 058 Total investment-linked liabilities 158 696 10 252 105 038 Non-investment-linked liabilities/(assets) Within 1 year 4 629 (2 357) (419) 559 1 – 5 years 25 971 (6 704) (882) 1 101 5 – 10 years 15 321 (3 700) (777) 2 034 10 – 20 years 27 620 3 431 (730) 21 Over 20 years 65 742 67 759 1 605 26 Effect of discounting cash flows (91 876) (65 446) (542) (888) Total non-investment-linked liabilities/(assets) 47 407 (7 017) (1 745) 2 853 Total long-term insurance business liabilities/ (assets) 206 103 (7 017) (1 745) 10 252 107 891 Total surrender value of long-term insurance policyholder liabilities 170 208 9 999 107 585 2018 Investment-linked liabilities Within 1 year 15 569 226 4 679 1 – 5 years 57 136 (314) 8 251 5 – 10 years 14 770 1 004 8 057 10 – 20 years 32 979 1 785 20 633 Over 20 years 35 851 7 736 55 346 Total investment-linked liabilities 156 305 10 437 96 966 Non-investment-linked liabilities/(assets) Within 1 year 5 187 (2 332) (349) 584 1 – 5 years 22 887 (6 416) (701) 1 266 5 – 10 years 14 470 (3 548) (633) 2 054 10 – 20 years 25 814 3 063 (586) 30 Over 20 years 61 980 62 905 969 36 Effect of discounting cash flows (85 899) (60 380) (116) (1 123) Total non-investment-linked liabilities/(assets) 44 439 (6 708) (1 416) 2 847 Total long-term insurance business liabilities/ (assets) 200 744 (6 708) (1 416) 10 437 99 813 Total surrender value of long-term insurance policyholder liabilities 166 589 10 405 99 545
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 DPF refers to discretionary participation features. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 160 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Market risk Exposure to financial, property and insurance assets The table below summarises Liberty’s exposure to financial, property and insurance assets. This exposure has been split into the relevant market risk categories and then attributed to the effective holders of the risk.
SUMMARY OF GROUP ASSETS SUBJECT TO MARKET RISK1
Attributable to Third-party Long-term financial policyholder liabilities investment- arising on Residual linked con- liabilities (including Other solidation Non- and share- Total DPF) policyholder of mutual controlling holders’ assets liabilities liabilities5 funds interests interest Rm Rm Rm Rm Rm Rm
2019 Assets subject to market risk only 241 365 194 554 (5 743) 31 885 7 817 12 852 Equity price 130 831 108 065 (4 040) 20 810 5 996 Property price2 39 179 25 074 (248) 5 636 7 817 900 Mixed portfolios excluding investment policies3 71 355 61 415 (1 455) 5 439 5 956 Assets subject to market and credit risk 209 731 93 361 42 320 24 873 504 48 673 Interest rate 203 103 89 142 40 329 24 873 504 48 255 Investment policies in mixed portfolios 3 243 3 243 Reinsurance assets4 2 409 1 991 418 Equity derivatives 976 976 Long-term policyholder assets 7 017 7 017 Other assets 3 561 3 561 Total 461 674 287 915 36 577 56 758 8 321 72 103 Percentage (%) 62.4 7.9 12.3 1.8 15.6 2018 Assets subject to market risk only 227 141 190 541 (7 136) 24 103 7 883 11 750 Equity price 123 673 108 886 (4 038) 13 498 5 327 Property price2 39 139 23 856 (287) 6 657 7 883 1 030 Mixed portfolios excluding investment policies3 64 329 57 799 (2 811) 3 948 5 393 Assets subject to market and credit risk 199 690 84 156 43 716 24 083 507 47 228 Interest rate 187 316 73 901 42 017 24 083 507 46 808 Investment policies in mixed portfolios 9 462 9 462 Reinsurance assets4 2 119 1 699 420 Equity derivatives 793 793 Long-term policyholder assets 6 708 6 708 Other assets 3 735 3 735 Total 437 274 274 697 36 580 48 186 8 390 69 421 Percentage (%) 62.8 8.4 11.0 1.9 15.9
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Equity price risk is included in property price risk where the invested entity only has exposure to investment properties. Property company debt of R5 327 million (2018: R5 300 million) is included in the interest rate risk line. 3 Mixed portfolios are subject to a combination of equity price, interest rate and property price risks depending on each portfolio’s construction. A substantial portion of the mixed portfolios will be subject to equity price and interest rate risk. The exact proportion is practically difficult to accurately calculate given the number of mutual funds and hedge funds contained in the group portfolios. 4 Reinsurance assets are claims against reinsurers outstanding at the reporting date. They are not subject to market risk other than time value of money (interest rate) for the periods to settlement. 5 Negative exposure to the various risk categories can occur in other policyholder liabilities since the present value of future charges can exceed the present value of future benefits and expenses resulting in a negative liability. The group offsets these negative liabilities against policyholders’ market-related liabilities. The policyholders’ market risk exposure, however, remains unchanged. Hence, shareholders bear all the risks of shorting assets backing the policyholder
investment-linked liabilities by the amount of these negative liabilities. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 161
Interest rate risk The table below provides additional detail on financial instrument assets and liabilities and their specific interest rate exposure. Due to practical considerations, interest rate risk details contained in investments in non-subsidiary mutual funds and investment policies are not provided. Accounts receivable and accounts payable, where settlement is expected within 90 days, are not included in the analysis. The effect of interest rate risk on these balances is not considered significant given the short-term duration of the underlying cash flows.
INTEREST RATE EXPOSURE1 2019 2018 Carrying value Rm Rm
Financial instruments liabilities 20 261 19 846 Exposed to cash flow interest rate risk 18 284 18 369 Exposed to fair value interest rate risk 1 977 1 477 Financial instruments assets 169 269 159 583 Exposed to cash flow interest rate risk 103 109 91 242 Exposed to fair value interest rate risk 66 160 68 341
1 As reported by Liberty. Refer to Liberty’s annual financial statements.
Property market risk Liberty’s direct exposure to property market risk is shown below:
PROPERTY MARKET RISK1
2019 2018 Rm Rm
Investment properties 34 682 34 316 Owner-occupied properties 1 612 1 645 Gross direct exposure 36 294 35 961 Attributable to non-controlling interests (8 313) (7 884) Net exposure 27 981 28 077 Concentration use risk within directly held properties is summarised below: Shopping malls 29 664 29 520 Office buildings 2 493 2 439 Other property (shares in Melrose Arch precinct, Sandton Sun and Towers, Garden Court Sandton City, and the Sandton Convention Centre) 4 137 4 002 Total 36 294 35 961
1 As reported by Liberty. Refer to Liberty’s annual financial statements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 162 ANNUAL FINANCIAL STATEMENTS ANNEXURE C – RISK AND CAPITAL MANAGEMENT – IFRS DISCLOSURES CONTINUED
Sensitivity analysis The table below provides a description of the sensitivities that are provided on market risk assumptions:
Market risk variable Description of sensitivity
Interest yield curve A parallel shift in the interest rate yield curve
Implied option volatilities A change in the implied short-term equity, property and interest rate option volatility assumptions
Equity prices A change in the local and foreign equity prices
Rand exchange rates A change in the ZAR exchange rate to all applicable currencies
The equity price and rand currency sensitivities are applied as an instantaneous event at the financial position date with no change to long-term market assumptions used in the measurement of policyholder contract values. In other words, the assets are instantaneously impacted by the sensitivity on the financial position date. The new asset levels are applied to the measurement of policyholder contract values, where applicable, but no changes are made to the prospective assumptions used in the measurement of policyholder contract values.
The interest rate yield curve and implied option volatility sensitivities are applied similarly but the assumptions used in the measurement of policyholder contract values that are dependent on interest rate yield curves and implied option volatilities are updated.
The market sensitivities are applied to all assets held by Liberty (and not just assets backing the policyholder contract values). Each sensitivity is applied in isolation with all other assumptions left unchanged.
The table below summarises the impact of the change in the aforementioned risk variables on policyholders’ contract values and on ordinary shareholders’ equity and attributable profit after taxation. The market risk sensitivities are net of risk mitigation activities. Consequently the comparability to the previous year is impacted by the level of risk mitigation at the respective financial position dates.
SENSITIVITY ANALYSIS1
2019 2018 Gross of Net of Impact Gross of Net of Impact reinsurance reinsurance on equity reinsurance reinsurance on equity impact on impact on and impact on impact on and policy- policy- attri- policy- policy- attri- Change holders’ holders’ butable Change holders’ holders’ butable in contract contract profit after in contract contract profit after variable values values taxation variable values values taxation % Rm Rm Rm % Rm Rm Rm
Market assumptions Interest rate yield curve 12 (6 438) (6 494) (362) 12 (6 119) (6 162) (357) (12) 7 849 7 891 264 (12) 7 540 7 573 239 Option price volatilities 20 49 49 (9) 20 61 61 (21) (20) (26) (26) (4) (20) (45) (45) 11 Equity prices 15 21 869 21 868 1 364 15 21 810 21 810 1 528 (15) (22 145) (22 145) (1 249) (15) (21 853) (21 853) (1 481) Rand exchange rates 122 (6 476) (6 476) (641) 122 (5 924) (5 924) (563) Rand exchange rates (12)3 6 490 6 490 681 (12)3 5 940 5 940 681
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Strengthening of the rand. 3 Weakening of the rand. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 163
The table below provides a description of the sensitivities that are provided on insurance risk assumptions:
Insurance risk variable Description of sensitivity
Assurance mortality A level percentage change in the expected future mortality rates on assurance contracts
Annuitant longevity A level percentage change in the expected future mortality rates on annuity contracts
Morbidity A level percentage change in the expected future morbidity rates
Withdrawal A level percentage change in the expected future withdrawal rates
Expense per policy A level percentage change in the expected maintenance expenses
The table below summarises the impact of the change in the insurance risk variables on policyholders’ contract values and on ordinary shareholders’ equity and attributable profit after taxation:
SENSITIVITY ANALYSIS OF RISK VARIABLES1
2019 2018 Gross of Net of Gross of Net of reinsurance reinsurance Impact reinsurance reinsurance Impact impact on impact on on equity impact on impact on on equity policy- policy- and attri- policy- policy- and attri- Change holders’ holders’ butable Change holders’ holders’ butable in contract contract profit after in contract contract profit after variable values values taxation variable values values taxation % Rm Rm Rm % Rm Rm Rm
Insurance assumptions Mortality Assured lives 2 497 403 (290) 2 464 379 (273) (2) (499) (404) 291 (2) (466) (380) 274 Annuitant longevity 42 396 396 (285) 42 392 392 (282) (4)3 (386) (386) 278 (4)3 (375) (375) 270 Morbidity 5 803 658 (474) 5 764 628 (452) (5) (798) (655) 472 (5) (759) (625) 450 Withdrawals 8 492 503 (361) 8 502 509 (366) (8) (530) (542) 389 (8) (543) (552) 396 Expense per policy 5 445 445 (322) 5 420 420 (305) (5) (445) (444) 322 (5) (420) (420) 305
1 As reported by Liberty. Refer to Liberty’s annual financial statements. 2 Annuitant life expectancy increases, i.e. annuitant mortality reduces. 3 Annuitant life expectancy reduces, i.e. annuitant mortality increases. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 164 ANNUAL FINANCIAL STATEMENTS
Annexure D – group share incentive schemes
Share-based payments The group’s share incentive schemes enable key management personnel and senior employees to benefit from the performance of the group and group companies’ share price. For further detail regarding the share schemes refer to the group’s governance and remuneration report.
2019 2018 Rm Rm
Expenses recognised in staff cost Equity Growth Scheme 8 21 Share Appreciation Rights Scheme 36 20 Quanto Stock Scheme 15 Deferred Bonus Scheme 1 280 1 257 Performance Reward Plan 245 427 Cash-Settled Deferred Bonus Scheme 385 371 Liberty Share Incentive Scheme 135 94 Total 2 089 2 205 Summary of liabilities recognised in other liabilities Share Appriciation Rights Scheme 3 2 Deferred Bonus Scheme 16 157 Performance Reward Plan 58 216 Cash-Settled Deferred Bonus Scheme 375 373 Total 452 748
Equity growth scheme (EGS) The EGS is an equity-settled scheme and represents appreciation rights allocated to employees. The converted value of the rights is effectively settled by issue of shares equivalent to the value of the rights. The scheme has five different subtypes of vesting categories as illustrated by the table below:
Ye a r % vesting Expiry
Vesting categories Type A 3, 4, 5 50, 75, 100 10 years Type B 5, 6, 7 50, 75, 100 10 years Type C 2, 3, 4 50, 75, 100 10 years Type D 2, 3, 4 33, 67, 100 10 years Type E 3, 4, 5 33, 67, 100 10 years
A reconciliation of the movement of share options is detailed below:
Average price Number of rights range (R) 2019 2018 2019
Movement summary Rights outstanding at beginning of the year 7 364 238 10 772 081 Exercised (2 382 033) (3 390 508) 62.39 – 156.96 Lapsed/forfeited (40 938) (17 335) 62.39 – 114.69 Rights outstanding at the end of the year 4 941 267 7 364 238 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 165
Equity growth scheme (EGS) continued During 2019, 801 345 (2018: 1 417 128) SBG shares were issued to settle the appreciated rights value. At the end of the year, the group would need to issue 1 379 838 (2018: 2 557 500) SBG shares to settle the outstanding appreciated rights value. The EGS rights are only awarded to individuals in the employment of a group entity domiciled in South Africa.
The group is required to ensure that employees’ tax arising from benefits due in terms of the scheme is paid in accordance with the Fourth Schedule of the Income Tax Act of South Africa. Where employees have elected not to fund the tax from their own resources the tax due is treated as a diminution of the gross benefits due under the scheme. No (2018: nil) SBG shares were issued and sold to settle the employees’ tax due during the year. This reduces the liability to the employee in respect of the outstanding appreciated rights value. Share options were exercised regularly throughout the year. The weighted average share price for the year was R183.51 (2018: R195.35).
The following rights granted to employees, including executive directors, had not been exercised at year end:
2019 2018 Number Weighted Number Weighted of ordinary Option price average of ordinary Option price average Option expiry period shares range (rand) price (rand) shares range (rand) price (rand)
Year to 31 December 2019 219 475 62.39 – 95.50 64.58 Year to 31 December 2020 866 419 62.39 – 114.69 107.14 2 002 713 102.39 – 114.69 111.83 Year to 31 December 2021 1 158 593 96.68 – 103.03 98.94 1 821 026 96.68 – 103.03 98.93 Year to 31 December 2022 192 825 98.75 – 108.90 107.16 225 962 98.75 – 108.90 107.42 Year to 31 December 2023 245 761 115.51 115.51 250 761 115.51 115.51 Year to 31 December 2024 472 533 126.87 126.87 517 886 126.87 126.87 Year to 31 December 2025 1 001 291 156.96 156.96 1 095 029 156.96 156.96 Year to 31 December 2026 1 003 845 122.24 122.24 1 231 386 122.24 122.24 Total 4 941 267 7 364 238
Shares Appreciation Right Scheme (SARP) The SARP is a long term scheme and represents appreciation rights awarded to employees and is based on the SBG’s share price. Awards that are issued to individuals in the employment of a group entity domiciled in South Africa are classified as equity-settled and awards made to individuals of a group entity outside of South Africa are classified as cash-settled. Vesting and expiry of the rights are as follows:
Ye a r % vesting Expiry
SARP 2, 3, 4 33, 67, 100 4, 5, 6
The converted value of the rights is settled either by purchasing shares for equity-settled awards on an external market and in cash for cash-settled awards equal to the value of the converted rights. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 166 ANNUAL FINANCIAL STATEMENTS ANNEXURE D – GROUP SHARE INCENTIVE SCHEMES CONTINUED
A reconciliation of the movement of share options is detailed below:
2019 2018 Average Average price range Number price range Number (rand) of rights (rand) of rights
SARP Rights outstanding at the end of the year 1 433 856 671 923 Granted1 182.43 1 332 940 220.97 761 933 Exercised (73 332) Lapsed/forfeited (6 550) Rights outstanding at the end of the year 2 686 914 1 433 856 Comprising: Outstanding equity-settled units 2 487 823 1 302 257 Outstanding cash-settled units 199 091 131 599
1 Includes 1 215 820 (2018: 675 339) units that are equity-settled, the balance will be cashed-settled.
During the year, 7 761 (2018: nil) SBG shares were purchased from the market to settle the appreciation rights value.
At the end of the year, the group would need to purchase 44 052 (2018: 85 958) SBG shares to settle the outstanding appreciated rights value.
The following rights granted to employees, including executive directors, had not been exercised as at 31 December 2019:
2019 2018 Weighted Weighted Option price average Option price average Number range price Number range price Option expiry period of rights (rand) (rand) of rights (rand) (rand)
Year to 31 December 2021 150 635 155.95 155.95 223 967 155.95 155.95 Year to 31 December 2022 475 737 155.95 – 220.97 190.36 477 920 155.95 – 220.97 190.50 Year to 31 December 2023 920 046 155.95 – 220.97 186.53 477 942 155.95 – 220.97 190.50 Year to 31 December 2024 696 130 182.43 – 220.97 196.37 254 027 220.97 220.97 Year to 31 December 2025 444 366 182.43 182.43 Total 2 686 914 1 433 856
The share appreciation rights granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting and the assumptions utilised are illustrated below:
2019 2018 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3
Number of appreciation rights granted 444 287 444 287 444 366 253 953 253 953 254 027 Weighted average fair value at grant date (rands) 27.24 33.43 38.52 52.90 58.66 63.13 The principal inputs are as follows: Weighted average share price (rand) 182.43 182.43 182.43 220.97 220.97 220.97 Weighted average exercise price (rand) 182.43 182.43 182.43 220.97 220.97 220.97 Expected life (years) 4.00 5.00 6.00 4.00 5.00 6.00 Expected volatility (%) 30.77 30.77 30.77 29.19 29.19 29.19 Risk-free interest rate (%) 6.79 7.0 7.13 8.21 8.40 8.55 Dividend yield (%) 4.76 4.59 4.49 4.60 4.48 4.42 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 167
Deferred Bonus Scheme All employees granted an annual performance award over a threshold have part of their award deferred. The awards are indexed to the group’s share price and accrue notional dividends during the vesting period, which are payable on vesting. Awards vest in three equal amounts at 18 months, 30 months and 42 months from the date of award. The final payout is determined with reference to the group’s share price on vesting date. These awards have been partially hedged through the use of equity forwards.
Awards that are issued to individuals in employment of a group entity domiciled in South Africa are classified as equity-settled and awards that are made to individuals of a group entity outside of South Africa are classified as cash-settled.
Units 2019 2018
Movement summary Units outstanding at beginning of the year 13 319 512 14 353 804 Units granted during the year1 7 069 071 5 912 386 Exercised (6 936 960) (6 337 114) Lapsed/forfeited (511 040) (609 564) Units outstanding at end of the year 12 940 583 13 319 512 Outstanding equity-settled units 12 725 473 12 757 885 Outstanding cash-settled units 215 110 561 627
Weighted average fair value at grant date (R) 182.54 218.68 Expected life (years) 2.51 2.51
1 Includes 6 979 195 (2018: 5 834 741) units that are equity-settled, the balance relates to cash-settled rewards.
Performance Reward Plan (PRP) The PRP is a performance-driven share plan which rewards value delivered against specific targets. The PRP incentivises a group of senior executives to meet the strategic long-term objectives that deliver value to shareholders, to align the interests of those executives with those of shareholders and to act as an attraction and retention mechanism in a highly competitive marketplace for skills. The PRP operates alongside the existing conditional, equity-settled long-term plans, namely the EGS, DBS, and other share incentive schemes.
The awards that are indexed to the group’s share price and accrue notional dividends during the vesting period, are payable on vesting. Shares that vest (if any), and that are delivered to the employee, are conditional on the pre-specified performance metrics. These awards have been partially hedged through the use of equity forwards.
Awards that are issued to individuals in employment of a group entity domiciled in South Africa are classified as equity-settled and awards made to individuals of a group entity outside of South Africa are classified as cash-settled.
Units 2019 2018
Movement summary Units outstanding at beginning of the year 7 626 856 7 517 975 Units granted during the year1 2 908 816 2 210 428 Exercised (3 165 142) (2 456 539) Performance condition uplift for awards vested during the year 302 966 360 294 Lapsed/forfeited (137 071) (5 302) Units outstanding at the end of the year 7 536 425 7 626 856 Outstanding equity-settled units 6 748 300 6 500 064 Outstanding cash-settled units 788 125 1 126 792
Weighted average fair value at grant date (R) 182.43 220.97 Expected life (years) 3.07 3.07
1 Includes 2 626 716 (2018: 1 947 028) units that are equity-settled, the balance relates to cash-settled rewards. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 168 ANNUAL FINANCIAL STATEMENTS ANNEXURE D – GROUP SHARE INCENTIVE SCHEMES CONTINUED
Cash-Settled Deferred Bonus Scheme (CSDBS) Effective for awards made in 2017, employees granted an annual performance award over a threshold and who are in employment of the group and meet other specific criteria have part of their award deferred.
Awards in rand are indexed to SBG’s share price and accrues notional dividends during the vesting period, which are payable on vesting. Awards vest in three equal amounts at 18, 30 and 42 months from the date of the award. The maturity value is determined with reference to the SBG share price on the vesting date. These awards are classified as cash-settled from a group perspective. Awards in currencies other than rand (being the employee’s host country) are denominated in that currency with the same terms as rand-denominated awards with the value of the awards, in foreign currency, moving in parallel with changes in the SBG share price. These awards have been partially hedged through the use of equity forwards.
2019 2018 Weighted average fair Expected life value at at grant date Opening Opening Currency grant date (years) balance Granted Exercised Lapsed Outstanding balance Granted Exercised Lapsed Outstanding
AOA 182.43 2.51 317 955 491 380 (61 860) (226 438) 521 037 126 326 233 735 (42 106) 317 955 BWP 182.43 2.51 29 867 22 519 (12 033) 40 353 19 409 17 896 (6 466) (972) 29 867 CNY 182.43 2.51 50 568 35 787 (24 937) 61 418 41 921 25 188 (16 541) 50 568 EUR 182.43 2.51 46 47 (93) 46 46 GBP 182.43 2.51 71 459 41 097 (35 408) (3 619) 73 529 66 231 33 804 (25 573) (3 003) 71 459 GHS 182.43 2.51 11 045 10 981 (4 552) 17 474 8 054 5 713 (2 657) (65) 11 045 HKD 182.43 2.51 48 970 18 784 (32 058) 35 696 52 274 17 009 (20 313) 48 970 KES 182.43 2.51 764 139 475 785 (305 594) 934 330 557 541 421 129 (177 790) (36 741) 764 139 LSL 182.43 2.51 12 665 4 496 (5 024) (5 456) 6 681 7 248 7 831 (2 414) 12 665 MUR 182.43 2.51 81 919 67 671 (32 494) 117 096 46 745 50 754 (15 580) 81 919 MWK 182.43 2.51 1 159 039 698 544 (389 174) (201 659) 1 266 750 797 223 627 553 (265 737) 1 159 039 MZN 182.43 2.51 151 942 118 612 (57 224) (6 534) 206 796 77 137 100 510 (25 705) 151 942 NAD 182.43 2.51 42 481 24 446 (15 928) (4 913) 46 086 33 317 20 267 (11 103) 42 481 NGN 182.43 2.51 7 963 322 5 210 031 (3 233 749) (307 890) 9 631 714 4 794 223 4 664 095 (1 359 793) (135 203) 7 963 322 SGD 182.43 2.51 2 036 8 536 (678) 9 894 2 036 2 036 SZL 182.43 2.51 12 289 9 765 (4 743) 17 311 7 793 9 053 (1 954) (2 603) 12 289 TZS 182.43 2.51 208 177 235 708 (69 391) 374 494 208 177 208 177 UGX 182.43 2.51 15 401 002 11 957 204 (6 293 547) (82 224) 20 982 435 11 465 062 8 758 390 (3 479 691) (1 342 759) 15 401 002 USD 182.43 2.51 37 586 21 227 (19 206) (411) 39 196 34 310 17 187 (13 568) (343) 37 586 XOF 182.43 2.51 292 392 124 454 (138 808) 278 038 176 915 195 506 (80 029) 292 392 ZAR 182.43 2.51 1 381 670 565 604 (550 034) (20 771) 1 376 469 918 740 773 271 (304 437) (5 904) 1 381 670 ZMW 182.43 2.51 21 930 15 383 (8 702) (428) 28 183 14 565 12 216 (4 851) 21 930 Other share schemes 2019 2018 Outstanding Outstanding Scheme Description Classification Stock symbol units units
Liberty Holdings During 2012, Liberty introduced the Liberty Equity-settled LBH 4 223 461 4 341 587 Group Restricted Holding Group Restricted Share Plan which scheme Share Plan has two methods of participation: 1) Long-term plan awards granted prior to 28 February 2013 vest 33 1/3% at the end of year two, three and four respectively while awards granted subsequently vest 33 1/3% at the end of year three, four and five respectively. 2) Deferred-plan – Awards vest 33 1/3% at the end of 18 months, 30 months and 42 months respectively. Nigeria Share On 1 March 2010 and 1 March 2011, share Cash-settled IBTCCB: NL 14 510 640 24 253 104 Schemes appreciation rights were issued to key scheme management personnel. The scheme has various vesting periods, and expires ten years after grant date. Group Share GSIS confers rights to employees to acquire Equity-settled SBK 275 121 696 115 Incentive shares at the value of the SBG share price scheme Scheme (GSIS) at the date the option was granted. The scheme has various vesting periods, and expires ten years after grant date. During the year, 393 985 (2018: 312 444) SBG shares were issued to settle the GSIS awards. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 169
Cash-Settled Deferred Bonus Scheme (CSDBS) Effective for awards made in 2017, employees granted an annual performance award over a threshold and who are in employment of the group and meet other specific criteria have part of their award deferred.
Awards in rand are indexed to SBG’s share price and accrues notional dividends during the vesting period, which are payable on vesting. Awards vest in three equal amounts at 18, 30 and 42 months from the date of the award. The maturity value is determined with reference to the SBG share price on the vesting date. These awards are classified as cash-settled from a group perspective. Awards in currencies other than rand (being the employee’s host country) are denominated in that currency with the same terms as rand-denominated awards with the value of the awards, in foreign currency, moving in parallel with changes in the SBG share price. These awards have been partially hedged through the use of equity forwards.
2019 2018 Weighted average fair Expected life value at at grant date Opening Opening Currency grant date (years) balance Granted Exercised Lapsed Outstanding balance Granted Exercised Lapsed Outstanding
AOA 182.43 2.51 317 955 491 380 (61 860) (226 438) 521 037 126 326 233 735 (42 106) 317 955 BWP 182.43 2.51 29 867 22 519 (12 033) 40 353 19 409 17 896 (6 466) (972) 29 867 CNY 182.43 2.51 50 568 35 787 (24 937) 61 418 41 921 25 188 (16 541) 50 568 EUR 182.43 2.51 46 47 (93) 46 46 GBP 182.43 2.51 71 459 41 097 (35 408) (3 619) 73 529 66 231 33 804 (25 573) (3 003) 71 459 GHS 182.43 2.51 11 045 10 981 (4 552) 17 474 8 054 5 713 (2 657) (65) 11 045 HKD 182.43 2.51 48 970 18 784 (32 058) 35 696 52 274 17 009 (20 313) 48 970 KES 182.43 2.51 764 139 475 785 (305 594) 934 330 557 541 421 129 (177 790) (36 741) 764 139 LSL 182.43 2.51 12 665 4 496 (5 024) (5 456) 6 681 7 248 7 831 (2 414) 12 665 MUR 182.43 2.51 81 919 67 671 (32 494) 117 096 46 745 50 754 (15 580) 81 919 MWK 182.43 2.51 1 159 039 698 544 (389 174) (201 659) 1 266 750 797 223 627 553 (265 737) 1 159 039 MZN 182.43 2.51 151 942 118 612 (57 224) (6 534) 206 796 77 137 100 510 (25 705) 151 942 NAD 182.43 2.51 42 481 24 446 (15 928) (4 913) 46 086 33 317 20 267 (11 103) 42 481 NGN 182.43 2.51 7 963 322 5 210 031 (3 233 749) (307 890) 9 631 714 4 794 223 4 664 095 (1 359 793) (135 203) 7 963 322 SGD 182.43 2.51 2 036 8 536 (678) 9 894 2 036 2 036 SZL 182.43 2.51 12 289 9 765 (4 743) 17 311 7 793 9 053 (1 954) (2 603) 12 289 TZS 182.43 2.51 208 177 235 708 (69 391) 374 494 208 177 208 177 UGX 182.43 2.51 15 401 002 11 957 204 (6 293 547) (82 224) 20 982 435 11 465 062 8 758 390 (3 479 691) (1 342 759) 15 401 002 USD 182.43 2.51 37 586 21 227 (19 206) (411) 39 196 34 310 17 187 (13 568) (343) 37 586 XOF 182.43 2.51 292 392 124 454 (138 808) 278 038 176 915 195 506 (80 029) 292 392 ZAR 182.43 2.51 1 381 670 565 604 (550 034) (20 771) 1 376 469 918 740 773 271 (304 437) (5 904) 1 381 670 ZMW 182.43 2.51 21 930 15 383 (8 702) (428) 28 183 14 565 12 216 (4 851) 21 930 Other share schemes 2019 2018 Outstanding Outstanding Scheme Description Classification Stock symbol units units
Liberty Holdings During 2012, Liberty introduced the Liberty Equity-settled LBH 4 223 461 4 341 587 Group Restricted Holding Group Restricted Share Plan which scheme Share Plan has two methods of participation: 1) Long-term plan awards granted prior to 28 February 2013 vest 33 1/3% at the end of year two, three and four respectively while awards granted subsequently vest 33 1/3% at the end of year three, four and five respectively. 2) Deferred-plan – Awards vest 33 1/3% at the end of 18 months, 30 months and 42 months respectively. Nigeria Share On 1 March 2010 and 1 March 2011, share Cash-settled IBTCCB: NL 14 510 640 24 253 104 Schemes appreciation rights were issued to key scheme management personnel. The scheme has various vesting periods, and expires ten years after grant date. Group Share GSIS confers rights to employees to acquire Equity-settled SBK 275 121 696 115 Incentive shares at the value of the SBG share price scheme Scheme (GSIS) at the date the option was granted. The scheme has various vesting periods, and expires ten years after grant date. During the year, 393 985 (2018: 312 444) SBG shares were issued to settle the GSIS awards. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 170 ANNUAL FINANCIAL STATEMENTS
Annexure E – emoluments and share incentives of directors and prescribed officers
Executive directors’ and prescribed officers’ emoluments SK Tshabalala A Daehnke A Fihla M Nienaber Z N Manyathi1
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Cost-to-Company package2 10 222 9 987 6 409 6 294 7 734 7 588 6 431 6 257 7 520 5 634 Cash package paid during the year 8 781 8 636 5 648 5 570 6 628 6 506 5 571 5 497 6 735 5 039 Retirement contributions paid during the year 1 235 1 222 702 704 855 853 640 589 600 467 Other allowances 206 129 59 20 251 229 220 171 185 128 Once-off allowances/payments3 632 111 710 78 Short-term incentive 23 250 25 400 18 000 16 750 21 750 19 000 17 500 15 125 21 500 21 500 Short-term incentive (cash)4 10 525 11 350 8 150 8 025 10 025 8 650 7 900 7 212 9 900 9 900 Short-term incentive (share-linked deferral)5 12 725 14 050 9 850 8 725 11 725 10 350 9 600 7 913 11 600 11 600
Total reward (excluding conditional long-term incentive awards) 33 472 36 019 24 409 23 155 29 484 27 298 23 931 21 460 29 020 27 134 PRP awards vesting6 13 499 20 228 7 558 11 330 6 480 9 709 10 789 5 655 7 019 9 709 PRP notional dividend7 2 225 2 818 1 246 1 578 1 068 1 353 1 778 788 1 157 1 353 Total reward (including conditional long-term incentive awards) 49 196 59 065 33 213 36 063 37 032 38 360 36 498 27 903 37 196 38 196
Refer to footnotes below.
Executive directors’ and prescribed officers’ emoluments – former prescribed officers PL BJ Kruger8 Schlebusch9 2018 2018 R’000 R’000
Cost-to-company package2 9 906 1 786 Cash package paid during the year 8 480 1 602 Retirement contributions paid during the year 1 159 136 Other allowances 267 48 Once-off allowances/payments3 3 022 Short-term incentive 24 950 6 750 Short-term incentive (cash)4 11 125 2 175 Short-term incentive (share-linked deferral)5 13 825 4 575
Total reward (excluding conditional long-term incentive awards) 37 878 8 536 EGS conditional reflecting PRP reflecting6 20 228 19 781 PRP notional dividend reflecting7 2 818 1 403 Total reward (including conditional long-term incentive awards) 60 924 29 720
1 ZN Manyathi was appointed as a prescribed officer on 1 April 2018. His fixed remuneration is shown from that date. The short-term incentive is for the full performance year 2018. 2 No Cost to Company (CTC) increases were granted to executive directors and prescribed officers in March 2019. However the introduction of a permanent health insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 3 Includes a once-off payment made in respect of Death in Service and Permanent Health Insurance benefits. 4 These are performance related short-term incentive payments in respect of the financial year under review. 5 These are deferred bonus scheme awards issued in March every year for the prior year performance period which are subject to choice. Participants can elect to have the value of the deferred awards, or part thereof, invested in the SARP rather than the default DBS. To the extent that the SARP is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in SARP will be unitised with respect to the group's closing share price the day results are announced. The award will be updated in the group's annual financial statements the following year to reflect the choices made and units/rights awarded. 6 PRP units vesting were awarded in March 2016 (disclosed for the performance year 2018) and in March 2017 (disclosed for the performance year 2019). The PRP value delivered is calculated based on the group's closing share price of R168.32 as at 31 December 2019 (R178.81 for 2018) after calculating the delivery percentage based on the 3 year performance conditions (100.0% delivery on the 2017 awards and 110.58% delivery on the 2016 awards). The amount included in the single figure will not be updated in the 2019 remuneration report but rather included at payment value in the settlement schedule. 7 PRP notional dividend is calculated by multiplying the vesting PRP units by the cumulative notional dividend incurred between the grant date and vesting date. The amount included in the single figure will not be updated in the 2019 remuneration report but rather included at payment value in the settlement schedule. 8 BJ Kruger retired from the group on 31 December 2018. 9 PL Schlebusch stepped down as a prescribed officer on 1 April 2018. His fixed remuneration and short-term incentive award disclosed is for the performance period 1 January to 31 March 2018. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 171
Executive directors’ and prescribed officers’ emoluments SK Tshabalala A Daehnke A Fihla M Nienaber Z N Manyathi1
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Cost-to-Company package2 10 222 9 987 6 409 6 294 7 734 7 588 6 431 6 257 7 520 5 634 Cash package paid during the year 8 781 8 636 5 648 5 570 6 628 6 506 5 571 5 497 6 735 5 039 Retirement contributions paid during the year 1 235 1 222 702 704 855 853 640 589 600 467 Other allowances 206 129 59 20 251 229 220 171 185 128 Once-off allowances/payments3 632 111 710 78 Short-term incentive 23 250 25 400 18 000 16 750 21 750 19 000 17 500 15 125 21 500 21 500 Short-term incentive (cash)4 10 525 11 350 8 150 8 025 10 025 8 650 7 900 7 212 9 900 9 900 Short-term incentive (share-linked deferral)5 12 725 14 050 9 850 8 725 11 725 10 350 9 600 7 913 11 600 11 600
Total reward (excluding conditional long-term incentive awards) 33 472 36 019 24 409 23 155 29 484 27 298 23 931 21 460 29 020 27 134 PRP awards vesting6 13 499 20 228 7 558 11 330 6 480 9 709 10 789 5 655 7 019 9 709 PRP notional dividend7 2 225 2 818 1 246 1 578 1 068 1 353 1 778 788 1 157 1 353 Total reward (including conditional long-term incentive awards) 49 196 59 065 33 213 36 063 37 032 38 360 36 498 27 903 37 196 38 196
Refer to footnotes below.
Executive directors’ and prescribed officers’ emoluments – former prescribed officers PL BJ Kruger8 Schlebusch9 2018 2018 R’000 R’000
Cost-to-company package2 9 906 1 786 Cash package paid during the year 8 480 1 602 Retirement contributions paid during the year 1 159 136 Other allowances 267 48 Once-off allowances/payments3 3 022 Short-term incentive 24 950 6 750 Short-term incentive (cash)4 11 125 2 175 Short-term incentive (share-linked deferral)5 13 825 4 575
Total reward (excluding conditional long-term incentive awards) 37 878 8 536 EGS conditional reflecting PRP reflecting6 20 228 19 781 PRP notional dividend reflecting7 2 818 1 403 Total reward (including conditional long-term incentive awards) 60 924 29 720
1 ZN Manyathi was appointed as a prescribed officer on 1 April 2018. His fixed remuneration is shown from that date. The short-term incentive is for the full performance year 2018. 2 No Cost to Company (CTC) increases were granted to executive directors and prescribed officers in March 2019. However the introduction of a permanent health insurance plan and the impact of reporting on CTC from January to December has resulted in small uplifts in CTC from 2018 to 2019. 3 Includes a once-off payment made in respect of Death in Service and Permanent Health Insurance benefits. 4 These are performance related short-term incentive payments in respect of the financial year under review. 5 These are deferred bonus scheme awards issued in March every year for the prior year performance period which are subject to choice. Participants can elect to have the value of the deferred awards, or part thereof, invested in the SARP rather than the default DBS. To the extent that the SARP is selected, a 10% premium of the value of the award is added. Deferred bonus amounts not invested in SARP will be unitised with respect to the group's closing share price the day results are announced. The award will be updated in the group's annual financial statements the following year to reflect the choices made and units/rights awarded. 6 PRP units vesting were awarded in March 2016 (disclosed for the performance year 2018) and in March 2017 (disclosed for the performance year 2019). The PRP value delivered is calculated based on the group's closing share price of R168.32 as at 31 December 2019 (R178.81 for 2018) after calculating the delivery percentage based on the 3 year performance conditions (100.0% delivery on the 2017 awards and 110.58% delivery on the 2016 awards). The amount included in the single figure will not be updated in the 2019 remuneration report but rather included at payment value in the settlement schedule. 7 PRP notional dividend is calculated by multiplying the vesting PRP units by the cumulative notional dividend incurred between the grant date and vesting date. The amount included in the single figure will not be updated in the 2019 remuneration report but rather included at payment value in the settlement schedule. 8 BJ Kruger retired from the group on 31 December 2018. 9 PL Schlebusch stepped down as a prescribed officer on 1 April 2018. His fixed remuneration and short-term incentive award disclosed is for the performance period 1 January to 31 March 2018. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 172 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
Non-executive directors Fixed remuneration Services as Standard Services directors of Bank Group as directors Total Standard committee of group Other compensation Bank Group fees subsidiaries benefits for the year R’000 R’000 R’000 R’000 R’000
1 TS Gcabashe 2019 6 622 503 7 125 2018 6 622 503 7 125 MA Erasmus2 2019 457 457 914 2018 GJ Fraser-Moleketi 2019 277 825 277 1 379 2018 277 714 277 1 268 H Hu 2019 963 469 963 2 395 2018 919 625 919 2 463 GMB Kennealy 2019 277 1 344 277 1 898 2018 277 1 195 277 1 749 JH Maree3 2019 277 1 200 3 170 4 647 2018 277 1 255 3 170 4 702 NNA Matyumza 2019 277 823 277 1 377 2018 277 718 277 1 272 Adv KD Moroka 2019 277 857 277 1 411 2018 277 857 277 1 411 Dr ML Oduor-Otieno 2019 963 450 963 2 376 2018 919 492 919 2 330 AC Parker 2019 277 698 277 1 252 2018 277 670 277 1 224
ANA Peterside CON 2019 963 676 963 2 602 2018 919 676 919 2 514 MJD Ruck4 2019 277 1 441 1 472 3 190 2018 277 1 886 1 733 3 896 PD Sullivan 2019 963 1 436 963 3 362 2018 919 1 492 919 3 330 JM Vice 2019 277 1 233 277 1 787 2018 277 1 233 277 1 787 L Wang 2019 277 351 277 905 2018 277 334 277 888 RMW Dunne5 2019 2018 110 535 110 755 Total 2019 13 424 11 803 10 890 503 36 620 Total 2018 12 901 12 682 10 628 503 36 714
1 TS Gcabashe other benefits relate to use of motor vehicle. 2 MA Erasmus was appointed to the board on 12 July 2020. 3 JH Maree’s fees for services as a director of group subsidiaries include fees paid by Liberty Holdings Limited. 4 MJD Ruck’s fees for services as a director of group subsidiaries include fees paid by Industrial and Commercial Bank of China (Argentina) S.A. 5 RMW Dunne retired on 24 May 2018.
Fees are excluding VAT. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 173
Share incentives Standard Bank equity growth scheme The EGS represents participation rights in the future growth of Standard Bank Group’s share price. The eventual value of the right is settled by the receipt of Standard Bank Group shares equivalent to the full value of the participation rights. Certain EGS awards issued prior to March 2014 included performance conditions.
Deferred Bonus Scheme Employees are awarded a deferred bonus, as a mandatory deferral of their short-term incentive or as discretionary award, into the Deferred Bonus Scheme. The deferred bonus is unitised into a number of units with respect to the group’s share price on the date of award. The shares are delivered to the employee on the vesting date for equity-settled share incentives. The cash-settled Deferred Bonus Scheme awards are settled in cash on the vesting date. Notional dividends on the units are paid to the employees on the vesting date.
Performance Reward Plan The group’s PRP, effective from March 2014, is an equity-settled share scheme with a three-year vesting period and is designed to incentivise the group’s senior executives whose roles enable them to contribute to and influence the group’s long-term decision-making and performance results. The PRP seeks to promote the achievement of the group’s strategic long-term objectives and to align the interests of those executives with overall group performance in both earnings growth and ROE. These are the most important financial metrics to create shareholder value and, therefore aligns the interests of management and shareholders. The awards are subject to the achievement of performance conditions set at award date and that determine the number of shares that ultimately vest. The awards will only vest in future in terms of the rules of the PRP. The shares, subject to meeting the pre-specified conditions, are delivered to the employee on vesting date. Notional dividends accrue during the vesting period and will be payable on vesting date.
Wealth and Investment medium-term investment Selected employees are awarded an incentive award into the Wealth and investment medium-term Investment scheme. The incentive awards are unitised into a number of units with respect to the selected Melville Douglas funds. The incentive awards are settled in cash or units at the election of the employee. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 174 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
Units Value on settlement Fair value at year end SK Tshabalala1 Number Number Awards of awards of awards Balance Exercise Vesting Expiry made exercised forfeited of awards date Notional Notional Value at grant date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price date (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 3 950 2019/09/30 32 315 32 315 178 5 746 1 126 2016 2017/03/02 155.95 1 667 2019/09/30 10 687 10 687 178 1 900 296 2016 2017/03/02 155.95 1 667 2020/09/30 10 688 10 688 1 799 296 2016* 2017/03/02 155.95 2 597 2019/09/30 16 650 16 650 178 2 960 462 2016* 2017/03/02 155.95 2 597 2020/09/30 16 652 16 652 2 803 462 2017 2018/03/08 220.97 1 667 2019/09/30 7 542 7 542 178 1 341 146 2017 2018/03/08 220.97 1 667 2020/09/30 7 542 7 542 1 269 146 2017 2018/03/08 220.97 1 667 2021/09/30 7 544 7 544 1 270 146 2017* 2018/03/08 220.97 3 017 2019/09/30 13 652 13 652 178 2 427 264 2017* 2018/03/08 220.97 3 017 2020/09/30 13 652 13 652 2 298 264 2017* 2018/03/08 220.97 3 017 2021/09/30 13 652 13 652 2 298 264 2018 2019/03/07 182.43 1 666 2020/09/30 9 135 9 135 1 538 91 2018 2019/03/07 182.43 1 666 2021/09/30 9 135 9 135 1 538 91 2018 2019/03/07 182.43 1 667 2022/09/30 9 138 9 138 1 538 91 2018* 2019/03/07 182.43 3 017 2020/09/30 16 536 16 536 2 783 164 2018* 2019/03/07 182.43 3 017 2021/09/30 16 536 16 536 2 783 164 2018* 2019/03/07 182.43 3 017 2022/09/30 16 537 16 537 2 784 164 Performance Reward Plan 2015 2016/03/03 122.24 12 500 2019/03/31 113 128 113 128 185 20 955 2 818 2016 2017/03/02 155.95 12 500 2020/03/31 80 200 80 200 13 499 2 225 2017 2018/03/08 220.97 14 009 2021/03/31 63 400 63 400 10 671 1 226 2018 2019/03/07 182.43 14 011 2022/03/31 76 800 76 800 12 927 763 Totals for 2019 93 600 35 329 5 112 61 798 6 557
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 175
Units Value on settlement Fair value at year end SK Tshabalala1 Number Number Awards of awards of awards Balance Exercise Vesting Expiry made exercised forfeited of awards date Notional Notional Value at grant date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price date (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 3 950 2019/09/30 32 315 32 315 178 5 746 1 126 2016 2017/03/02 155.95 1 667 2019/09/30 10 687 10 687 178 1 900 296 2016 2017/03/02 155.95 1 667 2020/09/30 10 688 10 688 1 799 296 2016* 2017/03/02 155.95 2 597 2019/09/30 16 650 16 650 178 2 960 462 2016* 2017/03/02 155.95 2 597 2020/09/30 16 652 16 652 2 803 462 2017 2018/03/08 220.97 1 667 2019/09/30 7 542 7 542 178 1 341 146 2017 2018/03/08 220.97 1 667 2020/09/30 7 542 7 542 1 269 146 2017 2018/03/08 220.97 1 667 2021/09/30 7 544 7 544 1 270 146 2017* 2018/03/08 220.97 3 017 2019/09/30 13 652 13 652 178 2 427 264 2017* 2018/03/08 220.97 3 017 2020/09/30 13 652 13 652 2 298 264 2017* 2018/03/08 220.97 3 017 2021/09/30 13 652 13 652 2 298 264 2018 2019/03/07 182.43 1 666 2020/09/30 9 135 9 135 1 538 91 2018 2019/03/07 182.43 1 666 2021/09/30 9 135 9 135 1 538 91 2018 2019/03/07 182.43 1 667 2022/09/30 9 138 9 138 1 538 91 2018* 2019/03/07 182.43 3 017 2020/09/30 16 536 16 536 2 783 164 2018* 2019/03/07 182.43 3 017 2021/09/30 16 536 16 536 2 783 164 2018* 2019/03/07 182.43 3 017 2022/09/30 16 537 16 537 2 784 164 Performance Reward Plan 2015 2016/03/03 122.24 12 500 2019/03/31 113 128 113 128 185 20 955 2 818 2016 2017/03/02 155.95 12 500 2020/03/31 80 200 80 200 13 499 2 225 2017 2018/03/08 220.97 14 009 2021/03/31 63 400 63 400 10 671 1 226 2018 2019/03/07 182.43 14 011 2022/03/31 76 800 76 800 12 927 763 Totals for 2019 93 600 35 329 5 112 61 798 6 557
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 176 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
A Daehnke Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 073 2019/09/30 16 956 16 956 178 3 015 591 2016 2017/03/02 155.95 1 000 2019/09/30 6 412 6 412 178 1 140 178 2016 2017/03/02 155.95 1 000 2020/09/30 6 413 6 413 1 079 178 2016* 2017/03/02 155.95 1 700 2019/09/30 10 901 10 901 178 1 938 302 2016* 2017/03/02 155.95 1 700 2020/09/30 10 901 10 901 1 835 302 2017 2018/03/08 220.97 1 000 2019/09/30 4 525 4 525 178 805 88 2017 2018/03/08 220.97 1 000 2020/09/30 4 525 4 525 762 88 2017 2018/03/08 220.97 1 000 2021/09/30 4 527 4 527 762 88 2017* 2018/03/08 220.97 1 908 2019/09/30 8 636 8 636 178 1 535 167 2017* 2018/03/08 220.97 1 908 2020/09/30 8 636 8 636 1 454 167 2017* 2018/03/08 220.97 1 909 2021/09/30 8 637 8 637 1 454 167 2018 2019/03/07 182.43 1 000 2020/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2021/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2022/09/30 5 483 5 483 923 55 2018* 2019/03/07 182.43 1 908 2020/09/30 10 460 10 460 1 761 104 2018* 2019/03/07 182.43 1 908 2021/09/30 10 460 10 460 1 761 104 2018* 2019/03/07 182.43 1 909 2022/09/30 10 462 10 462 1 761 104 Performance Reward Plan 2015 2016/03/03 122.24 7 004 2019/03/31 63 365 63 365 185 11 737 1 578 2016 2017/03/02 155.95 7 002 2020/03/31 44 900 44 900 7 558 1 246 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 12 004 2022/03/31 65 800 65 800 11 075 654 Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 12 500 12 500 2009 2010/03/05 111.94 B 2020/03/05 12 500 12 500 2010 2011/03/04 98.80 A 2021/03/04 12 500 12 500 2010 2011/03/04 98.80 B 2021/03/04 9 375 9 375 2010 2011/03/04 98.80 B 2021/03/04 3 125 3 125 2013 2014/03/06 126.87 D 2024/03/06 45 832 45 832 2013 2014/03/06 126.87 D 2024/03/06 22 918 22 918 Totals for 2019 60 943 20 170 2 904 41 656 4 241
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 177
A Daehnke Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 073 2019/09/30 16 956 16 956 178 3 015 591 2016 2017/03/02 155.95 1 000 2019/09/30 6 412 6 412 178 1 140 178 2016 2017/03/02 155.95 1 000 2020/09/30 6 413 6 413 1 079 178 2016* 2017/03/02 155.95 1 700 2019/09/30 10 901 10 901 178 1 938 302 2016* 2017/03/02 155.95 1 700 2020/09/30 10 901 10 901 1 835 302 2017 2018/03/08 220.97 1 000 2019/09/30 4 525 4 525 178 805 88 2017 2018/03/08 220.97 1 000 2020/09/30 4 525 4 525 762 88 2017 2018/03/08 220.97 1 000 2021/09/30 4 527 4 527 762 88 2017* 2018/03/08 220.97 1 908 2019/09/30 8 636 8 636 178 1 535 167 2017* 2018/03/08 220.97 1 908 2020/09/30 8 636 8 636 1 454 167 2017* 2018/03/08 220.97 1 909 2021/09/30 8 637 8 637 1 454 167 2018 2019/03/07 182.43 1 000 2020/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2021/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2022/09/30 5 483 5 483 923 55 2018* 2019/03/07 182.43 1 908 2020/09/30 10 460 10 460 1 761 104 2018* 2019/03/07 182.43 1 908 2021/09/30 10 460 10 460 1 761 104 2018* 2019/03/07 182.43 1 909 2022/09/30 10 462 10 462 1 761 104 Performance Reward Plan 2015 2016/03/03 122.24 7 004 2019/03/31 63 365 63 365 185 11 737 1 578 2016 2017/03/02 155.95 7 002 2020/03/31 44 900 44 900 7 558 1 246 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 12 004 2022/03/31 65 800 65 800 11 075 654 Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 12 500 12 500 2009 2010/03/05 111.94 B 2020/03/05 12 500 12 500 2010 2011/03/04 98.80 A 2021/03/04 12 500 12 500 2010 2011/03/04 98.80 B 2021/03/04 9 375 9 375 2010 2011/03/04 98.80 B 2021/03/04 3 125 3 125 2013 2014/03/06 126.87 D 2024/03/06 45 832 45 832 2013 2014/03/06 126.87 D 2024/03/06 22 918 22 918 Totals for 2019 60 943 20 170 2 904 41 656 4 241
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 178 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
AKL Fihla6 Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 450 2019/09/30 20 044 20 044 178 3 564 699 2016 2017/03/02 155.95 833 2019/09/30 5 343 5 343 178 950 148 2016 2017/03/02 155.95 834 2020/09/30 5 345 5 345 900 148 2016* 2017/03/02 155.95 2 033 2019/09/30 13 038 13 038 178 2 318 362 2016* 2017/03/02 155.95 2 034 2020/09/30 13 040 13 040 2 195 362 2017 2018/03/08 220.97 1 333 2019/09/30 6 034 6 034 178 1 073 117 2017 2018/03/08 220.97 1 333 2020/09/30 6 034 6 034 1 016 117 2017 2018/03/08 220.97 1 334 2021/09/30 6 035 6 035 1 016 117 2017* 2018/03/08 220.97 2 283 2019/09/30 10 333 10 333 178 1 837 200 2017* 2018/03/08 220.97 2 283 2020/09/30 10 333 10 333 1 739 200 2017* 2018/03/08 220.97 2 284 2021/09/30 10 334 10 334 1 739 200 2018 2019/03/07 182.43 1 333 2020/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 333 2021/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 334 2022/09/30 7 311 7 311 1 231 73 2018* 2019/03/07 182.43 2 117 2020/09/30 11 602 11 602 1 953 115 2018* 2019/03/07 182.43 2 117 2021/09/30 11 602 11 602 1 953 115 2018* 2019/03/07 182.43 2 117 2022/09/30 11 604 11 604 1 953 115 Performance Reward Plan 2015 2016/03/03 122.24 6 002 2019/03/31 54 297 54 297 185 10 057 1 353 2016 2017/03/02 155.95 6 004 2020/03/31 38 500 38 500 6 480 1 068 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 12 004 2022/03/31 65 800 65 800 11 075 654 Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 12 500 12 500 2009 2010/03/05 111.94 B 2020/03/05 12 500 12 500 2010 2011/03/04 98.80 A 2021/03/04 13 750 13 750 2010 2011/03/04 98.80 B 2021/03/04 10 312 10 312 2010 2011/03/04 98.80 B 2021/03/04 3 438 3 438 Totals for 2019 63 405 19 799 2 879 43 335 4 306
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 179
AKL Fihla6 Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 450 2019/09/30 20 044 20 044 178 3 564 699 2016 2017/03/02 155.95 833 2019/09/30 5 343 5 343 178 950 148 2016 2017/03/02 155.95 834 2020/09/30 5 345 5 345 900 148 2016* 2017/03/02 155.95 2 033 2019/09/30 13 038 13 038 178 2 318 362 2016* 2017/03/02 155.95 2 034 2020/09/30 13 040 13 040 2 195 362 2017 2018/03/08 220.97 1 333 2019/09/30 6 034 6 034 178 1 073 117 2017 2018/03/08 220.97 1 333 2020/09/30 6 034 6 034 1 016 117 2017 2018/03/08 220.97 1 334 2021/09/30 6 035 6 035 1 016 117 2017* 2018/03/08 220.97 2 283 2019/09/30 10 333 10 333 178 1 837 200 2017* 2018/03/08 220.97 2 283 2020/09/30 10 333 10 333 1 739 200 2017* 2018/03/08 220.97 2 284 2021/09/30 10 334 10 334 1 739 200 2018 2019/03/07 182.43 1 333 2020/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 333 2021/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 334 2022/09/30 7 311 7 311 1 231 73 2018* 2019/03/07 182.43 2 117 2020/09/30 11 602 11 602 1 953 115 2018* 2019/03/07 182.43 2 117 2021/09/30 11 602 11 602 1 953 115 2018* 2019/03/07 182.43 2 117 2022/09/30 11 604 11 604 1 953 115 Performance Reward Plan 2015 2016/03/03 122.24 6 002 2019/03/31 54 297 54 297 185 10 057 1 353 2016 2017/03/02 155.95 6 004 2020/03/31 38 500 38 500 6 480 1 068 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 12 004 2022/03/31 65 800 65 800 11 075 654 Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 12 500 12 500 2009 2010/03/05 111.94 B 2020/03/05 12 500 12 500 2010 2011/03/04 98.80 A 2021/03/04 13 750 13 750 2010 2011/03/04 98.80 B 2021/03/04 10 312 10 312 2010 2011/03/04 98.80 B 2021/03/04 3 438 3 438 Totals for 2019 63 405 19 799 2 879 43 335 4 306
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 180 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
M Nienaber Units Value on settlement Fair value at year end
Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 1 267 2019/09/30 10 363 10 363 178 1 843 361 2016 2017/03/02 155.95 1 000 2019/09/30 6 412 6 412 178 1 140 178 2016 2017/03/02 155.95 1 000 2020/09/30 6 413 6 413 1 079 178 2016* 2017/03/02 155.95 1 283 2019/09/30 8 229 8 229 178 1 463 228 2016* 2017/03/02 155.95 1 283 2020/09/30 8 230 8 230 1 385 228 2017 2018/03/08 220.97 1 000 2019/09/30 4 525 4 525 178 805 88 2017 2018/03/08 220.97 1 000 2020/09/30 4 525 4 525 762 88 2017 2018/03/08 220.97 1 000 2021/09/30 4 527 4 527 762 88 20177 2018/03/08 220.97 1 450 2019/09/30 6 562 6 562 178 1 167 127 2017* 2018/03/08 220.97 1 450 2020/09/30 6 562 6 562 1 105 127 2017* 2018/03/08 220.97 1 450 2021/09/30 6 562 6 562 1 105 127 2018 2019/03/07 182.43 1 000 2020/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2021/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2022/09/30 5 483 5 483 923 55 2018* 2019/03/07 182.43 1 637 2020/09/30 8 976 8 976 1 511 89 2018* 2019/03/07 182.43 1 637 2021/09/30 8 976 8 976 1 511 89 2018* 2019/03/07 182.43 1 638 2022/09/30 8 977 8 977 1 511 89 Performance Reward Plan 2015 2016/03/03 122.24 3 496 2019/03/31 31 628 31 628 185 5 858 788 2016 2017/03/02 155.95 9 996 2020/03/31 64 100 64 100 10 789 1 778 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 10 015 2022/03/31 54 900 54 900 9 241 546 Totals for 2019 54 612 12 276 1 770 41 155 4 466
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 181
M Nienaber Units Value on settlement Fair value at year end
Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 1 267 2019/09/30 10 363 10 363 178 1 843 361 2016 2017/03/02 155.95 1 000 2019/09/30 6 412 6 412 178 1 140 178 2016 2017/03/02 155.95 1 000 2020/09/30 6 413 6 413 1 079 178 2016* 2017/03/02 155.95 1 283 2019/09/30 8 229 8 229 178 1 463 228 2016* 2017/03/02 155.95 1 283 2020/09/30 8 230 8 230 1 385 228 2017 2018/03/08 220.97 1 000 2019/09/30 4 525 4 525 178 805 88 2017 2018/03/08 220.97 1 000 2020/09/30 4 525 4 525 762 88 2017 2018/03/08 220.97 1 000 2021/09/30 4 527 4 527 762 88 20177 2018/03/08 220.97 1 450 2019/09/30 6 562 6 562 178 1 167 127 2017* 2018/03/08 220.97 1 450 2020/09/30 6 562 6 562 1 105 127 2017* 2018/03/08 220.97 1 450 2021/09/30 6 562 6 562 1 105 127 2018 2019/03/07 182.43 1 000 2020/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2021/09/30 5 481 5 481 923 54 2018 2019/03/07 182.43 1 000 2022/09/30 5 483 5 483 923 55 2018* 2019/03/07 182.43 1 637 2020/09/30 8 976 8 976 1 511 89 2018* 2019/03/07 182.43 1 637 2021/09/30 8 976 8 976 1 511 89 2018* 2019/03/07 182.43 1 638 2022/09/30 8 977 8 977 1 511 89 Performance Reward Plan 2015 2016/03/03 122.24 3 496 2019/03/31 31 628 31 628 185 5 858 788 2016 2017/03/02 155.95 9 996 2020/03/31 64 100 64 100 10 789 1 778 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 10 015 2022/03/31 54 900 54 900 9 241 546 Totals for 2019 54 612 12 276 1 770 41 155 4 466
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 182 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
Z Manyathi Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 650 2019/09/30 21 680 21 680 178 3 855 756 2016 2017/03/02 155.95 1 250 2019/09/30 8 015 8 015 178 1 425 222 2016 2017/03/02 155.95 1 250 2020/09/30 8 017 8 017 1 349 222 2016* 2017/03/02 155.95 1 617 2019/09/30 10 366 10 366 178 1 843 288 2016* 2017/03/02 155.95 1 617 2020/09/30 10 368 10 368 1 745 288 2017 2018/03/08 220.97 1 333 2019/09/30 6 034 6 034 178 1 073 117 2017 2018/03/08 220.97 1 333 2020/09/30 6 034 6 034 1 016 117 2017 2018/03/08 220.97 1 334 2021/09/30 6 035 6 035 1 016 117 2017* 2018/03/08 220.97 1 617 2019/09/30 7 316 7 316 178 1 301 141 2017* 2018/03/08 220.97 1 617 2020/09/30 7 316 7 316 1 231 141 2017* 2018/03/08 220.97 1 617 2021/09/30 7 317 7 317 1 232 142 2018 2019/03/07 182.43 1 333 2020/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 333 2021/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 334 2022/09/30 7 311 7 311 1 231 73 2018* 2019/03/07 182.43 1 267 2020/09/30 6 943 6 943 1 169 69 2018* 2019/03/07 182.43 1 267 2021/09/30 6 943 6 943 1 169 69 2018* 2019/03/07 182.43 1 267 2022/09/30 6 944 6 944 1 169 69 Performance Reward Plan 2015 2016/03/03 122.24 6 002 2019/03/31 54 297 54 297 185 10 057 1 353 2016 2017/03/02 155.95 6 503 2020/03/31 41 700 41 700 7 019 1 157 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 10 015 2022/03/31 54 900 54 900 9 241 546 Share Appreciation Rights Plan 2018 2019/03/07 182.43 2021/03/07 29 823 29 823 2018 2019/03/07 182.43 2022/03/07 29 823 29 823 2018 2019/03/07 182.43 2023/03/07 29 824 29 824 Equity Growth Scheme vested 2013 2014/03/06 126.87 D 43 696 43 696 2013 2014/03/06 126.87 D 43 696 43 696 2013 2014/03/06 126.87 D 43 697 43 697 2014 2015/03/05 156.96 D 56 725 56 725 2014 2015/03/05 156.96 D 56 725 56 725 20148 2015/03/05 156.96 D 56 725 56 725 Totals for 2019 57 566 19 554 2 876 38 672 4 032
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 183
Z Manyathi Units Value on settlement Fair value at year end Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Deferred bonus schemes 2015 2016/03/03 122.24 2 650 2019/09/30 21 680 21 680 178 3 855 756 2016 2017/03/02 155.95 1 250 2019/09/30 8 015 8 015 178 1 425 222 2016 2017/03/02 155.95 1 250 2020/09/30 8 017 8 017 1 349 222 2016* 2017/03/02 155.95 1 617 2019/09/30 10 366 10 366 178 1 843 288 2016* 2017/03/02 155.95 1 617 2020/09/30 10 368 10 368 1 745 288 2017 2018/03/08 220.97 1 333 2019/09/30 6 034 6 034 178 1 073 117 2017 2018/03/08 220.97 1 333 2020/09/30 6 034 6 034 1 016 117 2017 2018/03/08 220.97 1 334 2021/09/30 6 035 6 035 1 016 117 2017* 2018/03/08 220.97 1 617 2019/09/30 7 316 7 316 178 1 301 141 2017* 2018/03/08 220.97 1 617 2020/09/30 7 316 7 316 1 231 141 2017* 2018/03/08 220.97 1 617 2021/09/30 7 317 7 317 1 232 142 2018 2019/03/07 182.43 1 333 2020/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 333 2021/09/30 7 308 7 308 1 230 73 2018 2019/03/07 182.43 1 334 2022/09/30 7 311 7 311 1 231 73 2018* 2019/03/07 182.43 1 267 2020/09/30 6 943 6 943 1 169 69 2018* 2019/03/07 182.43 1 267 2021/09/30 6 943 6 943 1 169 69 2018* 2019/03/07 182.43 1 267 2022/09/30 6 944 6 944 1 169 69 Performance Reward Plan 2015 2016/03/03 122.24 6 002 2019/03/31 54 297 54 297 185 10 057 1 353 2016 2017/03/02 155.95 6 503 2020/03/31 41 700 41 700 7 019 1 157 2017 2018/03/08 220.97 10 010 2021/03/31 45 300 45 300 7 625 876 2018 2019/03/07 182.43 10 015 2022/03/31 54 900 54 900 9 241 546 Share Appreciation Rights Plan 2018 2019/03/07 182.43 2021/03/07 29 823 29 823 2018 2019/03/07 182.43 2022/03/07 29 823 29 823 2018 2019/03/07 182.43 2023/03/07 29 824 29 824 Equity Growth Scheme vested 2013 2014/03/06 126.87 D 43 696 43 696 2013 2014/03/06 126.87 D 43 696 43 696 2013 2014/03/06 126.87 D 43 697 43 697 2014 2015/03/05 156.96 D 56 725 56 725 2014 2015/03/05 156.96 D 56 725 56 725 20148 2015/03/05 156.96 D 56 725 56 725 Totals for 2019 57 566 19 554 2 876 38 672 4 032
Refer to footnotes on page 184. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 184 ANNUAL FINANCIAL STATEMENTS ANNEXURE E – EMOLUMENTS AND SHARE INCENTIVES OF DIRECTORS AND PRESCRIBED OFFICERS CONTINUED
JH Maree Units Value on settlement Fair value at year end
Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 500 000 500 000 165 26 605 2011 2012/03/08 108.90 A 2022/03/08 61 471 61 471 2012 2013/03/07 115.51 A 2023/03/07 37 729 37 729 2014 2015/03/05 156.96 D 2025/03/05 26 148 26 148 2012 2013/03/07 115.51 A 2023/03/07 18 865 18 865 2014 2015/03/05 156.96 D 2025/03/05 26 148 26 148 2014 2015/03/05 156.96 D 2025/03/05 26 149 26 149 Totals for 2019 26 605
1 As at 31 December 2019, SK Tshabalala has a right to Nil (2018: 418 814) shares as a beneficiary of Tutuwa Managers’ Trust. At 31 December 2019, the debt per share was R0 (2018: R53.49). 2 Value on settlement is calculated by multiplying the vesting share/settlement price by the total units vesting and applying performance conditions (where applicable). Performance conditions applied to the 2016 PRP award that vested in 2019 was 110.58%, against the performance conditions as explained in the remuneration structure section of the group’s remuneration report within the governance and remuneration report. 3 Value is calculated by multiplying the notional dividend per unit with the total vesting units and applying performance conditions (where applicable). 4 Value is calculated by multiplying the year end SBK share price of R168.32 by the total outstanding units and applying performance conditions (where applicable). 5 Value is calculated by multiplying the notional dividend (accumulated from grant date to year end) with the total outstanding units and applying performance conditions (where applicable). 6 As at 31 December 2019, AKL Fihla has a right to Nil (2018: 134 232) shares as a beneficiary of Tutuwa Managers’ Trust. At 31 December 2019, the debt per share was R0 (2018: R53.49). 7 This award was settled with equity as opposed to cash in September 2019. This was done in order for the director to meet minimum shareholding requirements. 8 In March 2015, Deferred Bonus Scheme awards were converted into Equity Growth Scheme (EGS) awards (without conditions) and have vested in March 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 185
JH Maree Units Value on settlement Fair value at year end
Number Number Awards of awards of awards Balance Exercise Value at Vesting Expiry made exercised forfeited of awards date Notional Notional grant date date/vesting date/final Opening during during during 31 December share Award dividend Award dividend Performance year Issue date Award price (R’000) category vesting date balance the year the year the year 2019 price (R’000)2 (R’000)3 (R’000)4 (R’000)5
Equity Growth Scheme vested 2009 2010/03/05 111.94 A 2020/03/05 500 000 500 000 165 26 605 2011 2012/03/08 108.90 A 2022/03/08 61 471 61 471 2012 2013/03/07 115.51 A 2023/03/07 37 729 37 729 2014 2015/03/05 156.96 D 2025/03/05 26 148 26 148 2012 2013/03/07 115.51 A 2023/03/07 18 865 18 865 2014 2015/03/05 156.96 D 2025/03/05 26 148 26 148 2014 2015/03/05 156.96 D 2025/03/05 26 149 26 149 Totals for 2019 26 605
1 As at 31 December 2019, SK Tshabalala has a right to Nil (2018: 418 814) shares as a beneficiary of Tutuwa Managers’ Trust. At 31 December 2019, the debt per share was R0 (2018: R53.49). 2 Value on settlement is calculated by multiplying the vesting share/settlement price by the total units vesting and applying performance conditions (where applicable). Performance conditions applied to the 2016 PRP award that vested in 2019 was 110.58%, against the performance conditions as explained in the remuneration structure section of the group’s remuneration report within the governance and remuneration report. 3 Value is calculated by multiplying the notional dividend per unit with the total vesting units and applying performance conditions (where applicable). 4 Value is calculated by multiplying the year end SBK share price of R168.32 by the total outstanding units and applying performance conditions (where applicable). 5 Value is calculated by multiplying the notional dividend (accumulated from grant date to year end) with the total outstanding units and applying performance conditions (where applicable). 6 As at 31 December 2019, AKL Fihla has a right to Nil (2018: 134 232) shares as a beneficiary of Tutuwa Managers’ Trust. At 31 December 2019, the debt per share was R0 (2018: R53.49). 7 This award was settled with equity as opposed to cash in September 2019. This was done in order for the director to meet minimum shareholding requirements. 8 In March 2015, Deferred Bonus Scheme awards were converted into Equity Growth Scheme (EGS) awards (without conditions) and have vested in March 2019. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 186 ANNUAL FINANCIAL STATEMENTS
Annexure F – detailed accounting policies
The following accounting policies were applied in the preparation of the group and company financial statements, a copy of the full set of accounting policies is available at the company’s registered office.
1. Basis of consolidation
BASIS OF CONSOLIDATION
Common control Foreign currency Subsidiaries transactions translations
Separate financial statements Group companies
Consolidated financial Transactions and balances statements
Subsidiaries Separate financial statements Investments in subsidiaries are accounted for at cost less accumulated impairment losses (where applicable) in the separate financial statements. The carrying amounts of these investments are reviewed annually for impairment indicators and, where an indicator of impairment exists, are impaired to the higher of the investment’s fair value less costs to sell or value in use.
Consolidated financial statements The accounting policies of subsidiaries that are consolidated by the group conform to the group’s accounting policies. Intragroup transactions, balances and unrealised gains (losses) are eliminated on consolidation. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment. The proportion of comprehensive income and changes in equity allocated to the group and non-controlling interest are determined on the basis of the group’s present ownership interest in the subsidiary.
Subsidiaries are consolidated from the date on which the group acquires control up to the date that control is lost. Control is assessed on a continuous basis. For mutual funds the group further assesses its control by considering the existence of either voting rights or significant economic power.
Common control transactions Common control transactions, in which the company is the ultimate parent entity both before and after the transaction, are accounted for at book value.
Foreign currency translations Group companies The results and financial position of foreign operations that have a functional currency that is different from the group’s presentation currency are translated into the group’s presentation currency as follows: •• assets and liabilities (including goodwill, intangible assets and fair value adjustments arising on acquisition) are translated at the closing rate at the reporting date •• income and expenses are translated at average exchange rates for each month; and •• all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the group’s FCTR. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 187
1. Basis of consolidation continued Transactions and balances Foreign currency transactions are translated into the respective group entities’ functional currencies at exchange rates prevailing at the date of the transactions (in certain instances a rate that approximates the actual rate at the date of the transaction is utilised, for example, an average rate for a month). Foreign exchange gains and losses resulting from the settlement of such transaction and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss (except when recognised in OCI as part of qualifying cash flow hedges and net investment hedges).
Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the transaction date, and those measured at fair value are translated at the exchange rate at the date that the fair value was determined. Exchange rate differences on non-monetary items are accounted for based on the classification of the underlying items.
Foreign exchange gains and losses on equities (debt) classified as fair value through OCI are recognised in the fair value through OCI reserve in OCI (trading revenue) whereas the exchange differences on equities (debt) that are classified as held at fair value through profit or loss are reported as part of the other revenue (trading revenue) in profit or loss.
Foreign currency gains and losses on intragroup loans are recognised in profit or loss except where the settlement of the loan is neither planned nor likely to occur in the foreseeable future. In these cases the foreign currency gains and losses are recognised in the group’s FCTR.
The results, cash flows and financial position of group entities which are accounted for as entities operating in hyperinflationary economies and that have functional currencies different from the presentation currency of the group are translated into the presentation currency of its parent at the exchange rate at the reporting date. As the presentation currency of the group and that of the company is that of a non-hyperinflationary economy, comparative amounts are not adjusted for the changes in the index or exchange rates in the current year.
Subsidiaries in hyperinflationary economies The financial results of the group entities whose functional currencies are the currencies of hyperinflationary economies are adjusted in terms of the measuring unit current at the end of the reporting period following the historic cost approach.
However, as the presentation currency of the group is that of a non-hyperinflationary economy, comparative amounts are not adjusted for changes in the index in the current year. Differences between these comparative amounts and current year hyperinflation adjusted are recognised directly in equity.
The carrying amounts of non-monetary assets and liabilities are adjusted to reflect the change in the general price index from the date of acquisition to the end of the reporting period. On initial application of hyperinflation, prior period gains and losses are recognised directly in equity. Gains or losses on the net monetary position are recognised in profit or loss. All items recognised in the income statement are restated by applying the change in the general price index from the dates when the items of income and expenses were initially earned or incurred.
At the beginning of the first period of application, the components of equity, except retained earnings, are restated by applying a general price index from the dates the components were contributed or otherwise arose. These restatements are recognised directly in equity as an adjustment to opening retained earnings. Restated retained earnings are derived from all other amounts in the restated statement of financial position. At the end of the first period and in subsequent periods, all components of equity are restated by applying a general price index from the beginning of the period or the date of contribution, if later. All items in the statement of cash flows are expressed in terms of the general price index at the end of the reporting period.
The South Sudan and Zimbabwe economies have been classified as hyperinflationary. Accordingly, the results, cash flows and financial position of these group subsidiaries have been expressed in terms of the measuring unit current at the reporting date. For further details, refer to Annexure A. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 188 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
2. Interest in associates and joint arrangements
INTEREST IN ASSOCIATES AND JOINT ARRANGEMENTS
Private equity and Associates and venture capital joint ventures investments
Associates and joint ventures Associates and joint ventures are initially measured at cost and subsequently accounted for using the equity method at an amount that reflects the group’s share of the net assets of the associate or joint venture (including goodwill).
Equity accounting is applied from the date on which the entity becomes an associate or joint venture up to the date on which the group ceases to have significant influence or joint control.
Equity accounting of losses is restricted to the interests in these entities, including unsecured receivables or other commitments, unless the group has an obligation or has made payments on behalf of the associate or joint ventures.
Where there is an indicator of impairment the carrying amount of the investment is tested for impairment by comparing its recoverable amount with its carrying amount.
Impairment losses are recognised through non-trading and capital related items. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the investment’s carrying amount does not exceed the carrying amount that would have been determined, net of equity accounted losses, if no impairment loss had been recognised.
For a disposal of an associate or joint venture, being where the group loses significant influence over an associate or loses joint control over a joint venture, the difference between the sales proceeds and any retained interest and the carrying value of the equity accounted investment is recognised as a gain or loss in non-trading and capital related items. Any gains or losses in OCI reserves that relate to the associate or joint venture are reclassified to non-trading and capital related items in profit or loss at the time of the disposal.
The accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies of the group.
Private equity and venture capital investments Private equity and venture capital investments, including mutual funds held by investment-linked insurance funds that are associates are either designated on initial recognition at fair value through profit or loss, or are equity accounted. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 189
3. Financial instruments Initial measurement – financial instruments All financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting).
FINANCIAL INSTRUMENTS
Derivatives Financial Financial Financial and Hedge guarantee Other assets liabilities embedded accounting contracts derivatives
Amortised Held-for- Fair value Sale and cost trading hedges repurchase agreements Fair value Designated Cash flow and lending through OCI at fair value hedges of securities through (including profit or loss commodities) Held- Net investment for-trading hedges Amortised Offsetting cost Designated at fair value through profit or loss •• Nature, •• Subsequent measurement, Fair value •• Impairment, through profit and or loss (default) •• Derecognition and modification •• Nature, •• Subsequent measurement, •• Impairment, •• Reclassification, and •• Derecognition and modification WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 190 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
3. Financial instruments continued Financial assets Nature
Amortised cost A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss): •• Held within a business model whose objective is to hold the debt instrument (financial asset) in order to collect contractual cash flows; and •• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basic lending arrangement, the financial asset is classified as fair value through profit or loss – default.
Fair value through OCI Includes: •• A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss): –– Held within a business model in which the debt instrument (financial asset) is managed to both collect contractual cash flows and sell financial assets; and –– The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
•• This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basic lending arrangement, the financial asset is classified as fair value through profit or loss – default. •• Equity financial assets which are not held-for-trading and are irrevocably elected (on an instrument-by-instrument basis) to be presented at fair value through OCI.
Held-for-trading Those financial assets acquired principally for the purpose of selling in the near term (including all derivative financial assets) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.
Included are commodities that are acquired principally for the purpose of selling in the near future or generating a profit from fluctuations in price or broker-trader margin.
Designated at fair value Financial assets are designated to be measured at fair value through profit or loss to through profit or loss eliminate or significantly reduce an accounting mismatch that would otherwise arise.
Fair value through profit or Financial assets that are not classified into one of the above mentioned financial asset loss – default categories. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 191
3. Financial instruments continued Financial assets continued Subsequent measurement Subsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised cost or fair value as follows:
Amortised cost Amortised cost using the effective interest method with interest recognised in interest income, less any expected credit impairment losses which are recognised as part of credit impairment charges.
Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate.
Fair value through OCI Debt instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments, previously recognised in OCI, are reclassified to the other gains and losses on financial instruments within non-interest revenue. Expected credit impairment losses are recognised as part of credit impairment charges. However, for these FVOCI debt instruments the expected credit loss is recognised in OCI and does not reduce the carrying amount of the financial asset in the statement of financial position. Interest income on a debt financial asset is recognised in interest income in terms of the effective interest rate method.
Dividends received are recognised in interest income within profit or loss.
Equity instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When equity financial assets are disposed of, the cumulative fair value adjustments in OCI are reclassified within reserves to retained income.
Dividends received on equity instruments are recognised in other revenue within non- interest revenue.
Held for trading Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.
Designated at fair value Fair value gains and losses (including interest and dividends) on the financial asset are through profit or loss recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue.
Fair value through profit or Debt instruments: Fair value gains and losses (including interest and dividends) on loss – default the financial asset recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue.
Equity instruments: Fair value gains and losses on the financial asset recognised in the income statement as part of other gains and losses on financial instruments. Dividends received on equity instruments are recognised in other revenue within non- interest revenue.
Impairment ECL is recognised on debt financial assets classified as either amortised cost or fair value through OCI, financial guarantee contracts that are not designated at fair value through profit or loss, as well as loan commitments that are neither measured at fair value through profit or loss nor are used to provide a loan at a below market interest rate.
The measurement basis of the ECL of a financial asset includes assessing whether there has been a SICR at the reporting date which includes forward-looking information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The measurement basis of the ECL, which is set out in the table that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and forward-looking information.
Stage 1 A 12-month ECL is calculated for financial assets which are neither credit-impaired on origination nor for which there has been a SICR.
Stage 2 A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed a SICR since origination and are not considered low credit risk.
Stage 3 (credit impaired A lifetime ECL is calculated for financial assets that are assessed to be credit impaired. assets) The following criteria are used in determining whether the financial asset is impaired: •• default •• significant financial difficulty of borrower and/or modification •• probability of bankruptcy or financial reorganisation •• disappearance of an active market due to financial difficulties. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 192 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
3. Financial instruments continued Financial assets continued The key components of the impairment methodology are described as follows:
Significant increase At each reporting date the group assesses whether the credit risk of its exposures has in credit risk (SICR) increased significantly since initial recognition by considering the change in the risk of default occurring over the expected life of the financial asset.
Credit risk of exposures which are overdue for more than 30 days are also considered to have increased significantly.
Low credit risk Exposures are generally considered to have a low credit risk where there is a low risk of default, the exposure has a strong capacity to meet its contractual cash flow obligations and adverse changes in economic and business conditions may not necessarily reduce the exposure’s ability to fulfil its contractual obligations.
Default The group’s definition of default has been aligned to its internal credit risk management definitions and approaches. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are used in determining whether there is objective evidence of impairment for financial assets or groups of financial assets: •• significant financial difficulty of borrower and/or modification (i.e. known cash flow difficulties experienced by the borrower) •• a breach of contract, such as default or delinquency in interest and/or principal payments •• disappearance of active market due to financial difficulties •• it becomes probable that the borrower will enter bankruptcy or other financial reorganisation •• where the group, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower a concession that the group would not otherwise consider. •• Exposures which are overdue for more than 90 days are also considered to be in default.
Forward-looking Forward-looking information is incorporated into the group’s impairment methodology information calculations and in the group’s assessment of SICR. The group includes all forward-looking information which is reasonable and available without undue cost or effort. The information will typically include expected macroeconomic conditions and factors that are expected to impact portfolios or individual counterparty exposures.
Write-off Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities.
ECLs are recognised within the statement of financial position as follows:
Financial assets Recognised as a deduction from the gross carrying amount of the asset (group of assets). measured at amortised Where the impairment allowance exceeds the gross carrying amount of the asset (group of cost (including assets), the excess is recognised as a provision within other liabilities. loan commitments)
Off-balance sheet Recognised as a provision within other liabilities. exposures (excluding loan commitments)
Financial assets measured Recognised in the fair value reserve within equity. The carrying value of the financial asset at fair value through OCI is recognised in the statement of financial position at fair value. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 193
3. Financial instruments continued Financial liabilities Nature
Held-for-trading Those financial liabilities incurred principally for the purpose of repurchasing in the near term (including all derivative financial liabilities) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.
Designated at Financial liabilities are designated to be measured at fair value in the following instances: fair value through profit •• To eliminate or significantly reduce an accounting mismatch that would otherwise arise or loss where the financial liabilities are managed and their performance evaluated and reported on a fair value basis •• Where the financial liability contains one or more embedded derivatives that significantly modify the financial liabilty’s cash flows.
Amortised cost All other financial liabilities not included in the above categories.
Subsequent measurement Subsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either amortised cost or fair value as follows:
Held-for-trading Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.
Designated at Fair value, with gains and losses arising from changes in fair value (including interest fair value through profit and dividends but excluding fair value gains and losses attributable to own credit risk) are or loss recognised in the other gains and losses on financial instruments as part of non-interest revenue.
Fair value gains and losses attributable to changes in own credit risk are recognised within OCI.
Amortised cost Amortised cost using the effective interest method recognised in interest expense.
WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 194 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
3. Financial instruments continued Financial liabilities continued Derecognition and modification of financial assets and liabilities Financial assets and liabilities are derecognised in the following instances:
Derecognition Modification
Financial assets Financial assets are derecognised when Where an existing financial asset or liability the contractual rights to receive cash flows from is replaced by another with the same the financial assets have expired, or where counterparty on substantially different terms, the group has transferred its contractual rights or the terms of an existing financial asset or to receive cash flows on the financial asset such liability are substantially modified, such that it has transferred substantially all the risks an exchange or modification is treated as a and rewards of ownership of the financial asset. derecognition of the original asset or liability Any interest in the transferred financial assets and the recognition of a new asset or liability that is created or retained by the group at fair value, including calculating a new is recognised as a separate asset or liability. effective interest rate, with the difference in the respective carrying amounts being The group enters into transactions whereby it recognised in other gains and losses on transfers assets recognised in its statement of financial instruments within non-interest financial position, but retains either all or a revenue. The date of recognition of a new asset portion of the risks or rewards of the transferred is consequently considered to be the date of assets. If all or substantially all risks and rewards initial recognition for impairment calculation are retained, then the transferred assets are not purposes. derecognised. Transfers of assets with the retention of all or substantially all risks If the terms are not substantially different for and rewards include securities lending financial assets or financial liabilities, the group and repurchase agreements. recalculates the new gross carrying amount by discounting the modified cash flows of When assets are sold to a third-party with a the financial asset or financial liability using concurrent total rate of return swap on the original effective interest rate. the transferred assets, the transaction The difference between the new gross carrying is accounted for as a secured financing amount and the original gross carrying amount transaction, similar to repurchase transactions. is recognised as a modification gain or loss In transactions where the group neither retains within credit impairments (for distressed nor transfers substantially all the risks financial asset modifications) or in other gains and rewards of ownership of a financial asset, and losses on financial instruments within non- the asset is derecognised if control over interest revenue (for all other modifications). the asset is lost. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate.
In transfers where control over the asset is retained, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.
Financial liabilities Financial liabilities are derecognised when the financial liabilities’ obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.
Financial guarantee contracts A financial guarantee contract is a contract that requires the group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Financial guarantee contracts (that are not designated at fair value through profit or loss) are subsequently measured at the higher of the: •• ECL calculated for the financial guarantee; or •• Unamortised premium. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 195
3. Financial instruments continued Derivatives and embedded derivatives In the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, inflation, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, credit risk, inflation risk, interest rates and the prices of commodities and equities.
Derivatives are initially recognised at fair value. Derivatives that are not designated in a qualifying hedge accounting relationship are classified as held-for-trading with all changes in fair value being recognised within trading revenue. This includes forward contracts to purchase or sell commodities, where net settlement occurs or where physical delivery occurs and the commodities are held to settle another derivative contract. All derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
In terms on IFRS 9, embedded derivatives included in hybrid instruments, where the host is a financial asset, is assessed in terms of the accounting policy on financial assets. In all other instances (being non-financial host contracts and financial liabilities), the embedded derivatives are treated and disclosed as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone derivative and the combined contract is not measured at fair value through profit or loss. The host contract is accounted for and measured applying the relevant group accounting policy.
The method of recognising fair value gains and losses on derivatives designated as a hedging instrument depends on the nature of the hedge relationship.
Hedge accounting – IAS 39 Derivatives are designated by the group into the following relationships:
Type of hedge Nature Treatment
Fair value hedges Hedges of the fair value Where a hedging relationship is designated as a fair value hedge, of recognised financial the hedged item is adjusted for the change in fair value in respect of assets, liabilities or firm the risk being hedged. Gains or losses on the remeasurement of both commitments. the derivative and the hedged item are recognised in profit or loss. Fair value adjustments relating to the hedging instrument are allocated to the same line item in profit or loss as the related hedged item. Any hedge ineffectiveness is recognised in profit or loss.
If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The adjustment to the carrying amount of a hedged item measured at amortised cost, for which the effective interest method is used, is amortised to profit or loss as part of the hedged item’s recalculated effective interest rate over the period to maturity.
Cash flow hedges Hedges of highly The effective portion of changes in the fair value of derivatives that are probable future cash designated and qualify as cash flow hedges is recognised in the cash flows attributable to a flow hedging reserve. The ineffective part of any changes in fair value recognised asset or is recognised in profit or loss. liability, a forecasted transaction, or a highly Amounts recognised in OCI are transferred to profit or loss in the periods probable forecast in which the hedged forecast cash flows affect profit or loss. However, intragroup transaction. when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the cumulative gains or losses recognised previously in OCI are transferred and included in the initial measurement of the cost of the asset or liability.
If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The cumulative gains or losses recognised in OCI remain in OCI until the forecast transaction is recognised in the case of a non-financial asset or a non-financial liability, or until the forecast transaction affects profit or loss in the case of a financial asset or a financial liability. If the forecast transaction is no longer expected to occur, the cumulative gains and losses recognised in OCI are immediately reclassified to profit or loss.
Net investment Hedges of net The designated component of the hedging instrument that relates to hedges investments in a foreign the effective portion of the hedge, is recognised directly in the foreign operation. currency hedge of net investment reserve. The ineffective part of any changes in fair value is recognised in profit or loss. The cumulative gains and losses in OCI are accounted for similarly to cash flow hedges. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 196 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
3. Financial instruments continued Hedge accounting risk management strategy Where all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to remove the accounting mismatch between the derivative (hedging instrument) and the underlying instruments (hedged item). All qualifying hedging relationships are designated as either fair value, cash flow, or net investment hedges for recognised financial assets or liabilities, and highly probable forecast transactions. The group and company apply hedge accounting in respect of the following risk categories.
Foreign currency risk The group and company operate internationally and are exposed to foreign exchange risk and translation risk.
Foreign exchange risk arises from recognised assets and liabilities and future highly probable forecast commercial transactions denominated in a currency that is not the functional currency of the group and company. The risk is evaluated by measuring and monitoring the net foreign monetary asset value and the forecast highly probable foreign currency income and expenditures of the relevant group entity for each respective currency. Foreign currency risk is hedged with the objective of minimising the earnings volatility associated with assets, liabilities, income and expenditure denominated in a foreign currency.
Translation risk arises on consolidation from recognised assets and liabilities denominated in a currency that is not the reporting currency of the group and company. The risk is evaluated by measuring and monitoring the net foreign non- monetary asset value of the relevant group entity for each respective currency.
The group and company use a combination of currency forwards, swaps and foreign denominated cash balances to mitigate against the risk of changes in the future cash flows and functional currency value on its foreign-denominated exposures. Under the group’s policy, the critical terms of these instruments must align with the foreign currency risk of the hedged item and is hedged on a 1:1 hedge ratio or where currency is managed on a portfolio basis the weighted expected foreign cash flows are aligned.
The group and company elect for each foreign currency hedging relationship, using either foreign currency forwards and swaps, to either include or exclude the currency forward points (basis) contained in the derivative instrument from the hedging relationship. This election is based on the currency pair involved, the shape of the yield-curve and the direction of the foreign currency hedged risk. Basis is determined using the differential between the contracted forward rate and the spot market exchange rate and is discounted, where material. Where the basis is excluded from the hedging relationship this is deferred in other comprehensive income and recognised in profit or loss as appropriate during the hedging relationship.
Hedge effectiveness between the hedging instrument and the hedged item is determined at the inception of the hedge relationship and through periodic effectiveness assessments to ensure that an economic relationship exists. For hedges of foreign currency risk, the group and company enter hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the group and company use the hypothetical derivative method to assess effectiveness. In hedges of foreign currency risk of highly probable forecast commercial transactions, ineffectiveness may arise if the amount of the forecast transaction changes from what was originally estimated. Ineffectiveness relating to highly probable forecast transactions no longer expected to occur during both 2018 and 2019 amounted to Rnil. Refer to note 2.
Equity price risk The group and company operate share incentive schemes that enable key management personnel and senior employees to benefit from the performance of SBG’s share price. For further detail regarding the share schemes, refer to annexure D – equity-linked transactions and the group’s governance and remuneration report. These share incentive schemes expose the group and company to equity price risk due to volatility in the share price of SBG (SBK:SJ). The group and company have in place appropriate risk management strategies and reporting processes in respect of this risk.
The group and company use a combination of equity forwards and options to mitigate against the risk of changes in the future cash flows associated with certain cash-settled schemes on a post attrition and vesting assumption basis. The following scheme exposures are subject to cash flow hedge accounting at a group level: Deferred Bonus Scheme (DBS) and Cash- Settled Deferred Bonus Scheme (CSDBS). Cash flow hedge accounting is applied to align the timing mismatch of the derivative hedging instruments to the vesting period of the underlying awards (hedged items) over the applicable vesting period.
Under the group’s policy the critical terms of these instruments must align with equity price risk of the hedged item and is hedged on a 1:1 hedge ratio. The group and company elect for each hedging relationship, using either equity forwards and/or options, to either include or exclude the forward points (basis) contained in the derivative instrument from the hedging relationship. Basis is determined using the differential between the contracted forward rate and the spot market exchange rate and is discounted, where material. Where the basis is excluded from the hedging relationship this is deferred in other comprehensive income and recognised in profit or loss as appropriate during the hedging relationship. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 197
3. Financial instruments continued Hedge accounting risk management strategy continued
Hedge effectiveness between the hedging instrument and the hedged item is determined at the inception of the hedge relationship and through periodic effectiveness assessments to ensure that an economic relationship exists. For hedges of equity price risk, the group and company enter hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the group and company use the hypothetical derivative method to assess effectiveness. Refer to note 2.
Interest rate risk Banking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (IRRBB) (net interest income and banking book mark-to-market profit or loss) and the economic value of equity. The group and company’s approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group and company operate.
The group’s treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of group ALCO. The group and company’s interest rate risk management is predominantly controlled by a central treasury department (group treasury) under approved policies. Group treasury identifies, evaluates and hedges financial risks in close cooperation with the group’s operating units. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
In adherence to policies regarding interest rate risk management the group applies fair value hedge accounting in respect of the interest rate risk element only, present within the following exposures: •• Specifically identified long-term fixed interest rate loans and advances and deposits and debt funding. To manage the risk associated with such risk exposures the group uses one or more cash collateralised fix for floating interest rate swaps that matches the critical terms or that exhibits the same duration as the underlying risk exposure. •• Specifically identified long-term interest rate basis risk (CPI vs JIBAR) inherent in loans and advances. To manage the basis risk associated with such risk exposures the group uses one or more cash collateralised floating for floating basis interest rate swaps that matches the critical terms or that exhibits the same duration as the underlying risk exposure. •• Portfolio interest rate risk present within a designated portfolio of loans and advances and deposits and debt funding. Portfolio interest rate risk hedging is conducted on an aggregate asset and liability portfolio basis. The hedge ratio and rebalancing frequency of portfolio hedges is determined using a dynamic approach reflecting the duration of portfolio exposure in accordance with an exposure bucketing approach. The hedge ratio is monitored on a daily basis and where necessary the portfolio is rebalanced using a dynamic approach.
The group and company observe interest rate risk in respect of these exposures using an unfunded cash collateralised interest rate derivatives discount curve. Hedge effectiveness between the hedging instrument and the hedged item is determined at the inception of the hedge relationship and through periodic effectiveness assessments to ensure that an economic relationship exists using regression analysis between the hedged items and the hedging instruments for sensitivity of changes to changes in interest rate risk only.
The group and company use a combination of interest rate swaps and interest rate basis swaps to mitigate against the risk of changes in market value of hedged items for changes in interest rates. The group elects for each fair value interest rate risk hedging relationship, using swaps, to include forward points (basis) contained in the derivative instrument in the hedging relationship. Where the basis is included in the hedging relationship this exposes the hedge relationship to hedge ineffectiveness. The extent of hedge ineffectiveness as a result of fair value interest rate risk hedges is disclosed in note 2.3.5.
Other Sale and repurchase agreements and lending of securities (including commodities) Securities sold subject to linked repurchase agreements (repurchase agreements) are reclassified in the statement of financial position as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral. The liability to the counterparty is included under deposits and current accounts or trading liabilities, as appropriate.
Securities purchased under agreements to resell (reverse repurchase agreements), at either a fixed price or the purchase price plus a lender’s rate of return, are recorded as loans and included under trading assets or loans and advances, as appropriate. For repurchase and reverse repurchase agreements measured at amortised cost, the difference between the purchase and sales price is treated as interest and amortised over the expected life using the effective interest method.
Securities lent to counterparties are retained in the annual financial statements. Securities borrowed are not recognised in the annual financial statements unless sold to third-parties. In these cases, the obligation to return the securities borrowed is recorded at fair value as a trading liability. Income and expenses arising from the securities borrowing and lending business are recognised over the period of the transactions. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 198 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
3. Financial instruments continued Hedge accounting risk management strategy continued Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the counterparties to the transaction.
4. Fair value FAIR VALUE
Inputs and Day one Fair value Portfolio Cost valuation profit or hierarchy valuations exception techniques loss
Hierarchy levels
Hierarchy transfer policy
In terms of IFRS, the group is either required to or elects to measure a number of its financial assets and financial liabilities at fair value. Regardless of the measurement basis, the fair value is required to be disclosed, with some exceptions, for all financial assets and financial liabilities.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market between market participants at the measurement date under current market conditions. Fair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value it is presumed that the entity is a going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. In estimating the fair value of an asset or a liability, the group takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability at the measurement date.
Fair value hierarchy The group’s financial instruments that are both carried at fair value and for which fair value is disclosed are categorised by the level of fair value hierarchy. The different levels are based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement.
Hierarchy levels The levels have been defined as follows:
Level 1 Fair value is based on quoted market prices (unadjusted) in active markets for an identical financial asset or liability. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as those derived from quoted prices. This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3 Fair value is determined through valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instrument being valued and the similar instrument.
Hierarchy transfer policy Transfers of financial assets and financial liabilities between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 199
4. Fair value continued Inputs and valuation techniques Fair value is measured based on quoted market prices or dealer price quotations for identical assets and liabilities that are traded in active markets, which can be accessed at the measurement date, and where those quoted prices represent fair value. If the market for an asset or liability is not active or the instrument is not quoted in an active market, the fair value is determined using other applicable valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. These include the use of recent arm’s length transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market participants.
Fair value measurements are categorised into level 1, 2 or 3 within the fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement.
Where discounted cash flow analyses are used, estimated future cash flows are based on management’s best estimates and a market-related discount rate at the reporting date for an asset or liability with similar terms and conditions.
If an asset or a liability measured at fair value has both a bid and an ask price, the price within the bid-ask spread that is most representative of fair value is used to measure fair value.
The group’s valuation control framework governs internal control standards, methodologies, and procedures over its valuation processes, which include the following valuation techniques and main inputs and assumptions per type of instrument:
Item and description Valuation technique Main inputs and assumptions
Derivative financial instruments Standard derivative contracts are For level 2 and 3 fair value hierarchy Derivative financial instruments valued using market accepted models items: comprise foreign exchange, interest and quoted parameter inputs. More •• discount rate* rate, commodity, credit and equity complex derivative contracts are •• spot prices of the underlying derivatives that are either held-for- modelled using more sophisticated • correlation factors trading or designated as hedging modelling techniques applicable to • instruments in hedge relationships. the instrument. Techniques include: •• volatilities •• dividend yields •• discounted cash flow model •• Earnings yield •• Black-Scholes model •• valuation multiples. •• combination technique models.
Trading assets and trading liabilities Where there are no recent market Trading assets and liabilities comprise transactions in the specific instrument, instruments which are part of fair value is derived from the last the group’s underlying trading available market price adjusted for activities. These instruments primarily changes in risks and information since include sovereign and corporate debt, that date. commodities, collateral, collateralised lending agreements and equity Where a proxy instrument is quoted securities. in an active market, the fair value is determined by adjusting the proxy Pledged assets fair value for differences between Pledged assets comprise instruments the proxy instrument and the financial that may be sold or repledged investment being fair valued. by the group’s counterparty in the absence of default by the group. Where proxies are not available, the fair Pledged assets include sovereign value is estimated using more complex and corporate debt, equities, modelling techniques. These commodities pledged in terms of techniques include discounted cash repurchase agreements flow and Black-Scholes models using and commodities that have been current market rates for credit, interest, leased to third-parties. liquidity, volatility and other risks.
Financial investments Combination techniques are used to Financial investments are non-trading value unlisted equity securities financial assets and primarily comprise and include inputs such as earnings of sovereign and corporate debt, listed and dividend yields of the underlying and unlisted equity instruments, entity. investments in debentures issued by the SARB, investments in mutual fund investments and unit-linked investments. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 200 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
4. Fair value continued Inputs and valuation techniques continued
Item and description Main inputs and assumptions Valuation technique
Loans and advances to banks For certain loans fair value may be determined For level 2 and 3 fair value and customers from the market price of a recently occurring hierarchy items: Loans and advances comprise: transaction adjusted for changes in risks •• discount rate.* •• Loans and advances to banks: and information between the transaction call loans, loans granted under and valuation dates. Loans and advances are resale agreements and balances reviewed for observed and verified changes held with other banks. in credit risk and the credit spread is adjusted at subsequent dates if there has been •• Loans and advances to an observable change in credit risk relating to a customers: mortgage loans particular loan or advance. In the absence of (home loans and commercial an observable market for these instruments, mortgages), other asset-based discounted cash flow models are used to loans, including collateralised determine fair value. Discounted cash flow models debt obligations (instalment sale incorporate parameter inputs for interest rate risk, and finance leases), and other foreign exchange risk, liquidity and credit risk, as secured and unsecured loans appropriate. For credit risk, probability of default (card debtors, overdrafts, other and loss given default parameters are determined demand lending, term lending using credit default swaps (CDS) markets, where and loans granted under resale available and appropriate, as well as the relevant agreements). terms of the loan and loan counterparty such as the industry classification and subordination of the loan.
Deposits and debt funding For certain deposits, fair value may be determined For level 2 and 3 fair value Deposits from banks from the market price on a recently occurring hierarchy items: and customers comprise amounts transaction adjusted for all changes in risks •• discount rate.* owed to banks and customers, and information between the transaction deposits under repurchase and valuation dates. In the absence of agreements, negotiable certificates an observable market for these instruments, of deposit, credit-linked deposits discounted cash flow models are used to and other deposits. determine fair value based on the contractual cash flows related to the instrument. The fair value measurement incorporates all market risk factors, including a measure of the group’s credit risk relevant to that financial liability. The market risk parameters are valued consistently to similar instruments held as assets stated in the section above. The credit risk of the reference asset in the embedded CDS in credit-linked deposits is incorporated into the fair value of all credit-linked deposits that are designated to be measured at fair value through profit or loss. For collateralised deposits that are designated to be measured at fair value through profit or loss, such as securities repurchase agreements, the credit enhancement is incorporated into the fair valuation of the liability. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 201
4. Fair value continued Inputs and valuation techniques continued
Item and description Main inputs and assumptions Valuation technique
Policyholders’ assets Unit-linked policies: assets which are linked to For level 2 and 3 fair value and liabilities the investment contract liabilities are owned hierarchy items: Policyholders’ assets and liabilities by the group. The investment contract obliges •• discount rate*. comprise unit-linked policies the group to use these assets to settle these •• spot price of underlying. and annuity certains. liabilities. Therefore, the fair value of investment contract liabilities is determined with reference to the fair value of the underlying assets (i.e. amount payable on surrender of the policies).
Annuity certains: discounted cash flow models are used to determine the fair value of the stream of future payments.
Third-party financial liabilities The fair values of third-party financial liabilities For level 2 and 3 fair value arising on the consolidation of arising on the consolidation of mutual funds are hierarchy items: mutual funds (included in other determined using the quoted put (exit) price •• discount rate*. liabilities) provided by the fund manager and discounted for These are liabilities that arise on the applicable notice period. The fair value of a the consolidation of mutual funds. financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.
* Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of settlement, storage/service costs, prepayment and surrender risk assumptions and recovery rates/loss given default.
Portfolio valuations The group has elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities. This exception permits the group of financial assets and financial liabilities to be measured at fair value on a net basis, with the net fair value being allocated to the financial assets and financial liabilities.
Day one profit or loss For financial instruments, where the fair value of the financial instrument differs from the transaction price, the difference is commonly referred to as day one profit or loss. Day one profit or loss is recognised in profit or loss immediately where the fair value of the financial instrument is either evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models with only observable market data as inputs.
Day one profit or loss is deferred where the fair value of the financial instrument is not able to be evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models that utilise non-observable market data as inputs.
The timing of the recognition of deferred day one profit or loss is determined individually depending on the nature of the instrument and availability of market observable inputs. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 202 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
5. Employee benefits
EMPLOYEE BENEFITS
Post-employment Short-term benefits benefits
Defined contribution plans
Defined benefit plans
Statement of Statement of other Type and description financial position comprehensive income Income statement
Defined benefit plans Assets or liabilities Remeasurements of Net interest income/ The group operates a number measured at the present the net defined benefit (expense) is determined on of defined benefit retirement value of the estimated obligation, including the defined benefit asset/ and post employment medical future cash outflows, actuarial gains (liability) by applying aid plans. Employer companies using interest rates of and losses, the return on the discount rate used to contribute to the cost of government bonds plan assets (excluding measure the defined benefit benefits taking account of denominated in the same interest calculated) obligation at the beginning of the recommendations of currency as the defined and the effect of any the annual period to the net the actuaries. See note 43 for benefit plan (corporate asset ceiling are defined benefit asset/ more information. bonds are used for recognised within OCI. (liability). currencies for which there is a deep market of Other expenses (including high-quality corporate current service costs) related bonds), with maturity to the defined benefit plans dates that approximate are also recognised the expected maturity of in operating expenses. the obligations, less the fair value of When the benefits of a plan assets. plan are changed or when a plan is curtailed, the resulting A net defined benefit change in benefit that relates asset is only recognised to past service or the gain or to the extent loss on curtailment that economic benefits is recognised immediately are available to the group in operating expenses. from reductions in future contributions or future The group recognises gains refunds from the plan. and losses on the settlement of a defined benefit plan when the settlement occurs.
Short-term benefits A liability is recognised No direct impact. Short-term employee benefit Short-term benefits consist of for the amount expected obligations are measured on salaries, accumulated leave to be paid under an undiscounted payments, profit share, short-term cash bonus basis and are expensed bonuses and any non-monetary plans or accumulated in operating expenses as benefits such as medical aid leave if the group has a the related service contributions. present legal or is provided. constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 203
6. Non-financial assets
NON-FINANCIAL ASSETS
Tangible assets Intangible assets Investment property
Property Goodwill
Equipment Present value of acquired in-force policyholder contracts and investment contracts Land with discretionary participation features
Other intangible assets
Other intangible assets
Type and initial Useful lives, depreciation/ and subsequent amortisation method or fair value measurement basis Impairment
Tangible assets (property, Property and equipment are These assets are reviewed for impairment equipment and land) depreciated on the straight-line at each reporting date and tested for impairment Property and equipment are basis over estimated useful lives (see whenever events or changes in circumstances measured at cost less below) of the assets to their residual indicate that the carrying amount may not accumulated depreciation values. Land is not depreciated. be recoverable. and accumulated impairment losses. Cost includes Buildings 40 years An impairment loss is recognised in non-trading expenditure that is directly Computer equipment 4 – 5 years and capital related items for the amount attributable to the acquisition Motor vehicles 4 – 5 years by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of the asset. Office equipment 5 – 10 years is determined as the higher of an asset’s fair Furniture 5 – 13 years Land is measured at cost less value less costs to sell and value in use. accumulative impairment Leased assets Shorter of useful losses. life or lease term Fair value less costs to sell is determined by ascertaining the current market value of Costs that are subsequently The residual values, useful lives an asset and deducting any costs related to incurred are included and the depreciation method the realisation of the asset. in the asset’s related carrying applied are reviewed, and adjusted amount or are recognised as if appropriate, at each financial In assessing value in use, the estimated future a separate asset, as year end. cash flows are discounted to their present value appropriate, only when it using a pre-tax discount rate that reflects is probable that future current market assessments of the time value of economic benefits will flow to money and the risks specific to the asset. the group and the cost of the item can be measured For the purposes of assessing impairment, reliably. Expenditure, which assets that cannot be tested individually are does not meet these criteria, grouped at the lowest CGUs. is recognised in operating expenses as incurred. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying Where significant parts of amount of any goodwill allocated to the CGU, an item of property or and then to reduce the carrying amounts of equipment have different the other assets in the CGU on a pro rata basis. useful lives, they are The carrying amount of these other assets may, accounted for as separate however, not be reduced below the higher of major components of the CGU’s fair value less costs to sell and its property and equipment. value in use.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed through non-trading and capital related items only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 204 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
6. Non-financial assets continued
Useful lives, depreciation/ Type and initial and subsequent amortisation method or fair value measurement basis Impairment
Goodwill Not applicable. The accounting treatment is generally Goodwill represents the excess of the same as that for tangible assets the consideration transferred except as noted below. and the acquisition date fair value of any previously held equity interest Goodwill is tested annually for over the group’s interest in the net fair impairment and additionally when value of the identifiable assets, an indicator of impairment exists. liabilities and contingent liabilities of the acquired subsidiary, associate or An impairment loss in respect of joint venture at the date of goodwill is not reversed. the acquisition. The group’s interest in acquired subsidiaries takes into account any non-controlling interest.
Goodwill arising on the acquisition of subsidiaries (associates or joint ventures) is reported in the statement of financial position as part of ’Goodwill and other intangible assets’ (’Interest in associates and joint ventures’).
Present value of acquired in- The PVIF intangible asset is amortised Same accounting treatment as for force policyholder contracts on a basis consistent with the tangible assets. and investment contracts with settlement of the relevant liability discretionary participation features in respect of the purchased contracts Where a portfolio of policyholder (four to 12 years). The estimated life contracts is acquired either directly is re-evaluated annually. from another insurer or through the acquisition of a subsidiary, the PVIF business on the portfolio, being the net present value of estimated future cash flows of the existing contracts, is recognised as an intangible asset.
The PVIF intangible asset is carried in the statement of financial position at cost less accumulated amortisation and accumulated impairment losses. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 205
6. Non-financial assets continued
Useful lives, depreciation/ Type and initial and subsequent amortisation method or fair value measurement basis Impairment
Computer software Amortisation is recognised Intangible assets that have an indefinite Costs associated with developing or in operating expenses on a straight- useful life are tested annually for maintaining computer software line basis at rates appropriate to impairment and additionally when programmes and the acquisition of the expected lives of the assets (two an indicator of impairment exists. software licences are generally to 15 years) from the date recognised as an expense as incurred. that the asset is available for use. The accounting treatment for computer software and other intangible assets However, direct computer software Amortisation methods, useful lives is otherwise the same as for tangible development costs that are clearly and residual values are reviewed assets. associated with an identifiable at each financial year end and unique system, which will be and adjusted, if necessary. controlled by the group and have a probable future economic benefit beyond one year, are recognised as intangible assets.
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses from the date that the assets are available for use.
Expenditure subsequently incurred on computer software is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
Other intangible assets Amortisation is recognised The group recognises the costs in operating expenses on a straight- incurred on internally generated line basis over the estimated useful intangible assets such as brands, lives of the intangible assets, not customer lists, customer contracts exceeding 20 years, from the date and similar rights and assets, that the asset is available for use. in operating expenses as incurred. Amortisation methods, useful lives The group capitalises brands, and residual values are reviewed customer lists, customer contracts, at each financial year end distribution forces and similar rights and adjusted, if necessary. acquired in business combinations.
Capitalised intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses.
Derecognition Non-financial assets are derecognised on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal proceeds and the carrying amount of the non-financial asset. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 206 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
6. Non-financial assets continued
Useful lives, depreciation/ Type and initial and subsequent amortisation method or fair value measurement basis Impairment
Investment property The fair value is based on valuation Initially measured at cost, including information at the reporting date. transaction costs. If the valuation information cannot be Subsequently measured at fair value reliably determined, the group uses and included as part of investment alternative valuation methods such as management and service fee income discounted cash flow projections or and gains within the profit or loss. recent prices in active markets.
Fair value adjustments recognised in investment management and service fee income and gains are adjusted for any double-counting arising from the recognition of lease income on the straight-line basis compared to the accrual basis normally assumed in the fair value determination.
Derecognition Investment property is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on derecognition is recognised in investment management and service fee income and gains and is determined as the difference between the net disposal proceeds and the carrying amount of the non-financial asset.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.
When the use of a property changes such that it is reclassified from property and equipment to investment property, the difference between the carrying value at date of reclassification and its fair value is recognised in OCI. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 207
7. Property developments and properties in possession
PROPERTY DEVELOPMENTS AND PROPERTIES IN POSSESSION
Property developments Properties in possession
Property developments Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and where applicable, development and borrowing costs during development.
Properties in possession Properties in possession are properties acquired by the group which were previously held as collateral for underlying lending arrangements that, subsequent to origination, have defaulted. The properties are initially recognised at cost and are subsequently measured at the lower of cost and its net realisable value. Any subsequent write-down in the value of the acquired properties is recognised as an operating expense. Any subsequent increases in the net realisable value, to the extent that it does not exceed its original cost, are also recognised within operating expenses.
8. Equity-linked transactions EQUITY COMPENSATION PLANS
Equity-settled share-based payments Cash-settled share-based payments
Equity-settled share-based payments The fair value of the equity-settled share-based payments are determined on grant date and accounted for within operating expenses (staff costs) over the vesting period with a corresponding increase in the group’s share-based payment reserve. Non-market vesting conditions, such as the resignation of employees and retrenchment of staff, are not considered in the valuation but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of options expected to vest is reassessed and adjusted against operating expenses and share- based payment reserve over the remaining vesting period.
On vesting of the equity-settled share-based payments, amounts previously credited to the share-based payment reserve are transferred to retained earnings through an equity transfer. On exercise of the equity-settled share-based payment, any proceeds received are credited to share capital and premium.
Cash-settled share-based payments Cash-settled share-based payments are accounted for as liabilities at fair value until the date of settlement. The liability is recognised over the vesting period and is revalued at every reporting date up to and including the date of settlement. All changes in the fair value of the liability are recognised in operating expenses. The awards vest over the specified period of service and/or once performance conditions are met. The specified period of service is an average 2.5 years and performance conditions include growth in SBG’s headline earnings per share and return on equity. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 208 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
9. Leases LEASES
Finance leases Operating leases
Lessee Lessee
Lessor Lessor
Type and description Statement of financial position Income statement
IFRS 16 – Lessee accounting policies
Single lessee accounting Lease liabilities: Interest expense on lease liabilities: model Initially measured at the present value of A lease finance cost, determined with All leases are accounted the contractual payments due to the lessor over reference to the interest rate implicit for by recognising a the lease term, with the discount rate determined in the lease or the group’s incremental right of use asset and a by reference to the rate implicit in the lease unless borrowing rate, is recognised lease liability except for: (as is typically the case for the group) this is not within interest expense over •• leases of low value readily determinable, in which case the group’s the lease period. assets; and incremental borrowing rate on commencement of the lease is used. The group’s internal funding rate •• leases with a duration of is the base on which the incremental borrowing 12 months or less. rate is calculated. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: •• Amounts expected to be payable under any residual value guarantee; •• The exercise price of any purchase option granted in favour of the group, should it be reasonably certain that this option will be exercised; •• Any penalties payable for terminating the lease, should the term of the lease be estimated on the basis of this termination option being exercised.
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.
Right of use assets: Depreciation on right of use assets: Initially measured at the amount of the lease Subsequent to initial measurement, liability, reduced for any lease incentives received, the right of use assets are depreciated and increased for: on a straight-line basis over •• lease payments made at or before the remaining term of the lease or over commencement of the lease; the remaining economic life of the asset should this term be shorter •• initial direct costs incurred; and than the lease term unless ownership •• the amount of any provision recognised where of the underlying asset transfers to the group is contractually required to dismantle, the group at the end of the lease term, remove or restore the leased asset. whereby the right of use assets are depreciated on a straight-line The group applies the cost model subsequent to basis over the remaining economic life the initial measurement of the right of use assets. of the asset. This depreciation is recognised as part of operating expenses.
Termination of leases: Termination of leases: When the group or lessor terminates or cancels a On derecognition of the right of use lease, the right of use asset and lease liability are asset and lease liability, any difference derecognised. is recognised as a derecognition gain or loss in profit or loss. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 209
9. Leases continued
Type and description Statement of financial position Income statement
IFRS 16 – Lessee accounting policies continued
All leases that meet Accruals for unpaid lease charges, together Payments made under these leases, net the criteria as either a lease with a straight-line lease asset or liability, being of any incentives received from of a low value asset or a the difference between actual payments the lessor, are recognised in operating short-term lease are and the straight-line lease expense expenses on a straight-line basis over accounted for on a are recognised. the term of the lease. When these leases straight-line basis over are terminated before the lease period the lease term. has expired, any payment required to be made to the lessor by way of a penalty is recognised as operating expenses in the period in which termination takes place.
Reassessment Reassessment of lease terms and lease modifications that are not accounted for as and modification of leases a separate lease: When the group reassesses the terms of any lease (i.e. it reassesses the probability of exercising an extension or termination option) or modifies the terms of a lease without increasing the scope of the lease or where the increased scope is not commensurate with the stand-alone price, it adjusts the carrying amount of the lease liability to reflect the payments to be made over the revised term, which are discounted at the applicable rate at the date of reassessment or modification. The carrying amount of lease liability is similarly revised when the variable element of future lease payments dependent on a rate or index is revised.
For reassessments to the lease terms, an equivalent adjustment is made to the carrying amount of the right of use asset, with the revised carrying amount being depreciated over the revised lease term. However, if the carrying amount of the right of use asset is reduced to zero any further reduction in the measurement of the lease liability is recognised in profit or loss.
For lease modifications that are not accounted for as a separate lease, an equivalent adjustment is made to the carrying amount of the right of use asset, with the revised carrying amount being depreciated over the revised lease term. However, for lease modifications that decrease the scope of the lease the carrying amount of the right of use asset is decreased to reflect the partial or full termination of the lease, with any resulting difference being recognised in profit or loss as a gain or loss relating to the partial or full termination of the lease.
Lease modifications that are accounted for as a separate lease: When the group modifies the terms of a lease resulting in an increase in scope and the consideration for the lease increases by an amount commensurate with a stand-alone price for the increase in scope, the group accounts for these modifications as a separate new lease. This accounting treatment equally applies to leases which the group elected the short-term lease exemption and the lease term is subsequently modified.
IFRS 16 and IAS 17 – Lessor accounting policies
Finance leases Finance lease receivable, including initial direct Finance charges earned within interest Leases, where the group costs and fees, are primarily accounted for as income are computed using transfers substantially all financing transactions in banking activities, the effective interest method, which the risk and rewards with rentals and instalments receivable, less reflects a constant periodic rate of incidental to ownership, are unearned finance charges, being included return on the investment in the finance classified as finance leases. in loans and advances. lease. The tax benefits arising from investment allowances on assets leased to clients are accounted for within direct taxation. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 210 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
9. Leases continued
Type and description Statement of financial position Income statement
IFRS 16 and IAS 17 – Lessor accounting policies continued
Operating leases The asset underlying the lease continues to be Operating lease income net of any All leases that do not meet recognised and accounted for in terms of incentives given to lessees, is recognised the criteria of a financial the relevant group accounting policies. on the straight-line basis, or a more lease are classified as Accruals for outstanding lease charges, representative basis where applicable, operating leases. together with a straight-line lease asset or over the lease term and is recognised liability, being the difference between actual in operating income. payments and the straight-line lease income are recognised. When an operating lease is terminated before the lease period has expired, any payment received/(paid) by the group by way of a penalty is recognised as income/(expense) in the period in which termination takes place.
IFRS 16 – Lessor lease modifications
Finance leases When the group modifies the terms of a lease resulting in an increase in scope and the consideration for the lease increases by an amount commensurate with a stand-alone price for the increase in scope, the group accounts for these modifications as a separate new lease.
All other lease modifications that are not accounted for as a separate lease are accounted for in terms of IFRS 9, unless the classification of the lease would have been accounted for as an operating lease had the modification been in effect at inception of the lease. These lease modifications are accounted for as a separate new lease from the effective date of the modification and the net investment in the lease becomes the carrying amount of the underlying asset.
Operating leases Modifications are accounted for as a new lease from the effective date of the modification. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 211
9. Leases continued
Type and description Statement of financial position Income statement
IAS 17 – Lessee accounting policies
Finance leases The leased asset is capitalised at the inception A lease finance cost, determined with Leases, where the group of the lease at the lower of the fair value of reference to the interest rate implicit assumes substantially all the leased asset and the present value of in the lease or the group’s incremental the risk and rewards the minimum lease payments together with borrowing rate, is recognised incidental to ownership, are an associated liability to the lessor. Refer to within interest expense over the lease classified as finance leases. non-financial assets accounting policy for period. the treatment of the leased asset.
Lease payments less the interest component, which is calculated using the interest rate implicit in the lease or the group’s incremental borrowing rate, are recognised as a capital repayment which reduces the liability to the lessor.
Operating leases Accruals for unpaid lease charges, together Payments made under operating leases, All leases that do not meet with a straight-line lease asset or liability, being net of any incentives received from the criteria of a financial the difference between actual payments the lessor, are recognised in operating lease are classified as and the straight-line lease expense are expenses on a straight-line basis over operating leases. recognised. the term of the lease. Contingent rentals are expensed as they are incurred.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of a penalty is recognised as operating expenses in the period in which termination takes place. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 212 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
10. Equity EQUITY
Black economic Reacquired empowerment Share issue equity Dividends ownership costs instruments initiative (Tutuwa)
Re-acquired equity instruments Where subsidiaries purchase/(short sell) Standard Bank Group Limited’s equity instruments, the consideration paid/ (received) is deducted/(added) from/(to) equity attributable to ordinary shareholders as treasury shares on consolidation.
Fair value changes recognised by subsidiaries on these instruments are reversed on consolidation and dividends received are eliminated against dividends paid. Where such shares are subsequently sold or reissued/(re-acquired) outside the group, any consideration received/(paid) is included in equity attributable to ordinary shareholders.
Black economic empowerment ownership initiative (Tutuwa) The group subscribed for 8.5% redeemable, cumulative, preference shares issued by the Tutuwa entities controlled by the group. The initial repurchase of group shares by the Tutuwa entities was treated as a reduction in the group’s equity. Subsequent to the repurchase of the group shares, the Tutuwa entities containing these shares were sold to the black participants. The capital and dividends on the preference shares are repayable from future ordinary dividends received on group shares or from the disposal of the group’s shares. As a result of the group’s right to receive its own dividends back in the form of preference dividends and capital on the preference shares, the subsequent sale of the Tutuwa entities and consequent delivery of the group shares to the black participants (although legally effected) is not accounted for as a sale. The preference share investment in the Tutuwa entities is also not accounted for as an asset. The preference share asset is effectively eliminated against equity as a negative empowerment reserve.
As a consequence of the above, the IFRS accounting treatment followed until full redemption, or third-party financing, is as follows: •• The 8.5% redeemable, cumulative, preference shares issued by the Tutuwa entities and subscribed for by the group are not recognised as financial assets, but eliminated against equity as a negative empowerment reserve. •• The preference dividends received from the Tutuwa entities are eliminated against the ordinary dividends paid on the group shares held by the Tutuwa entities. •• Preference dividends accrued but not received, due to cash distributions paid to participants, increase the empowerment reserve. •• For purposes of the calculation of earnings per share, the weighted average number of shares in issue is reduced by the number of shares held by those Tutuwa entities that have been sold to the black participants. The shares will be restored on full redemption of the preference shares, or to the extent that the preference share capital is financed by a third-party. •• Perpetual preference shares issued by the group for the purposes of financing the repurchased group shares are classified as equity. Dividends paid are accounted for on declaration. Share issue costs Incremental external costs directly attributable to a transaction that increases or decreases equity are deducted from equity, net of related tax. All other share issue costs are expensed.
Dividends Distributions are recognised in equity in the period in which they are declared. Distributions declared after the reporting date are disclosed in the distributions note to the annual financial statements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 213
11. Provisions, contingent assets and contingent liabilities PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES
Provisions Contingent assets Contingent liabilities
Provisions for legal claims
Provision for restructuring
Provision for onerous contracts
Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The group’s provisions typically (when applicable) include the following:
Provisions for legal claims Provisions for legal claims are recognised on a prudent basis for the estimated cost for all legal claims that have not been settled or reached conclusion at the reporting date. In determining the provision, management considers the probability and likely settlement (if any). Reimbursements of expenditure to settle the provision are recognised when and only when it is virtually certain that the reimbursement will be received.
Provision for restructuring A provision for restructuring is recognised when the group has approved a detailed formal plan, and the restructuring either has commenced or has been announced publicly. Future operating costs or losses are not provided for.
Provision for onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the group recognises any impairment loss on the assets associated with that contract.
Contingent assets Contingent assets are not recognised in the annual financial statements but are disclosed when, as a result of past events, it is probable that economic benefits will flow to the group, but this will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the group’s control.
Contingent liabilities Contingent liabilities include certain guarantees (other than financial guarantees) and letters of credit and are not recognised in the annual financial statements but are disclosed in the notes to the annual financial statements unless they are considered remote. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 214 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
12. Policyholder insurance and investment contracts POLICYHOLDER INSURANCE AND INVESTMENT CONTRACTS
Guidance on Classification Receivables Reinsurance classification of contracts and payables contracts held of contracts
Insurance and Long-term insurance investment contract contracts and classification investment contracts with DPF DPF Long-term Professional investment contracts guidance issued by without DPF the ASSA Investment contracts with a DPF switching option
Short-term insurance
Classification of contracts Insurance and investment contract classification The group issues contracts that transfer insurance risk or financial risk or, in some cases, both.
An insurance contract is a contract under which the group (insurer) accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder or, in the case of life annuities, the lifespan of the policyholder is greater than that assumed. Such contracts may also transfer financial risk. The group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are significantly more than the benefits payable if the insured event did not occur.
Short-term insurance provides benefits under short-term policies, typically one year or less, which include engineering, fire, personal liability, marine and aviation, motor, personal accident, medical expenses, theft and the Workmen’s Compensation Act, or a contract comprising a combination of any of those policies.
Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable.
Discretionary participation features A number of insurance and investment contracts contain a DPF feature. This feature entitles the policyholder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses at the discretion of the group. The terms and conditions or practice relating to these contracts are in accordance with the group’s published Principles and Practices of Financial Management, as approved by the Financial Services Board (FSB). The terms ’reversionary bonus’ and ’smoothed bonus’ refer to the specific forms of DPF contracts underwritten by the group. All components in respect of DPFs are included in policyholders’ assets and liabilities.
Professional guidance issued by the Actuarial Society of South Africa (ASSA) In terms of IFRS 4 Insurance Contracts (IFRS 4), insurance liabilities are measured under existing local practice. The group had, prior to the adoption of IFRS 4, adopted the Professional Guidance Notes (PGNs) issued by the ASSA to determine the liability in respect of insurance contracts issued in South Africa. The group has continued to value long-term insurance liabilities in accordance with these.
In 2012, the naming convention was changed and the term PGN was replaced with either APN or Standard Actuarial Practice (SAP) depending on whether the former PGN was best-practice or mandatory respectively.
These are available on the ASSA website – www.actuarialsociety.org.za.
Where applicable, the APNs and SAPs are referred to in the accounting policies and notes to the annual financial statements. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 215
12. Policyholder insurance and investment contracts continued Measurements of contracts Policyholder contracts are classified into four categories, depending on the duration of or type of investment benefit or insurance risks. The accounting for each of these contracts are detailed below.
Long-term insurance contracts and investment contracts with DPF These contracts are valued in terms of the financial soundness valuation (FSV) basis as described in SAP 104 Life offices – valuation of long-term insurers (SAP 104), using a discounted cash flow methodology. The assets and liabilities are reflected as policyholders’ assets and liabilities in the statement of financial position. The discounted cash flow methodology allows for premiums and benefits payable in terms of the contract, future administration expenses and commission, investment return, tax and any expected losses in respect of options.
The liability is based on assumptions of the best estimate of future experience, plus compulsory margins as required in terms of SAP 104, plus additional discretionary margins. Derivatives embedded in the group’s insurance contracts are not separated and measured at fair value if the embedded derivative itself meets the definition of an insurance contract.
The liabilities in respect of the investment guarantees’ underlying maturity and death benefits, and guaranteed annuity options are measured in accordance with APN 110 Reserving for minimum investment return guarantees on a market-consistent basis. Discretionary margins are held to ensure that the profit and risk margins in the premiums are not capitalised before it is probable that future economic benefits will flow to the entity.
These profits emerge over the lifetime of the contract in line with the risk borne by the group. Liabilities for individual market- related policies, where benefits are in part dependent on the performance of underlying investment portfolios, are taken as the aggregate value of the policies’ investment in the investment portfolio at the valuation date (the unit reserve element), is then reduced by the excess of the present value of the expected future risk and expense charges over the present value of the expected future risk benefits and expenses on a policy-by-policy cash flow basis (the rand reserve element).
Reversionary bonus classes of policies, and policies with fixed and guaranteed benefits are valued by discounting the expected future cash flows at market-related rates of interest reduced by an allowance for investment expenses and the relevant compulsory margins (the guaranteed element). Future bonuses have been allowed for at the latest declared rates where appropriate. The rand reserve element of market-related policies and the guaranteed element in respect of other policies are collectively known as the rand reserve.
In respect of corporate life and lump sum disability business, no discounting of future cash flows is performed. However, a provision will be held if the expected guaranteed premiums under the current basis and investment returns in the short term are not sufficient to meet expected future claims and expenses. For corporate investment contracts with DPF, in addition to the value of the policies’ investment in the investment portfolios held, an additional provision will be held if the expected fee recoveries in the short term are not sufficient to meet expected expenses.
Within the group all investment contracts invested in smoothed bonus portfolios are classified as investment contracts with DPF. In respect of insurance and investment contracts with DPF where bonuses are smoothed, bonus stabilisation provisions are held arising from the difference between the after taxation investment performance of the assets, net of the relevant management fees and the value of the bonuses declared. In accordance with SAP 104, where the bonus stabilisation provision is negative, this provision is restricted to an amount that can reasonably be expected to be recovered through distribution of bonuses during the ensuing three years. All bonus stabilisation provisions are included in policyholders’ liabilities. The liability estimates are reviewed bi-annually. The effect of any change in estimates is recognised in profit or loss.
Where policyholders, in respect of certain policies, are entitled to a part surrender, any part surrender is treated as a derecognition of the policyholders’ asset or liability.
Shadow accounting is applied to policyholder insurance contracts where the underlying measurement of the policyholder insurance liability depends directly on the fair value of any owner-occupied properties.
Any unrealised gains and losses on such owner-occupied properties are recognised in OCI. The shadow accounting adjustment to policyholder insurance contracts is recognised in OCI to the extent that the unrealised gains or losses, together with any related taxation on owner-occupied properties backing policyholder insurance liabilities, are also recognised directly in OCI.
Incurred but not reported claims (IBNR) Provision is made in policyholders’ assets and liabilities for the estimated cost at the end of the year of claims incurred but not reported at that date. IBNR provisions for the main categories of business are calculated using run-off triangle techniques. These liabilities are not discounted due to the short-term nature of IBNR claims. Outstanding claims and benefit payments are stated gross of reinsurance.
Liability adequacy test At each reporting date the adequacy of the insurance liabilities is assessed. If that assessment shows that the carrying amount of insurance liabilities net of any related intangible PVIF business assets is inadequate in the light of the estimated future cash flows, then the deficiency is recognised in profit or loss. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 216 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
12. Policyholder insurance and investment contracts continued Measurements of contracts continued Premium income Premiums and annuity considerations on insurance contracts, other than in respect of universally costed policies (policies where insurance risk charges are dependent on the excess of the sum assured over the value of units underlying the contract), recurring premium pure risk policies (collectively the Lifestyle series) and corporate schemes, are recognised when due in terms of the contract. Premiums receivable in respect of corporate schemes are recognised when there is a reasonable assurance of collection in terms of the policy contract. Premiums in respect of the Lifestyle series of policies are recognised when premiums are received, as failure to pay a premium will result in a reduction of attributable fund value, if available, or else in the lapse of the policy. Premium income on insurance contracts is recognised gross of reinsurance. Premiums are shown before deduction of commission.
Claims Claims on insurance contracts, which include death, disability, maturity, surrender and annuity payments, are recognised in insurance benefits and claims paid when the group is notified of a claim, based on the estimated liability for compensation owed to policyholders. Changes in the provision for IBNR claims are also recognised in insurance benefits and claims paid. Reinsurance recoveries are accounted for in the same period as the related claims.
Acquisition costs Acquisition costs for insurance contracts represent commission and other costs that relate to the securing of new contracts and the renewing of existing contracts. These costs are expensed as incurred in insurance benefits and claims paid.
The FSV method for valuing insurance contracts and investment contracts with DPF makes implicit allowance for the deferral of acquisition costs and hence no explicit deferred acquisition cost asset is recognised in the statement of financial position for these contracts.
Long-term investment contracts without DPF Measurement The group issues investment contracts without fixed benefits (unit-linked and structured products) and investment contracts with fixed and guaranteed benefits (term certain annuity). Investment contracts without fixed benefits are financial liabilities whose fair value is dependent on the fair value of the underlying financial assets, derivatives and/or investment property and are designated at inception at fair value through profit or loss.
For investment contracts with fixed and guaranteed terms, future benefit payments and premium receipts are discounted using market-related rates at the reporting date. No initial profit is recognised immediately as any profit on initial recognition is amortised over the life of the contract.
Amounts received and claims incurred on investment contracts Amounts received under investment contracts, such as premiums, are recorded as deposits to investment contract liabilities, whereas claims incurred are recorded as deductions from investment contract liabilities.
DRL on investment management contracts A DRL is recognised in respect of upfront fees, which are directly attributable to a contract, that are charged for investment management services. The DRL is then released to investment management and service fee income and gains when the services are provided, over the expected duration of the contract on a straight-line basis.
Regular charges billed in advance are recognised on a straight-line basis over the billing period, which is the period over which the service is rendered. Outstanding fees are accrued as a receivable in terms of the investment management contract.
DAC in respect of investment contracts Commissions paid and other incremental acquisition costs are incurred when new investment contracts are obtained or existing investment contracts are renewed. These costs are expensed as incurred, unless specifically attributable to an investment contract with an investment management service element. Such costs are deferred and amortised on a straight-line basis over the expected life of the contract (ten to 16 years for linked annuities, one year for corporate business and five years for other investment contracts), taking into account all decrements, as they represent the right to receive future management fees.
A DAC asset is recognised for all applicable policies with the amortisation being calculated on a portfolio basis. An impairment test is conducted annually at the reporting date on the DAC balance to ensure that the amount will be recovered from future revenue generated by the applicable remaining investment management contracts.
Investment contracts with a DPF switching option Measurement On certain investment contracts, policyholders have an option to switch some or all of their investment from a DPF fund to a non-DPF fund (and vice versa). The value of the liability held with respect to these contracts is taken at the aggregate value of the policyholder investment in the investment portfolio at the valuation date. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 217
12. Policyholder insurance and investment contracts continued Measurements of contracts continued Short-term insurance Gross written premiums Gross premiums exclude VAT. Premiums are accounted for as income when the risk related to the insurance policy commences and are amortised over the contractual period of risk cover by using an unearned premium provision. All premiums are shown before deduction of commission payable to intermediaries.
Provision for unearned premiums The provision for unearned premiums represents the portion of the current year’s premiums that relate to risk periods extending into the following year. The unearned premiums are calculated using a straight-line basis, except for those insurance contracts where allowance is made for uneven exposure.
Liability adequacy Provision is made for underwriting losses that may arise from unexpired risks when it is anticipated that unearned premiums will be insufficient to cover future claims, as well as claims-handling fees and related administrative costs.
Provision for reported claims and IBNR claims Provision is made on a prudent basis for the estimated final cost of all claims that had not been settled on the reporting date, less amounts already paid. Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third-parties damage by the contract holders. The group’s own assessors or contracted external assessors individually assess claims. The claims provision includes an estimated portion of the direct expenses of the claims and assessment charges.
Provision is also made for claims arising from insured events that occurred before the close of the reporting period, but which had not been reported to the group at that date (IBNR claims). This provision is calculated using run-off triangle techniques. The provision for claims is not discounted for the time value of money due to the expected short duration to settlement.
DAC in respect of insurance contracts Commissions that vary and are related to securing new contracts and renewing existing contracts are deferred over the period in which the related premiums are earned, and recognised as a current asset. All other costs are recognised as expenses within insurance benefits and claims paid when incurred.
DRL on insurance contracts A DRL is raised for any income receivable on the placement of reinsurance for risks arising from short-term insurance contracts. The DRL is released to income systematically over the coverage period of the respective reinsurance contract.
Receivables and payables Receivables and payables related to insurance contracts and investment contracts are recognised when due. These include amounts due to and from agents, brokers and policyholders. Receivables and payables related to insurance contracts are subsequently measured in terms of IFRS 4, while those related to investment contracts are designated at fair value through profit or loss in terms of IFRS 9.
Reinsurance contracts held The group cedes some insurance risk in the normal course of business. Reinsurance contracts are contracts entered into by the group with reinsurers under which the group is compensated for the entire, or a portion of, losses arising on one or more of the insurance contracts issued by the group.
The expected benefits to which the group is entitled under its reinsurance contracts held are recognised as reinsurance assets and included in ’Other assets’ in the statement of financial position. Reinsurance assets are assessed for impairment at each reporting date. Any impairment loss is recognised in profit or loss.
Outward reinsurance premiums are recognised as an expense and are accounted for in the same reporting period that premiums received are recognised as revenue in insurance premiums. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 218 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
13. Taxation TAXATION
Direct taxation: Direct taxation includes all domestic and foreign taxes Indirect taxation Dividends tax based on taxable profits and capital gains tax
Current tax
Deferred tax
Type Description, recognition and measurement Offsetting
Direct taxation: Current tax is recognised in the direct taxation line in the income Current and deferred tax current tax statement except to the extent that it relates to a business combination assets and liabilities are (relating to a measurement period adjustment where the carrying offset if there is a legally amount of the goodwill is greater than zero), or items recognised directly enforceable right to in equity or in OCI. offset current tax liabilities and assets, Current tax represents the expected tax payable on taxable income for and they relate to income the year, using tax rates enacted or substantively enacted at the reporting taxes levied by the same date, and any adjustments to tax payable in respect of previous years. tax authority on the same taxable entity, or on Direct taxation: Deferred tax is recognised in direct taxation except to the extent that it different tax entities, but deferred tax relates to a business combination (relating to a measurement period they intend to settle adjustment where the carrying amount of the goodwill is greater current tax liabilities than zero), or items recognised directly in equity or in OCI. and assets on a net basis or their tax assets Deferred tax is recognised in respect of temporary differences arising and liabilities will be between the tax bases of assets and liabilities and their carrying values realised simultaneously. for financial reporting purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax is not recognised for the following temporary differences: •• The initial recognition of goodwill; •• The initial recognition of assets and liabilities in a transaction that is not a business combination, which affects neither accounting nor taxable profits or losses; and •• Investments in subsidiaries, associates and jointly controlled arrangements (excluding mutual funds) where the group controls the timing of the reversal of temporary differences and it is probable that these differences will not reverse in the foreseeable future. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 219
13. Taxation continued
Type Description, recognition and measurement Offsetting
Direct taxation: The amount of deferred tax provided is based on the expected manner of deferred tax realisation or settlement of the carrying amount of the asset or liability continued and is not discounted.
Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the group is unable to control the reversal of the temporary difference for associates unless there is an agreement in place that gives the group the ability to control the reversal of the temporary difference.
Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.
Indirect Indirect taxes, including non-recoverable value added tax (VAT), skills Not applicable. taxation development levies and other duties for banking activities, are recognised in the indirect taxation line in the income statement.
Dividend tax Taxes on dividends declared by the group are recognised as part of Not applicable. the dividends paid within equity, as dividend tax represents a tax on the shareholder and not the group. Dividends tax withheld by the group on dividends paid to its shareholders and payable at the reporting date to the South African Revenue Service (where applicable) is included in ’Other liabilities’ in the statement of financial position. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 220 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
14. Revenue and expenditure REVENUE AND EXPENDITURE
Investment management Banking activities and life insurance
Net interest income Insurance premium revenue
Non-interest revenue Investment income
Management fees on assets under management •• Net fee and commission revenue •• Trading revenue •• Other revenue •• Dividend income •• Short-term insurance income •• Customer loyalty programmes
Description Recognition and measurement
Net interest income Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying assets, that is assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value) are recognised in net interest income using the effective interest method for all interest-bearing financial instruments. In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing margin-yielding assets or liabilities into the statement of financial position, are capitalised to the carrying amount of financial instruments that are not at fair value through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the effective interest rate.
Where the estimates of payments or receipts on financial assets or financial liabilities are subsequently revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and revised estimated cash flows. The carrying amount is calculated by computing the present value of the adjusted cash flows at the financial asset or financial liability’s original effective interest rate. Any adjustment to the carrying value is recognised in net interest income.
When a financial asset is classified as stage 3 impaired, interest income is calculated on the impaired value (gross carrying amount less specific impairment) based on the original effective interest rate. The contractual interest income on the gross exposure is suspended and is only recognised in credit impairments when the financial asset is reclassified out of stage 3. Dividends received on preference share investments classified as debt form part of the group’s lending activities and are included in interest income.
Net fee Fee and commission revenue, including accounting transaction fees, card-based commission, and commission documentation and administration fees, electronic banking fees, foreign currency service fees, revenue insurance-based fees and commissions, and knowledge-based fees and commissions are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period.
Loan syndication fees, where the group does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued financial guarantee contracts on initial recognition is amortised as income over the term of the contract.
Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and service fees relating to financial instruments, which are expensed as the services are received. Expenditure is presented as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue.
Trading revenue Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 221
14. Revenue and expenditure continued
Description Recognition and measurement
Customer loyalty The group’s banking activities operate a customer loyalty programme in terms of which it programmes undertakes to provide goods and services to certain customers. The reward credits are accounted for as a separately identifiable component of the fee and commission income transactions of which they form a part. The consideration allocated to the reward credits is measured at the fair value of the reward credit and is recognised over the period in which the customer utilises the reward credits. Expenses relating to the provision of the reward credits are recognised in fee and commission expenses as and when they are incurred.
Dividend income Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative.
Insurance premium Insurance premium revenue includes life insurance premiums, health insurance premiums revenue and short-term insurance premiums.
Investment income Investment income for investment management and life insurance activities comprises mainly rental income from properties, interest, hotel operations’ sales and dividends. Dividends are recognised when the right to receive payment is established and interest income is recognised using the effective interest method.
Hotel operation sales comprise the fair value of the sale of accommodation, food and beverage, other guest facilities and rentals received. Revenue is shown net of VAT, returns, rebates and discounts.
Management fees Fee income includes management fees on assets under management and administration fees. on assets under Management fees on assets under management are recognised over the period for which management the services are rendered, in accordance with the substance of the relevant agreements.
Administration fees received for the administration of medical schemes are recognised when the services are rendered.
Other gains/losses Includes: on financial •• Fair value gains and losses on financial assets that are classified at fair value through instruments profit or loss (designated and default). •• The gain or loss on the derecognition of a debt financial asset classified as at fair value through OCI. •• Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost. •• Gains and losses arising from the reclassification of a financial asset from amortised cost to fair value. •• Gains and losses arising from the modification of a financial asset (which is not distressed) and financial liability as at amortised cost. •• Fair value gains and losses on designated financial liabilities.
Short-term Includes premium income, commission and policy fees earned, as well as net incurred claim insurance income losses and broker commission paid. Annual business income is accounted for on the accrual basis and comprises the cash value of commission and fees earned when premiums or fees are payable directly to the group and comprises the cash value of commission earned when premiums are payable directly to the underwriters.
Other revenue Other revenue comprises of revenue that is not included in any of the categories mentioned above this could include dividends on equity financial assets, underwriting profit from the group’s short-term insurance operations and related insurance activities and re-measurement gains and losses from contingent consideration on disposals and purchases.
Offsetting Income and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 222 ANNUAL FINANCIAL STATEMENTS ANNEXURE F – DETAILED ACCOUNTING POLICIES CONTINUED
15. Other significant accounting policies OTHER ACCOUNTING POLICIES
Statutory Non-trading Segment Fiduciary credit risk and capital reporting activities reserve related items
Segment reporting An operating segment is a component of the group engaged in business activities, whose operating results are reviewed regularly by management in order to make decisions about resources to be allocated to segments and assessing segment performance. The group’s identification of segments and the measurement of segment results is based on the group’s internal reporting to the chief operating decision maker.
Fiduciary activities The group commonly engages in trust or other fiduciary activities that result in the holding or placing of assets on behalf of individuals, trusts, post-employment benefit plans and other institutions. These assets and the income arising directly thereon are excluded from these annual financial statements as they are not assets of the group. However, fee income earned and fee expenses incurred by the group relating to the group’s responsibilities from fiduciary activities are recognised in profit or loss.
Statutory credit risk reserve The statutory credit risk reserve represents the amount by which local regulatory authorities within the group’s Africa Regions operations require in addition to the IFRS impairment provision. Changes in this reserve are accounted for as transfers to and from retained earnings as appropriate.
Non-trading and capital related items Non-trading and capital related items primarily include the following: •• gains and losses on disposal of subsidiaries, joint ventures and associates (including foreign exchange translation gains and losses) •• gains and losses on the disposal of property and equipment and intangible assets •• Impairment and reversals of impairments of joint ventures and associates •• impairment of investments in subsidiaries, property and equipment, and intangible assets •• other items of a capital related nature.
16. New standards and interpretations not yet adopted The following new or revised standards, amendments and interpretations are not yet effective for the year ended 31 December 2019 and have not been applied in preparing these annual financial statements.
Title: IFRS 3 Business Combinations (amendment) Effective date: 1 January 2020 with earlier application permitted The amendments clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendment is not expected to have a material impact on the group.
Title: IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments (amendments) and IAS 39 Financial Instruments: Recognition and Measurement Effective date: 1 January 2020 with earlier application permitted Interest Rate Benchmark Reform resulted in amendments to IFRS 9, IAS 39 and IFRS 7 requirements for hedge accounting to support the provision of useful financial information during the period of uncertainty caused by the phasing out of interest-rate benchmarks such as interbank offered rates (IBORs) on hedge accounting. The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 223
16. New standards and interpretations not yet adopted continued Title: IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Effective date: deferred the effective date for these amendments indefinitely until further notice The amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be applied prospectively and are not expected to have a material impact on the group’s financial statements.
Title: IFRS 17 Insurance Contracts Effective date: 1 January 2021 (proposed deferral to 1 January 2022) with earlier application permitted This standard replaces IFRS 4 Insurance Contracts which provided entities with dispensation to account for insurance contracts (particularly measurement) using local actuarial practice, resulting in a multitude of different approaches.
The overall objective of IFRS 17 is to provide a more useful and consistent accounting model for insurance contracts among entities issuing insurance contracts globally. The standard requires an entity to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. A general measurement model (GMM) will be applied to long-term insurance contracts, and is based on a fulfilment objective (risk- adjusted present value of best estimate future cash flows) and uses current estimates, informed by actual trends and investment markets. IFRS 17 establishes what is called a contractual service margin (CSM) in the initial measurement of the liability which represents the unearned profit on the contract and results in no gain on initial recognition. The CSM is released over the life of the contract, but interest on the CSM is locked in at inception rates. The CSM will be utilised as a “shock absorber” in the event of changes to best estimate cash flows. On loss making (onerous) contracts, no CSM is set up and the full loss is recognised at the point of contract inception. The GMM is modified for contracts which have participation features.
An optional simplified premium allocation approach (PAA) is available for all contracts that are less than 12 months at inception. The PAA is similar to the current unearned premium reserve profile over time.
The requirement to eliminate all treasury shares has been amended such that treasury shares held for a group of direct participating contracts or investment funds are not required to be eliminated and can be accounted for as financial assets.
These requirements will provide transparent reporting about an entity’s financial position and risk and will provide metrics that can be used to evaluate the performance of insurers and how that performance changes over time. An entity may re- assess its classification and designation of financial instruments under IFRS 9, on adoption of IFRS 17.
The standard will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.
Title: IAS 1 Presentation of Financial Statements (amendment) Effective date: 1 January 2022 with earlier application permitted The amendment clarifies how to classify debt and other liabilities as current or non-current. The objective of the amendment is aimed to promote consistency in applying the requirements by helping entities determine whether, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendment also includes clarifying the classification requirements for debt an entity might settle by converting it into equity. These are clarifications, not changes, to the existing requirements, and so are not expected to affect entities’ financial statements significantly. However, these clarifications could result in reclassification of some liabilities from current to non-current, and vice versa. The amendment will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 224 ANNUAL FINANCIAL STATEMENTS
Annexure G – six year review
Consolidated statement of financial position
2019 2019 2019 CAGR** 2019 2018 2017 2016 2015 2014 USDm* GBPm* EURm* % Rm Rm Rm Rm Rm Rm
Assets Cash and balances with central banks 5 377 4 088 4 796 3 75 288 85 145 75 310 77 474 75 112 64 302 Financial investments, trading and pledged assets 58 529 44 499 52 202 9 819 498 749 517 714 993 632 396 607 352 537 146 Loans and advances 84 352 64 132 75 234 5 1 181 067 1 119 547 1 048 027 1 065 405 1 076 917 928 241 Current and deferred taxation assets 348 264 310 17 4 868 4 519 2 109 2 467 2 415 2 213 Derivative and other assets 7 235 5 501 6 453 4 101 308 74 192 98 606 87 851 131 741 82 324 Disposal group assets classified as held for sale 186 141 166 (59) 2 599 762 219 958 Interest in associates and joint ventures 387 294 345 8 5 423 10 376 9 665 8 196 9 703 3 727 Goodwill and other intangible assets 1 594 1 212 1 422 1 22 323 23 676 23 329 23 675 24 031 21 175 Property and equipment 1 573 1 196 1 403 6 22 018 19 194 16 179 16 041 17 670 16 737 Investment property 2 441 1 856 2 177 5 34 180 33 326 32 226 31 155 30 508 27 022 Policyholders’ assets 501 381 447 2 7 017 6 708 7 484 7 314 7 579 6 507 Total assets 162 523 123 564 144 955 2 275 589 2 126 962 2 027 928 1 951 974 1 983 028 1 909 352 Equity and liabilities Equity 14 961 11 375 13 344 5 209 484 199 063 190 017 179 359 178 908 161 634 Equity attributable to ordinary shareholders 12 229 9 298 10 907 5 171 229 165 061 157 020 150 757 151 069 136 985 Equity attributable to other equity instrument holders 785 597 700 15 10 989 9 047 9 047 5 503 5 503 5 503 Non-controlling interests 1 947 1 481 1 737 7 27 266 24 955 23 950 23 099 22 336 19 146 Liabilities 147 562 112 190 131 611 3 2 066 105 1 927 899 1 839 911 1 772 615 1 804 120 1 747 718 Deposit and debt funding 101 859 77 441 90 848 6 1 426 193 1 357 537 1 243 911 1 213 621 1 186 514 1 047 212 Derivative and other liabilities 13 827 10 512 12 332 6 193 599 164 527 175 324 169 583 232 569 146 558 Trading liabilities 5 988 4 553 5 341 14 83 847 59 947 62 855 47 867 43 304 43 761 Current and deferred taxation liabilities 648 493 578 9 073 8 015 8 614 8 317 9 398 8 980 Non-current liabilities held for sale 18 13 16 (73) 246 237 182 069 Subordinated debt 2 064 1 569 1 841 3 28 901 26 359 24 289 25 997 27 141 25 521 Policyholders’ liabilities 23 158 17 607 20 654 2 324 246 311 277 322 918 307 230 305 194 293 617
Total equity and liabilities 162 523 123 564 144 955 2 275 589 2 126 962 2 027 928 1 951 974 1 983 028 1 909 352
* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the closing exchange rates. The foreign-denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. ** Compound annual growth rate. 1 Restated. Refer to page 31 for more details on the restatements.
Exchange rates (rounded) utilised to convert the 31 December 2019 statement of financial position rand exchange rates (closing):
USD – 14.00 (2018: 14.38) GBP – 18.42 (2018: 18.31) EUR – 15.70 (2018: 16.44) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 225
Consolidated statement of financial position
2019 2019 2019 CAGR** 2019 2018 2017 2016 2015 2014 USDm* GBPm* EURm* % Rm Rm Rm Rm Rm Rm
Assets Cash and balances with central banks 5 377 4 088 4 796 3 75 288 85 145 75 310 77 474 75 112 64 302 Financial investments, trading and pledged assets 58 529 44 499 52 202 9 819 498 749 517 714 993 632 396 607 352 537 146 Loans and advances 84 352 64 132 75 234 5 1 181 067 1 119 547 1 048 027 1 065 405 1 076 917 928 241 Current and deferred taxation assets 348 264 310 17 4 868 4 519 2 109 2 467 2 415 2 213 Derivative and other assets 7 235 5 501 6 453 4 101 308 74 192 98 606 87 851 131 741 82 324 Disposal group assets classified as held for sale 186 141 166 (59) 2 599 762 219 958 Interest in associates and joint ventures 387 294 345 8 5 423 10 376 9 665 8 196 9 703 3 727 Goodwill and other intangible assets 1 594 1 212 1 422 1 22 323 23 676 23 329 23 675 24 031 21 175 Property and equipment 1 573 1 196 1 403 6 22 018 19 194 16 179 16 041 17 670 16 737 Investment property 2 441 1 856 2 177 5 34 180 33 326 32 226 31 155 30 508 27 022 Policyholders’ assets 501 381 447 2 7 017 6 708 7 484 7 314 7 579 6 507 Total assets 162 523 123 564 144 955 2 275 589 2 126 962 2 027 928 1 951 974 1 983 028 1 909 352 Equity and liabilities Equity 14 961 11 375 13 344 5 209 484 199 063 190 017 179 359 178 908 161 634 Equity attributable to ordinary shareholders 12 229 9 298 10 907 5 171 229 165 061 157 020 150 757 151 069 136 985 Equity attributable to other equity instrument holders 785 597 700 15 10 989 9 047 9 047 5 503 5 503 5 503 Non-controlling interests 1 947 1 481 1 737 7 27 266 24 955 23 950 23 099 22 336 19 146 Liabilities 147 562 112 190 131 611 3 2 066 105 1 927 899 1 839 911 1 772 615 1 804 120 1 747 718 Deposit and debt funding 101 859 77 441 90 848 6 1 426 193 1 357 537 1 243 911 1 213 621 1 186 514 1 047 212 Derivative and other liabilities 13 827 10 512 12 332 6 193 599 164 527 175 324 169 583 232 569 146 558 Trading liabilities 5 988 4 553 5 341 14 83 847 59 947 62 855 47 867 43 304 43 761 Current and deferred taxation liabilities 648 493 578 9 073 8 015 8 614 8 317 9 398 8 980 Non-current liabilities held for sale 18 13 16 (73) 246 237 182 069 Subordinated debt 2 064 1 569 1 841 3 28 901 26 359 24 289 25 997 27 141 25 521 Policyholders’ liabilities 23 158 17 607 20 654 2 324 246 311 277 322 918 307 230 305 194 293 617
Total equity and liabilities 162 523 123 564 144 955 2 275 589 2 126 962 2 027 928 1 951 974 1 983 028 1 909 352
* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the closing exchange rates. The foreign-denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. ** Compound annual growth rate. 1 Restated. Refer to page 31 for more details on the restatements.
Exchange rates (rounded) utilised to convert the 31 December 2019 statement of financial position rand exchange rates (closing):
USD – 14.00 (2018: 14.38) GBP – 18.42 (2018: 18.31) EUR – 15.70 (2018: 16.44) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 226 ANNUAL FINANCIAL STATEMENTS ANNEXURE G – SIX-YEAR REVIEW CONTINUED
Consolidated income statement
2019 2019 2019 CAGR** 2019 2018 2017 2016 2015 2014 USDm* GBPm* EURm* % Rm Rm Rm Rm Rm Rm Net interest income1 4 357 3 414 3 893 7 62 919 59 505 60 125 56 892 49 310 45 152 Non-interest revenue 3 292 2 580 2 942 4 47 542 45 826 42 574 42 965 41 803 38 891 Net fee and commission revenue 2 121 1 662 1 895 3 30 622 30 375 28 670 29 012 26 920 26 079 Trading revenue1 836 655 747 5 12 075 10 799 10 731 10 988 11 016 9 294 Other revenue1 283 222 253 3 4 089 3 863 3 173 2 965 3 867 3 518 Other gains and losses on financial instruments 52 41 47 2 756 789 Income from banking activities 7 649 5 994 6 835 6 110 461 105 331 102 699 99 857 91 113 84 043 Income from investment management and life insurance activities 1 632 1 279 1 459 (3) 23 573 21 722 24 394 21 365 23 997 21 209 Insurance premiums received 2 756 2 160 2 463 44 39 801 38 521 38 020 1 750 688 (6 476) Revenue from contracts with customers 282 221 252 4 076 4 073 Interest income 133 104 119 5 1 920 1 516 Insurance benefits and claims paid (3 064) (2 401) (2 737) (44 241) (26 484) (43 848) Investment management and service fee income and gains 225 176 201 (39) 3 245 3 533 43 957 22 887 36 791 38 743 Fair value adjustments to investment management liabilities and third-party fund interests 1 300 1 019 1 161 11 18 772 563 (13 735) (3 272) (13 482) (11 058)
Total income 9 281 7 273 8 294 4 134 034 127 053 127 093 121 222 115 110 105 252 Credit impairment charges (552) (432) (493) (2) (7 964) (6 489) (9 410) (9 533) (9 371) (9 009) Income after credit impairment charges 8 729 6 841 7 801 4 126 070 120 564 117 683 111 689 105 739 96 243 Operating expenses in banking activities (4 317) (3 382) (3 857) 6 (62 335) (60 084) (57 049) (56 235) (51 434) (46 596) Operating expenses in insurance activities (1 142) (895) (1 020) 3 (16 486) (16 404) (17 800) (17 374) (16 184) (14 546) Net income before non-trading and capital related items 3 270 2 564 2 924 3 47 249 44 076 42 834 38 080 38 121 35 101 Non-trading and capital related items (200) (157) (179) 24 (2 890) (641) (261) (1 123) (1 512) 986 Share of post tax results from associates and joint ventures (35) (28) (32) (4) (512) 912 1 102 187 (323) 626 Net income before indirect taxation 3 035 2 379 2 713 43 847 44 347 43 675 37 144 36 286 36 713 Indirect taxation (139) (109) (124) (4) (2 592) (2 609) (2 481) (2 418) (2 739) (2 439) Profit before direct taxation 2 896 2 270 2 589 (1) 41 255 41 738 41 194 34 726 33 547 34 274 Direct taxation (546) (428) (488) (10 559) (9 095) (10 479) (8 932) (8 187) (8 061) Profit for the year from continuing operations 2 350 1 842 2 101 3 30 696 32 643 30 715 25 794 25 360 26 213 Profit/(loss) for the year from discontinued operation 2 741 (4 048) Profit for the year 2 350 1 842 2 101 7 30 696 32 643 30 715 25 794 28 101 22 165 Attributable to non-controlling interests and other equity instrument holders 364 285 325 4 5 253 5 190 4 480 (3 588) (4 347) (4 260) Attributable to group ordinary shareholders 1 762 1 381 1 574 7 25 443 27 453 26 235 22 206 23 754 17 905 Headline earnings 1 953 1 531 1 745 6 28 207 27 865 26 270 23 009 22 187 20 882
* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the average exchange rates. The foreign-denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. ** Compound annual growth rate. 1 Restated. Refer to page 31 for more details on the restatements.
Exchange rates (rounded) utilised to convert the 31 December 2019 income statement rand exchange rates – (average):
ZAR exchange rates – (average)
USD 14.44 (2018: 13.23) GBP 18.43 (2018: 17.63) EUR 16.16 (2018: 15.60) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 227
Consolidated income statement
2019 2019 2019 CAGR** 2019 2018 2017 2016 2015 2014 USDm* GBPm* EURm* % Rm Rm Rm Rm Rm Rm Net interest income1 4 357 3 414 3 893 7 62 919 59 505 60 125 56 892 49 310 45 152 Non-interest revenue 3 292 2 580 2 942 4 47 542 45 826 42 574 42 965 41 803 38 891 Net fee and commission revenue 2 121 1 662 1 895 3 30 622 30 375 28 670 29 012 26 920 26 079 Trading revenue1 836 655 747 5 12 075 10 799 10 731 10 988 11 016 9 294 Other revenue1 283 222 253 3 4 089 3 863 3 173 2 965 3 867 3 518 Other gains and losses on financial instruments 52 41 47 2 756 789 Income from banking activities 7 649 5 994 6 835 6 110 461 105 331 102 699 99 857 91 113 84 043 Income from investment management and life insurance activities 1 632 1 279 1 459 (3) 23 573 21 722 24 394 21 365 23 997 21 209 Insurance premiums received 2 756 2 160 2 463 44 39 801 38 521 38 020 1 750 688 (6 476) Revenue from contracts with customers 282 221 252 4 076 4 073 Interest income 133 104 119 5 1 920 1 516 Insurance benefits and claims paid (3 064) (2 401) (2 737) (44 241) (26 484) (43 848) Investment management and service fee income and gains 225 176 201 (39) 3 245 3 533 43 957 22 887 36 791 38 743 Fair value adjustments to investment management liabilities and third-party fund interests 1 300 1 019 1 161 11 18 772 563 (13 735) (3 272) (13 482) (11 058)
Total income 9 281 7 273 8 294 4 134 034 127 053 127 093 121 222 115 110 105 252 Credit impairment charges (552) (432) (493) (2) (7 964) (6 489) (9 410) (9 533) (9 371) (9 009) Income after credit impairment charges 8 729 6 841 7 801 4 126 070 120 564 117 683 111 689 105 739 96 243 Operating expenses in banking activities (4 317) (3 382) (3 857) 6 (62 335) (60 084) (57 049) (56 235) (51 434) (46 596) Operating expenses in insurance activities (1 142) (895) (1 020) 3 (16 486) (16 404) (17 800) (17 374) (16 184) (14 546) Net income before non-trading and capital related items 3 270 2 564 2 924 3 47 249 44 076 42 834 38 080 38 121 35 101 Non-trading and capital related items (200) (157) (179) 24 (2 890) (641) (261) (1 123) (1 512) 986 Share of post tax results from associates and joint ventures (35) (28) (32) (4) (512) 912 1 102 187 (323) 626 Net income before indirect taxation 3 035 2 379 2 713 43 847 44 347 43 675 37 144 36 286 36 713 Indirect taxation (139) (109) (124) (4) (2 592) (2 609) (2 481) (2 418) (2 739) (2 439) Profit before direct taxation 2 896 2 270 2 589 (1) 41 255 41 738 41 194 34 726 33 547 34 274 Direct taxation (546) (428) (488) (10 559) (9 095) (10 479) (8 932) (8 187) (8 061) Profit for the year from continuing operations 2 350 1 842 2 101 3 30 696 32 643 30 715 25 794 25 360 26 213 Profit/(loss) for the year from discontinued operation 2 741 (4 048) Profit for the year 2 350 1 842 2 101 7 30 696 32 643 30 715 25 794 28 101 22 165 Attributable to non-controlling interests and other equity instrument holders 364 285 325 4 5 253 5 190 4 480 (3 588) (4 347) (4 260) Attributable to group ordinary shareholders 1 762 1 381 1 574 7 25 443 27 453 26 235 22 206 23 754 17 905 Headline earnings 1 953 1 531 1 745 6 28 207 27 865 26 270 23 009 22 187 20 882
* The foreign-denominated results above have been derived from the group’s audited ZAR results by using the average exchange rates. The foreign-denominated results above have not been audited and have been presented for illustrative purposes only. This illustration would not be equivalent to that which would have resulted had the group presented its results in a currency other than ZAR in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. ** Compound annual growth rate. 1 Restated. Refer to page 31 for more details on the restatements.
Exchange rates (rounded) utilised to convert the 31 December 2019 income statement rand exchange rates – (average):
ZAR exchange rates – (average)
USD 14.44 (2018: 13.23) GBP 18.43 (2018: 17.63) EUR 16.16 (2018: 15.60) WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 228 ANNUAL FINANCIAL STATEMENTS ANNEXURE G – SIX-YEAR REVIEW CONTINUED
Share statistics and market indicators
CAGR** 2019 2018 2017 2016 2015 2014 % Rm Rm Rm Rm Rm Rm
Share statistics Dividend cover times 1.8 1.8 1.8 1.9 2.0 1.8 Dividend yield % 7 5.9 5.4 4.7 5.1 5.9 4.2 Earnings yield % 7 10.5 9.8 8.4 9.5 12.0 7.5 Price earnings ratio times (41) 9.5 10.2 11.9 10.5 8.3 13.4 Price-to-book times (2) 1.6 1.8 2.0 1.6 1.2 1.7 Number of shares traded millions (27) 1 650.9 1 618.5 1 584.4 1 271.8 1 052.8 798 Turnover in shares traded % 16 102 102 98 79 65 49 Market capitalisation Rm 3 268 302 289 723 316 826 245 595 183 672 232 203 Market indicators at 31 December Standard Bank Group share price High for the year cents 7 21 022 23 100 20 000 15 748 17 700 14 930 Low for the year cents 7 15 860 15 392 13 401 9 700 9 480 11 416 Closing cents 3 16 832 17 881 19 566 15 175 11 350 14 348 Prime overdraft rate (closing) % 2 10.00 10.25 10.25 10.50 9.75 9.25 JSE All Share Index – (closing) 3 57 084 52 081 59 505 50 654 50 694 49 771 JSE Banks Index – (closing) 4 87 310 91 617 96 187 77 545 61 072 72 998 ZAR exchange rates – (closing) USD 4 14.00 14.38 12.31 13.69 15.50 11.57 GBP 18.42 18.31 16.55 16.94 22.93 18.02 EUR 2 15.70 16.44 14.70 14.43 16.86 14.01 ZAR exchange rates – (average) USD 6 14.44 13.23 13.30 14.69 12.75 10.84 GBP 1 18.43 17.63 17.13 19.96 19.49 17.85 EUR 2 16.16 15.60 15.02 16.26 14.14 14.39
Results and ratios
CAGR 2019 2018 2017 2016 2015 2014 % Rm Rm Rm Rm Rm Rm
Standard Bank Group Share statistics Number of ordinary shares listed on the JSE (millions) Weighted average 0.0 1 594 1 594 1 602 1 598 1 597 1 585 End of period 0.0 1 594 1 590 1 597 1 597 1 601 1 578 Share statistics per ordinary share (cents) Basic earnings cents 7.1 1 593.5 1 722.6 1 637.8 1 389.8 1 487.0 1 129.9 Headline earnings cents 10.3 1 766.7 1 748.4 1 640.0 1 440.1 1 388.9 1 081.4 Dividends cents 10.7 994 970 910 780 674 598 Net asset value cents 4.3 10 741.6 10 380 9 830 9 442 9 434 8 682 ROE % 5.2 16.8 18.0 17.1 15.3 15.6 13.0 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 229
Capital adequacy, employee and other relevant statistics
CAGR** 2019 2018 2017 2016 2015 2014 % Rm Rm Rm Rm Rm Rm
Capital adequacy1 Risk-weighted assets Rm 2 1 099 528 923 016 957 046 883 179 944 039 915 213 Tier I capital2 Rm 7 147 981 151 925 136 293 126 188 125 710 117 970 Total capital2 Rm 5 169 983 172 289 153 243 146 318 147 998 141 963 Tier I capital to risk-weighted assets3 % 13.46 14.1 14.2 14.3 13.3 12.9 Total capital to risk-weighted assets3 % 15.46 16.0 16.0 16.6 15.7 15.5 Employee statistics Number of employees Banking activities 44 996 47 419 48322 48 622 47 958 42 642 Group 50 691 53 178 54558 54 767 54 361 49 259 Normalised headline earnings per employee Rm 8 556 450 523 995 481 506 420 125 404 739 355 635 Points of representation ATMs and ANAs* 8970 7 239 7 362 7 189 7 193 7 065 Banking branches and service centres 1114 1 200 1 212 1 211 1 221 1 233 Social investment and environment Corporate social investment spend2 Rm 0.1 141.2 106.0 95.7 115.9 115.0 Carbon footprint 2 (metric tons CO2) 243 132 252 092 281 264 324 637 309 017
1 In accordance with Basel II principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base of the banking group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is not recognised in group capital. 2 South African banking activities only. 3 Capital includes unappropriated profit. * Automated. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 230 ANNUAL FINANCIAL STATEMENTS
Annexure H – third-party funds under management
Third-party assets under management and funds under administration Members of the group provide discretionary and non-discretionary investment management services to institutional and private investors. Commissions and fees earned in respect of trust and management activities performed are included in profit or loss. Assets managed and funds administered on behalf of third-parties include:
2019 2018 Rbn Rbn Banking activities Asset management 260 371 Trusts and estates 1 64 Unit trusts/collective investments 33 28 Segregated funds 21 98 Portfolio management 201 176 Other 4 5
Fund administration 295 363 Unit trusts/collective investments 29 62 Segregated funds 0 31 Portfolio management 29 47 Other 237 223
Total 555 734 Geographical area South Africa 71 71 Africa Regions 400 544 International 84 119
Liberty Asset management 66 55 Segregated funds 66 55 Wealth management – funds under administration 334 337 Single manager unit trust 133 122 Institutional marketing 64 64 Linked and structured life products 88 80 Multi-manager 21 20 Rest of Africa 28 51
Total Liberty 400 392 Total assets under management and funds under administration 955 1 126
Included in the balances above are funds for which the fund value is determined using directors’ valuations. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 231 WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b 232 ANNUAL FINANCIAL STATEMENTS SECTION HEADING CONTINUED WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b STANDARD BANK GROUP Annual financial statements 2019 233
CONTACT AND OTHER DETAILS
Standard Bank Group Limited Registration No. 1969/017128/06 Incorporated in the Republic of South Africa
Investor relations Group financial director Group secretary Sarah Rivett-Carnac Arno Daehnke Zola Stephen Tel: +27 11 631 6897 Tel: +27 11 636 3756 Tel: +27 11 631 9106
Registered office Please direct all annual report 9th Floor, Standard Bank Centre queries and comments to: 5 Simmonds Street, Johannesburg 2001 [email protected] PO Box 7725, Johannesburg 2000 Please direct all customer-related www.standardbank.com queries and comments to: [email protected]
Please direct all investor relations queries and comments to: [email protected]
Disclaimer This document contains certain statements that are ‘forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward- looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon. WorldReginfo - eae09c23-c191-467e-b839-ed7c772a024b GOVERNANCE AND REMUNERATION REPORT 2019
Cover Standard Bank Group
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